Mark Shutley

Mark Shutley asked about the yields on new loan originations and the expected total portfolio yield in the near term. He also sought clarification on the specific verticals and markets anticipated to drive loan growth over the next couple of quarters.

Answer

Archie Brown, CEO and President, stated that new loan origination yields, which were around 7% before the recent rate cut, are now closer to the mid-6% range, with September seeing yields around 6.50%. Jamie Anderson, CFO and COO, added that 60% of the legacy loan book is variable-rate. Archie Brown further explained that Q4 loan growth would be driven by strong commercial lending, Summit's peak production, and commercial real estate, projecting 5% annualized growth despite expected payoff pressure in the Oak Street group.

Mark Shutley from KBW asked about the current yields on new loan originations and the expected overall portfolio yield in the near term, given First Financial Bancorp's return to growth. He also inquired about the specific verticals and markets expected to drive loan growth over the next couple of quarters.

Answer

Archie Brown, President and CEO, stated that new origination yields, previously around 7%, are now closer to the mid-6% range (e.g., 6.50% in September) due to recent rate cuts. Jamie Anderson, Chief Financial Officer, added that approximately 60% of the loan book is tied to variable rates. Archie Brown further explained that strong commercial lending, peak production from Summit funding, and some growth in commercial real estate are expected to drive Q4 growth, despite anticipated payoff pressure in the Oak Street group, leading to a projected 5% annualized growth.

Mark Shutley asked for more detail on Amalgamated Bank's loan yields, specifically regarding new originations in Q3 and the expectation for yields to decline in the next quarter due to anticipated rate cuts.

Answer

Jason Darby, CFO, attributed the expected yield decline to projected rate cuts and a one-time interest income recapture in Q3. He detailed Q3 C&I origination yields in the high sixes to low sevens and real estate just above 6%, projecting a 30-50 basis point drop for Q4, while noting strong yields from PACE originations.

Mark Shutley asked for more detail on loan yields, which are expected to decline next quarter due to anticipated rate cuts, and sought color on new origination yields during the current quarter.

Answer

Jason Darby (CFO, Amalgamated Bank) attributed the expected decline to projected rate cuts and a one-time interest income recapture in Q3. He detailed Q3 C&I origination yields in the high sixes to low sevens, real estate just above 6%, and projected a 30-50 basis point drop for Q4, with PACE yields remaining strong around 7%.

Mark Shutley inquired about the dynamics causing the decline in noninterest-bearing deposits during the quarter and asked for an outlook on the government-guaranteed loan business for 2025.

Answer

Executive Will Holford explained the decline in noninterest-bearing deposits was due to seasonal fluctuations in mortgage escrow accounts and an intentional exit from an expensive ECR deposit relationship. He projected the noninterest-bearing mix would normalize to a 21% to 23% range. Regarding the government-guaranteed business, CFO Terry Earley stated they are 'pretty bullish,' citing a strong start to 2025, stable premiums, and the strongest pipelines they have ever had, particularly in the SBA space.

Mark Shutley followed up on margin guidance by asking about the outlook for loan yields before any rate cuts and questioned if the current quarterly expense level is a sustainable run rate for the rest of 2024.

Answer

CFO Terry Earley explained that with 75% of the loan portfolio tied to variable rates, yields will decline with Fed cuts, making the ability to lower deposit costs crucial. He affirmed that the current expense level is a 'good run rate,' but noted that investments in business banking and potential incentive payouts from the government-guaranteed business could affect the total. He emphasized the bank's challenges are revenue-related, not expense-related.