29/05/2024

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Earnings call: Dime Community Bancshares reports solid growth in 2023

Earnings call: Dime Community Bancshares reports solid growth in 2023

Dime Community Bancshares (NASDAQ:) reported significant year-over-year growth in deposits and loans during its recent earnings call, highlighting a successful year with increased deposits of over $275 million and loan growth of over $200 million.

The company emphasized its strategic shift towards building a more diversified balance sheet, with a focus on expanding its private and commercial banking sectors and adding a healthcare vertical to its business loan origination capacity.

Key Takeaways

  • Year-over-year deposit growth of over $275 million and loan growth of over $200 million in 2023.
  • Successful recruitment of deposit gathering bankers from Signature Bank (OTC:), with a portfolio now at $350 million.
  • Aiming to increase business loans from 21% to 30% and reduce multifamily loans to 25%-30% range in the next 2-3 years.
  • Core EPS for Q4 stood at approximately $0.45, with NIM expected to remain stable.
  • Low single-digit loan growth anticipated for 2024, with a focus on expense management and customer service.
  • Core cash noninterest expenses projected to be $210 million to $213 million for 2024, with a core tax rate of around 27%.

Company Outlook

  • Plans to grow the private and commercial bank and improve return on assets to 110%-125%.
  • Intention to lower the loan-to-deposit ratio to 90%-95%.
  • Anticipates NIM to return to historical levels in the low to mid-threes once the Fed starts cutting rates.
  • Expects continued hiring and potential M&A opportunities in the future.

Bearish Highlights

  • Loan performance issues with a full charge-off of a previously fully reserved loan and potential net charge-offs for other loans under individual analysis.
  • Multifamily portfolio expected to experience a gradual runoff and increased payoff activity as rates decrease.

Bullish Highlights

  • Deposit growth remained stable with plans to aggressively cut deposit rates.
  • Loan repricing pickup expected in 2025 and 2026.
  • Short-term borrowings intentionally kept to benefit from potential rate drops.

Misses

  • No multifamily loans currently in the pipeline.
  • Some competitors are offering lower rates, which may influence borrower decisions as rates decrease.

Q&A Highlights

  • Multifamily loan payoff rates historically around 30%-35%, with a peak at 37% two years ago and a true rate estimated between 15%-20% over a multi-decade horizon.
  • Currently, payoff rates are at 5%-6%, expected to catch up as interest rates decrease.
  • Approximately 30%-35% of borrowers at the end of fixed terms are satisfying loans, with the rest opting for repricing.
  • Reserve for C&I loans expected to be higher than for multifamily loans.

Dime Community Bancshares concluded the call by expressing gratitude to its employees and shareholders, and the management team conveyed optimism for the upcoming quarter.

InvestingPro Insights

Dime Community Bancshares (DCOM) has shown resilience in its financial performance with a noteworthy emphasis on diversification and growth in its private and commercial banking sectors. The company’s strategic initiatives have been reflected in its recent earnings call, with significant growth in deposits and loans.

InvestingPro Data metrics reveal a mixed financial landscape for Dime Community Bancshares. The company’s market capitalization stands at $972.9 million, with an attractive price-to-earnings (P/E) ratio of 8.25, indicating that the stock could be undervalued compared to earnings. This is reinforced by the adjusted P/E ratio for the last twelve months as of Q3 2023, which is even lower at 7.9. However, the company’s revenue growth has seen a decline of 7.84% over the last twelve months as of Q3 2023, with a more pronounced quarterly revenue drop of 19.97% in Q3 2023, which may concern investors looking for consistent top-line growth.

The InvestingPro Tips highlight areas of caution and optimism for investors considering Dime Community Bancshares. Analysts have revised their earnings projections downwards for the upcoming period, and the company suffers from weak gross profit margins. Furthermore, net income is expected to drop this year, and the stock has performed poorly over the last month. On a positive note, Dime Community Bancshares has maintained dividend payments for 28 consecutive years, which could appeal to income-focused investors. Additionally, the company has seen a strong return over the last three months, and analysts predict profitability this year, with the company having been profitable over the last twelve months.

For those interested in in-depth analysis, the InvestingPro platform offers additional insights on Dime Community Bancshares. Subscribers can access a wealth of information that can help inform investment decisions. Currently, the InvestingPro subscription is on a special New Year sale with a discount of up to 50%. To get an even better deal, use coupon code SFY24 to get an additional 10% off a 2-year InvestingPro+ subscription, or SFY241 to get an additional 10% off a 1-year InvestingPro+ subscription. There are seven additional InvestingPro Tips available for Dime Community Bancshares, which can be accessed at https://www.investing.com/pro/DCOM.

Full transcript – Dime Community Ba (DCOM) Q4 2023:

Operator: Good day, and thank you for standing by. Welcome to the Dime Community Bancshares Fourth Quarter Earnings Conference Call. [Operator Instructions]. Before we begin, the company would like to remind you that discussions during this call contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Such statements are subject to risks, uncertainties and other factors that may cause actual results to differ materially from those contained in any such statements including, as set forth in today’s press release and the company’s filings with the U.S. Securities and Exchange Commission, to which we refer you. During this call, references will be made to non-GAAP financial measures as supplemental measures to review and assess operating performance. These non-GAAP financial measures are not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with the U.S. GAAP. For information about these non-GAAP measures and for a reconciliation to GAAP, please refer to today’s earnings release. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Stuart Lubow, President and CEO. Please go ahead.

Stuart Lubow: Good morning. Thank you, Shannon. With me today is Avi (JO:) Reddy, our CFO, and thank you all for joining us this morning for our fourth quarter earnings call. 2023 was an unprecedented year in many respects, with the Federal Reserve taking interest rates to a multi-decade high and three regional banks failing resulting in significant focus on liquidity and deposits. Throughout all of this uncertainty, Dime’s business model remained resilient as demonstrated by year-over-year growth in deposits of over $275 million and loans is over $200 million. Importantly, in 2023, we put in place several cornerstone investments that will serve as growth engines for the franchise in the years ahead. First, we rapidly assembled a cross-functional internal team to attract productive deposit gathering bankers from Signature Bank. In the second quarter, we were able to onboard six groups, and at 12/31, their portfolio stands at approximately $350 million with approximately 50% being in DDA. To provide some background, after I joined Dime in 2017, we put in place the building blocks for our private and commercial bank deposit gathering operations. This existing operation provided us a solid foundation that helped us attract these new groups. We are proud of the fact that Dime was the only bank in Metro New York that was able to attract these talented bankers, a testament to our client-first business model and our state-of-the-art technology and treasury management systems. Today, our overall private and commercial bank deposit portfolio stands at approximately $1.5 billion, inclusive of the new groups hired in 2023. Over the course of the second half of the year, we made significant operational and technology-related enhancements in this business and truly believe we now have the best-in-class private client platform in the Metro New York area. As I have said, this segment will be the growth engine for Dime in the years ahead as we build our portfolio via acquisition of new clients and new groups. Moving to the asset side of the balance sheet. We added to our business loan origination capacity by building out a brand-new health care vertical in 2023. This follows on the heels of building out a middle market C&I lending operation in ’22. Our health care team is actively in the market, and our pipeline in this new vertical is now over $100 million and growing with an average rate of 9%. The health care vertical will add diversity to our balance sheet with solid margins. Once again, we continue to spend a significant amount of time on our recruiting front and believe we have the potential to add more groups of talented bankers in the future. We do believe there will be more fallout from larger local institutions as well as an opportunity to bring over individual clients who seek locally managed relationship-based bank coupled with a strong technology and treasury management stack. In summary, as we look back on 2023, it was important for Dime to navigate the dynamic environment while playing strategic offense and take advantage of market opportunities. As we have just completed our year-end strategic planning process, I want to lay out our medium and long-term goals. We intend on creating a more diversified balance sheet by focusing on growth in our business loan portfolio, which includes C&I and owner-occupied CRE. While we have historically been very strong operators in the multifamily and investor CRE, our committed focus for the future is to remix this balance sheet such that business loans will have a greater weighting. Right now, business loans account for approximately 21% of loans, and we envision growing that — growing business loans to 30% and reducing multi-foundry to the 25% to 30% range over a two-to-three year time frame. To provide you some context on how earnest we are about the balance sheet transformation, a look at our current loan pipeline indicates approximately $780 million in the pipeline with 70% in business loans. A year ago, business loans accounted for only 35% of the pipeline. By the way, the average rate on our pipeline is 8.43%. Building on the success we have had on the deposit gathering front, growing our private and commercial bank will be a key focus. This will allow us to continue to grow the DDA balances as well as lower our loan-to-deposit ratio to a range between 90% and 95% over medium term. As I’ve said, we are in discussions with numerous teams at the current time and expect to hire additional top quality bankers in the year ahead. Finally, I want to provide some thoughts on our profitability goals. While our asset book has limited maturities and re-pricings in ’24, in 2025 and 2026, we see increased repricing on the asset side. Returning to a 110 to 125 ROA is a key market, and we are highly focused on getting there as the asset side of the balance sheet turns over. This will be accomplished by a significant improvement in NIM as rates normalize. In the interim, we will continue to control the things that we can, including staying extremely disciplined on expenses. As I said in our last earnings call, our main focus is on providing our customers with outstanding service that only a locally managed community bank can provide, growing our financialized value and delivering shareholders — our shareholders strong returns. Being a conservative underwriter of credit has always been a hallmark of Dime. We continue to have a very low level of nonperforming loans, including past dues — including no past dues in our $4 billion multifamily portfolio. With respect to the fourth quarter results, our core EPS was approximately $0.45. We were pleased to see NIM contraction continuing to slow, DDA balances remaining steady, capital ratios continuing to grow and asset quality metrics remaining stable. In closing, I would like to thank all our outstanding employees for staying focused on our goals during these challenging times. Avi will now provide more details on the quarter.

Avinash Reddy: Thank you, Stu. Reported EPS was $0.37 per share. Excluding the impact of the special FDIC assessment and assuming a normalized tax rate of 27%, core EPS would have been approximately $0.45. The tax rate in the second half of the year was impacted by certain disallowed items related to executive severance. As mentioned in the press release, our expectation for the tax rate for 2024 is around 27%. As we expected, the pace of NIM compression slowed even further in the fourth quarter and the compression was only five basis points compared to 16 basis points in the prior quarter. At 29% of average total deposits, our noninterest-bearing deposit percentage remains a clear differentiator for Dime versus other community banks in our footprint. We are cognizant of the challenging revenue environment and continue to manage expenses prudently. Our focus is being as efficient as possible. Expenses for the fourth quarter, excluding the onetime FDIC special assessment and intangible amortization was $52.5 million. For the full year, cash noninterest expense, excluding FDIC special assessment, intangible amortization and severance was approximately $202 million, well below our annual guide for 2023 of $206 million to $209 million. Notably, we were able to absorb the cost of new hires into our organization by rationalizing expenses across the organization by using technology to automate manual processes and promoting and filling open roles from our talented employee base. Non-interest income for the third quarter was $8.5 million. We had a $3.7 million provision in the fourth quarter. The allowance to loans remain steady at 67 basis points. We’re cognizant that there has been a lot of scrutiny on CRE concentration. In this regard, Dime’s Investor CRE concentration, excluding multifamily loans, which are really residential loans for five or more tenants is only 258% of total capital. This quarter, our concentration levels dropped as we continue to focus on growing business loans and building capital. In light of the overall environment, our posture as it relates to the balance sheet is to build capital methodically. This will, in turn, support our clients when they need it. This quarter, our risk-based capital ratios increased by approximately 20 basis points. Now I will turn to some guidance for 2024. As you know, we don’t provide quarterly quantitative NIM guidance. All else equal, we expect the NIM to remain within a few basis points of current levels until the Federal Reserve starts cutting rates. This is contingent on competition remaining rational and our loan originations, which help offset any deposit cost creep remaining at fourth quarter levels of approximately $200 million at 7.85. Once the Fed cuts rates, we anticipate expansion and our medium to longer-term goals and projections do envision the NIM getting back to historical levels in the low to mid-threes and potentially even higher. This will require more of our assets to -. And as mentioned earlier, 2025 and 2026 are significant years for us in terms of asset repricing. Of note, we have already begun to prepare for the Fed rate cuts by segmenting our deposit base into various buckets. It’s important to note that our deposit base has less of a consumer weighting than national peer groups. And as such, we should see higher deposit betas on the way down. With respect to our positioning on lending, our strategy is to ensure we continue to support our key clients through any operating environment. And as Stu mentioned, we continue to see growth in our business loan portfolio. Growth in the business portfolio will offset declines in Multifamily and Investor Cree (NYSE:) where we are still servicing existing solid relationships. On an aggregate basis, we expect loan growth in 2024 to be in the low single digits with a stable first half of the year and growth in the latter half of the year. With respect to core cash noninterest expenses, if we take the Q4 cash operating expenses of $52.5 million and annualize that, we get to $210 million. We expect to be flat to up 1.5% on that base, which equates to $210 million to $213 million as a range for 2024. As I mentioned earlier, the expectation for the core tax rate for 2024 is around 27%. With that, I’ll turn the call back to the operator, and we will be happy to take your questions.

Operator: [Operator Instructions] Our first question comes from the line of Steve Moss with Raymond James. Your line is now open.

Stephen Moss: Good morning. Hey, Steve. Starting on the margin sensitivity here, Avi, just curious, how you — I hear you in terms of Fed cuts getting into the low threes on the margin. How many rate cuts do you think it will take to get to that level?

Avinash Reddy: Yes. Look, we’re just following the forward curve, Steve, we don’t give quantitative guidance. As I said, we’re confident to get back into the low to mid-threes. I will say that if you follow the forward curve and you assume where the five-year treasury ends up and a positive sloping yield curve, with the 29% to 30% DDA and growing with some of the new groups that we’ve hired, we do see the potential to be even above what we were historically which was at the peak, we were around 330 on the NIM. But if you follow the forward curve in our internal model, we should end up above that. As Stu said, 2024, we don’t have a lot of assets repricing, but that really starts picking up in 2025 and 2026. So I’ll just leave it at there.

Stephen Moss: And could you just remind me how much do you have an assets repricing in 2025?

Avinash Reddy: Yes, sure. So we have — on the real estate side, we have around $575 million of assets in 2024. And then we probably have around $200 million to $225 million on the security side as well coming due.

Stephen Moss: Okay. And then a meaningful step-up in 2025 to — from there?

Avinash Reddy: Yes. For 2025, a meaningful step up, right? So in 2025, on the asset side, we have around $900 million in 2025. And then we have $250 million of securities that year. And then if you roll forward one year to 2026, we have around $1.4 billion in 2026 of assets and around $200 million of securities. Now that’s contractual, right? But if the Fed cuts rates, you’re going to see some of that — some of those asset repricing from 2026 pull forward a 1.5 year in 2025.

Stephen Moss: Okay. Appreciate that. And the Stu, you mentioned the health care vertical. I’m sorry, but you cut out on just how large the pipeline was there. Wondering if you could just — if you could give that number? And also, just curious, are you looking to hire any additional teams in the upcoming year?

Stuart Lubow: So at this point, the pipeline is approximately $115 million with a weighted average rate of 9%. And so we’re very happy with the growth in the pipeline. We expect to have our first closings in the first quarter. So things are going well. In terms of additional teams, yes, I mean, we’re looking at — there are a couple of other C&I related and health care-related individuals and teams we’re looking at that also have significant deposits as part of their book, and we are looking at them.

Stephen Moss: Okay. And does the expense guide contemplate additional hires for the year? Or would that be additive to expenses?

Avinash Reddy: Yes. So I think, Steve, if you go back to last year, right, we gave guidance of $206 million to $209 million, and we hired six groups, and we beat the expense guidance by $6 million. So I think we’re very cognizant of expenses. We will hire groups, and they’re very profitable very quickly. I mean right now, it’s with the groups and teams that we do have. But I would just say that the payback period on the group is very, very quick from a bottom line perspective.

Stuart Lubow: Yes. I mean last year, we brought on in ads groups we brought on 21 individuals, and we are able to cover those costs within our expense guide. I mean we’re very cognizant of managing both sides of that, both the income opportunity, bringing on new teams on the expense side.

Stephen Moss: Okay. Great. I appreciate that. And one last question, just on the — I assume it’s one commercial real estate nonperforming loan. Any — just curious any color you could give there on that credit?

Stuart Lubow: Yes. It’s a fully tenanted building that houses two schools. Both tenants were paying. The borrower had some issues and did not remit payments to us. Since that time, five payments have been made, the loan is current and our policy is that we need six payments in order to put a loan — take a loan out of nonaccrual. So we anticipate that loan coming — actually coming out of nonaccrual this quarter.

Operator: Our next question comes from the line of Mark Fitzgibbon with Piper Sandler. Your line is now open.

Mark Fitzgibbon: Hey, guys, good morning. Just to clarify, Avi, on the tax rate was elevated in both the third and fourth quarters. Could you just explain what the discrete items were, what they are and those will be fully out of the tax rate in the first quarter?

Avinash Reddy: Yes. Mark, primarily, it’s related to 162M issues with the CEO succession that we had. It’s obviously a cumulative number, so it picks up. And then there were some other true-up items, return to provision type items. I mean if you look back historically, our tax rate has been in the 27% to 28% area obviously depends upon the level of income at the bank. So next year, 27% is a reasonable rate to use for next year.

Mark Fitzgibbon: Okay. Great. And then, Stu, your comments on hiring additional teams, are those presumably mostly from legacy Signature or other large banks? Or where do you see those teams coming from?

Stuart Lubow: Yes. I would say all of the above. So there’s some serious opportunities both within existing teams at Signature and other institutions that we’re in conversation with.

Mark Fitzgibbon: So of the teams that you’ve hired, those six teams that have brought in $300-and-some-odd million of deposits. What do you think those teams are capable of doing once they’ve — their books have kind of fully matured and migrated over?

Avinash Reddy: Yes, sure, Mark. So you go back to September 30, we were at $250 million on the teams at December 31, we were $333 million. Today, we’re $375 million. So it seems like a steady build of $70 million to $80 million per quarter at this point. I mean the good thing is we look at it on a client level and an account level basis, and it’s really not slowed down yet. So we expect to see continued growth in the quarters ahead over there. Again, they’re very heavily focused on DDA. At this point, it does take time to move over clients. So I think so far, they’re really meeting the expectations that we set out and they become profitable very quick. And really, the opportunity for us is to continue to grow that. But now that they’ve been here for a while, hiring new groups. And as Stu said, that’s going to be additive as well pretty quickly overall.

Mark Fitzgibbon: Okay. The last question I had, Stu, is there’s been a lot of dislocation in the banking space and your balance sheet has obviously held up well. Are you thinking about M&A at all? Is that sort of a priority, you think, for Dime over the next several quarters?

Stuart Lubow: Look, obviously, M&A has — the talk about M&A has certainly picked up. There’s still issues with marks and the balance sheets that are out there. I mean, certainly, for the right transaction, we’re certainly interested. And would explore opportunities. So I do think, over time, and particularly in the next several years, there’s going to be much more activity in the M&A space. And once the Fed kind of levels out and has a direction, I think there’s going to be much more discussion out there. And certainly, given where we are in the marketplace and the strength of our balance sheet, I think there’s certainly going to be an opportunity for us.

Operator: Our next question comes from the line of Manuel Navas with D.A. Davidson & Company. Your line is now open.

Manuel Navas: Hey, good morning. Just thinking about the overall deposit base. It’s great that you’re having success with the new hires and those teams are adding a lot. When would we see kind of an inflection for the rest? And what’s driving the trends that caused some of the deposit outflows recently? Just kind of comment on deposit growth next year.

Avinash Reddy: Yes. Look, I mean, Manuel, we grew deposits by $275 million in a year that was very challenging. I think, for the industry overall, if you look at the overall groups that we brought on, they brought on around $330 million, right? So on a net-net basis, we were flat in the rest of the bank. So I think if you look at that holistically, that’s pretty reasonable in this environment. We’ve seen DDA really stabilize across the entire bank. And so I think when you start 2024, you’re not — whatever is left behind is really core DDA at the bank operational DDA. So that gives us a lot of comfort going forward with that. I think the opportunity here to grow deposits is really building our private and commercial bank as Stu said. We have $1.5 billion of deposits in that business. The branch business is important as well. And so I think as rates stabilize and normalize, we should be doing well over there. Obviously, over time, we’ve looked at our deposit base and conceptually where there are higher rate, chunkier deposits, we’ve kind of tried to normalize our deposit base over there like everybody else. All that’s behind us in 2023. The important part is also looking at the loan-to-deposit ratio, right? I mean we’re at 102 at the end of the year, we’re actually closer to 100% right now. So we feel pretty comfortable from that perspective that we have the deposit growth to fund the loan growth that we’re projecting for 2024.

Stuart Lubow: Yes. And most importantly, you see quarter-over-quarter DDA is stable. So I think there are not a lot of banks that can say that their DDA balances have remained stable over the last two quarters. And we see opportunities to continue to grow that base.

Operator: Our next question comes from the line of Chris O’Connell with KBW.

Christopher O’Connell: So I think in your opening comments, you talked about the ROA getting up to 110 to 125 over time. Is that assuming that to get there, that’s below 3s NIM that you’re talking about as well longer term?

Avinash Reddy: Yes, Chris, correct. Yes.

Christopher O’Connell: Got it. And how are you guys thinking about, I know no quantitative guidance, but the pace of NIM expansion once the Fed starts cutting and if it’s in a methodical or kind of gradual way, does that accelerate over time? Are you guys getting a full benefit in the first quarter of Fed cuts? You talked a little bit about kind of preparing your deposit book for this process. I know you won’t give the quantitative guide, but just thinking about the pace of a magnitude as the Feds cutting would be helpful.

Avinash Reddy: Yes. I think we plan to be very aggressive on the deposit side in terms of cutting rates. As I said, our book is weighted more to business and municipal customers. So that will allow us to be more aggressive on that front. That’s on the liability side of the balance sheet, right? On the asset side of the balance sheet, as we mentioned, there’s less repricings in 2024, and then that really starts to pick up in ’25 and ’26. So some of it will depend on the pace of which payoffs pick up on the asset side of the balance sheet. But I would say on the deposit side, if you split the two question up into how are you going to see deposit costs and what are you going to see on the asset side. I’d say on the deposit side, that’s something we can control, and we expect to be very aggressive around that. On the asset side, it will just take a little bit of time given the structure and nature of our assets. I think throughout all of this, Chris, it’s just really important to keep in mind, operating a bank with 30% DDA, right? It’s just a matter of time before we get back to those margins over time, given the repricing opportunity that we have. The other piece that I just wanted to add is we have around $1 billion of borrowings that are at around $900 million to $950 million of borrowings that we’ve kept really short term, that’s really going to reprice immediately as well. And we’ve intentionally kept that shot. We’ve been messaging that all across and really to position the balance sheet when rates drop. So we do have the benefit of that as well.

Stuart Lubow: Yes. And just anecdotally, if you look month over month, on November and December, we saw like two basis point increase in deposit rates each month. And in December, we saw an eight basis point increase in loan rates. So hence, we do feel that as Avi said, we’re expecting relatively flat NIM within a few basis points until the Fed cuts.

Christopher O’Connell: Great. That’s helpful. And kind of along the same lines, I know it really hasn’t been much of the margin for the past, I don’t know, two years or so. But I mean when the Fed is kind of — I mean, what do you think that a normalized kind of prepayment impact would have on the margin?

Avinash Reddy: Yes. Look, it’s going to be — it has to be a whole lot better than what it is right now because right now, the prepayment fees on the margin is like one basis point or two basis points. I think if you go back to legacy Dime, we used to have between 10 and 15 basis points on prepayment fees. Now obviously, that’s Multifamily is going to be a smaller piece of the overall portfolio. So I would say anywhere between five and 10 basis points when speeds really pick up, it’s probably not a bad assumption. But I don’t think that’s going to happen in 2024 necessarily, just given…

Stuart Lubow: Yes, most likely, if it does, it’s going to be towards late 2024.

Avinash Reddy: Yes.

Stuart Lubow: Assuming the Fed rate cuts.

Avinash Reddy: Yes.

Christopher O’Connell: Great. And could you just provide a little bit of color on what the drivers of the net charge-offs were for this quarter?

Avinash Reddy: Yes, sure. So we just fully charged it off a loan that we had previously fully reserved for. So last quarter, we took a $4 million charge. Stu mentioned that credit last quarter was still in the legal process on that loan, but we thought it was prudent to charge that fully off. It’s something that we had put in nonaccrual status a couple of years back so nothing really new over there.

Christopher O’Connell: Got it. And then I assume given the reserve ratio in some of the comments in the release that you guys did like we’re reserving for a couple of other loans being individually analyzed. Just any comments around those?

Avinash Reddy: Sure. So there was one net new addition to the C&I portfolio. It’s a couple of million dollar loan, we fully reserved against it. However, they too have started paying at this point in time, and so there’s a potential for that coming out.

Stuart Lubow: Yes. That was a C&I loan contractor loan that was — had matured, and we couldn’t come to terms on a renewal. And so we were very conservative in our approach. We made it — so we fully reserve for that. Since then, we have — they have agreed on basic terms of a renewal, brought through on current and we’ll probably close that in the first quarter and put that back on accrual status.

Operator: Our next question comes from the line of Matthew Breese with Stephens.

Matthew Breese: Just a couple of quick ones for me. Stu, just in light of your Multifamily guidance for getting to 25% to 30% of loans over the next two, three years. It feels like the pace have runoff, needs to accelerate to get there. And so I was curious if this quarter’s kind of 2% quarterly reduction in Multifamily is a good run rate or a better representation of what we should be modeling in order to kind of achieve those goals?

Avinash Reddy: Yes, Matt, I think for the near term, yes. So like we said, we have a limited amount of re-pricings and maturities in 2024, which is specifically why our guide is over the course of two to three years, we’re going to get there. So it’s — if you go back a couple of years, our payoff speed on the Multi-family portfolio was 37%. Right now, it’s 6%, right? So I think what the Q4 and Q3 numbers are reasonable estimates for the next six months or so. But then as the Fed starts cutting rates, you’re going to start seeing a pickup in that. And then eventually, the loans do come up for maturity or repricing, which is again why this is a two-to-three-year goal for us.

Stuart Lubow: Yes. I mean we’re looking at SATs and projected SATs each month. I mean for this month, we’re probably going to have $40 million to $45 million in satisfactions and we’re looking — we’re getting requests already for next month. So I mean there is some activity out there, some transactions happening. And so — but it’s very chunky. So it’s hard to say it’s exactly when you’re going to see significant runoff. But suffice to say, we are seeing some amount of satisfactions each month.

Avinash Reddy: Pipeline.

Matthew Breese: I mean, can we just go back to one of the points you made there, I think you said historically, the payoff activity was 30% to 35% for Multifamily, making it effectively a 3-year duration type product…

Avinash Reddy: Yes. No. No, Matt, the comment there was two years back at the peak, the payoff rate was 37%. If you look at it over a multi-decade horizon, you’re probably between 15% and 20% is the true payoff rate on the multifamily side. Right now, it’s 5% to 6%. So — but as rates come down, they generally catch up. It’s more of a timing issue, Matt. And again, we’re pretty clear. We’re trying to give two to three years worth of a forward look in terms of where we want and see the balance sheet ending up. The thing that we can control is what we feed into the bucket. And so right now, we really have no multifamily loans in the pipeline. So…

Stuart Lubow: For the first time, I think, ever, we don’t have any pipeline in multifamily.

Matthew Breese: Got it. Okay. Just one more question on this topic. As the typical kind of multifamily borrower reaches the end of their kind of standard five-year fixed, are they willfully rolling into the floating and waiting for lower rates? Are you seeing them reprice into higher rates or go elsewhere? What is kind of the common behavior?

Avinash Reddy: Sure. So Matt, yes, we went back and looked at our 2018 vintage rate. So that’s basically matured or repriced in 2023. So around 30% to 35% of that is satisfying at this point in time and it’s around 65% that’s taking the repricing option. So it’s basically one-thirds, two-thirds in terms of the mix. Now we will say that there are competitors in the market right now that are in the low sixes to high fives, and as rates come down, you’re going to see more of those loans not take the reprice. They’re probably just kind of satisfy away from us given where the market is trending towards.

Stuart Lubow: Yes. I mean many of those viewed it as a short term, even though they’re taking a rollover, they view it as a short-term rollover because they figure not — why go through the expense of refinancing at these rates. But once rates do come down, they’re going to — they’ll pull the trigger and prepay.

Matthew Breese: Got it. I appreciate all that color. The last one for me is just conceptually, as the focus continues on business banking and moves away from traditional multifamily should we start to see the reserve reflect that and start to increase a little bit, 67 bps on today’s balance sheet makes sense, but if multifamily is 25% alone, does it make sense for the reserve to be higher?

Avinash Reddy: Matt, yes, absolutely.

Stuart Lubow: Yes. I mean our reserve methodology calls for at least 1% on C&I loans today. So as we put C&I loans on, we are significantly higher than what we’re reserving for multifamily. And that — so that transition will occur just naturally as part of our origination process.

Operator: [Operator Instructions] And I’m currently showing no further questions at this time. I’d like to hand the call back over to Stuart Lubow for closing remarks.

Stuart Lubow: Well, once again, I’d like to thank our dedicated employees who worked diligently through these challenges throughout the year and thank our shareholders for their continued support, and we look forward to seeing you next quarter.

Operator: This concludes today’s conference call. Thank you for your participation. You may now disconnect.

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