Q3 2024 CVB Financial Corp Earnings Call
Good morning, ladies and gentlemen, and welcome to the third quarter 2024 C V B Financial Corporation and its subsidiary citizens business Bank Earnings Conference call. My name is Sherry and I'm. Your operator for today at this time all participants are in a listen only mode. Later we.
We'll conduct a question and answer session.
Note this call is being recorded.
Speaker Change: I'd now like to turn the presentation over to your host for today's call Alan Nicholson Executive Vice President and Chief Financial Officer, You May proceed.
Alan Nicholson: Thank you Sherry and good morning, everyone. Thank you for joining us today to review our financial results for the third quarter of 2024.
Alan Nicholson: Joining me this morning is Dave Brager, President and Chief Executive Officer.
Alan Nicholson: Our comments today will refer to the financial information that was included in the earnings announcement released yesterday.
Alan Nicholson: To obtain a copy please visit our website at www Dot <unk> dot com and click on the investor's tab.
Alan Nicholson: The speakers on this call claim the protection of the Safe Harbor provisions contained in the private Securities Litigation Reform Act of 1095.
Alan Nicholson: For a more complete discussion of the risks and uncertainties that may cause actual results to differ materially from our forward looking statements. Please see the company's annual report on Form 10-K.
Alan Nicholson: Year ended December 31, 2023.
Alan Nicholson: In particular, the information set forth in item <unk> risk factors therein.
Alan Nicholson: For a more complete version of the company's Safe Harbor disclosure. Please see the company's earnings release issued in connection with this call.
Speaker Change: I'll now turn the call over to Dave Brager.
Dave Brager: Thank you al and good morning, everyone for.
Dave Brager: For the third quarter of 2024, we reported net earnings of $51 million or <unk> 37 per share representing a 198th consecutive quarter of profitability with <unk>.
Dave Brager: Previously declared a <unk> 20 per share dividend for the third quarter of 2024, representing a 148 consecutive quarter of paying a cash dividend to our shareholders. We produced a return on average tangible common equity of $14, 93% and our return on average assets of 123.
Dave Brager: 8% for the third quarter of 2024.
Dave Brager: Our net earnings of $51 million or <unk> 37 per share compares with $50 million for the second quarter of 2024, or 36 cents per share and $57 $9 million or <unk> 42 per share for the prior year quarter.
Dave Brager: Quarter over quarter, our pre tax pre provision income grew by 2%, excluding net gains and losses.
Revenue, excluding gains and losses grew by two 9% or $3 $7 million compared to the second quarter of 2024, primarily due to a $2 $8 million increase in net interest income.
Dave Brager: Our core noninterest expense increased by three 8% or $2 million compared to the prior quarter.
Dave Brager: On September 26, we completed an early redemption of our $1 $3 billion Bank term funding program borrowing that was scheduled to mature in January of 2025.
Dave Brager: Total assets declined by approximately $750 million from the end of the second quarter of 2024 as the Bts P. Redemption was offset by more than $400 million of growth in deposits and customer repos.
Dave Brager: Part of our strategy to pay off the <unk> borrowings and deleverage our balance sheet, we executed two sale leaseback transactions in which we sold and leased back to banking center buildings under long term leases, realizing a gain on sale totaling $9 $1 million in conjunction with these real estate <unk>.
Dave Brager: Actions, we sold more than $300 million of available for sale investment securities at a cumulative loss of $11 $6 million.
Dave Brager: Although total assets declined to $15 $4 billion by September 30 of 2020 for average, earning assets grew by $262 million or one 8% from the second quarter of 2024 to the third quarter of 2024, which drove the $2 $8 million quarter over quarter increase in <unk>.
Dave Brager: Net interest income.
Dave Brager: Our net interest margin was 3.05% in the third quarter the same as the prior quarter.
Dave Brager: The third quarter is generally a strong deposit quarter for our bank, we experienced an increase in deposits and customer repos of $408 million from the end of the second quarter to September 32024.
Dave Brager: The quarter over quarter growth in average deposits and customer repos was $251 million, our average noninterest bearing deposits were greater than 59% of our average total deposits for the third quarter of 2024.
Dave Brager: At September 32024, our total deposits and customer repurchase agreements totaled $12 5 billion, a 760 million $62 million increase from December 31, 2020 for the.
Dave Brager: The increase in total deposits and customer Repos includes the addition of $400 million and brokered time deposits that were added to the balance sheet during the first quarter of 2024.
Dave Brager: For the first nine months of 2020 for approximately $200 million of deposits have moved to citizens Trust.
Dave Brager: These funds were invested in higher yielding liquid assets such as Treasury notes. This compares to $800 million that was transferred during 2023.
Dave Brager: Our cost of deposits and customer repos was 101 basis points for the third quarter of 2024, which compares to 87 basis points for the <unk>.
Dave Brager: Second quarter of 2024, and 51 basis points for the year ago quarter.
Dave Brager: Our cost of non maturity deposits has grown from 60 basis points in December 2023 to 88 basis points in September of 2024, while our cost of time deposits has grown from 184% in December of 2023 to $3 two 4% in September of 2024 from the <unk>.
Dave Brager: First quarter of 2022 during the third quarter of 2020 for our cost of deposits has increased by 95 basis points, our deposit beta on non maturity deposits from the beginning of the first 525 basis point increasing rate cycle through to the end of the third quarter of 2024 was 16.
Dave Brager: 8%.
Dave Brager: Now, let's discuss loans commercial real estate loan demand continues to be tepid.
Dave Brager: C&I line utilization also continues to be low even though we have grown our total C&I loan commitments.
Dave Brager: Loans at September 32024 were $8 6 billion, a $109 million or 1% decrease from the end of the second quarter and a $332 million decline from December 31 2023.
Dave Brager: <unk> over quarter decrease was led by a $46 million decline in commercial real estate loans, a $38 million decline in construction loans, and a $20 million decrease and in commercial and commercial and industrial loans.
Dave Brager: The decrease in loans from the end of 2023 included a $77 million decrease in dairy and livestock loans dairy.
Dave Brager: Dairy and livestock loans see higher line utilization at year end, which is reflected in the 80% utilization rate at the end of the fourth quarter of 2023 compared to the 71% utilization rate at September 32024.
Dave Brager: Commercial real estate loans declined by $166 million from December 31, 2023, as commercial real estate loan demand has weekend.
Dave Brager: Our CRE loan production for the first nine months of 2024 has lagged the same period in 2023 by more than 30%.
Dave Brager: Construction loans declined by $52 million over the same period as construction loan origination has been minimal.
Dave Brager: C&I loans declined by $33 million, when comparing the third quarter and balance to December 31 2023.
Dave Brager: C&I line utilization continues to be at a rate of less than 30%.
We compete on loans, very selectively which can impact new loan production and loan yields even considering the high credit quality of our new loan origination.
Dave Brager: New loan originations yields on new loans in 2024 have been greater than seven 5%. However loan rates have been under pressure recently from competition and near term originations will likely average below 7%.
Dave Brager: Our continued focus on banking, the best small and medium sized businesses and their owners providing them. Our full array of products has resulted in a higher percentage of new loans in 2024 that are either owner occupied or C&I loans.
Dave Brager: Non owner occupied loan originations in 2024 had been approximately 16% of total loan originations, which compares to approximately 26% for the same nine month period in 2023.
Dave Brager: We believe our asset quality remains strong as nonperforming loans declined by $3 million in our classified loans remained relatively flat quarter over quarter.
Our allowance for credit losses totaled approximately $83 million at September 30, the same as June 32020.
Dave Brager: Net recoveries in the third quarter were $156000 compared to net charge offs of $31000 in the second quarter of this year.
Dave Brager: At quarter end nonperforming assets defined as nonaccrual loans plus other real estate owned were $22 6 million or 15 basis points of total assets the.
Dave Brager: The $22 6 million in nonperforming loans compared to $25 $6 million for the prior quarter.
Dave Brager: Classified loans for $125 million for both the third quarter and the prior quarter.
Dave Brager: Classified loans as a percentage of total loans was 145% at quarter end.
Dave Brager: Classified dairy and livestock and agribusiness loans declined by $3 $5 million due to pay downs, while classified commercial and industrial loans increased by $3 $5 million, primarily due to the addition of one classified commercial and industrial loan.
Dave Brager: At September 30, we had approximately $31 million of commercial real estate loans that were past due more than 30 days, but less than 90 days.
Dave Brager: Two loans that comprised approximately 80% of these past due loans went on non accrual in October we believe that these loans are well secured and there are no anticipated charge offs.
Dave Brager: In October we also foreclosed on three nonperforming loans, one of which was a $2 $2 million loan that was fully paid off by a third party that purchased the asset at foreclosure of the two remaining loans a $4 $8 million alone has become an Oreo asset, but we have multi.
Dave Brager: <unk> offers that exceed our book value. The third loan is the previously discussed senior living facility participated loan acquired in the Suntrust merger in October the loan was foreclosed and became an Oreo asset of approximately $4 million. There are multiple offers on this property, which we will believe.
Speaker Change: And which we believe will result in a recovery of most or all of the charge off we took in the first quarter of 2024, I will now turn the call over to Alan to further discuss our net interest income and additional aspects of our balance sheet Alan.
Alan Nicholson: Thanks, Dan.
Alan Nicholson: Interest income grew by $6 $7 million over the prior quarter.
Alan Nicholson: Our average balance of funds at the Federal reserve increase from the second quarter by more than $500 million to approximately $1 2 billion.
Alan Nicholson: This growth generated an increase in interest income of $7 2 million.
Alan Nicholson: Interest income from our security portfolio declined by $1 $2 million as we accelerated the decline and thats low yielding bond portfolio by selling $300 million of <unk> securities during the third quarter, which contributed to a $127 million decline in average balance of our investment securities.
Alan Nicholson: Although average loans declined by $126 million compared to the second quarter of 2020 for interest income on loans increased by more than $700000 due to a five basis point increase in loan yields.
Alan Nicholson: Interest expense increased by $3 $9 million over the prior quarter, reflecting a nine basis point increase in our cost of funds.
Alan Nicholson: The increase in interest expense and our cost of funds was primarily due to an increase in interest expense on deposits and customer repos of $5 1 million.
Alan Nicholson: Interest bearing deposits and customer repos grew on average by $279 million and the cost of deposits and customer repos grew by 14 basis points.
Alan Nicholson: Third quarter borrowing costs decreased by $1 $2 million as average borrowings declined by $121 million.
Alan Nicholson: Okay.
Alan Nicholson: Our total investment portfolio declined by $305 million from the end of the second quarter of 2024 and by $550 million from December 31 2023.
Alan Nicholson: <unk> Securities declined by $280 million from the end of the second quarter as we sold securities during the third quarter with a book value of approximately $310 million. These security sales resulted in a pretax net loss of $11 6 million.
Alan Nicholson: <unk>.
Alan Nicholson: The unrealized loss on securities declined by $120 million from $488 million at June 32000, $24 million to $368 million on September 32024.
Alan Nicholson: Investment Securities held to maturity or HTM securities totaled approximately $2 four 1 billion at September 32024, the HTM portfolio declined by approximately $25 million from June 32024.
Alan Nicholson: The tax equivalent yield on the entire investment portfolio was 267% for the third quarter of 2024 compared to $2, 71% for the prior quarter.
Alan Nicholson: We continue to have positive carry on the fair value hedges, we executed in late June of 2023.
Alan Nicholson: We received daily so for on these pay fixed swaps, which have a weighted average fixed rate of approximately three 8%.
Alan Nicholson: We recorded $4 3 million of interest income in the third quarter related to the swaps.
Alan Nicholson: Based on the spread of 170 basis points.
Alan Nicholson: The federal Reserve's 50 basis point rate reduction in September and the anticipated rate reductions in November and December will reduce the spread we earn on these swaps.
Alan Nicholson: The market value of our fair value hedges combined with our cash flow hedges declined by approximately $35 million from the end of the prior quarter.
Speaker Change: As Dave noted previously we executed two sale leaseback transactions and we sold two properties for an aggregate sale price of $17 million, we simultaneously entered into lease agreements with respect to purchasers for initial terms of 15 to 18 years.
Speaker Change: These sale leaseback transactions resulted in a pre tax net gain of $9 $1 million during the third quarter of 2024.
Speaker Change: We currently anticipate two additional sale leaseback transactions during the fourth quarter of 2024.
Speaker Change: Once these transactions close we expect to offset the corresponding gains with some loss rates from our <unk> portfolio.
Speaker Change: Yes.
Speaker Change: Cash and cash equivalents declined to $453 million at September 30.
Speaker Change: As a result of the redemption of the $1 $3 billion of Bank term funding program borrowings on September 26.
Speaker Change: Our allowance for credit losses as of September 32024 was $83 million the same level as the ACI was on June 32024.
Speaker Change: Our third quarter ACL was <unk>, 97% of total loans, which compares to <unk>, 95% on June 30.
Speaker Change: Our ACL at December 31, 2023 was $86 8 million, which included a $5 9 million reserve for specifically identified nonperforming loans.
Speaker Change: Our reserves for specific loans had been essentially zero cents at the end of the first quarter of 2024.
Speaker Change: We did not record a provision in the first three quarters of 2024.
Speaker Change: Our economic forecast continues to be a blend of multiple forecasts produced by Moody's. We continue to have the largest individual scenario waiting on Moody's baseline forecast with downside risk weighted among multiple forecasts.
Speaker Change: The resulting economic forecast resulted in real GDP declining slightly in the fourth quarter of 2024 and continuing to be negative in the first quarter of 2025% GDP.
Speaker Change: GDP growth is forecast to be less than 1% for all of 2025 before increasing to one 4% in 2026, and then growth of one 9% in 2027.
Speaker Change: Unemployment is forecasted to increase with unemployment, averaging five 5% for all of 2025.
Speaker Change: Unemployment rate is forecasted to take higher than five 5% until late 2027.
Speaker Change: Now turning to our capital position at September 32024, our.
Speaker Change: Our shareholders' equity increased from the end of 2023 by $120 million to $2 2 billion.
Speaker Change: The company's tangible common equity ratio at September 32024 was nine 7% compared with eight 7% at June 32024, and eight 5% at December 31 2023.
Speaker Change: Our regulatory capital ratios continue to grow and are among the highest in the industry.
Speaker Change: At September 32024, our common equity tier one capital ratio was 15, 8% and our total risk based capital ratio was 16, 6%.
Speaker Change: Our effective tax rate decreased during the third quarter of this year as a result of investments and tax credits, bringing our year to date effective tax rate to 26, 5%.
Speaker Change: I'll now turn the call back to Dave for further discussions of our third quarter earnings.
Alan Nicholson: Alan moving on to noninterest income our noninterest income was $12 $8 million for the third quarter of 2024 or $15 $3 million when net gains and losses are excluded.
Dave Brager: This compares with $14 4 million for the prior quarter.
Dave Brager: Third quarter bully income increased by $557000 quarter over quarter, including the receipt of $320000 in death benefits that exceeded the cash surrender values in the third quarter of 2024. In addition, our trust and wealth management fees increased by approximately 104.
Dave Brager: $8 compared to the second quarter of 2024.
Dave Brager: Now expenses.
Dave Brager: Noninterest expense for the third quarter was $58 $8 million compared with $56 5 million for the second quarter of 2024 that $2 $3 million quarter over quarter increase was primarily due to a $1 $2 million increase in staff related expense as annual salary increases.
Dave Brager: It became effective at the beginning of July.
Dave Brager: We also had an increase in regulatory assessment expense of approximately $700000 due to the reduction of our accrual for the special FDIC assessment in the second quarter of 2024.
Dave Brager: Occupancy expense grew by $330000 or 7% when compared with the prior quarter, including the impact of the higher occupancy costs for the two banking centers involved in the sale leaseback transactions more than half the growth in occupancy expense was seasonal in nature due to higher utility.
Dave Brager: Costs.
Dave Brager: Third quarter of 2024 included $750000 and recapture provision for unfunded loan commitments compared to $500000 in recapture in the second quarter of 2024.
Dave Brager: Noninterest expense totaled $1 four 2% of average assets for the third quarter of 2024, compared with one 4% for the prior quarter.
Dave Brager: Our efficiency ratio was $46 five 3% for the third quarter of 2024. This compares to a 45, 1% for the second quarter.
Speaker Change: This concludes today's presentation now Alan and I'd be happy to take any questions that you might have.
Thank you to ask a question. Please press star one one on your telephone and wait for your name to be announced so withdraw. Your question. Please press star one again, one moment, while we compile the Q&A roster.
Speaker Change: And our first question will come from the line of Matthew Clark with Piper Sandler Your line is open.
Matthew Clark: Hey, good morning, guys.
Speaker Change: Morning, Matthew.
Speaker Change: Yes.
Matthew Clark: First one for me just around the the repayment of the <unk>.
Matthew Clark: Wanted to get the yield on the securities sold and then.
Matthew Clark: It looks like you also use some cash to pay that off can you just give us the moving parts in terms of the.
Matthew Clark: The yield give up and so we can calculate the lift that you'll get in your NIM from the smaller from the deleveraging.
Speaker Change: Yes, I mean, the book yield.
Speaker Change: Mark it will be different but the book yield on the securities.
Speaker Change: Hold was less than 3%.
Speaker Change: Okay any other pieces to the puzzle there or is it just cash and in those securities.
Speaker Change: Our cash and Securities I mean of course as Dave mentioned, we grew deposits, obviously, which generated additional cash that we deploy but.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: And then it looks like deposit costs have stabilized.
Speaker Change: In September based on slides 41 and 47.
Speaker Change: What are your thoughts on on deposit costs in general from here, assuming we get the forward curve.
Yes, so couple of things during the last rate cut.
Speaker Change: We obviously lagged the market on the way up with the <unk>.
Speaker Change: 16, 18% beta but for US we did lower our some of our money market rates on the first cut.
Speaker Change: On any future cuts.
Speaker Change: <unk> be more will be closer to more of a 100% beta on the downside.
Speaker Change: We're about a 50% beta may be on the downside in the first cuts, which really obviously you havent shown up in those deposit costs yet.
Speaker Change: We had a little movement, obviously, just going down below 60% on non interest bearing but still right there.
Speaker Change: So I think all in all it.
Speaker Change: It's definitely stabilized we're still seeing some requests for higher rates, but the vast majority.
Speaker Change: Of those situations are being handled a little bit differently than in the rising rate environment. So on the next cut we'll take a little bit deeper dive into rates that are probably.
Speaker Change: One, 5% or higher and look at those so we did the first round on rates that were two 5% or higher.
Speaker Change: So, we'll just keep kind of ratchet that down as the fed makes moves I don't know how long do you have anything to add.
Speaker Change: No I think that covers it.
Speaker Change: Okay, Great and then last one for me just on.
Speaker Change: M&A and buybacks.
Speaker Change: Any update on whether or not you think you might be able to announce a deal before year end and if not whether or not a buyback is is likely.
Speaker Change: Yeah. So obviously, we're sitting on an enormous amount of capital one of the I'll say restricting factors prior to maybe the last couple of quarters was our TCE ratio. That's obviously much less of a problem today than it was couple of quarters ago.
Speaker Change: Working hard at putting together deals banks are sold not bought so we have to.
Speaker Change: Stick to our knitting as far as our pricing and the way we structure deals and.
Speaker Change: And sometimes that.
Speaker Change: That stops us from announcing anything but we are working hard to do something in M&A is definitely.
Speaker Change: I would say option one.
Speaker Change: Notwithstanding the M&A conversation, we still believe that we have the opportunity to do more capital management with respect to buybacks.
Speaker Change: And Thats something that we are evaluating and discussing and I imagine we will.
Speaker Change: We will have something coming out on that relatively shortly.
Speaker Change: Great. Thank you.
Speaker Change: Thank you one moment our next question.
Speaker Change: And that will come from the line of David Feaster with Raymond James Your line is open.
Speaker Change: Hi, good morning, everybody.
Speaker Change: David David how are you.
Speaker Change: Yeah everything is good.
Speaker Change: Just check it yeah. Thank you.
David Feaster: I wanted to touch on on the growth outlook.
Speaker Change: Talked about tepid demand and you talked about competition being real headwinds, it's not exactly a great environment you'd be trying to grow in.
Speaker Change: I'm curious how do you think about growth where are you seeing opportunities and how do you win in the type of event.
Speaker Change: Type of environment, right, where competition seems to be mispricing credit to and to an extent.
Speaker Change: Okay.
Speaker Change: Ladies and gentlemen, please standby one moment please.
Speaker Change: Please you May know the lines your conference will resume shortly.
Speaker Change: Thank you we do have our speakers back.
Speaker Change: David It wasn't that we didn't want to answer that question I promise.
David: That's a good question that you guys got kicked off the top.
David: No I don't know what happened we got disconnected, so I apologize for that I am sorry, yes.
Speaker Change: Speaking to the loan growth demand is slow competition is fierce I mean I've seen a couple of deals we've lost two at rates below 6%, which is unbelievable to me.
Speaker Change: But at the end of the day, we are still growing relationships, they're primarily more C&I operating companies the investor commercial real estate side has been very tepid, I think that as rates sort of stabilize.
Speaker Change: And front end of the curve goes down maybe a little bit more maybe the 10 year stays around where it is I think we will start to see a pickup in any investor commercial real estate side of things because remember that's all funded debt.
Speaker Change: And we need to make sure that <unk>.
Speaker Change: Even on the C&I stuff that we do is we're getting 20% to 30% utilization on you just have to do a lot more of it to hit the same number as doing an investor commercial real estate loan, but the pipelines are okay. The deposit pipelines are good still the loan pipelines are a little lighter.
Speaker Change: But we're very focused on relationship which includes loans and deposits and fee income opportunities. So we will continue to focus on that and then.
I think as I've said in the past, we'll have a little there's a little seasonality in the fourth quarter.
Speaker Change: But we're really sort of setting up the bank for how we're going to perform in 'twenty five and beyond with the payoff of the Bts P.
Speaker Change: We have liquidity we have.
Speaker Change: The ability to do more so we're really focused on growing those relationships, but I still think it's going to be kind of little tough sledding going ahead.
Okay.
Speaker Change: I just wanted to touch on credit you touched on this in your prepared remarks, just talking about the credit migration.
Speaker Change: Maybe additional credit migration in October the commentary on the CRE or the OLED trends.
Speaker Change: Look your ability to sell at or above loan value in some of the other commentary talks about speaks to your credit underwriting discipline I guess I was hoping you could just touch on the trends Youre seeing in the book, we've touched on AG pressures in the past, but I'm curious what are you hearing from your clients where are they seeing pressures is there anything specific in and to what extent does.
Speaker Change: Declining rates kind of help alleviate a lot of the pressures that these folks are seeing.
Speaker Change: Yes, so the issues we've had in the items that I mentioned in our prepared remarks are really totally unrelated to the interest rate environment. Those are there is basically chill relationships.
Speaker Change: The first three loans that I mentioned raw multifamily properties extremely low loan to values like between 20, 545% loan to value, where our borrower just went dark on us and we.
<unk> worked with him and it literally a month and a half before he brought in $1 million and $5 to bring everything current and then he disappeared again.
Speaker Change: So we ended up putting two upper sale, we got outbid at one <unk> at the foreclosure of the second one we took into Oreo we.
Speaker Change: Should be closing that this quarter, you won't even see that as an RVO theoretically assuming everything goes according to what is under contract right now so.
Speaker Change: So I think the situations, we've experienced have been sort of really one off.
Speaker Change: Senior living facility. Unfortunately, we're a participant we're not the agent and I candidly would have moved a lot faster on this than the agent bank debt and so we've sort of just bad.
Speaker Change: <unk>.
Speaker Change: The tail wagging, the dog, there a little bit and trying to get them to move but now. We're finally, we finally have that property.
Speaker Change: And operator in there the operator wants to buy the property the property is performing better.
Speaker Change: We're getting offers that I mean, again theoretically hasnt happened yet.
Speaker Change: Should fully paid.
Speaker Change: It's off plus we would recover the amount that we charged off in the first quarter. So I feel good about that as well so really the credit quality has been very stable and dairy and livestock has improved significantly.
Speaker Change: And there's just not a lot that's happening there other than the sort of one off very unique situations. So I don't know Alan if you have anything to add to that but.
Alan Nicholson: It's been very stable and that our customers the rates really haven't been a problem. We havent had borrowers really to a large extent there have been a few after right sized loans on repricing our maturity.
Alan Nicholson: So all in all it's been very stable and Youre right. It's based on how we underwrote those loans at origination that gives us that cushion.
Alan Nicholson: To make sure that we're not losing money even if we have to go through the unfortunate process of foreclosure.
Speaker Change: Okay. That's good color and then last one from me you touched on the healthy deposit pipeline is great to see the increase in niv balances. This quarter I'm curious kind of when you look at your pipeline and what drove that increase this quarter I mean, how much is existing clients versus where you're winning more of the wallet.
Share versus new clients coming over and where youre having success driving.
Speaker Change: Core deposit growth today.
Yes. So as you know we have a couple of I'd say heavy noninterest bearing in lines of business that we really focus on and sell our government services group our title Escrow group property management group.
Speaker Change: <unk> done well and remember those title escrow property managers their deposits are probably a couple of years, whether it's just generally from existing customers.
Speaker Change: Because there is no refinances theres no escrow is opened for sales.
Speaker Change: So we're just not seeing the same deposit level, we had a year ago or year and a half ago for sure.
Speaker Change: So I think we'll start to see some pick up there but to answer your question, it's really been new relationships and it's across the board. It's all different types of operating companies. Our title escrow grew title escrow property management group has had their best year in originations. The government services group has done a great job.
Speaker Change: So it's really across the board.
Speaker Change: Across all industries.
Speaker Change: But I do think that we will.
Speaker Change: No.
Speaker Change: Remember historically for US we have some seasonality generally the second and third quarters are better than the fourth and first quarters are a little bit worse, but I do think a lot of the excess has been taken out so I don't know that we'll see.
Speaker Change: Exactly the same thing because a lot of the I'll say excess deposits have been moved into our trust grouper moved outside investments outside of our Trust group. So I think from a relationship side and the deposit side, we're doing a great job.
Speaker Change: And on the on the loan side, there's just we need to win our fair share of the right deals and.
Speaker Change: We may have to get a little more aggressive on pricing in order to do that.
Speaker Change: Okay, that's great color. Thank you.
Speaker Change: Thank you one moment for our next question.
Speaker Change: And that will come from the line of Andrew <unk> with Stephens. Your line is open.
Speaker Change: Hey, good morning.
Speaker Change: Andrew.
Andrew: Maybe just a follow up on Matt's questions around the security of the resold during the quarter.
Do you have a specific timing.
Speaker Change: During the third quarter the securities were sold.
Speaker Change: Well in many ways. They are sold throughout the quarter, but it was probably a little heavier on the back end, particularly in the last month.
Speaker Change: But.
Speaker Change: You could probably equate the average balance versus the point to point and change in estimate it from there.
Speaker Change: Yes, Okay, and we should just kind of make the assumption that the securities that were sold have a yield thats pretty much in line with.
Speaker Change: The current iaff's portfolio or maybe a little bit below I think it was 3.2.
Speaker Change: In the third quarter.
Speaker Change: Probably.
Speaker Change: If you're saying the average of the portfolios now this is a market yield, but $2 7 million in the book yield on these was closer to 3%.
Speaker Change: Got it okay.
Speaker Change: And then maybe I wanted to.
Speaker Change: Maybe dive a little more into some of the deposit.
Speaker Change: Cost commentary.
Speaker Change: Looking at the kind of non maturity deposits by months by months that you guys split out in the presentation. It looks like 88 basis points in September still still kind of elevated versus the rest of the quarter and I know that the rate that's probably.
Speaker Change: Early impactful to that that number on a full month basis, but.
Speaker Change: Just taking some of the commentary you gave around still getting some rate request versus going at a 50% beta.
Speaker Change: For the first Scott I was just hoping to get maybe a better sense of maybe not necessarily the exit yield but.
Speaker Change: Should we expect that 88 basis points.
Speaker Change: Non maturity cost in September has kind of moderated so far.
Speaker Change: Yes, I think for the most part that's accurate.
Speaker Change: There is obviously a lot of moving parts, because we do get some rate increases thats slowed down quite a bit.
Speaker Change: Even when we did that first reduction in rates, we really didn't hit everybody, but in the next reduction in rates, we're going to move farther down sort of.
Speaker Change: The right spectrum of our customers and probably be closer to a 100% beta on the second rate cut assuming its 25 basis points. So I think moderate is probably a good word I mean, theres a lot of puts and takes ups and downs, but all in all we shouldn't we should see that sort of stable.
Speaker Change: If not decline slightly.
Speaker Change: Yes, okay.
Speaker Change: Then just one more actually on the securities portfolio I think if there was a there was a hedge in place against the bond book I'm curious if anything.
Speaker Change: The name change from a hedging standpoint during the quarter given you did sell some sovereign bonds.
Speaker Change: No. Andrew we also continue to have capacity to sell more in the fourth quarter.
Speaker Change: The hedges.
Speaker Change: We're <unk>.
Speaker Change: Put on with DFS portfolio, Theres, a lot of excess capacity.
Speaker Change: So it will be.
Speaker Change: Should foresee any issues there now we may evaluate in the fourth quarter Theres three different fair value hedges.
Speaker Change: They are shortening and so the implications from a fair value of hedging perspective may change a little bit as we move forward. So we may evaluate.
Speaker Change: Unwinding.
Speaker Change: Some of that but that's just a possibility, but certainly not all of it.
Speaker Change: Yes, Okay makes sense. Thank you for taking the questions.
Speaker Change: Thank you.
Speaker Change: Thank you one moment for our next question.
Speaker Change: And that will come from the line of Gary Tenner with D. A Davidson your line is open.
Gary Tenner: Alright, thanks, good morning.
Gary Tenner: I wanted to ask regarding plans to do so.
Gary Tenner: Possibly another sale leaseback transaction with <unk> sales with the.
Gary Tenner: The expectation there or will there be to reinvest or maybe go towards reducing other.
Gary Tenner: Wholesale funding or broker deposits.
Speaker Change: Hey, Gary there is probably a couple of things on the table that we are evaluating I think it's likely that to some extent will be reinvesting and maybe all of it be reinvested.
Speaker Change: We're also evaluating as I just mentioned, whether we want to.
Speaker Change: Taking into hedges off the balance sheet.
Speaker Change: And then from a from a wholesale funding perspective, we have.
Speaker Change: $500 million of that <unk> I don't think were really considering doing anything with that we have $400 million brokered Cds 300 of which are cash flow hedges I don't think we'll do anything with those but there is a $100 million Thats 90 day resets and so we'll evaluate how that helps us from an interest rate risk perspective.
Speaker Change: <unk> versus cost of <unk>.
Speaker Change: Finding.
Speaker Change: As we go through the quarter, so, but definitely we will reinvest some of it.
Speaker Change: Okay.
Speaker Change: I appreciate that.
Speaker Change: With regards to the loan yields here in the third quarter and five basis points expansion. Just wondering if there was any any noise within that at all and as we're thinking about the fourth quarter kind of ballpark the impact of the 50 basis point rate cut on loan yields all else equal.
Speaker Change: Yes, we didn't have anything really unusual I would say it was sort of part of what we've been seeing slow increase in the impact from the fed was.
Speaker Change: Somewhat muted so the way I would look at it we look at our variable loans as loans that would reprice within a year.
Speaker Change: And depending on the dairy borrowings that could be 25% to 27% of the portfolio.
Speaker Change: We only have roughly 10 or a little bit more than 10% debt immediately reset and so we saw that happen, but theres other ones that reset.
Quarterly or over three months or maybe a full month and in the full month, obviously reset didn't happen until October so the impact of that 50 basis points, we will sort of bleed out over time.
Speaker Change: Thank you.
Speaker Change: Thank you as a reminder, if you would like to ask a question. Please press star One line one moment our next question.
Speaker Change: And that will come from the line of Kelly Motta with <unk>. Your line is open.
Speaker Change: Good morning, Thanks for the question.
Speaker Change: Yes.
Speaker Change: Turning back to margin.
Speaker Change: Now that you've paid down the Bts P. I mean, youre borrowing darrin ASF $500 million of FHL be that <unk>.
Speaker Change: RBC.
Speaker Change: Yes.
Speaker Change: Wondering of the repos in there if theres any color as to where those rates currently are so we can kind.
Speaker Change: Kind of back into how to think about.
Speaker Change: That.
Speaker Change: No customer accounts as we look ahead.
Speaker Change: Are you talking about the repurchase agreement sweep deposit.
Speaker Change: Yes.
Speaker Change: That's correct, yes. So we did have some movement into our repos in the last quarter. There was some movement from noninterest bearing into that.
Speaker Change: It sort of impacted some of those rates they were looking for a little bit higher rate.
Speaker Change: Obviously, depending on what the fed does as far as rate cuts going forward those rates will or should start to come down as well, but the repurchase agreement sweeps, albeit they show up as borrowings there really just cash management tools that our customers use for excess deposits. So the majority of the portfolio.
Speaker Change: <unk>.
Speaker Change: Priced there are a few relationships that are a little bit higher.
Speaker Change: And depending again on what the fed does those rates could.
Speaker Change: Start to come down a little bit so I don't know Ellen if you have anything you want to add to that Kelly the customer repos really experienced a very low beta.
Speaker Change: Until the most recent quarter, where we had some movement out of noninterest bearing so.
Speaker Change: The average cost of those Roes and over 2%, but now they are also going to probably fall quicker than that.
Speaker Change: Well Scott.
Speaker Change: Got it.
Speaker Change: Yeah.
Speaker Change: <unk> pieces of NII and I appreciate you guys don't necessarily give guidance but.
Speaker Change: You paid down some of that BT FTE with a negative carry net net with with rates lower than.
Speaker Change: Okay.
Speaker Change: Additional pressure on NII from here at least initially optics 114 level is that is that fair or do you think the accident took.
Speaker Change: We should more than offset kind of that initial hit from lower rates.
Speaker Change: Well I think if you think about NII remember, we had a positive carry on that <unk>.
Speaker Change: And so.
Speaker Change: As I mentioned and I think our prepared remarks that was over $7 million. So that's a headwind from a net interest income perspective.
Speaker Change: Also we made $4 $3 million on that carry on the on the pay fix swap rates are fair value hedges, so thats going to diminish to some extent certainly based on the fed moves that end of September and depending on what they do in November and December it could eventually go negative right. So it's not going to go negative in the fourth quarter. So.
Those are both headwinds from an NII perspective.
Speaker Change: Going forward.
Speaker Change: Okay got it and I apologize I was a little.
Speaker Change: Late to the call have you any quantified.
Speaker Change: Your expectation for future security sales as we start to think through the size of the balance sheet.
Speaker Change: Well.
Speaker Change: We sold as we mentioned about $300 million in the prior quarter I anticipate it will probably be less than that.
Speaker Change: This is clearly says we do sell probably will have a lower yield than what I referenced earlier in our remarks as well.
Speaker Change: <unk>.
Speaker Change: Rates are up since the third quarter certainly since we've sold a lot of our securities. So those unrealized losses, we would take.
Speaker Change: May expand which may mitigate some of the cash we would get from some of it so.
Speaker Change: It will.
Speaker Change: It could be a third to a half of the size would be my guess.
Speaker Change: Okay. That's helpful I'll step back thank you.
Speaker Change: Thank you I'm showing no further questions in the queue. At this time I would now like to turn the call back over to Mr. Berger for any closing remarks, great. Thank you Sherry citizens business Bank continues to perform consistently in all operating environments. Our solid financial performance is highlighted by our 190 <unk>.
Speaker Change: Consecutive quarters or more than 47 years of profitability and 140 consecutive quarters of paying cash dividends. We remain focused on our mission of banking, the best small and medium sized businesses and their owners through all economic cycles I would like to thank our customers and associates for their commitment and loyalty.
Speaker Change: For joining us this quarter. We appreciate your interest and look forward to speaking with you in January for our fourth quarter 2024 earnings call. Please let Alan R. <unk>.
Speaker Change: Now if you have any questions have a great day.
Speaker Change: This concludes today's program. Thank you all for participating you may now disconnect.
Speaker Change: Okay.
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Speaker Change: Yes.
Speaker Change: Okay.
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