Q4 2024 Dime Community Bancshares Inc Earnings Call
When you the discussions during this call contain forward looking statements made under the safe Harbor provisions of the U S. Private Securities Litigation Reform Act up 1995.
Such statements are subject to risks uncertainties and other factors that may cause actual results to differ materially from those contained in any such statements, including are set forth in today's press release and the company's filings with.
With the U S Securities and Exchange Commission to which we refer you.
During this call references will be made to non-GAAP financial measures as supplemental measures to reviews and assess operating performance.
These non-GAAP financial measures are not intended to be considered in isolation or as a substitute for the financial information prepared and presented in incurred of the U S. GAAP.
For information about this non-GAAP measures and full reconciliation to GAAP. Please refer to today's earnings release.
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Speaker Change: Please note that today's conference maybe recorded I will now hand, the conference over to your speaker.
Speaker Change: <unk> President and CEO. Please go ahead Sir.
Avi Reddy: Thank you Olivia and thank you all for joining US this morning for our quarterly earnings call with me today is Avi Reddy, our CFO.
Avi Reddy: Today I will touch upon the progress we've made in 2024 as we execute our business plan Avi will then provide some details on our fourth quarter guidance for 2025.
Avi Reddy: We began 2024 by hiring a number of deposit gathering teams from the former signature bank. These teams came to dime given the positive results achieved in the performance of the 2023 teams we hired earlier.
Avi Reddy: At a hired previously.
Avi Reddy: Collectively the deposit groups have raised approximately $1 8 billion.
Avi Reddy: Of core deposits with approximately 40% in noninterest bearing deposits.
Avi Reddy: We've opened up over 11000 accounts and 7000 individual customer relationships.
Avi Reddy: Clearly a homerun for dime.
Avi Reddy: The successful build out of our private and commercial bank has been a companywide initiative a true team effort.
Avi Reddy: The growth in stable stabilization of the branch based deposits, especially in consumer in DDA DDA consumer DDA resulted in substantial year over year growth in core deposits. In fact, we ended the year with a loan to deposit ratio of less than 95%.
Avi Reddy: And we have reduced our wholesale borrowings and broker deposits by approximately $1 $2 billion in the past year.
Avi Reddy: On the loan front, we continued to execute our stated plan of growing business loans and managing our crude ratio lower.
Avi Reddy: Business loans were up over $70 million in the fourth quarter and $401 million for the full year.
Avi Reddy: This was driven by strong growth in our C&I.
Health care verticals, our loan pipeline remains very strong with over $750 million of loans at a weighted average rate of 7% and three quarter percent.
Avi Reddy: These are these are weighted towards C&I in healthcare loans.
Avi Reddy: Loans as well continue are continuing to execute on our plan.
Avi Reddy: We ended the year with Creek concentration of approximately 445, and we expect to continue to reduce this ratio over overtime to the low four hundreds.
Avi Reddy: Despite all of the deposit and loan teams we brought on over the last two years. We've had we've been able to keep core operating expenses to assets well contained and in a 165 basis point range. We have achieved this by using technology to drive operational efficiencies and keeping a very.
Avi Reddy: Close watch on discretionary expenses.
Avi Reddy: As we guided to on our last call fourth quarter expenses were relatively flat versus the third quarter.
Avi Reddy: Post the election, and given the improved investor sentiment sentiment towards bank stocks, we raised approximately $136 million of net proceeds from a significantly oversubscribed common equity offering.
Avi Reddy: The transaction was accretive to tangible book value.
Avi Reddy: We used a portion of the proceeds to reposition our securities and <unk> portfolios as a result capital the capital. We raised we ended the year with a common equity tier one ratio in excess of 11% and a total capital ratio in excess of 15, 5%.
Avi Reddy: Having a best in class capital ratios versus appear will allow us to take advantage of opportunities as they may arise and continue to support our.
Avi Reddy: Our organic growth. In addition over the course of the year, we increased our loan loss reserves was 67 basis points to 82 basis points.
Avi Reddy: With this is within striking distance of our medium term target of 90% to 100 basis points.
Avi Reddy: During the fourth quarter, we received our second consecutive outstanding CRA rating.
Avi Reddy: Apart from the overall rating.
Avi Reddy: Of outstanding we received outstanding standing on the three component CRA tests, including the lending tests, the investment test and the service test.
Avi Reddy: Receiving a perfect score on all three components sets us apart from our competitors and is a testament to <unk> commitment to community and the hard work of our dedicated employees.
Avi Reddy: In conclusion, we continue to execute on our growth plan and we have differentiated our franchise front competition as it relates to our growth and ability to attract talented bankers.
Avi Reddy: We have a solid we have solid momentum and we continue to grow the business loans at core deposits.
Avi Reddy: Our net interest margin continues to expand with the fourth quarter NIM, increasing to $2 79 importantly, we have substantial opportunity to continue to increase our net interest margin in years ahead, given the significant back book repricing, we have in our portfolio.
Avi Reddy: Avi will provide more details in her remarks, but suffice to say we have a clear line of sight to returning to a three plus net interest margin.
Avi Reddy: Our DDA levels are back to 30% and we believe the value of this DDA base will shine through in the current rate environment.
Avi Reddy: Structured in our marketplace remains very high and we are very active on the hiring front.
Avi Reddy: And our recruiting pipelines are very strong more to come on this over the next 90 days as bonus season comes to comes to an end.
Avi Reddy: I am looking forward to a strong 2025 and I want to again, thank all our dedicated employees for their efforts.
Avi Reddy: Positioning <unk> as the best business Bank in New York with that I will turn the call over to Avi.
Avi Reddy: Thank you Stu during the fourth quarter, we completed our repositioning of our available for sale securities portfolio and our bank owned life insurance.
Avi Reddy: The securities restructuring was completed towards the end of November the Bally transaction took place in two stages or surrender of legacy Poly was completed in the month of December and an equivalent amount of replacement bully is being purchased in the month of January.
Avi Reddy: Excluding the impact of these two transaction as well as severance and costs associated with pension termination and other onetime items adjusted EPS increased by 45% versus the prior quarter.
Avi Reddy: We saw a meaningful expansion in the net interest margin this quarter.
Avi Reddy: NIM was up 29 basis points and the core NIM, excluding purchase accounting accretion was up 26 basis points.
Avi Reddy: NIM expansion was driven by a significant reduction in our cost of deposits.
Avi Reddy: Given the timing of the federal reserve rate cut in December we adjusted deposit rates towards the end of the month.
Avi Reddy: The full impact of the rate cut will flow through into our Q1 net interest margin.
Avi Reddy: Given that the securities repositioning was completed towards the end of November the fourth quarter NIM reflects only one month of benefit from the repositioning.
Avi Reddy: Core deposits were up approximately $500 million in the fourth quarter. This included approximately $150 million of seasonal tax receivable municipal deposits that typically arrived in the month of December and leave in mid January and $200 million of title company related deposits that were tied to a closing at year end and that left the bank in <unk>.
January.
Avi Reddy: Excluding the seasonal tax receivable deposits and the title company related deposits period end core deposit growth for the fourth quarter was approximately $150 million.
Avi Reddy: Similarly, the overall balance sheet size and cash position was elevated quarter and by approximately $350 million due to the seasonal municipal deposits and title company deposits.
Avi Reddy: For cash operating expenses for the fourth quarter, excluding intangible amortization was $57 7 million.
Avi Reddy: This was consistent with our previous core cash expense guidance of between 57, 5% and $58 million.
Avi Reddy: Noncore items for the fourth quarter included severance additional FDIC special assessment related to the failure of the statement said Silicon Valley and $1 2 million related to the previously disclosed termination of a legacy pension plan.
Avi Reddy: Please note we are in the final stage of the termination of the pension plan and expect an additional $4 5 million pre tax termination expense in the first quarter of 2025.
This additional $405 million is already captured in the OCI line item at year end and as such we will have no material impact on tangible book value per share as it is simply a realization of the unrealized losses in our equity account.
Avi Reddy: We added $13 7 million loan loss provision this quarter.
Avi Reddy: Assistant with our commentary during the third quarter, our allowance to loans increased to 82 basis points.
Speaker Change: You mentioned within striking distance of the 90 basis points to 100 basis points medium term target, which we expect to reach over the next six to nine months.
Speaker Change: Next I'll provide some thoughts on the NIM trajectory in guidance for 2025.
Speaker Change: As I mentioned previously given the timing of the securities repositioning there was only a partial quarter benefit from the repositioning and the fourth quarter's NIM in.
Speaker Change: In addition, the timing of the rate cuts in the fourth quarter was such that the full quarter impact of the November rate cut was not fully realized in the fourth quarter margin.
Speaker Change: As such we thought it'd be helpful to provide the core NIM for the month of December which includes the full benefit of the federal reserve rate cut in November as well as the full impact of the securities repositioning.
Speaker Change: The monthly December core NIM was approximately $2 80 for.
Speaker Change: This is a good base NIM to use as you build out your models for 2025.
Speaker Change: The 20 to 25 basis point Federal reserve rate cut in December should result in a five to six basis point NIM improvement for the first quarter of 2025.
Speaker Change: So starting with the 284 core NIM for the month of December and adding the full impact of the December rate cut should get us close to $2 90 for the first quarter.
Speaker Change: Additional core deposit growth and loan repricing could add a few more basis points of upside to the first quarter NIM.
As Phil mentioned, we have a line of sight towards the 3% net interest margin.
Should the federal cut rates again this year, we expect another five to six basis points and quarterly NIM improvement for 25 basis point rate cut.
Speaker Change: This assumes the behavior in deposits and loans hold for each subsequent rate cuts and competition remains rational.
Speaker Change: Should the federal reserve not cut rates in 2025, we still have a pathway to increase NIM overtime, given the significant amount of back book repricing.
Speaker Change: To give you a sense of the significant back book repricing opportunity in our adjustable and fixed rate loan portfolios and.
Speaker Change: In the second half of 2025, and the full year 2026, we have $1 9 billion of adjustable and fixed rate loans across the loan portfolio at a weighted average rate of $3 95 that either reprice or mature in that timeframe.
Speaker Change: Assuming a 225 basis point spread on those loans over the forward five year Treasury, we could see at 35 to 40 basis point increase in NIM from the repricing of diesel.
Speaker Change: Finally, and while we previously only provided information on the back half of 'twenty five and full year 2006, as we look into the back book for 2027, and we have another $1 75 billion of loan that at a weighted average rate of 425 that will lead to continued NIM expansion in 2027.
Speaker Change: In summary, we see a pathway to a 3% NIM in 2025, and our NIM greater than $3 25 in 2020 with continued expansion in 2027 and approaching the $3 50 area.
Speaker Change: The impact of this enhancement will no doubt increase our earnings power as time progresses.
Speaker Change: With respect to noninterest income guidance for 2025, we expect between 40 and $42 million.
Speaker Change: Individual quarters may be impacted by the level of customer related loan swap income.
Speaker Change: With respect to balance sheet growth, we expect period end loan balances to grow in the low single digit area in 2025 with growth more weighted towards the back half of 2025.
Speaker Change: As we mentioned previously we are focused on gradually reducing accrete concentration to the low four hundreds.
Speaker Change: Attrition in Korean multifamily may masked some of the growth in our business loan portfolio in 2025 as it did in 2024.
Speaker Change: However, we expect to spend moderate by the end of 2025 and expect to return to a mid single digit growth profile in 2026.
Speaker Change: With respect to core cash noninterest expenses, our full year 2025 guidance is between 234 and $235 million.
Speaker Change: This guidance takes into account our existing employee base.
Speaker Change: To the extent, we add additional client facing bankers after year end bonuses are paid out we could see an increase in expenses starting in the second quarter, but as we've demonstrated previously we expect these factors to pay for themselves and contribute the pretax income growth in a relatively short period of time.
Finally, we expect the tax rate for the full year between 27% and 28%.
Speaker Change: With that I'll turn the call back to Olivia and we'll be happy to take your questions.
Speaker Change: Thank you, ladies and gentlemen to ask a question at this time you launch a westar one one on your telephone and wait for your name to be announced to withdraw your question simply press Star one again.
Speaker Change: These standby, while we compile the Q&A roster.
Speaker Change: First question coming from the line of.
Speaker Change: Mark Fitzgibbon with Piper Sandler Your line is now open.
Speaker Change: Hey, guys good morning.
Speaker Change: Good morning.
Speaker Change: First question I had just to follow up on one of the guidance numbers that you gave for noninterest income I think you had said $40 million to $42 million for the full year 2025 is that correct.
Speaker Change: Yes, Mark so.
Speaker Change: We did the <unk> structuring in the month of December So what happened. There was we took the tax charge in Q4, we were purchasing around.
Speaker Change: 85% to $90 million of moly in the month of January so the the additional income that comes in on the <unk> side will be around <unk>.
Speaker Change: The $5 5 million plus or minus and so that's why the noninterest income is higher we also factor that into the tax rate of 27% to 28% given given.
Speaker Change: Given the bully income is tax free so we gave a range the range was 40 to 42.
Speaker Change: And obviously the individual quarters may be impacted by the level of loan swap income in there.
Speaker Change: Got you so the big Delta is the bully income number goes from two.
Speaker Change: $2 8 million to up to five gotcha, Okay, and then secondly, I think your guidance for loan growth was sort of low single digits.
Speaker Change: I mean you.
Speaker Change: Is that because the pipeline expect a bunch of that to fall out or you just feel like there'll be a fair amount of refinancing activity.
Speaker Change: I guess im curious.
Speaker Change: Yes.
Speaker Change: Yes, I think.
Speaker Change: We're seeing it and there is more volume.
Speaker Change: Transaction volume occurring in the marketplace for example.
Speaker Change: In the month of the fourth quarter, we closed over $150 million to $175 million.
Speaker Change: Of of new.
Speaker Change: Business related loans, we saw a higher level of payoffs and refinances.
Speaker Change: Resulted in.
Speaker Change: Not quite the growth we had expected. So we are seeing some more activity and clearly.
Speaker Change: I think in the creative world in the multifamily World, where we are seeing some more transactions and since we are not as active as we once were.
Speaker Change: That's the offset to the growth yeah, Mark if you look at 2024, we grew the business loan portfolio of $445 million for the year. So we're pretty happy with that looking to build on that and then on the <unk> side, we were down around $350 million multifamily and <unk> together, so and we're focused on getting the clean ratio down to the.
Speaker Change: Low four hundreds right. So some of that is going to the multifamily is going to offset some of the business stuff first half of the year, but as we exit 'twenty five and into 'twenty six.
Speaker Change: Maintaining that level of three.
Speaker Change: You should see.
Speaker Change: No.
Speaker Change: Overall loan growth pick up at that point in 2016.
Speaker Change: Okay, and then lastly, given your outstanding CRA rating. It strikes me that you're really well positioned to do acquisitions is that something that you think is in the cards for diamond in coming quarters and if so.
Speaker Change: Where and what might you be most focused on in potential partners.
Speaker Change: Yes, I mean look.
Speaker Change: We're always interested in.
Speaker Change: Strategic opportunities that enhance franchise value.
Speaker Change: Certainly within Tri State area.
Speaker Change: The metropolitan area.
Speaker Change: We'll look at opportunities as they may arise.
Speaker Change: We also have significant.
Speaker Change: And expect significant organic growth and with some of the new teams.
Speaker Change: Come on board and that we're talking to.
Speaker Change: And that capital is going to support those well, but suffice to say.
Speaker Change: If opportunities arise.
Speaker Change: Given the given valuations and given.
Speaker Change: Our positioning at this point.
Speaker Change: Certainly <unk>.
Speaker Change: If they make sense.
Speaker Change: Thank you.
Speaker Change: Thanks, Bob.
Speaker Change: Thank you.
Speaker Change: And our next question coming from the line of.
Speaker Change: Dave Mott with Raymond James Your line is now open.
Good morning.
Speaker Change: Sure.
Speaker Change: Thanks Stu.
Speaker Change: Starting with <unk>.
Speaker Change: Sure.
Speaker Change: Following up on the margin guidance here, although you mentioned the $1 9 billion fixed rate for the second half of 'twenty five and 2026, just wondering could you break that out between what is going to mature.
Speaker Change: And second off 25 versus the total for 2016.
Speaker Change: Yes, sure. So the second half of 'twenty five it's around $600 million.
Speaker Change: That rate of 425.
Speaker Change: And the remaining pieces in 2026, so it looks like there is a $1 billion billion, three plus or minus in 2026.
Speaker Change: And the rate on that.
Speaker Change: 385.
Speaker Change: Okay.
Speaker Change: Alright, I appreciate that color.
Speaker Change: Then.
Speaker Change: In terms of just kind of.
Speaker Change: Yes.
Speaker Change: You mentioned rational deposit competition here.
Speaker Change: Just kind of curious you had.
Speaker Change: At a very healthy move on.
Speaker Change: Deposit pricing lower.
Speaker Change: Just kind of where are your modules coming on these days.
Speaker Change: Yes, it's a mixed Steve I mean, we're.
Speaker Change: We are starting with client needs to have DDA. If you have DDA, we're willing to pay a competitive rate on the money market side as stew said, we're tracking account activity. The difference with us is versus a lot of banks in our footprint and there's a lot of new activity coming into the bank of new customers coming in.
Speaker Change: It helps us be more aggressive on existing customer rates and looking at them. One by one I think I mentioned on our third quarter earnings call. We had a large municipal customer that we were paying a very high rate.
Speaker Change: We rationalize the size of that deposit over time, because it didn't make sense for the bank, saying, what the broker deposits I would say.
Speaker Change: It's coming in between two and two and half plus or minus on a blended basis in terms of deposits coming in because the new groups or bringing in DDA at a rate of around 40% and if youre paying a money market rate.
Speaker Change: Plus or minus 4% to be competitive you are looking at somewhere between two and two and half in terms of the module cost coming in.
Speaker Change: The overall cost of deposits overall cost of deposits around the 2%.
Speaker Change: Two to 205 range at this point.
Speaker Change: Right, Okay, great really appreciate that color there and then just.
Speaker Change: On credit here just curious if you can give some color around the charge offs that occurred this quarter.
Speaker Change: So that will be helpful. Yes, yes, sure just kind of across the board Steve.
Speaker Change: Mix across C&I.
Speaker Change: Commercial real estate and multifamily no large credits in there.
Speaker Change: I think a lot of other banks have said this I mean, it's important to look at charge offs over an extended period of time I think our charge offs for.
Speaker Change: 2024 was 17 basis points 18 basis points, though.
Speaker Change: All stuff that we've identified a classified asset so when we report our 10-K will be down.
Speaker Change: 30 to 90 days pretty pretty flat basically so not seeing any concerning trends at this point.
Speaker Change: And so I'll just I'll just leave it at that for now.
Speaker Change: Okay, Great really appreciate the color and nice quarter. Thank you guys.
Dave Mott: Thanks, Dave.
Speaker Change: Thank you and our next question coming from the line of Chris O'connell with <unk>. Your line is now open.
Chris O'connell: Hi, Chris.
Dave Mott: Hi.
Dave Mott: Good morning.
Okay.
Dave Mott: So I was just wondering.
Dave Mott: The fact that the cash you guys mentioned was elevated.
Dave Mott: End of the year here.
Dave Mott: But there is not.
Dave Mott: The low single digit loan growth.
Dave Mott: Is it putting too much out there, especially it sounds like in the first half of the year.
Dave Mott: I guess, what's the plan or the timing that you guys think on the deployment of that.
Chris O'connell: Yes look I think what we said, Chris and we communicated this when we did the equity offering we've we've pretty much paid off most of our wholesale funding at this point. The <unk> position is around 500 to 600 million plus or minus of that $500 million is medium to longer term, which we don't expect to pay off at this.
Chris O'connell: Point, the brokered deposits are probably around $300 million to $400 million plus or minus so theres not a lot of room to continue to pay off our wholesale deposits and borrowings over the course of the year.
Q4 was a bit of anomaly as I said, we had some municipal deposits come in every year at the end of the year. In addition, we had a couple of large title companies put in deposits. Then so the normalized cash position is probably $3 $50 million to $400 million lower than that look I think we're being.
Chris O'connell: Judicious on on Securities purchases, we did do a repositioning in.
Chris O'connell: The fourth quarter, obviously on securities, where we where we restructured on $400 million I.
Chris O'connell: I think look having a little bit more cash is not a bad thing.
Chris O'connell: It helps position the bank to the extent that the fed doesn't cut rates or the fed goes in another direction. So I think we're trying to manage our asset sensitivity with the cash position and over time, we'll.
Chris O'connell: Put it to work on the loan side, we're not rushing into anything.
Chris O'connell: All at once so.
Chris O'connell: It does have a little bit of a drag on the margin obviously, but I think we are willing to live with that just given the additional flexibility provides the bank over time.
Chris O'connell: Great.
Chris O'connell: Like that might stick around for a little bit.
Chris O'connell: Yes.
Chris O'connell: And then on the on the loans.
Chris O'connell: Just curious.
Chris O'connell: It seems like there is a bigger headwind.
Chris O'connell: For the multifamily and CRE.
Chris O'connell: Repricing and maturities.
Chris O'connell: The second half.
Chris O'connell: 25, but you guys are indicating.
Chris O'connell: Through growth might be more impacted in the first half just curious on kind of the dynamics there.
Chris O'connell: Yeah, Chris This is more management of our balance sheet right. So we want to get the <unk> ratio into the low four hundreds so right now we're not at a market rate to retain some of these credits, but as the year progresses, and we get closer to the 400.
Chris O'connell: We have the option to keep some of these credits and they are very solid credits in the low to mid sixes on the balance sheet. So I think once we get to the level of <unk> that we're comfortable with we will have more flexibility at that point in terms of retaining some stuff. The volume is higher but at the same time the options with us in terms of Keith.
Chris O'connell: In keeping some of these credits credits with us. So I think again the headwind is going to be in the first half of this year or two.
Chris O'connell: Later on this year and after that we'll be able to retain items, though and manage the balance sheet as appropriate.
Speaker Change: Okay got it and then just as you guys are moving into the March April.
Speaker Change: I guess bonus season.
Speaker Change: For for competitive bankers.
Speaker Change: I know that things are still in flux, but is there any way to quantify perhaps on either a percentage.
Speaker Change: What you guys have either already added.
Speaker Change: Prior teams or the size, just how big that opportunity is.
Speaker Change: Yes, I think it's still a bit early Chris we've got <unk>.
Speaker Change: Number of teams multiple teams that were very close some have committed to coming on some art and very late stages. So it's a little early at this point I think as we get into March and April it will be.
Speaker Change: Some for some banks bonus season ends.
Speaker Change: In January so you could see some announcements in February.
Speaker Change: It's going to be a mix, but I think this will all shake out and I think the one difference this year is that the.
Speaker Change: The opportunities on both sides of the balance sheet not not just on the deposit side and so I think the last couple of years, we've probably spent 80% to 90% of our energy on the deposit side. I think this time around is probably going to be more balanced in terms of how we look at the opportunity I would expect that in the next 30 45 days Youll see a couple of announcements.
Speaker Change: And then.
Speaker Change: As we get into the end of March.
Speaker Change: It will be.
Speaker Change: Additional.
Speaker Change: Great.
Speaker Change: <unk> it.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: And our next question coming from the line of Manuel Novice with D. A Davidson your line is now open.
Speaker Change: Hi, Matt.
Speaker Change: Hey, good morning, I, just wanted to build on some of the commentary on <unk>.
Speaker Change: The customer reaction to recent fed rate cuts.
Speaker Change: Has there been really just wondering the industrywide question too.
Speaker Change: Any difference in reaction to deposit costs pushing out for the December cut versus.
The November cuts like is there have you seen any real differentiator is most kind of expected at this point.
Speaker Change: No I mean pretty similar Manuel I mean, obviously customers.
Speaking from personal experience and because we are involving day on the deposit rate movement.
Customers have some optical thresholds that they care about if you were at 5% you wanted 5% of the customer and then if you are at 4% one 4% I mean, if you are at 435, you may be okay with $4 15, right. So it's more.
Speaker Change: I think customer psychology, depending on where each one is but the way we manage our basis its very segmented based on balances as they have in the weighted average rate.
Speaker Change: I'll say.
Speaker Change: The best environment for banks is that gradual 25 basis point cut over.
Speaker Change: Every 90 days, we had 100 basis points swing pretty quickly so customers were impacted.
Speaker Change: Fairly significantly, but they also got got it on the way up right. So I think the best moment for all of US would be the fed takes a pause and then it comes back at some point in May or June and cuts 25 of that point and then youll be able to cut rates again, if you continuously have a significant amount of cuts you'll probably see more sticker price reaction from some but I think us individually.
Speaker Change: It's a relationship bank and we did pay on the way up and we've been able to reduce costs on the way down yes, we've been very diligent in our Honda way down in and looking at individual customers in making and making the right changes, including in a minute on the municipal side, where we told everyone that.
Speaker Change: You are 100% beta on the way up and we told them early on that on the way down I expect 100% beta as well so.
Look.
Speaker Change: Most banks are have been fairly rational.
Speaker Change: Through this most recent cycle and.
Speaker Change: And I think we've been able to take advantage of that and hold to hold to our guns.
Avi Reddy: As Avi said earlier, the fact that we are.
Avi Reddy: Every month opening hundreds of new accounts and bringing on new customers gives us a lot more flexibility right. So we don't have to fight and pay up for every last dollar.
Speaker Change: Where a customer says look I can get extra for.
Avi Reddy: This displays for that place and we basically.
Avi Reddy: Ken can hold to our guns and they can make a decision.
Avi Reddy: For the most part.
Avi Reddy: Hey.
Avi Reddy: And so we really haven't seen.
Avi Reddy: That much in the way of disintermediation as far as.
Avi Reddy: Deposits on the ratio.
Avi Reddy: I appreciate that commentary.
It's obviously a relationship business.
Avi Reddy: I don't think I heard.
Avi Reddy: And it's probably harder to pin down is is how much more deposit growth you get from the current teams you've had is.
Avi Reddy: Is there a thought process on what we should expect on the deposit side across this year.
Avi Reddy: Just kind of thoughts on where that deposit growth could go.
Avi Reddy: Yes, So I think what we've said previously on this is it.
Avi Reddy: Probably we'll take every team three to four years to get to some type of steady state.
Avi Reddy: And that continuously opening accounts.
Avi Reddy: Look every quarter, we've grown accounts than we've grown deposits and when we look at the forward pipeline. We think there is.
Avi Reddy: Additional room, I think it's hard to predict Manuel exactly where they're going to end up but.
Avi Reddy: What we're trying to do is look at accounts and account opening activity and they continue to make progress obviously, they've built a substantial book, it's $1 billion <unk> right now I think over time as our name gets out in our technology platform and some of the things we do for customers gets out.
Avi Reddy: They may bring in additional new customers as well not part of their existing book. So I think we're in a good spot.
Speaker Change: As Stu said branch based deposits have stabilized our consumer deposits has stabilized and we're looking at other teams as well. So I think we have a long runway on the deposit side.
Speaker Change: And in terms of growing that overtime, but just to give you an idea.
Speaker Change: If I if I look at our our our reports even today, we have opened up over 300 accounts and 200 relationships just just since December 31.
Speaker Change: So that kind of gives you an idea they are still very active in moving moving relationships over and developing new relationships. So I still think there is a.
Speaker Change: A fairly long runway.
Speaker Change: But.
Speaker Change: Again, that's going to happen over time, there are a lot of accounts accounts get opened it takes some.
Speaker Change: Several months to fully fund so there is still upside in terms of the pipeline.
Speaker Change: I love the sense of activity there.
Speaker Change: It is deposit growth.
Speaker Change: It comes in better than expected.
Speaker Change: Could that drive stronger loan growth like how how should we.
Speaker Change: I think of those together I don't know if you have a build in the back half of the year or do you have a loan repricing.
Speaker Change: Those work together.
Speaker Change: Thought process.
Speaker Change: I think credit is credit.
Speaker Change: We're always looking for good solid loans.
Speaker Change: But I don't think deposits are going to drive the credit side.
Speaker Change: I think we want to put on profitable relationships with good credits.
Speaker Change: <unk> business loans obviously.
Speaker Change: And so I think to some degree there.
Speaker Change: One won't drive the other.
Speaker Change: But.
Speaker Change: As we continue and as we said earlier as we continue to build out the C&I that healthcare and with some of the pending analysis, we think on the.
Speaker Change: On new teams focused on the loan side.
Speaker Change: That will certainly take up the excess liquidity.
Speaker Change: That makes a lot of sense I appreciate that one last question on the asset side is with the repricing that you're having in over the next three years are you still kind of thinking that the loan portfolio and with multifamily in the 30% range or could there be a wider range of outcomes there.
Speaker Change: You spoke a little bit about flexibility that you might keep some of those more than you maybe thought if the pricing is right just kind of talk through that a bit.
Speaker Change: Where it ends.
Yes, I think our range was 25%, 30%. So we don't want to be pinned down to one number I think that's really trying to get us down to that the low four hundreds over there on the investor Cree side, we have a lot of very solid relationships with good deposits as well in that business. So I think 25 to 30.
Speaker Change: Probably a good medium to longer term number there that gets us into the fourth.
Speaker Change: Remember I mean, the multifamily book has been a very solid book from a credit perspective, but it's.
Speaker Change: The lowest yielding.
Speaker Change: Loan asset that we have on the books, it's even at $4 49, which was the average yield on our multifamily book is even lower than or that are adjustable rate.
Speaker Change: Mortgage portfolio, one to four family portfolio. So I mean, so there's.
Speaker Change: There is a good <unk>.
Speaker Change: Risk adjusted.
Speaker Change: Asset there but.
Speaker Change: We also are looking at maximizing returns so.
Speaker Change: We think that 25% to 30% is the right place to be although in this marketplace, obviously rates have gone up quite a bit on the multifamily side.
Speaker Change: Yes.
Speaker Change: A much more.
Speaker Change: Profitable asset and it was.
Speaker Change: Several years ago, when it was commoditized pricing.
Speaker Change: Thank you Bob and thank you for the commentary.
Bob: Thanks Daniel.
Bob: Thank you.
Bob: Wanted to ask a question please press star one.
Speaker Change: Our next question coming from the line of Matthew Breese with Stephens, Inc. Your line is now open.
Speaker Change: Good morning, just.
Matthew Breese: Just a few follow ups.
Speaker Change: I was hoping first you could you could discuss new loan yields and spreads across C&I and kind of your focus relationship commercial real estate.
And then secondly, just discussed payoff activity on the back book and whether or not.
Speaker Change: The slowest pace of payoff activity, if anything has changed there.
Speaker Change: Sure so on the on the pipeline right now.
Speaker Change: The average rate on the on our pipeline is <unk> seven.
Speaker Change: 775.
Speaker Change: The C&I portfolios at a weighted average rate of about $7 60.
Speaker Change: And the owner occupied Cree has about 720 and.
Speaker Change: The health Care's right around 750 as well.
Speaker Change: We only have.
And the entire pipeline when we have $9 million in multifamily and <unk>.
Speaker Change: And about $60 million in an investor Cree So does <unk>.
Speaker Change: 750 pipeline is really weighted towards the C&I owner occupied Cree in health care.
Speaker Change: And then Matt just on the payoffs speeds.
Look we track. This every single quarter the multifamily payoffs speeds in Q4 were a little higher actually it was around 10%.
Speaker Change: The prior quarters, we are probably averaging closer to six 6% to 7% plus or minus on the investor creates probably around 6% to 7% payoffs speeds at this point pretty consistent with what the prior quarters, where we did see some elevated payoffs in our in our business loans at year end customer selling businesses just normal activity.
Speaker Change: That was actually 20% in Q4 that is a bit higher than what we traditionally see because in that business portfolio is probably closer to 8% to 10% because those are the customers that we're retaining over time. So if we didn't have that 20% pay off in that portfolio. In Q4 would've ended up closer to $11 billion of fee at the year, we had a cut.
Speaker Change: Bob.
Speaker Change: Large.
Speaker Change: Customers, who sold or companies to private equity firms or whatnot.
Speaker Change: We did have some payoffs there which we're.
Speaker Change: Unanticipated.
Speaker Change: One thing from an industry perspective is a lot of banks are pulling out of commercial real estate somewhere and are you trying to lower CRE concentrations.
Speaker Change: I was hoping you could talk about what youre seeing on the non bank side.
And whether or not they are taking market share and keeping spreads.
Speaker Change: Spreads lower than you would normally see.
Speaker Change: Yes, I think I think we are seeing a little bit more activity on the on the non bank.
In terms of.
Speaker Change: Financing Cree and.
Speaker Change: Other multifamily.
Speaker Change: Opportunities.
I do think that over time.
Speaker Change: Today with today's yield curve and where rates are that.
Speaker Change: I think banks will eventually get back into the <unk> business as they get to the levels that they would like in terms of are there key ratios.
Speaker Change: Because again, given the yield curve and where rates are.
Speaker Change: Sure.
Speaker Change: There is money to be made in that business and has a good risk adjusted assets.
Speaker Change: Alright, and then two more for me. The first one is just I was hoping for some.
Speaker Change: The rent regulated multifamily book in the office brokers still kind of the two areas for everybody areas of most concern just talk about the health of those portfolios any changes in underlying characteristics.
Speaker Change: And then maybe some thoughts around charge off activity for next year. If you have some insights there.
Speaker Change: Sure Yeah nothing significant.
Matt: Matt onboard.
Speaker Change: Look we track our classifieds very closely like I said in the prepared remarks classifieds are down we don't have a lot of maturities in the first half of the seller.
Matt: I think the maturities pick up.
Matt: And a stair step approach starting in the second half of <unk>, but <unk>.
Matt: Really not seeing anything nobody is really coming in and asking for new deferrals or modifications at this point those levels are pretty steady at this point I think we know what we have.
Matt: This state for the the charge off item look at its hard to predict charge offs over time and I think we've done a good job identifying what loans are sub standards. So we know where we have issues over time.
Matt: The individual quarter, maybe up or down it could also be look you made retail a decision point on certain credit, saying look it's better for us to exit these credits at this point, especially as you have.
Matt: Third party investors and non banks stepping up in those markets. So I would say probably entering the point in the cycle that that charge offs are not going to be zero basically.
Matt: For the full year, our charge offs were at I think 17 basis points last year. So a range between 20 and 30 basis points is a reasonable range for a commercial bank and Thats, probably where we expect to be.
Matt: For next year.
Matt: Uh huh.
Matt: Hopefully that helps in terms of color, but not really seeing anything.
Matt: Out of the ordinary at this point.
Matt: On a rent regulated.
Matt: We're really getting down to.
Matt: We separate between pre 2019 in and after in the pre 2019 portfolio continues to wind down.
Matt: <unk> all repriced at this point, we have no non performers.
Matt: No.
Matt: We continue to monitor it.
Matt: Still doing our annual reviews. So we got a pretty good handle on what we're seeing in terms of debt service coverage and we are seeing.
Matt: A good percentage of improvement and debt service coverage ratios.
Matt: As we go through our annual reviews so.
Matt: I think the inflation issue has moderated somewhat.
Matt: Rents are slowly increasing.
Matt: And landlords most of our loans are relatively small so most of our.
Matt: Our average.
Matt: Our average size on a run regulators about two and a $2 $8 million so they're managing their properties.
Matt: Very tightly and maintaining their profitability.
Matt: Great and then last one for me.
Matt: I was hoping you could discuss deposit growth for 'twenty five a little bit I'm, sorry, if I missed that the composition is also important so I was hoping you could just touch on.
Matt: How do you think noninterest bearing deposit growth will look next year.
Matt: Yes.
Speaker Change: One thing we've seen Matt is just a stabilization in consumer deposits.
Speaker Change: At the bank, we probably have around 30% to 35% of our book is consumer I'd say 2022, and 2023 and even the first half of 2024, we saw outflows.
Speaker Change: That and we saw outflows on the DDA side as consumers wanted to get a higher rate right. So I think that should help because that was masking some of the business growth that we saw.
Speaker Change: In 2024, we grew business deposits by $1 7 billion plus or minus as the team has really started started to ramp up so I would say we continue.
Speaker Change: Seed new accounts coming in new deposits, we expect to grow the deposit base the seal.
Speaker Change: We've got a back up to 30% in terms of the DDA percentage and we'd like to keep it at that level and maybe grow it over time.
Speaker Change: Still a higher rate environment, so it's very hard to grow DDA. So.
Speaker Change: Project, the DDA base to getting to 35% at the end of one year, but we'd like to continue to see that creeping up slowly over time.
Speaker Change: The stuff that's coming in has a nice component of DDA, So I'd say.
Speaker Change: The DDA percentage.
Speaker Change: Stable to up from here hopefully and in terms of overall deposit growth I think we should see pretty solid growth in 2025 at least based on accounts and we've opened and the pipelines that we have.
Speaker Change: Sorry, just last one is thoughts on deposit betas and 2025.
Speaker Change: Yeah, So what we've done on the interest bearing side is.
Speaker Change: We'd probably drop rates on the interest bearing piece around 80 basis points for the 100 basis points cotton and rates and so probably at an 80% beta on interest bearing but given we've got 30% DDA. The total deposit beta was around I think 55% plus or minus so I think that should hold map going forward.
Speaker Change: There's additional rate cuts.
Speaker Change: I mean as of right now our cost at a weighted average rate on deposits around $2 five and thats fully reflective of the December rate cut. So we've made all those changes for December so I would say if we get an additional 25 basis points is the behavior should pretty much mirror, what we had for the last 25 basis points, even the lost 100 basis points basically so.
Speaker Change: We don't expect any substantial change obviously, if the fed does not cut rates, it's going to be harder for banks to cut rates. Additionally, going forward.
Speaker Change: I appreciate taking all my questions. Thank you.
Matt: Thanks, Matt.
Matt: Thank you.
Speaker Change: And we have a follow up question from annual novice your line is open.
Speaker Change: Hi, Emmanuel.
Emmanuel: Hey, sorry.
Speaker Change: Did you did I hear correctly that Youre ended period.
Speaker Change: Is that total deposit costs is two 5%.
Speaker Change: That did that.
As Kurt that's the current weighted average rate as of January 20 <unk>.
Speaker Change: That's very helpful. I appreciate that thats excellent push out of deposit cost cuts.
Speaker Change: Yes.
Speaker Change: Thank you.
Speaker Change: There are no further questions in the queue at this time I will now turn the call back over to Mr. <unk>.
Speaker Change: <unk> for any closing remarks.
Speaker Change: Thank you Olivia and thank you all for joining us today and thank you to our dedicated employees and our shareholders for their continued support we look forward to speaking with you all after the first quarter.
Speaker Change: Yes.
Speaker Change: Ladies and gentlemen that does conclude our conference for today. Thank you for your participation and you may now disconnect.