Dime Community Bancshares - Earnings Call - Q4 2024

Executive Summary

• Q4 GAAP EPS was $(0.54) on a net loss to common of $(22.2)M, driven by a $42.8M pretax loss on securities repositioning, $9.1M BOLI-related tax expense, $1.3M severance, and $1.2M pension termination costs; underlying adjusted EPS rose 45% q/q to $0.42 as NIM expanded 29 bps to 2.79% on lower deposit costs and core deposit growth.
• Core deposit momentum and active repricing cut total deposit cost by 37 bps q/q and lifted the average non-interest-bearing mix to 30%; loan-to-deposit fell to 93% and CET1 rose to 11.07% post the $136M equity raise, de-risking funding and capital.
• 2025 setup: management sees a clear path to ~3.0% NIM by Q1 (Dec core NIM ~2.84% plus 5–6 bps from Dec Fed cut) and >3% through 2025, with 5–6 bps tailwind per future 25 bp cuts; 2025 guidance includes noninterest income of $40–$42M, core cash OpEx of $234–$235M, and a 27–28% tax rate.
• Stock reaction catalysts: visible NIM inflection, best-in-class capital in footprint >$10B, continued core deposit capture, and balanced loan mix shift toward higher-yielding business/healthcare lending; note the one-time Q4 charges masked strong adjusted profitability trends.

What Went Well and What Went Wrong

What Went Well

• NIM inflected sharply: reported NIM rose to 2.79% (+29 bps q/q) as total deposit cost fell 37 bps; CEO: “continued core deposit growth and NIM expansion”.
• Deposit mix/scale improved: core deposits +$513M q/q (ex-brokered/time) with average DDA ratio at 30%, driving LDR down to 93% and enabling FHLB reduction y/y (~$700M).
• Capital strengthened: $136M net common equity raised in November; CET1 to 11.07% and total risk-based capital 15.65% (prelim); CEO: “best-in-class…with over $10 billion of assets”.

Management quotes:

• “We have a clear line of sight to returning to a 3% plus net interest margin”.
• “The monthly December core NIM was approximately 2.84%…a good base NIM to use”.
• “Our capital ratios are now best-in-class…with over $10 billion of assets”.

What Went Wrong

• GAAP loss from strategic actions: $42.8M pretax loss on securities repositioning and $9.1M BOLI tax drove $(0.54) GAAP EPS despite stronger core trends.
• Credit provisioning and charge-offs rose: provision increased to $13.7M (from $11.6M) and NCOs/Avg loans annualized to 0.39% (from 0.15%), albeit NPLs flat q/q at $49.5M.
• Borrowings ticked up q/q: FHLB advances $608M (vs. $508M in Q3) given timing/seasonality; management highlighted seasonal municipal and title deposits elevated cash at year-end.

Transcript

Operator (participant)

Good day. Thank you for standing by. Welcome to Dime Community Bancshares Inc.'s Fourth Quarter Earnings Conference Call. Before we begin, the company would like to remind you that discussions during this call contain forward-looking statements made under the safe harbor provisions of the U.S. 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 containing any such statements, including as set forth in today's press release and the company's filings with the U.S. Securities and Exchange Commission, to which we refer you. During this call, references will be made to non-GAAP financial measures as supplemental measures to reviews and assess operating performance. These non-GAAP financial measures are not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with the U.S. GAAP.

For information about these non-GAAP measures and for reconciliation to GAAP, please refer to today's earnings release. At this time, all participants are on a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automatic message advising your hand is raised. Please note that today's conference may be recorded. I will now hand the conference over to your speaker, Mr. Stu Lubow, President and CEO. Please go ahead, sir.

Stuart Lubow (President and CEO)

Thank you, Livia, and thank you all for joining us this morning for our quarterly earnings call. With me today is Avi Reddy, our CFO. Today, I will touch upon the progress we've made in 2024 as we execute our business plan. Avi will then provide some details on the fourth quarter and guidance for 2025. We began 2024 by hiring a number of deposit-gathering teams from the former Signature Bank. These teams came to Dime given the positive results achieved and the performance of the 2023 teams we had hired previously. Collectively, the deposit groups have raised approximately $1.8 billion of core deposits, with approximately 40% in non-interest-bearing deposits. In fact, we've opened up over 11,000 accounts and 7,000 individual customer relationships. Clearly, a home run for Dime. The successful build-out of our private and commercial bank has been a company-wide initiative, a true team effort.

The growth and stabilization of the branch-based deposits, especially in consumer and DDA resulted in substantial year-over-year growth in core deposits. In fact, we ended the year with a loan-to-deposit ratio of less than 95%, and we have reduced our wholesale borrowings and brokered deposits by approximately $1.2 billion in the past year. On the loan front, we continue to execute our stated plan of growing business loans and managing our CRE ratio lower. Business loans were up over $70 million in the fourth quarter and $400 million for the full year. This was driven by strong growth in our C&I and our healthcare verticals. Our loan pipeline remains very strong, with over $750 million of loans at a weighted average rate of 7.75%. These are weighted towards C&I and healthcare loans as well, continuing to execute on our plan.

We ended the year with CRE concentration of approximately 45%, and we expect to continue to reduce this ratio over time to the low 40s%. Despite all the deposit and loan teams we've brought on over the last two years, we've been able to keep core operating expenses to assets well contained and in a 165 basis point range. We have achieved this by using technology to drive operational efficiencies and keeping a very close watch on discretionary expenses. As we guided to on the last call, fourth quarter expenses were relatively flat versus the third quarter. Post the election and given the improved investor sentiment towards bank stocks, we raised approximately $136 million of net proceeds from a significantly oversubscribed common equity offering. The transaction was accretive to tangible book value. We used a portion of the proceeds to reposition our securities and BOLI portfolios.

As a result, the capital we raised, we ended the year with a Common Equity Tier 1 ratio in excess of 11% and a total capital ratio in excess of 15.5%. Having a best-in-class capital ratio versus a peer will allow us to take advantage of opportunities as they may arise and continue to support our organic growth. In addition, over the course of the year, we increased our loan loss reserves from 67 basis points to 82 basis points. This is within striking distance of our medium-term target of 90-100 basis points. During the fourth quarter, we received our second consecutive outstanding CRA rating. Apart from the overall rating of Outstanding, we received outstanding on the three-component CRA test, including the Lending Test, the Investment Test, and the Service Test.

Receiving a perfect score on all three components set us apart from our competitors and is a testament to Dime's commitment to community and the hard work of our dedicated employees. In conclusion, we continue to execute on our growth plan, and we have differentiated our franchise from the competition as it relates to our growth and ability to attract talented bankers. We have solid momentum, and we continue to grow the business loans and core deposits. Our net interest margin continues to expand, with the fourth quarter NIM increasing to 279. Importantly, we have substantial opportunity to continue to increase our net interest margin in the years ahead, given the significant backbook repricing we have in our portfolio. Avi will provide more details in her remarks, but suffice to say, we have a clear line of sight to returning to a three-plus net interest margin.

Our DDA levels are back to 30%, and we believe the value of this DDA base will shine through in the current rate environment. Disruption in our marketplace remains very high, and we are very active on the hiring front, and our recruiting pipelines are very strong. More to come on this over the next 90 days as bonus season comes to an end. I am looking forward to a strong 2025, and I want to again thank all our dedicated employees for their efforts in positioning Dime as the best business bank in New York. With that, I will turn the call over to Avi.

Avinash Reddy (CFO)

Thank you, Stu. During the fourth quarter, we completed a repositioning of our available-for-sale securities portfolio and our bank-owned life insurance portfolio. The securities restructuring was completed towards the end of November. The BOLI transaction took place in two stages. A surrender of legacy BOLI was completed in the month of December, and an equivalent amount of replacement BOLI is being purchased in the month of January. Excluding the impact of these two transactions, as well as severance and costs associated with pension termination and other one-time items, Adjusted EPS increased by 45% versus the prior quarter. We saw a meaningful expansion in the net interest margin this quarter. Reported NIM was up 29 basis points, and the core NIM, excluding purchase accounting accretion, was up 26 basis points. NIM expansion was driven by a significant reduction in our cost of deposits.

Given the timing of the Federal Reserve rate cut in December, we adjusted deposit rates towards the end of the month. The full impact of the rate cut will flow through into our Q1 net interest margin. Given that the securities repositioning was completed towards the end of November, the fourth quarter NIM reflects only one month of benefit from the repositioning. Core deposits were up approximately $500 million in the fourth quarter. This included approximately $150 million of seasonal tax receiver municipal deposits that typically arrive in the month of December and leave in mid-January, and $200 million of title company-related deposits that were tied to a closing at year-end and that left the bank in early January. Excluding the seasonal tax receiver deposits and the title company-related deposits, period-end core deposit growth for the fourth quarter was approximately $150 million.

Similarly, the overall balance sheet size and cash position was elevated at quarter-end by approximately $350 million due to the seasonal municipal deposits and title company deposits. Core cash operating expenses for the fourth quarter, excluding intangible amortization, was $57.7 million. This was consistent with our previous core cash expense guidance of between $57.5 and $58 million. Non-core items for the fourth quarter included severance, additional FDIC special assessment related to the failure of Signature and Silicon Valley, and $1.2 million related to the previously disclosed termination of a legacy pension plan. Please note we're in the final stage of this termination of this pension plan and expect an additional $4.5 million pre-tax termination expense in the first quarter of 2025.

This additional $4.5 million is already captured in the AOCI line item at year-end and, as such, will have no material impact on tangible book value per share as it is simply a realization of the unrealized loss that is already in our equity account. We had a $13.7 million loan loss provision this quarter. Consistent with our commentary during the third quarter earnings call, our allowance to loans increased to 82 basis points. As Stu mentioned, we're within striking distance of the 90 basis points to 100 basis points medium-term target, which we expect to reach over the next six to nine months. Next, I'll provide some thoughts on the NIM trajectory and guidance for 2025. As I mentioned previously, given the timing of the securities repositioning, there was only a partial quarter benefit from the repositioning in the fourth quarter's NIM.

In addition, the timing of the rate cuts in the fourth quarter was such that the full quarter impact of the November rate cut was not fully realized in the fourth quarter margin. As such, we thought it would be helpful to provide the core NIM for the month of December, which includes the full benefit of the Federal Reserve rate cut in November, as well as the full impact of the securities repositioning. The monthly December core NIM was approximately 284. This is a good base NIM to use as you build out your models for 2025. The 25 basis point Federal Reserve rate cut in December should result in a 5-6 basis point NIM improvement for the first quarter of 2025.

Starting with the 2.84 core NIM for the month of December and adding the full impact of the December rate cut should get us close to 2.90 for the first quarter. Additional core deposit growth and loan repricing could add a few more basis points of upside to the first quarter NIM. As Stu mentioned, we have a line of sight towards a 3% net interest margin. Should the Federal Reserve cut rates again this year, we expect another 5-6 basis points in quarterly NIM improvement per 25 basis point rate cut. This assumes the behavior and deposits and loans hold for each subsequent rate cut and competition remains rational. Should the Federal Reserve not cut rates in 2025, we still have a pathway to increase NIM over time given the significant amount of backbook repricing.

To give you a sense of the significant backbook repricing opportunity in our adjustable and fixed-rate loan portfolios, in the second half of 2025 and the full year 2026, we have $1.9 billion of adjustable and fixed-rate loans across the loan portfolio at a weighted average rate of 3.95% that either reprice or mature in that timeframe. Assuming a 225 basis point spread on those loans over the forward five-year Treasury, we could see a 35-40 basis point increase in NIM from the repricing of these loans. Finally, and while we've previously only provided information on the back half of 2025 and full year 2026, as we look into the backbook for 2027, we have another $1.75 billion of loans that are at a weighted average rate of 4.25% that will lead to continued NIM expansion in 2027.

In summary, we see a pathway to a 3% NIM in 2025 and a NIM greater than 3.25% in 2026, with continued expansion in 2027 and approaching the 3.50% area. The impact of this enhanced NIM will no doubt increase our earnings power as time progresses. With respect to non-interest income guidance for 2025, we expect between $40 million-$42 million. Individual quarters may be impacted by the level of customer-related loan swap income. With respect to balance sheet growth, we expect period-end loan balances to grow in the low single-digit area in 2025, with growth more weighted towards the back half of 2025. As we mentioned previously, we are focused on gradually reducing our CRE concentration to the low 400s. Attrition in CRE and multifamily may mask some of the growth in our business loan portfolio in 2025 as it did in 2024.

However, we expect this trend to moderate by the end of 2025 and expect to return to a mid-single-digit growth profile in 2026. With respect to core cash non-interest expenses, our full year 2025 guidance is between $234 million and $235 million. This guidance takes into account our existing employee base. To the extent we add additional client-facing bankers after year-end bonuses are paid out, we could see an increase in expenses starting in the second quarter. But as we've demonstrated previously, we expect these bankers to pay for themselves and contribute to pre-tax income growth in a relatively short period of time. Finally, we expect a tax rate for the full year between 27% and 28%. With that, I'll turn the call back to Livia, and we'll be happy to take your questions.

Operator (participant)

Thank you. Ladies and gentlemen, to ask a question at this time, you will need to press star one one on your telephone and wait for your name to be announced. To withdraw your question, simply press star one one again. Please stand by while we compile the candidate roster. And our first question coming from the line of Mark Fitzgibbon with Piper Sandler. Your line is now open.

Mark Fitzgibbon (Managing Director)

Hey, guys. Good morning.

Stuart Lubow (President and CEO)

Good morning.

Mark Fitzgibbon (Managing Director)

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

Avinash Reddy (CFO)

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

Mark Fitzgibbon (Managing Director)

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

Stuart Lubow (President and CEO)

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

Avinash Reddy (CFO)

Yeah, Mark, if you look at 2024, we grew the business loan portfolio of $425 million for the year. So we're pretty happy with that, looking to build on that. And then on the CRE side, we were down around $350 million, multifamily and CRE together. And we're focused on getting the CRE ratio down to the low 400s, right? So some of that's going to the multifamily CRE is going to offset some of the business stuff the first half of the year. But as we exit 2025 and into 2026, maintaining that level of CRE, you should see the overall loan growth pick up at that point in 2026.

Mark Fitzgibbon (Managing Director)

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

Stuart Lubow (President and CEO)

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

Mark Fitzgibbon (Managing Director)

Thank you.

Avinash Reddy (CFO)

Thanks, Mark.

Operator (participant)

Thank you. And our next question coming from the line of Steve Moss with Raymond James, Your line is now open.

Steve Moss (Managing Director)

Good morning.

Stuart Lubow (President and CEO)

Hi, Steve.

Avinash Reddy (CFO)

Hey, Steve.

Steve Moss (Managing Director)

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

Avinash Reddy (CFO)

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

Steve Moss (Managing Director)

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

Avinash Reddy (CFO)

Yeah, it's a mix, Steve. I mean, we're starting with client needs to have DDA. If you have DDA, we're willing to pay a competitive rate on the money market side. As Stu said, we're tracking account activity. The difference with us is versus a lot of banks and our footprint is there's a lot of new activity coming into the bank and new customers coming in, which helps us be more aggressive on existing customer rates and looking at them one by one. I think I mentioned on our third quarter earnings call, we had a large municipal customer that we were paying a very high rate to. And we rationalized the size of that deposit over time because it didn't make sense for the bank. Same with the broker deposits.

I would say it's coming in between two and two and a half plus or minus on a blended basis in terms of deposits coming in because the new groups are bringing in DDA at a rate of around 40%. If you're paying a money market rate of plus or minus 4% to be competitive, you're looking at somewhere between two and two and a half in terms of the marginal cost coming in.

Stuart Lubow (President and CEO)

Yeah. And overall core deposits are in the 2%-2.05% range at this point.

Steve Moss (Managing Director)

Right. Okay. Great. No, I really appreciate that color there. And then just on credit here, just curious if you give some color around the charge-off that occurred this quarter. That would be helpful.

Avinash Reddy (CFO)

Yeah. Yeah, sure. Just kind of across the board, Steve, there's a mix across C&I, commercial real estate, and multifamily. No large credits in there. I think a lot of other banks have said this. I mean, it's important to look at charge-offs over an extended period of time. I think our charge-offs for 2024 were 17 basis points or 18 basis points, so all stuff that we've identified, our classified assets when we report our 10-K will be down. It's 30-90 days, pretty flat, basically, so not seeing any concerning trends at this point, so I'll just leave it at that for now.

Steve Moss (Managing Director)

Okay. Great. Well, I really appreciate the color and a nice quarter. Thank you, guys.

Avinash Reddy (CFO)

Thanks, Steve.

Stuart Lubow (President and CEO)

Thanks.

Operator (participant)

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

Stuart Lubow (President and CEO)

Hi, Chris.

Chris O'Connell (Director)

Hey. Morning. How are you, Stu?

Stuart Lubow (President and CEO)

Hey, Chris.

Chris O'Connell (Director)

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

Avinash Reddy (CFO)

Yeah. Look, I think what we said, Chris, and we communicated this when we did the equity offering. We've pretty much paid off most of our wholesale funding at this point. The FHLB position is around $500 million-$600 million plus or minus. Of that, $500 million is medium to longer term, which we don't expect to pay off at this point. The broker deposits are probably around $300 million-$400 million plus or minus. So there's not a lot of room to continue to pay off wholesale deposits and borrowings over the course of the year. Q4 was a bit of an anomaly. As I said, we had some municipal deposits come in every year at the end of the year. In addition, we had a couple of large title companies put in deposits then. So the normalized cash position is probably $350 million-$400 million, lower than that.

Look, I think we're being judicious on securities purchases. We did do a repositioning in the fourth quarter, obviously, on securities where we restructured on $400 million. I think, look, having a little bit more cash is not a bad thing. It helps position the bank to the extent that the Fed doesn't cut rates or the Fed goes in another direction. So I think we're trying to manage our asset sensitivity with the cash position. And over time, we'll put it to work on the loan side. We're not rushing in to do anything all at once. So it does have a little bit of drag on the margin, obviously. But I think we're willing to live with that, just given the additional flexibility it provides the bank over time.

Chris O'Connell (Director)

Great. So it sounds like that might stick around for a little bit. And then on the loans, just curious, it seems like there's a bigger headwind for the multifamily and CRE repricing and maturities in the second half of 2025. But you guys are indicating that their growth might be more impacted in the first half. Just curious on kind of the dynamics there.

Avinash Reddy (CFO)

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

After that, we'll be able to retain items and manage the balance sheet as appropriate.

Chris O'Connell (Director)

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

Avinash Reddy (CFO)

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

I think this time around is probably going to be more balanced in terms of how we look at the opportunity.

Stuart Lubow (President and CEO)

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

Chris O'Connell (Director)

Great. Appreciate it. Thank you.

Operator (participant)

Thank you. And our next question coming from the line of Manuel Navas with D.A. Davidson. Your line is now open.

Stuart Lubow (President and CEO)

Hi, Manuel.

Manuel Navas (Senior Research Analyst)

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

Avinash Reddy (CFO)

No, I mean, pretty similar, Manuel. I mean, obviously, customers, speaking from personal experience and because we're involved every day on the deposit rate movements, customers have some optical thresholds that they care about. If you were at 5%, you wanted 5% of the customer. And then if you are at 4%, you want 4%. I mean, if you're at 4.35%, you may be okay with 4.15%, right? So it's more, I think, customer psychology depending on where each one is. But the way we manage our bases, it's very segmented based on balances that they have and the weighted average rate. I will say the best environment for banks is if they're gradual 25 basis point cuts over every 90 days, right? We had 100 basis points swing pretty quickly. So customers were impacted fairly significantly, but they also got it on the way up, right?

So I think the best environment for all of us would be the Fed takes a pause and then comes back at some point in May or June and cuts 25 at that point. And then you'll be able to cut the rates again. If you continuously have a significant amount of cuts, you'll probably see more sticker price reaction from some. But I think us individually, it's a relationship bank, and we did pay on the way up, and we've been able to reduce costs on the way down.

Stuart Lubow (President and CEO)

Yeah. We've been very diligent on the way down in looking at individual customers and making the rate changes, including on the municipal side where we told everyone that you want a 100% beta on the way up. And we told them early on that on the way down, expect 100% beta as well. So look, most banks have been fairly rational through this most recent cycle. And I think we've been able to take advantage of that and hold to our guns. And as Avi said earlier, the fact that we are every month opening hundreds of new accounts and bringing on new customers gives us a lot more flexibility, right?

So we don't have to fight and pay up for every last dollar where a customer says, "Look, I can get X from this place or that place." And we basically can hold to our guns, and they can make a decision. And for the most part, they stay. And so we really haven't seen that much in the way of disintermediation as far as deposits on the rate side.

Manuel Navas (Senior Research Analyst)

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

Avinash Reddy (CFO)

Yeah. So I think what we've said previously on this is it probably will take every team three-to-four years to get to some type of steady state and they're continuously opening accounts. Look, every quarter, we've grown accounts and we've grown deposits. And when we look at the forward pipeline, we think there's additional room. I think it's hard to predict, Manuel, exactly where they're going to end up. But what we're trying to do is look at accounts and account opening activity, and they continue to make progress. Obviously, they've built a substantial book. It's $1.8 billion right now. I think over time, as our name gets out and our technology platform and some of the things we do for customers gets out, they may bring in additional new customers as well, not part of their existing book. So I think we're in a good spot.

As Stu said, branch-based deposits have stabilized. Our consumer deposits have stabilized, and we're looking at other teams as well. So I think we have a long runway on the deposit side in terms of growing that over time.

Stuart Lubow (President and CEO)

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

Manuel Navas (Senior Research Analyst)

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

Stuart Lubow (President and CEO)

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

Manuel Navas (Senior Research Analyst)

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

Avinash Reddy (CFO)

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

Stuart Lubow (President and CEO)

Yeah. You have to remember, I mean, the multifamily book has been a very solid book from a credit perspective, but it's the lowest-yielding loan asset that we have on the books. It's even at 4.49, which is the average yield on our multifamily book. It's even lower than our adjustable rate mortgage portfolio, one to four family portfolio. So I mean, so there's a good risk-adjusted asset there, but we also are looking at maximizing returns. So we think that 25%-30% is the right place to be. Although in this marketplace, obviously, rates have gone up quite a bit on the multifamily side, and it's a much more profitable asset than it was several years ago when it was commoditized pricing.

Manuel Navas (Senior Research Analyst)

Thank you both. Thank you for the commentary.

Avinash Reddy (CFO)

Thanks, Manuel.

Operator (participant)

Thank you. And as a reminder to ask a question, please press star one one. Our next question coming from the line of Matthew Breese with Stephens Inc. Your line is now open.

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

Stuart Lubow (President and CEO)

Sure. So on the pipeline right now, the average rate on the pipeline is 775. The C&I portfolio is at a weighted average rate of about 760. And the owner-occupied CRE is about 720. And the healthcare is right around 750 as well. We only have in the entire pipeline, we only have $9 million of multifamily and about $60 million in investor CRE. So the 750 pipeline is really weighted toward the C&I owner-occupied CRE and healthcare.

Avinash Reddy (CFO)

And then, Matt, just on the payoff speeds, look, we track this every single quarter. The multifamily payoff speeds in Q4 were a little higher, actually. It was around 10%. The prior quarters, we were probably averaging closer to 6%-7% plus or minus. On the investor CRE, it's probably around 6%-7%. The payoff speeds at this point are pretty consistent with what the prior quarters were. We did see some elevated payoffs in our business loans at year-end, just customers selling businesses, just normal activity. That was actually 20% in Q4. That's a bit higher than what we traditionally see because in that business portfolio, it's probably closer to 8%-10% because those are just customers that were retaining over time.

So if we didn't have that 20% payoff in that portfolio in Q4, loans would have ended up closer to $11 billion at the end.

Stuart Lubow (President and CEO)

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

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

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

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

Avinash Reddy (CFO)

Sure. Yeah. Nothing significant, Matt, on both. Look, we track our classifieds very closely. Like I said in the prepared remarks, classifieds are down. We don't have a lot of maturities in the first half of this year. I think maturities pick up in a stair-step approach starting the second half of the year. But really not seeing anything. Nobody's really coming in and asking for new deferrals or modifications at this point. Those levels are pretty steady at this point. I think we know what we have. I would just say for the charge-off item, look, it's hard to predict charge-offs over time. I think we've done a good job identifying what loans are substandard. So we know where we have issues over time. In an individual quarter, it may be up or down.

It could also be, look, you may reach a decision point on certain credits saying, "Look, it's better for us to exit these credits at this point," especially as you have third-party investors and non-banks stepping up in those markets. So I'd say probably entering the point in the cycle that charge-offs are not going to be zero, basically. I mean, for the full year, our charge-offs were, I think, 17 basis points last year. So a range between 20 and 30 basis points is a reasonable range for a commercial bank, and that's probably where we expect to be for next year. So hopefully that helps in terms of color, but not really seeing anything out of the ordinary at this point.

Stuart Lubow (President and CEO)

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

Great. And then last one for me. Avi, I was hoping you could discuss deposit growth for 2025 a little bit. I'm sorry if I missed that. The composition is also important. And so I was hoping you could just touch on how you think non-interest-bearing deposit growth will look next year.

Avinash Reddy (CFO)

Yeah. So one thing we've seen, Matt, is just the stabilization in consumer deposits at the bank. We probably have around 30%-35% of our book as consumer. I'd say 2022 and 2023 and even the first half of 2024, we saw outflows on that, and we saw outflows on the DDA side as consumers wanted to get a higher rate, right? So I think that should help because that was masking some of the business growth that we saw. I mean, look, in 2024, we grew business deposits by, I think, $1.7 billion plus or minus as the teams really started to ramp up. So I would say we continue to see new accounts coming in, new deposits. We expect to grow the deposit base this year.

We've got back up to 30% in terms of the DDA percentage, and we'd like to keep it at that level and maybe grow it over time. I mean, still a high-rate environment, so it's very hard to grow DDA. So I wouldn't project the DDA base to getting to 35% at the end of one year, but we'd like to continue to see that creeping up slowly over time. And the stuff that's coming in has a nice component of DDA. So I'd say the DDA percentage stable to up from here, hopefully. And in terms of overall deposit growth, I think we should see pretty solid growth in 2025, at least based on accounts that we've opened and the pipelines that we have.

Sorry. Just last one is thoughts on deposit betas in 2025?

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

Obviously, if the Fed does not cut rates, it's going to be harder for banks to cut rates additionally going forward.

I appreciate you taking all my questions. Thank you.

Thanks, Matt.

Operator (participant)

Thank you. And I see we have a follow-up question from Manuel Navas. Your line is now open.

Stuart Lubow (President and CEO)

Hi, Manuel.

Manuel Navas (Senior Research Analyst)

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

Avinash Reddy (CFO)

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

Manuel Navas (Senior Research Analyst)

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

Avinash Reddy (CFO)

Yep.

Operator (participant)

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

Stuart Lubow (President and CEO)

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

Operator (participant)

Ladies and gentlemen, that concludes the conference for today. Thank you for your participation, and you may now disconnect.