Q3 2024 Dime Community Bancshares Inc Earnings Call
Speaker Change: Good day, and thank you for standing by. Welcome to the Dime Community Banschers Inc. third-quarter earnings conference call. Before we begin, the company would like to remind you that discussions during this call contain forward-looking statements made under the Faith Harbor provisions of the
Speaker Change: Such statements are subject to risks, uncertainties and other factors that may cause actual results to differ laterally from those contained in any such statements.
Speaker Change: Including a set forth in today's press release, and the company's filings with the U.S. Securities and Change Commission to which we were for you.
Speaker Change: During this call
Speaker Change: References will be made to non-gap financial measures as supplemental measures to review and assess operating performance.
Speaker Change: These non-gap financial measures are not intended to be considered in isolation.
Speaker Change: or as a substitute for the financial information prepared and presented in accordance with the U.S. gap.
Speaker Change: For Information about these non-gap measures and for reconciliation to gap.
Speaker Change: Please refer to today's earnings release.
Speaker Change: At this time, all participants are an elicinoling mode.
Speaker Change: After the speaker's presentation, there will be a question and answer session.
Speaker Change: To ask a question during the session you will need to press star 11 on your telephone.
Speaker Change: You will then hear an automated method as fizing your hand as raised.
Speaker Change: To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to turn the conference over to your speaker today, Stuart Lubow, President and CEO . Please go ahead.
Stuart Lelibo: Good morning. Thank you, Dady, and thank you all for joining us this morning for a quarterly earnings call. Joining me today is Avinash Reddy, RCFO.
Stuart Lelibo: In the third quarter, dime continues to execute on our growth plan. The momentum in our business is extremely strong, and in the third quarter, we grew quarter-potset by over $500 million, and the business loan portfolio by $125 million.
Stuart Lelibo: As a result of strong growth in court deposits and a four-basic point reduction in the cost of total deposits, the net interest margin increased at 250 basis points.
Stuart Lelibo: To put days in perspective, our margin for the first quarter of 2024 was 221 basis points, and playing a 29 basis point improvement through the third quarter.
Stuart Lelibo: As we outlined in our press release, since the Federal Reserve reduced Reddy's funds rate by 50 basis points in mid-September, the spread between loans and core deposits has increased by approximately 15 basis points, and this will contribute to continued nemanexpansion in the fourth quarter.
Stuart Lelibo: I'll be going to provide more detail on this remarks, but to be honest, we have a clear line of returning to a 3% plus net interest margin. In summary, the improvement in them to date and our expectations for a board, and significantly increases diamonds earnings power.
Stuart Lelibo: Cash and non-interest expense levels increase on a link quarter basis to 57.4 million. Our expectation is to keep expense levels relatively flat in fourth quarter and into 2025 as we are working on a number of efficiency optimization initiatives.
Speaker Change: This is Lones. We're up approximately 125 million dollars in the quarter, and we continue to see a very strong pipeline in our middle market, CNI, and healthcare-lany verticals.
Speaker Change: The weighted average rate on new business loans for rich nations for the third quarter was approximately 8%. We expect to end a year with a positive $11 billion of total gross loans.
Speaker Change: As the quality continues to remain solid, and net charge also remain well contained at only 15 base of points.
Speaker Change: While MPAs ticked up off a very low starting base, we expect a report in our 10Q that could decide to classify the assets or flat on a link quarter basis and early states 30 to 89 a day the link with these are down 28% on a link quarter basis.
Speaker Change: Our capital ratios continue to build, and as September 30th, our total capital of 14.8% and our common equity tier 1 ratio was 10.2%.
Speaker Change: As we have mentioned before.
Speaker Change: In this environment, a creating capital is important, as it speaks to Dime's strength and our ability to service our growing customer base. In that vein, in that vein, in the third quarter, we built our loan losses by approximately 9% or 6 basis points.
Speaker Change: As I mentioned during our last earnings call, over the course of the next 19-12 months, as we evolve our business model and portfolio towards business loans. And with our strong pipeline of CNI and healthcare loans, we expect to operate with the reserve level in the 90 basis point to 1% area.
Speaker Change: Finally, I'd like to conclude by touching on three things that are key to dime story going forward. The first is disruption and all local, the disruption and all local marketplaces.
Speaker Change: As you know, time has been highly successful in attracting teams of deposit gathers and lenders and the growth in core deposits and business loans today is a validation of our efforts.
Speaker Change: The disruption in levels in our market continued to be at all time high and we are actively building our recruiting pipe for 2025.
Speaker Change: Given we are close to year-end, we don't expect to make any announcements until 2020-25. But suffice to say we are spending a fair bit of time interviewing candidates that fit well with the dye and culture and business model.
Speaker Change: Second topic is declining rates.
Speaker Change: While we have been pleased with the nymph trajectory over the course of this year, the expansion we have seen this for has not been driven by lower interest rates.
Speaker Change: This should change starting in the fourth quarter as the full impact of the 50-base point cut will manifest.
Speaker Change: The gift given the forward curve, we are more confident than ever that returning to historical profit.
Speaker Change: Historical Probability Levels is to be seen in the near term.
Speaker Change: Finally, Grogan DDA, our DDA levels are now back to almost 30% of the positive. We believe the value of this DDA base will shine through in the current rate environment.
Speaker Change: In conclusion, I'm looking forward to any this year's strong, I want to thank all our dedicated employees for their efforts and positioning time as the best citizens of spank in New York. With that, I will turn the call over to Ab.
Speaker Change: Thank you Stu, reported EPS was 29 cents per share. We saw a meaningful expansion in the name this quarter. As you will recall, the second quarter name included a recovery of interest income of four basis points.
Speaker Change: In addition, the second quarter did not have the impact of the cost of the sub-dat issuance. Adjusting the second quarter for these two items on a like-select basis, NIME expansion for the third quarter was around 17 basis points.
Speaker Change: The NIMIC fashion was driven largely by strong growth in Codeposites.
Speaker Change: Non-interest income for the third quarter was $7.6 million. As you'll recall, the second quarter non-interest income included a non-recurring branch sale gain.
Speaker Change: Swapsy Revenue was lower in the third quarter. Given the uncertainty with the Federal Reserve's rate cutting decisions this year, we have found that customers are being more patient and taking more time to engage in swap transactions till they have more certainty on the rate outlook. As such, we expect the swap line item to rebound in 2025 with Q3 marking a low point for swap revenue.
Speaker Change: Core Cache operating expenses for the third quarter excluding intangible amortization was 57.4 million. This was in line with our guidance for the third quarter core cache expenses being in the 57 million area.
Speaker Change: For the fourth quarter, we expect Core Cash operating expenses to be between 57.5 and 58 million and as Stu mentioned, we expect to hold the Q400 steady into 2025. We'll be providing more color on this during our earnings call in January 2025 as we're currently working through our year-end budgeting processes.
Speaker Change: We had 11.6 million dollar loan loss provision this quarter which was higher than prior quarters.
Speaker Change: During the third quarter, we made several enhancements to our Cecil model, centering primarily around updating pure group law history data as well as pre-payment speeds.
Speaker Change: These model enhancements contributed approximately 4.5 million to the provision for the quarter. Excluding the model enhancements that I just noted, the loan loss provision would have been closer to 7 million.
Speaker Change: As Stuart mentioned in his prepared remarks over the next nine to twelve months, we expect to gradually build a reserve as our business model evolves and we expect to operate with a reserve in the 90 basis points to one percent area in the medium count.
Speaker Change: Next, I'll provide some thoughts on the name for gesturing.
Speaker Change: As we outlined in the earnings release, when analyzing the weighted average rate on loans and code deposits in the 30-day period after the Fed cut rates, the spread between these two items has increased by approximately 15 basis points.
Speaker Change: Accounting for the cash on our balance sheet, which of course has 100% beta, and the fact that the borrowing portfolio is largely termed out, we expect this core spread improvement between loans and court deposits to translate into a 10 to 12 basis point, run rate and name improvement for the fourth quarter.
Speaker Change: Assuming the behaviour and deposits and loans holds for each subsequent rate cut and competition remains rational. We could see a five to six basis point increase in the name for every subsequent 25 basis point rate cut Once the full impact of each rate cut slows through the entire balance sheet.
Speaker Change: Set differently, all else equals starting with a 250 NIM, adding the impact of the rate cut that is already taken place, and assuming another 2-25-based point rate cuts in the 4th quarter, the exit runway NIM at the end of the 4th quarter could be in the 270 area.
Speaker Change: Given the potential for rate cuts in 2025, we see additional NIM expansion in the first half of 2025 as well. Finally, and as mentioned on our previous earning call, we have a significant backbook loan repricing opportunity in our adjustable and fixed rate loan portfolios that is expected to kick in in the second half of 2025 and 2026.
Speaker Change: To give you a sense of this back book reprising opportunity in the second half of 25 and 26, we have 1.9 billion of adjustable and 6 straight loans across the loan portfolio at a weighted average rate of 390, that either the prices on the shores and that time frame.
Speaker Change: Even assuming only a 150 basis point spread on those loans over the forward 5-year treasury, we should see a substantial 25 basis point increase in NIM as these loans reset to higher rates. Assuming a 225 basis point spread on those loans over the forward 5-year treasury, we could see a 35 basis point increase in NIM from the back book repacing.
Speaker Change: In summary, as you put all these parts together, we see a pathway to a 3% NIM in 2025 and a NIM greater than 325 in 2026.
Speaker Change: The impact of this enhanced name will no doubt increase our earnings power as time progresses.
Speaker Change: With that, I'll turn the call back to Deity, and we'll be happy to take your questions.
Speaker Change: And our first question comes from Steve Moss of Raymond James.
Steve Moss: Good morning, guys.
Speaker Change: Thanks for watching
Steve Moss: I want to start on just on the deposit side, you know, appreciate all the call you gave on the margin expansion, but you guys should, you know, really good growth throughout the quarter-posits. I'm curious to see, you know, how you're thinking about those trends going for the upcoming quarter, maybe into the year or just, you know, you can see the remix and any, any criminal call I could give back.
Speaker Change: Yeah, sure Steve, I'll start off in, I think, Stuart Chippen. After look, we're very excited with the, you know, the hires we made over the last year and a half on the deposit side. They're up to around a billion five of deposits, so this is in the private and commercial bank around 35 to 37% of that is DDA. You know, we look at the, you know, account opening activity on a bi-weekly basis. We continue to see a lot of traction, you know, over there. You know, if you look at the teams that we brought on, they're, you know, the first set of teams from 2023 have been at the bank, you know, barely a year at this point. The teams this year have been, you know, less than six months. It's probably going to take, you know, three to four years for, you know,
Speaker Change: You know, each of those teams to reach, you know, a steady state. So we think that's significant.
Speaker Change: He had run away for them over time. It's kind of hard to predict on a quarterly basis what's going to happen but they're bringing on new accounts, new deposits, literally on a weekly basis. I will say what we've tried to do so far with the positive growth that's come in is really to remix the balance sheet a little bit where the first step was paying off the FHLB position. So we had a billion one of overnight FHLB. We don't have any overnight FHLB anymore at this point. Everything's dumbed out. We had around seven to eight percent of our balance sheet and broke the deposits. We brought that down to around five percent at this point. So far it's been a bit of a mix shift. I think as the deposit growth.
Speaker Change: You know, continues. You'll probably see some expansion in the balance sheet overall over time. The other thing I say is we don't have a large amount of time deposits on the balance sheet. There's a little bit on the broker side. You know, it's probably on $500 million plus or minus. That obviously has 100% beta, but absent that, you know, our core customer base is more money markets and DDA. So, obviously on the money market side, we're able to pass on rate decreases to them significantly. And we don't have to wait till those time deposits repress because the complexion of our base is more on the money market side. So, I think, you know, all in, you know, this was a good quarter for deposits. I think, you know, we'll continue to have good years in the years.
Speaker Change: with what we had and as Stu said, we're working on a pipeline of hires for next year, folks on both the deposit and loan sites. So I think over time we'd like to create an environment here where we continue to grow the deposit base like we have. Yeah, I mean, typically the fourth quarter is a little slower in terms of transitioning accounts and moving funds from bank to bank as customers get to year end. But we are still seeing a lot of positive flows in terms of new accounts and new relationships coming on. But I don't think we're going to get the entire relationship.
Speaker Change: You know, at this point, we're getting pieces of it until the first quarter simply because of, you know, just the operating environment for a business moving, all their accounts on the fourth quarter. Yeah, and Stephen, this one more point, just to highlight on the composition of the deposit base. I mean, if we look at it on a year to date basis, our business deposits are up a billion three basically. So we started the other own $4 billion of business deposits, we're at $5.3 billion right now. The consumer deposit side, you know, stayed pretty stable, you know, $3.4 billion to start the around $3.4 billion now. At the start of the year, we were seeing some outflows still on the consumer side, you know, especially as rates, you know, went higher, starting to see trends in that
Speaker Change: And on the municipal side, for example, this quarter, we used some of the co-depots that were coming in to exit a small municipal relationship that we had that had a higher cost And so on the margin, I think very happy with the business side of it, and our goal is to be the best business bank in New York and I think that's the focus and that's where we're growing over time [inaudible]
Speaker Change: Okay, great, I really appreciate all the color there. And then just one clarification just to stay with the margin, so I've been you mentioned the 1.9 billion back book. That's from the second half and 25 through 2026.
Speaker Change: Yes, so that's that 18 month window Steve. So, you know, the way we fight the latest out is in layers, like we did on a last call. So really, you know, between now and June of next year, you know.
Speaker Change: Given the forward curve and given your rate cuts are baked in, you know, for every 25 basis points we've tried to, you know, give a high level, you know, construct of the 5 to 6 basis points now.
Speaker Change: In addition to that, you know, we're obviously originating loans at a higher rate than the existing portfolio, so that should help a little bit, a little bit too between now and then. But, you know, once the rate cuts, let's just say, stop, you know, middle, middle half of next year, we just, we just wanted to give you the guidance that there's an additional opportunity over those 18 months, just given the fact that there's fixed rate loans that are, that are repracing higher.
Speaker Change: And then getting back to the pipeline, we have about a billion dollars, $959 million in the pipeline at a whatever rate of 7.9%.
Speaker Change: and it's really focused on in the areas of CNIS, approximately $300 million.
Speaker Change: Health Care about approximately $260 million and owner-occupied Cree is approximately $181 million, all those, you know, we expect, you know, these are loans that are going through the process, some of which are going to be closing this quarter. I mean, to date, you know, we've had a substantial origination so far in October . And as I said, we expect to be over $11 billion by the end of the year. But those, those originations will accrue to our benefit with those type of weighted average rates, you know, in a 790 range.
Speaker Change: well
Speaker Change: Okay, great. That's that's really helpful color. And then just in terms of credit here, just curious who gives some color around the, you know, 18C loan or loans that went for a place on non-acroll status. And I know it was a small uptick, but just on the business as well.
Speaker Change: Yes, no worries. Like you said, we're starting off a really low base here. On the CNI side, you had a legacy East End line of credit. Don't really expect any additional provisioning on that loan. Something as part of the bridge franchise on the East End.
Speaker Change: On the crease side, actually the Sloan was on the crease side, it was actually paying through September 30th, but there, you know, unfortunately it seems to be a dispute between the two partners and there's a maturity on that loan in November . So given the dispute, you know, we believe it was prudent to move that loan into NPA, you know, we believe it was secured on it, have a personal guarantee on it is a previously identified, criticized loan. So, you know, a couple of, you know, small items here, you know, not really seeing any trends in the overall portfolio. And, you know, like we pointed out in the prepared remarks, you know, class, criticized and classified flat, overall, net charges have remained pretty stable, not really seeing anything.
Speaker Change: in the 30-80-90, the bucket is actually down 28% so overall it's pretty steady, you know, a couple of small items here. And we can didn't continue to have no issues in the multi-pallent portfolio.
Speaker Change: Right, and maybe just kind of on the multi-family portfolio, I'm assuming a good chunk of the backbook reprisive multi-family, but just kind of curious if you think that pace of pay downs and run off maybe accelerates here as you go through the next 12 to 24 months.
Speaker Change: with our portfolio not having any real maturities or repricings in the near term, it's going to be probably toward the latter part of 2025 that you really see a pickup, which will dovetail with the not only maturities and repricings but also the rate reductions in terms of debt funds will work together, and I think at that point you'll see an acceleration and prepayments.
Speaker Change: Okay, excellent. Well, I really appreciate all the color and the good outlook here so I'll step back into a cute.
Speaker Change: Our next question comes from Manuel Navas of DA Davidson, your line is open.
Speaker Change: Hey, good morning. One quick clarification. Did you say low growth by the other year at a certain level? I just, I think I just missed that number. Yeah, yeah. So, what Stu said, Manuel was, you know, expect to be approximately 11 billion and total gross loans. So this quarter, I think we were 10.88, 85 or 10.875. So I probably assume another $125 million of net loan growth in between Q3 and Q4.
Speaker Change: How is kind of rate cuts driving the pipeline? I mean, it seems strong. How is borrower sentiment and borrower sentiment headed into next year? I know you're as too early as budget next year, but
Speaker Change: How do you feel like low growth should be impacted by borrower sentiment at current level? Yeah, at this point, and particularly because of the type of lending, we're really focusing on, which is the CNI on our off-site green healthcare, we're seeing quite a bit of activity and interest. And I do think that the rate environment helps that along. So, we have a very strong pipeline and a constant flow of new deals that we're looking at. Of course, we're being somewhat conservative and picky, as we always are. But I think there's a lot more activity than there was six months ago.
Speaker Change: I appreciate that. I should be over to provision expense and kind of the thought process behind the pace of getting to that 90 to 100 basis point level of reserves. How should I think about that over the next?
Speaker Change: 5 to 6 quarters. You're going to get halfway there by your end or maybe get there by the end of next year. Just stop from that.
Speaker Change: I think Stu Sedan is prepared remarks, right, goal over the next nine to 12 months. It's hard to see two years down the road. So over the next nine to 12 months we expect to be in the 90 basis points to 1% area. Look, I'm just going to use round map here. I mean assuming the level of charge hours stays pretty constant. I mean the squad over around 4 million bucks.
Speaker Change: Again, using round numbers, they've worked between $9 and $10 million on a provision. That basically means that five to six basis point build per quarter. So, you know, we're at 78 basis points right now. So within, you know, three to four quarters, you probably end up there. It's kind of hard to predict. But, you know, I think, you know, as we, you know, evolved the business model, as Stu said, you know, it's a natural progression, you know, for our users of all the time. And, you know, that's kind of the current expectation. You know,
Speaker Change: Just like to reiterate, as I said in the prepared remarks, in this quarter we're on 4.5 million of the provision increase was solely tied to a model update that was tied to prepayment speeds in the overall market and pay all loses free data. I didn't really have anything to do with dime spread quality. So we'll see what the quarter is ahead bring, but I think that's probably a reasonable expectation going forward. Yeah, we're in the midst of working on our budget as we get into this last quarter and looking at our growth scenarios in terms of the loan origination side. And as I said, with the origination skewed toward business loans, as I said.
Speaker Change: Last Quarter, you know, there's obviously a natural progression that's going to occur. So in terms of the download law's provision as well.
Speaker Change: I love it.
Speaker Change: That's really helpful.
Speaker Change: Thank you, I'll step back into the queue.
Speaker Change: Our next question comes from Mark Fitzgibbon of hypersandlers. Your line is open. Hey guys, good morning.
Speaker Change: Hey, Mark. Hey, Mark. How are you? Good. Just to clarify, on that 20 million dollar increase in non-performers, that was a partnership dispute. There's no specific reserve or anything against it. You feel like you'll come out of that hole once the partnership situation
Speaker Change: Okay, great. And then secondly, this theory to wrist-based capital ratios kind of, it's come down nicely. I think you're at 487 now. You know, you have a target in mind for that, and how long does it take you to get there?
Speaker Change: Yeah, Mark, so I think, you know, what's happening right now is the payoffs on the multifamily increase side have not picked up yet, right? So we're running with the, you know, six to seven percent payoff speed, but, you know, Stu said as rates change, you know, and, you know, a few more rate cuts, you could see that start picking up. I mean, what we've consistently said is, you know, we'd like to be in the low 400s, you know, plus or minus. It's just natural evolution of the portfolio, you know, especially as we put on, you know, more business loans, I'd say, you know, over the course of the next, you know, 12 months, you know, operating in the low 400s, there's a, you know, target ahead of us. We're going to get that gradually, you know, we have a plan. We obviously did the sub debt issuance in June , which, you know,
Speaker Change: which helped us get below that optically, you know, bond number of 500 percent, I'd say over 12 months, low 400 is probably a good marker for us.
Speaker Change: Okay, great. And then I heard you comments about, you know, hiring and teams and some of the expense and issues, but um, you know, it sounds like you're still looking, you know, you're interviewing people and I guess I wonder how realistic is it that you're going to be able to hold costs flat for the next couple quarters if you continue to hire people. You know, what what are some of the areas where there's opportunity to offset that?
Speaker Change: Yes, so the next couple of quarters, Mark, nobody's really moving in Q4, just who said because we're pretty close to bonus time, so really, you know, bring on somebody, it's more like an April first thing at this point, because people get paid in February and March, so I guess directly to answer the next couple of quarters, and we try to put this in the press release. Everything is fully loaded, you know, in here in the run rate. I mean, obviously there's a team we brought on this year, you know, we added people to our treasury management side, our operations side, so all that's fully there in the numbers right now. I'd say if there's an opportunity next year, you know, to add a substantial amount of teams, we'll do it, and the teams will pay for themselves very quick. So, you know, the guidance for, you know, keeping it flat next year, assuming the team right now stays, you know, consistent with
Speaker Change: what we have. I think we've always been very efficient but we continue to look at areas for savings across the bank. I think when the Stu said we're finishing our budget process right now, so when we get into next year, we'll probably have more details on the exact initiatives. But I think for modeling purposes, what I would assume is assuming the current team over here, our goal is to keep expenses relatively flat within that 57 and 58 million area for Q4, keep that flat into 2025. Obviously if we hire more teams and add to the expense base off, we need to look at additional savings over that. But then that's going to come with additional name expansion. And the teams we've hired so far, they've basically paid for themselves within six months.
Speaker Change: So I think that will be, you know, a cherry on the top will be get to that point next year.
Steve Moss: Okay. And then I guess I was curious, Stu, on your, you know, how you think about potentially doing acquisitions and if you are interested in doing acquisitions, you know, what kinds of things would you be looking for in potential partners?
Speaker Change: Look, I mean, you know, to some degree, we did an acquisition, you know, last year without really doing an acquisition, right, growing $1.5 billion in new deposits and new relationships is significant. I would venture to say there are not a lot of institutions that could...
Speaker Change: Kid does.
Speaker Change: could say that they had that kind of growth, particularly in core deposits. Look, we've always been very conservative and looked at opportunities that make sense for the institution, for to franchise and for to franchise value on their shareholder. Look, there's not a lot of potential candidates within our footprint, and certainly we're open to looking, but really we're focusing more on organic growth, particularly after last year's success or this year's success in terms of the new teams we brought onboard. We think there's quite a bit of runway.
Speaker Change: Still a little bit had there.
Speaker Change: So acquisitions are not sort of a priority one.
Speaker Change: I mean, I think Mark, if you look at our footprint, there's a very limited amount of banks out there that makes sense. Obviously, what Dime is known for is having a great deposit base. Obviously, that's front and center. Everybody's point of view. There's very few candidates that probably meet that, and all the stars need to align. I think what's spending our time on interviewing people from the bigger banks that have been disrupted, as you know, there's another mojo namak, you know, a couple months back. So the talent acquisition of opportunity is significant at this point, and the full bank.
Speaker Change: You know, opportunity, I mean, that just, you know, a lot of things have to go right for that to happen. So I'd say, you know, focus is really on the following. Yeah, I mean, suffice to say, Mark, and you guys have known, known us for a long time. I mean, we're always looking to maximize your overall value. So, if there's an opportunity out there, you know, what's strongly going to explore it, but it's got to be the right deal for us. [inaudible]
Speaker Change: Thank you.
Speaker Change: Our next question comes from Matthew Brice of Stephen Tank. Your line is open.
Speaker Change: Good morning, everybody. I appreciate very much the NIM Outlook. I was hoping you could talk a little bit about behind the NIM Outlook, just expectations around deposit betas and loan betas haul it over the next year, and then could you remind us of what percentage of loans are kind of fit into pure floating rate, you know, price stuff I saw for a prime.
Speaker Change: I'll start off with the deposit side of the balance sheet. I'll give you some weighted average rates, Matt, so you can kind of extrapolate from that. So the joint ability at our spot
Speaker Change: Cost of total deposits was 269
Speaker Change: and September 30, the spot cost of total deposit was 239.
Speaker Change: And so this quarter was a little weird because the Fed cut happened on September 17th, so the cost of deposits for this quarter was 265, so it was only 4 basis points below the June 30th number, but the way we looked at it is, let's look at it one day before the Fed cut to 30 days afterwards. So on the deposit side, that's basically been a significant decline from probably around 30 basis points plus or minus on the deposit side, so if we sit here today, the cost of deposits is closer to 235.
Speaker Change: So, I think if you think about it, you know, we started at, you know, 65, we're basically at, you know, 235 at this point, that's that's 30 basis points for a 50 basis point rate cut, you're talking about a 55 to 60% total deposit pay, the interest bearing piece of that is obviously higher because we have a high proportion of non-interest bearing deposits, right. Now, obviously, you know, we've tried to, you know, get past through the whole 50 basis points to everybody, you know, you're going to have some customers come back and, you know, make us change rate here and there. So, I think we've got to have a little bit more time to, you know, comment on, you know, where we think we're going to be way down the road, but it seems like at least the first 30 days of experience has been...
Speaker Change: around a 55% total deposit paid up. On the loan side, the loan rates have come down around 10 to 11 basis points plus or minus. So I think it's closer to the 20 to 25% area on the loan side, and that's assuming a static loan balance sheet. The difference on the loan side is, as Stu said, as we're putting on more loans, you should get around three to four basis points per quarter. Assuming we have $200 million of originations every quarter, you should see three to four basis points of benefit from that, which is going to offset any pure reprise. But I'd say 20 to 25% on the loan side, and probably around 55% on the deposit. At this point is what we'll see.
Speaker Change: I appreciate all that. And then just what is the percentage of pure floating rate loans that are priced off so far?
Speaker Change: I believe that number is around 35% plus or minus, but that includes a portfolio year hedge that we have was around $500 million, so excluding the portfolio year hedge, it's probably closer to 27 to 28, and then with the portfolio year hedge it's probably 35%. So 35% all in is probably a reasonable number.
Speaker Change: Yeah, okay, for a second.
Speaker Change: And then within the deposits, could you just comment on the areas where you had the most success kind of achieving that call 55 to 60% The deposit bait is out of tune with some of the higher price savings and money market.
Speaker Change: A Praxion of New Business Customers, but...
Speaker Change: I mean, we really spent a good deal of time in anticipation of the rate cut and you know, really put everything at the bucket's world and went through.
Speaker Change: or all our high-rate customers and worked our way down, and I would say with very few exceptions, we really were able to go to the full level of the cut on the vast majority. And we haven't gotten a huge pushback at this point either. But we were really able to move the money market, high-rate savings, customers, and certainly the business and municipal customers very quickly.
Speaker Change: And that's obviously a crew to our benefit and you see that in a numbers.
Speaker Change: So two things I'd point out, Matt, that I don't use what unique to our customer base, but maybe slightly different than some other banks. One, we don't have a lot of time deposits on the balance sheet. And some of the time deposits that we do have are broker, and obviously the broker stuff is going to reprise 100%. I think the other benefit that we have, and I think this circling back to Steve's question earlier on deposit growth, is look, we have a source of growing deposits with the new groups that we've hired. There are some cases where...
Speaker Change: and you know, we're not paying the highest rate and, you know, it's really, you know, DDA focused and it's money market focused. But what I'm going with that is because we have new deposits coming in, we have the opportunity to say, you know, notice some existing customers that want the highest rates. An example is, you know, we had a municipal relationship that, you know, had a sizeable amount of deposits with us. It was a high rate deposit. And we went back to them in the third quarter and said, look, we can't pay you this rate. And so they reduced the size of their overall portfolio with us, but what that meant is NIM expansion there. So I think, you know, that should give you a sense that there's enough in the portfolio to repress down. But there's also stuff coming in at a lower rate that's helping us be very aggressive on the way down.
Speaker Change: Good night.
Speaker Change: Thank you very much. I appreciate it. Thank you. And then my next one, just looking at the C&I portfolio, how much of any of the growth is coming from shared national credits or syndicated credits. And could you provide how much within C&I fits into the shared national credit or syndicated type bucket?
Speaker Change: At this point we don't have any snicks.
Speaker Change: So, you know, we really have nothing in that marketplace.
Speaker Change: Yeah, everything, Matt, everything, you know, we actually actually I'll take that back Matt we have one it's 15 million dollars in this for a sports arena Yeah, and so mean typically the way we originate stuff Matt is you know there's a relationship you know a lot of times as club deals with us and you know other banks on the CNI side especially on the middle market space you know we try to manage our exposures and keep them within a within a reasonable level so you know sometimes there are you know multiple banks involved in you know on the CNI middle market side but you know we're not we're not buying participation from anybody on the CNI side
Speaker Change: Great. I will leave it there. Thank you so much. Take my questions.
Speaker Change: Our next question comes from Christopher O'Connell, CFA of Keith Brueff and Woods, who line is open.
Christopher O'Connell: Good morning.
Speaker Change: Hey Chris! Hey Chris! Hey Chris! The mic!
Christopher O'Connell: So I was hoping just to circle back to the reserve commentary and logistically between now and the next 19-12 months, moving up to the 19-200 basis point level, what are the actual internal drivers in the model that will drive that increase?
Speaker Change: Chris, I mean, the CSO model is a fairly complicated model. There's no one or two drivers within the model. I'm just being candid, right? So this particular quarter, for example, you know, we updated our prepayment speeds, you know, we updated pure blue loss history data as the data was coming in. I think, you know, something that's going to drive it going forward is the shift in, you know, loans, right? And so as we have mostly health care loans, that becomes, you know, a great percentage of our overall loan portfolio is something we're going to look at, right? And the reserving level on the CNX side is higher than the reserving level on the rest of the portfolio, right? So it's a combination of items, you know, it's hard to pinpoint, you know, one specific item.
Speaker Change: in the model. What I tried to do up front is, you know, if assuming all those people, and we have a $4 million, $4 million of charge-off levels, which has been what we've had the last couple of quarters, and the, in the reserving levels between 9 and 10, you're going to see five to six basis points out of that, right? You know, given, you know, tweaks we can make to the model and given the shift in the portfolio mix. So, it's a fairly complicated model. I mean, this quantitative factor, qualitative factors involved. But I think, you know, in general, we're just trying to give you a good sense of, you know, what's going on down the road.
Speaker Change: What are the business loan as a whole, I guess, on an average basis, under this new model, kind of being reserved at a level that's a bit above that or at the high end of that 90 to 100 basis points, or is it above that? Yeah, I mean, in general, we're probably reserving on CNI loans somewhere between 1.30 and 150 plus or minus, so it is above the overall, you're right, yes.
Speaker Change: The show answer is it's about the overall result, yeah.
Speaker Change: and then just, you know, on the margin dynamics going forward.
Speaker Change: You know, what's the, you know, any color on either the duration or the, you know, current maturity schedule for the CD portfolio.
Speaker Change: Yeah, so on the CD portfolio, the way I think about it, Chris, is really two distinct buckets, right? The first bucket is really, you know, the brokered CD bucket and the brokered CD bucket. That's pretty short term. That's basically every three months.
Speaker Change: the CD's reprise over there. So that's kind of 100% beta, a short term. Now that spread improvement of the 15 basis points that I talked about, that does not include the benefit of the broker because the broker's generally over three months. So we're going to have that benefit probably by December 31st if we did broker in our own September , right? In terms of non-broker deposits, we have around $275 million in Q4 here at a rate of around 4%, and then next year we have around $400 million at a rate of 370. So in total if you add up over the course of the next.
Speaker Change: Um...
Speaker Change: You know several quarters, you had really 275 for this quarter and then for next year it's around 4 and 50 so it's probably 125 million per quarter for next year. Now obviously with the CDs that the lag CD needs to mature, you know sometimes you're not passing on the full you know downward beta to the CD, you know you probably you know rates around 50 basis points probably going to drop CD rates around 35 basis points and then there's some attrition then and you need to raise new deposits. So I think more of the NIM benefits is going to come from and is coming from the money markets and saving site. The CDs are probably a longer term play. That being said the broker's CDs are going to be you know pretty much an immediate thing with the 3 month lag.
Speaker Change: Great. And then, um...
Speaker Change: I mean, it sounds like the pipelines are just as good as they've been going into the end of the year here and appreciate the update on Long Growth and the Q4. As you guys are getting into next year, loosely is that kind of how you think that will be the start to the year on net loan growth? And then, you know, as the multi-family, you know, maturities, you know, start to ramp up in the second half of the year. How are you thinking about kind of, you know, net loan growth, you know, I guess, you know, as that ramps up in the second half of 25?
Speaker Change: Yeah, look at, I think we're putting most of our...
Speaker Change: Pogging pieces in place, I know you're trying to get to 2025 guidance which you know I hate to say we typically always give that on in the January learnings call because we're going to stuff but I think just
Speaker Change: Holistically, some of it's going to depend on...
Speaker Change: The pay off rate on the multi-family increase side and what we decide to do with that So you know for example if loans are at 4% we may choose to retain some of them at 550 or 6 all we made you know choose to let them let them go right so I think it starts with that I think what we tried to say is that you know on the multi-family side you know we'd like that percentage over time to come down between between 25 and 30% right now we're at 37% right so in terms of constructing the optimal balance sheet we'd like that to be between 25 and 30% I think on the business side what you've seen so far is you know call it between you know 125 to you know 200 million dollars of loan growth you know every quarter at least for the last couple of quarters it seems like that's kind of the run rate that we're heading
Speaker Change: Down. So, I think if we choose to retain more of the multifamily and the crease side, then you would see a higher growth in the balance sheet next year. If those loans do go away Chris, then maybe it's a bit more of a portfolio remix at that point in time. I think the second half of this year we had guided to low double digit growth. I think that's as reasonable an assumption for the overall balance sheet for next year at this point in time. That being said, I think we have an opportunity to hire teams on both the deposit and loan side, and so that could change the guidance as we get into next year. Because as new teams come on, there could be a significant pipeline there.
Speaker Change: And then last one for me just as far as the new teams that have been coming on in January and in the deposits.
Speaker Change: has the mix of those deposits in terms of, you know, the DDA and the sparing deposits been, you know, as good, you know, better or worse than you guys are kind of originally expected.
Speaker Change: I think overall, exactly in line, like I said, we're probably between 35 and 40% DDA right now. It's a mix. I think when we initially did the modeling when we hired all the teams, our goal was to be profitable within a year for all the teams. Keep a relatively short payback period. We had various assumptions on that. We focused on the groups that had a higher percentage of DDA to start with, and so obviously hard moving DDA over. Now I think we've been positively surprised by the mix as well as the total deposit of coming so far, and as I said, within six months, you know, basically possible and all the teams. So I think, you know, you know, over the medium, you know, longer term, you know.