Q3 2024 Community Financial System Inc Earnings Call
Good day and welcome to the community financial system incorporated third quarter 2024 earnings Conference call.
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I would now like to turn the conference over to Dimitar, Karen can have been off President and Chief Executive Officer. Please go ahead.
Dimitar: Thank you Danielle and good morning, everybody and thank you for joining our third quarter earnings call.
Dimitar: I would characterize the quarter as one with solid operating performance as evidenced by our P. PNR, a $1 29 per share which was consistent with the prior quarter and grew 11, 2% compared to last year's third quarter.
Dimitar: Bottom line earnings were impacted by a couple of items, which I wanted to touch on before we get into each business unit.
The first item is the increase in our provision expense.
Dimitar: We've been observing the general industry trends towards normalization of credit for a few quarters now and as you may recall, we added some reserves back in the first quarter of this year.
Since then that industry trend has continued if you look at the industry wide loan classifications of special mention and substandard balances. There are now close to long term averages.
Dimitar: We also have the federal reserve's embarking on an easing cycle, which is typically a late cycle development and it comes with expectations for increased unemployment, which is the main driver of credit costs.
Dimitar: Our own credit experience continues to be one of low losses, and minimal delinquencies and the quantitative results in our seasonal model should remain steady.
Dimitar: With that said, we considered it prudent and conservative threat to our reserves at this point in time.
Dimitar: The second main item that drove differences to the prior quarter with an increase in the accrual for performance based incentive compensation expense with.
Dimitar: I mean, typically we refine our estimates in the third quarter when I look towards the full year results as compared to prior year and that drove most of the delta in that expense line compared to the last quarter.
Dimitar: Now turning to underlying business performance.
Dimitar: Our banking business had a strong quarter net interest income surpassed the prior peak from the fourth quarter of 2022, and we're now up on a year to date basis compared to 2023.
Dimitar: This positions us well for the fourth quarter and I expect that we will continue our annual net interest income growth Street, which dates back to 2006.
Dimitar: Balance sheet growth was excellent on both sides and pipelines remain in good shape.
Dimitar: Net loan growth this quarter was a bit fired in trend driven by a couple of larger closings, which our relationships who had been working on for multiple quarters.
Dimitar: Just last week, we celebrated the opening of our first branch from our strategic branch expansion plan, which we announced late last year.
Dimitar: Our Hanover Square branch in Syracuse is now up on and off to a great start and we're progressing well on the other 17 locations.
Dimitar: Our benefits administration business did very well as well.
Dimitar: Revenues and profitability expanded and outlook remains bright.
Dimitar: Bps was recognized for the third year in a row as a top five record keeper across multiple categories by the National Association of plan advisors.
Dimitar: Our insurance services business also reached a new high in revenues, we've been hard at work and reorganizing the business and creating the infrastructure to support the excellent revenue growth in the future.
Dimitar: This has impacted profitability year to date, but should position us better for 2025 and beyond.
One group was also recently recognized in the six to six largest broker in the U S. But insurance journal an improvement from being ranked number 75 last year.
Dimitar: Our wealth management services business also performed well organic growth has been supported by very strong market growth and we've been using this revenue gains to reinvest back into the business by adding sales capacity and addressing some geographical presence gaps.
Dimitar: In aggregate I would say that I'm, particularly encouraged by two things.
Number one our ability to continue to attract both leadership and execution talent with a few key hires this quarter across all businesses.
Dimitar: Number two the momentum with new client acquisition across all businesses, we continue to operate from a position of strength and actively gain market share.
Quick comment on M&A.
Dimitar: We continue to be an active participant I had a number of opportunities in this past quarter.
Dimitar: Ultimately the risk and reward equation does not work for us good for various reasons, but the opportunity set remains interesting discovers predominantly our banking and insurance verticals and to a lesser degree benefits.
We will continue to be active and continue to keep our risk and reward principles in line with our investment thesis.
Dimitar: Lastly, I wanted to know the Investor Day, we hosted last month of the New York Stock Exchange.
Dimitar: Scares me.
Dimitar: I want to thank all of our investors and analysts for tremendous interest and encourage those of you who werent able to attend Davita recorded events and presentation on our Investor Relations website.
With that I will turn it over to Joe for additional color on the quarter.
Joe: Thank you had inventory and good morning, everyone.
Joe: The third quarter was a solid one for the company earnings per share of 83 cents were up a penny over the third quarter of the prior year, but down eight cents on a linked quarter basis. The year over year increase in earnings per share were driven by increases in both net interest income and noninterest revenues and a decrease in fully diluted shares outstanding but were largely offset by.
Joe: Increases in noninterest expenses, the provision for credit losses and income taxes.
Joe: The decrease in linked quarter earnings results were driven by increases in the provision for credit losses, and noninterest expenses offset in part by increases in net interest income and noninterest revenues and a decrease in income taxes. Similarly operating diluted earnings per share were <unk> 88 cents in the quarter were a penny higher than the same quarter in the prior year, but seven cents lower than.
Joe: The linked second quarter reserve results, while operating pre tax pre provision net revenue per share of $1 29 was up 13 cents or 11, 2% over the prior year's third quarter and consistent with linked quarter results.
Joe: Third quarter results were marked by new quarterly records in total operating revenues net interest income. Thanks.
Joe: Related noninterest operating revenues employee benefit services revenues and insurance services revenues more specifically the company recorded total operating revenues of $189 $1 million in the third quarter. This was up $13 $7 million or seven 8% from one year prior and up $5 9 million or three 2%.
Joe: From the linked second quarter and marked the fifth consecutive quarter of increases in total operating revenues. The company recorded net interest income of $112 $7 million in the third quarter. This represents a $3 $4 million a 3% increase over linked second quarter results and also marks the second consecutive quarter of net interest income expansion.
Joe: An improvement in the yield on interest, earning assets supported by long Ralph and subsiding pressure on funding costs helped drive improvement in both net interest income and net interest margin in the quarter.
Joe: During the quarter the cost of deposits was 123%, which was consistent with the linked second quarter, while the total cost of funds increased seven basis points from 137% in the second quarter to $1 four 4% in the third quarter due to an increase in borrowed funds costs. The company's fully tax equivalent net interest margin increased one basis point from.
Joe: 3.04% in the linked second quarter to 3.05% in the third quarter. The outlook remains positive for continued net interest income expansion in the fourth quarter and on a full year basis.
Joe: Operating noninterest revenues were up in all four businesses compared to the prior year's third quarter and represented over 40% of total operating revenues banking related operating noninterest revenues were up $3 million.
Joe: Or 17, 1% over the same quarter of the prior year driven by increases in mortgage banking revenues and deposit service and other banking fees, including interest rate swap fee revenues.
Joe: Employee benefit services revenues were up $3 2 million or 10, 7% over the prior year's third quarter reflective of an increase in the total participants under administration and growth in asset based fees insurance services revenues were up $1 5 million or 12, 7% reflective of both acquired and organic growth while wealth.
Joe: Management services were up $1 million or 12, 1% reflective of more favorable market conditions over the same period on a linked quarter basis operating noninterest revenues were up $2 6 million or three 5% driven by higher revenues in all four businesses.
Joe: During the third quarter the company recorded $124 $2 million of noninterest expenses. This represents a $7 7 million dollar or six 6% increase from the prior year's third quarter, driven primarily by a $7 $3 million or 10, 4% increase in salaries and employee benefits expenses due to merit and market related increases in them.
Joe: Play wages higher incentive plan costs and acquisitions between the periods.
Joe: Noninterest expenses were.
Joe: Also up $5 $2 million for four 4% over the linked second quarter results on a year to date basis total operating noninterest expenses were up $18 $7 million or five 6% consistent with the mid single digit growth rate pension during prior quarterly earnings calls.
Joe: Reflective of an increase in loans outstanding and qualitative factor adjustments the company recorded a $7 $7 million provision for credit losses. During the third quarter of 2024. This compares to $2 9 million in the prior year's third quarter and $2 $7 million in the linked second quarter. The effective tax rate for the third quarter of 2024 was 23%.
Joe: Up from 21, 2% in the third quarter 2023 the lower effective tax rate in the prior year was largely driven by the balance sheet repositioning completed during 2023.
Joe: Ending loans increased $227 $8 million or two 3% during the third quarter. This marks the 13th consecutive quarter of loan growth and is reflective of the company's continued investment in its organic loan growth capabilities. This included growth in both the business lending and consumer lending portfolios ending loans are up.
Joe: 801, $6 million or eight 5% from one year prior.
Joe: The company's ending total deposits increased $338 3 million or two 6% during the third quarter driven by seasonal inflows of municipal deposits third quarter deposit funding cost of 123 basis points were flat compared to the linked second quarter results noninterest bearing and lower rate checking and savings accounts continue to represent almost.
Joe: Most two thirds of the company's total deposits the company's full cycle deposit beta of 24% was one of the best in the banking industry. During the Feds 2022 to 'twenty 'twenty four rate hiking phase it reflects the stability of the company's core deposit base.
Joe: Ending deposits were also up $445 4 million or three 4% from one year prior.
Joe: The company's liquidity position remains strong readily available sources of liquidity, including Unpledged cash and cash equivalents and investment securities funding availability at the federal reserve bank's discount window.
Joe: The unused borrowing capacity at the federal home loan Bank of New York totaled $4 $49 billion at the end of the third quarter. These sources of immediately available liquidity represented approximately 200% of the company's estimated uninsured deposits net of collateralized and intercompany deposits companies.
Joe: Company's loan to deposit ratio, which ended the third quarter was $76. One present, 76, 1%, providing future opportunity to migrate lower yielding investment securities into higher yielding loans.
Joe: At the end of the third quarter all of the companies in the bank's regulatory capital ratios significantly exceeded well capitalized standards more specifically the company's tier one leverage ratio was 912%, which substantially exceed the regulatory well capitalized 10 or 5%.
Joe: At September 32024, nonperforming loans totaled $62 $8 million or 61 basis points of total loans outstanding. This represents a $12 3 million dollar of 11 basis point increase from the end of the linked second quarter due primarily to the transfer of one long relationship to nonaccrual status.
Joe: Accretively nonperforming loans were $36 $9 million or 39 basis points of total loans outstanding one year. Prior loans 30 to $89 89 days delinquent were also up slightly on a linked quarter basis from $45 $1 million or 45 basis points of total loans at the end of the second quarter to $47 2 million or 46 basis points of total.
Joe: Loans outstanding at the end of the third quarter.
Joe: The company recorded net charge offs of $2 $8 million or 11 basis points of average loans annualized during the third quarter. This is up from $1 $2 million or five basis points in the same quarter of the prior year.
Joe: Company's allowance for credit losses was $76 $2 million or 74 basis points of total loans outstanding at the end of the third quarter up $4 $7 million from the end of the second quarter and up $11 $2 million from one year prior although credit loss reserves increased during the third quarter due to qualitative factors overall, the company's asset quality remains strong the allowance for.
Joe: Credit losses at the end of the third quarter represented over eight times, the company's trailing 12 month net charge offs.
Joe: We believe the company's diversified revenue profile strong liquidity regulatory capital reserves stable core deposit base and historically strong asset quality provide a solid foundation for future opportunities and growth.
Joe: Looking forward, we are encouraged by the revenue outlook in all four of our businesses and prospects for continued organic growth. We will continue to play offense lean into growth and deploy capital in the best manner possible for our shareholders. Thank you now I will turn it back over to Danielle to open the line for questions.
Danielle: We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.
Speaker Change: Oh Speakerphone, please pick up your handset before pressing the keys.
Speaker Change: But any time a question has been addressed and you would like to withdraw your question. Please press Star then two.
Speaker Change: At this time, a pause momentarily to assemble the roster.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: The first question comes.
Speaker Change: From Matthew Breese with Stephens, Inc. Please go ahead.
Matthew Breese: Hey, good morning.
Matthew Breese: Hey, guys. Good morning, Matt I was hoping we could just start on the NII and NIM outlook. It sounds like there's quite a bit of confidence that the trajectory is kind of.
Speaker Change: Up into the right on NII, perhaps you could just give us some sense of your expectations around deposit costs deposit betas and maybe some of the actions we've taken so far.
Matthew Breese: On the back of a fed.
Matthew Breese: Fed cut and then just remind US you know the maturity schedule on those how much is.
Matthew Breese: We expected to reprice over call. It the next six to 12 months.
Speaker Change: Sure Matt.
Speaker Change: I'll kick it off and Joe can add some of the more detailed.
Answers there, but I think if you look at just kind of where we are this is the second quarter of expansion in NII and really this was before the.
The fed cut essentially which was very late in the quarter. So we sit back here and we look at our asset side and we have a lot of loans that are continuing to move up.
Speaker Change: At a much better spreads on the back book, So that's going to continue to go up even with the cut we have a lot more loans that are repricing up than down so that seems reasonably optimistic on that side and then you look on the deposit side and we already on the deposit side were flat this quarter.
We did make some adjustments Ah trial, Dear and I think we talked a little bit about that in prior calls, but we've already we had already had just some rates now during gear and we certainly adjusted rates down.
Speaker Change: Both the fed cut as well we didn't capture all of the cuts in this initial kind of a move we captured.
Speaker Change: On our most sensitive deposits, we captured probably about 50% of the cut.
Speaker Change: There are some things that are more I would call them index to the market in the sense of.
Speaker Change: The municipal deposits, where we're matching some rates so those will move as the market rates move.
Speaker Change: But I expect that on the next cut.
Speaker Change: When and if that comes we're going to capture potentially a higher beta than what's been captured on the first one.
Speaker Change: Yeah, Matt regarding the loan repricing you know I would just probably direct you to the investor deck towards the back of the deck, there's kind of a summary of the expectations around loan maturities.
Speaker Change: And repricing opportunity and just didnt kind of broad general terms he had a fixed rate.
Speaker Change: Our loan portfolio, we would expect about a one $5 billion in cash flows off of that portfolio over the next 12 months when we sort of published that slide the weighted average rate on that on those maturing loans was a little over 5%, we've been booking new loans kind of in a call it seven and a quarter range.
Speaker Change: If you will so.
So if we do nothing more than just turnover that that fixed book, that's obviously going to be additive to NII. I would also mention that you know there is about 1 billion billion, 1% or so of truly floating rate loans, which are so for prime base. So obviously, they come down a bit as rates went down and then there's an adjustable set of loans, which is relatively small.
Speaker Change: Mall, which as you know.
Price reset with for example, a alone that might have a 10 year maturity with a five year reset so theres a portion of those so I think when you kind of blend all of those components on the loan side.
Speaker Change: You're always going to be a net positive to the to the book yield as we move throughout the year.
Speaker Change: Great I appreciate that and then Jim and Tom I know you had mentioned that there was a couple of kind of Chunkier credits that were closed this quarter can you just discuss the size of the loan or maybe give us some <unk>.
Speaker Change: Idea of what you would expect in terms of.
Speaker Change: The forward outlook on loan growth.
Speaker Change: No it's going to be higher than you had been historically given the entrance or.
Speaker Change: Penetration of the denser markets, but.
Speaker Change: Maybe just discuss the you know what happened this quarter and what the kind of the normalized outlook.
Speaker Change: Yeah.
Speaker Change: Yeah, I mean, I think this quarter is you know you're going to listen to them.
Speaker Change: Loan growth is not.
Speaker Change: Our current trend line.
Speaker Change: That's high single digits, that's not the kind of where we are.
Speaker Change: As I mentioned.
Speaker Change: Our market share has been tremendous in terms of gains and the quality of the people and the customers that we continue to attract is really exciting for us. So we've been hard at work on a number of us.
Cases, what I would call it or key type opportunities and clients across our markets and as we just had a couple of those come to fruition. They take a long time typically those are takeaways from from other larger institutions.
Speaker Change: And.
Speaker Change: That's kind of boost the death rate.
Speaker Change: I expect that it will be closer run rate kind of where we were in the past couple of quarters than than than this particular third quarter going forward. So that's what I would think about in terms of.
Our growth on the balance sheet.
Speaker Change: Okay, and I had two others. If you don't mind. The first one is just given your comments.
Speaker Change: Around kind of late cycle and trending towards normalized credit coupled with increased loan growth, it's fair to assume that the reserve.
Speaker Change: Continues to increase moderately from current levels.
Speaker Change: Vision will kind of increase in kind.
Speaker Change: I was hoping you could comment on that.
Speaker Change: Yeah, I think Matt so the CSO model, we have is quite sophisticated as I'm sure everybody is moderate there's a whole bunch of variables that go into all of that at the end of the day I tried to think of it as a little bit of a common sense model in my head and we're sitting here at 11 basis points of charge offs.
Speaker Change: And our I guess year to date, it's actually below 10.
Speaker Change: Let's say 11 in this past quarter and our ACL coverage is 74 basis points. So that's.
Speaker Change: Almost seven years worth of losses, which seems a little bit high. So then the question really is what.
Speaker Change: What do we think that the 11 basis points is through the cycle and as we talked about at our Investor day. Our goal is through the cycle with the ups and downs to be below 15, So if I take that 15, and I think about our our our loan book, which life has become more bits.
Speaker Change: Five to six years, you can kind of do the math.
Speaker Change: The coverage, that's five years and change what that would mean.
Speaker Change: Kind of went up on a on the ACL. So I think.
Speaker Change: From that perspective.
Speaker Change: I would agree with you that you can probably see a couple of basis points here and there.
Speaker Change: Depending on the quarters as we as we move forward in terms of ACL.
Speaker Change: Great and then last one for me you know one of the standout moments.
Speaker Change: Investor Day was was your commentary in regards to just general economic activity.
Speaker Change: You know beyond the chip manufacturer and stuff I think it was in the teens or high teens multiples of what it has been historically.
And I was just hoping you could comment a little bit more on that.
Speaker Change: Why that is whats going on in upstate New York versus what's been going off historically and it's driving so much more economic activity. That's all I had thank you.
Speaker Change: Sure.
Speaker Change: Yes, I mean that hasn't changed I don't think is going to change for a while.
Speaker Change: You have a number of things as we as we mentioned at the Investor Day, you know it really is kind of the onshoring of of a lot of the manufacturing that was offshore over the past number of decades.
Speaker Change: The.
Speaker Change: Government tax being the chips act towards inflation reduction Act also provided for a whole lot of subsidies that New York turned out to do very well position for.
Speaker Change: So youre looking at whats happening with solar or what's happening with wind investments, what's happening with carbon credits.
Speaker Change: A lot of that is happening in Europe state and so we're clearly a beneficiary of that.
Speaker Change: There is a kind of a move towards its a advanced technology and in upstate New York as well.
Speaker Change: Back of basically the dispute.
Speaker Change: The skilled labor force from older colleges and.
Speaker Change: <unk> Central New York, and Drudge therapy in all kind of the former.
Speaker Change: Technology <unk>.
Speaker Change: Vestments, there as well so a lot of that is happening in our markets.
Speaker Change: And we're seeing that happening on the back of what has been a constrained infrastructure and housing avail.
Speaker Change: Availability is well over here so there's a lot of infrastructure, that's being built to support that growth.
Speaker Change: And that's kind of creating a lot of opportunities, but our manufacturing clients are doing really well across the board you know the consumer is doing really well.
And we just happened to be in a moment in time, where we are adding our own.
Speaker Change: Capabilities on top of that in terms of market share gains and you've kind of seen all of that in the results.
Yes.
Speaker Change: That's all I had thank you.
Speaker Change: Okay. The next question comes from Steve Moss from Raymond James. Please go ahead.
Speaker Change: Good morning, guys.
Speaker Change: Good morning, Steve.
I apologize I hopped onto the call a bit late here, but I did want to just kind of follow up on or touch base on expenses here in particular, just kind of.
Curious I heard you dimitar kind of midway through your comments talking about.
Speaker Change: We had a number of hires this quarter and just kind of wondering how you guys are thinking about the expense run rate here going forward.
Speaker Change: Yeah, Steve This is Joe I would still kind of characterize it as mid single digits on a full year basis, you know, obviously, there's a little bit of volatility up and down from quarter to quarter, depending on you know sort of what what happens in the quarter and what accruals, we have to put through but I think.
Speaker Change: If you look at it kind of on a longer term basis that mid single digit growth rate is still.
Speaker Change: Not unreasonable I and on a year to date basis, where I think we're up a little over five 5%.
Speaker Change: And I think that's a fair expectation is dermatology has said to me multiple times when we were investing through our P&L right, where we're putting the organic.
Our growth capabilities in place and and you know so that that require some continued investment in the company and so that that mid single digit growth rate is probably a I think a fair expectation.
Speaker Change: I would say this is that you know a lot of the investments that were made in 2023 and <unk>.
Speaker Change: Year to date 2024, I mean, we are starting to see.
Speaker Change: Our results from from those investments so I wouldn't expect that the pace if you will.
Replicate what we did in 2023.
Speaker Change: So I think 2024 is more indicative of a longer term.
Speaker Change: Expense rate.
Speaker Change: Okay, Great I appreciate that.
Speaker Change: Then just on the credit front I think you guys in the text that it was.
Speaker Change: I've taken Npls was primarily due to one commercial credit.
Was there a specific reserve tied to that credit that was included in the provision this quarter.
Speaker Change: No there wasn't Steven.
Speaker Change: Yes.
Speaker Change: Give you a little bit more color, it's a fully paying basically never delinquent credit going back to 2006, it's a long standing relationship.
The borrower probably over expand it a little bit and we felt that given the fact that the borrowers going through a restructuring themselves to position them for kind of scaling back some of their their investment it's appropriate that we would put it on nonaccrual, but again the loan is actually fully paying non delinquent.
Speaker Change: We expect that to continue.
Speaker Change: Okay.
Speaker Change: Great appreciate that color and then in terms of fee income here. It was strong across the board I Trust that those trends are likely to continue for you know employee benefits insurance services and wealth management.
Speaker Change: Deposit service charges were also in banking fees were also strong here just kind of curious if there was anything.
Speaker Change: Video Socratic there.
Speaker Change: Steve I wouldn't say anything nothing really idiosyncratic that we've you know we've rolled out some some new services in the last year or so.
Speaker Change: We're doing more swap fees and some I'll call them for lack of a better term capital market transactions, where we're participating out some loans and there is some fee income generation from those activities and so now theyre kind of embedded in our infrastructure.
Speaker Change: So nothing really idiosyncratic per se I think you know this quarter's a fair representation of what the expectations are going forward. You know this was an area, where we needed to actually find new fees.
Speaker Change: You know over the last you know call. It 567 years, if you remember we kind of experienced Durbin and then we experienced some reductions.
Speaker Change: And you know I'll call them competitive and regulatory pressure on NSF fees and alike. So.
Speaker Change: That deposit service fee line item is going to be challenge. So we've had to find other opportunities in the banking space and I think we've been pretty successful in doing that here and so I would expect that you know that.
Speaker Change: This quarter is a fair representation of expectations going forward.
Okay, Great I appreciate all the color I'll step back.
Speaker Change: Thanks, Steve.
Speaker Change: The next question comes from Mike Mueller, Nevada from below Davidson. Please go ahead.
Speaker Change: Okay.
Speaker Change: Hello, This is <unk>.
Speaker Change: On from that at all.
Speaker Change: I had one quick question for loan and deposit growth. We're all in this quarter and how is the pipeline.
Speaker Change: The pipeline is looking pretty good I would say it's consistent with.
<unk>.
Speaker Change: Probably more so in the first and the second quarter than the third quarter. I think we talked about we had a couple of more significant events in the third quarter. So I would think about those rates.
Speaker Change: Both is more indicative of going forward.
Speaker Change: As it relates to deposits, we had a we have seasonal inflows because of our municipal deposits.
Speaker Change: So that kind of ramped up that rate of growth in the third quarter I will say that this was the first quarter in a while just kind of an aggregate comment on deposits outside of municipals, where we trended to actually a little bit better on the individual and.
Speaker Change: Commercial deposits than historical medians.
Speaker Change: That going back to the summer of 2022, we started observing to kind of drift below median performance as the industry was experiencing the kind of sticking out of liquidity and we've been bouncing around.
Speaker Change: Around kind of the bottom quartile two medium.
Speaker Change: Court outperformance in in the retail and commercial side in terms of deposit performance over the past.
Eight quarters and this was the first quarter, where we kind of broke up a little bit over that so I'm a little bit more optimistic probably on average on the retail and commercial side, but we'll see.
Speaker Change: Ample size of one so far in terms of bucking that trend.
Speaker Change: Great.
Speaker Change: And that was all my questions.
The next question comes from Chris O'connell from Keybanc. Please go ahead.
Chris O'connell: Hey, good morning.
Speaker Change: I'm sorry, Chris you guys mentioned, a you know earlier you know that you are moved rates on them on the most sensitive kind of deposit buckets.
Chris O'connell: As well as you know the munis.
Chris O'connell: Any sense of just you know the dollar amounts of those two buckets.
Speaker Change: Great John.
Speaker Change: Yeah, I'm not sure I can give you a precise amount Chris.
Speaker Change: But we do carry money.
Money market balances of about $2.4 billion Theres, a fair amount of that it's not.
Speaker Change:
Speaker Change: You do not have it hasnt been priced up all that significantly so there's not a lot of opportunity to go down.
Speaker Change: But we do have I'll say, probably in the ballpark of a billion dollars of opportunity.
Speaker Change: There's kind of a little more rate sensitive money that was priced up during the rate hikes and so you know that's.
Speaker Change: That's probably where most of the adjustments that we made is when and if rates continue to come down.
Speaker Change: And is that inclusive of the muni deposits or separate yes.
Speaker Change: Correct.
Speaker Change: Got it.
Speaker Change: And do you have what either the spot.
Speaker Change: Total or interest bearing deposit costs are as of you know either today or kind of you know.
Speaker Change: Most recent data.
Speaker Change: Ah yes.
Speaker Change: So interest bearing deposit costs.
Speaker Change: For Q3 was about 170 basis points.
Speaker Change: And do you have what it was either you know.
Speaker Change: At the end of the quarter early in October kind of after those rate moves.
Speaker Change: It was about it was that.
Speaker Change: At the same interest bearing deposit costs were about just about the same in Q2.
Speaker Change: There's a little bit of a mix shift so there's some.
Now I'll call it rate adjustments on as rates move down, but there was also a mix shift to a more.
Speaker Change: Sure.
Speaker Change: Time deposits and interest bearing interest bearing accounts, but the blended rate was about the same in Q2 as it was in Q3.
Speaker Change: No I'm talking about post Q3, you're either at the end or just after Q3, you know after the moves just kind of a spot rate not the average.
Speaker Change: Yeah, I don't know that I have that specifically, Chris, but it's down a bit.
Speaker Change: Two basis okay.
Chris O'connell: Got it.
And then I think you know the you know on the rising rate cycle, the interest bearing beta kind of shook out around.
30% or so.
Speaker Change: How are you guys thinking about that data over the course of you know the.
Chris O'connell: Cycle.
Speaker Change: Well I think we to be honest with you we look at the total beta versus the interest bearing so probably havent framed the question definitely in our heads but.
Speaker Change: I think our expectation is that it's going to be a little bit slower initially and as the industry response is going to kind of get closer to those levels in the aggregate.
Speaker Change: I think one of the things that the Navy is.
Speaker Change: There's a couple of things going maybe in different directions. One is I think everybody in the banking space is looking forward to cutting rates on deposits.
Speaker Change: On the flip side everybody is also now all of a sudden I'm trying to grow their assets.
Speaker Change: And there is not a lot of liquidity that we generated over the past number of quarters. So I think both of those are going to <unk>.
Speaker Change: Different directions in terms of determining that beta, but as it relates to us I think I mentioned the captured.
Half of that 50% beta on the first move for dose rate sensitive buckets, and we're expecting that maybe fortunately to capture a little bit more on some of the other ones, but again on the aggregate deposit base because again, we have 70% of our deposits that are in truly very low cost.
Speaker Change: Type of accounts. So we have savings accounts paying four and five basis points. So we're not going to be able to move them as much.
Speaker Change: And we may not touch them for a little bit of time, So I think in the aggregate deposit beta.
Speaker Change: It's.
Speaker Change: We're probably going to get to those 24% that we experienced but it might take us a little bit longer.
Speaker Change: Got it.
Speaker Change: Just thinking about the trajectory of the margin you know from here you know under the assumption of the forward curve.
Speaker Change: I appreciate you know the NII guide.
Speaker Change: In the fourth quarter and year over year.
Speaker Change: How are you thinking about the margin into.
Speaker Change: Q4, and are you know kind of the trajectory as we get into 2025.
Speaker Change: I think Chris that the expectations are that kind of along with with NII and the margin would continue to drift up.
Speaker Change: Into Q4 and into into Q five.
Speaker Change: I think a fair expectations expectation is 345 basis points a quarter.
Speaker Change: I think that's not unreasonable given kind of what we have turning over on the loan book.
Speaker Change: In particular, and the fact that we've kind of stabilized.
Speaker Change: You know that the call it the cost of deposits. So I think it's fair to assume.
Speaker Change: No.
Speaker Change: Drifting up.
Speaker Change: You know 567 basis points or 45 basis points up.
Speaker Change: Quarter.
Speaker Change: Great.
Helpful.
Speaker Change:
Speaker Change: And then you know.
Speaker Change: Can you just give us an update on.
Speaker Change: You know the pace and the outlook of the branch plan a in terms of you know the the rollout and timing you guys kept one this quarter and then.
Speaker Change: I believe the intention is for it to be you know kind of net neutral on the overall expense base and just kind of world where some of the puts and takes are you know to help.
Keep that.
From from kind of adding to the overall expense run rate too much going forward.
Speaker Change: So.
Speaker Change: As we look towards two.
Speaker Change: 2025.
Speaker Change: We have a whole.
Speaker Change: All lot slated for late first quarter and second quarter in terms of openings.
Speaker Change: We have a we've been frankly, a little bit slower.
Speaker Change: We would like to because of a whole bunch of logistical reasons, plus we're not running into the kind of the colder months of the year and in upstate New York. So opening branches in Buffalo in December may not be the most optimal timing. So we're going to hold off on a couple of those situations.
Speaker Change: Situations, but again most of them I think are going to come kind of late first quarter.
Speaker Change: Second quarter, and then we've got a number of others coming into the third quarter and a little bit less so in the fourth quarter of next year. So by the end of next year.
Speaker Change: One is to be almost fully open across the board.
Speaker Change: Hopefully.
Speaker Change: As we have committed to our shareholders. We're also going to be.
Speaker Change: Looking to me that net neutral in terms of bolt branch count and the expenses. The first part of that is already in our numbers because of some of the retail optimization.
Speaker Change: Staffing we did late last year.
Speaker Change: And we have a whole number of butter locations that we're considering.
Speaker Change: In terms of consolidating for 2025, so that's how I would think about it.
It's going to be a little bit lumpy. These things are not perfectly matched in terms of cost and.
Savings across the year, so some things might come a little bit sooner some things might come a little bit later, but in the aggregate our plan is to.
Speaker Change: I stick to what we promised.
Speaker Change: Great.
Speaker Change: I appreciate the time thank you.
Speaker Change: This concludes our question and answer session I would like to turn the conference back over to Jim Natal Carrabba's for closing remarks.
Speaker Change: Thank you everybody for joining us on the third quarter call.
Speaker Change: We're excited and optimistic about the future here with everything that's going on in our company and look forward to speaking with you back in January.
Speaker Change: Okay.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker Change: Yeah.