Raj Singh: It’s been shrinking for the last three years. It will continue to shrink. The growth will come from our core footprint business, C&I, CRE, small business. Not from the, what we call BMT, which is the bridge finance business, which is franchise finance and equipment finance, both of those businesses, we have to be run down.
Thomas Cornish: Yes. If you went back 3 years ago, our UPB would have been $2 billion. Today, it’s about $650 million.
Operator: Our next question comes from Timur Braziler with Wells Fargo.
Timur Braziler: Looking at deposit beta assumptions. I’m just wondering what your expectations are here over the next couple of quarters, assuming no rate cuts in the immediate near term, how much additional creep is there on deposit betas over kind of 1Q, 2Q? And then I’m just curious as to what your expectation is for deposit betas on the way down? And if the competitive Florida market might increase that lag effect on betas on the way down or if you think the Florida deposits are going to reprice similar to what you might see elsewhere.
Leslie Lunak: So I’ll address that at a high level. I mean there’s a lot of very granular modeling that goes on there, and I’m not going to try to dive into all the details of it. The beta through the cycle thus far has been about 54. We’re still modeling high 50s in the aggregate by the time repricing up stops. As far as on the way down, while I think we’ll be quite proactive in bringing deposit cost down as rates come down, you have to remember that on the way up, the marginal cost — when rates are coming down, the marginal cost of new business is going to be higher than the market at the total cost of the back book. So on the way up maybe not so much. The back book but on the way down, you are going to have the marginal cost of new business still being a little bit higher than the cost of the back book because the cost of the back book doesn’t equal the marginal costs.
So in the aggregate, when you look at it all together, because of that phenomenon, it will appear to be a little slower.
Raj Singh: We do have one more quarter of CD reprice, significant CD repricing, which is the quarter we’re in right now. So after that, when we look at our CD maturity, it just drops off pretty significantly after March. Last quarter, fourth quarter was pretty big and this quarter is also big. And then second quarter is really very small into the rest of the year. So that’s one element of it. But I think the second element obviously is new money that is coming in compared to where the average book of the back book is today. New money is still coming in pretty high until the Fed cuts, but the existing book repricing should start basically — that phenomenon should be over in about maybe eight more weeks.
Leslie Lunak: Yes, agreed. And then we see this CD repricing phenomenon as one of the reasons we didn’t guide to margin expansion in the first quarter.
Timur Braziler: Got it. That makes sense. And then it’s encouraging to hear that noninterest-bearing migration and 4Q was more so seasonal in nature. I’m wondering, do you think that the excess liquidity and the risk of kind of additional noninterest-bearing flight is done here? And if that’s the case, can you maybe just talk us through what the seasonal factors are throughout the course of the year and how those balances should move along with that?
Raj Singh: Yes. I mean our title business has grown very nicely. We’re very happy with it. That’s where most of that seasonality is coming from. It’s basically more with origination, mortgage banking-related deposits. And they do — they follow a pretty routine cycle. They’re always weaker in the middle of the month, middle of the quarter. They’re always stronger in month end and quarter end with one exception, which is year-end. Year-end that business kind of shuts down and there’s very little activity. Nobody is closing a mortgage on December 31 or close to it. So we’ve looked back over the last three years very closely as this data and we see the same trend last December and the December before. It’s just a little more pronounced as the business has gotten bigger.
So that will start building up. Summer is when the business is the hottest and these things will level over time. But also within a month and within a quarter, we see that cyclicality and now we have a pretty good handle around it. So most of that happened in that business. There was a little bit of outflow from some accounts, but I would call that sort of ad hoc stuff like that happens. Sometimes they are in flow, sometimes in outflows. But I’d say 75% of that outflow really was a mortgage related, and it happened pretty late in this quarter. Which is why an average cost you see hardly any change, but period imbalances was a significant [indiscernible].
Leslie Lunak: It’s a regular December 31 phenomenon.
Timur Braziler: Got it. And then just a couple CRE-related questions. It looks like office LTVs picked up a little bit quarter-over-quarter in New York. Maybe just talk us through some recent reappraisals that you’ve had in New York, primarily Manhattan and what you’re seeing as far as LTV migration on the sales there?
Leslie Lunak: I can say a couple of things about that. Some of that is reappraisal. Some of that is modeled because when we don’t have a new appraisal, we — our models actually take commercial property forecasts at the submarket detailed submarket level and adjust the LTV. So some of that is modeled and some of that is actually reappraisal. Tom, do you have anything to add?
Thomas Cornish: Yes. I would say our — when you say New York City, everybody, obviously, specifically means Manhattan, the number of office loans we have in Manhattan is fairly — it’s a fairly small number. It’s about 12 loans in total. The only maturities that we’ve seen actually paid off. So we were not looking at new appraisals. And I would say the information we hear kind of anecdotally, not related to our specific portfolio because we just don’t have a large enough sample and did not have enough majorities to say that. I would say it’s largely going to point towards valuations being down maybe 20%, something in that kind of range. But it’s very much also a building by building issue depending upon the occupancy and debt service coverage and debt yields and things in that building.
