Q3 2024 Metropolitan Bank Holding Corp Earnings Call
Speaker Change: and I need audio assistance during your call today please rest RZ Row.
Operator: Welcome to the Metropolitan Commercial Bank's Third Quarter, 2024 Earnings Call.
Speaker Change: Welcome to the Metropolitan Commercial Bank 3rd Quarter 2024 earnings call. hosting the call today from Metropolitan Commercial Bank, our Mark DeFazio president and chief executive officer, and Dan Dorty, Executive Vice President and Chief Financial Officer.
Operator: Hosting the call today from Metropolitan Commercial Bank, our Mark DeFazio, President and Chief Executive Officer, and Dandori, Executive Vice President and Chief Financial Officer.
Operator: Today's call is being recorded. At this time, all participants have been placed in a listen-only mode, and the floor will be open for your questions following the prepared remarks. If you would like to ask a question at that time, please press star one on your telephone keypad. If at any point your question has been answered, you may remove yourself from the queue by pressing star two. We ask that you please pick up your handset to allow optimal sound quality. Lastly, if you should require operator assistance, please press star zero.
Speaker Change: Today's call is being recorded, at this time, all participants have been placed in a listen only mode and the floor will be open for your questions following the prepared remarks.
Speaker Change: If you would like to ask a question at that time, please press star 1 on your telephone keypad. If at any point your question has been answered, you may remove yourself from the cue by pressing star 2. We ask that you please pick up your handset to allow optimal sound quality.
Operator: During today's presentation, reference will be made to the company's earnings release and investor presentation, copies of which are available at mcbankny.com. Today's presentation may include forward-looking statements that are subject to risks and uncertainties that may cause actual results to differ materially. Please refer to the company's notices regarding forward-looking statements and non-GAAP measures that appear in the earnings release and investor presentation.
Speaker Change: Lastly, if you should require operator assistance, please press R&D Row.
Speaker Change: During today's presentation, reference will be made to the company's earnings release in investor presentation. copies of which are available at MCBankNY.com.
Speaker Change: Today's presentation may include forward-looking statements that are subject to risk and uncertainty that may cause actual results to differ materially. Please refer to the company's notices regarding forward-looking statements and non-gabmeasures that appear in the earnings release and investor presentation. It is not my pleasure to turn the floor to Mark DeFazio. President and Chief Executive Officer, you may begin.
Mark Defazio: It is now my pleasure to turn the floor to Mark DeFazio, President and Chief Executive Officer. If you may begin.
Mark Defazio: Thank you, Ashley. Good morning, and thank you all for joining our third quarter, MCB Ernie's call. MCB delivered another strong core financial performance in the third quarter. Our results are underpinned by our commercial banking franchise and our commitment to excellent customer service. During the third quarter, we posted strong top-line growth with significant name expansion.
Martha Fazio: Thank you, Ashley. Good morning and thank you all for joining out third quarter, MCB earnings calls. MCB delivered another strong core financial performance in the third quarter. Our results are underpinned by our commercial banking franchise and our commitment to excellent customer service.
Martha Fazio: joins the third quarter we posted strong top-line growth with significant image expansion.
Mark Defazio: The outlook for monetary policy indicates that we are at the beginning of an easing cycle. While the pace and depth of that cycle is unknown, any further easing will benefit from the bank's earnings momentum. During the quarter, we thoughtfully grew the balance sheet while maintaining our price discipline on both loans and deposits. As well, we upheld our credit standards and continue to operate with a shop focus on liquidity and interest rate risk management. Looking forward, we expect continued growth in our loan book, supported by our branch-light deposit gathering initiatives.
Martha Fazio: The outlook for monetary policy indicates that we are at the beginning of an easing cycle.
Martha Fazio: While the pace and depth of that cycle is unknown, any further easing will benefit from the bank's earnings momentum.
Martha Fazio: During the court, we thoughtfully grew the balance sheet while maintaining our price discipline on both loans and deposits.
Martha Fazio: As well, we upheld our credit standard and continue to operate with a shop focus on liquidity and interest rate risk management.
Martha Fazio: Looking forward, we expect continued growth in our loan book, supported by our Branch Light, the Posit Gathering Initiative.
Mark Defazio: The bank reported earnings per share of $1.8. The reported figure includes $12.6 million, or 78 cents per share, in charges. Those charges included $2.6 million in pre-tax expenses associated primarily with the digital transformation investment and regulatory remediation. The balance of the charges was a result of the bank's posting a pre-tax $10 million reserve related to a pending settlement with a state attorney general. The settlement relates to a fintech relationship that was terminated in 2020. We gave a lot of thought as to whether we should litigate this matter. We determined that the cost of litigation and the continued distraction was not worth it, even with a likely positive outcome.
Martha Fazio: The bank reported earnings per share of $0.08 reported figure includes $12.6 million or 78 cents per share in charges.
Martha Fazio: Those charges included 2.6 million in pre-tax expenses associated primarily with the digital transformation investment and regulatory remediation.
Martha Fazio: The balance of the charges was a result of the bank posting a pre-tax $10 million reserve related to a pending settlement with a state attorney general.
Martha Fazio: The settlement relates to a fintech relationship that was terminated in 2020.
Martha Fazio: We gave a lot of thought as to whether we should litigate this matter. We determined that the cost of litigation and the continued distraction was not worth it even with a likely positive outcome.
Mark Defazio: Currently, related legal fees run hundreds of thousands of dollars per month, and we are not even in litigation.
Martha Fazio: Currently, related legal fees run hundreds of thousands of dollars per month, and we are not even in litigation. As I said in the first quarter of 2024,
Mark Defazio: As I said in the first quarter of 2024, this is the year we put all unfortunate and costly matters behind us. For the third quarter and year-to-date, our adjusted ROTC was 12% and 12.1%, respectively. We remain confident that, through the course of the next 12 to 18 months, we will once again achieve a mid-teens ROTC and a NIM approaching 3.75%. Of course, these forecasted results are subject to market conditions that are beyond our control.
Martha Fazio: This is the year we put all unfortunate and costly matters behind us.
Martha Fazio: For the third quarter and year to date, our adjusted razi was 12% and 12.1% respectively.
Martha Fazio: We remain confident that through the course of the next 12-18 months we will once again achieve a mid-teens razzi and a nim approaching 3.75%.
Martha Fazio: Of course, these four casted results are subject to market conditions that are beyond our control.
Mark Defazio: Please review our invested deck for a detailed walk-down of gap versus adjusted financial performance. The wind down of the GPG business is proceeding as scheduled. We remain committed to completing the exit by year end and confident in our ability to more than offset the deposit runoff with a diverse range of deposit verticals. As the quality remains strong, we have not identified any broad-based negative trends in any loan product, segment, geography, or sector that is impacting our portfolio. We have no new non-performing credits, and we remain confident that the workouts that are currently in flight will be resolved successfully in 2025.
Martha Fazio: Please review our invested deck for a detailed walk down of Gap versus adjusted financial performance.
Martha Fazio: The winding down of the GPG business is proceeding as scheduled. We remain committed to completing the exit by year end and confident in our ability to more than offset the deposit runoff with a diverse range of deposit verticals.
Martha Fazio: As the quality remains strong, we have not identified any broad-based negative trends in any loan product segment, geography or sector that is impacting our portfolio.
Martha Fazio: We have no new non-performing credits and we remain confident that the workouts that all currently in flight will be resolved successfully in 2025.
Mark Defazio: We believe that our healthy credit metrics are a direct result of MCB's pricing discipline, conservative underwriting, and portfolio diversification. Our performance is also supported by our exclusive focus on relationship-based commercial banking with high-quality commercial clients and sponsors and industry segments that we know well.
Martha Fazio: We believe that our healthy credit metrics are a direct result of MCB's pricing discipline, conservative underwriting, and portfolio diversification.
Martha Fazio: Our performance is also supported by our exclusive focus on relationship-based commercial banking with high-quality commercial clients and sponsors and industry segments that we know well.
Dandori: I will now turn the call over to our CFO, Dan Daryl.
Dandori: Thank you, Mark.
Speaker Change: I will now turn the cold over to our CFO Dan Darryt
Dandori: And once again, good morning everyone, and thanks for joining the call. To say that the third quarter was active at MCB is an understatement; the net interest margin increased by 18 basis points to 3.62 percent. While our loan pricing discipline and funding strategy continued to contribute to our outstanding nymph performance, this quarter's result requires additional explanation. Loan growth in the third quarter was a rather modest $58 million. What is not immediately evident in that growth metric is the underlying level of origination and payoff activity. We have rigidated loans totaling more than 450 million, while also experiencing payoffs and paydowns of approximately 400 million.
Dan Darryt: Thank you, Mark, and once again, good morning everyone and thanks for joining the call.
Dan Darryt: to say that the third quarter was active at MCB as an understatement.
Speaker Change: Today I'm just merging increased by 18 basis points to 3.62%.
Speaker Change: While our loan pricing discipline and funding strategy continue to contribute to our stating and performance, this quarter's result requires additional explanation.
Speaker Change: Lone growth in the third quarter, whether it was a rather modest $58 million.
Speaker Change: What is not immediately evident in that scrolls metric is the underlying level of origination and payoff activity.
Speaker Change: We've originated those totally more than 450 millions while also experiencing chaos and pay-downs of approximately 400 million.
Dandori: Focusing on those payoffs and paydowns, the associated deferred fees and pre-pimmed penalties that we recognize totaled $4.5 million. After we normalize that experience, we estimate that our nymph for the third quarter was approximately 3.5 percent. For the remainder of the year, we expect that our nymph will be approximately 3.45 to 3.5 percent again.
Speaker Change: Woke us seeing on those payoffs and paydowns. The associated deferred fees and pre-pimment penalties that we recognize total $4.5 million.
Speaker Change: After we normalize that experience, we estimate that our nimb for the third court was approximately 3.5%.
Speaker Change: For the remainder of the year we expect that our name will be approximately 3.45 to 3.5% again.
Dandori: The explanation for this expectation is driven by three main variables. The recently enacted 50 basis point reduction in the Fed funds rate, which we pass through to interest bearing deposits at a beta of approximately 75 to 80 percent, will be largely offset by the replacement of approximately 700 million of GPG deposits with a current cost of about 1.25 percent. We expect to use both core deposits and wholesale funding on a temporary basis to replace those GPG outflow.
Speaker Change: The explanation for this expectation is driven by three main variables.
Speaker Change: The recently enacted 50 basis point reduction in the Fed phones rate, which we passed through to interest-bearing deposits at a beta of approximately 75-80% will be largely offset by the replacement of approximately 700 million of GPG deposits with a current cost of about 1.25%.
Speaker Change: We expect to use both court deposits and wholesale funding on a temporary basis to replace those GPG outflows.
Dandori: House. We have assumed a replacement rate of 4.25% in our fourth quarter forecast. It is noteworthy that while interest bearing deposits totaled approximately 4.5 billion at September 30, the balance of deposits that reprised with FedMove was approximately 3.7 billion. The deposits not reprised include deposits swapped to fixed and deposits that already carry a very low coupon. In addition, the reprising of approximately 1.5 billion of prime and sulfur index loans will temper the near-term and imperfections. In our updated forecast model, we have penciled in a single 25 basis-point rate cut in November. Looking forward to 2025, we have modeled an additional 4.25 base-point rate cuts, effectively 1.25 base-point cut per quarter.
Speaker Change: We have assumed a replacement rate of 4.25% in our fourth quarter forecast.
Speaker Change: It is not worthy that while inches bearing deposits total approximately 4.5 billion at September 30, the balance of deposits that were priced with Fed Move was approximately 3.7 billion.
Speaker Change: The deposits are not reprased, include deposits swapped to fixed, and deposits that already carry a very low coupon.
Speaker Change: In addition, the reprisable approximately 1.5 billion of Prime and Silver Index loans will temper the near-term name performance.
Speaker Change: In our updated forecast model, we have penciled in a single 25-base point rate cut in November. Looking forward to 2025, we have modeled an additional 4-25-base point rate cuts, effectively 1-25-base point cut per quarter.
Dandori: As Mark mentioned, in that scenario, and reflective of numerous other assumptions, we believe that our name can grow to 3.75% by the end of 2025.
Speaker Change: As Martin mentioned, in that scenario and reflective of numerous other assumptions, we believe that our name can grow to 3.75% by the end of 2025.
Dandori: Let's focus on the loan book. The weighted average coupon on our new volume originations in the third quarter was 7.97%. A significant balance of floating rate loan payoffs in the quarter resulted in an elevated payoff coupon of 8.16%. Looking forward, the weighted average coupon of fourth quarter maturities totaling about $600 million is 7.4%. And for the first half of 2025, the weighted average coupon of maturities totaling about $750 million is approximately 6.85%. And just to be clear on that one, looking at our maturities that are renewed, we typically retain about 80 to 85% of those loans.
Speaker Change: Let's focus on the loan book. The weighted average coupon on our new volume originations in the third quarter was 7.9%
Speaker Change: A significant balance of floating rate load payoffs in the quarter resulted in an elevated payoff coupon of 8.16%.
Speaker Change: Looking forward, the weighted average coupon of fourth quarter materties, totaling about $600 million, is $7.4% and for the first half of 2025, the weighted average coupon of materties totaling about $750 million is approximately $6.85%.
Speaker Change: and just be clear on that one.
Speaker Change: Looking at our materties, that are renewed, we typically retain about 80 to 85% of those loans.
Dandori: You're today, the loan book has grown about $275 million, and we expect the year-to-end with total loan growth from about $500 million. Deposit increased by approximately $100 million in the quarter. Interest bearing deposits increased by approximately $200 million, while non-interest bearing deposits, primarily related to GPG, declined by about $100 million. The HOA and retail deposit verticals experience the bulk of the growth in the quarter. Your to date deposits are up more than $500 million net of GPG outflows. Importantly, the outlook for growth across our deposit vertical stack, especially in the EB5, HOA, municipal, and head 31 verticals, is robust.
Speaker Change: You're today at the loan book has grown about $275 million and we expect the year to end with total loan growth of about $500 million.
Speaker Change: Deposits increased by approximately $100 million in the quarter. Inchris buried deposits increased by approximately $200 million, while none inchris buried deposits primarily related to GPG, declined by about $100 million.
Speaker Change: The HOA and retail the positive verticals experienced the bulk of the growth in the quarter.
Speaker Change: You're today the pilots are up more than $500 million in head of GPGL flows.
Speaker Change: Importantly, the outlook for growth across our deposit vertical stack, especially in the EB-5, H-O-A, municipal and 1031 verticals, is robust.
Dandori: As Mark mentioned previously, asset quality remains strong, with no identifiable negative trends within the portfolio. The provision in the third quarter was impacted somewhat by the significant amount of origination and pay off activity in the quarter. Effectively, the duration of the loan book extended modestly as short-dated loans were replaced with new originations. In the ACO model, the added duration results in a modest uptick in the allowance rate. Non-interest income for the quarter was basically unchanged quarter over quarter at $6.2 million. GPG-related revenue was approximately $3.5 million. As we wind down the GPG business, this revenue will turn to zero.
Speaker Change: As Mark mentioned previously, acid quality remains strong, with no identifiable negative trends within the portfolio.
Speaker Change: The provision in the third quarter was impacted somewhat by the significant amount of origination and payoff activity in the quarter.
Speaker Change: Effectively, the duration of the loan book extended modestly as short-dated loans were replaced with new originations. In the ACO model, the added duration results in a modest uptick in the allowance rate.
Speaker Change: 9 inches income for the quarter was basically unchanged quarter over quarter at $6.2 million. GPG related revenue was approximately $3.5 million.
Dandori: Our total net interest income expectation for 2024 is $21 to $22 million.
Speaker Change: As we wind down on the GPG business, this revenue will turn to zero. Our total net interest income expectation for 2024 is $21 to $22 million.
Dandori: Service. Niners to expenses total $51.3 million in the third quarter. As Mark mentioned, this quarter was impacted by a $10 million reserve booked to resolve an investigation within a state Attorney General. Expenses related to the digital transformation investment were $1.9 million, and an additional $700,000 was related to regulatory remediation work and costs associated with the GPG wine dome. For the fourth quarter, I expect nine inches expenses will decline about one to three percent quarter of a quarter, as a reduction in professional fees will be largely offset by elevated comp and benefits, as the build out of our risk management and compliance teams has happened more quickly and at a greater cost than expected.
Speaker Change: Not just expenses total 51.3 million dollars in the third quarter. As Mark mentioned, this quarter was impacted by a 10 million dollar reserve booked to resolve an investigation within a state attorney general.
Speaker Change: Expenses related to the digital transformation investment were $1.9 million and an additional $700,000 was related to regulatory remediation work and costs associated with the GPG wind down.
Speaker Change: For the fourth quarter, I expect none of your expenses will decline about one to three percent quarter over quarter, as reduction in professional fees will be largely offset by elevated competent benefits, as the build out of our risk management and compliance teams has been more quickly and at a greater cost than expected.
Dandori: Therefore, the revised full-year estimate is approximately $164 million to $166 million, net of the settlement reserve. The effective tax rate for the quarter was approximately 30%.
Speaker Change: Therefore, the revised Fulier estimates approximately 164 million to 166 million net of the settlement reserve.
Dandori: Going forward, we expect the effective tax rate to be in the range of 31 to 32%, excluding discrete items. A note on early 2025 guidance. We expect loan growth to continue in the range of 10 to 12%. We expect nine interest income growth of 6 to 8%, excluding GPG's contribution, of course. Operating expenses are expected to be flat. Now, importantly, my previous guidance for a clean OPEX run rate in the low 150 still stands. The timing of the achievement of that goal is expected to be toward the end of 25 into 2026.
Speaker Change: The effective tax rate for the quarter was approximately 30% going forward. We expect the effective tax rate to be in the range of 31 to 32% excluding discrete items.
Speaker Change: A couple of notes on early 2020, 25 guidance. We expect loan growth to continue in the range of 10 to 12 percent. We expect non-interest income growth at 6 to 8 percent, excluding GPD's contribution of course.
Speaker Change: Operating expenses are expected to be flat.
Speaker Change: Now, importantly, my previous guidance for a clean optics run rate in the low-150s still stands. The timing of the achievement of that goal is expected to be toward the end of 25 into 2026.
Dandori: Finally, please refer to the updated investor deck, which can be accessed from our website for a walk down from reported earnings to nine gap adjusted earnings. Here today at the accumulated, accumulated one-time charges related to their settlement reserve, the digital project, regulatory remediation and batch exit total approximately $23 million or about $16 million after tax.
Speaker Change: Finally, please refer to the updated investor deck, which can be accessed from our website for a walk down from reported earnings to 9GAP adjusted earnings.
Speaker Change: You today, the accumulated one-time charges related to their settlement reserve, the digital project, regulatory remunation, and best exit total approximately $23 million or about $16 million after tax.
Operator: I will now answer in the call back over to the operators.
Operator: Thank you. Thank you, and the floor is now open for your questions. At the time, if you have a question or comment, please press star one on your telephone keypad. If at any point your question has been answered, you may remove yourself from the queue by pressing star two. Again, we do ask that while you pose your question, that you have to cut your handset to a provide optimal sound quality.
Speaker Change: I will now turn the call, back over to the operator.
Speaker Change: Thank you, and the floor is now open for your questions. At this time, if you have a question or comment, please press star 1 on your telephone keypad. If at any point your question has been answered, you may remove yourself from the queue by pressing star 2.
Operator: Thank you.
Mark Fitzgibbon: Our first question is coming from Mark Fitzgibbon with Piper Sandler. Please go ahead.
Speaker Change: Thank you. Our first question is coming from Mark Fitzgibbon with Piper Sandler. Please go ahead.
Mark Fitzgibbon: Hey, guys. Good morning. First question I have was sort of around the regulatory reserve. I guess I was under the impression that stuff was behind at this point, and so the $10 million reserve and the additional regulatory remediation cost kind of surprised me. I guess I could. I'm curious, what prompted that? Was there a discussion with the regulators that you felt like you needed to put some additional reserves up, or was there some sort of action that they've required from the company?
Mark Fitzgibbon: Hey guys, good morning. First question I have was sort of around the regulatory reserve. I guess I was under the impression that stuff was behind at this point, and so the $10 million reserve and the additional regulatory remediation cost kind of surprised me, and I guess I could, I'm curious what prompted that? Was there a discussion with the regulators that you felt like you needed to put some additional reserves up, or was there some sort of action that they've required from the company?
Mark Defazio: Well, it really wasn't the bank regulators in this instance. This is linked to the exact same matter where we had the settlement with our banking regulators that go back to March of 2020. So, we have been continuing to update our disclosures in our choosing case and indicated that there is the likelihood of something still to be out there. It just took this amount of time to finally hopefully settle with a state attorney general, and it turns out that the state that we're referencing happens to be the exact same state where this particular client operated at.
Speaker Change: Well, it really wasn't the bank regulators in this instance. This is linked to the exact same matter where we had this settlement with all banking regulators.
Speaker Change: that go back to March of 2020. So we have been continuing to update our disclosures in our choosing case and indicated that there is the likelihood of something still to be out there. It just took this amount of time to hopefully settle with a state attorney general and it turns out that the state that we're referencing happens to be the exact same state where this particular client operated at him. So it's not a new matamok. This has been going on since March of 2020. Very slow walk and getting it behind us and now we are very confident it is.
Mark Defazio: So, it's not a new matamark. This has been going on since March of 2020. Very slow walk and getting it behind us, and now we are very confident it is. is. So, you don't expect any additional regulatory cost beyond this quarter. Or any additional costs related to this, I should say. I do not. Okay, great.
Speaker Change: So, you don't expect any additional regulatory cost beyond the squater.
Speaker Change: for any of these eight months related to this, I should say.
Mark Fitzgibbon: Second question is, I wondered if you have a goal in mind for the CRE to risk-based capital ratio. I think it was 353 in the most recent quarter, and it feels like a lot of banks are walking down to the 300 percent regulatory guidance. Are you of that mindset as well? Are you comfortable staying up north of that? Well, our internal targets are a bit higher than that, and those numbers do get reviewed. Those targets, I should say, do get reviewed by our regulators, and to date, they've been very comfortable, I guess, with the historical performance about the portfolio and the portfolio profile.
Speaker Change: I do not.
Speaker Change: Second question is, I wonder if you have a goal in mind for the CRU to risk-based capital ratio. I think it was 353 in the most recent quarter and it feels like a lot of banks are walking down to the 300% regulatory guidance. Are you of that mindset as well? Are you comfortable staying up north of that?
Speaker Change: Well, internal targets is a bit higher than that, and those numbers do get reviewed. Those targets, I should say, do get reviewed by our regulators and to date, they've been...
Speaker Change: is a very comfortable, I guess, with the historical performance about the portfolio, when a portfolio profile, but between our retained earnings, we tend to likely stay in that range of that 350, even with the kind of growth projection. So we don't ever anticipate getting to our internal targets, but I would imagine we would probably run in place.
Mark Defazio: But, between our retained earnings, we tend to likely stay in that range of that 350, even with the kind of growth projection. So, we don't ever anticipate getting to our internal targets, but I would imagine we would probably run in place with a slight increase over time, but likely more run in place.
Dandori: May I interject there, Mark, as well? So, it's not really a target. It's a policy limit, right? So, we have a policy limit that's north of that 350. We have no plan to approach the policy limit, but by the same token, we've had no discussions with our regulators showing undue concern about us running slightly north of the 300 percent.
Speaker Change: with a slight increase over time, but likely more running place. May I add, Interject, there, Mark as well. So it's not really a target, it's a policy limit, right? So we have a policy limit that's north of that 350. We have no plan to approach the policy limit, but by the same token, we've had no discussions with our regulators showing undue concern about us running slightly north of the 300%.
Mark Fitzgibbon: Okay, great. And then, Dan, just a couple of modeling questions, just to clarify your guidance, you expect the margin to be down, you know, sort of call it 12 to 15 basis points in the fourth quarter. The last couple of quarters, your guidance has been a little low on where the margins likely to fall out.
Speaker Change: Okay, great. And then, Dan, just a couple of modeling questions just to clarify your guidance. You expect the margin to be down, you know, sort of, call it 12 to 15 basis points in the fourth quarter. The last couple of quarters, your guidance has been a little low on where the margins likely to fall out. What gives you confidence that the margin will be down that much in the fourth quarter? Yeah, so remember that this, this reported NIN.
Dandori: What gives you confidence that the margin will be down that much in the fourth quarter? Yeah. So, remember that this reported NIM included an outsize experience related to deferred fee recognition as well as pre-payment penalty. So, my, I think my forecast is spot on, and I think we're going to end the year right around 350. Of course, there is a headwind with the outflow of the GPG deposits, which have all kind of accumulated into the fourth quarter. But given my assumption set, I think I'm very confident that, you know, that we'll get back, we'll stay with the normalized three and a half percent.
Speaker Change: Included an outsized experience related to deferred fee recognition as well as pre-payment penalties So my I think my forecast is spot on and I think we're going to end the year right around 350 Of course there is a headwind with the outflow the GPG deposits which have all kind of accumulated into the fourth quarter
Speaker Change: But given my assumption set, I think I'm very confident that, you know, that we'll get back, we'll stay with the normalized three and a half percent. Yeah, there's a little bit of, I need a little bit of will of room, but at the end of the day, so I'm kind of 345, 350, but that's just, that's reflects a stable name. 362 was an outlier because of those outside penalties and fees. 362 was an outlier because of those outside penalties and fees and fees and fees and fees and fees and fees and fees and fees and fees and fees
Dandori: Yeah, there's a little bit of, I need a little bit of willeroom, but at the end of the day, so I'm kind of 345, 350, but that's just; that reflects a stable NIM.
Dandori: 362 was an outlier because of those outsize penalties and fees.
Mark Fitzgibbon: And then do we think that all of the GPG revenues will be gone in the first quarter, or they'll just be a little bit of, you know, residual.
Speaker Change: And then do we think that all of the GPG revenues will be gone in the first quarter, there'll just be a little bit of residual.
Mark Defazio: In the fourth quarter, there'll be a little bit, sorry, not in the fourth quarter, in the, by say the first quarter of next year, do we think all the GPG revenues will be pretty much out? Yes, absolutely.
Speaker Change: in the fourth quarter, they'll be not sorry, not in the fourth quarter in the fifth. By say the first quarter of next year, do we think all the GPG revenues will be pretty much out?
Mark Defazio: Okay, absolutely.
Dandori: And then, last question, I just kind of missed your comment on deposit flows for the fourth quarter. So, you know, our week-by-weekly deposit meetings are suggestive of very productive results during the fourth quarter. The EB-5 team has got a really outstanding pipeline, expecting some pick up there. We continue to make progress under 1031 tidal escrow technology implementations, and so that should, that's probably a 25 thing more so, but I'm further to our deposits, verticals, HOAs, and munis, which have been outstanding contributors year-to-date, are expected to further contribute in the fourth quarter. So my expectation for replacing those GPG deposits is I'm kind of 50-50.
Speaker Change: That's absolutely
Speaker Change: Okay, absolutely. And then last question, I just kind of missed your comment on deposit flows for the fourth quarter.
Speaker Change: So, you know, our week by week lead deposit meetings are suggestive of a very productive
Speaker Change: Results during the fourth quarter.
Speaker Change: The EB-5 team has got a really outstanding pipeline expecting some pick up there. We continue to make progress under 1031 Title S-scrow technology implementations and so that should, that's probably a 25 thing more so, but on further to our deposits of verticals, HOAs and munis, which have been outstanding contributors year-to-date, are expected to further contribute in the fourth quarter. So my expectation for replacing those GPG deposits.
Dandori: We'll probably need to use 300 to 400 million of wholesale, but I think I can put the rest of it back on in court deposits. And I think 4 to 4% is a very conservative estimation of what that cost of money will be.
Speaker Change: is, I'm kind of 50-50, we'll probably need to use 300 to 400 million of wholesale, but I think I can put the rest of it back on in court deposits and I think 4% of quarter percent is a very conservative estimation of what that cost of money will be.
Mark Fitzgibbon: Great, thank you. Thank you.
Speaker Change: Great, thank you.
Chris O'Connor: We will take our next question from Chris O'Connor with KVW. Please go ahead. Morning. Good morning, Chris. Hi. Did I hear right on the fourth quarter, or I guess, you know, the full year loan growth is 500 million, so that implies like, you know, little just I like 250 million of net loan growth in the fourth quarter. Correct. 200 to 250. Got it.
Speaker Change: Welcome.
Speaker Change: Thank you, we will take our next question from Chris O'Connor with KVW, please go ahead.
Speaker Change: Good morning. In morning, Chris.
Chris O'Connor: Hi. Did I hear right on the fourth quarter or I guess the full year loan growth is 500 million. So that implies like, you know.
Chris O'Connor: Little Shirt just dialed like 250 million of net loan growth in the fourth quarter.
Chris O'Connor: 2250.
Mark Defazio: And just maybe, you know, some color as to, you know, what type of loans those, you know, are and is it just a backup in the pipeline, you know, from the, you know, the past couple quarters and then just what type of origination you know, do you guys are looking at? You know, nothing different than historical. You know, we tend to stick to the industries that we're very comfortable with. You'll probably see in the majority of the closings will be in CNI and in healthcare, and with a good contribution of commercial real estate as well, but the majority will likely be in, in CNI and healthcare.
Speaker Change: Got it. And just maybe some color of what type of loans are in just the backup and the pipeline from the past couple of quarters and then just what type of origination units you guys are looking at.
Speaker Change: You know, nothing different than historical, you know, we tend to stick to the industries that we're very comfortable with. You'll probably see in the majority of the closings will be in C&I and in healthcare and with a good contribution of commercial real estate as well, but the majority will likely be in C&I and healthcare.
Mark Defazio: And any color on just the origination yields that you guys expect? Oh, I don't expect a material deviation from what you saw in the third quarter, so certainly between seven and a half and eight percent. Got it. Thanks.
Speaker Change: and any color interests the origination yields that you guys expect.
Speaker Change: Oh, I don't expect a material deviation from what you saw in the third quarter, so certainly between seven and half an eight percent.
Chris O'Connor: And then, I'm just of one time costs going forward, not on the digital initiative, but the, the regulatory and I get that the, you know, the 10 million, you know, kind of puts an end to any of the settlement charges. Is there still going to be, you know, a smaller amount of kind of regulatory, you know, remediation that we saw in the first half of the year for the next couple of quarters? Or do you expect that to fall off as well? I would think that you're going to see a, a continued drop to be conservative through the second quarter.
Speaker Change: Got it, thanks!
Speaker Change: and then, I'm just a one-time cost going forward, not on the digital initiative, but the regulatory, and I get that the 10 million kind of puts an end to any of the settlement charges, is there still going to be a smaller amount of regulatory remediation that we saw in the first half of the year for the next couple of quarters, or do you expect that to fall off as well?
Speaker Change: I would think that you're going to see a continued drop to be conservative through the second quarter that would be a bit conservative, but hopefully you'll see a consistent drop in the first quarter and then a complete end to any outside expense clearly by June.
Dandori: That would be a bit conservative, but hopefully you'll see a consistent drop in the first quarter and then a complete end to any outside expense clearly by June.
Dandori: Okay, great. And then, you know, on the expense guide, and just kind of the overall, you know, commentary going out from here, you know, the early, the early 2025 look, I think you said flat. You just confirm what that flat number is to, but to fool your 24, to the 164 to 166. And is that inclusive of the digital transformation that's coming in at one time cost for the first half of 25? It is indeed, yes. So that's when I, when I finish that project, when I, you know, that's a big driver for the movement towards my clean expectation, clean run rate expectation of the lower than 50s.
Speaker Change: Okay, great.
Speaker Change: And then, you know, I'm the expense guy and just kind of the overall, you know, commentary going out from here. You know, the early, the early 2025 look, I think he said flat, he just confirmed what that flat number is, too.
Speaker Change: Glad to fully your 24th.
Speaker Change: for the 164-166.
Speaker Change: and is that inclusive of the digital transformation that's coming in the one-time cost for the first half of 25?
Speaker Change: Resonate. Yes.
Speaker Change: So that's when I finish that project. That's a big driver for the movement towards my clean run-right expectation of the low-run 50s. I'm going to drop $68 million off the top there from those transformation costs. By then, the professional fees and all the associated expenses related to rake remediation will have dropped out as well. So, again, towards the end of 25.
Dandori: You know, I'm going to drop, you know, $68 million off the top there from those transformation costs. By then, the professional fees and all the associated expenses related to rate remediation will have dropped out as well. So again, towards the end of 25, certainly into 26. We should get a finally, you know, a real clean look at reported topics that we think we can produce some really strong operating leverage off of. Okay, got it.
Speaker Change: Certainly in the 26th we should get a finally real clean look at reported optics that we think we can produce some really strong operating leverage off of.
Chris O'Connor: So, you know, if you guys are, you know, growing the balance sheet double digit and, you know, a normalized kind of, you know, expense. You know, growth rate for you guys is called like high single digit to low double digit. Is that how we kind of can think about, you know, the very loose trajectory off kind of the low 150s level, you know, as we exit 25. I think that's that's fair's high single digits probably makes sense. Okay, great, very helpful. Thank you.
Speaker Change: Okay, got it. So, you know, if you guys are, you know, growing the balance sheet double digit and, you know, a normalized kind of, you know, expense, you know, growth rate for you guys is called like high single digit to low double digit. Is that how we kind of can think about, you know, the very loose trajectory off kind of the low 150s level, you know, as we exit 25s.
Speaker Change: I think that's fair. High single digits probably makes sense.
Mark Defazio: And then you did, you did mention, I think in the opening comments, you know, you know, working out a few of, you know, the MPOs or MPAs in, you know, some positive movement on those into early 25. Just, you know, any color around kind of, you know, what certain of those credits that you guys have progress on. I think it's, I think I said throughout 2025. So the Kansas City matter will come to a resolution in the first quarter. That's what we're told by our attorneys as far as the pending foreclosure. Some of the other matters are in flight, and clients are working really hard to liquidate some assets and pass off in full.
Speaker Change: Okay, great, very helpful.
Speaker Change: Thank you. And then you did mention...
Speaker Change: I think in the opening comments, you know, working out a few of the MPLs or MPAs in some kind of positive movement on those into early 25, you know, any color around kind of, you know, what certain of those credits, then you guys have progress on.
Speaker Change: I think I said throughout 2025, so the Kansas City matter will come to a resolution in the first quarter, that's what we're told by our attorneys as far as the pending foreclosure. Some of the other matters are in flight and clients are working really hard to liquidate some assets and pay us off in full, so 25 is I'm feeling really good about 25. You will see movement in the first half of sure.
Mark Defazio: So 25 is, I'm feeling really good about 25. You will see movement in the first half of Sure. Great. And you guys feel like you're, you know, well reserved and everything; like there's, you know, you don't, you know, anticipate any additional charges with those resolutions. Not, not at the moment. The other point that I like to make, I think I made it, but just keep it, keep it, keep it, keep in mind, you know, since these two or three items showed up a year, year and a half ago, more than a year and a half ago, we haven't had any other deterrent deterioration.
Speaker Change: and you guys feel like you're well-reserved and everything, like you don't anticipate any additional charges with those revolutions.
Speaker Change: Not at the moment. The other point that I like to make, I think I made it, but just keep in mind. You know, since these two with three items showed up a year or a half ago, more than a year and a half ago, we haven't had any other deterioration. So I think that's important to recognize as well.
Mark Defazio: So I think that's important to recognize as well. Yeah, absolutely. Great.
Chris O'Connor: In last one, did it catch the number right? You guys had moved rate, I think you said on 3.7 billion of the intersparing balances. And was that 75-80% of data? Was that in reference to the overall deposit base or just to that 3.7 billion? Yeah, that's the overall deposit base. Okay, great. And is that 3.7 billion kind of roughly the amount that you guys expect to move regularly alongside rate cuts moving forward? That's the plan. I'll add a little nuance there that it's important to realize that about 2 billion of our indexed deposits don't reprise contemporaneous with the rate cuts; they price first business day following month.
Speaker Change: Yep, absolutely, great.
Speaker Change: in last one just...
Speaker Change: Did it catch a number right you guys had you guys moved rates I think you said on 3.7 billions of the interest bearing balances and was that 75 to 80% beta was gotten reference to the overall deposit base or just that 3.7 billion.
Speaker Change: Yeah, let's see your role this time's a bit.
Speaker Change: Okay, great. And that is at 3.7 billion kind of roughly the amount that you guys expect to move, you know, regularly alongside, you know, Ray cuts moving forward.
Speaker Change: That's the plan. I'll add a little nuance there that it's important to realize that about 2 billion of our index deposits don't reprise contemporaneous with a rate cut. They phrase first business day following Mark. So slight differential there, but just something to keep in mind.
Dandori: So it's like differential there, but you know, just something to keep in mind.
Chris O'Connor: And what's the total amount of index deposits? It's around 2 billion dollars. Okay, great. Thanks, Mark. Thanks, Dan. We appreciate that. So welcome.
Speaker Change: and what's the total amount of index deposits?
Speaker Change: It's around $2 billion.
Speaker Change: Okay, great.
Speaker Change: Thank you, Mark. Thanks, Dan. Thank you. Thank you.
Operator: Thank you.
Fettie Strickland: We will check our final question from Fettie Strickland with Hofby Group.
Speaker Change: Thank you. We will take our final question from Betty Strickland with Hofde Groop, please go ahead.
Fettie Strickland: Please go ahead.
Mark Defazio: Hey, good morning. Just wanted to ask: last quarter, you mentioned you made your arrangements with the GPG client with 2 billion or so regularly for radiation costs. Was that rolled into the reserve this quarter? Is that so something we could expect to see come down the pipeline? No, it wasn't reserved into the; it wasn't rolled into the reserve at all. It was a recapture of some expenses we had, and we got reimbursed. And the agreement we have with this particular client who's leaving in early November is picking up 75% of all additional chargers between now and their exit as well.
Betty Strickland: Hey, there's morning, it just wanted to ask, I think last quarter we mentioned he made a arrangement with the GPG current, there were two million or so in the radio tour, radiation costs. Was that rolled into the reserve of the quarter, or is that something we could expect to see? I'll come down the pipeline.
Speaker Change: No, it wasn't reserved into the, it wasn't rolled into the reserve at all. It was a recapture of some expenses we had and we got reimbursed. And the agreement we have with this particular client who's leaving in early November is picking up 75 percent.
Speaker Change: of all additional chargers between now and their exit as well. So that's another reason why we'll have some significant decrease in some of these outside GPG exit-related costs because we've materially passed these costs on to this particular client.
Mark Defazio: So that's another reason why we'll have some significant decrease in some of these outside, you know, GPG exit-related costs because we've materially passed these costs on to this particular client.
Fettie Strickland: That's helpful.
Mark Defazio: And then just one of the shift years per second, you know, to the healthcare portfolio. I know there's some Florida exposure there. Did you have the customers who were adversely affected by some of the hurricanes that came through there? Or is it kind of, you know, the normal course business? They know how to handle those. No, no, we actually, it's a broader question about all of our real estate exposure throughout the state of Florida, especially on the West Coast. So we surveyed immediately all of our clients and all of our collateral positions from both hurricanes.
Speaker Change: Scott, that's helpful. And then just one of the shift gears for a second, you know, to the health care portfolio. I know this implored exposure there. Did you have the customers who were adversely affected by some of the hurricane that came through there? Or is it kind of, you know, that's normal courses that they know how to handle those?
Speaker Change: No, we actually brought a question about all of our real estate exposure throughout the state of Florida, especially on the West Coast. So we surveyed immediately all of our clients and all of our collateral positions from both hurricanes and we were very fortunate. And I should say our clients were very fortunate as well, very minor damage that's not consistent with this type of weather pattern in that state annually. So we're very pleased, everybody's very pleased that they sort of dodge the bullet.
Mark Defazio: And we were very fortunate, and I should say our clients were very fortunate as well. Very minor damage. That's not consistent with, you know, this type of weather pattern in that state annually. So we're very pleased; everybody's very pleased that we sort of, they sort of dodged the bullet.
Fettie Strickland: So that's great to hear.
Fettie Strickland: Final question for me, just want to ask whether there was any change to the overall digital transformation budget. And is there any particular, you know, service that's going to come online? I know you have that look. I think it's on page 19 that can drive particularly higher expenses in any particular quarter or 25, just as we think about how to model the remainder of that budget. Yeah, so at the moment, I don't have any insight as to increasing the budget for the integration of any of these software service providers. Anything that we roll out, and there's been some press release on some of the software that we've rolled out already, will not and has not increased operating costs.
Speaker Change: So that's great to hear. Final question for me. Just want to ask whether there was any change to the overall digital transformation budget. And is there any particular service that's going to come online? I think you have that look for something to do on page 19. That can drive particularly higher expenses in any particular quarter of 25, just as we think about kind of how to model the remainder of that budget.
Speaker Change: Yeah, so at the moment, I don't have any insight as to increasing the budget for the integration of any of these software service providers. Anything that we roll out and there's been some press release on some of the software that we've rolled out already will not and has not increased operating costs.
Mark Defazio: So, put another way, our operating cost post completion of the digital transformation will be quite aligned with our previous run rate for IT expense.
Speaker Change: So put another way. Our operating cost post completion of the digital transformation will be quite aligned with our previous run rate for IT expense.
Fettie Strickland: I'll just tell you something. Thank you for taking my questions.
Speaker Change: i
Operator: Welcome. Thank you, and this concludes a lot of time for questions.
Speaker Change: I'm a sister, it's helpful, thanks for taking my questions.
Speaker Change: Gordon.
Mark Defazio: I would like to turn the call over to Mark DeFazio for any additional or closing remarks. I would just like to thank everybody for taking the time out this morning to listen in, and we're very excited about 2025 and beyond. So, again, Dan and I make ourselves available to all investors and analysts. Feel free to reach out to us if you have any specific questions or follow-ups. Thank you very much.
Speaker Change: Thank you and this concludes the a lot of time for questions I would like to turn the call over to Mark DeFazio for any additional or closing remarks.
Mark Defazio: I would just like to thank everybody for taking the time out this morning to listen in and we're very excited about 2025 and beyond. So again, Dan and I make ourselves available to all investors and analysts feel free to reach out to us if you have any specific questions or follow-ups. Thank you very much.
Operator: Thank you, and this does conclude today's conference call-in-webcast. A webcast archive of this call can be found at www.ncbankny.com.
Speaker Change: Thank you, and this does conclude today's conference call in Webcast, Webcast Archive, and this call can be found at www.studiancbankny.com Please disconnect your line at the sign, and have a wonderful day!
Operator: Please disconnect your line at the time and have a wonderful day. .
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Speaker Change: and John DeFazio, Daniel Dougherty, Daniel Dougherty, Daniel Dougherty and John DeFazio
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