Dime Community Bancshares, Inc. (NASDAQ:DCOM) Q3 2024 Earnings Call Transcript

Dime Community Bancshares, Inc. (NASDAQ:DCOM) Q3 2024 Earnings Call Transcript October 22, 2024

Dime Community Bancshares, Inc. misses on earnings expectations. Reported EPS is $0.29 EPS, expectations were $0.41.

Operator: Good day, and thank you for standing by. Welcome to the Dime Community Bancshares, Inc.’s Third Quarter Earnings Conference Call. Before we begin, the company would like to remind you that discussions during this call contain forward-looking statements made under the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 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 as set forth in today’s press release and the company’s filings 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 review 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 accordance with the U.S. GAAP. For information about these non-GAAP measures and for reconciliation to GAAP, please refer to today’s earnings release. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to turn the conference over to your speaker today, Stuart Lubow, President and CEO. Please go ahead.

Stuart Lubow : Good morning. Thank you, Didi, and thank you all for joining us this morning for our quarterly earnings call. Joining me today is Avi Reddy, our CFO. In the third quarter, Dime continued to execute on our growth plan. The momentum in our business is extremely strong and in the third quarter, we grew core deposits by over $500 million and the business loan portfolio by $125 million. As a result of strong growth in core deposits and a 4 basis point reduction in the cost of total deposits, the net interest margin increased to 250 basis points. To put things in perspective, our margin for the first quarter of 2024 was 221 basis points, implying a 29 basis point improvement through the third quarter. As we outlined in our press release, since the Federal Reserve reduced Fed funds rate by 50 basis points in mid-September, the spread between loans and core deposits has increased by approximately 15 basis points, and this will contribute to continued NIM expansion in the fourth quarter.

Avi will provide more detail in his remarks, but suffice to say, we have a clear line of returning to a 3% plus net interest margin. In summary, the improvement in NIM to date and our expectations for forward NIM significantly increases Dime’s earnings power. Cash and non-interest expense levels increased on a linked quarter basis to $57.4 million. Our expectation is to keep expense levels relatively flat in the fourth quarter and into 2025, as we are working on a number of efficiency optimization initiatives. Business loans were up approximately $125 million in the quarter, and we continue to see a very strong pipeline in our market C&I and healthcare lending verticals. The weighted average rate on new business loans originations for the third quarter was approximately 8%.

We expect to end the year with approximately $11 billion of total gross loans. Asset quality continues to remain solid, and net charge offs remain well contained at only 15 basis points. While NPAs ticked up off a very low starting base, we expect to report in our 10-Q that criticized and classified assets are flat on a linked quarter basis, and early stage 30 to 89 day delinquencies are down 28% on a linked quarter basis. Our capital ratios continue to build, and at September 30, our total capital was 14.8%, and our common equity Tier 1 ratio was 10.2%. As we have mentioned before, in this environment, accreting capital is important as it speaks of Dime’s strength and our ability to service our growing customer base. In that vein, in the third quarter, we built our loan loss reserve by approximately 9% or 6 basis points.

As I mentioned during our last earnings call, over the course of the next 9 to 12 months, as we evolve our business model and portfolio towards business loans, and with our strong pipeline of C&I and healthcare loans, we expect to operate with the reserve level in the 90 basis point to 1% area. Finally, I’d like to conclude by touching on three themes that are key to Dime’s story going forward. The first is disruption, the disruption in our local marketplaces. As you know, Dime has been highly successful in attracting teams of deposit gatherers and lenders, and the growth in core deposits and business loans to date is a validation of our efforts. The disruption in levels in our market continue to be at all time high and we are actively building our recruiting pipeline for 2025.

Given, we are close to year end, we don’t expect to make any announcements until 2025, but suffice to say, we are spending a fair bit of time interviewing candidates that fit well with the Dime culture and business model. Second topic is declining rates. While we have been pleased with the NIM trajectory over the course of this year, the expansion we have seen thus far has not been driven by lower interest rates. This should change starting in the fourth quarter as the full impact of the 50 basis point cut will manifest. Given the forward curve, we are more confident than ever that returning to historical profitability levels is — to be seen in the near term. Finally, growth in DDA. Our DDA levels are now back to almost 30% of deposits and we believe the value of this DDA base will shine through in the current rate environment.

In conclusion, I’m looking forward to ending this year strong. I want to thank all our dedicated employees for their efforts in positioning Dime as the best business bank in New York. With that, I will turn the call over to Avi.

Avi Reddy : Thank you, Stu. Reported EPS was $0.29 per share. We saw a meaningful expansion in the NIM this quarter. As you will recall, the second quarter NIM included a recovery of interest income of 4 basis points. In addition, the second quarter did not have the impact of the cost of the sub-debt issuance. Adjusting the second quarter for these two items on a like for like basis, NIM expansion for the third quarter was around 17 basis points. The NIM expansion was driven largely by strong growth in core deposits. Non-interest income for the third quarter was $7.6 million. As you’ll recall, the second quarter non-interest income included a non-recurring branch sale gain. Swap fee revenue was lower in the third quarter. Given the uncertainty with the Federal Reserve’s rate cutting decisions this year, we have found that customers are being more patient and taking more time to engage in swap transactions till they have more certainty on the rate outlook.

As such, we expect the swap line item to rebound in 2025 with Q3 marking a low point for swap revenue. Core cash operating expenses for the third quarter excluding intangible amortization was $57.4 million. This was in line with our guidance for the third quarter core cash expenses being in the $57 million area. For the fourth quarter, we expect core cash operating expenses to be between $57.5 million and $58 million and as Stu mentioned, we expect to hold the Q4 run rate steady into 2025. We’ll be providing more color on this during our earnings call in January 2025 as we’re currently working through our year end budgeting processes. We had $11.6 million loan loss provision this quarter, which was higher than prior quarters. During the third quarter, we made several enhancements to our CECL model, centering primarily around updating peer group loss history data as well as prepayment speeds.

These model enhancements contributed approximately $4.5 million to the provision for the quarter. Excluding the model enhancements that I just noted, the loan loss provision would have been closer to $7 million. As Stu mentioned in his prepared remarks, over the next 9 to 12 months, we expect to gradually build a reserve as our business model evolves and we expect to operate with a reserve in the 90 basis points to 1% area in the medium term. Next, I’ll provide some thoughts on the NIM trajectory. As we outlined in the earnings release, when analyzing the weighted average rate on loans and core deposits in the 30 day period after the Fed cut rates, the spread between these two items has increased by approximately 15 basis points. Accounting for the cash on our balance sheet, which of course has 100% beta and the fact that the borrowing portfolio is largely termed out, we expect this core spread improvement between loans and core deposits to translate into a 10 basis points to 12 basis point run-rate NIM improvement for the fourth quarter.

Assuming the behavior in deposits and loans holds for each subsequent rate cut and competition remains rational, we could see a 5 basis points to 6 basis point increase in the NIM for every subsequent 25 basis point rate cut once the full impact of each rate cut flows through the entire balance sheet. Said differently, all else equal starting with the 250 NIM, adding the impact of the rate cut that has already taken place and assuming another 225 basis point rate cuts in the fourth quarter, the exit run rate NIM at the end of the fourth quarter could be in the 270 area. Given the potential for rate cuts in 2025, we see additional NIM expansion in the first half of 2025 as well. Finally, and as mentioned on our previous earning call, we have a significant back book loan repricing opportunity in our adjustable and fixed rate loan portfolios that is expected to kick in, in the second half of 2025 and 2026.

To give you a sense of this back book repricing opportunity in the second half of ’25 and ‘26, we have $1.9 billion of adjustable and fixed rate loans across the loan portfolio at a weighted average rate of 390 that either re prices or matures in that timeframe. Even assuming only 150 basis point spread on those loans over the forward five-year treasury, we should see a substantial 25 basis point increase in NIM as these loans reset to higher rates. Assuming a 225 basis point spread on those loans over the forward five-year treasury, we could see a 35 basis point increase in NIM from the back book repricing. In summary, as you put all these parts together, we see a pathway to a 3% NIM in 2025 and a NIM greater than 3.25% in 2026. The impact of this enhanced NIM will no doubt increase our earnings power as time progresses.

With that, I’ll turn the call back to Didi and we’ll be happy to take your questions.

Q&A Session

Operator: Thank you. [Operator Instructions] And our first question comes from Steve Moss of Raymond James.

Steve Moss: I want to start up on just on the deposit side. Appreciate all the color you gave on the margin expansion, but you guys showed really good growth throughout the core deposits. Curious to see how you’re thinking about those trends going for the upcoming quarter maybe into the year just as you continue to remix and any incremental color you can give there?

Avi Reddy: Yes, sure, Steve. I’ll start off and I think Stu will chip in after. Look, we are very excited with the hires we made over the last year and a half on the deposit side. They’re up to around $1.5 billion of deposits. So this is in the Private and Commercial Bank, around 35% to 37% of that is DDA. We look at the account opening activity on a biweekly basis, we continue to see a lot of traction over there. If you look at the teams that we brought on there, the first set of teams from 2023 have been at the bank barely a year at this point. The teams this year have been here less than six months. It’s probably going to take three to four years for each of those teams to reach a steady state. So we think there’s significant runway for them over time.

It’s kind of hard to predict on a quarterly basis what’s going to happen, but they’re bringing on new accounts, new deposits literally on a weekly basis. I will say what we’ve tried to do so far with the deposit growth that’s come in is really to remix the balance sheet a little bit where we’ve the first step was paying off the FHLB position. So we had $1.1 billion of overnight FHLB. We don’t have any overnight FHLB anymore at this point. Everything’s toned out. We had around 7% to 8% of our balance sheet in broker deposits. We brought that down to around 5% at this point. So far it’s been a bit of a mix shift. I think as deposit growth continues, you’ll probably see some expansion in the balance sheet overall over time. The other thing I’d say is we don’t have a large amount of time deposits on the balance sheet.

There’s a little bit on the brokered side, it’s probably around $500 million plus or minus. That obviously has 100% beta. But absent that, our core customer base is more money markets and DDA. So obviously, on the money market side, we’re able to pass on rate decreases to them significantly and we don’t have to wait till those time deposits reprice because the complexion of our base is more on the money market side. So I think all in, this was a good quarter for deposits. I think we’ll continue to have good years in the years ahead with what we had. And as Stu said, we’re working on a pipeline of hires for next year, focused on both the deposit and loan side. So I think over time, we’d like to create an environment here where we continue to grow the deposit base like we have.

Stuart Lubow: Yes. I mean, typically, the fourth quarter is a little slower in terms of transitioning accounts and moving funds from bank to bank as they get to — as customers get to year end. But we are still seeing a lot of positive flows in terms of new accounts and new relationships coming on. But I don’t think we’re going to get the entire relationship at this point. We’ll get pieces of it until the first quarter, simply because of just the operating environment for a business moving all their accounts in the fourth quarter.

Avi Reddy: Yes. And Steve, just one more point just to highlight on the composition of the deposit base. I mean, if we look at it on a year to date basis, our business deposits are up $1.3 billion basically. So we started the year at around $4 billion of business deposits, we’re at $5.3 billion right now. The consumer deposit side, it’s stayed pretty stable, $3.4 billion to start the year, around $3.4 billion now. At the start of the year, we were seeing some outflows still on the consumer side, especially as rates went higher, starting to see trends in that stabilize. And on the municipal side, for example, this quarter we used some of the core deposits that were coming in to exit a small municipal relationship that we had that had a higher cost. And so on the margin, I think very happy with the business side of it and that’s our goal is to be the best business bank in New York and I think that’s the focus and that’s why we’re growing over time.

Steve Moss: I really appreciate all the color there. And then just one clarification just staying with the margin subject. Avi, you mentioned the $1.9 billion backlog, that’s from the second half of ’25 through 2026?

Avi Reddy : Yes. So that’s that 18 month window, Steve. So the way we’ve tried to lay this out is in layers like we did on our last call. So really between now June of next year, given the forward curve and given your rate cuts are baked in. For every 25 basis points, we have tried to give a high level construct of the 5 basis points to 6 basis points. Now, in addition to that, we are obviously originating loans at a higher rate than the existing portfolio. So that should help a little bit too between now and then. But once the rate cuts, let’s just say, stop middle half of next year, we just wanted to give you the guidance that there’s an additional opportunity over those 18 months just given the fact that there’s fixed rate loans that are repricing higher.

Stuart Lubow: Yes. And then getting back to the pipeline, we have about $1 billion $959 billion in the pipeline at a weighted average rate of 7.9%. And it’s really focused on in the areas of C&I as approximately $300 million healthcare about approximately $260 million and owner occupied CRE is approximately $181 million. All those, we expect these are loans that are going through the process, some of which are going to be closing this quarter. I mean, to date, we’ve had a substantial origination so far in October. And as I said, we expect to be over $11 billion by the end of the year. But those originations will accrue our benefit with those type of weighted average rates in the $7.90 range.

Steve Moss: And then just in terms of credit here, just curious if you could give some color around the A&C loaner loans that were placed on non-accrual status, and I know it was a small uptick, but just on the business as well?

Avi Reddy : Yes. So, no worries, Steve. I mean, like you said, we’re starting off a really low base here. And so on the C&I side, you had a legacy Eastend line of credit, don’t really expect any additional provisioning on that loan, something as part of the Bridge franchise is on the Eastend. On the CRE side, actually this loan was on the CRE side, it was actually paying through September 30, but unfortunately seems to be a dispute between the two partners, and there’s a maturity on that loan in November. So given the dispute, we believe it was prudent to move that loan into NPA. We believe it was secured on it, have a personal guarantee on it, it was a previously identified criticized loan. So couple of small items here, not really seeing any trends in the overall portfolio.

And like we pointed out in the prepared remarks, cost side and classifieds flat overall, net charge offs have remained pretty stable, not really seeing anything in the 30 to 80, 90 bucket, it’s actually down 28%. So overall, pretty steady, couple of small items here.

Stuart Lubow: And we continue to have no issues in the multifamily portfolio.

Steve Moss: And maybe just kind of on the multifamily portfolio, just I’m assuming a good I’m sure a good chunk of the back book reprice is multifamily, but just kind of curious if you think that pace of pay downs and runoff maybe accelerates here as you go through the next 12 to 24 months?

Stuart Lubow: Yes. I think you’re going to see that after several more rate cuts, and you’ll start to see some activity in that regard. I mean, obviously, with our portfolio not having any real maturities or repricing in the near term, it’s going to be probably toward the latter part of 2025 that you really see a pickup, which will dovetail with the not only maturities and repricing, but also the rate reductions in terms of Fed funds will work together. And I think at that point, you’ll see an acceleration in prepayments.

Steve Moss: Well, I really appreciate all the color and the good outlook here. So, I’ll step back into the queue.

Operator: Thank you. Our next question comes from Manuel Navas of D.A. Davidson. Your line is open. Your line is open.

Manuel Navas: Hey, good morning. One quick clarification. Did you say loan growth by the end of the year at a certain level? I just — I think I just missed that number.

Avi Reddy : Yes. So what Stu said, Manuel, was expect to be approximately $11 billion in total gross loans. So this quarter, I think we were 10.885 or 10.785. So I’d probably assume another $125 million of net loan growth in between Q3 and Q4.

Manuel Navas: How is kind of rate cuts driving the pipeline? I mean, it seems strong, like how’s borrower sentiment and kind of borrower sentiment headed into next year? I know you’re too early to budget next year, but how do you feel like loan growth should be impacted by borrower sentiment at current level?

Stuart Lubow: Yes. I mean, at this point and particularly because of the type of lending we’re really focusing on, which is the C&I owner occupied by Queen Healthcare, we’re seeing quite a bit of activity and interest. So — and I do think that the rate environment helps that along. So we have a very strong pipeline and a constant flow of new deals that we’re looking at. Of course, we’re being somewhat conservative and picky as we always are, but I think there’s a lot more activity than there was, say, six months ago.

Manuel Navas: Shifting over to provision expense and kind of the thought process behind the pace of getting to that 90 basis points to 100 basis point level of reserves. How should I think about that over the next five to six quarters? Are you going to get halfway there by year end or maybe get there by the end of next year? Just thoughts on that.

Avi Reddy : Yes, Manuel, so I think Stu said in his prepared remarks, right, the goal over the next 9 to 12 months, it’s hard to see two years down the road. So over the next 9 to 12 months, we expect to be in the 90 basis points to 1% area. Look, I’m just going to use round math here. I mean, assuming the level of charge off stays pretty constant, I mean, this quarter we’re around $4 million. Again, using round numbers, it was between $9 million and $10 million on a provision. That basically means 5 basis points to 6 basis point build per quarter. So we’re at 78 basis points right now. So within three to four quarters, you probably end up there. It’s kind of hard to predict. But I think as we evolve the business model, as Stu said, it’s a natural progression for our reserves over time and that’s kind of the current expectation.

We’re pretty just like to reiterate, as I said in the prepared remarks, in this quarter, around $4.5 million of the provision increase was solely tied to a model update that was tied to prepayment speeds in the overall market and peer group loss history data. It didn’t really have anything to do with Dime’s credit quality. We’ll see what the quarters ahead bring, but I think that’s probably a reasonable expectation going forward.

Stuart Lubow: Yes. We’re in the midst of working on our budgets as we get into this last quarter and looking at our growth scenarios in terms of the loan origination side. And as I said, with the skewed with this — the origination skew toward business loans. As I said last quarter, there’s obviously a natural progression that’s going to occur, so in terms of the loan loss provision as well.

Operator: Thank you. Our next question comes from Mark Fitzgibbon of Piper Sandler. Your line is open.

Mark Fitzgibbon : Just to clarify, on that $20 million increase in non-performers, that was a partnership dispute. There is no specific reserve or anything against it. You feel like you will come out of that whole once the partnership situation resolves?

Avi Reddy: Yes, correct.

Mark Fitzgibbon : And then secondly, the CRE to risk based capital ratio is kind of it’s come down nicely. I think you’re at 4.87 now. Do you have a target in mind for that? And how long does it take you to get there?

Avi Reddy : Yes, Mark. So I think we what’s happening right now is the payoffs on the multifamily increase side have not picked up yet, right? So we’re running with a 6% to 7% payoff speed. But as Stu said, as rates change and a few more rate cuts, you could see that start picking up. I mean, what we’ve consistently said is, we’d like to be in the low-400s plus or minus. It’s just natural evolution of the portfolio, especially as we put on more business loans. I’d say, over the course of the next 12 months, operating in the low-400s is a target ahead of us. We’re going to get that gradually. We have a plan. We obviously did the sub debt issuance in June, which helped us get below that optically bond number of 500%. So I’d say over 12 months, low-400s is probably a good marker for us.

Mark Fitzgibbon : And then I heard your comments about hiring and teams and some of the expense initiatives, but it sounds like you are still looking you are interviewing people. And I guess I wonder how realistic is it that you’re going to be able to hold cost flat for the next couple of quarters if you continue to hire people. What are some of the areas where there’s opportunity to offset that?

Avi Reddy: Yes. So the next couple of quarters, Mark, nobody is really moving in Q4, as you said, because we’re pretty close to bonus time. So really to bring on somebody, it’s more like an April 1 thing at this point, because people get paid in February March. So I guess directly to answer the next couple of quarters, and we tried to put this in the press release, like everything is fully loaded in here in the run rate. I mean, obviously, with the teams we brought on this year, we added people to our treasury management side, our operations side. So all that’s fully there in the numbers right now. I’d say if there’s an opportunity next year to add a substantial amount of teams, we’ll do it, and the teams will pay for themselves very quick.

So the guidance for keeping it flat next year is assuming the team right now stays consistent with what we have. I think, look, we’ve always been very efficient, but we continue to look at areas for savings across the bank. I think when we as Stu said, we’re finishing our budget process right now. So when we get into next year, we’ll probably have more details on the exact initiatives. But I think for modeling purposes, what I would assume is, assuming the current team over here, our goal is to keep expenses relatively flat within that $57 million and $58 million area for Q4, keep that flat into 2025. Obviously, if we hire more teams and add to the expense base off that, we need to look at additional savings over that. But then that’s going to come with additional NIM expansion and the teams we have hired so far, they have basically paid for themselves within six months.

So I think that will be cherry on the top when we get to that point next June.

Mark Fitzgibbon : And then, I guess I was curious Stu on your how are you thinking about potentially doing acquisitions? And if you are interested in doing acquisitions, what kinds of things would you be looking for in potential partners?

Stuart Lubow: Look, I mean, to some degree, we did an acquisition last year without really doing an acquisition, right? Growing $1.5 billion in new deposits and new relationships is significant. I would venture to say there are not a lot of institutions that could say that they had that kind of growth, particularly in core deposits. Look, it’s got — we’ve always been very conservative and looked at opportunities that make sense for the institution, for the franchise, and for the franchise value on our shareholders. So, look, there’s not a lot of potential candidates within our footprint. And certainly, we’re open to looking, but really, we’re focusing more on organic growth, particularly after last year’s success or this year’s success in terms of the new teams we brought on board. We think there’s quite a bit of runway still to be had there.

Mark Fitzgibbon : So acquisitions are not sort of a priority one?

Avi Reddy : No, I mean, I think, Mark, if you look at our footprint, there’s a very limited amount of banks out there that makes sense. Obviously, what Dime is known for is having a great deposit base. Obviously, that’s front and center to everybody’s point of view. There’s very few candidates that probably meet that and all the stars need to align. So I think we’re spending our time on interviewing people from the bigger banks that have been disrupted. As you know, there’s another merger in our markets couple of months back. So the talent acquisition opportunity is significant at this point and the full bank opportunity. I mean, that’s just a lot of things have to go right for that to happen. So I’d say our focus is really on the formalities.

Stuart Lubow: Yes. I mean, suffice to say, Mark, and you guys have known us for a long time. I mean, we’re always looking to maximize shareholder value. So if there’s an opportunity out there, we’re certainly going to explore it, but it’s got to be the right deal for us.

Operator: Thank you. Our next question comes from Matthew Breese of Stephens Inc. Your line is open.

Matthew Breese: Avi and Stu, I appreciate very much the NIM outlook. I was hoping you could talk a little bit about behind the NIM outlook, just expectations around deposit betas and loan betas, call it over the next year? And then could you remind us of what percentage of loans are kind of fit into pure floating rate priced off on SOFR or prime?

Avi Reddy : So Matt, I’ll start off and Stu will chip in. So I mean we’ll start with the deposit side of the balance sheet. Now I’ll give you some weighted average rates, Matt, so you can kind of extrapolate from that. So it’s at June 30, our spot cost of total deposits was 2.69, at September 30, the spot cost of total deposits was 2.39. And so this quarter was a little weird because the Fed cut happened on September 17. So the cost of deposits for this quarter was 2.65. So it was only 4 basis points below the June 30 number. But the way we looked at it is like let’s look at it one day before the fed cut to 30 days afterwards. So on the deposit side that basically been a significant decline from probably around 30 basis points plus or minus on the deposit side.

So if we sit here today, the cost of deposits is closer to 2.35. So I think if you think about it, we started at 2.65. We’re basically at 2.35 at this point. That’s 30 basis points for a 50 basis point rate cut, you’re talking about a 55% to 60% total deposit beta. The interest bearing piece of that is obviously higher because we have a high proportion of non-interest bearing deposits, right? Now obviously, we’ve tried to get pass through the whole 50 basis points to everybody. You’re going to have some customers come back and make us change the rate here and there. So I think we’ve got to have a little bit more time to comment on where we think we’re going to be way down the road, but it seems like at least the first 30 days of experience has been around a 55% total deposit beta.

On the loan side, the loan rates have come down around 10 basis points to 11 basis points plus or minus. So I think it’s closer to the 20% to 25% area on the loan side, and that’s assuming a static loan balance sheet. The difference on the loan side is, as Stu said, as we’re putting on more loans, you should get around 3 basis points to 4 basis points per quarter. Assuming we have $200 million of originations every quarter, you should see 3 basis points to 4 basis points of benefit from that, which is going to offset any pure reprice. But I’d say 20% to 25% on the loan side and probably around 55% on the deposit side at this point is what we’re seeing.

Matthew Breese: I appreciate all that. And then just what is the percentage of pure floating rate loans that are priced off SOFR prime?

Avi Reddy : Yes, sure. I believe that number is around 35%, plus or minus, but that includes a portfolio layer hedge that we have was around $500 million. So excluding the portfolio layer hedge, it’s probably closer to $27 million to $28 million. And then with the portfolio layer hedge, it’s probably at 35%. So 35% all in is probably a reasonable number.

Matthew Breese: And then within deposits, could you just comment on the areas where you’ve had the most success kind of achieving that, call it, 55% to 60% deposit betas. I would assume it’s on some of the higher price savings and money market, perhaps some of the new business customers, but you tell me.

Stuart Lubow: Yes, I mean, we really spent a good deal of time in anticipation of the rate cut and really put everything in the buckets and went through all our high rate customers and worked our way down. And I would say with a very few exceptions, we really were able to go to the full level of the cut on the vast majority. And we haven’t gotten a huge pushback at this point either. But we were really able to move the money market, high rate savings, customers, and certainly the business and municipal customers very quickly. And that’s obviously accrue to our benefit and you see that in the numbers.

Avi Reddy : Yes. So, two things I’d point out, Matt, that’s I don’t use the word unique to our customer base, but maybe slightly different than some other banks. One, we don’t have a lot of time deposits on the balance sheet and some of the time deposits that we do have are broker and obviously the broker stuff is going to reprice 100%. The other piece is, we have a $2 billion municipal portfolio, which was 100% beta on the way up. So on the way down, we’ve kind of conditioned them to the fact that it’s going to be 100% beta. The other piece is we have a $2 billion municiple portfolio, which was 100% beta on the way down. We’ve got condition them to fact that it’s going to be 100% beta on the way down. I think the other benefit that we have, and I think just circling back to, I think, Steve’s question earlier on deposit growth is, look, we have a source of growing deposits with the new groups that we’ve hired.

There are some cases where we’re not paying the highest rate and it’s really DDA focused and it’s money market focused. But where I’m going with that is, because we have new deposits coming in, we have the opportunity to say no to some existing customers that want the highest rates. An example is, we had a municipal relationship that had a sizable amount of deposits with us. It was a high rate deposit. And we went back to them in the third quarter and said, look, we can’t pay you this rate. And so they reduced the size of their overall portfolio with us, but what that meant is NIM expansion there. So I think that should give you a sense that there’s enough in the portfolio to reprice down, but there’s also stuff coming in at a lower rate that’s helping us be very aggressive on the way down.

Matthew Breese: Very much appreciated. Thank you. And then my next one, just looking at the C&I portfolio, how much, if any, of the growth is coming from shared national credits or syndicated credits? And could you provide how much within C&I fits into, call it, a shared national credit or syndicated type bucket?

Stuart Lubow: At this point, we don’t have any [Indiscernible]. So, we really have not been in that marketplace.

Avi Reddy : Yes, everything Matt, everything

Stuart Lubow: Actually, I’ll take that back, Matt. We have one, it’s $15 million in the sports arena.

Avi Reddy : Yes. And so, I mean, typically the way we originate stuff, Matt, is there’s a relationship. A lot of times, there’s club deals with us and other banks on the C&I side, especially on the middle market space. We try to manage our exposures and keep them within a reasonable level. So sometimes there are multiple banks involved on the C&I middle market side, but we’re not buying participations from anybody on the C&I side.

Operator: Thank you. Our next question comes from Christopher O’Connell, CFA of Keefe, Bruette and Woods. Your line is open.

Christopher O’Connell: So I was hoping just to circle back to the reserve commentary and just logistically between now and the next 9 to 12 months, moving up to the 90 basis points to 100 basis point level, what are the actual kind of like internal drivers in the model that will kind of drive that increase?

Avi Reddy : Chris, I mean the CECL model is a fairly complicated model. There is no one or two drivers within the model. I’m just being candid, right? So this particular quarter, for example, we updated our prepayment speeds. We updated peer group loss history data as the data was coming in. I think something that’s going to drive it going forward is the shift in loans, right? And so as we have more C&I loans, as we have more health care loans, as that becomes a greater percentage of our overall loan portfolio, it’s something we’re going to look at, right? And the reserving level on the C&I side is higher than the reserving level on the rest of the portfolio, right? So it’s a combination of items. It’s hard to pinpoint one specific item in the model.

What I tried to do upfront is, if assuming all else is cool and we have a $4 million of charge off levels, which has been what we’ve had the last couple of quarters and the reserving levels between 9 and 10, you’re going to see 5 basis points to 6 basis points out of that, right? Given tweaks we can make to the model and given the shift in the portfolio mix. So it’s a fairly complicated model. I mean, there’s quantitative factors, qualitative factors involved. But I think in general, we’re just trying to give you a good sense of what’s going on down the road.

Christopher O’Connell: Thanks, Avi. I guess, cutting out a different way, what are the business loan as a whole, I guess, on an average basis under this new model kind of being reserved at? Is it at a level that’s a bit above that or at the high end of that 90 basis points to 100 basis points or is it above that?

Avi Reddy : Yes. I mean, in general, we’re probably reserving on C&I loans of around somewhere between 130 and 150 plus or minus. So it is above the overall reserve. So you’re right, yes. The short answer is, it’s above the overall reserve level, yes.

Christopher O’Connell: Great. And then just on the margin dynamics going forward, what’s the — any color on either the duration or the current maturity schedule for the CD portfolio?

Avi Reddy : Yes. So on the CD portfolio, the way I think about it, Chris, is really two distinct buckets, right? The first bucket is really the brokered CD bucket. And the brokered CD bucket, that’s pretty short term. That’s basically every three months, the CDs reprice over there. So that’s kind of 100% beta short term. Now that spread improvement of the 15 basis points that I talked about, that does not include the benefit of the broker because the broker is generally over three months. So we’re going to have that benefit probably by December 31 if we did broker around September, right? In terms of non-broker deposits, we have around $275 million in Q4 here at a rate of around 4%. And then next year, we have around $400 million at a rate of $370 million.

So in total, if you add up over the course of the next several quarters, it’s really $275 million for this quarter and then for next year, it’s around $450 million. So it’s probably $125 million per quarter for next year. Now obviously with the CDs, there’s a lag, CD needs to mature. Sometimes you’re not passing on the full downward beta to the CD. You probably rates around 50 basis points, probably going to drop CD rates around 35 basis points and then there’s some attrition there and then you need to raise new deposits. So I think more of the NIM benefit is going to come from and is coming from the money markets and savings side. The CDs are probably a longer term play. That being said, the brokered CDs are going to be pretty much an immediate thing with a three month lag.

Christopher O’Connell: And then, I mean, it sounds like the pipelines are just as good as they’ve been kind of going into the end of the year here. And appreciate the update on loan growth into Q4. As you guys are getting into next year, loosely is that kind of how you think that will be the start to the year on net loan growth? And then as the multifamily maturities start to ramp up in the second half of the year, how are you thinking about kind of net loan growth, I guess, as that ramps up in the second half of ‘25?

Avi Reddy : Yes. Look, I think we’re putting most of our budgeting pieces in place. I know you’re trying to get to 2025 guidance, which I hate to say we typically always give that on the in the January earnings call because we’re going through stuff. But I think just holistically, some of it’s going to depend on the payoff rate on the multifamily increase side and what we decide to do with that, right? So for example, if loans are at 4%, we may choose to retain some of them at 5.50% or 6%, or we may choose to let them go, right? So I think it starts with that. I think what we’ve tried to say is that on the multifamily side, we’d like that percentage over time to come down to between 25% and 30%. Right now, we’re at 37%, right?

So in terms of constructing the optimal balance sheet, we’d like that to be between 25% and 30%. I think on the business side, what you’ve seen so far is, call it, between $125 million to $200 million of loan growth every quarter, at least for the last couple of quarters. It seems like that’s kind of the run rate that we’re headed down. So I think if we choose to retain more of the multifamily in the CRE side, then you would see a higher growth in the balance sheet next year. If those loans do go away, Chris, then maybe it’s a bit more of a portfolio remix at that point in time. I think the second half of this year, we had guided to low double digit growth. I think that’s a reasonable an assumption for the overall balance sheet for next year at this point in time.

That being said, I think we have an opportunity to hire teams on both the deposit and loan side. And so that could change the guidance as we get into next year, right, because as new teams come on, there could be a significant pipeline there.

Christopher O’Connell: And then last one for me, just as far as the new teams that have been coming on and generating the deposits. Has the mix of those deposits in terms of DDA interest bearing deposits been as good either better or worse than you guys kind of originally expected?

Avi Reddy : Yes, I think overall exactly in line, like I said, we’re probably between 35% 40% DDA right now. It’s a mix. I think when we initially did the modeling, when we hired all the teams, our goal was to be profitable within a year for all the teams, keep a relatively short payback period. So we had various assumptions on them. We focused on the groups that had a higher percentage of DDA to start with. And so obviously, hard moving DDA over. Now I think we’ve been positively surprised by the mix as well as the total deposit have come in so far. And as I said, within six months, we’re basically profitable in all the teams. So I think over the medium to longer term, 35% to 40% is a reasonable estimate for the type of production we should see from them going forward. Because we’re not chasing customers just for money market. Like there has to be a DDA component to it and a significant DDA component on top of that.

Stuart Lubow: Yes. And you got to remember, we’ve done this in a relatively high rate environment where people have looked at other opportunities to put excess funds. I think as the rate environment changes, that’s also going to be a positive to increasing DDA. And I think we’re in a good place for that as well.

Operator: This concludes the question and answer session. At this time, I’d like to turn it back to Stuart Lubow for closing remarks.

Stuart Lubow : Thank you, Didi, and thank you all for joining us today. Thank you to our dedicated employees and our shareholders for your continued support, and we look forward to speaking to you in January.

Operator: This concludes today’s conference call. Thank you for participating. And you may now disconnect.