Matthew Breese: So as we think about the spectrum of office, and it’s funny, we’ve kind of as an industry oscillated between what’s safest, Class A, Park Ave, or suburban. After gone — going through this experience, how would you kind of rank order the riskiest portions of office versus the safest? And maybe give us a flavor for what you have exposure to within that?
Christopher Maher: So, I think, I would start with — at the end of the day, it’s always location in real estate, any kind of real estate and micro markets matter. So you really want to look at the specific market, what the vacancy rates are, what the demand for space is. That’s what drives it. In terms of what we like the most, there’s a lot of office categories that require you to be in the office, so — people will talk about medical that’s because you have to actually go in, right? We’ve done a lot of medical lab work up in Boston. We like that a lot. Kind of classic case of the dentist can’t work from home, right? So we like all that. Second thing we like is, uses where we have an exceptionally strong tenant. Some cases that could be government tenants, it could be credit tenants, but there’s a structure to the cash flows that is highly reliable and where we can underwrite those, we think that that’s a good bet.
And then one of the things that’s happened in our market, I think it’s happened elsewhere, is that in the suburban markets that fall between New York and New Jersey, there had been very little office build-out for the last decade. So even a very small portion of the office demand shifting from Central Business District New York or Philly and out to suburban office filled up whatever vacancy was there. So we’ve seen — when we look across our office portfolio, we just finished stress testing the whole thing. The occupancy rates in the office portfolio now are higher than they were on the day we originated that portfolio. So, I think that — like anything this — it depends, we have to really kind of peel back the layers of the onion. This was a central business district New York City high-rise Class B office.
And that’s going to be a tough sell these days. But fortunately, we didn’t make a business of that.
Matthew Breese: Got it. And then, I know this was part of a, like, a syndicated loan. What is the overall size of your syndicated loan portfolio and how has credit in that portfolio performed?
Christopher Maher: So the vast majority of what we do, we originate. So we have 93% of what we’ve lent is us as the lead, actually a little more. So less than 7% is the syndicated book, less than half of that is shared national credits. 97% of that book is pass-rated or better, and we don’t see any trends in the book that would be of any concern.
Matthew Breese: Okay. I’m sorry, I might have missed that in your comments. But how much of that is out of market? Meaning out of your Boston, Baltimore, New York City, New Jersey footprint?
Joe Lebel: I don’t have the number in front of me, Matt. There’s no particular trend that’s not concentrated in one area or another.
Matthew Breese: Okay. I appreciate that. Last one from me. I noticed in your 10-Q that the CRA rating was downgraded to needs improvement or needs to improve. I was curious your thoughts around that and what does the remediation effort looks like and what should we expect in terms of impacts of the P&L or balance sheet as you go through that?
Joe Lebel: Yeah. So there was a single well-defined issue that arose in our last CRA exam that we’ve been working on for quite some time with our regulator. I would not classify it as something that’s going to have a meaningful change in our financial commitments to remediate. And our CRA period that is under review will complete on December 31 of this year. So our next CRA exam would likely be sometime in early — or at some point in 2024. I can’t say when.
Christopher Maher: So we don’t think it’s a big cost to remediate. It was a very narrow issue, and we’ve been working on that remediation for some time with our regulator.
Matthew Breese: Great. Okay, I will leave it there. Thank you for taking my questions. Appreciate it.
Christopher Maher: Thanks, Matt.
Operator: Our next question today comes from Christopher Marinac of Janney Montgomery Scott. Your line is open.
Christopher Marinac: Hey. Thanks for taking our questions. Mine here is just goes back to the loan marks that we see in the 10-Q each quarter. Will those get lower and better as next year plays out, particularly as you have some of this loan turnover that you referenced earlier in the call?
Christopher Maher: Yeah. They should over time, they’re just going to kind of bleed themselves out. The only caution I would have on that is that it depends on what the Fed does, right? Actually, it depends less on what the Fed does. It depends on where the long end of the curve goes. So if we’re in this rate environment higher for longer, you’re going to see those kind of amortize themselves off as the loan book rolls through. If rates change meaningfully, that could be a different situation.
Christopher Marinac: Got it. Thanks for that, Chris. And in the presentation, you mentioned about the long duration of your customer relationships. Do you see that advantage still playing out in terms of how — as you repriced the book? I know everything has moved up as we’ve seen in the numbers, but just curious, if you can kind of pinpoint how that relationship pricing is benefiting you overall in the book?
Christopher Maher: I think there is a benefit. I think we’ve learned a lot this year about some of the backward-looking deposit tests. Maybe some segments of our customers responded more predictably than other segments did, so we’re kind of learning a little bit about that. But overall, we’re very pleased with the level of retention among — across our customer base, and we think we still have the opportunity to grow. We have a tremendously large deposit market, so while — it’s a tough environment to grow in, we have a very small market share, so I think we can continue to grow those. Our customers do 43 million transactions a year with us. Largely the best customers we have are those that have chosen to do things with us to move money around.
We’re helping them with everything from ACH to Wire to Zelle (ph). That’s why they’re with us. And I think that’s a pretty durable relationship. That said, look, in a higher rate environment, we’ve had to make sure that we’ve paid enough. Loyalty will carry you. It won’t carry you all the way. It’ll just carry you so far. So you want to make sure you’re providing both quality of service, access, transaction capability, but you also have to provide some rate yield as well. We feel pretty good about it.
