speaker
Olivia
Conference Host

Good day. Thank you for standing by. Welcome to Time Community Bank Shares, Inc. Fourth 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. Privacy Securities Delegation Reform Act of 1995. Such statements are subject to risks, uncertainties, and other factors that may cause actual results to differ materially from those containing 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 reviews 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 present an occurrence of 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 speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automatic message advising your hand is raised. Please note that today's conference may be recorded. I will now hand the conference over to your speaker, Mr. Stulibo, President and CEO. Please go ahead, sir.

speaker
Stu Stulibo
President and Chief Executive Officer

Thank you, Olivia, and thank you all for joining us this morning for our quarterly earnings call. With me today is Avi Reddy, our CFO. Today I will touch upon the progress we've made in 2024 as we execute our business plan. Avi will then provide some details on the fourth quarter, and guidance for 2025. We began 2024 by hiring a number of deposit gathering teams from the former signature bank. These teams came to DIME given the positive results achieved and the performance of the 2023 teams we had hired previously. Collectively, the deposit groups have raised approximately $1.8 billion of core deposits with approximately 40% in non-interest-bearing deposits. In fact, we've opened up over 11,000 accounts and 7,000 individual customer relationships, clearly a home run for Dime. The successful build out of our private and commercial bank has been a company-wide initiative, a true team effort. The growth and stabilization of the branch-based deposits, especially in consumer and DDA consumer DDA resulted in substantial year-over-year growth in core deposits. In fact, we ended the year with a loan-to-deposit ratio of less than 95%, and we have reduced our wholesale borrowings and broker deposits by approximately $1.2 billion in the past year. On the loan front, we continue to execute our stated plan of growing business loans and managing our CRE ratio lower. Business loans were up over $70 million in the fourth quarter and $400 million for the full year. This was driven by strong growth in our C&I and our healthcare verticals. Our loan pipeline remains very strong with over $750 million of loans at a weighted average rate of 7.75%. These are weighted towards C&I and healthcare loans as well, continuing to execute on our plan. We ended the year with CRE concentration of approximately 445, and we expect to continue to reduce this ratio over time to the low 400s. Despite all the deposit and loan teams we've brought on over the last two years, we've been able to keep core operating expenses to assets well-contained and in a 165 basis point range. We have achieved this by using technology to drive operational efficiencies, and keeping a very close watch on discretionary expenses. As we guided to on the last call, fourth quarter expenses were relatively flat versus the third quarter. Post the election, and given the improved investor sentiment towards bank stocks, we raised approximately $136 million of net proceeds from a significantly oversubscribed common equity offering. The transaction was accretive to tangible book value, We used a portion of our proceeds to reposition our securities and BOLI portfolios. As a result, the capital we raised, we ended the year with a common equity Tier 1 ratio in excess of 11% and a total capital ratio in excess of 15.5%. Having a best-in-class capital ratio versus a peer will allow us to take advantage of opportunities as they may arise and continue to support our organic growth. In addition, over the course of the year, we increased our loan loss reserves from 67 basis points to 82 basis points. This is within striking distance of our medium-term target of 90 to 100 basis points. During the fourth quarter, we received our second consecutive outstanding CRA rating. Apart from the overall rating of outstanding, we received outstanding on the three component CRA tests, including the lending test, the investment test, and the service test. Receiving a perfect score on all three components set us apart from our competitors and a testament to DIME's commitment to community and the hard work of our dedicated employees. In conclusion, we continue to execute on our growth plan, and we have differentiated our franchise from competition as it relates to our growth and ability to attract talented bankers. We have solid momentum and we continue to grow the business loans and core deposits. Our net interest margin continues to expand with the fourth quarter NIM increasing to 279. Importantly, we have substantial opportunity to continue to increase our net interest margin in the years ahead given the significant back book repricing we have in our portfolio. Avi will provide more details and remarks, but suffice to say we have a clear line of sight to returning to a 3-plus net interest margin. Our DDA levels are back to 30%, and we believe the value of this DDA base will shine through in the current rate environment. Disruption in our marketplace remains very high, and we are very active on the hiring front. and our recruiting pipelines are very strong. More to come on this over the next 90 days as bonus season comes to an end. I'm looking forward to a strong 2025, and I want to again 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.

speaker
Avi Reddy
Chief Financial Officer

Thank you, Stu. During the fourth quarter, we completed a repositioning of our available for sale securities portfolio and our bank-owned life insurance portfolio. Securities restructuring was completed towards the end of November. The BOLI transaction took place in two stages. A surrender of legacy BOLI was completed in the month of December, and an equivalent amount of replacement BOLI is being purchased in the month of January. Excluding the impact of these two transactions, as well as severance and costs associated with pension termination and other one-time items, adjusted EPS increased by 45% versus the prior quarter. We saw a meaningful expansion in the net interest margin this quarter. Reported NIM was up 29 basis points, and the core NIM excluding purchase accounting accretion was up 26 basis points. NIM expansion was driven by a significant reduction in our cost of deposits. Given the timing of the Federal Reserve rate cut in December, we adjusted deposit rates towards the end of the month. The full impact of the rate cut will flow through into our Q1 net interest margin. Given that the securities repositioning was completed towards the end of November, the fourth quarter NIM reflects only one month of benefit from the repositioning. Core deposits were up approximately $500 million in the fourth quarter. This included approximately $150 million of seasonal tax receiver municipal deposits that typically arrive in the month of December and leave in mid-January, and $200 million of title company-related deposits that were tied to a closing at year-end and that left the bank in early January. Excluding the seasonal tax receiver deposits and the title company-related deposits, period-end co-deposit growth for the fourth quarter was approximately $150 million. Similarly, the overall balance sheet size and cash position was elevated at quarter end by approximately $350 million due to the seasonal municipal deposits and title company deposits. Core cash operating expenses for the fourth quarter, excluding intangible amortization, was $57.7 million. This was consistent with our previous core cash expense guidance of between $57.5 and $58 million. Non-core items for the fourth quarter included severance, additional FDIC special assessment related to the failure of the signature in Silicon Valley, and $1.2 million related to the previously disclosed termination of a legacy pension plan. Please note we're in the final stages of termination of this pension plan and expect an additional $4.5 million pre-tax termination expense in the first quarter of 2025. This additional $4.5 million is already captured in the AOCI line item at year end, and as such, will have no material impact on tangible book value per share, as it is simply a realization of the unrealized loss that is already in our equity account. We had a $13.7 million loan loss provision this quarter. Consistent with our commentary during the third quarter earnings call, our allowance to loans increased to 82 basis points. As Stu mentioned, we're within striking distance of the 90 basis points to 100 basis points medium-term target, which we expect to reach over the next six to nine months. Next, I'll provide some thoughts on the NIM trajectory and guidance for 2025. As I mentioned previously, given the timing of the securities repositioning, there was only a partial quarter benefit from the repositioning in the fourth quarter's NIMs. In addition, the timing of the rate cuts in the fourth quarter was such that the full quarter impact of the November rate cut was not fully realized in the fourth quarter margin. As such, we thought it would be helpful to provide the core NIM for the month of December, which includes the full benefit of the Federal Reserve rate cut in November, as well as the full impact of the securities repositioning. The monthly December core NIM was approximately 284. This is a good base NIM to use as you build out your models for 2025. The 25 basis point Federal Reserve rate cut in December should result in a 5 to 6 basis point NIM improvement for the first quarter of 2025. So, starting with the 284 core NIM for the month of December and adding the full impact of the December rate cut should get us close to 290 for the first quarter. Additional core deposit growth and loan repricing could add a few more basis points of upside to the first quarter NIM. As Stu mentioned, we have a line of sight towards the 3% net interest margin. Should the Federal Reserve cut rates again this year, we expect another five to six basis points in quarterly NIM improvement per 25 basis point rate cut. This assumes the behavior and deposits and loans hold for each subsequent rate cut and competition remains rational. Should the Federal Reserve not cut rates in 2025, we still have a pathway to increase NIM over time given the significant amount of back book repricing. To give you a sense of the significant back book repricing opportunity in our adjustable and fixed rate loan portfolios, in the second half of 2025 and the full year 2026, we have 1.9 billion of adjustable and fixed rate loans across the loan portfolio at a weighted average rate of 395 that either reprice or mature in that timeframe. Assuming a 225 basis point spread on those loans over the forward five-year treasury, we could see a 35 to 40 basis point increase in NIM from the repricing of these loans. Finally, and while we've previously only provided information on the back half of 25 and full year 26, as we look into the back book for 2027, we have another 1.75 billion of loans that are a weighted average rate of 425 that will lead to continued NIM expansion in 2027. In summary, we see a pathway to a 3% NIM in 2025 and a NIM greater than 325 in 2026, with continued expansion in 2027 and approaching the 350 area. The impact of this enhanced NIM will no doubt increase our earnings power as time progresses. With respect to non-interest income guidance for 2025, we expect between 40 and 42 million. Individual quarters may be impacted by the level of customer-related loan swap income. With respect to balance sheet growth, we expect period-end loan balances to grow in the low single-digit area in 2025, with growth more weighted towards the back half of 2025. As we mentioned previously, we are focused on gradually reducing our CREE concentration to the low 400s. Attrition in CREE and multifamily may mask some of the growth in our business loan portfolio in 2025 as it did in 2024. However, we expect this trend to moderate by the end of 2025 and expect to return to a mid-single digit growth profile in 2026. With respect to core cash non-interest expenses, our full year 2025 guidance is between $234 and $235 million. This guidance takes into account our existing employee base. To the extent we add additional client-facing bankers after year-end bonuses are paid out, we could see an increase in expenses starting in the second quarter. But as we've demonstrated previously, we expect these bankers to pay for themselves and contribute to pre-tax income growth in a relatively short period of time. Finally, we expect a tax rate for the full year between 27% and 28%. With that, I'll turn the call back to Livia, and we'll be happy to take your questions.

speaker
Olivia
Conference Host

Thank you. Ladies and gentlemen, to ask a question at this time, you will need to press star 1-1 on your telephone and wait for your name to be announced. To enjoy a question, simply press star 11 again. Please stand by while we compile the Q&A roster. And our first question, coming from the line of Mark Fitzgibbon with Viper Settler. Yolanda, it's now open.

speaker
Mark Fitzgibbon
Analyst at Viper Settler

Hey, guys. Good morning. Good morning. First question I had, Avi, just to follow up on one of the guidance numbers that you gave for non-interest income, I think you had said 40 to 42 million for the full year 2025. Is that correct?

speaker
Avi Reddy
Chief Financial Officer

Yes. Yes, Mark. So we did the BOLI restructuring in the month of December. So what happened there was we took the tax charge in Q4. We're purchasing around $85 to $90 million of BOLI in the month of January. So the additional income that comes in on the BOLI side will be around $5 to $5.5 million plus or minus. And so that's why the non-interest income is higher. We also factor that into the tax rate of 27% to 28% given the BOLI income is tax-free. So we gave a range. The range was 40% to 42%. And obviously, the individual quarters may be impacted by the level of loan swap income in there.

speaker
Mark Fitzgibbon
Analyst at Viper Settler

Okay, gotcha. So the big delta is the bully income number. It goes from sort of $2.8 million to up to $5 million. Gotcha. Okay. And then secondly, I think your guidance for loan growth was sort of low single digits. I mean, you... Is that because the pipeline, you expect a bunch of that to fall out or you just feel like there'll be a fair amount of refinancing activity? I guess I'm curious.

speaker
Stu Stulibo
President and Chief Executive Officer

Yeah, I think that, you know, what we're seeing and there's more volume, you know, transaction volume occurring in the marketplace. For example, in the month of, in the fourth quarter, we closed over $150 to $175 million of new funds. business-related loans, yet we saw a higher level of payoffs and refinances, which resulted in not quite the growth we had expected. So we are seeing some more activity. And clearly, I think in the Cree world and the multifamily world, we are seeing some more transactions. And since we are not as active as we once were, you know, that's the offset to the growth.

speaker
Avi Reddy
Chief Financial Officer

Yeah, Mark, if you look at 2024, we grew the business loan portfolio 425 million for the year. So we're pretty happy with that, looking to build on that. And then on the CRE side, we were down around 350 million multifamily and CRE together. So, and we're focused on getting the CRE ratio down to the low 400s, right? So Some of that's going to, the multifamily CRE is going to offset some of the business stuff, you know, the first half of the year. But as we exit 25 and into 26, you know, maintaining that level of CRE, you know, you should see the, you know, overall loan growth pick up at that point in 26.

speaker
Mark Fitzgibbon
Analyst at Viper Settler

Okay. And then lastly, given your outstanding CRA rating, it strikes me that you're really well positioned to do acquisitions. Is that something that you think is in the cards for Diamond coming quarters? And if so, where and what might you be most focused on in potential partners?

speaker
Stu Stulibo
President and Chief Executive Officer

Yeah, I mean, look, we're always interested in strategic opportunities that enhance franchise value, certainly within tri-state area, in the metropolitan area. And we'll look at opportunities as they may arise. We also have significant and expect significant organic growth with some of the new teams that have come on board and that we're talking to, and that capital is going to support that as well. But suffice to say, if opportunities arise, given valuations and given our positioning at this point, we're certainly interested if they make sense.

speaker
Mark Fitzgibbon
Analyst at Viper Settler

Thank you.

speaker
Olivia
Conference Host

Thanks, Martha. Thank you. Our next question, coming from the lineup, Steve Moss with Raymond James. Your line is now open.

speaker
Steve Moss
Analyst at Raymond James

Good morning.

speaker
Chris O'Connell
Analyst at KBW

Hi, Steve.

speaker
Steve Moss
Analyst at Raymond James

Hi, Stu. Starting with the Followed up on the margin guidance here. Avi, you mentioned the 1.9 billion fixed rate for the second half of 2025 and 2026. Just wondering, you know, could you break that out between what's going to mature in the second half of 2025 versus the total for 2026?

speaker
Avi Reddy
Chief Financial Officer

Yeah, sure. So, the second half of 2025, it's around $600 million at a rate of 425. And the remaining piece is in 2026. So it looks like there's a billion three plus or minus in 2026. And the rate on that is around 385.

speaker
Steve Moss
Analyst at Raymond James

Okay. Great. Appreciate that color. And then in terms of just kind of, you know, you mentioned rational deposit competition here, you know, Just kind of curious, you know, you had a very healthy move on deposit pricing lower. Just kind of where are your marginal deposits coming on these days?

speaker
Avi Reddy
Chief Financial Officer

Yeah, it's a mixed, Steve. I mean, we're, you know, starting with, you know, client needs to have DDA. If you have DDA, we're willing to pay a competitive rate on the money market side. As Stu said, you know, we're tracking account activity. The difference with us versus a lot of banks in our footprint is there's a lot of new activity coming into the bank and new customers coming in, which helps us be more aggressive on existing customer rates and looking at them one by one. I think I mentioned on our third quarter earnings call, we had a large municipal customer that we were paying a very high rate to, and we rationalized the size of that deposit over time because it didn't make sense for the bank. Same with the broker deposits. I would say it's coming in between two and two and a half, plus or minus on a blended basis in terms of deposits coming in because the new groups are bringing in DDA at a rate of around 40%, and if you're paying a money market rate of you know, plus or minus 4% to be competitive. You're looking at, you know, somewhere between 2 and 2.5 in terms of the marginal cost coming in.

speaker
Stu Stulibo
President and Chief Executive Officer

Yeah, and, you know, the overall cost of deposits, overall cost of deposits are in the, you know, 2% to 2 to 205 range at this point. Right.

speaker
Steve Moss
Analyst at Raymond James

Okay, great. No, I really appreciate that color there. And then just on credit here, just curious if you have some color around the charge-off that occurred this quarter.

speaker
Avi Reddy
Chief Financial Officer

that would be helpful yeah yeah sure just you know it's kind of across the board steve uh you know there's a mix across cni uh commercial real estate and and multi-family no no large credits uh in there you know you know i think a lot of other banks have said this i mean it's important to look at charge-offs over a you know extended period of time i think our charge-offs for uh 2024 was 17 basis points or 18 basis points so All stuff that we've identified are classified assets. So when we report our 10K, we'll be down 30 to 90 days. It's pretty flat, basically. So not seeing any concerning trends at this point. So I'll just leave it at that for now.

speaker
Steve Moss
Analyst at Raymond James

Okay, great. Well, I really appreciate the caller and a nice quarter. Thank you, guys.

speaker
Olivia
Conference Host

Thanks, Steve.

speaker
Steve Moss
Analyst at Raymond James

Thanks.

speaker
Olivia
Conference Host

Thank you. And our next question coming from the line of Chris O'Connell with KBW. Your line is now open.

speaker
Chris O'Connell
Analyst at KBW

Hi, Chris. Hey. Morning. How are you, sir? So I was just wondering, you know, on the fact that, you know, the cash you guys mentioned was elevated, you know, at the end of the year here. But there's not, you know, the low single-digit, you know, loan growth, you know, isn't putting too much out there, especially it sounds like in the first half of the year. I guess what's the plan or the timing that you guys think on the deployment of that?

speaker
Avi Reddy
Chief Financial Officer

Yeah, look, I think what we said, Chris, and we communicated this when we did the equity offering, we've pretty much paid off most of our wholesale funding at this point. The FHLB position is around $500 to $600 million plus or minus. Of that, $500 million is medium to longer term, which we don't expect to pay off at this point. The broker deposits are probably around $300 to $400 million plus or minus. So there's not a lot of room to continue to pay off wholesale deposits and borrowings over the course of the year. Q4 was a bit of an anomaly. As I said, we had some municipal deposits come in every year at the end of the year. In addition, we had a couple of large title companies put in deposits then. So the normalized cash position is probably $350 to $400 million lower than that. Look, I think we're being judicious on securities purchases. We did do a repositioning in fourth quarter obviously on securities where we where we restructured on 400 million dollars I think look having a little bit more cash is not a bad thing you know it helps position the bank to the extent that the Fed doesn't cut rates or the Fed goes in another direction so I think we're trying to manage our asset sensitivity with the cash position and you know over time you know we'll put it to work on on the loan side we're not rushing in to do anything all at once. It does have a little bit of drag on the margin, obviously, but I think we're willing to live with that just given the additional flexibility it provides the bank over time.

speaker
Chris O'Connell
Analyst at KBW

Great. It sounds like that might stick around for a little bit. And then on the loans, just curious, it seems like there's a bigger headwind for the multifamily and CRE repricing and maturities in the second half of 25, but you guys are indicating that their growth might be more impacted in the first half. Just curious on kind of the dynamics there.

speaker
Avi Reddy
Chief Financial Officer

Yeah, Chris, this is more management of our balance sheet, right? So we want to get the CRE ratio into the low 400. So right now we're not at a market rate to retain some of these credits. But as the year progresses and we get closer to the 400s, we have the option to keep some of these credits, and they're very solid credits in the low to mid sixes on the balance sheet. So I think once we get to the level of CRE that we're comfortable with, we'll have more flexibility at that point in terms of retaining some stuff. The volume is higher, but at the same time, the option is with us in terms of keeping some of these credits with us. Again, the headwind is going to be in the first half of this year, due later in this year. And after that, we'll be able to retain items and manage the balance sheet as appropriate.

speaker
Chris O'Connell
Analyst at KBW

Okay, got it. And then just as you guys are moving into the March-April, I guess, bonus season for competitor bankers, I know that things are still in flux, but is there any way to quantify perhaps on either a percentage of what you guys have either already added from the prior teams or the size, just how big that opportunity is?

speaker
Avi Reddy
Chief Financial Officer

Yeah, I think it's still a bit early, Chris. We've got a number of teams, multiple teams that were very close. Some have committed to coming on. Some are in very late stages. So it's a little early at this point. I think as we get into March and April, it'll be easier. For some banks, bonus season ends in January, so you could see some announcements in February. So it's going to be a mix, but I think this will all shake out. And I think the one difference this year is that the opportunities on both sides of the balance sheet, not just on the deposit side. And so I think the last couple of years, we've probably spent 80 to 90% of our energy on the deposit side. I think this time around, it's probably going to be more balanced in terms of how we look at the opportunity.

speaker
Stu Stulibo
President and Chief Executive Officer

I would expect that in the next 30 to 45 days, you'll see a couple of announcements. And then as we get into the end of March, there'll be additional announcements.

speaker
Chris O'Connell
Analyst at KBW

Great. Appreciate it. Thank you.

speaker
Olivia
Conference Host

Thank you. Our next question, coming from the line of Manuel Neves with DA Davidson. Your line is now open.

speaker
Manuel Neves
Analyst at DA Davidson

Hi, Matt. Hey, good morning. I just wanted to build on some of the commentary on kind of the customer reaction to recent Fed rate cuts. Has there been really – this is more like an industry-wide question, too – Has there been any difference in reaction to deposit costs pushing out for the December cut versus the November cuts? Like, have you seen any real difference yet or is most kind of expected at this point?

speaker
Avi Reddy
Chief Financial Officer

No, I mean, pretty similar, Manuel. I mean, obviously, you know, customers, you know, speaking from personal experience and, you know, because we're involved in the deposit rate movements, You know, customers have some optical thresholds that they care about. If you were at 5%, you wanted 5% of the customer. And then if you are at 4%, you want 4%. I mean, if you are at 435, you may be okay with 415, right? So it's more, you know, I think customer psychology depending on where each one is. But the way we manage our basis, it's very segmented based on balances that they have and the weighted average rates. I will say the best environment for banks is that gradual 25 basis point cuts over every 90 days. We had 100 basis points swing pretty quickly, so customers were impacted fairly significantly, but they also got it on the way up. So I think the best environment for all of us would be the Fed takes a pause and then comes back at some point in May or June and cuts 25 at that point, and then you'll be able to cut the rates again. If you continuously have a significant amount of cuts, you'll probably see more, you know, sticker price reaction from some. But I think us individually, you know, it's a relationship bank, and we did pay on the way up, and we've been able to reduce costs on the way down.

speaker
Stu Stulibo
President and Chief Executive Officer

Yeah, we've been very diligent on the way down in, you know, in looking at individual customers and making the rate changes, including on the municipal side where we told everyone that, you know, you want 100% beta on the way up, and we told them early on that on the way down, expect 100% beta as well. So, you know, look, most banks have been fairly rational through this most recent cycle, and, you know, I think we've been able to take advantage of that and hold to our guns. You know, as Avi said earlier, the fact that we are you know, every month opening, you know, hundreds of new accounts and bringing on new customers gives us a lot more flexibility, right? So we don't have to fight and pay up for every last dollar where a customer says, look, I can get X from, you know, from this place or that place. And, you know, we basically, you know, can hold to our guns and they can make a decision. And, you know, for the most part, they stay. And so we really haven't seen, you know, that much in the way of disintermediation as far as deposits on the rate side.

speaker
Manuel Neves
Analyst at DA Davidson

I appreciate that commentary, and it's obviously a relationship business. I don't think I heard, and it's probably harder to pin down, is how much more deposit growth can you get from the current teams you've had? Is there a thought process on what we should expect on the deposit side across this year? Just kind of thoughts on where that deposit growth could go.

speaker
Avi Reddy
Chief Financial Officer

Yeah, so I think what we've said previously on this is, you know, it probably would take every team three to four years to get to some type of steady state, and they're continuously opening accounts. Look, every quarter we've grown accounts and we've grown deposits, and when we look at the forward pipeline, you know, we think there's, you know, additional room I think it's hard to predict, Manuel, exactly where they're going to end up, but what we're trying to do is look at accounts and account opening activity, and they continue to make progress. Obviously, they've built a substantial book. It's a billion eight right now. I think over time, as our name gets out and our technology platform and some of the things we do for customers gets out, they may bring in additional new customers as well, not part of their existing book. So I think we're in a good spot. As Stu said, branch-based deposits have stabilized, our consumer deposits have stabilized, and we're looking at other teams as well. So I think we have a long runway on the deposit side in terms of growing that over time.

speaker
Stu Stulibo
President and Chief Executive Officer

Just to give you an idea, if I look at our reports even today, We've opened up over 300 accounts and 200 relationships just since December 31st. So, you know, that kind of gives you an idea. They're still very active and moving, you know, moving relationships over and developing new relationships. So I still think there's a, you know, a fairly long runway. But, you know, again, that's going to happen over time. You know, there are a lot of accounts get opened. It takes some time. several months to fully fund. So they're still upside in terms of the pipeline.

speaker
Manuel Neves
Analyst at DA Davidson

I love the sense of activity there. If deposit growth comes in better than expected, could that drive stronger loan growth? How should we think of those together? And I know that you have a build in the back half of the year and you have a lot of repricing. But just how do those work together in your thought process?

speaker
Stu Stulibo
President and Chief Executive Officer

I think, you know, credit is credit. And, you know, we're always looking for good, solid loans. But I don't think deposits are going to drive the credit side. You know, I think we want to put on, you know, profitable relationships with good credits, focusing on business loans, obviously. And so I think to some degree they're, you know, one won't drive the other. But as we continue, and as we said earlier, as we continue to build out the CNI, the healthcare, and with some of the impending analysis, we think, on new teams focused on the loan side, that will certainly take up the excess liquidity.

speaker
Manuel Neves
Analyst at DA Davidson

That makes a lot of sense. I appreciate that. One last question on the asset side is with the repricing that you're having over the next, three years, are you still kind of thinking that the loan portfolio ends with multifamily in the 30% range? Or could there be a wider range of outcomes there? You spoke a little bit about flexibility that you might keep some of those more than you maybe thought if the pricing's right. Just kind of talk through that a bit of where it ends.

speaker
Avi Reddy
Chief Financial Officer

Yeah, I think our range was 25 to 30%, so we don't want to be pinned down to one number. I think that's really... trying to get us, you know, down to that, the low 400s over there. You know, on the investor crease side, we have a lot of, you know, very solid relationships with good deposits as well in that business. So I think 25 to 30% is probably a good medium to longer term number there that gets us into those 400s.

speaker
Stu Stulibo
President and Chief Executive Officer

Yeah, you have to remember, I mean, the multifamily book has been a very solid book from a credit perspective, but it's the lowest yielding, you know, loan asset that we have on the books. It's even, you know, at $449, which is the average yield on our multifamily book, it's even lower than our adjustable rate mortgage portfolio, you know, one to four family portfolio. So, I mean, so there's, you know, there's a good, you know, risk-adjusted, you know, asset there, but, you know, we also are looking at maximizing returns. So, we think that 25% to 30% is the right place to be. Although in this marketplace, obviously rates have gone up quite a bit on the multifamily side, and it's a much more profitable asset than it was several years ago when it was commoditized pricing.

speaker
Manuel Neves
Analyst at DA Davidson

Thank you both. Thank you for the commentary.

speaker
Olivia
Conference Host

Thanks, Manuel. Thank you. And as a reminder, to ask a question, please press star 1-1. Our next question, coming from the line of Matthew Brisey with Stevens, Inc. The line is now open.

speaker
Steve Moss
Analyst at Raymond James

Good morning.

speaker
Matthew Brisey
Analyst at Stevens, Inc.

Just a few follow-up for me. I was hoping first you could discuss new loan yields and spreads across C&I and kind of your focus relationship, commercial real estate. And then secondly, just discuss payoff activity on the back book and whether or not the slowest pace of payoff activity, if anything's changed there.

speaker
Stu Stulibo
President and Chief Executive Officer

Sure. So on the pipeline right now, the average rate on the pipeline is $7.75. The CNI portfolio is at a weighted average rate of about $7.60. and the owner-occupied CRE is about 720, and the healthcare is right around 750 as well. You know, we only have, in the entire pipeline, we only have $9 million in multifamily and about 60 million in an investor CRE. So the 750 pipeline is really weighted towards the C&I owner-occupied CRE in healthcare.

speaker
Avi Reddy
Chief Financial Officer

And then, Matt, just on the payoff speeds, Look, we track this every single quarter. The multifamily payoff speeds in Q4 were a little higher, actually. It was around 10%. The prior quarters, we're probably averaging closer to 6% to 7% plus or minus. On the investor creed, it's probably around 6% to 7% of the payoff speeds at this point, pretty consistent with what the prior quarters were. We did see some elevated payoffs in our business loans at the end, just customers selling businesses, just normal activity. That was actually 20% in Q4. That's a bit higher than what we traditionally see, because in that business portfolio, it's probably closer to 8% to 10%, because those are just customers that we're retaining over time. So if we didn't have that 20% payoff in that portfolio in Q4, loans would have ended up closer to $11 billion at the end.

speaker
Stu Stulibo
President and Chief Executive Officer

Yeah, we had a couple of large customers who sold their companies to private equity firms or whatnot, and we did have some payoffs there, which were unanticipated.

speaker
Matthew Brisey
Analyst at Stevens, Inc.

One thing from an industry perspective is a lot of banks are pulling out of commercial real estate, similar to you, trying to lower CRE concentrations. I was hoping you could talk about what you're seeing on the non-bank side and whether or not they are taking market share and keeping spreads lower than you would normally see.

speaker
Stu Stulibo
President and Chief Executive Officer

Yeah, I think we are seeing a little bit more activity on the non-bank side. side in terms of financing Cree and other multifamily opportunities. I do think that over time and with today's yield curve and where rates are, that I think banks will eventually get back into the Cree business as they get to the levels that they'd like in terms of their Cree ratios. Because again, given the yield curve and where rates are, You know, there is money to be made in that business and it's a good risk-adjusted asset.

speaker
Matthew Brisey
Analyst at Stevens, Inc.

All right. And then two more for me. The first one is just I was hoping for some, you know, the rent-regulated multifamily book and the office book are still kind of the two areas for everybody, areas of most concern. Just talk about the health of those portfolios, any changes in underlying characteristics. and then maybe some thoughts around charge-off activity for next year, if you have some insights there.

speaker
Avi Reddy
Chief Financial Officer

Sure. Yeah, nothing significant, you know, Matt, on both. Look, we track our classifieds very closely, like I said in the prepared remarks, you know, classifieds are down. We don't have a lot of maturities in the first half of this year. You know, I think maturities pick up, you know, in a step-up approach starting the second half of the year, but Really not seeing anything. Nobody's really coming in and asking for new deferrals or modifications at this point. Those levels are pretty steady at this point. I think we know what we have. I would just say for the charge-off item, look, it's hard to predict charge-offs over time. I think we've done a good job identifying what loans are substandard so we know where we have issues over time. you know, in an individual quarter, you know, it may be up or down. It could also be, look, you may reach a decision point on certain credits saying, look, it's better for us to exit these credits at this point, especially as you have, you know, third-party investors and non-banks, you know, stepping up in those markets. So I'd say, you know, probably entering, you know, the point in the cycle that, you know, charge-offs are not going to be zero, basically. I mean, for the full year, our charge-offs were, I think, 17 basis points, you know, last year. You know, a range between 20 and 30 basis points is, you know, a reasonable range for a commercial bank, and that's probably where we expect to be for next year. So hopefully that helps in terms of color, but, you know, not really seeing anything, you know, out of the ordinary at this point.

speaker
Stu Stulibo
President and Chief Executive Officer

Yeah, and on a rent-regulated, you know, we're really getting down to a, you know, we separate between pre-2019 and... and after in the pre-2019 portfolio continues to wind down. They've all repriced at this point. We have no non-performers. So we continue to monitor it. We're still doing our annual reviews. So we got a pretty good handle on what we're seeing in terms of debt service coverage. And we are seeing a good percentage of improvement in debt service coverage ratios with as we go through our annual review. So, you know, I think the inflation issue has moderated somewhat. Rents are slowly increasing. And landlords, you know, most of our loans are relatively small. So most of our, you know, our average size on our rent regulators is about $2.8 million. So they're managing their properties, you know, very tightly and maintaining their profitability. Great.

speaker
Matthew Brisey
Analyst at Stevens, Inc.

And then last one for me. Javier, I was hoping you could discuss deposit growth for 25 a little bit. I'm sorry if I missed that. The composition is also important. And so I was hoping you could just touch on how you think non-interest-bearing deposit growth will look next year.

speaker
Avi Reddy
Chief Financial Officer

Yeah. So one thing we've seen, Matt, is just the stabilization in consumer deposits at the bank. We probably have around 30% to 35% of our book is consumer deposits. I'd say 2022 and 2023 and even the first half of 2024, we saw outflows on that and we saw outflows on the DDA side as consumers wanted to get a higher rate. I think that should help because that was masking some of the business growth that we saw. In 2024, we grew business deposits by I think 1.7 billion plus or minus as the teams really started to ramp up. I would say we continue to see new accounts coming in, new deposits. We expect to grow the deposit base this year. We've got back up to 30% in terms of the DDA percentage, and we'd like to keep it at that level and maybe grow it over time. It's still a high rate environment, so it's very hard to grow DDA. You know, I wouldn't project the DDA base to getting to, you know, 35% at the end of one year, but we'd like to continue to see that creeping up slowly over time. And the stuff that's coming in has a nice component of DDA. So I'd say, you know, the DDA percentage, you know, stable to up, you know, from here, hopefully. And in terms of, you know, overall deposit growth, I think we should see, you know, pretty solid growth in 2025, at least based on accounts that we've opened and the pipelines that we have.

speaker
Matthew Brisey
Analyst at Stevens, Inc.

Sorry, just last one is thoughts on deposit betas in 2025.

speaker
Avi Reddy
Chief Financial Officer

Yeah, so what we've done on the interest-bearing side is we've probably dropped rates on the interest-bearing piece around 80 basis points for the 100 basis point cut in rates. And so we're probably at an 80% beta on interest-bearing. But given we've got 30% DDA, the total deposit beta was around, I think, 55% plus or minus. So I think that should hold, Matt, going forward if there's additional rate cuts. I mean, as of right now, our cost of our weighted average rate on deposits are around 205, and that's fully reflective of the December rate cuts. So we've made all those changes for December. So I would say if we get an additional 25 basis points, the behavior should pretty much mirror what we had for the last 25 basis points, or even the last 100 basis points, basically. So we don't expect any substantial change. Obviously, if the Fed does not cut rates, it's going to be harder for banks to cut rates additionally going forward.

speaker
Matthew Brisey
Analyst at Stevens, Inc.

I appreciate you taking all my questions. Thank you.

speaker
Avi Reddy
Chief Financial Officer

Thanks, Matt.

speaker
Olivia
Conference Host

Thank you. And I see we have a follow-up question from Emanuel Neves. Emanuel is open.

speaker
Stu Stulibo
President and Chief Executive Officer

Hi, Emanuel.

speaker
Manuel Neves
Analyst at DA Davidson

Hey. Hey, sorry. Did I hear correctly that your end of period, is that total deposit cost is 2.05%?

speaker
Avi Reddy
Chief Financial Officer

That's the current weighted average rate as of January 22nd.

speaker
Manuel Neves
Analyst at DA Davidson

That's very helpful. I appreciate that. That's an excellent push out of deposit cost cuts.

speaker
Olivia
Conference Host

Yep. Thank you. And there are no further questions in the queue at this time. I will now turn the call back over to Mr. Zulubo for any closing remarks.

speaker
Stu Stulibo
President and Chief Executive Officer

Thank you, Olivia, and thank you all for joining us today, and thank you to our dedicated employees and our shareholders for their continued support. We look forward to speaking with you all after the first quarter.

speaker
Olivia
Conference Host

Ladies and gentlemen, that does end our conference for today. Thank you for your participation, and you may now disconnect.

Disclaimer

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