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ConnectOne Bancorp, Inc. beats earnings expectations. Reported EPS is $0.5, expectations were $0.47. ConnectOne Bancorp, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Hello. And thank you for standing by. My name is Regina and I will be your conference operator today. At this time, I’d like to welcome everyone to the ConnectOne Bancorp, Inc. Fourth Quarter 2023 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] I’d now like to turn the conference over to Siya Vansia, Chief Brand and Innovation Officer. Please go ahead.

Siya Vansia: Good morning, and welcome to today’s conference call to review ConnectOne’s results for the fourth quarter of 2023 and to update you on recent developments. On today’s conference call will be Frank Sorrentino, Chairman and Chief Executive Officer; and Bill Burns, Senior Executive Vice President and Chief Financial Officer. I’d also like to caution you that we may make forward-looking statements during today’s conference call that are subject to risks and uncertainties. Factors that may cause actual results to differ materially from expectations are detailed in our SEC filings. The forward-looking statements included in this conference call are only made as of the date of this call and the Company is not obligated to publicly update or revise them.

In addition, certain terms used in this call are non-GAAP financial measures, reconciliations of which are provided in the Company’s earnings release and accompanying tables or schedules, which have been filed today on Form 8-K with the SEC and may be also accessed in the Company’s website. I will now turn the call over to Frank Sorrentino. Frank, please go ahead.

Frank Sorrentino: Thank you, Siya, and good morning, everyone. Thanks for joining us today. ConnectOne persevered through an environment marked by significant challenges and risks, as 2023 was a complicated period for the banking industry. The Fed’s unprecedented tightening had an adverse effect on industry earnings, including ConnectOne’s, causing a contraction in net interest margins. But our key profitability measures, efficiency and asset quality ratios were solid. We remained a focused, disciplined, and strong financial institution. I am proud to say, with the continued strength of our balance sheet, our culture, and the commitment of our entire organization, we were able to stay the course and continue the path that has made ConnectOne a success since our inception nearly 20 years ago.

As I’ve discussed many times over the years, providing unparalleled support for our clients has always been a strategic priority for ConnectOne. This isn’t anything new, but it’s this philosophy, consistent track record and an approach that I believe positions us to outperform in 2024 and beyond. Now, let me turn to some of the recent highlights and the near-term outlook. Throughout the course of the past year, we strengthened our capital and liquidity levels and entered 2024 with a fortified balance sheet that positions us to support both existing and new clients. Reflecting ConnectOne’s long-standing focus on relationship-based lending, during the fourth quarter, we had strong sequential C&I loan growth of nearly 7% and saw positive traction in noninterest bearing demand deposit trends.

Looking ahead, while our loan pipeline remains robust, we will continue to be disciplined while maintaining our sound approach to both credit as well as spreads. Overall, we can currently anticipate continued gradual opportunistic growth in 2024. Bill will discuss this momentarily. Our fourth quarter net interest margin compressed sequentially and trends seem to be stabilizing. We’re seeing a flattening of deposit costs and anticipate that the margin will widen as the Fed eases its interest rate stance. For the year, we were also able to increase our tangible book value per share by more than 6%, a metric that we’ve consistently increased since ConnectOne’s inception almost 20 years ago. Additionally, while ConnectOne’s efficiency ratio has been impacted by the compressing margins, our annualized operating expenses remain below 1.5% of average assets, placing us among the top tier of efficiency among banks.

Turning to credit, ConnectOne’s metrics remain solid, reflecting our high credit standards, our relationship based client philosophy, and our track record of avoiding riskier sub-segments. Additionally, we have been and will continue to be proactive in prudently maintaining reserve levels commensurate with our growth. Bill obviously will provide some more on credit metrics in a few minutes. Supporting ConnectOne’s focus on driving superior growth and profitability over the long-term, we’ve also continued key technology initiatives. This includes efforts to enhance the client experience while expanding opportunities to support our deposit franchise. Further, to drive future organic growth, we continue to hire quality talent away from other banks, adding to an already experienced team of bankers here at ConnectOne.

Finally, we remain committed to enhancing shareholder value. Last year, we increased our common stock dividend nearly 10% to $0.17 a share and will consider another dividend increase in the next quarter. Our stock outperformed much of the industry during 2023, but we still believe it’s undervalued and will continue share repurchases in 2024. In closing, we firmly believe that ConnectOne’s financial strength, conservative client-centric model, talent base and a track record of prudent underwriting and profitability position us to capitalize on emerging opportunities to enhance ConnectOne’s valuable franchise. As we plan ahead and remain committed to our client-first operating model to drive deposits even in a competitive market. We’ll look to maintain continued emphasis on growth of our C&I division as our new team members continue to build momentum.

And we’re also excited about the opportunities to strengthen our position in both Long Island and South Florida. We’re projecting modest growth and remain well positioned to capitalize on opportunities across our markets. And so at this time, I’d ask Bill to review our fourth quarter and year-end financial highlights. Bill?

Bill Burns: All right. Thanks, Frank. Good morning, everyone. So, as I’ve done in prior calls, I’m going to give more color on the fourth quarter and also provide some estimated forward guidance. Let me start off with deposits. Our client deposits grew sequentially as we continued to execute on initiatives and incentives for our team to accelerate deposit traction. And to that end, client deposits, which exclude brokered increased $100 million sequentially, which is about 5% annualized. And within that number, non-interest bearing demand increased by $35 million and that’s an 11.5% increase on an annualized basis. I want to give you a little more color here. Monthly average non-interest bearing demand increased each month from October through January.

So with that, I feel confident that at a minimum, we’ve hit a floor here with potentially some growth going into 2024. The net interest margin contracted sequentially by 5 basis points, I think that’s in line with the previous guidance I gave you. And it reflects a 22 basis points increase in our total cost of deposits, which is now up to 3.14%. Notwithstanding that increase in deposit costs, which is based on averages pertaining to the fourth quarter versus the third quarter, we saw a measurable slowdown in interest bearing deposit rates, which were flat in December versus November. And that was due to CD-repricing, which has essentially run its course. And then also with no recent fed increases, savings and money market rates have stabilized.

And with that, it appears that our margin will trough in the first quarter, I would say slightly below the fourth quarter level. And then going forward from there, I think we’ll stick with our previous guidance that margin will expand with roughly 5 basis points of widening for each 25 basis point rate cut. As you know, there are many moving parts to modeling net interest margin forecast. But we feel relatively comfortable with the direction, the magnitude and the timing of our guidance. And the caveats to that guidance are non-recurring items such as prepayment fees, which can be difficult to predict, and increased quantitative tightening, which would increase competitive pressures and therefore slow the speed of deposit rate declines. As to the impact of loan portfolio yields, which is another component of NIM forecasting, we expect to benefit from a loan pipeline, which is predominantly wider spread C&I and construction, while tighter spread multifamily originations have been limited.

I do want to mention that we had very, very strong growth in C&I in the fourth quarter, but a portion was related to line usage, some of which has already been repaid. And although we anticipate a continuation of our emphasis on C&I growth, it will likely be lower than this past quarter. Moving on to non-interest income, just want to mention one item here, and that is SBA loan sales, which have been running at about $500,000 per quarter. We expect to continue and improve on that pace throughout 2024. In terms of operating expense, we have essentially been flat the past two quarters. Annualized operating expense as a percentage of average assets remains less than 1.5% and looking into next year, my expectation is for an approximately 5% to 7% increase in expenses, with a larger share of that increase coming in the first quarter, usually works that way for us.

There continues to be some inflationary pressures and there is still a tight labor market. Keep in mind, some of our depending decisions take into account revenue growth, so we can and have adjusted mid-course in past years. Just a little bit on liquidity. Our liquidity position remains very strong by almost any measure. Readily accessible liquidity remains well above 2x adjusted uninsured deposits, and that uninsured deposit number excludes collateralized municipal deposits as well as intercompany deposits. So that number stands now at 22% of total deposits. Turning to capital for a second. Our tangible common equity ratio of the holding company is very strong at 9.3%, that’s up from 9% – 9.0% a year ago, while our subsidiary bank leverage ratio reached 11.20% at year-end up from 10.60% a year ago.

Tangible book value per share has now surpassed $23. It has consistently increased for many years, dating back more than a decade, and also was largely unaffected by AOCI. Repurchases for the fourth quarter were slightly more than 100,000 shares at an average price of $21. That repurchase level was a bit below the prior quarter, but we have 900,000 shares left in our authorization and I would expect to utilize that capacity in its entirety during 2024. On credit quality metrics, it was an action that did not impact earnings or loan loss provisioning, we charged-off taxi medallion loans that were previously reserved for in our allowance. That added approximately 20 basis points to the charge-off ratio for the quarter. Our taxi loan portfolio is $10 million and it’s valued at $125,000 per medallion.

In addition, we had charge-offs in the quarter totaling approximately $5 million isolated select credits that did not materially impact earnings either. The annualized charge-off ratio for the quarter, excluding the taxi charge-off was 24 basis points. Credit quality remains sound as measured by positive trends we see in criticizing classified assets and delinquencies, and there’s no discernible trend in any sector or subsector. Nevertheless, we agree with Wall Street analyst models and that it’s prudent to expect a more normalized charge-off percentage for the industry, which is a little higher than was experienced in 2023. One last note on the effective tax rate. It was a little bit lower this quarter at 24.4% that was due to a lower level of pre-tax income.

But I’d expect the regular runway for 2024 to be back around 26%. And with that, Frank, back to you.

Frank Sorrentino: Thanks, Bill. In summary, in what’s been a challenging year for most of the industry, we at ConnectOne yet again demonstrated our ability to perform in extraordinary times. While we’re optimistic about 2024, we do expect it will have its challenges. However, with our strong capital foundation, our commitment to our core business and track record of navigating through uncertain times, our team is prepared to be opportunistic about the year ahead. As always, we appreciate your interest in ConnectOne and thanks again for joining us today. Operator, we’ll now open the line for questions.

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Operator: [Operator Instructions] Our first question will come from the line of Daniel Tamayo with Raymond James. Please go ahead.

Daniel Tamayo: Good morning, guys. Thanks for taking my question. And Bill, I appreciate all the detail on the NII guide and the margin as well. I guess I’ll start on that. I appreciate the 5 basis points, but just curious like, what all is going into that in terms of deposit repricing assumptions? What is going to be immediately repricable versus you’re hoping you’ll be able to pass through that sort of stuff? Thanks.

Bill Burns: Yes. There’s a lot to our deposit makeup, but like I said in the call, we think we’ve maxed out at what our interest bearing balances are. And so I think, first off, the deposit costs seem to be leveling off, and so we’ll be able to pick up in margin by having our assets continue to reprice higher. So that’s going to lead to the stopping of contraction and the beginning of a widening of the margin. And then as the fed cuts and our models show about four, which we have four cuts throughout the year. Right now we’re modeling about a 50% data on that. So I don’t know if that helps answer your question.

Daniel Tamayo: No, that’s helpful. And you’re modeling that to take place immediately or with a bit of a lag?

Bill Burns: Well, like I said, there’s a lot of moving parts, so I am actually saying it’s concurrent with it. So it’s 50%. There’s different ways of looking at beta. You can look at it as – it’s immediate 50%, or you could look at that as a lag that gets to 100%. But the way the model works, we have it at 50% immediate.

Daniel Tamayo: Got it. And then maybe one for Frank just on the loan growth. I know Bill, you also mentioned that you’re expecting C&I to slow from the strong growth that you saw in the fourth quarter. But wondering if you could just kind of put a finer point on, on what type of loan growth you’re expecting this coming year?

Frank Sorrentino: Sure. I think we’ve mentioned a number of times that we’ve been focusing a lot on our construction portfolio. We think it’s actually a really great asset class at this point in time, notwithstanding the fact that interest rates are higher. There’s a tremendous amount of demand for the product that most of our builders are bringing to market. And we’re seeing that with completed projects. And so we’ve continued to expand not only the size of the portfolio, but also the geographies in which we operate in. And so we’re pretty excited about that. And as you know, over the last 10 years, we’ve been saying that we’ve been slowly, but surely building out our C&I team, and pretty much every quarter we see more and more C&I loans coming into the portfolio.

And that’s just an evolution that’s occurring that we’re pretty happy about de-emphasizing a little bit of the commercial real estate and a little bit more on the commercial side. So I’m pretty confident that those trends will continue. As you know, certainly in the Greater New York market, we’re woefully underhoused. And so I don’t see anything that’s going to change my opinion about the housing market or the construction market in general, at least not at the moment. And in the C&I world, when you look at the strength of businesses today, their balance sheets are in some of the best shape they’ve ever been, notwithstanding some of the changes since the end of COVID. But businesses in general in and around the New York market are doing quite well.

And so we’re pretty confident about the types of businesses that we’ve been in, whether it’s in the school space, whether it’s in light manufacturing, whether it’s in the healthcare environment. All of those areas all have very, very promising futures. And so we keep building the capabilities to service those clients, and they like the ConnectOne model, so.

Daniel Tamayo: So you expect growth to accelerate as the year goes on, as your pipelines kind of fill back up. Is that good way to think about it?

Frank Sorrentino: Yes, I wouldn’t call it an acceleration necessarily. I think we will have growth. As I said in my comments, I think the year is going to be a challenging one overall for a lot of different reasons. But I do think that we will, as we did in this last quarter, eke out growth and it’ll be on an opportunistic basis. I really don’t want to project whether it’s going to be 3%, 5%, whatever, 10%. I think it’s going to be on a one-off opportunistic basis. We’re doing things that seem to make sense. We’ll be happy with any growth this year. I think there will be growth. But again, there are a lot – notwithstanding all my positive comments, we are involved in three wars. We have an uncertain fed at this moment.

We have a presidential election coming up. There’s lots of things that give me pause about where we may or may not be going forward and the competitive environment. While we found it to be favorable for us at the moment, I’m not so sure it’s going to stay that way going forward.

Daniel Tamayo: All right, understood. I appreciate all the color. I’ll step back.

Operator: Your next question comes from the line of Frank Schiraldi with Piper Sandler. Please go ahead.

Frank Schiraldi: Good morning.

Bill Burns: Hey, Frank.

Frank Schiraldi: Just following up on the NIM dynamics. I mean, Bill, is it – so just the 5 basis points, I guess for a given 25 basis point rate cut that I would assume sounds like you have kind of a steady beta. But is it may be reasonable to assume that deposit pricing, that that 5% – that 5 basis points is sort of average 25 bps and if there is some lag, it could take maybe a little bit longer to run through the NIM if there’s some lag on deposit pricing. Is that the best way to think about that?

Bill Burns: Well, that certainly could happen, but that’s not exactly what I was trying to communicate to you, because the beta could be higher with a lag, there’s two ways to do it. You could have a higher beta with a lag or 50% immediate. And the way the model runs out under different scenarios. The best way to run the model, in my view, is to improve – if the average rate for a quarter is up X percent to 20% in that number, I’m sorry. If the fed funds rate is down on average by a certain number of basis points, I predict our margin will be up 20% of that number.

Frank Schiraldi: Right. Okay, so…

Bill Burns: Okay. I wouldn’t really put a lag in on the 50%.

Frank Schiraldi: Okay. And then just in terms of growth, to the extent you get it, and you talked about some of the higher yielding product, that there’s some opportunity, even if C&I growth isn’t as great as it was in the quarter. Just wondering your thoughts on, aside from the fed and deposit rates stabilizing overall, just where net new business is coming on the books in terms of loan yields versus the funding costs as new business comes on?

Bill Burns: New business, yes, what the spreads are on our business, and the good thing about C&I is, it generally comes along with the deposits, and that’s why we focus on C&I. But I think the spreads are kind of 300 to 400 basis points on C&I lending and similar for construction.

Frank Sorrentino: Perhaps a little higher on construction.

Bill Burns: Could be even a little higher in construction, yes.

Frank Schiraldi: Okay. And then just thinking through, just I think you said – I think you said – maybe 5% to 7% expense growth year-over-year?

Bill Burns: Yes, that’s what I have modeled in. There’s still inflationary pressures, labor market is still a little bit tight and so a lot of that is compensation expense. We usually see a bigger uptick in the first quarter, but when I look at my current projections versus the total for 2023, I come to the 5% to 7% range.

Frank Schiraldi: Okay. Is there anything baked in or maybe you could just remind us in going through the threshold of $10 billion in assets, timing there, and any incremental cost that might be baked into that 5% to 7% growth?

Bill Burns: Well, we’re almost already there. This pullback and the fed tightening slowed things down, but we were ready to go over. And so everything we’re doing today from a regulatory perspective is as if we’re already there.

Frank Schiraldi: Okay, so it’s already baked in.

Bill Burns: Yes.

Frank Schiraldi: And then if I could just sneak in the last one just on buybacks. I had always thought you guys were sensitive around tangible book value. And you buyback if the stock dipped below, and it looks like in the quarter, you were buying on average below tangible book. But it sounds like maybe that’s not the right way to think about it going forward. Bill, you said maybe less price sensitive than that and anticipate completing the program this year.

Bill Burns: Yes. I mean, I do remember saying that, that it makes all the sense in the world when it’s below tangible book. But even now, given our retained earnings and the growth and the dividends, we still have room to buy back stock. And the 900,000 shares over the course of this year and what we’re seeing in terms of earnings to me is not a dramatically large number. So I feel very comfortable with that. I can’t say at any price, but for the foreseeable future, I would stay on that plan.

Frank Schiraldi: Great. Okay. Thanks for the color.

Bill Burns: Sure.

Frank Sorrentino: Thanks, Frank.

Operator: Your next question comes from the line of Michael Perito with KBW. Please go ahead.

Michael Perito: Hey, guys, happy New Year. Good to hear from you. Thanks for taking my questions. Just a couple of follow-ups. One on the – just on the balance sheet makeup, as we think about the loan opportunities and being opportunistic, Frank, and the environment we’re coming out of/still in, I mean, is it – do you guys expect in the budget for the loan to deposit ratio to maybe drift lower? Does deposit growth kind of steadily outpace loan growth? Just I don’t even know if it’s a caution or what the right word for it is, but is that just kind of the norm we’re in for now in terms of what you guys would hope to see on the balance sheet growth side or not necessarily?

Frank Sorrentino: Look, I know opportunistic is a really big, wide word, but it really defines who we are and who we’ve been as a company. We’ve operated anywhere from about 105% loan to deposit ratio up as high as 120%. We’ve averaged around where we are right now. We’ve been bouncing around between 108% and 112% and sort of around 110%, I think is where we are at the moment. Yes, I’d like to see that number come in a bit. Just based on changes in the marketplace and things that we’ve seen, I think are doubling down on really re-examining the entire balance sheet and portfolio and list of clients and making sure we have the relationship type clients that we are determined to have, I think will pressure that loan-to-deposit ratio lower.

So I’m happy about some of the results we saw there. We saw it in some of the lending attributes relative to a little bit more C&I, a little bit more construction. So I think over time, yes, I would say, all things being equal, that number should drift down. But again, we’re going to be opportunistic. There’s a great opportunity to onboard a client that we think is going to create a lot of value for us going forward. We’re going to do that. And – so, I don’t want to guide to a number, but I would say that the general direction would be for a lower loan-to-deposit ratio.

Michael Perito: Helpful. And maybe switching over to an expense growth question. Just on the SBA side, I mean, when you talk about the 5% to 7% expense growth, Bill, I imagine there’s still some like FTE ads, maybe not a net basis, but like commercial lenders, SBA producers in the budget, can you talk about that business? And it seems like that’s probably the most capital efficient fee growth opportunity you guys have on the horizon. Just want to try and get a better handle of what that opportunity looks like today?

Bill Burns: Yes, I think we continue to build that outfit for us with some great people there and make sure we have the right support for an increased portfolio and volume going through there. But it’s baked into the numbers. We’re not adding, we’re not doubling the team. We add people kind of one at a time around the organization. Same token, there are people that have left the institution. And so we think we’ve upgraded around the organization. We’ve hired some great people, some others have left and the staff count increase has actually not been that high.

Michael Perito: Okay. And then just lastly, for me, just as we think about 2024, some of the initiatives you guys have announced over the last couple of quarters, like Nymbus or even longer dated stuff like BoeFly, any kind of deliverables or certain things that you’re comfortable telling us from an expectation standpoint about where we can maybe start to see some of those things impact financials in 2024, or is it still not entirely kind of clear yet the timing of some of those benefits?

Frank Sorrentino: I think on the case of BoeFly, we’ve seen a lot of improvements around the entire company. It’s part of what’s driving our SBA division. And you’re seeing some of those numbers there. We have been increasing pretty dramatically the number of franchisors that we service on the BoeFly platform, which is driving other incremental business into the organization. BoeFly really acts as sort of a linchpin or a centerpin for lots of other things that are going on within the company which just show up in other places and hard to just put on a BoeFly “balance sheet” or financial statement. But we’re very, very happy with the results that are accruing there. And at some point, I do think we will be able to show some level of financial metrics for that unit.

On the Nymbus side, we’ve just launched that family and friends recently. The platform is up and running and we’re seeing some successes there. I don’t have to remind you that that entire vertical was turned upside down in March and April. And so we’re rethinking how we’re going to go after that marketplace and where do we want to add value for that specific vertical. But the Nymbus platform is up, VentureOn is live, and we’re pretty confident that that’s going to make a difference as we move through 2024 and into 2025. We’re also implementing MANTL throughout the organization, the omnichannel deposit origination. And look, the hope there is that we improve conversion rates and that will lead to higher deposit origination.

Michael Perito: Great. Very good, guys. Thanks for taking my time and for the color this morning.

Operator: [Operator Instructions] Your next question comes from the line of Nick Cucharale with Hovde Group. Please go ahead.

Nick Cucharale: Good morning everyone. How are you?

Bill Burns: Hello, Nick.

Nick Cucharale: Just to follow up on the composition of the loan growth, just given the strong C&I momentum and the positive construction commentary, is it your expectation that most of the loan growth this year is driven by those two segments?

Frank Sorrentino: Yes, both C&I and construction.

Bill Burns: Yes, I think there are other CRE opportunities that are out there that we continue to. We’re not abandoning any of our clients or any of the verticals that we’re in, but we are seeing momentum, and we have seen for years, momentum building in the C&I portfolio. And construction has always been a place where we’ve had very deep amount of experience. And as you know, that portfolio rises and falls depending on what’s going on in the economy. I have to tell you, I don’t think I’ve ever seen a stronger time or a better time to be in construction, based on the demographics, based on what’s going on, based on where people want to live, and based on just the available supply of housing units. So I would look to increase it even more if I could.

As you know, it’s a very fast moving asset. So as quickly as you put it on the books, it comes off. So typically these projects last anywhere from 10 or 11 months out to 18 or so months. So the turnover is very, very quick in the construction portfolio. So maintaining – even maintaining standing still in that portfolio means you’re putting a lot of assets on.

Nick Cucharale: Very helpful. And then as it relates to the $10 billion in asset threshold, is there any incremental cost that you need to incur, or is that already baked into the numbers? And then secondarily, are there any containment strategies you plan to pursue in order to manage that crossing until 2025?

Frank Sorrentino: I would say no. We continue to build risk controls related to being over 10 billion. So, yes, there’s more to come, but it’s no more of an increase than what’s in those numbers that I’m forecasting for you.

Nick Cucharale: Perfect. And then just lastly, for me, just to clarify, in the 5% to 7% expense growth guide, that year-over-year increase excludes the special assessment in the fourth quarter, correct?

Frank Sorrentino: Correct.

Nick Cucharale: Thank you for taking my questions.

Frank Sorrentino: Great.

Operator: Our final question comes from the line of Matthew Breese with Stephens. Please go ahead.

Matthew Breese: Hey, good morning.

Frank Sorrentino: Good morning, Matt.

Matthew Breese: I was hoping for some additional color on new loan yields. I heard you loud and clear on C&I and construction spreads. But as you look at the pipeline today, what is kind of the blended all-in rate? Oppositely, what is rolling off as you put these new loans on?

Bill Burns: Well, it’s about 825 to 850 is the new rate going on. And the loans coming off is about 7%. So based on the volume and that spread, it does add basis points, five to eight basis points a quarter, as we move forward. In the past, we’ve had expense deposit cost increase greater than that. So it really depends on how much volume we see going forward. The greater the growth rate, the greater the increase in our margin, in my view.

Matthew Breese: Considering what you just said, that the loans coming off a 7% range, what’s going on is north of eight. But then considering your average loan yield this quarter is kind of 580-ish, does that imply that the pace of payoffs is really slow right now? Or could you characterize that?

Frank Sorrentino: I would agree with each of the business. Yes, it is slow. And that number, relative to the size of the $9 billion interest earning assets, isn’t as big as you might think. And so the impact of it is not all that great, but it is a positive, five years ago, we were less than 5 billion in size. We were half the size we are today. So those loans that are renewing are small relative to this, right.

Matthew Breese: That’s right. Okay. And then considering what you just said, which is north of 8%, stuff is going on, and we’re starting to see stability in deposit costs. It feels like to me, as we enter the middle part of the year, the NIM expansion on Fed cuts should be greater than five basis points?

Frank Sorrentino: Well, it could be. Matt, I am being conservative. I’ll tell you why. The one worry I have is that the quantitative tightening is even more than we expect, and that’s going to suck deposits out of the system and make the competition for deposits greater. And it’s going to slow the decline in the rate of deposits, which means the beta 50 could be lower. So that’s the offset to the projection you just sort of just made. It’s not just a rate gain.

Matthew Breese: Right, understood. Okay. And then turning – I’m sorry, Bill interrupted you. Go ahead.

Bill Burns: No, go ahead. No, go ahead. I’m sorry.

Matthew Breese: You had mentioned kind of a normalization of charge-offs. That being said, the reserve was down 10 bps this quarter. I’m assuming some of that was taxi. But I was hoping you could just comment on the overall reserve level heading into a year where credit might normalize. Should we anticipate some growth throughout the year?

Frank Sorrentino: Yes, you were a little bit garbled there, but we had about I think it was 15 or 16 basis points of charge offs in 2023, there’s nothing that I see specifically that’s making me say the number should be larger. But I think everyone is sort of agreeing that in the 20s is not a bad way to project charge-offs. So that’s one part of your question. The other is the reserve ratio. It went down, but it’s more of an accounting geography, because those reserves were in a specific reserve, they were taken out and taken off the loan balance. So there was no real change to our allowance coverage per se. And being under one, listen, this is the way our CECL model works. We have a lot of additional qualitative amounts in there, and so we feel very comfortable with where our allowance is today.

Matthew Breese: Okay. And then along the credit lines. Could you provide us an update of what your, I know it’s small, but your rent regulated multifamily. What’s the exposure there? And have you seen any sort of credit deterioration?

Bill Burns: It was under $100 million, and for the most part, it’s doing well. There’s one or two situations that we’re working on, but we’re working through those. We have a lot of tools in our arsenal for it. So I don’t see anything material coming from that small portfolio.

Matthew Breese: Okay, and then last one for me. I’ve covered you guys for a long time. It’s a challenging rate, challenging macro environment. I think given that you’re generally under earning, particularly versus kind of historical levels. As you look out 2024, 2025, when do you think you can get profitability as measured by ROA back to an over 1% level, somewhere we’re all more accustomed to seeing you.

Bill Burns: Well, I am optimistic about the years beyond 2024. There’s a lot of business, hundreds of millions, if not billions of loans that are going to reprice either maturing or adjustable rate. So even though rates are coming down, our adjustable portfolio is going to reprice higher. So when you combine all those things where rates coming down potentially, Matt, we could be in a situation where our deposit costs are going down and our loan yields keep going up. And that would get us to spreads over 340. And if we’re in that level, we would certainly be at back to 15% ROE.

Matthew Breese: Got it. Okay. That’s all I had. I appreciate taking my question. Thank you.

Frank Sorrentino: Yes.

Operator: I’ll turn the call back to management for any closing remarks.

Frank Sorrentino: Well, thanks again for everyone’s time today and certainly, we look forward to speaking to you again during our first quarter conference call that will take place in April. So, everyone have a very nice day. Thank you.

Operator: That does conclude today’s conference call. We thank you all for joining. You may now disconnect.