S&T Bancorp - Q3 2024
October 17, 2024
Transcript
Operator (participant)
Welcome to the S&T Bancorp third quarter 2024 conference call. After management's remarks, there will be a question and answer session. Now, I would like to turn the call over to Chief Financial Officer, Mark Kochvar. Please go ahead.
Mark Kochvar (CFO)
Great. Thank you, and good afternoon, everyone, and thank you for participating in today's earnings call. Before beginning the presentation, I want to take time to refer you to our statement about forward-looking statements and risk factors. This statement provides the cautionary language required by the Securities and Exchange Commission for forward-looking statements that may be included in this presentation. A copy of the third quarter 2024 earnings release, as well as this earnings supplement slide deck, can be obtained by clicking on the Materials button in the lower right section of your screen. This will open up a panel on the right where you can download these items. You can also obtain a copy of these materials by visiting our investor relations website at stbancorp.com. With me today are Chris McComish, S&T's CEO, and Dave Antolik, S&T's President.
I'd now like to turn the call and program over to Chris.
Chris McComish (CEO)
Mark, thank you, and good afternoon, everyone. I'm going to begin my comments on page three. I'd like to welcome everybody to the call. I certainly appreciate the analysts being here with us today, and we look forward to your questions. I also want to thank our employees, shareholders, and others listening in on the call. To our leadership team and employees, your commitment and engagement is what drives these financial results, and as I've said every quarter, these results are yours, and you should be very proud. Our performance this quarter reflects our continued progress centered on S&T's people-forward purpose and the connection of our purpose to our core drivers of performance.
Our drivers of performance are centered on the health and growth of our customer deposit franchise, consistently solid credit quality, strong core profitability, all of which are underpinned by the talent and engagement level of our teams, which lead to the results we're going to speak to today. To sum it up, we have made strong progress on all of our performance drivers, and in Q3, the continued growth of our deposit franchise and improving asset quality led the way to deliver very solid results for the quarter. Additionally, as you're aware, over the past few years, due to the results we've been able to deliver, we have been able to build a significant amount of capital. Our performance, combined with our strong capital levels, gives us real optimism as we head into the end of 2024 and into 2025.
We're excited about our prospects for growth while delivering for our customer, shareholders, and the communities that we serve. Turning to the quarter, our $33 million in net income equated to $0.85 per share, down slightly from Q3. Our return metrics were again excellent, with a 13.5% ROTCE, 1.35% ROA, and while our PPNR remains solid at 1.69%. It is important to note our PPNR was impacted by a little bit more than $2 million of securities losses that we proactively decisioned to help mitigate impacts of future declining rate environment. Our net interest income showed growth in Q2, while our net interest margin at 3.82% declined slightly but remained very strong.
Again, this is the direct result of another quarter of very solid customer deposit growth. Mark will provide more details on both our net interest income and our net interest margin in a few minutes. Asset quality continues to improve as we had another quarter of declining, improving ACL, and Dave is going to dive more deeply here in a few minutes. He's also going to touch on the pickup we are seeing in our loan pipelines and activity. Moving to page four, while loans did not grow during the quarter, it's a reflection of lower pipelines from earlier in the year, combined with a higher level of payoffs. On the deposit side, customer deposit growth was more than $100 million in the quarter, producing over 5% growth annualized. While some mix shift continued, overall DDA balances remained very strong at 28% of total balances.
The customer deposit growth allowed us to reduce wholesale and brokered deposits and borrowings by $150 million combined, which will obviously have a positive impact on our future net interest margin. I'm going to stop right there, and I'm going to turn it over to Dave, and he can talk a little bit more about the loan book and credit quality. Then Mark will provide more color on the income statement and capital. Following that, we'll have some questions, and I look forward to answering them. Dave, over to you.
Dave Antolik (President)
Thank you. Yeah, wonderful. Continuing with the discussion of our balance sheet, particularly as it relates to loan balance activities, we did see a reduction in balances of nearly $25 million for the quarter. This was primarily the result of reduced commercial loan balances of $76 million. And in the commercial segment, production in Q3 was just slightly lower than what we saw in Q2. What really impacted the balance reduction were payoffs that increased by nearly 50% in the quarter. These elevated payoff levels were driven by a continued demand for multifamily loans in the permanent market, slightly lower C&I utilization rates, and payoffs in our C&I portfolio as we manage asset quality.
It's very important to note that we do not anticipate this high level of commercial payoff activity in the coming quarter. During the quarter, we also experienced growth in all segments of consumer loans, with the exception of construction. When looking more closely at Q3 activity, production was slower early in the quarter and much stronger in September. We expect this positive growth momentum to carry forward into Q4. Looking forward and in support of a return to loan growth in Q4, our total pipeline has increased by over 50% quarter-over-quarter, primarily due to improved commercial, both in the CRE and C&I spaces. We've also seen an increase in the consumer pipeline as customer activity shifts from purchase to home equity.
If I can now direct your attention to page five of the presentation in order to discuss our asset quality results for the quarter. I'm starting with the allowance for credit losses, which declined by approximately $2 million and moved from 1.38% to 1.36% of total loans. This reduction was a result of several factors, including a decline in our non-performing assets of $3 million. As you can see, non-performing assets remain low at $31.9 million or 41 basis points of total loans. We also saw further declines in our criticized and classified assets of almost 3% during the quarter. This represents the fourth consecutive quarter of reductions in criticized and classified loans, and they have reduced by 17% year to date and 31% year-over-year.
Just as a reminder, these criticized and classified loans require higher levels of reserves. In addition, charge-offs for the quarter were in line with expectations at $2.1 million, up from the previous quarter's $400,000 net recovery. Finally, we anticipate loan growth in Q4 to be in the low- to mid-single-digit range, and we are targeting mid-single-digit loan growth for 2025. I'm gonna now turn the program over to Mark.
Mark Kochvar (CFO)
Great, Dave. Thanks. Next slide, we have the third quarter net interest margin rate at 3.82%, and that's down 3 basis points from the second quarter, while net interest income improved by $900,000 compared to last quarter, primarily due to an extra day. The impact of late September Fed rate decrease and the leading SOFR rate changes can be seen in the reduction of quarterly loan yield improvement to about 1 basis point in the third quarter, compared to 5-6 basis points per quarter in the first half of the year. We're also still experiencing an increase in cost of funds in the third quarter. That's driven by deposit mix changes and continued upward repricing activity throughout most of the quarter.
We did implement non-maturity deposit repricing in response to the Fed cut in late September, with CD rates being lowered earlier in the quarter. Strong customer deposit growth allowed for the reduction in more expensive brokered CDs of $126 million. Wholesale borrowings are down $25 million, but this did not happen until very late in the quarter, so the third quarter should represent the peak in our cost of funds as we expect this to decline going forward as our liabilities reprice. So looking ahead, we expect an additional 10-12 basis points of net interest margin compression from here. That assumes another 50 basis points of rate cuts or 100 basis points of cuts in total in 2024.
After that first 100 basis point cuts and as we move into 2025, we do expect to find an equilibrium net interest margin rate in the low three seventies, and that should happen early in the year. We anticipate that level to hold, even if rate cuts continue, as the market expects, throughout 2025. Support for that net interest margin stability, despite those further cuts, will come from favorable fixed and ARM loan and securities repricings, our receive-fixed swap ladder beginning to mature, a very short duration CD portfolio that will reprice, and an improving ability to implement non-maturity rate cuts as rates move lower. I'm moving on to non-interest income. Non-interest income declined in the third quarter by $1.4 million.
The quarter-over-quarter variance is related to two main things: securities repositioning and our Visa Class B1 shares. In the second quarter, we recognized a $3.2 million dollar fair value adjustment in the Visa stock and also repositioned about $49 million dollars of securities, taking a loss for approximately the same amount, that's $3.2 million dollars. So these two actions netted to zero. In the third quarter, however, we executed another securities repositioning, also for about $48-$49 million, but this time taking a loss of $2.2 million, but without an offset, like we had in the second quarter. Our normal non-interest income run rate remains approximately $13-$14 million dollars per quarter. Related non-interest expenses on the next slide, we saw an increase of $1.8 million in the third quarter compared to the second.
Two main things drove that. Salaries and benefits are higher, due to increased incentive payout expectations due to our performance. And in the data processing line, that's higher due to some timing related to some technology investments. We expect run rates in expenses to be $54-55 million per quarter. And lastly, on capital, TCE ratio increased by 64 basis points this quarter. A little over half of that, 36 basis points, was due to the AOCI improvement. Our TCE and regulated capitals, as Chris mentioned, positioning us very well for the environment and will enable us to take advantage of both organic and inorganic growth opportunities. Thanks very much. At this time, I'd like to turn the call back over to the operator to provide instructions for asking questions.
Operator (participant)
The floor is now open for questions. If you have any questions, please press star one on your phone. We ask that while asking your question, please pick up your phone and turn off speakerphone for enhanced audio quality. Please hold while we poll for questions.
Your first question comes from the line of Daniel Tamayo with Raymond James. Please go ahead.
Daniel Tamayo (VP)
Thank you. Good afternoon, guys.
Chris McComish (CEO)
Yeah, Dan.
Daniel Tamayo (VP)
Maybe... Yeah, maybe first on credit, where, you know, the story just continually gets better every quarter, seemingly for you guys. So, that's certainly good news. But, just curious now with NPAs down to the level they're at and net charge-offs seeming to slow, if you had updated thoughts on what would be kind of a more normalized or regular type of cadence for net charge-offs, or provision, however we should think about it going forward?
Dave Antolik (President)
Yeah, I think what you saw in the quarter would be closer to what I would call as normalized relative to the charge-off levels. And what we're hoping to see relative to provisioning is, as we return to loan growth, that we would, you know, need to keep provisioning in place to support that loan growth. We do think there is still room for us to improve, though. I mentioned the criticized classified asset. So I think about adversely classified assets generally, there's still room for improvement there for us. So the, you know, the ACL level may move as a result of those continued improvements.
Daniel Tamayo (VP)
Okay. All right, terrific. And then I guess just a clarification for Mark on the net interest margin guidance. So, you talked about a stabilization in the early 2025 in the three seventies, I think, low three seventies.
Dave Antolik (President)
Right
Daniel Tamayo (VP)
... even assuming further rate cuts. So I'm just curious, I guess if we didn't get those rate cuts, does that mean that margin would- you'd expect it to stabilize higher? Or, or I guess then, you know, get down to the low three seventies and, and rise from there? Or, like, you know, I'm just curious kind of what the embedded impact from rate cuts would be within that forecast that you're giving.
Dave Antolik (President)
Yeah, I mean, a lot of the finer details is going to depend on the timing and on the competition. But if the Fed moves a lot slower, I would expect it to take potentially longer to get to that stabilization point. And as you kind of alluded to, it probably would be slightly higher than the three seventies that we're looking at now with a much deeper cut.
Daniel Tamayo (VP)
Okay. Yeah, that, that makes sense to me. Okay. All right. Well, I will, I'll step back. Thanks, guys.
Dave Antolik (President)
Thank you, Dan.
Operator (participant)
Your next question comes from the line of Kelly Motta with KBW. Please go ahead.
Kelly Motta (Analyst)
Hey, good afternoon. Thanks for the question.
Chris McComish (CEO)
Sure thing, Kelly.
Kelly Motta (Analyst)
You know, it sounds like the pipeline is really strong, and you were impacted by some elevated payoffs and paydowns this quarter. I'm just wondering what gives you, you know, the confidence that that kind of headwind will slow? And how should we be thinking about, you know, the potential risk of that going forward with customers potentially looking to refi as rates come down?
Dave Antolik (President)
Yeah, well, as rates reduce, of course, customers will be looking at the potential to refinance. We do have rate protection in many of our loan products, you know, with prepayment penalties and make whole. So we're able to get ahead of those and understand when those maturities or rate changes occur, and the bankers have proactive conversations relative to those. And if we can get ahead of them, make sure that we understand what the impact is and what really what the customer desires and what's best for them, that you know that's our focus.
And then in terms of adding, you know, additional volume, we've seen some pretty good activity, as I mentioned at the end of Q3 that carries into, you know, beginning of Q4 here, relative to new customer calling activities.
Chris McComish (CEO)
Kelly, I think that, you know, it's-- this is Chris, but, you know, part of what we're hearing a lot from customers is many of them been waiting on the sidelines, either in the C&I space for capital expenditures, waiting to find out what's going to happen with the rate environment or some of our CRE customers. And having some better clarity around the direction of rates, I think is helping people be more confident to make decisions about future investment, which obviously leads to a bigger pipeline for us. So it may not be... While it was a little unusual to see the level of payoffs, some of it, as Dave talked about, was, you know, credit related for us, continuing to focus on credit quality and returns.
It also, you know, is going to help us, you know, the pipeline coming in was lower in the year, just simply because of what I would define as some uncertainty as to what people wanted understood about the future.
Kelly Motta (Analyst)
Got it. That's helpful. Maybe, maybe a bit of a housekeeping question for the model. Just looking at the average balance sheet, it looks like interest bearing cash was a bit elevated. Just wondering how we should be thinking about, you know, managing liquidity levels, and the size of the balance sheet. Was that, you know, because loan growth was a little slower and, you're expecting, you know, to deploy that, you know, as we look to Q4? Just, any color on, on managing the liquidities there and, how you guys are looking to optimize that?
Mark Kochvar (CFO)
... So on an average basis, we were a little bit high. I mentioned these brokered CDs that we paid off, and that happened at the very end of the quarter. So we knew that was coming, and it's our intent to pay those off. So we let some of the cash levels build, you know, that was coming from our customer deposit growth, so that we could pay those off, and not replace them at the end of the quarter. So on average, we did have a little bit higher cash, but I think it got to a more normal level if you looked at just the quarter endpoint.
Kelly Motta (Analyst)
Got it. Okay, that's really helpful, and then as we look ahead, you know, you're just under $10 billion in assets. Just wondering if you have any, you know, updated thoughts on, you know, potentially crossing next year, and how you guys are thinking about, you know, what potential levers do you have to offset that initial hit from Durbin?
Chris McComish (CEO)
Yeah, and some of it, obviously, is timing associated with Durbin. And as we've talked about before, Kelly, it's about $6- $7 million of initial impact. You know, normal, you know, loan growth, as we've talked about, kind of in that mid-single digit range, would put us there sometime in 2025. I have really no concerns from the standpoint of will we be able to absorb the kind of the additional regulatory oversight we've been building for that over the course of the past couple of years.
If you look, that's where a lot of, you know, some of our expense growth has come in, in enhancing all of our risk management, audit, compliance, BSA, AML, all of those areas that are critical to growing the franchise, whether we go over 10 billion or not. We recognize, you know, organically, it's $6 million-$7 million. That's a big reason why we're so focused on things like our treasury management initiatives and deepening some other forms of fee income to offset some of that, as well as just expanding our customer base. It's not a huge hit for us. You know, we made $33 million this quarter, so we're going to have to absorb it, but it's something that we'll be able to grow into.
And then, again, we believe that, you know, as you know, inorganic opportunities will present themselves, and we're preparing for that as well.
Kelly Motta (Analyst)
Got it. That's helpful. I'll step back. Thank you so much.
Mark Kochvar (CFO)
Thank you.
Chris McComish (CEO)
Thanks, Kelly.
Operator (participant)
Your next question comes from the line of Manuel Navas with D.A. Davidson. Please go ahead.
Manuel Navas (Analyst)
Hey, I appreciate the NIM outlook, but, could you just dive a little bit deeper into some of the assumptions there? You talked about some swaps. I'm interested in what you're assuming on loan and deposit betas, initially and maybe, through the cycle. Just any extra color you could add there as you build that 10-12 basis point decline, you know, into next year. It's not immediate, but just, just any extra color there would be really helpful.
Mark Kochvar (CFO)
Okay. So, I mean, overall, I mean, when I talk about the full 2024 and 2025, we're looking at, you know, an aggregate at two hundred basis point drop is kind of what we're modeling. That seems to be somewhat of a consensus from the market and the Fed. So, you know, going from, you know, the 550 to the three and a half. So that's kind of our baseline, Fed piece. So the declines that we have in the core rates, a lot of those are coming from how we're addressing the exception pricing book that we have. And so our goal there is to, as we go deeper into the tranches, to make deeper and deeper cuts on those lower levels of deposits.
So for example, in this initial cut, with the 50 basis points, we came close to the 50 basis points in the highest tranches, but there were some tranches lower that we didn't touch. So the deeper that we go into the rate stack over time, as rates get lower, the more we'll be able to, balances will be able to impact. And then eventually, we should be able to also change some of the rates that we have on our non-exception book. So with that sort of improving over the course of the year, the other piece, the swap book that you mentioned, we have about a $500 million receive-fixed swap ladder that we built as rates began to rise.
That starts to mature at the pace of about $50 million per quarter, starting in the first quarter. So we're underwater on those anywhere from 200 to 300 basis points. So as those mature, if we let those fully go, that will also provide some margin support that will show up really in the loan line versus in the deposit space. Then we also have the CD book that we've intentionally, over the course of this past year, have priced very short, like many others. So we do expect, we've already repriced that lower starting early September, late August. Most of those are going into the six-month area.
So over the course of the year, we expect to get, you know, a couple of price decline attempts out of those. And then on the securities and the fixed loans, you know, based on where those are repricing, there's still better rates with those being put on at higher rates or at the current rate levels versus what they're maturing at. So I can't tell you the exact betas, 'cause the betas are going to change over the course of that year. They're going to be a little bit higher or a little bit different going into the cycle and then improve as we are able to implement more of those deposit rate changes later in 2025.
Manuel Navas (Analyst)
That's really helpful color. How should I think about, like, end-of-period deposit costs this quarter? And you're kind of already saying this is the peak, so you're already expecting with the exception pricing moves you've made, deposit costs to decline next quarter.
Mark Kochvar (CFO)
Right. Yeah. I mean, you know, with the Fed moving so late in September, we moved within a few days after that, but really didn't see much of an impact. You know, the bulk of the momentum going for the quarter happened in July, August, the first part of September. We still continue to see the mix changes and continued exception pricing. So, we're definitely gonna-- and we-- when we look at spot rates, you know, our spot rates as of September thirtieth were down already from that month-end average. So we know we're going to have a better cost of funds, cost of deposits in the fourth quarter, for sure.
Manuel Navas (Analyst)
Is your deposit strength potentially a wild card here that could even help the NIM more? Can you just kind of talk about your success in deposit flows and where that could go going forward?
Mark Kochvar (CFO)
Yeah, we think so. I mean, there's, you know, there's a lot of emphasis being placed on that, both on the business side, commercial side, and also on the consumer side. We still have about $375 million of wholesale borrowings that are also very short and relatively high priced, that we can pick up some advantage if we're able to replace those with a decent mix of customer deposits.
Chris McComish (CEO)
Yeah, Manuel, it's Chris, and, you know, this is more anecdotal than anything, but, you know, the good news is, with, you know, rates are in the, you know, above the fold from a standpoint of, you know, what's being talked about in the marketplace as a whole. And so that leads to more customer conversations, both with existing customers as well as prospective customers. So, we feel very good about, you know, obviously the progress that we've made and kind of the infrastructure that we built in order to continue this. And, I think, you know, changing rates lead to customer conversations, and that's a good thing.
Manuel Navas (Analyst)
That's good color. Can I switch over to fees for a moment? If you have two hundred basis points and cuts, what could that do on the fee side for you next year?
Mark Kochvar (CFO)
This year, I mean, I think we're relooking and repositioning our mortgage business. We've really been portfolioing most of that activity, but we're getting ready to make a concerted effort to sell more of that production going into next year. So that's probably our biggest, you know, kind of interest rate-related ability or potential on the fee side is right now, you know, the only mortgage activity we're seeing right now is just the fees from the servicing side. But there's an opportunity as we shift some of that production to sales, that we would pick up possibly couple of million dollars next year of fee income.
Manuel Navas (Analyst)
Do you feel like you have the right capacity, or is that part of the adjustments you're going to make? You might have to make some hires. Like, what-- how do you compare your capacity versus where you were three years ago, for example?
Mark Kochvar (CFO)
I think from a capacity standpoint, it's similar in terms of origination. We haven't been selling a lot, so some of the back office functions need to be reset to make that process smoother.
Chris McComish (CEO)
But it's not a dramatic lift. I mean, you know, the only thing that could, and if you're talking specifically about mortgage, is if you know, mortgage rates decline rapidly and there becomes a big refi boom, that could create capacity issues, not only for us, but everybody in the industry, because we've, you know, we're at a much lower run rate than we were three years ago when, you know, the refi activity was really hot.
Manuel Navas (Analyst)
I appreciate that color that we could be going in that direction. Going back to the comment about inorganic growth, what are some places that you're interested in growing that, and where are opportunities that you would be excited to geographically?
Chris McComish (CEO)
Yeah. So, and we've talked about this before, but I'll continue to reiterate it. We look at our, you know, our core geographic franchise today is kind of the southern half of Pennsylvania, east to west, and into Northeast Ohio and Central Ohio. Those are all really, really attractive markets for us. We're also have lots of interest in, you know, throughout the state of Ohio into that area of the Midwest, and then, you know, further south into Maryland, Northern Virginia, DC, those areas. Geographically, if you think about it, we, you know, from Pittsburgh to Washington, DC, is not that far south, as far as it is to get all the way to Philadelphia, for example. So we think about markets-...
The makeup of markets relative to our culture and what we're trying to build. There are, you know, interesting opportunities both east and west, as well as here in Western Pennsylvania. So, you know, we continue to build relationships, and the best way that we can build relationships from an inorganic standpoint is to deliver performance and have the currency necessary to have these conversations, and that's where we're focused.
Manuel Navas (Analyst)
Thank you very much. I'll step back into the queue.
Operator (participant)
Your next question comes from the line of Matthew Breese with Stephens. Please go ahead.
Matthew Breese (Managing Director and Senior Equity Research Analyst)
Hey, good afternoon.
Chris McComish (CEO)
Good afternoon.
Matthew Breese (Managing Director and Senior Equity Research Analyst)
Just a couple of questions, most of them have been answered. First, just any, are you contemplating any additional securities restructurings? If so, maybe a sense for how much, and is that included in any way, shape, or form into your 2025 NIM outlook?
Dave Antolik (President)
I mean, we're still looking at it. We're not anticipating anything significant. So we've done two, both of them just under $50 million. I mean, it would certainly be less than that. The opportunities have, with the shape of the curve changing a little bit and just what we've sold already is kind of being the best candidates. The, again, kind of the cost benefit of the activity is less than it was. So if we were to do anything more, it wouldn't be any larger than the ones we've already done, and there's a fair chance we wouldn't do any more.
Matthew Breese (Managing Director and Senior Equity Research Analyst)
Remind us again what the yield pickup was on both those restructurings?
Dave Antolik (President)
The first one was about 370 basis points. The second one was maybe 270.
Matthew Breese (Managing Director and Senior Equity Research Analyst)
Okay. And the other topic I just wanted to touch on, and it's been brought up a handful of times on the call, is just payoff activity, commercial real estate, multifamily-related. How much of that was by design? Meaning, you know, these were non-strategic or non, you know, full relationship-type customers, and then how much of it was rate driven? You know, one thing we've been hearing a lot of this quarter is that there's been some, you know, stiffer competition on the commercial real estate front from insurance companies, some of the agencies, some of the bigger banks even. And so I wanted to get a sense for how much of that was going on and how different the types of rate offerings were between yourselves and some of the other players.
Dave Antolik (President)
Yeah, sure. To your point, there is still a significant amount of competition relative to these permanent mortgages for multifamily. We had two relatively large, you know, $20 million range deals that paid off during Q3. They're both with existing customers. They're not transactional deals, just normal course of business where we do a construction loan. That construction loan converts to a permanent loan on a bridge basis, typically to get to permanent financing. So in both of these cases, it is the normal course that they would take these to a permanent facility. And normally, the reason that that's done is to take advantage of a longer-term fixed rate, typically a 10-year rate, and remove recourse. The second being the most important, right?
So these large builders and developers want to preserve equity in their deal, have it owned in a single asset entity, and not have recourse back to the sponsorship. So, you know, and those are things that would fall outside of our credit risk appetite. So we, you know, view that as, again, sort of normal course of business for these types of transactions.
Matthew Breese (Managing Director and Senior Equity Research Analyst)
Got it. Was there any meaningful delta between yourselves and, and other sources, other competition or other competitors?
Dave Antolik (President)
You know, from a structure perspective, you know, LTVs are generally similar. Rates may be slightly more aggressive, depending on, you know, if it's an insurance company or a CMBS. You know, insurance companies looking for assets tend to be a little more aggressive. But the big difference in structure is the recourse, right? We require recourse, even if it's limited after some point of stabilization, you know, these facilities in the permanent market tend to be completely non-recourse.
Chris McComish (CEO)
And if you're talking about, you know, bank competitive pressures from a rate standpoint, I would say that any of that is more kinda anecdotal, one-off driven, specific transaction than it is anything that we're seeing in the marketplace. We have seen in some areas of our geography, which is, it makes you scratch your head. We've seen some deals that were, you know, maybe, as you described, not necessarily long-term relationship deals, that were actually taken out by large credit unions. That is, you know, that's an unusual place for a C&I or a commercial real estate customer of ours, but there are some pockets of the geography, particularly the eastern part of the state of Pennsylvania, where we're seeing some of that activity.
Dave Antolik (President)
Yeah, I think, Matt, bottom line for us as relative to asset quality, I think it speaks well for that segment. In our geographies, those multifamily projects continue to perform very well. You know, they can take advantage of the permanent market, and we can continue to play a role as the depository institution for those borrowers and look at their ongoing construction needs.
Matthew Breese (Managing Director and Senior Equity Research Analyst)
... Yeah, absolutely. Good for asset quality, but headwind to growth.
Chris McComish (CEO)
Yep. Yeah, you got it.
Matthew Breese (Managing Director and Senior Equity Research Analyst)
Yeah.
Chris McComish (CEO)
That's why we have four drivers.
Matthew Breese (Managing Director and Senior Equity Research Analyst)
I appreciate all that very much. I'll step back. Thank you.
Chris McComish (CEO)
Yeah, thanks, Matt.
Operator (participant)
Your next question comes from the line of Daniel Cardenas with Janney Montgomery Scott. Please go ahead.
Daniel Cardenas (Director and Equity Research Analyst)
Hey, good afternoon, guys.
Chris McComish (CEO)
Hey, Dan.
Mark Kochvar (CFO)
Hey, Dan.
Daniel Cardenas (Director and Equity Research Analyst)
Just a couple of questions here for y'all. In terms of deposit, your deposit growth outlook for 2025 on a percentage basis, do you think that can mirror what you're looking for on the lending side? Or could you be a little bit better, just kind of given where the loan-to-deposit ratio is right now?
Chris McComish (CEO)
Yeah, Dan, you know what? We feel good about the momentum that we have and the focus on our deposit franchise and deposit business. We've invested in it, in people and product and improving processes. We're going to continue that focus. As I said, I think the, you know, the rate environment leads to opportunities both with existing customers as well as new customers. As, you know, we talk about the kind of declining rate environment that Mark's speaking to, that's going to put, as I would define it, there's a lot of money in motion. And so that's, you know, our targets are to continue to look for growth in the range that we're seeing it.
Daniel Cardenas (Director and Equity Research Analyst)
Okay. And then, given where capital levels are right now, what are your thoughts in terms of stock repurchase activities going forward?
Mark Kochvar (CFO)
Yeah, I mean, that's gonna be our least favorite event, especially given the run-up in price. You know, it just makes it a little more difficult for that to make economic sense. So, our first priorities are gonna be on the growth side, and to use the capital that way.
Daniel Cardenas (Director and Equity Research Analyst)
So kind of growth dividends and then, maybe buybacks if it makes sense mathematically?
Mark Kochvar (CFO)
Right.
Daniel Cardenas (Director and Equity Research Analyst)
Okay. And then, just a housekeeping question. What was your AOCI number for the quarter?
Mark Kochvar (CFO)
End of the quarter was $77 million.
Daniel Cardenas (Director and Equity Research Analyst)
Okay, great. All my other questions have been asked and answered. Thanks, guys.
Chris McComish (CEO)
Okay, Dan. Thanks.
Mark Kochvar (CFO)
Thank you.
Operator (participant)
There are no further questions at this time. I would like to turn the call over to Chief Executive Officer, Chris McComish, for closing remarks.
Chris McComish (CEO)
Okay. Well, thanks, everybody, for the great questions and the dialogue. We really appreciate your engagement and your interest in our company. We look forward to being with you, you know, over the coming weeks and months. And let's have a great rest of the earnings season. Thank you. Bye-bye.
Operator (participant)
This does conclude today's call. You may now disconnect.