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spk01: Good morning and thanks for joining us for Fulton Financial's conference call and webcast to discuss our earnings for the third quarter of 2022. Your host for today's conference call is Phil Wenger, Chairman and Chief Executive Officer. Joining Phil are Curt Myers, President and Chief Operating Officer, and Mark McCollum, Chief Financial Officer. Our comments today will refer to the financial information and related slide presentation included with our earnings announcement, which we released yesterday afternoon. These documents can be found on our website at fult.com by clicking on Investor Relations and then on News. The slides can also be found on the Presentations page under the Investor Relations website. On this call, representatives of Fulton may make forward-looking statements with respect to Fulton's financial condition, results of operations, and business. These statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors and actual results could differ materially. Please refer to the safe harbor statement on forward-looking statements in our earnings release and on slide two of today's presentation for additional information regarding these risks, uncertainties, and other factors. Fulton undertakes no obligation other than as required by law to update or revise any forward-looking statements. In discussing Fulton's performance, representatives of Fulton may refer to certain non-GAAP financial measures. Please refer to the supplemental financial information included with Fulton's earnings announcement released yesterday and slides 10 through 13 of today's presentation for reconciliation of those non-GAAP financial measures to the most comparable GAAP measures. Now, I would like to turn the call over to your host, Phil Wenger.
spk09: Thanks, Matt. Good morning, everyone. Earlier this year, I announced my intent to retire as CEO of Fulton Financial on December 31st. So since this will be my last earnings call with you, I wanted to take a minute to share my appreciation for your coverage of Fulton Financial. I have appreciated your interest in our company and the diligence you have displayed in learning about the company's activities to be able to provide sound advice to your investors. I've been with Fulton for 43 years, serving as CEO for the last decade. And during that time, it has been my honor and pleasure to have worked with the thousands of Fulton team members who fully understand what it takes to fulfill our company's purpose of changing lives for the better. As you know, Kurt Myers will succeed me as chairman, CEO, and president on January 1st, 2023. With Kurt at the helm, and the talented members of our senior management team adding their expertise, I am confident that Fulton will be in good hands. I look forward to continuing to serve on the holding company and bank boards of directors after I retire. And now I'll turn the program over to Kurt.
spk05: Well, thank you, Phil, and good morning, everyone. Before I discuss the quarter, I want to thank Phil for the many contributions he has made to strengthen our company. and for the legacy that he leaves behind. During his decade as CEO, Phil enhanced our company's financial strength by growing the bank significantly, doubling the quarterly run rate for operating earnings from 39.2 million a quarter to the 80.5 million this past quarter. This improvement allowed us to nearly double our quarterly common cash dividend from 8 cents to 15 cents per share over that time, plus provide shareholders with an annual special dividend almost every year over his tenure. Phil also focused on shaping our culture and empowering our team to change lives for the better. He led the formation of our Fulton Forward Initiative and the establishment and funding of the Fulton Forward Foundation. The foundation helps improve the communities we serve in the areas of affordable housing and home ownership, job training and workforce development, financial education and economic empowerment, and diversity, equity, and inclusion. Phil executed on key strategic initiatives by consolidating our six subsidiary banks into Fulton Bank to improve our operating efficiency and position the company for growth. And he also resumed our status as an active acquirer through the purchase of a number of investment advisory firms as well as Prudential Bancorp this past quarter. There are many more examples, but as you can see, Phil has made a tremendous impact, and I, along with other members of our leadership team, are committed to driving future success. Going forward, we will continue to lead your company prudently, pursue smart growth, and make the changes necessary for future success. We will remain committed to our customers, committed to our communities, committed to our employees, and committed to you, our shareholders. Thank you, Phil, for all that you have done for Fulton Financial and for me personally. Your positive impact is a lasting one that will be felt for many years to come. Now I'd like to switch gears and let's talk about Fulton's third quarter performance. The third quarter of 2022 was another good result, and we are pleased with our overall performance. Operating earnings per diluted share, which excludes merger-related expenses of the Prudential Bank Corp acquisition, were $0.48 and represent an increase of $0.06 over operating earnings last quarter and $0.03 above the year-ago period. Operating earnings this quarter represent an all-time high for Fulton. Several factors helped drive this performance. Our net interest income benefited significantly from rising interest rates. We saw solid loan growth overall. We have the first full quarter effect of the Prudential Bank Corp acquisition, and fee income was consistent with the prior quarter. These positives were all set by some of the realities of the current economic environment. Expenses continue to migrate higher due to wage pressure, and elevated performance-based compensation accrues, and our provision for loan losses increased length quarter. As of July 1, We completed the acquisition of Prudential Bank Corp, and in early November, we expect the conversion to occur. We're excited to welcome Prudential Bank's team members and customers into the Fulton family, and we believe our opportunities for continued growth in the Philadelphia region remain strong. With the Prudential Bank Corp acquisition closed, we have doubled our loan portfolio and expanded our deposit base threefold in the Philadelphia market. Turning to the quarterly business results, our overall loan growth was strong for the quarter at $776 million, or 16.4% annualized. Excluding our acquisition of Prudential Bancorp, loans still grew $232 million, or 5.2% annualized. Commercial loans were essentially flat for the third quarter as we experienced consistent originations but accelerated prepayment. Consumer loans still produce solid overall growth as we continue to book adjustable rate mortgages in the portfolio and experience slower prepayment fees. Turning to deposits, on an ending balance basis, we achieved total growth for the quarter of $233 million. Included in this total was $400 million of customer deposits from the Prudential Bancorp acquisition. So excluding that impact, we did see a decline of $167 million during the period, driven by declines in non-interest-bearing demand accounts, as well as time deposits. To date, declines in deposit balances are driven by inflationary spending pressure, rebuilding of inventories and capex spending, and are not related to customer attrition. Commercial and consumer households both showed modest organic growth during the quarter, but a decrease in average balances per account led to an overall decline in deposits. From a rate perspective, we continue to actively monitor and price our deposits in order to both retain and grow deposit customers. Moving to our fee income businesses, we were pleased with our overall performance despite a challenging economic environment for some of our businesses. Total fee-based revenue was up 771,000 from the prior quarter, or 5.3% annualized. Our card and payments businesses grew during the quarter, as did our capital markets. These positives all set a decline in wealth management and mortgage banking revenues. Moving to credit, our provision for credit losses of $19 million included $8 million related to our acquisition of Prudential Bank, Bancorp, and the CECL day one charge. Excluding this, our provision increased by $11 million, despite showing net charge-offs for the quarter of only $100,000. Factors contributing to this increase include growth in the overall portfolio, a few accounts migrating to non-performing, as well as an increase in the reserves of our office building portfolio. So now let me turn the call over to Mark to discuss our financial performance and outlook in a little more detail.
spk03: Thanks, Kurt, and good morning to everyone on the call. Unless I knew it otherwise, the quarterly comparisons I will discuss are with the second quarter of 2022. And the loan and deposit growth numbers I will be referencing are annualized percentages on a linked quarter basis. Starting on slide three, operating earnings per diluted share this quarter were $0.48 on operating net income available to common shareholders of $80.5 million. This is up from $0.42 in the second quarter of 2022. The operating results exclude $15.5 million of merge-related charges recorded during the quarter. with $7.5 million of this reported in operating expenses and intangible amortization, and $8 million reported as additional provision for credit losses under CECL merger accounting rules. Moving to the balance sheet, commercial lending, excluding the impact of prudential, was relatively flat in quarter. Within commercial, organic loan growth was $51 million within C&I lending, while commercial real estate declined $71 million during the period. Commercial line utilization increased slightly during the quarter to 22.5%. Consumer and small business lending produced organic growth, excluding prudential, of $262 million, or 17% during the quarter. Residential mortgage loans grew $210 million as we saw homebuyers shift to adjustable rate products during the period. Application volumes did decline 35% lean quarter due to the sharp rise in interest rates, so we would expect residential loan growth to moderate going forward. As Kurt noted, total deposits grew $233 million during the quarter, and excluding the acquisition of Prudential Bancorp, total deposits declined $167 million, consistent with broader market trends. You should expect to see our deposit betas increase at a faster pace in future quarters versus what we have seen thus far in the cycle. With respect to the investment portfolio, balances declined modestly during the period, decreasing $181 million to $3.9 billion at quarter end. As part of our overall asset liability strategy, we've opted to pare back on securities growth in the near term. Putting together all of those balance sheet trends on slide four, our net interest income was $216 million. a $48 million increase late quarter. This increase was a function of both sharply rising interest rates as well as the Prudential Bancorp acquisition. Loan yields expanded 65 basis points during the period, increasing to 4.21 percent versus 3.56 percent last quarter. Our cost of deposits increased seven basis points to 18 basis points during the quarter. Therefore, our net interest margin for the third quarter was 3.4%, 3.54% versus 3.04% last quarter. The 50 basis points of length quarter increase resulted primarily from loan betas being higher than deposit betas during the period. Going forward, I would expect our net interest margin to expand with additional rate increases, but at a reduced rate due to both higher deposit betas as well as changes in the composition of our funding. Our loan-to-deposit ratio increased from 89.5% at June 30th to 92.1% currently. Kurt gave you an overview of our credit quality results. I would only add that our allowance for credit losses to total loans increased four basis points during the period, ending at 1.35% at September 30th. As always, our allowance for credit loss trends could change in future periods based on new loan origination volumes, our loan mix, net charge-off activity, and larger and longer-term economic projections. Turning to slide six, I'll provide some additional color on fee income business results. Commercial banking fees grew $450,000 to $20.8 million, with increases in cash management and capital markets leading the way, driven by interest rate swap activity. Consumer banking fees grew $800,000 to $13.3 million, led by increases in payments and overdraft fees. As a reminder, in June, we announced some changes to our overdraft products and services. These changes will be effective in the fourth quarter of 2022. They are not expected to have a material impact to 2022 results, less than $1 million, and this reduction is reflected in the 2022 guidance provided at the end of my comments. Wealth management revenues declined during the quarter to $17.6 million from $18.3 million the prior quarter. New business activity did continue with all of the revenue decline due to a decrease in the value of managed assets as of the beginning of the quarter. At September 30th, the market value of assets under management and administration increased modestly to $12.7 billion, up from $12.6 billion in the prior quarter. Mortgage banking revenues declined and were driven by a decline in mortgage loan sales, offset in part by an increase in gain on sale spreads, to 202 basis points during the third quarter versus 190 basis points last quarter. Moving to slide seven, non-interest expenses, excluding merger-related charges, were approximately $162 million in the third quarter, up $14 million in the fourth quarter. This increase was driven by the following factors. Additional performance-based compensation accruals of $2.6 million, additional expenses of $3.6 million related to Prudential Bancorp, a $1 million contribution to our Fulton Forward Foundation, an additional calendar day during the third quarter, which added approximately $1.3 million, and additional technology cost of $1.7 million due to the timing of certain projects. A material amount of the cost savings in a prudential bank or acquisition will not be realized until later in the fourth quarter due to the timing of our systems conversion. We do expect operating costs to come down in the fourth quarter, and this is reflected in our refreshed guidance at the end of my remarks. Slide 8 provides more detail on our capital ratios. As of September 30th, we maintained solid cushions over the regulatory minimums, and our bank and parent company liquidity remained very strong. Accumulated other comprehensive income decreased $139 million during the quarter. This impacted our tangible common equity ratio, as well as our tangible book value per share, offset by strong net retained earnings. Our tangible common equity ratio was 6.7% at quarter end, down from 7% last quarter. Excluding the impact of AOCI, our tangible common equity ratio increased during the quarter to 8.3%, up from 8.2% at June 30th. During the quarter, we did not repurchase any common shares. Our $75 million share repurchase authorization remains in place before expiring at year end. With Prudential Bancorp now completed, we are currently weighing macroeconomic conditions and their possible impact on AOCI and tangible capital. As a result, we will likely pause until deeper in the fourth quarter before we would consider repurchasing common shares. On slide nine, we are providing updated guidance for 2022. Our guidance now assumes a total of 125 basis points of additional Fed funds increases occurring in 2022 as follows, 75 basis points in November and 50 basis points in December. Based on those assumptions, our revised guidance is as follows. We expect our net interest income on an FTE basis to be in the range of $770 to $780 million. We expect our non-interest income, excluding securities gains, to be in the range of $225 to $230 million. We expect non-interest expenses to be in the range of $615 to $620 million for the year. And note that this operating expense guidance excludes merger-related charges related to the Prudential Bancorp acquisition. And lastly, we expect our effective tax rate to be in the range of 18% plus or minus for the year. Many of you look at Pre-Provision Net Revenue, or PPNR, as a key metric to assess the profitability of core operations. Our version of this metric is included in the financial tables of our press release. PPNR has increased 25% year over year and 27% linked core. As a result of our 2021 balance sheet restructuring, earning asset growth over the past year, and core margin expansion, from our asset-sensitive balance sheet. With that, we'll now turn the call over to the operator for your questions. Norma?
spk02: Thank you. Thank you. To ask a question, you'll need to press star 11 on your telephone. Please wait for your name to be announced. Please stand by while we compile the Q&A roster. One moment for our first question. And our first question comes from Justin Crowley with Piper Stanley. Your line is open.
spk08: Hi, guys. This is Frank Chiraldi. Good morning.
spk02: Hi, Frank.
spk08: Good morning. Good morning. First, I want to congratulate Phil on his coming retirement as well. Phil, it's been a real pleasure, and good luck with everything from here. Oh, thanks, Frank. Just to follow up on your comments, Mark, about the growth in the card and payments business, could you talk a little bit more about opportunities there and whether you see that as a significant offset due to the change in overdraft that'll flow through more in 2023?
spk03: Yeah, I think we do, Frank. When you look at our payments businesses in total, I mean, they show up in a couple lines on our income statement. But when you look at the merchant and card within commercial banking, you know, as well as consumer card, you know, that's a business that, you know, through three quarters is $40 million of revenue for us. And so we think going forward, you know, that the changes to overdraft, you know, again, less than a million dollars this quarter. Now we're implementing those sort of mid-October. So if you annualize that, that gets to maybe around a $5 million impact for next year. When we made that assumption for that guidance, that was based off of incident levels that were occurring earlier in the year. And as you saw here in the third quarter, we did have an increase in overdraft just based on increased incident levels. You know, I think exactly where that number ends up for next year will be reflected in our 2023 guidance that we give in January. But definitely, as you've seen, you know, the momentum in both consumer and commercial car, you know, those are both up, you know, between, you know, five, well, four and eight percent, you know, over last year. And we think there will be continued growth as the economy continues to reopen.
spk08: Okay, great. So the real... driver there, I guess, is overdraft income then, is that right? Not overdraft income, interchange rather?
spk03: Correct. Yeah, interchange, you know, on merchant and then on the consumer side, you know, also based on, you know, just instant levels of usage.
spk05: And Frank, it's Kurt. I would just add too, we're really focused on growing the customer base, adding accounts, adding transactional accounts that add overall growth in all of those transactional fee areas that help offset that lost income in overdraft. If you see, you know, linked quarter overdraft was up, it was up because of, you know, increased accounts and increased activity within those accounts.
spk08: Okay. And then just given your commentary around buybacks and TCE levels, wondered your updated thoughts on further M&A here. Is that something that's also unlikely in the near term, just given, you know, likely impact of marks on things like TCE? What's your appetite there for further M&A?
spk05: Yeah, Frank, I think it depends on opportunities. Obviously, it is a factor as we look at M&A going forward. You know, but we would look at our good M&A opportunities and work through the math on that. We'd like to continue to be. active, at least in smaller transactions as we look forward, given some of the dynamics in the marketplace.
spk08: Okay. Could you just remind me, is there a threshold in terms of the tangible book dilution that you'd be willing to take with a deal?
spk03: Yeah, Frank, that really always depends, obviously, on the relative size and then the relative earnings accretion that comes back from that. You know, we've been wanting to, you know, announce tangible dilution earn back within three years generally. I mean, in the prudential deal, I think it ended up being 1.1 years. And, you know, but, you know, out-of-the-gate dilution, you know, is going to be a function of the size of the deal. If we stick to that sort of one to three billion transaction size, then you're generally, you know, going to see dilution in that, you know, kind of one to four percent kind of range. And, you know, it'll earn back within three years generally.
spk08: Great. Okay. Thank you.
spk02: Thank you. Thanks, Rick. Thank you for your question. One moment for our next question. And our next question comes from Daniel DeMaio with Raymond James. Your line is open.
spk10: Thank you. Good morning, guys. Good morning. Just starting on deposit betas, Mark, I get your commentary on expecting those to accelerate going forward, but can you just let us know kind of how you're thinking about what those may be or what the forecasts are internally kind of through the cycle? How are you thinking about those or how we should be thinking about them?
spk03: Yeah, through the cycle, I think we're going to be, you know, in the 30% range. But to get to 30% range, you know, from where we are, you know, today, you know, depending on how you calculate it, you know, if you're just looking at the quarterly levels that we report, we've gone from, you know, 11 basis points to 18 basis points. So that's seven BIPs on 300 BIPs of rate moves. That's a beta, you know, kind of at least on a quarterly average basis of 2.3% to date. So that would imply that to get to a 30% beta, we'd obviously be ramping that up a lot more in the back half of the cycle. And when I say cycle, I guess I usually think of it as kind of a full year after the Fed would reach a terminal Fed funds rate.
spk10: Okay. That's very helpful. Thank you. And then I guess just not meaningful numbers by any means, but non-accruals have ticked up for a couple quarters in a row here. It looks like this quarter it was primarily in commercial real estate. I was curious if you have any more color on the type of credits there that drove that and then how you feel about the rest of that book.
spk05: Yeah, Danny, it's Kurt. Just a little more color. As we look throughout this year, we had an uptick last quarter and an uptick this quarter as well. It's really been individual accounts. We have an account in healthcare. We have an account in C&I. and an office account that are the bigger numbers in there as we look through the overall year. And they tend to be, you know, individual accounts with, you know, supply chain issues or leasing issues, things like that. So, that's really what's driven the non-accrual increase as we monitor those portfolios. Office overall referenced on the last quarter. Relationships over $10 million. That portfolio aggregated to about $560 million, 65% loan to value. That portfolio stands at $553 million at the end of this quarter. We continue to closely monitor that. You know, as leases come up and the composition of that office space changes, you know, we do expect certain accounts to have challenges. So that's the portfolio that we're paying particular attention to.
spk10: Okay, that's great. Thanks, Craig. And then lastly, just in terms of reserves, just curious how you think about the amount of qualitative within the total bucket in terms of how much maybe wiggle room you'll have to adjust those numbers when we start to get changes in macro forecasts. Thanks.
spk03: Well, yeah, Danny, I mean, overall, you know, we have qualitative factors on several items, you know, we've taken since we've implemented CECL. I mean, we had COVID reserves, you know, related reserves at one point, qualitatives. And, you know, currently, you know, we do have an overlay qualitative reserves related to our office portfolio, and we'll continue to monitor that. And if we think it's prudent to add more in future periods, we will. But based on our best estimate of the economic outlook today and with the overlays that we have as a part of that, as of step 30, we feel it's reserves at the right level.
spk10: Okay. Thanks for the question, Eric. Thanks for the answers, guys. Appreciate it. That's all from me.
spk02: Thank you for your question. One moment for our next question. And our next question comes from Chris McGrady with KBW. Your line is now open.
spk00: Hey, good morning. Mark, maybe a question for you on just deposits. It's the $64,000 question at the industry level. Can you just help us dig into what at this point might be risk of outflow or, I guess, further migration? Just trying to get a sense of balance sheet size.
spk03: Yeah, so, you know, I think our loan to deposit ratio, I think it's safe to say that that's going to continue, you know, to drift upward over the next couple of quarters. You know, one of the things, Chris, when you look at the third quarter for us, you know, we have historically have a municipal deposit portfolio that fluctuates between about historically between $1.6 and $2.2 billion. You know, so generally from trough to peak, And you'd see that peak in the third quarter. There'd be about a $600 million increase in September. You know, that was about half that this year. You know, we felt that we had, you know, room to hold, you know, the line a little bit more on pricing, you know, in that portfolio. And as a result, we did not see as much inflow, you know, that we would see in past quarters. Now, you know, the million, you know, you said 64. I think it's a million-dollar question or more. But, you know, is how much of that portfolio and others do we see outflows, you know, in the next couple of quarters? As Kurt referenced, you know, we did see growth in both consumer and commercial households and both in consumer and commercial checking accounts from June to September. So what we're experiencing right now is not a loss of households or customers. We're experiencing loss of, you know, deposits per customer. And that's, you know, again, really to be expected when the government stopped their stimulus and people were spending money again.
spk00: Okay, great. And then maybe a follow up. What's the, I guess, what's the monthly or quarterly cash that's coming off the bond portfolio? And is the assumption you just take all of that and put it into the loan book or you maintain the size of the investment portfolio? Yeah.
spk03: Yeah, we've been letting that run down the last two quarters. It's not much. It's about $25 million a month is our current cash flow. You know, but our intent would be, you know, at least going into the fourth quarter here to continue to allow that to, you know, shrink a little bit. And then going into, you know, 2023, at some point, you know, I'd expect us to then just grow the portfolio commensurate with, you know, growth and overall earning assets.
spk09: Great. Thank you.
spk02: Yep. Thank you for your question. One moment for our next question. And our next question comes from David Bishop with the HVD Group. Your line is open.
spk07: Yeah, good morning, gentlemen. Hey, David. Good morning. Yeah, the funding side of the equation, I think I heard maybe or maybe I misinterpreted on the preamble. Do you see in terms of as you move into 2023, the funding mix changing in terms of how you view funding anticipated loan growth? Do you do more wholesale or brokerage? Or do you see the ability to fund that through sort of the commercial and consumer channels?
spk03: I don't necessarily see a large, you know, increase in wholesale deposit channels. But, you know, but I would expect if you go back historically to sort of where we were, you know, pre-pandemic, before we received a lot of stimulus money, it's normal for us to either have both FHLB advances, of which we've had none for a long, you know, couple years running now, and or, you know, overnight borrowings as well.
spk07: Got it. And then as it relates to loan growth, it sounds like commercial line utilization up a little bit. As you look at your crystal ball and talking to commercial clients, as we had in the last quarter of the year and the next year. Do you think you'll maintain or see a potential pickup as you move into the Philly region with greater exposure on the commercial side? Or I'm just curious what you think the outlook is there in terms of low growth on the commercial side heading into next year?
spk05: Yes, we look at our pipeline length quarter comparison pipelines pretty much exactly the same as it was. We are seeing that pull-through rate of that pipeline we expect to come down because we have customers saying, hey, I'm going to delay this project because of the cost. I can't get employees. There's still headwinds in spending on projects. So I think our pull-through rate is going to come down. So our – You know, our loan growth on the commercial side is, I think, going to be consistent as we look forward with the benefit of increased line utilization. At this point, really, line utilization has not moved at all, but we're seeing the outflows of average balances on deposits, which, you know, customers are going to spend their own money first and then borrow. So, that combination of eventual increased line utilization and pretty consistent pipeline and origination we think is going to keep us in a consistent range of organic commercial growth.
spk04: Great. Thank you.
spk02: Thank you. One moment for our next question. And our next question comes from Matthew Breeze with Stevens. Your line is open.
spk04: Good morning. I was looking to touch on, Mark, your NIM commentary. First, what is kind of the NIM outlook these next couple of quarters? I know you'd mentioned that it would expand, but less than the pace we saw this quarter, just a pretty high bar considering the NIM was up 50 bps. And then secondly, given your rate outlook, when and where do you see the NIM kind of peaking in 2023?
spk03: Yeah, great question, Matt. So, for the month of September, margin was 360. And, you know, the month of September obviously didn't have the full impact of the last 75 basis point rate increase. You know, so, you know, you can expect to see in the fourth quarter, you know, certainly margin expand, you know, some from the third quarter. You know, and again, with our assumption that You know, there's going to be a 75 basis point rate increase coming here in a couple of weeks, first week of November. You know, as far as when the margin peaks, you know, I think that's really, you know, depends on your bias of when you think terminal Fed funds are achieved. You know, if we hit a terminal Fed funds rate in the first quarter, which I think the dot plot currently shows that, then I would expect that either, you know, deep in the first quarter or sometime in the second quarter, you know, maybe on an individual month basis is when you see your max on margin. And then as your deposit beta starts to catch up, you know, to that loan beta, which will be tempered somewhat by repricing of fixed rate assets that mature. but clearly you're going to see deposit betas. We think right now in our own forecast deposit betas will be faster than loan betas in the back half of 2023.
spk04: Okay. And maybe touching on the loan yield side of things, first, could you either provide a blended loan yield for the pipeline or maybe bucket by bucket CRE, CNI? What are you getting for loan yields today? And then the other question I had is if I look at loan yields relative to Fed fund moves, you know, you're looking at about a 75 basis point increase in loan yield versus 300 basis points of Fed hikes. It feels a little light to me. When do you expect to see a ramp up in loan betas? And, you know, I think 50% of your book is floating rate. When do you expect to get to see the full reprice there?
spk03: Yeah, so a couple of things on that. So first, you know, with respect to our loan book, right, we have, you know, a You know, $19.5 billion loan portfolio now, you know, about $8 billion of that is variable. A billion of that, it was hedged, you know, because we had kind of excess asset sensitivity, you know, a year and a half ago. You know, so you have about $7 billion, you know, which is about 42%, you know, or so of the loan book is truly variable. Then we got another $4.9 billion, you know, that is adjustable, you know, And then the remainder, about $6 billion, is fixed, or about a third of the portfolio is fixed. When you think about, just to give you a sense on what we're getting on new loan yields coming in, for, I'm sorry, I'm just flipping here. In the third quarter, overall blended yield for new assets is in the 5% range. And, you know, take that, you know, going back, you know, to where we were in the first quarter, you know, where it was blended closer to 3%, you know, for new originations in the third quarter. So we're up pretty significantly, you know, by just take kind of either new originations or increases to existing loans. You know, we've gone from, you know, blended around 3% range in the first quarter to blended, you know, just a shade under 5% in the third quarter.
spk04: Right. Do you have the pipeline yields? Understanding what you put on the books this quarter.
spk05: Yeah, Matt, this is Kurt. The going forward pipeline yield, we really don't track yield in the pipeline until we get to the pricing point of new origination. So, you know, the visibility there are credit spreads. We are pretty committed to. You know, so what changes that is just a change in interest rate based on the underlying index. You know, but we really don't track yield until it gets to, you know, commitment that is going into then the loan book within, you know, that three to 30 days. Got it.
spk04: Okay. Last one for me is just, you know, in a static environment, looking at the AOCI, Is the recapture, the $25 million that Chris talked about a month, I'm just curious how much you would think you'd get back if nothing else changes on a quarterly basis.
spk03: Yeah, so we would recapture all of that AOCI hit, which over the last two quarters combined, in our prepared comments, was $139 this quarter, and it was roughly the same amount, I think, the last quarter as well. You know, so of that amount, you know, all other things being equal, you would get that back over the duration of the portfolio, which, you know, with rising rates, you know, the effective duration of our investment books going from like four and a half years to five and a half years. You know, so all other things being equal, you would recoup that over the five-year period of time. You know, so that's what, you know, roughly $50 million a year.
spk04: Perfect. Okay. That's all I have. Thanks for taking my questions.
spk02: Thank you for your question. As a reminder, ladies and gentlemen, that's star one to ask your question. One moment for our next question. And our next question comes from Manuel Navas with DA Davidson. Your line is open.
spk06: Hey, good morning. Hey, good morning. Nice to meet you. I guess a little bit on the follow-up on the NIM trajectory. Is there a point where you'll take more steps to kind of protect it? Is that more something a consideration when you feel that Fed Funds hits terminal, or are there some other steps you can take sooner?
spk03: Yeah, so we are thinking about that. And, you know, we are, you know, currently looking at it and have executed it, you know, in a small way on some cashless corridor trades. You know, we're, you know, a combination of a purchase floor and a sold cap. So, you know, we are, you know, considering that and executing that in a, you know, in a small way to, you know, shave some of the edges off of our net interest income volatility and to give us protection on the downside. You know, in addition to that, I mean, we still, we have, you know, several billion dollars of loans today, you know, that have floors. You know, the number's about six and a half billion. you know, today that already have floors. So we would be, you know, doing this cashless corridor to give us additional protection for, you know, loans that do not currently have a floor.
spk06: Okay. Thank you. I appreciate that. As a follow-up, can you kind of describe where you're seeing the most competition in your market on the deposit fund?
spk05: Yeah, sure. More color on that. So we're really seeing it across the board in each market. We monitor each of the markets very closely. Some markets are more CD-driven. Some are more money market-driven. So we manage that across the board. I would say the markets that are most competitive are the markets that have banks that have a really high loan-to-deposit ratio and really need to grow deposits to fund their loan growth. Those markets tend to be more competitive right now.
spk06: All right. Thank you.
spk02: Thank you. And I'm showing no further questions at this time. I'd like to hand the conference back over to Mr. Myers for any closing remarks.
spk05: Well, thank you again for joining us today. We hope you'll be able to be with us when we discuss fourth quarter earnings at the end of the year in January. Thank you, everyone.
spk02: This is a space conference call. Thank you for your participation. You may now disconnect, everyone. Have a wonderful day.
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