Ira Robbins: I think from a big picture perspective, there were a couple of variables. One, we made a conscious decision to go shorter right on our liability side. So, we could have extended or kept it the same duration as we were having before, but when we started to see some – the movement in November and sort of where the expectations were, maybe even a little bit earlier where the forward curve was on that short end. We definitely moved a little bit shorter, so that definitely negatively impacted the interest expense for the quarter. We do think that there’ll be a positive impact to that, though, as we think about where 2024 comes out, sort of for the full year period. And that said, from a macro perspective, it was a very challenging year for an organization like ours, looking in the beginning of the year.
What happened with Signature, what happened with SCV and the others, and we were really focused on retention of deposits. And as a result of that, I think we were probably maybe too lenient on some of our clients in acquiescing to some of their rate requests. We had a lot of money that moved to Treasuries right off the bat. And that said, we were really competing with that. Today, in the conversations we have with clients, I’m not so sure that we needed to necessarily do that, and we’re going back, re-engaging with our clients again. We were a bit distracted, I think, in the fourth quarter, based just with the core conversion, and probably even in the third quarter, even leading up to that core conversion. For us, getting the core conversion done was important.
We did it unbelievable. I had three email complaints, so that’s it from clients out of an entire client base. It was really nothing. So there was a lot of focus on retention of clients through that core conversion. Once again, now I just think we get back having appropriate conversations with our clients, appropriate conversations when it comes to what the pricing should look like And we’ll get the deposits back to an appropriate date as to what it should look like. But I think most importantly, we did an unbelievable core conversion. We retained all of our clients. We actually grew clients through a core conversion, which doesn’t even necessarily happen. We put on, as I said, 10.5% household growth in commercial during this year. And those are unbelievable numbers.
So while, once again, I said I’m not so happy with where the fourth quarter ended up, big picture, I’m not that concerned.
Jon Arfstrom: Yes, shouldn’t beat yourself up too much. It’s not terrible. But just one more thing. On net interest income kind of asked this earlier, but it implies a decent step-up your guide like about $140 million incremental from the run rate that you had in the fourth quarter. Do you guys think we’re near the bottom or at the bottom, on-net interest income at this point?
Michael Hagedorn: So, we’re certainly getting close. So let me do this, I’m going to direct everybody to Slide 6. I know that this is a really important topic. And when you look at the quarter-over quarter cost increase in deposits, you’ll see that we started-off at 60 basis-points, when we had two consecutive quarters at 49 and then the third quarter and fourth quarter, it’s only 19 basis points. So while we feel better about the direction of NIM, it’s mainly that combined with the fact that we’re starting to see some stabilization and maybe in our non-interest bearing accounts that non-interest bearing rotation. Going back to when we closed on Leumi, we had 36% of our total – funding sources in non-interest bearing. That’s come down to 23%.
Now in December, starting to see some stabilization. And when you combine that with the deceleration and the overall cost of deposits, that’s why we feel like there’s some additional increase in our NIM as 2024 plays out. Obviously we need to spend rate cuts to capture all of that opportunity.
Jon Arfstrom: Yes. Okay. All right. Fair enough. Thank you, guys.
Michael Hagedorn: Thanks.
Operator: Thank you. One moment, please. Our next question comes from the line of Steven Alexopoulos of JPMorgan. Your line is open.
Steven Alexopoulos: Hi, good morning, everyone.
Ira Robbins: Hi, Steven.
Steven Alexopoulos: Ira, I want to start. So when you took over as CEO, one of your top priorities was improving the efficiency ratio, right. And I know it was a rough year for everybody, because of what happened with rates and NIM pressure, et cetera. But when I look at the strategic imperatives for 2024, I’m very surprised. It felt like you moved the goalpost a bit that improving, where we are is not on there. Is this still a top priority for you and should we expect to see improvement this year?
Ira Robbins: Yes, look I think the contraction of what we saw in the efficiency ratio, is largely just a function of the NIM, Steven, right. And as we get back to better core funding, as we get back to some better diversification that sits within that asset class, the NIM will definitely expand as a result of that. We’re down, I think we were at 3,325 plus or minus employees when I took over. We’re sitting around 3,700 today and we’re with $21 billion back then and $60 billion today. And I think we’ve definitely focused on what the efficiency looks like. We’ve definitely embedded technology in here. For me, it’s not something that’s even called out as a strategic imperative. It’s just sort of the core of who we are today. I think, we’re very focused obviously on what that efficiency is.
As I mentioned earlier, the technology infrastructure that we put into place allows for scalability, which is something that’s important to us. So, the technology, the drag and what the cost is for that, isn’t going to be nearly what it was before. So definitely not focusing on it as calling it out isn’t something that I want someone to take away and say, hi, it’s not a priority for us. I think it’s just day in, day out what we do. And I think as the NIM gets to an appropriate level, back to where we think it should be, you’ll see that number dip back down to a number that you’ll be happy with.
Steven Alexopoulos: Okay. Looking at so – if we look at the expenses, which were elevated, you called out, relates to the system conversion. How much was that in the fourth quarter? What’s expected at 1Q and what comes out in 2Q?
Ira Robbins: Yes, in the operating expense number, there was $5 million associated with the core conversion. In the first quarter, we anticipate that’ll be around $3 million, so you may be declining $2 million. And then from there on, it should be out.
Steven Alexopoulos: Got it.
