Q4 2023 Flushing Financial Corporation Earnings Call
[music].
Welcome to the financial logic, excuse me five Flushing financial Corporation's full year and fourth quarter 2023 earnings conference call.
Hosting the call today are John Buran, President and Chief Executive Officer.
Tom Bunny you toe senior executive Vice President Chief of staff and deposit channel Executive and Susan Cullen Senior Executive Vice President Chief Financial Officer and Treasurer.
Today's call is being recorded.
All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the Starkey followed by zero.
After todays presentation, there will be an opportunity to ask questions.
To ask a question you May press Star then one on your telephone keypad to withdraw your question. Please press Star then two.
A copy of the earnings press release, and slide presentation that the company will be referencing today are available on its investor Relations website at Flushing Bank Dotcom.
Before we begin the company would like to remind you that discussions during this call contain forward looking statements made under the safe Harbor provisions of the U S. Private Securities Litigation Reform Act of 1995.
Such statements are subject to risks uncertainties and other factors that may cause actual results to differ materially from those contained in any such statements, including as set forth in the company's filings with the U S Securities and Exchange Commission to which we refer you.
During this call references will be made to non-GAAP financial measures as supplemental measures to review and assess operating performance. These non-GAAP financial measures are not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with U S. GAAP.
For information about these non-GAAP measures and for a reconciliation to GAAP. Please refer to the earnings release and the presentation.
I would now like to introduce John Buran, President and Chief Executive Officer, who will provide an overview of the strategy and results. Please go ahead.
Thank you operator, good morning, and thank you for joining us for our full year and fourth quarter 2023 earnings call.
Before reviewing the highlights of the quarter I wanted to spend a minute discussing the restatements announced yesterday.
As we previously disclosed we have received approximately $7 million or about 17 cents per share of employee retention tax credit payments and 2023.
In keeping with our conservative risk profile, we fully reserved for this amount given the uncertainty in the government program, which arose late in 2023.
This is despite our belief that more likely than not we will recognize these payments.
The 2023 quarters have been restated to account for this change and this reserve is included in both GAAP and core earnings.
Now moving to the highlights of the quarter.
The company reported fourth quarter 2023, GAAP EPS of 27 cents and core EPS of 25 cents for the year GAAP EPS was <unk> 96 cents and core EPS was 983 cents.
GAAP and core NIM expanded by seven and 18 basis points, respectively in the fourth quarter.
Core loan yields increased 33 basis points.
We run a conservative balance sheet and our office real estate exposure is low was minimal loans in Manhattan.
Our liquidity profile has also improved with over $4 billion of Undrawn lines and resources or 48% of total assets.
Overall, the quarter showed progress on how we're managing this challenging environment.
Turning to slide four I wanted to provide additional detail on how the company has changed over the past year and how it should remain the same.
Our interest rate risk position has moved closer to neutral.
This provided immediate income in 'twenty twenty-three when rates increase rapidly.
The move to neutral positioned the bank to manage future changes in rates, while reducing earnings volatility over different rate cycles.
We have options to modify the rate position as appropriate.
But do not expect to operate at the level of liability sensitivity as we did in the past.
What has remained the same as our low level of risk in our loan portfolio.
We're a conservative lender.
Our percentage of office loans to total loans is at the low end of our peer group.
About a third of these loans are medical offices and less than 1% of loans are secured by Manhattan office buildings.
We're very happy with our low risk profile.
As it has served us well through many cycles.
Slide five depicts how we have executed our action plan and how we will adjust our priorities in 2024.
Our action plan is both focused on moving towards interest rate neutral, which we largely completed using interest rate hedges and adding floating rate assets.
These actions also had a significant positive impact on our net interest income as we will review in detail later in the presentation.
Another one of our objectives was to increase the focus on risk adjusted returns and improving lending spreads well we achieved progress in this area was loan yields expanding we recognize we have more work to do in 'twenty 'twenty four.
We also had a goal of deepening customer relationships.
Our growth in noninterest bearing deposits in the second half of the year underscores our progress in this area and we expect this momentum to continue into 'twenty 'twenty four.
Given our significant progress to date, we're expanding our areas of focus to ensure our long term success.
The first area of focus is on increasing the NIM and reducing volatility.
Well this is a multi year initiative, we achieved progress in the fourth quarter of 2023 is our NIM, excluding the episodic items mentioned.
On this slide expanded five basis points quarter over quarter.
We also focused on maintaining our credit discipline, our credit profile has always been conservative.
And our risk profile will not change as we advance our lending strategy.
Building on this we will preserve our strong liquidity and capital profile.
We have a strong financial position today with over $4 billion of Undrawn lines and resources, we will continue to build on this foundation in 2024.
Lastly, in 2020, three we tightened expenses significantly where we could.
And this will be an even greater or greater focus in 2024.
While fourth quarter expenses were higher than expected they were driven by increasing DDA balances and strong loan production.
Good type of expenses.
We will continue to review our cost structure to look for opportunities to become more efficient as we move through the year.
Overall these expanded areas of focus will allow us to navigate the current environment, while positioning the company for long term profitability.
Our loan portfolio as outlined on slide six where a low risk lender was 89% of the portfolio secured by real estate.
Our high quality multifamily and investor commercial real estate loans comprised 67% of the total portfolio.
As a reminder, these two portfolios have a weighted average debt service coverage ratio of 1.8 times and our weighted average loan to value of less than 50%.
We have minimal exposure to Manhattan office buildings, which represent approximately six tenths of a percent of net loans.
In general the real estate portfolio has strong sponsor support.
An excellent credit performance.
We remain very comfortable with the quality of our loan portfolio and our stress tests have indicated that our borrowers are resilient.
I want to provide context on how we approach our real estate portfolio and why we're so confident in its stability.
Slide seven shows two types of multifamily buildings, which as you can see are on opposite ends of the spectrum.
The picture on the left is similar to the typical multifamily building in our portfolio. This is a building that has a mix of rent regulated apartments and market rents.
The average monthly rent in our portfolio is approximately 1006 hundred $45 compared to over $3000 for market rents.
The total portfolio for these types of buildings is approximately 3 billion with an average loan size of just over $1 million and a weighted average loan to value of 56% implying.
Implying a granular mix.
Simply put the type of building we have in our portfolio is stable low risk and resilient to market volatility.
Contrast, this with a building on the right.
Which does not match our risk profile, while this building might look flashy. It's also more upmarket and there's greater swings and monthly rent rates.
This type of multifamily building is more exposed to market cycles.
We have a history of conservative underwriting of multifamily properties when interest rates were low during the pandemic of 2020, we underwrote these loans with cap rates at 5% or higher which provides a cushion in value when rates rise and cap rates increase.
Also we underwrite loans at origination to absorb higher interest rates and each loan is stress test.
This is one of the reasons why our weighted average debt service coverage ratios are at 1.8 times for this portfolio.
This high level of coverage reduces risk in this portfolio.
Yeah.
As I just mentioned many of our buildings have a mix of market and rent regulated apartments regulated apartment rents are subject to the rent guidelines standards Board approved annual increases, which is why we prioritize having buildings with a mix of market and rent regulated unit.
It's <unk>.
Loans that include rent regulated apartments are about 65% multifamily loans.
We have not had annual net charge offs of more than five basis points since 2014 in this portfolio.
Our conservative underwriting has and will continue to serve us well.
Slide eight shows the types of office properties, we lend against and the types, we do not.
We lend against medical and health care offices.
And largely outer borough single and multi tenant properties again these types of properties have much more stability through market cycles.
We do not lend against high rise office buildings that have much more volatility as evidenced by recent market dynamics.
The total office portfolio is approximately 257 million with $118 million, a multi tenant $96 million of health care, and medical and $43 million or single tenant.
Our average office alone is about $3 million.
With a weighted average loan to value of 50% and a weighted average debt service coverage ratio of one eight times.
We have zero.
Nonaccrual office loans.
Slide nine shows examples of the retail commercial real estate, we lend to and the types of properties, we do not this.
This portfolio is about $900 million with a significant portion located in Queens, Brooklyn, and the Bronx.
These properties are typically strip malls, rather than large shopping malls.
The businesses are usually vital to the communities that they serve.
Portfolio has a weighted average loan to value of 53% and debt service coverage ratio of approximately one nine times.
The average loan is about $2 million.
Credit performance is solid and less than 20% of the loan portfolio as rate resets through at the end of 'twenty 'twenty four.
We believe this high quality portfolio plays a vital role in servicing the needs of local communities on a day to day basis.
As you can see across our real estate portfolio, we prioritize the same key factors limited risk exposure resilience and strong and stable borrowers.
Our disciplined risk management approach gives us confidence in the long term success of our real estate portfolio.
Turning to slide 10.
You can see the results of our underwriting over time, our net charge off history is shown on the left we have a strong history of achieving net charge off levels that are significantly better than the industry.
The same can be said about our level of non current loans compared to the industry.
We have been and continue to be a conservative underwriter of credit.
In a stress scenario consisting of a 200 basis point increase in rates, a 10% increase in operating expenses. Our loan portfolio is a 1.2 times debt service coverage ratio.
Given this we continue to expect minimal loss content within the portfolio.
Slide 11 shows our other credit metrics with a year over year declines in nonperforming assets and an increase in the nonperforming loan coverage ratio.
Criticized and classified loans were relatively flat during the quarter.
And we expect the criticized and classified loans to gross loans to remain below peer levels.
Our allowance for credit losses as presented by loan segment in the bottom right chart.
Overall, the allowance for credit losses to loans ratio was stable at 58 basis points during the quarter, we remained very comfortable.
It was our credit risk profile.
I'll now turn it over to Tom to provide more detail.
On our other financial metrics Tom.
Thank you John.
I will begin on slide 12, which outlines the net interest income and margin trends. The GAAP net interest margin expanded seven basis points to 2.29% during the fourth quarter, while the core net interest margin increased 18 basis points to 231%.
Contributing to the GAAP and core NIM expansion were $3 million of prepayment penalty income.
Net reversals and recovered interest from nonaccrual loans.
Purchase accounting accretion and customer swap termination fees in the fourth quarter compared to $2.6 million in the third quarter.
Absent these items, the NIM expanded five basis points quarter over quarter, which is the first time the quarterly NIM expanded sequentially since the second quarter of 2022.
There are two primary factors that should drive the NIM in the near term.
First is the level of loan originations and repricing.
Second is how well, we retain and reprice maturing Cds.
With the market expecting rate cuts. This year, we estimate every 25 basis point reduction in rates would impact net interest income by approximately $1.4 million on an annualized basis, assuming no deposit rate lag.
For the fifth consecutive quarter yields on loan closings exceeded yields on satisfaction and this spread increased in every quarter.
Turning to slide 13, as John mentioned previously we added interest rate hedges in 2023 to help neutralize the balance sheet to increases in interest rates the.
Unnamed Host: Welcome to Flushing Financial Corporation's full year and fourth quarter 2023 earnings conference call. Hosting the call today are John Buran, President and Chief Executive Officer, Tom Boniuto, Senior Executive Vice President, Chief of Staff, and Deposit Channel Executive, and Susan Cullen, Senior Executive Vice President, Chief Financial Officer, and Treasurer. Today's call is being recorded, and all participants will be in listen-only mode.
The overall interest rate hedge portfolio is approximately $2 billion and does not have any significant maturities in 'twenty 'twenty four.
These interest rate hedges provided immediate income and help navigate the rapidly rising rate environment.
In a falling rate environment. The income from the interest rate hedges will decline, but there are potential offsets and the balance sheet.
Unnamed Host: Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your telephone keypad.
Bottom line the interest rate hedges helped mitigate NIM compression from rising rates and provided immediate income.
Unnamed Host: To withdraw your question, please press star then 2. A copy of the earnings press release and slide presentation that the company will be referencing today is available on its investor relations website at FlushingBank.com. Before we begin, the company would like to remind you that the discussions during this call contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Such statements are subject to risks, uncertainties, and other factors that may cause actual results to differ materially from those contained in any such statements, including as set forth in the company's filings with the U.S. Securities and Exchange Commission, to which we refer you. During this call, references will be made to non-GAAP financial measures as supplemental measures to review and assess operating performance. These non-GAAP financial measures are not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with U.S. GAAP.
Slide 14 provides more detail on our deposits.
Average deposits increased 3% year over year, and 1% quarter over quarter.
The quarterly increase was partially attributable to seasonality and our focus on noninterest bearing deposits.
Average noninterest bearing deposits increased $22 million or 3% quarter over quarter and remains a top priority for the company.
Average Cds increased two 2% quarter over quarter to $2 billion.
Checking account openings declined 7% in the quarter, but increased 6% in 'twenty to 'twenty three.
Overall, we are seeing strong account opening trends and are confident we will continue to build our customer base next year.
Our loan to deposit ratio has improved to 101% from 107% a year ago.
Slide 15 provides more detail on our CD portfolio total Cds are over $2 billion or 34% of total deposits at December 31 2023.
Unnamed Host: For information about these non-GAAP measures and for a reconciliation to GAAP, please refer to the earnings release or to the presentation. I would now like to introduce John Buran, President and Chief Executive Officer, who will provide an overview of the strategy and results. Please go ahead.
Cds helped to lengthen the duration of our funding.
Over one and a half billion dollars of retail Cds are expected to mature in 'twenty 'twenty four at a rate of four 1%.
John R. Buran: Thank you, operator. Good morning, and thank you for joining us for our full year and fourth quarter 2023 earnings call. Before reviewing the highlights of the quarter, I wanted to spend a minute discussing the restatement announced yesterday. As we previously disclosed, we have received approximately $7 million, or about 17 cents per share, of employee retention tax credit payments in 2023. In keeping with our conservative risk profile, we fully reserve for this amount given the uncertainty in the government program which arose late in 2023. This is despite our belief that more likely than not, we will recognize these payments. The 2023 quarters have been restated to account for this change, and this reserve is included in both GAAP and CORE earnings. Now, moving to the highlights of the quarter.
We expect to retain a high percentage of our C. DS as we retained 78% of the retail Cds that matured in the fourth quarter.
Current CD rates range from 5% to 5.45%.
All else equal CD repricing is one of the factors that could pressure our net interest margin.
Well I had 16 provides more detail on the contractual repricing of the loan portfolio.
Approximately $1.3 billion or 18% of loans repriced with each fed move.
Our interest rate hedge position on these loans increases this percentage to 25%.
For 'twenty 'twenty four $744 million is due to reprice at 174 basis points higher than the current yield.
In 2025, and 2026, a combined $1.5 billion of loans will reprice about 200 basis points higher.
John R. Buran: The company reported fourth-quarter 2023 GAP EPS of $0.27 and Core EPS of $0.25. For the year, GAP EPS was $0.96, and Core EPS was $0.83. Gap and Core NIM expanded by 7 and 18 basis points, respectively, in the fourth quarter. Core Loan Yields increased by 33 basis points. We run a conservative balance sheet, and our office real estate exposure is low with minimal loans in Manhattan. Our liquidity profile has also improved with over $4 billion of undrawn lines and resources, or 48% of total assets. Overall, the quarter showed progress on how we're managing this challenging environment.
These rates are based on the underlying index value at December 31, 2023, and do not consider any future rate moves.
This repricing should drive net interest margin expansion once funding costs stabilize.
Our capital position as shown on slide 17.
Book value and tangible book value per share increased year over year and during the fourth quarter.
We repurchased approximately 39000 shares at an average price of $15 an acre.
Which is a 33% discount to tangible book value.
The tangible common equity ratio increased slightly to 7.64%.
John R. Buran: Turning to slide four, I wanted to provide additional detail on how the company has changed over the past year and how it's remained the same. Our interest rate risk position has moved closer to neutral, and this provided immediate income in 2023 when rates increased rapidly.
Quarter over quarter.
Overall, we view our capital base as a sort of source of strength and a vital component of our conservative balance sheet.
Slide 18 provides detail on our Asian markets, which account for a third of our branches.
We have over $1 $3 billion of deposits and $759 million of loans in these markets.
John R. Buran: The move to neutral positions the bank to manage future changes in rates while reducing earnings volatility over different rate cycles. We have options to modify the rate position as appropriate, but we do not expect to operate at the level of liability sensitivity as we did in the past. What has remained the same is our low level of risk in our loan portfolio. We're a conservative lender. Our percentage of office loans to total loans is at the low end of our peer group.
These deposits are 19% of our total deposits and while we have only a 3% market share of this 41 billion dollar market there is substantial room for growth.
Our approach our approach to this market is supported by our multi lingual staff, our Asian Advisory Board and support of cultural activities throughout through participation in corporate sponsorships.
This market continues to be an important opportunity for us and one that we believe will drive our success moving forward.
John R. Buran: About a third of these loans are for medical offices, and less than 1% of loans are secured by Manhattan office buildings. We're very happy with our low-risk profile, as it has served us well through many cycles. Slide 5 depicts how we have executed our action plan and how we will adjust our priorities in 2024. Our action plan is focused on moving towards interest rate neutrality, which we largely completed using interest rate hedges and adding floating rate assets. These actions also had a significant positive impact on our net interest income, as we will review in detail later in the presentation. Another one of our objectives was to increase the focus on risk-adjusted returns and improve lending spreads. While we achieve progress in this area with loan yields expanding, we recognize we have more work to do in 2024. We also have a goal of deepening customer relationships.
On Slide 19, you can see community involvement is a key part of our strategy beyond just our Asian franchise as outlined previously.
During the fourth quarter, we participated in numerous local events to strengthen our ties to our customer base.
Some of our recent highlights include hosting a ribbon cutting ceremony at our Bensonhurst branch, which opened in late September.
And participating in the trunk or treat in hauppauge and toys for tots in Chinatown.
Participating in these types of initiatives has served as a great way to further integrate ourselves within our local communities, while driving customer loyalty.
Slide 20 outlines the growth of our digital banking platforms, we continue to see double digit growth rates and monthly mobile deposit users users with active online banking status and digital banking enrollment.
The numerator platform, which digitally originate small dollar loans as quickly as 48 hours continues to grow.
John R. Buran: Our growth in non-interest-bearing deposits in the second half of the year underscores our progress in this area, and we expect this momentum to continue into 2024. Given our significant progress to date, we're expanding our areas of focus to ensure our long-term success. The first area of focus is on increasing NIM and reducing volatility. While this is a multi-year initiative, we achieved progress in the fourth quarter of 2023.
We originated approximately $19 million of commitments in 2023, and these loans have an average rate greater than the overall loan portfolio yield.
Building off the success, we had with Zelle, we continue to explore other fintech product offerings and partnerships to further enhance our digital banking platform and customer experience.
Slide 21 provides our outlook.
While we do not provide guidance, we want to share our high level perspective on performance in the current environment.
John R. Buran: As our NIM, excluding the episodic items mentioned, expanded five basis points quarter over quarter, we also focused on maintaining our credit discipline. Our credit profile has always been conservative, and our risk profile will not change as we advance our lending strategy.
We continue to expect stable loan balances as is typical we expect certain deposits to experience normal seasonality in the winter months and decline in the summer.
As discussed previously the two biggest drivers of the net interest margin are first the level of loan originations and repricing and second the retention of C DS and at what rate.
John R. Buran: Building on this, we will preserve our strong liquidity and capital profile. We have a strong financial position today with over $4 billion of undrawn lines and resources. We will continue to build on this foundation in 2024. Lastly, in 2023, we tightened expenses significantly where we could, and this will be an even greater focus in 2024. While fourth quarter expenses were higher than expected, they were driven by increasing DDA balances and strong loan production, the good type of expenses.
For modeling purposes, we suggest starting with the NIM and the 215 range as this excludes the outsized prepayment penalty and other episodic fees.
We expect some pressure from this level of the net interest margin in the near term driven from CD repricing exceeding loan originations.
Noninterest income should benefit from the back to back swap loan closings, while noninterest expenses were higher than expected in the fourth quarter, we are bending the expense curve.
John R. Buran: We will continue to review our cost structure to look for opportunities to become more efficient as we move through the year. Overall, these expanded areas of focus will allow us to navigate the current environment while positioning the company for long-term profitability. Our long portfolio is outlined on slide six. We're a low-risk lender with 89% of the portfolio secured by real estate, and high quality multifamily and investor commercial real estate loans comprise 67% of the total portfolio. As a reminder, these two portfolios have a weighted average debt service coverage ratio of 1.8 times and a weighted average loan-to-value of less than 50 percent. We have minimal exposure to Manhattan office buildings, which represent approximately six-tenths of a percent of net loans.
In the first quarter, we have an increase due to seasonal expenses, but these expenses are expected to be less than half of the $4 1 million recorded in the first quarter of 2023 for.
For the past five years noninterest expenses grew at a five 6%.
Compounded annual growth rate.
And 'twenty 'twenty four this growth rate is expected to be in the low to mid single digits from a base of approximately $151 million.
We are controlling the expenses, we can and disciplined expense management remains one of our top priorities in 2024, as we look to drive operating efficiencies.
While tax rates can fluctuate we expect the mid twenty's effective tax rate for 'twenty 'twenty four.
I will now turn it back over to John.
John: Thank you Tom on Slide 22, I will wrap up with our key takeaways, we established our action plan or early 2023 and executed well against it to help create a stronger base to improve profitability over the longer term.
John R. Buran: In general, the real estate portfolio has strong sponsor support and excellent credit performance. We remain very comfortable with the quality of our loan portfolio, and our stress tests have indicated that our borrowers are resilient. I want to provide context on how we approach our real estate portfolio and why we're so confident in its stability. Slide 7 shows two types of multifamily buildings, which, as you can see, are on opposite ends of the spectrum.
John: Given our successful execution, so far we're shifting our areas of focus to increasing the NIM and reducing volatility.
John: Maintaining our credit discipline.
John: Serving our strong liquidity and capital and bending the expense curve in short we're trying to improve near term performance of the areas that we control amid the persistent challenging environment.
John R. Buran: The picture on the left is similar to the typical multifamily building in our portfolio. This is a building that has a mix of rent-regulated apartments and market rents. The average monthly rent in our portfolio is approximately $1,645 compared to over $3,000 for market rent. The total portfolio for these types of buildings is approximately $3 billion with an average loan size of just over $1 million and a weighted average loan-to-value of 56%, implying a granular mix. Simply put,
Speaker Change: We believe these actions will allow us to navigate the current environment and improve overall performance and the long term operator, I'll turn it over to you to open up the line for questions.
Speaker Change: We will now begin the question and answer session to.
Speaker Change: To ask a question you May press Star then one on your telephone keypad.
Speaker Change: If you are using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.
John R. Buran: The type of building we have in our portfolio is stable, low risk, and resilient to market volatility. Contrast this with the building on the right, which does not match our risk profile. While this building might look flashy, it's also more upmarket and has greater swings in monthly rent rates. This type of multifamily building is more exposed to market cycles. We have a history of conservative underwriting on multifamily properties. For example, when interest rates were low during the pandemic of 2020, we underwrote these loans with cap rates at 5% or higher, which provides a cushion in value when rates rise and cap rates increase. Also, we underwrite loans at origination to absorb higher interest rates, and each loan is stress-tested. This is one of the reasons why our weighted average debt service coverage ratios are at 1.8 times for this portfolio. This high level of coverage reduces risk in this portfolio. As I just mentioned, many of our buildings have a mix of market and rent-regulated apartments. Regulated apartment rents are subject to the Rent Guidelines Standards Board-approved annual increases, which is why we prioritize having buildings with a mix of market and rent-regulated units.
Speaker Change: At this time, we will pause momentarily to assemble our roster.
Speaker Change: Our first question comes from Mark Fitzgibbon with Piper Sandler. Please go ahead.
Mark Thomas Fitzgibbon: Hey, guys good morning Happy Friday.
Mark Thomas Fitzgibbon: Good morning, Mark.
Mark Thomas Fitzgibbon: First question is just some clarification on the comments you made around margin so.
Mark Thomas Fitzgibbon: Did you say that you were we should start with a margin level of $2 15 in the first quarter and then assume there'll be compression from there.
Mark Thomas Fitzgibbon: Is that correct. That's the yeah. So that's the core margin that we have that were added as of the fourth quarter. So what's happening in the first in the first quarter as are the number of Cds that are that are repricing will exceed the the loan.
Mark Thomas Fitzgibbon: The loans that are repricing. So we could we could see some some small margin compression in the AR in the first quarter or so by the middle of the year that should abate and start moving the other way is as loans the loan repricing exceeds the liability.
Mark Thomas Fitzgibbon: Repricing.
Speaker Change: And then John I think in your comments you.
Speaker Change: Suggested that you're continuing to reduce liability sensitivity I guess I'm wondering if if it looks like we're getting close to the fed cutting rates and clearly the balance sheet. You know benefits as you've described you know a 1 billion a million for for each 25 basis point cut.
John R. Buran: Loans that include rent-regulated apartments are about 65% of multifamily loans. We have not had annual net charge-offs of more than five basis points since 2014 in this portfolio. Our conservative underwriting has and will continue to serve us well. Slide 8 shows the types of office properties we lend against and the types we do not.
Speaker Change: Why continue to reduce liability sensitivity now why not wait until rates come down and benefit near ride the wave so to speak.
I don't think we're looking to reduce it any further way, we're comfortable being being neutral at this point in time, and obviously the market hasn't done such a great job of predicting the number of rate cuts or Roe or increases.
Speaker Change: So given the fact that historically our balance sheet had a heavy a liability sensitivity and still does today.
John R. Buran: We lend against medical and health care offices and largely out of town, single and multi-tenant properties. Again, these types of properties have much more stability through market cycles. We do not lend against high-rise office buildings that have much more volatility as evidenced by recent market dynamics.
Speaker Change: At its core basis.
Speaker Change: So you know I.
Speaker Change: I think that we have options to increase the liability sensitivity.
In the balance sheet should we see some certainty with respect to the fed moves and.
John R. Buran: The total office portfolio is approximately $257 million, with $118 million of multi-tenant, $96 million of healthcare medical, and $43 million of single-tenant. Our average office loan is about $3 million, with a weighted average loan-to-value of 50% and a weighted average debt service coverage ratio of 1.8 times. We have zero, non-accrual office loans.
Speaker Change: And we're exploring those options.
Speaker Change: So we haven't made any decisions as to the timing and magnitude of or rate cuts at this point in time, and we're watching very carefully what's happening in the market, but we've been disappointed before in terms of the fed making Oh, you know make making cuts. So we wanted to position Russia.
Speaker Change: Shelves to be successful.
Speaker Change: Cesspool in either environment.
Speaker Change: Okay, and then just to just to be clear. The restatement that you did this morning that sort of puts this issue completely behind there is no residual expense impact or anything like that.
John R. Buran: Slide 9 shows examples of the retail commercial real estate we lend to and the types of properties we do not. This portfolio is about $900 million, with a significant portion located in Queens, Brooklyn, and the Bronx. These properties are typically strip malls rather than large shopping malls.
Speaker Change: That's correct Mark.
Speaker Change: It puts the whole issue behind us and and and we move forward from here.
Speaker Change: Okay, and then just on credit.
Speaker Change: You guys have done a nice job in and certainly your balance sheet has held up well I guess at a high level I was curious of sort of two things one what do you guys worry about you know for the industry with respect to credit I'm not necessarily flushing, but just credit in general and in do you see commercial real estate borrowers out there that are really struggling to find a home for free.
John R. Buran: The businesses are usually vital to the communities that they serve. The portfolio has a weighted average loan-to-value of 53% and a service coverage ratio of approximately 1.9 times. The average loan is about two million dollars.
John R. Buran: Credit performance is solid in less than 20% of the loan portfolio as rate resets through at the end of 2024. We believe this high-quality portfolio plays a vital role in servicing the needs of local communities on a day-to-day basis. As you can see, across our real estate portfolio, we prioritize the same key factors, limited risk exposure, resilience, and strong and stable borrowers. Our disciplined risk management approach gives us confidence in the long-term success of our real estate portfolio. Turning to slide 10.
Speaker Change: Their loans are being pushed out by their existing banks.
Speaker Change: We're starting to see somewhat of that activity certainly theres been in the commentary in the press of our various banks pulling back in the commercial real estate areas certainly the office market continues to be a soft market throughout the entire.
Speaker Change: Entire industry. So I think those two things are clearly occurring and we're watchful for opportunities too.
Too.
Speaker Change: Be a little bit more oh focused on on.
Speaker Change: The loan portfolio in the year in the coming quarter. So obviously, we've been kind of flattish over our 2023.
John R. Buran: You can see the results of our underwriting over time. Our net charge-off history is shown on the left. We have a strong history of achieving net charge-off levels that are significantly better than the industry. The same can be said about our level of non-current loans compared to the industry. We have been and continue to be a conservative underwriter of credit. In a stress scenario consisting of a 200 basis point increase in rates and a 10% increase in operating expenses, our loan portfolio has a 1.2 times debt service coverage ratio. Given this, we continue to expect minimal loss content within the portfolio. Slide 11 shows our other credit metrics with year-over-year declines in non-performing assets and an increase in the non-performing loan coverage ratio. However, criticized and classified loans were relatively flat during the quarter, and we expect the criticized and classified loans to gross loans to remain below peer levels. Our allowance for credit losses is presented by loan segment in the bottom right chart. Overall, the allowance for credit losses to loans ratio was stable at 58 basis points during the quarter.
Speaker Change: Thank you.
Speaker Change: Thanks Mark.
Speaker Change: The next question is from Steve Moss with Raymond James. Please go ahead.
Stephen M. Moss: Good morning, everyone.
Stephen M. Moss: Thomas on for Steve guys appreciate it.
Stephen M. Moss: Okay.
Stephen M. Moss: I appreciate all the color you guys provided on C D, but I see money market deposit growth resumed after several quarters of decline and the average yield on that it looks like it ticked up about 25 that you were out to $3, 88% to 3.88%, which looks like to be on the higher end of you know from what I've seen in our coverage.
Speaker Change: All that said is it fair to say, especially with rate cuts likely on the horizon here that the money market deposit bucket is likely near a peak in terms of yield and I guess piggybacking off that thought how much of your deposit base.
Speaker Change: And where essentially immediately reprice downwards with the move in short term rates. Thank you.
Speaker Change: It's a relatively small portion that is indexed we just started a program.
Speaker Change: I guess in the last quarter, or so and limited it to a certain a certain customer or a certain customer segments. So we're being very watchful of that obviously, given the fact that.
Our.
Tom: We remain very comfortable with our credit risk profile. I'll now turn it over to Tom to provide more detail on our other financial metrics.
Speaker Change: The.
Speaker Change: Alternatives out there in the CD market or have a five handle we're very very happy to get a three handle and money markets.
Speaker Change: And that's that's growing.
Tom: Thank you, John. I will begin with slide 12, which outlines the net interest income and margin trends. The GAAP net interest margin expanded 7 basis points to 2.29% during the fourth quarter, while the core net interest margin increased 18 basis points to 2.31%, contributing to the GAP and CORE NIM expansion worth $3 million of prepayment penalty income, net reversals, and recovered interest from nonaccrual loans. Purchase Accounting Accretion, and customers swapped termination fees in the fourth quarter compared to $2.6 million in the third quarter.
Okay, I appreciate that and.
Speaker Change: Just one more here shifting onto E G.
Speaker Change: Just wondering kind of what is the outlook here on on the back to back loan swaps I see that the pipeline looks like it was down with the recent move in rates, So where could we see that that line item normalized down to in 'twenty 'twenty four.
Speaker Change: I think.
Speaker Change: Customers in general are a little bit on the sidelines as there are you know the uncertainties and possibly the expectation of the rate decreases are or are still out there on swirling in swing in the market. So.
Speaker Change: Depending upon how quickly the fed starts to move we may see the more near term jump in back to back swap activity. We were very very successful in this area in 2023.
Tom: Absent these items, the NIM expanded five basis points quarter over quarter, which is the first time the quarterly NIM expanded sequentially since the second quarter of 2022. There are two primary factors that should drive the NIM in the near term. First, is the level of loan originations and repricing. Second, is how well we retain and reprice maturing CDs. With the market expecting rate cuts this year, we estimate every 25 basis point reduction in rates would impact net interest income by approximately $1.4 million on an annualized basis, assuming no deposit rate lag. For the fifth consecutive quarter, yields on loan closings exceeded yields on satisfactions, and this spread increased in every quarter. Turning to slide 13, as John mentioned previously, we added interest rate hedges in 2023 to help neutralize the balance sheet to increases in interest rates. The overall interest rate hedge portfolio is approximately $2 billion and does not have any significant maturities in 2024. These interest rate hedges provided immediate income and helped navigate the rapidly rising interest rates.
Speaker Change: But it clearly is an area that is.
Speaker Change: That is driven by our expectation of rate movements at any given point in time. So we have the product. We you know we can turn it on a very very quickly.
Speaker Change: In the event that rates are rates were in a favorable position, but given expectations that rates may be coming down.
Speaker Change: Some borrowers or just kind of holding tight at this point in time.
Speaker Change: Okay. I appreciate all that color that that covers it for me I'll step back in the queue. Thanks, everyone.
Speaker Change: Thank you. Thank you.
Speaker Change: The next question is from Chris O'connell with K B W. Please go ahead.
Chris O'connell: Hey, good morning.
Chris O'connell: Okay.
Just wanted to.
Follow up on one of the comments in the prepared remarks, I think it was for each 25 basis point reduction in rates has an impact of one $4 million in annual NII.
Chris O'connell: That's positive impact correct.
Speaker Change: Correct, and that's assuming there's no lag or a 100% beta in the deposit repricing.
Tom: In a falling rate environment, the income from the interest rate hedges will decline, but there are potential offsets in the balance sheet. Bottom line, the interest rate hedges helped mitigate NIM compression from rising rates and provided immediate income. Slide 14 provides more detail on our deposits; average deposits increased 3% year over year and 1% quarter over quarter. The quarterly increase was partially attributable to seasonality and our focus on non-interest-bearing deposits.
Speaker Change: Got it but it is considering the impact of the swaps right.
Speaker Change: Yes.
Speaker Change: Great.
Speaker Change: Right.
Speaker Change: And then you know.
Speaker Change: If you guys have.
Like our getting into 2025, I know, there's not a ton maturing in 2024, but can you remind us of just the maturity schedule of the <unk>.
Speaker Change: Funding side soft.
Speaker Change: But the funding that and 2025.
Speaker Change: Oh, but $400 million I think.
Speaker Change: It matures in 2025.
Tom: Average non-interest-bearing deposits increased $22 million, or 3%, quarter over quarter, and remains a top priority for the company. Average CDs increased to 2% quarter over quarter to $2 billion. Checking account openings declined 7% in the quarter, but increased 6% in 2023.
Speaker Change: Got it.
So Neil I guess, what I'm getting at clearly I think the general comment then.
Speaker Change: We may be a little off on the number but the general comment is what we're going to have a bigger opportunity in 2025 two.
Speaker Change: To managing.
Neil: Managing asset versus liability sensitivity, because we do have a fair number of swaps coming off.
Tom: Overall, we are seeing strong account opening trends and are confident we will continue to build our customer base next year. Our loan to deposit ratio has improved to 101% from 107% a year ago. Slide 15 provides more detail on our CD portfolio. Total CDs are over $2 billion, or 34% of total deposits at December 31, 2023. CDs help to lengthen the duration of our funding. Over $1.5 billion of retail CDs are expected to mature in 2024 at a rate of 4.1%. We expect to retain a high percentage of our CDs as we retained 78% of the retail CDs that matured in the fourth quarter. Current CD rates range from 5 to 5.45%.
Neil: Yeah, I guess, that's what I was getting at.
Speaker Change: That's probably one of the arrows in your guys' quicker that you have over time to.
Speaker Change: Maybe increased liability sensitivity.
Speaker Change: If it becomes certain that the fed is going to be consistently cutting.
Speaker Change: Correct.
No that's it.
Speaker Change: That's a good statement Chris.
Speaker Change: Great.
Speaker Change: And then.
Speaker Change: I know you guys gave.
Speaker Change: A lot of good color on the.
Speaker Change: <unk> expenses and the relative change from them in the past.
Speaker Change:
Speaker Change: For the overall just cadence is there still going to be.
Speaker Change: Like a fairly.
Speaker Change: Sizable dropdown in the Q1 to Q2 right and then.
Usually it's fairly flattish after that.
Speaker Change: So we expect the seasonal expenses in the first quarter, Chris to be about $2 million versus a little over $4 million in the first quarter of 2023, but yes that $2 million will then start to well will fall off in the subsequent quarters of 'twenty four.
Tom: All else equal, CD repricing is one of the factors that could pressure our net interest margin. Slide 16 provides more detail on the contractual repricing of the loan portfolio, approximately $1.3 billion or 18% of loans repriced with each Fed move. Our interest rate hedge position on these loans increases this percentage to 25%. For 2024, $744 million is due to reprice at 174 basis points higher than the current yield.
Great.
Speaker Change: And.
That's all I have for now thank you.
Thanks, Chris Thanks, Chris.
Manuel Novice: The next question is from Manuel novice with D. A Davidson. Please go ahead.
Manuel Novice: Good morning, good morning Manuel.
Manuel Novice: Prepayment penalties were you know a little bit elevated in the fourth quarter.
Manuel Novice: Any color there and do you have any early indications of where they could land in the next couple of quarters do you have any sight line to that.
Speaker Change: They were elevated in the quarter, we had a couple of large loans that had swaps associated with them pay off.
Tom: In 2025 and 2026, a combined $1.5 billion of loans will reprice about 200 basis points higher. These rates are based on the underlying index value at December 31, 2023, and do not consider any future rate. This repricing should drive net interest margin expansion once funding costs stabilize. Our capital position is shown on slide 17. Book value and tangible book value per share increased year over year and during the fourth quarter.
Speaker Change: We're seeing prepayments.
Speaker Change: So about 500 750000 would be a normalized our normalized rate running forward.
Speaker Change: Yeah.
Speaker Change: Okay and then the.
Speaker Change: The color on the CD repricing, yet current CD rates around five to $5 45, that's your CD rates, what is kind of the high in the area.
Speaker Change: 550 ish.
Speaker Change: Okay.
Speaker Change: That's why it's so you generally can keep them because you're right right. We're right. The market is right in the ballpark.
Speaker Change: We will give you an update on the swap maturities are there are about $325 million of swap maturities taking place in 2025.
Speaker Change: Okay.
Tom: We repurchased approximately 39,000 shares at an average price of $15.08, which is a 33% discount to tangible book value. The Tangible Common Equity Ratio increased slightly to 7.64%, quarter over quarter. Overall, we view our capital base as a source of strength and a vital component of our conservative balance sheet. Slide 18 provides detail on our Asian markets, which account for a third of our branch network. We have over $1.3 billion of deposits and $759 million of loans in these markets. These deposits are 19% of our total deposits, and while we have only a 3% market share of this $41 billion market, there is substantial room for growth. Our approach to this market is supported by our multilingual staff, our Asian Advisory Board, and support of cultural activities through participation and corporate sponsorship.
Speaker Change: I know your guidance kind of encompasses the swaps.
Speaker Change: But is there if you're just looking at the swaps and you have some rate cuts.
Speaker Change: Where does the net benefit move to like right now and that benefits like you said to five 6% if there's a 25 basis point cut whereas it moved here.
Speaker Change: We had a $1 4 million $1 $4 million on a 25 basis point cut saving 100% data.
Speaker Change: Okay. So you just keep it on the overall guidance alright.
Speaker Change: And then.
Speaker Change:
Speaker Change: Any shift in the buyback appetite.
Speaker Change: No not really we continue with our capital plan as we've always had it that you know for sure.
Speaker Change: Best profitably into the company second returned through dividends and the buybacks.
Speaker Change: Okay.
Speaker Change: I appreciate the comments thank you.
Speaker Change: Thank you. Thank you.
Speaker Change: This concludes our question and answer session I would like to turn the conference back over to John Buran for any closing remarks.
John R. Buran: Thank you operator and thank.
John R. Buran: Thank you all for attending.
John R. Buran: Attending the conference today, we look forward to.
Tom: This market continues to be an important opportunity for us and one that we believe will drive our success moving forward. On slide 19, you can see community involvement as a key part of our strategy beyond just our Asian franchise, as outlined previously. During the fourth quarter, we participated in numerous local events to strengthen our ties to our customer base. Some of our recent highlights include hosting a ribbon-cutting ceremony at our Bensonhurst branch, which opened in late September, and participating in Trunk or Treat in Hoppog and Toys for Tots in Chinatown.
John R. Buran: Presenting to you at the end of the second quarter and as always if other analysts have any additional questions we'll be make ourselves available. Thank you very much. Thank you.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker Change: [music].
Tom: Participating in these types of initiatives has served as a great way to further integrate ourselves within our local communities while driving customer loyalty. Slide 20 outlines the growth of our digital banking platform. We continue to see double-digit growth rates in monthly mobile deposit users, users with active online banking status, and digital banking enrollment. The Numerated Platform, which digitally originates small dollar loans as quickly as 48 hours, continues to grow. We originated approximately $19 million of commitments in 2023, and these loans have an average rate greater than the overall loan portfolio yield. Building off the success we had with Zelle, we continue to explore other fintech product offerings and partnerships to further enhance our digital banking platform and customer experience.
Speaker Change: Okay.
Speaker Change: [music].
Tom: Slide 21 provides our outline. While we do not provide guidance, we want to share our high-level perspective on performance in the current environment. We continue to expect a stable loan balance. As is typical, we expect certain deposits to experience normal seasonality in the winter months and decline in the summer. As discussed previously, the two biggest drivers of the net interest margin are first, the level of loan originations and repricing, and second, the retention of CDs and at what rate. For modeling purposes, we suggest starting with the NIM and the 215 range as this excludes the outsized prepayment penalty and other episodic fees. We expect some pressure from this level of the net interest margin in the near term, driven from CD repricing exceeding loan origination. Non-interest income should benefit from the back-to-back swap loan closing.
Speaker Change: Okay.
Speaker Change: [music].
Tom: While non-interest expenses were higher than expected in the fourth quarter, we are bending the expense curve. In the first quarter, we have an increase due to seasonal expenses, but these expenses are expected to be less than half of the $4.1 million recorded in the first quarter of 2023. For the past five years, non-interest expenses grew at a 5.6% compounded annual growth rate.
Tom: In 2024, this growth rate is expected to be in the low to mid single digits from a base of approximately $151 million. We're controlling the expenses we can, and disciplined expense management remains one of our top priorities in 2024, as we look to drive operating efficiency. While tax rates can fluctuate, we expect a mid-20s effective tax rate in 2024.
John R. Buran: I will now turn it back over to John. Thank you, Tom. On slide 22, I will wrap up with our key takeaways. We established our action plan for early 2023 and executed well against it to help create a stronger base to improve profitability over the longer term.
John R. Buran: Given our successful execution so far, we're shifting our areas of focus to increasing NIM and reducing volatility, maintaining our credit discipline, preserving our strong liquidity and capital, and bending the expense curve. In short, we're trying to improve near-term performance for the areas that we control amid the persistent, challenging environment. Operator, I'll turn it over to you to open up the line for questions. We will now begin the question and answer session. If you have a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the key.
Unnamed Host: To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. Our first question comes from Mark Fitzgibbon with Piper Sandler. Please go ahead. Hey guys, good morning. Happy Friday. Good morning, y'all.
Mark Thomas Fitzgibbon: My first question is just some clarification on the comments you made around margin. So did you say that we should start with a margin level of 215 in the first quarter and then assume there'll be compression from there? Is that correct?
Tom: So that's the core margin that we have that we're at as of the fourth quarter. So what's happening in the first quarter is the number of CDs that are repricing will exceed the number of loans that are repricing. So we could see some small margin compression in the first quarter or so. By the middle of the year, that should abate and start moving the other way as loans, the loan repricing, exceeds the liability repricing.
Tom: Okay. And then, John, I think in your comments you suggested that you're continuing to reduce liability sensitivity. I guess I'm wondering if it looks like we're getting close to the Fed cutting rates, and clearly the balance sheet benefits, as you've described, a million four for each 25-base point cut. Why continue to reduce liability sensitivity now?
John R. Buran: Why not wait until rates come down and benefit, you know, ride the wave, so to speak? I don't think we're looking to reduce them any further. We're comfortable being neutral at this point in time, and obviously, the market hasn't done such a great job of predicting the number of rate cuts or increases. So given the fact that, historically, our balance sheet had a heavy liability sensitivity, it still does today at its core basis. So I think that we have options to increase the liability sensitivity in the balance sheet should we see some certainty with respect to Fed moves. And we're exploring those options. So we haven't made any decisions as to the timing and magnitude of rate cuts at this point in time, and we're watching very carefully what's happening in the market. But we've been disappointed before in terms of the Fed making cuts, so we wanted to position ourselves to be successful in either environment.
Mark Thomas Fitzgibbon: Okay, and then just to be clear, the restatement that you did this morning, that sort of puts this issue completely behind you, there's no residual expense impact or anything like that? That's correct, Mark. It puts the whole issue behind us, and we can move forward from here. Okay. And then just on credit, you guys have done a nice job, and certainly your balance sheets held up well. I guess at a high level, I was curious about sort of two things.
John R. Buran: What do you guys worry about for the industry with respect to credit? Not necessarily availability, but just credit in general? And do you see commercial real estate borrowers out there that are really struggling to find a home for their loans or being pushed out by their existing banks?
John R. Buran: We're starting to see some of that activity. Certainly, there's been commentary in the press of various banks pulling back in the commercial real estate area. Certainly, the office market continues to be a soft market throughout the entire industry. I think those two things are clearly occurring.
John R. Buran: We're watchful for opportunities to be a little bit more focused on the loan portfolio in the coming quarter. So obviously, we've been kind of flattish over 2023. Thank you. Thanks, Mark. The next question is from Steve Moss with Raymond James. Please go ahead. Good morning, Steve. Hey, everyone. Good morning, Steve. Hey, this is Tom.
Unnamed Speaker: It's on for Steve, guys. I appreciate it. Okay. I appreciate all the color you guys provided on CDs, but I see money market deposit growth resumed after several quarters of decline, and the average yield on that looks like it ticked up about 25 bps to 388, 3.88%, which looks to be on the higher end of, you know, from what I've seen in our coverage. All that said, is it fair to say, especially with rate cuts likely on the horizon here, that the money market deposit bucket is likely near a peak in terms of yield?
Tom: And piggybacking off that thought, how much of your deposit base is indexed and would potentially immediately reprice downwards with a move in short-term rates? Thank you. It's a relatively small portion that is indexed.
Tom: We just started a program, I guess, in the last quarter or so, and limited it to certain customer segments. So we're being very watchful of that. Obviously, given the fact that the alternatives out there in the CD market have a five-handle handle, we're very, very happy to get a three-handle and money mark, and that's, that's growing. Okay, I appreciate that. And just one more here, shifting onto fees. Just wondering, kind of, what is the outlook on the back-to-back loan swaps? I see that the pipeline looks like it was down with the recent moving rates.
Tom: So where could we see that line item normalized down to in 2024? Thanks. I think customers in general are a little bit on the sidelines as they're, you know, the uncertainties and, you know, possibly the expectation of rate decreases are still out there and swirling in the market.
Tom: So, you know, depending upon how quickly the Fed starts to move, we may see a more near-term jump in back-to-back swap activity. We were very, very successful in this area in 2023, but it clearly is an area that is driven by the expectation of rate movements at any given point in time. So we have the product; we, you know, we can turn it on very, very quickly in the event that rates are in a favorable position. But given expectations that rates may be coming down, some borrowers are just kind of holding tight at this point in time.
Unnamed Speaker: Okay, I appreciate all that, Collyn. That covers it for me. I'll step back into the queue.
Unnamed Speaker: Thanks, everyone. Thank you. Thank you. The next question is from Chris O'Connell with KBW. Please go ahead. Hey, good morning. NEIL VARCOE-STEVENSON.
Unnamed Speaker: I just wanted to follow up on one of the comments in the prepared remarks. I think it was for each 25 basis point reduction in rates is an impact of 1.4 million on the annual NII. That's a positive impact, correct? Yes, and that's assuming there's no lag or 100% beta in the deposit repricing. Got it.
Unnamed Speaker: But it is considering the impact of the swaps, right? Yeah. Great. And
Unnamed Speaker: And then, you know, if you guys are getting into 2025, I know there's not a ton, you know, maturing in 2024. But can you remind us of just the maturity schedule of the funding side swaps? The funding that matures in 2025. What, about 400 million, I think, matures in 2025. Got it.
Unnamed Speaker: So I guess what I'm getting at, clearly, I think the general comment and, you know, we may be a little off on the number, but the general comment is that we're going to have a bigger opportunity in 2025 to manage asset versus liability sensitivity because we do have a fair number of swaps coming off. Yeah, I guess that's what I was getting at is, like, that's probably one of the arrows in your guys' quiver that you can use over time to, you know, maybe increase liability sensitivity if it becomes, you know, certain that the Fed is going to be consistently cutting. Burak.
Unnamed Speaker: That's a good statement, Chris. Great. And then, you know, I know you guys gave a lot of good color on, you know, the expenses and the relative change from the past. For the overall, you know, just cadence, is there still going to be, you know, like a fairly sizable drop in the Q1 to Q2 rate? And then, you know, usually it's fairly flattish after that.
Unnamed Speaker: So we expect the seasonal expenses in the first quarter, Chris, to be about two million dollars versus a little over four million dollars in the first quarter of twenty twenty three. But, yes, that two million dollars will then start to fall off in the subsequent quarters of twenty four. Great, and That's all I have for now. Thank you. Great. Thanks, Chris. The next question is from Manuel Navas, with D. A. Davison. Please go ahead. Good morning. Good morning. Pre-payment penalties were, you know, a little bit elevated in the fourth quarter. Any color there?
Unnamed Speaker: And do you have any early indications of where they could land in the next couple quarters? Do you have any sightlines on that? They were elevated in the quarter because we had a couple of large loans that had swaps associated with them pay off. We're seeing prepayments of about $500,000 to $750,000 would be a normalized rate running forward. Okay. And then the color on the CD repricing; you had current CD rates around 5 to 5.45. That's your CD rate. What kind of high is in the area?
Unnamed Speaker: by 50-ish. OK, so you. That's why it's so easy.
Unnamed Speaker: You generally can keep them because you're right, right where right, the market is right in the ballpark. We'll give you an update on the swap maturities. There are about $325 million of swap maturities taking place in 2025. I know your guidance kind of encompasses these swaps. But is there, if you're just looking at the swaps and you have some rate cuts, where does the net benefit move to? Like right now, the net benefit's like, 2.56%. If there's a 25 basis point cut, where is it moved to? We had $1.4 million on a 25 basis point cut. It's saving 100% beta. Okay, so you just keep it on the overall guidance, all right, and then, Um, any shift in the buyback appetite? No, not really.
Unnamed Speaker: We continue with our capital plans. We've always had it that first we want to invest profitably in the company, second, return through dividends, and third, through the buyback. I appreciate the comment. Thank you. Thank you. This concludes our question and answer session. I would like to turn the conference back over to John Buran for any closing remarks. Thank you, operator, and thank you all for attending the conference today. We look forward to presenting to you at the end of the second quarter. And, as always, if analysts have any additional questions, we'll make ourselves available.
John R. Buran: Thank you very much. Thank you. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect. BF-WATCH TV 2021, Thanks Everyone!