Kelly Motta: Maybe a last maybe two-parter from me. Do you have where your spot deposit rate was at the end of the quarter? And as you look to 4Q, I think the margin expansion you had this quarter was really nice. Just how you — where deposit costs are and how you’re thinking about margin for the last quarter of the year. And do you think this inflection can continue?
Allen Nicholson: Kelly, if you go to the investor presentation that we published last night, on Page 34, you’ll see that, as of September, cost of interest-bearing deposits and repos was 1.39%. And then if you go to, I think, it’s page — sorry, Page 40. You’ll see in the upper right that the cost of deposits in total was 56 basis points. And I think if you look at the trend line there, the increase in both of those is continuing to go up, but I think at a slower pace for the last couple of months.
Operator: [Operator Instructions]. From the line of Gary Tenner with D.A. Davidson.
Gary Tenner: I just wanted to ask prospectively about loan yields, assuming the Fed is not changing rates from here. This kind of 6 basis point increase in loan yields in the third quarter. Just with ongoing kind of repricing within the book and over the course of 2024, is that a similar sort of quarterly trajectory you would expect? Assuming, again, the rate environment is pretty stable from here.
Allen Nicholson: I’m not sure if I quite understood the full question, Gary. But in general, if the Fed’s on hold, we’ll see a continuation of loans that were adjustable repricing at higher rates certainly. And so that will be a catalyst. But it won’t be it what we saw earlier this year and in last year when the Fed was moving, all the variable loans were repricing. So it will — I think you can get a sense of it from some of our disclosures in the investor deck where, in the appendix, we show how much of our office CRE is going to reprice or mature. That might give you a sense of how quickly that will turn.
David Brager: Yes. And Gary, the only thing I would add to that, most of the repricing on the commercial real estate portfolio is based off of a 5-year treasury rate. So if you look at the 5-year treasury 5 years ago compared to today, it is not a 500 basis point increase. It might be a 220 or 230 basis point increase. And so from a credit perspective, that’s good. From an asset yield growth perspective, it’s not as meaningful. But I do think that we will see the office portfolio is very similar to the rest of the portfolio as far as the repricing and maturities. We just call out the office individually, but the rest of the commercial real estate portfolio is probably pretty similar as far as the maturities and the repricings.
But yes, we’ll continue to see that, and we are originating loans above 7%, and higher later because the 5- and 10-year treasury have gone up pretty significantly in the last month or so. And so that and/or the incremental borrowing cost is how we’re pricing the loans today.
Gary Tenner: Well, I appreciate the answer to the question. Apparently, it was not phrased well, but you got me where I needed to be. And then just really quick on kind of the M&A environment. I mean, obviously, in your footprint, recently that CVCY-Community West transaction, obviously, Community West pretty small relative to your size. But just the deal was pretty well received by the market initially the first couple of days after it was announced. Just wondering if you’ve kind of seen any change in kind of the stance of prospective sellers’ willingness to kind of take what the market is potentially giving them in the expectation that it would be received well or better at least by the market.
David Brager: Yes. Well, first and foremost, I think conversations have definitely picked up. There are some math issues with marks and different things to consummate a deal. And I believe that deal closed below book value. So sellers that are willing to sell below book value, that could be of interest to us, depending on the bank, obviously. But I do think that the conversations have picked up. I do think that there’s going to be opportunities for us. That’s sort of been our position sort of related to a restructure of the balance sheet and maybe potentially taking losses. We don’t want to impact the capital, we’d rather have the excess capital and be prepared to do a deal where we might have to mark the other balance sheet that would impact our capital ratios.
So I think we are actively interested in looking at opportunities, and I think there’s going to be opportunities in the short to midterm here. And we’ll just keep looking for the right opportunity for us that meets our criteria.
Operator: [Operator Instructions]. From the line of Tim Coffey with Janney Montgomery Scott.
Timothy Coffey: Dave, back in the first quarter, the $370 million-ish in deposits that left the balance sheet, I think 2/3 of that went to CitizensTrust. Have you — do you have any kind of visibility on when some of that might be able to come back?
David Brager: So the $370 million was actually the amount that went to CitizensTrust. There was a little bit more that left in total. And look, I think if we’re in this higher-for-longer sort of flat high rate environment, I think that those treasury securities that they purchased might stick at CitizensTrust for a little while. CitizensTrust is working on moving those relationships to more managed relationships and a different fee structure than just buying treasuries. But I do believe some of that will ultimately come back. I do think that we — our trust group, our bankers that manage those relationships, I would rather keep it in the family at CitizensTrust than let it go somewhere else and potentially never get it back. But I don’t anticipate any of it really coming back any time soon, barring somebody’s individual need for the liquidity or the cash to do something. So I think we’re still a little ways away from starting to see some of that roll back on.
Timothy Coffey: Okay. And then your noninterest-bearing percentage to total deposits is pretty much right on top of where you were pre-COVID. Do you expect there to be more downward pressure on the deposit mix?
David Brager: Yes. I mean, there’s always that risk. I mean, we — as we’ve talked about for years and years and years, we sell deep into the relationships with a lot of treasury management products. The cost of maintaining a free account is pretty high, which is the type of client we go after. There’s still some psychology there. I mean, if everybody was just doing a pure math equation, then they would get a higher money market rate than we’re paying in ECR, so they would just do that. But that’s not the way that it works, and operating companies need to keep larger — especially larger operating companies, need to keep larger balances. So I mean, we work hard at going after that type of client. It’s been built over the 49 years of our company, been doing sort of the same thing, especially in the last 13 to 15 years while my predecessor was here and even when Linn Wiley was here.
