Sandy Spring Bancorp - Q2 2024

Executive Summary

• Q2 2024 delivered sequential improvement: EPS rose to $0.51 (core $0.54) on higher net interest income, stronger fee income, and lower credit provision; NIM expanded 5 bps QoQ to 2.46% as deposit costs stabilized and asset yields inched higher.
• Core deposit momentum and mix improvement continued: total deposits grew 1% QoQ (+$113M), noninterest-bearing deposits rose 4% QoQ (+$114M), and brokered CDs were reduced $155M; core deposits were 94% of total (vs. 93% in Q1).
• Credit remained manageable though mixed: NPLs increased to 0.81% (0.74% in Q1) largely in owner-occupied CRE, but net charge-offs were minimal (0.01% annualized); ACL/loans ticked up to 1.10% (coverage 135% of NPLs).
• 2024 outlook reiterated/updated: NIM 2.45%-2.55% with “modest” QoQ expansion (2–4 bps/quarter), expenses raised to $68–$70M per quarter (from $66–$68M), deposit growth lifted to mid/high-single digits; CET1 “low 11% area”.
• Street estimates from S&P Global were unavailable for SASR; assessment is versus prior quarter and prior year (cannot declare a beat/miss).

What Went Well and What Went Wrong

• What Went Well

  • Deposit franchise and funding quality improved: total deposits +1% QoQ, noninterest-bearing +4% QoQ; brokered CDs down $155M; core deposits 94% of total.
  • NIM inflected higher: 2.46% vs. 2.41% in Q1, driven by 2 bps higher earning-asset yields and 3 bps lower interest-bearing liability costs; management expects ongoing 2–4 bps QoQ expansion absent Fed moves.
  • Fee momentum: wealth management +$0.5M QoQ on AUM growth/markets; mortgage banking +$0.2M; BOLI +$0.7M (mortality-related).
  • Management tone positive on profitability trajectory: “We have steadily improved our profitability and fully intend to maintain this trajectory” — Daniel J. Schrider.

• What Went Wrong

  • Asset quality mixed: NPLs/loans rose to 0.81% from 0.74% on a few owner-occupied CRE loans placed on nonaccrual; ACL coverage to NPLs declined to 135% from 146%.
  • Efficiency still elevated: GAAP efficiency ratio 68.19% (down QoQ but up YoY), reflecting a still-pressured revenue base versus prior-year period; non-GAAP 65.31%.
  • Year-over-year revenue pressure persists: net interest income down 11% YoY; NIM down 27 bps YoY on deposit cost competition and mix shift to interest-bearing categories.
  • Regulatory/adverse classification: $144M moved to special mention and $19.5M to substandard per portfolio review (minimal delinquencies, limited reserve impact ~ $0.9M), highlighting ongoing CRE risk management.

Transcript

Operator (participant)

Hello, and welcome to the Sandy Spring Bancorp Incorporated Earnings Conference Call and Webcast for the second quarter. My name is Elliot, and I'll be coordinating the call today. If you would like to register a question during today's event, please press star followed by one on your telephone keypad. I would now like to hand over to Aaron Kaslow, General Counsel and Chief Administrative Officer. Please go ahead.

Aaron Kaslow (General Counsel and Chief Administrative Officer)

Thank you, Elliot. Good afternoon, everyone, and welcome to Sandy Spring Bancorp's second quarter earnings conference call. Today, I am joined by Dan Schrider, Chair, President, CEO, and Charlie Cullum, Chief Financial Officer. I'd like to remind listeners that remarks made during today's calls may include forward-looking statements which are subject to risks and uncertainties. These forward-looking statements include statements of goals, intentions, earnings, and other expectations, estimates of risks and future costs and benefits, assessments of expected credit losses, assessments of market risk, and statements of the ability to achieve financial and other goals. These forward-looking statements are subject to significant uncertainties because they are based upon or affected by management's estimates and projections of future interest rates, market behavior, other economic conditions, future laws and regulations, and a variety of other matters which, by their very nature, are subject to significant uncertainties.

Because of these uncertainties, Sandy Spring Bancorp's actual future results may differ materially from those indicated. In addition, the company's past results of operations do not necessarily indicate its future results. I'll now turn the call over to Dan.

Dan Schrider (Chair, President, and CEO)

Thank you, Aaron, and thanks to everyone for joining us today. I'll begin today's call by discussing some of our results for the quarter and then turn it over to Charlie. I will follow with some commentary and subsequently open up the call for your questions. In the second quarter, we successfully grew core deposits and C&I loans, while also improving the net interest margin. In addition, we prudently managed expenses. We reported net income of $22.8 million, or $0.51 per diluted common share for the second quarter of 2024, compared to $20.4 million or $0.45 per diluted common share for the first quarter, and $24.7 million or $0.55 per diluted common share for the second quarter of last year.

Core earnings for the current quarter were $24.4 million or $0.54 per diluted common share, compared to $21.9 million or $0.49 per diluted common share for the previous quarter, and $27.1 million or $0.60 per diluted common share for the second quarter of last year. The increase in net income and core earnings compared to the previous quarter was driven by higher non-interest income and net interest income, which improved the net interest margin for the first time in several quarters. Additionally, second quarter results benefited from a lower provision for credit losses, which declined to $1 million from $2.4 million for the first quarter of this year.

The provision for credit losses directly attributable to funded loan growth or the funded loan portfolio, I should say, was $3 million for the second quarter of 2024, compared to $3.3 million for the linked quarter. The second quarter provision mainly reflects higher individual reserves on collateral-dependent loans, overall growth of the loan portfolio, and lower qualitative adjustments due to the reduction in commercial real estate loans. The reserve for unfunded commitments declined by $1.9 million, a result of higher utilization rates on lines of credit during the quarter. Turning our attention to the balance sheet, total assets increased to $14 billion at the end of the second quarter, compared to $13.9 billion at March 31st, 2024.

As of June 30, total loans increased by $119.6 million, or 1%, to $11.5 billion compared to the previous quarter. Commercial business loans and lines grew $91.9 million or 6%. For the remainder of 2024, we expect funded loan production to continue to be in the range of $200 million-$250 million per quarter, and based on pipelines, we expect commercial loan growth of 1%-2% per quarter. Consistent with our strategy, the commercial investor real estate segment declined by $64.5 million or 1% as compared to the first quarter of this year. Total mortgage and consumer loan portfolios remained relatively unchanged in the second quarter compared to the first quarter of 2024.

As you refer to the supplemental information we also released this morning, pages seven through nine provide more detail on the composition of our loan portfolios, data related to specific property types in our commercial real estate portfolio, and specific commercial real estate composition in the urban markets of D.C. and Baltimore. Slide 16 through 20 of the supplemental deck provide a detailed commercial real estate overview for our retail, multifamily, office, flex/warehouse, and hotel portfolios. As you review the data on these slides, you will notice an increase in criticized loans in each portfolio. In response to regulatory guidance issued last year, and due to our continued focus on portfolio management, we reassessed commercial credits where cash flow fell short of covenants, despite having satisfactory payment performance.

Based on this review, we recategorized $144 million to special mention and $19.5 million to substandard. There are minimal delinquencies within these credits, as repayment has continued to be supported by strong sponsors or guarantors, and the reclassification had an impact of $900,000 on the allowance for loan losses, but no loans required specific reserves. As we also note in these slides, we are lending in our primary market that we know well. We have five accruing delinquent credits among the five portfolios referenced in the supplemental deck and only a handful of non-performing loans that have been subject to early identification and appropriately reserved.

We continue to focus on our portfolio management, including staying close to our clients, assessing credits that are subject to repricing throughout the year, closely monitoring other portfolios, and evaluating the need for specific reserves should credit show further deterioration. Now I'll turn it to Charlie, who will walk through other aspects of our financial results.

Charles Cullum (CFO)

Thanks, Dan. It's good to be with you today. Moving to deposits, we continue to grow core funding and reduce brokered time deposits during the second quarter of 2024. Total deposits increased $113 million, or 1%, to $11.3 billion at June 30th, compared to $11.2 billion at the end of the first quarter. Non-interest bearing deposits increased $113.5 million, or 4% compared to the first quarter, driven by commercial and small business checking accounts. Interest bearing deposits were relatively unchanged. Money market grew $167.6 million, or 6%, and savings accounts grew by $99 million, or 6% during the second quarter.

These increases were offset by the $172.5 million, or 7% reduction in time deposits, of which $154.7 million was a reduction in brokered time deposits. Excluding brokered deposits, core deposits increased by $271.2 million, or 3% compared to the prior quarter. Core deposits represented 94% of total deposits at the end of the quarter, as compared to 93% in the prior quarter. The deposit growth during the quarter resulted in a loan-to-deposit ratio of 101% at June 30th, 2024. Total uninsured deposits at the end of the quarter were approximately 36% of total deposits. Total borrowings were relatively unchanged at June 30th as compared to the previous quarter.

Contingent liquidity, which consists of available FHLB borrowings, Fed funds, funds through the Federal Reserve Bank's discount window, as well as excess cash and unpledged investment securities, totaled $6.3 billion, or 154% of uninsured deposits. Non-interest income for the second quarter of 2024 increased by 7% or $1.2 million compared to the linked quarter and grew by 14% or $2.4 million compared to the prior year quarter. The main drivers of the linked quarter increase in non-interest income were twofold: a $700,000 increase in BOLI income due to the receipt of death proceeds and a $500,000 increase in wealth management income. This increase was due to $50.2 million, or 1% growth in assets under management during the quarter.

Through June, wealth management income accounts for approximately 54% of the bank's total non-interest income. Income from mortgage banking activities increased 18% on a linked quarter basis. Our expectations for mortgage banking revenue for the third quarter of 2024 are in the range of $1 million-$1.5 million. Net interest margin was 2.46% for the second quarter of 2024, compared to 2.41% for the first quarter of 2024. The linked quarter improvement in the margin was a result of a 2 basis point increase in the yield on interest-earning assets, coupled with a 3 basis point decline in the rate paid on interest-bearing liability. We will continue to employ a disciplined approach to pricing in order to improve the net interest margin.

Absent action by the Fed, we believe that our margin will be expanding throughout the remainder of 2024 by 2-4 basis points per quarter. We anticipate that the Federal Reserve will cut interest rates later in the year with 4 rate cuts next year, which should accelerate our margin expansion during 2025 towards a low 3% margin by the end of 2025. Non-interest expenses for the current quarter were flat compared to the linked quarter at $68.1 million. You may see a slight increase in expenses in the second half of the year, and we look to manage in the range of $68 million-$70 million per quarter. This anticipated increase in expenses is in part due to our recent investments in building our SBA team, which Dan communicated on the call last quarter.

We're ahead of schedule with both hiring talent for this new program and building out the necessary infrastructure. While this will contribute to slightly higher expenses in the latter half of the year, we anticipate that the program will contribute to our non-interest income by year-end. Shifting to credit quality, the level of non-performing loans to total loans at the end of the second quarter of 2024 was 81 basis points, compared to 74 basis points at March 30, 2024. This one-quarter increase was due to a few loans within the owner-occupied commercial real estate segment that were placed on non-accrual status during the current period. All of these loans are well secured. Non-performing loans totaled $93 million at the end of the quarter, compared to $84.4 million at March 31, 2024.

Total net charge-offs for the second quarter were $200,000, compared to $1.1 million for the first quarter of 2024. At June 30, 2024, the allowance for credit losses was $125.9 million, or 1.1% of outstanding loans, and 135% of non-performing loans, compared to $123.1 million, or 1.08% of outstanding loans, and 146% of non-performing loans at the end of the previous quarter. The increase in the allowance for the second quarter of 2024 compared to the previous quarter reflects higher individual reserves on collateral-dependent non-accrual loans and overall growth of the loan portfolio during the quarter.

These are somewhat offset by lower qualitative adjustments that have resulted from reduced levels of commercial real estate loans. Our CRE-to-capital ratio declined to 346% at quarter end from 348% as of March 31. At June 30, 2024, the company had a total risk-based capital ratio of 15.49%, a Common Equity Tier 1 risk-based capital ratio of 11.28%, a Tier 1 risk-based capital ratio of 11.28%, and a Tier 1 leverage ratio of 9.7%. These ratios remain well in excess of the minimum regulatory requirements. The improvements in our capital ratios over the previous quarter were due to a decline in our risk-weighted assets during the quarter.

This was a result of a management review of our unfunded consumer lines of credit, and the position is consistent with regulatory guidelines. With that, I will turn it back to Dan to talk about some things we see on the horizon.

Dan Schrider (Chair, President, and CEO)

Thanks, Charlie. I'd like to wrap up our prepared comments by reiterating our key priorities. We remain focused on improving our profitability, continuing to bolster core funding, managing expenses, and enhancing credit portfolio management while also reducing our commercial real estate exposure. Teams across the organization are challenging the status quo. We're focusing on innovation and performance to better serve our clients. The Greater Washington, D.C. metro area is a vibrant market characterized by positive growth trends and ample opportunity. So we continue to expand both on our capabilities and our offerings to increase market share, and our new SBA lending program we mentioned earlier is just one example of that. I'm pleased with the company's stability and positive momentum, and I look forward to building on those accomplishments. So at this time, Elliot, we'll turn it over to you, so we can take your questions.

Operator (participant)

Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If you would like to withdraw your question, please press star followed by two. When preparing to ask your question, please ensure your device is unmuted locally. First question comes from Catherine Mealor with Keefe, Bruyette & Woods. Your line is open. Please go ahead.

Catherine Mealor (Managing Director)

Thanks. Good afternoon.

Dan Schrider (Chair, President, and CEO)

Good afternoon, Catherine.

Catherine Mealor (Managing Director)

The commentary on the margin for the back half of the year I thought was helpful. It's good to see some expansion in that. Can you just talk to us a little bit about some of your assumptions within that, particularly on the funding side? It feels like you feel like you're near a peak in deposit costs and actually could see a decline in deposit costs before we get to rate cuts, or how are you kind of thinking about how deposit costs will trend?

Charles Cullum (CFO)

Hi, Catherine. It's Charlie.

Catherine Mealor (Managing Director)

Hey, Charlie.

Charles Cullum (CFO)

We certainly have come close to a peak and. Hi, how are you? We've certainly gotten close to a peak in deposit costs. Our deposit costs for the month of June were 3.46, compared to. Sorry, I read the wrong number. Our deposit costs for the month of June were 3.56, compared to 3.54 in the quarter. So they were up a little bit, but overall, our earning asset yields continue to expand. So our projection would be that they come close to leveling off. We may see 1 basis point or 2 increase in total deposit costs here over the next couple of quarters, at least until the Fed begins to cut interest rates.

But we should see some corresponding decreases in our wholesale funding through advances and other Fed funds purchase, which should offset some of those costs. And that's really where we're getting that improvement in margin from. So a few basis points improvement in the overall earning asset yield and pretty stable on the total cost of interest-bearing liabilities, getting us to a couple basis points to a few basis points of margin expansion.

Catherine Mealor (Managing Director)

Okay. Okay, great. And then can you remind us and quantify the fixed rate repricing opportunity we've got in the back half of the year and maybe in 2025 as well?

Charles Cullum (CFO)

Yeah. So, our – if we're looking at total commercial loans, we've got the next two quarters, the third quarter of 2024 and the fourth quarter, have right around $500 million in total each quarter of repricing, and those rates are repricing from the mid to upper sixes. So you're not gonna see significant improvement in loan yields as a result of the repricing in the second half of the year. But then as we head into 2025, the rate on repricing falls into the mid sixes, and then by early 2026, the repricing rate falls into the upper fives to low sixes. So we'll see a gradual improvement over that period of time in loan yields as those loans reprice.

Catherine Mealor (Managing Director)

Okay, great. And if I could just add one more on credit. You talked about the credits that you moved to special mention and substandard. Is part of the assumption in why there's not additional reserve needed or there's a low risk of loss, is the rate outlook kind of a piece of that? And if we were in a higher for longer rate scenario, do you believe there would potentially be more stress in these projects? Just some kind of commentary on what gives you comfort that there's not a lot of loss content in those credits.

Dan Schrider (Chair, President, and CEO)

Yeah, Catherine, this is Dan. I wouldn't say that the rate outlook was a catalyst for those moves. I think it was more of what we're seeing in the here and now, and it's not. There isn't one aspect of those credits that would drive those decisions. In some cases, it might be a project that had come out of the ground recently, and we're waiting for it to stabilize, and, you know, the sponsors and guarantors are covering it, or some short-term lease turnover that created a fall below covenant level.

I do think if rates stay higher longer on some of the projects that we have in our construction portfolio that will come, you know, on the market here in the next, you know, quarter, few quarters or so, that could have an impact on those, 'cause those are generally floating-rate assets that could certainly use the relief of some Fed cuts.

But that was not a driver. I think that, you know, the overall assessment of those loans is recognizing that they're below covenant. It's in line with kind of the Fed guidance that they laid out about a year ago, in terms of how we should be looking at those, and then assessing the overall project, underlying collateral, if it's a collateral-dependent loan, and that's causing us to not be concerned about where we stand from a reserve standpoint today. But we'll continue to stay close to it. If something, you know, things change, then our customary portfolio management practices would have us, you know, do valuations and appraisals and the like, and we're not seeing a number of credits kind of going toward that direction.

Catherine Mealor (Managing Director)

Great. Did you have to get updated appraisals on the credits when you moved them?

Dan Schrider (Chair, President, and CEO)

No, we do not. No.

Catherine Mealor (Managing Director)

Okay. So,

Dan Schrider (Chair, President, and CEO)

We'll selectively do that. Yeah.

Catherine Mealor (Managing Director)

Got it. Okay. Okay, that makes sense. Okay, great! That's all I got. Thank you very much.

Dan Schrider (Chair, President, and CEO)

Thanks, Catherine.

Operator (participant)

Our next question comes from Russell Gunther with Stephens. Your line is open. Go ahead.

Russell Gunther (Managing Director and Equity Research Analyst)

Hi, good afternoon, guys.

Dan Schrider (Chair, President, and CEO)

Hey, Russell.

Russell Gunther (Managing Director and Equity Research Analyst)

Hey, I just wanted to follow up on comments you made with regard to the RWA optimization in the quarter. Could you guys provide us with the size of the loan pool that that applied to, and then whether or not there's opportunity for similar actions going forward?

Charles Cullum (CFO)

Hi, Russ, this is Charlie. Yeah, we started a project during the quarter to look at risk-weighted assets and how we're classifying our various asset classes, you know, within that risk-weighted asset assignments. And so far, the one item we changed during this quarter was related to consumer loans, specifically home equity lines of credit, where we had them classified as conditionally cancelable, so that they carried the unfunded commitment portion of those credits carried a 50% risk weighting. However, FDIC guidelines allow you to classify them as unconditionally cancelable as long as they are cancelable up to federal law, which is Reg Z.

We did an internal legal review, worked with our auditors, and determined that our equity line of credit population should be classified as unconditionally cancelable and carry a 0% risk weighting, at least for the majority of those credits. That pooled a little over $700 million, so it was about a $360 million reduction in risk-weighted assets during the quarter. We'll continue to work through the project to look at a variety of other risk-weighted asset classes to determine if any other changes are needed, with those changes taking effect sometime during the third quarter.

Russell Gunther (Managing Director and Equity Research Analyst)

Okay. That's really helpful. Thank you. And then I wanted to circle back to Catherine's question earlier in terms of the fixed repricing. You guys gave a lot of helpful color in terms of the rate in 2025 and 2026. I'm wondering if we could follow up in terms of the amount of the fixed repricing opportunity. Is it similar to the $500 a quarter in the back half of this year?

Charles Cullum (CFO)

Sure. That's a good, good question. As we head into 2025, the amount of repricing is between $200 million and $300 million per quarter, so it certainly falls a bit. We've got a little bit of a bubble of repricing that'll occur here in the next two quarters. But then somewhere in the $200 million-$300 million per quarter range on the total commercial loan portfolio.

Russell Gunther (Managing Director and Equity Research Analyst)

Okay. Thank you for that. And then-

Charles Cullum (CFO)

Yeah

Russell Gunther (Managing Director and Equity Research Analyst)

... last one for me, guys, is the-- Oh, sorry, go ahead.

Charles Cullum (CFO)

I was just going to say, that is-

Russell Gunther (Managing Director and Equity Research Analyst)

Oh, I'm sorry.

Charles Cullum (CFO)

... specifically related to the fixed rate. There will be additional-

Russell Gunther (Managing Director and Equity Research Analyst)

Okay

Charles Cullum (CFO)

... repricing related to floating and adjustable credits.

Russell Gunther (Managing Director and Equity Research Analyst)

Thanks for the clarification. The last one for me is on the fee outlook, which I think for the year, you've got it high single digits. You mentioned the mortgage outlook for 3Q. Anything else that you would expect to step down? Otherwise, it looks to me like, you know, potentially could be closer to low double digits, maybe being conservative or maybe something I'm missing. Would just appreciate any, any thoughts. Thank you.

Charles Cullum (CFO)

No, I mean, I think double digits are certainly possible. Certainly on the wealth side, the market is highly market dependent. Here recently, the market's performing really well. So, those areas will perform well as well. Obviously, the BOLI income we received during the quarter was one-time income with no anticipation that that could recur. And then we do have some expectation that we'll see some of those SBA gains start to occur during the fourth quarter. We're just not confident if they're gonna be a fourth quarter event or a first quarter event at this time. So I think your comments around high single digits, high single digits to low double-digit improvement, somewhere in that range is likely.

Russell Gunther (Managing Director and Equity Research Analyst)

Okay. I appreciate your thoughts, guys. Thanks for taking my questions.

Charles Cullum (CFO)

Thanks, Russell.

Operator (participant)

As a reminder, if you'd like to ask a question, please press star one on your telephone keypad now. We now turn to Manuel Navas with D.A. Davidson. Your line is open. Please go ahead.

Manuel Navas (Senior Research Analyst)

Hey, good afternoon. Could you update on some of the deposit initiatives that are kind of driving a little bit better guidance, strong, strong growth this quarter and last? Where are you seeing the most success?

Dan Schrider (Chair, President, and CEO)

Hi, Manuel, this is Dan. There's not one specific area. We're seeing success really across the board as our folks in our branch network are out, you know, driving deposit growth through their client relationships. We're having success with our digital marketing and digital fulfillment through our online platform. Our commercial bankers are continuing to mine our client relationships there and driving new client deposits. And one thing we talked about last time we were together, I believe, was some initiatives we had in reaching into the new clients that we attracted through our high-yield savings account. And we developed some products for that segment.

Hasn't hit the ground as well as we had expected, so we're tweaking the products as well as the promotion to get more success in turning those into full banking relationships. But there's not one initiative underway that's driving our success. I think it's really across the board. The teams are fully engaged on driving new relationships through both branches and through digital means.

Manuel Navas (Senior Research Analyst)

And that's sharp. That's showing in better pipelines and kind of a little bit increased deposit outlook for the year?

Dan Schrider (Chair, President, and CEO)

I think overall, yes. I think the one thing that, you know, came back to us a good bit in the second quarter was the commercial and small business DDAs. So we're-- that's-

Manuel Navas (Senior Research Analyst)

Yep.

Dan Schrider (Chair, President, and CEO)

There's some seasonality in that inter quarter, but driving new relationships both in the retail and small business space.

Manuel Navas (Senior Research Analyst)

Okay. And then, can you talk about the mix of loan growth, you know, that 1%-2% growth? It's gonna be primarily on the C&I side?

Dan Schrider (Chair, President, and CEO)

I would say, yeah, the pipeline, this coming out of last quarter, just to give you a sense, first quarter pipeline was in the mid-$600 million range. This quarter, as we wrap up, is in the low $800 million range. So we're seeing some pipeline build, and it is predominantly, C&I and owner-occupied real estate, which is closely tied to those C&I relationships. We will still see some growth by virtue of, what we already have on our books in the AD&C portfolio that we'll fund, in residential home building construction, as well as some other, multifamily that we have in the AD&C book that we'll still continue to fund. But the pipeline of new opportunities is predominantly C&I and owner-occupied real estate.

Manuel Navas (Senior Research Analyst)

Hey, could you just speak to the pace and acceleration of pace of NIM improvement with the rate cuts? I think you talked about it in your comments that you could get to 3%+ by the end of next year based on your rate assumption. So that builds in a little bit of acceleration of NIM improvement. Is that still represented in those comments?

Dan Schrider (Chair, President, and CEO)

Yeah. So we do expect that once the Fed begins to cut interest rates, we'll see some improvement. We'll say we're a little more cautious about the first rate cut or so, and whether you know, pricing across the board in our marketplace is gonna come down enough for us to be as aggressive on our deposit betas as we'd like to be early on. But we do expect once the Fed you know, makes to the second, third cut that those betas will be much higher than we've historically seen within our portfolios. Quite a bit of the benefit that we expect to see from the Fed movements is related to changes in the shape of the yield curve. So that's one thing to be cautious with.

If the overall yield curve comes down, so the long end comes down right with the short end, the benefit won't be as great as what we're projecting. It would be a little bit more difficult for us to achieve that 3% by the end of 2025. But certainly, falling deposit costs, and then just continued repricing of the loan portfolio at yields similar to where they are today, or even slightly lower, would allow our margin to expand at pretty close to twice the rate that it would without Fed cuts.

You'd be looking, you know, somewhere in the maybe 5-10 basis point range of quarterly improvement, once we can start pulling those deposit costs down versus the 2-4 basis points of quarterly improvement, that we're projecting absent movement by the Fed.

Manuel Navas (Senior Research Analyst)

That's really helpful. Thank you. I'll step back into the queue.

Operator (participant)

Ladies and gentlemen, we have no further questions, so this concludes our Q&A and today's conference call. We'd like to thank you for your participation. You may now disconnect your lines.