Earnings Call Transcript - DCOM Q4 2022

Operator, Operator

Good morning or good afternoon all and welcome to the Dime Community Bancshares, Inc. Fourth Quarter Earnings Call. My name is Adam, and I'll be your operator for today. 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 contained in any such statements including and set forth in today’s press release and the company filings with the U.S. Securities and Exchange Commission to which we’ll refer you. During this call, references will be made to non-GAAP financial measures as supplemental measures to review 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. I will now hand over to Kevin O’Connor to begin. Mr. Kevin, please go ahead when you are ready.

Kevin O’Connor, CEO

Good morning. Thank you, Adam, and thank you all for joining us this morning. With me today are Stu Lubow, President and Chief Operating Officer; and Avi Reddy, our CFO. We are pleased to report another strong quarter for Dime. But before we get into the quarter results, I want to take a moment to comment on our full year performance. 2022 was a very successful year for Dime. Our strong and consistent performance throughout the year reflects the power of our commercially focused community bank model and our dominant market share in Greater Long Island. For the full year, we reported over $145 million in net income and EPS of $3.73 per share. Our return on assets for the four quarters of 2022 were 1.13%, 1.27%, 1.26%, and 1.23%. Stable results during this rapidly rising and unprecedented interest rate environment. We were able to achieve strong returns by keeping our operating expenses controlled and our NIM averaged 3.25% for 2022 compared to 3.14% for the fourth quarter, consistent with our stated posture of operating a moderately asset-sensitive balance sheet. We supported our customers and grew loans by approximately $1.3 billion and put in place the talent and infrastructure to grow our C&I business to the next level. I must give full credit to each of our 800-plus employees for delivering record growth and profitability. Turning to our results for the fourth quarter, we generated net income of $38.2 million or EPS of $0.99 a share, a year-over-year increase of 19%. We had another impressive quarter of net loan growth and again focused on prudent cost control. Loan growth for this quarter was well balanced across various asset classes. Importantly, this quarter we grew business loan balances by $215 million and continue to have a strong pipeline in this area. Stu, I’m sure will provide more color on our current pipeline and the mix in the Q&A. As you heard from our peers and consistent with the banking industry at large, the environment for deposit gathering is extremely competitive, not just competition from other banks, but also from market-related products such as U.S. treasuries and money market funds. Despite these headwinds, we were able to maintain average DDA at around 36% of deposits. We continue to expect some level of migration from DDA to interest-bearing accounts, but we are laser-focused on this, and our incentive compensation plans from top to bottom are designed to prioritize DDA. We have a strong group of commercial bankers and we have the luxury, over the past years, of using excess liquidity on our balance. Their goals and objectives this year will be heavily weighted and refocused even more on deposit generation. In addition, we have a specialized treasury management team with a robust product set. Working in tandem with our commercial bankers and retail branches, we have all the right people and systems in place to deliver on our 2023 goals. We were not very competitive on the consumer deposit front over the past few years. However, starting in late 2022 and into 2023, we, like many others, are being more competitive in this segment. We think 2023 deposit growth will come from various sources. Some component will be DDA, but will also include a mix of less price-sensitive interest-bearing accounts and even some market-sensitive accounts. Our cycle-to-date deposit beta for this round of tightening has been approximately 19.7%, 74 basis points versus the increase in the cost of deposits versus a 375 basis point increase in Fed hikes up to mid-December. Our performance on this front compares favorably to our Metro New York competitors. Again, our relatively low betas have been driven by the significant level of DDA on our balance sheet. This remains a clear differentiator for Dime versus other competitive banks in our footprint. As you know, historically, the Metro New York area has been a more competitive market for deposit gathering while affording robust loan growth opportunities and more stable asset quality performance in other parts of the country. Avi will get into our expectations of betas and NIM in his remarks. Moving to asset quality, our NPAs and loans 90 days past due were down 22% versus the linked quarter. During the pandemic, we took a fairly conservative stance on migrating loans to classified status and we've seen a significant decline in classified assets this year. Our net charge-offs in the fourth quarter were only 1 basis point. Avi will again provide more detail on loan provisioning for this quarter. Suffice it to say, we feel comfortable with the level of reserve and the overall health of our balance sheet. Thus far, we have not seen any meaningful early warning indicators of credit deterioration. As you know, Dime’s credit losses have been well below the bank index over multiple cycles. Underpinning our strong historical competitive credit performance has been our bulletproof multifamily portfolio that has an LTV of only 57%. We continue to believe this portfolio will outperform any potential recessionary environment. Also, as this has been a fairly topical question on other earnings calls, a quick update on our office exposure in Manhattan. As mentioned previously, we only have $229 million of loans with an LTV of approximately 53%. Finally, as the AOCI and balance sheet stabilized this quarter, we were able to grow tangible book value per share by $0.86 for the quarter or 15.4%. We had a strong quarter-end year. Our balance sheet is positioned to produce strong returns in any economic environment as evidenced by our quarterly and year-to-date ROAs of over 1.2%. We remain focused on managing our margins in a difficult inverted yield curve environment, and we are focused on growing core deposit relationships, which have value in any rate environment. We remain excited to deliver on the opportunities in front of us as a true community commercial bank, and we are highly focused on being responsive to market conditions and customers' needs. Our goals for 2023 remain consistent, managing our cost of funds, prioritizing NIM in an inverted yield curve environment, prudently managing expenses, and always maintaining solid asset quality. At this point, I'd like to turn the conference call over to Avi, who will provide some additional color on our quarterly results and thoughts around 2023.

Avi Reddy, CFO

Thank you, Kevin. For the fourth quarter, our reported net income to common was $38.2 million. The reported NIM for the quarter was 3.15%. As Kevin mentioned, our full year 2022 NIM was higher than the 2021 fourth quarter base, reflecting a moderately asset-sensitive position. Over the course of the third and fourth quarters, we supported loan demand through the addition of approximately $1 billion of FHLB borrowings. While we have the ability to borrow longer at a lower cost, we intentionally kept the duration of these borrowings to one month or less so that we can benefit from a full repricing in the event that the forward interest rate curve materializes and the Federal Reserve does indeed lower rates starting in late 2023 into 2024. Similar to how many companies kept excess cash during the pandemic and benefited from rising rates, we are following a similar strategy on the liability side where we are intentionally staying short and hope to benefit from a full repricing if and when rates do go down. A couple of housekeeping items: net accretive balance from purchase accounting currently stands at approximately $1.5 million, and purchase accounting accretion was fairly immaterial this quarter. Included in the 3.15% margin was 3 basis points of prepayment-related income. Average total deposits for the quarter were down 2%, and our cost of total deposits increased by 46 basis points. We again were pleased with our deposit betas lagging the level of Fed funds increases in the fourth quarter. That said, given the rapid pace of rate increases and the absolute level of market rates, we do expect deposit betas to continue to increase from the levels seen this cycle. We continue to have a significant repricing opportunity on our loan portfolio, and we continue to proactively manage our loan pricing. The rate on our total pipeline is approximately 6.25%. This is significantly higher than our existing loan portfolio rate of approximately 4.75%. The clear medium to longer-term opportunity for us is to reprice our loan portfolio at new origination rates which are approximately 150 basis points to 175 basis points above the overall portfolio rate. Core cash operating expenses excluding intangible amortization and loss on extinguishment of debt for 2022 were $198 million, which was within our full-year guidance. We remain highly focused on expense discipline while making necessary investments in our franchise and have built this into our culture on a very granular level. Core cash operating expense for the fourth quarter excluding intangible amortization came in at approximately $50 million. Our core efficiency ratio this quarter was 47%, and for the full year 2022, we also operated at approximately 47%. Noninterest income for the fourth quarter was approximately $9.5 million or a 19% increase versus core noninterest income from the third quarter, excluding the branch sale gain in the third quarter. As we predicted, revenue from our back-to-back customer loan swap program and our SBA business picked up in the fourth quarter compared to third quarter levels. Moving on to credit quality, our provision for the quarter was $335,000. While we did have approximately $450 million of loan growth in the fourth quarter, we also saw a reduction in results on various individually analyzed loans that moved from substandard and doubtful categories into better risk ratings, driving a release in reserves for our individually analyzed portfolios. Needless to say, we are comfortable with leverage results on our balance sheet. Our existing allowance for credit losses of 79 basis points is still above the historical pre-pandemic combined levels of the legacy institutions. During the fourth quarter, our capital levels remained relatively stable despite supporting $450 million of loan growth. As we've guided to previously, supporting loan growth and our clients is the first and best use of our capital base. We will continue to manage our balance sheet efficiently, and our tangible equity ratio of 7.76%, including the full impact of AOCI and 8.40% excluding the impact of AOCI is within our comfort zone. Next, I'll provide some guidance for 2023. We expect loan growth for the first half of 2023 to be in the mid-single digits on an annualized basis. We've clearly demonstrated strong loan originations with sequential growth every quarter in 2022. Our focus is on growing solid business relationships while keeping our multi-family portfolio relatively flat. Given the economic environment and uncertainty around how customers will react to additional Federal Reserve rate hikes, we will update you on our growth goals for the second half of the year on subsequent earnings calls. As you know, we don't provide quarterly quantitative NIM guidance. We're operating in a significantly inverted yield curve with intense competition on the deposit side. As Kevin mentioned, our deposit beta to date has been 19.7%, fairly credible for a 375 basis point rate shock to the system. Even with some future deposit cost lag, if rate increases have stopped at these levels, we would have been within our previous cumulative cycle guidance for deposit betas of 25%, which was based on around 300 basis points to 325 basis points of rate hikes. However, given the fact that the Federal Reserve is going to the 5% area on rates, we are now expecting higher cumulative betas as the last 100 basis points to 150 basis points has had a more heightened impact on customer behavior versus the first 100 basis points to 250 basis points. Given the level of Fed funds increases in the competitive environment in general, there'll be a lingering impact of deposit cost catch-up over the course of 2023. Our best estimate right now is that cumulative betas end up in the 30% area for total deposit costs and deposit costs peak towards the back half of this year. The loan-to-deposit ratio ended the year at 103% up from 97% in the prior quarter and slightly above our target range of 95% to 100%. Going forward, we will exercise price discipline and pace deposit growth to approximate the growth in well-priced lending opportunities. We're keenly focused on deposit gathering to our seasoned relationship bankers, treasury management teams, and competitively priced consumer deposits. Our goal is to operate over the course of 2023 with a loan-to-deposit ratio below 108%. Should rates decline in future years, 2024 and beyond, we do expect prepayments in the multifamily portfolio to pick up, which will lead to a natural normalizing of the loan-to-deposit ratio over time. As mentioned previously, our core cash operating expense base excluding intangible amortization was $50 million for the fourth quarter or $200 million annualized. We expect core cash operating expenses for 2023 to be between $206 million and $209 million. Included in this guidance is approximately $2 million of additional expenses related to the industry-wide FDIC surcharge and also $2 million of additional expenses for our pension plans for 2023, which is related to the poor performance of the equity markets in 2022. Obviously, both these items are outside of our control. Absent these items, the expense guide would have been closer to $202 million to $205 million. Be that as it may, we remain focused on controlling the things we can, and we will do everything in our part to beat the guidance of this year, and we continue to evaluate opportunities for expense reductions across the bank. We expect non-interest income to be within the range of $35 million to $37 million. This guidance takes into account the full year impact of the Durbin amendment on interchange. We expect to manage our capital ratios efficiently and are very comfortable operating the company at our current capital levels. We are very active on the share repurchase front in 2021 and 2022 and should our capital levels build for any reason, we will not be shy to enter the market via repurchases, given the value we see in our stock. Finally, with respect to the tax rate for 2023, we expect it to be approximately 28%. With that, we can turn the call back to Adam for questions.

Operator, Operator

Thank you. And our first question today comes from Mark Fitzgibbon from Piper Sandler. Mark, please go ahead. Your line is open.

Mark Fitzgibbon, Analyst

Good morning everyone. Avi, could you please go over your fee income guidance again? I didn’t catch all of it.

Avi Reddy, CFO

Sure. Yes, so the guide for this year Mark is $35 million to $37 million on fee income. This is the first year that we're going to have a full impact of build. And if you remember, starting July 1 we did have an impact for the second half of this year. Seasonally, Q4 is a little higher with certain fees that we recognize in the fourth quarter. So the guidance for next year is really $35 million to $37 million. We're really expecting good income on the loan swap program that we have and on the SBA side and our treasury management business really is kicking in on all cylinders at this point. So that's going to offset the full year decline for the interchange income there. So really $35 million to $37 million for next year.

Mark Fitzgibbon, Analyst

Okay. And I heard your comments on the margin, Avi, but could you help us think at a high level when you think that perhaps the margin kind of bottoms out? Does that relative to when the Fed has done raising rates or some other metric?

Avi Reddy, CFO

Yes, I believe so. In our prepared remarks, we mentioned that we expect deposit costs to keep rising throughout the year, likely stabilizing in the latter half. If you examine our loan originations, the front book is coming in at the low 6s, while the amortizing loans from the previous quarter are around 4.40%. This will certainly benefit us moving forward. However, once the Fed halts rate hikes, the impact of repricing will stop, and deposit costs could outweigh for a quarter or two. Therefore, we are highly focused on stabilizing the Net Interest Margin in the latter part of this year, as we believe the company should achieve a NIM in the range of 320 to 330 in the medium to long term. We maintained a DDA of 36%, which we are pleased with, and we're still expanding our customer base. It really comes down to deposit costs catching up, which have lagged a bit in the first half of this year.

Mark Fitzgibbon, Analyst

Okay. And what would you say the spot deposit rates are today?

Avi Reddy, CFO

Yes, we were a little bit over 1% at the end of the year.

Mark Fitzgibbon, Analyst

Okay, great. And then I guess just strategically thinking about it, given the funding challenges out there and the fact that you guys aren't wildly overcapitalized, would it make sense to kind of slow loan growth even more just to kind of slow down the growth in the balance sheet and kind of protect margin, if you will?

Stu Lubow, President and COO

Hi, Mark. It's Stu Lubow. I think we're talking about mid-single digit growth this year. The last 18 months have been significantly higher than that. We are seeing a moderation in our pipeline. But a big part of our growth in the early part of this year was the multifamily portfolio. That portfolio we're really just servicing our existing customers and doing swap deals on that portfolio. We don't expect to see any real growth in that portfolio at all for the year. So just a natural remixing of the portfolio and our focus on C&I and owner-occupied CRE is going to result in a moderation in terms of growth. I mean, today we have about a $1.5 billion pipeline at an average yield of $628 million, but only about $200 million of that is multifamily. And even at that rate, those rates are in the high fives. So we're really not in the market in terms of pricing in that portfolio. And so, we do believe we're going to have some nice growth with the C&I business and the owner-occupied CRE deposit balances, and we're really focused on that. So the funding on that is important, and we think growing good solid business relationships, DDA balances within the C&I and owner-occupied sectors of our product mix are very important. So we want to continue to grow that part of the business. But suffice to say, we don't expect to see this significant growth that we had over this year.

Avi Reddy, CFO

Yes, Mark, I just want to reiterate one of the comments we made upfront was if you go back a year, we had significant payoffs in the multi-family portfolio, right? So if you just follow the forward rate curve, 12 to 18 months from now, you could again see significant payoffs in that portfolio, which is going to help with stabilization of the loan-to-deposit ratio over time. We're not seeing it right now because, obviously, rates are elevated, but we could see that portfolio pay off at a fast level in 2024.

Mark Fitzgibbon, Analyst

Thank you.

Kevin O’Connor, CEO

We will continue to focus on building relationships as a key aspect of the value of this franchise, and we intend to take this opportunity to do so.

Mark Fitzgibbon, Analyst

Thank you.

Steve Moss, Analyst

Good morning. I would like to start with some clarity. You mentioned an improvement in criticized and classified assets compared to the previous quarter. Could you provide some quantification on that and help us understand the reserve ratio moving forward?

Avi Reddy, CFO

Yes. So this quarter what happened with the reserve was, as part of the merger accounting we had set aside various results or various loans at that point, and some of them were in the criticized/classified category upfront. And over time, we've seen a steady improvement in that, so that drove a part of the release this particular quarter. The other thing that we saw was, one of our biggest nonaccrual loans which was on the C&I side actually moved to accruing status this quarter and there's probably $1 million of reserve release associated with that. I mean, with our substandard loans, we typically provide disclosures of that in our 10-K, which will come up in a month's time, but preliminary numbers right now on those portfolios indicate continued improvement in those. I mean, we're down significantly since the start of the year. What we did when you go back and look at our old 10-Ks and 10-Qs, we were very conservative over the course of the pandemic where we moved a lot of loans that had deferrals in them, and a lot of that is getting a lot better. So really back to the peer group median, if not below the peer group median on criticized cost side. But really this quarter, it was a couple of specific loans that came out that had specific reserves associated with them. I think just going forward on the reserve, just general rule of thumb is on real estate loans. We probably have a reserve on investor-free and owner-occupied free of around 60 basis points plus or minus on new loan growth. And on the C&I side, it's between one and 125 basis points. So on a blended basis, it's probably around 80 basis points in terms of the result, which is pretty similar to our overall result right now, which is 80 basis points. So absent any improvement or worsening of economic conditions and absent any changes in our individually analyzed portfolios. The way you should think about it is that, if we have loan growth in the future, the provisioning on that should be around 80 basis points given our mix.

Steve Moss, Analyst

Okay, great. That's helpful. And then, excuse me, maybe just following up on funding here. Just curious, obviously, marginal funding cost is pretty high here. Just wondering, the longer the curve has moved lower at what point maybe would you consider balance sheet restructuring with your securities portfolio, if at all?

Avi Reddy, CFO

Yes. I mean, I think we look at all uses of capital at all times. I think we're very comfortable with where we are. Supporting customer growth right now is important for us, but we look at it all the time. When you look at our securities portfolio, the yield on the securities portfolio is around $180 million. It's a fairly short-duration portfolio. It's probably three to four years over there. I mean, in our math ahead, Steve, is that if we reprice that whole portfolio to market rates to $180 million and the market rate for securities right now is $425 million to $450 million, that's a 35 basis point pick up on the NIM once that whole portfolio reprices. So it’s something we think about in conjunction with the buyback and conjunction with loan growth. And we feel pretty good about our capital levels at this point. So we do have this flexibility to do various things.

Matthew Breese, Analyst

Good morning. Avi, I just wanted to stay on that point on the securities portfolio. You mentioned the duration. And at least in my model, I'm expecting some role from securities into loans to help funding. Could you just give me a sense for kind of the quarterly runoff of securities? The duration implies it's a little bit sharper than what I have modeled.

Avi Reddy, CFO

We expect to receive around $120 million to $130 million in cash flows in 2023. When we sold our PPP loans a couple of years ago, we invested that money into treasuries, which have maturities of two to three years. We anticipate significant maturities in 2025 and 2026, totaling about $300 million. The AFS side is relatively short due to our treasuries. To clarify, cash flows are not coming in from the treasuries, but they will mature in two years, which minimizes extension risk in that portfolio. Additionally, we have a held-to-maturity bucket where we moved some securities last year and into Q1 to safeguard tangible book value. The portfolio is well-balanced, with 40% held to maturity and 60% AFS, providing us with the flexibility to explore various options over time.

Matthew Breese, Analyst

Okay. And then you had mentioned that demand deposits you expect to kind of settle out in the 30% range, you're at 34% today. So obviously, there's some implied pressure there. As we think about matching loan growth with deposits?

Avi Reddy, CFO

Matt, we didn't say that. We said that our total deposit beta over the cycle would be 30%. I mean our average DDA was 36% for the fourth quarter. So we don't really expect that or we're not really saying it's going to go down to 30%. So that's not what we said.

Matthew Breese, Analyst

I'm sorry, I misquoted you. Could you give me some idea where you expect demand deposits to settle out? What's your best guess with that 30% deposit beta?

Avi Reddy, CFO

Yes. I mean, I think Q4 is a little seasonal for us. At the end of Q4, typically, we have municipal deposits come in. This time around is a little bit of a delay in the municipal deposits coming in. We've seen a strong January in terms of some of the municipal checking accounts come in, which are related to tax receiver money. So look, we're going to have some pressure on that ratio. But at the same time, we've got various opportunities at the bank, big customers, small customers. And as Kevin said, our lending teams this particular year are going to be highly focused on gathering deposits and treasury management teams are going to be focused on that. So I think like everybody else in the industry, we had some excess deposits the last couple of years and put that to work and growing the balance sheet was important. But yes, I mean, it's going to go down maybe a little bit. It's really hard to predict where it's going to go down, but we do feel we have a pretty granular customer base, and everything is relationship-based. So that should help us stay well above the peer group in terms of this ratio going forward.

Matthew Breese, Analyst

And then right now, where are you most competitive in terms of higher rate offers? Is it money market, CDs, high percentage of savings accounts?

Avi Reddy, CFO

So we got a CD product out there for new customers and new money, which is a 4.5% rate. It's a 13-month CD at that point. That's the highest rate that we have out there. So really on the consumer side, we're competitive. On the business side, it's really customer-by-customer, relationship-by-relationship and looking at profitability.

Matthew Breese, Analyst

I wanted to understand if, despite your solid non-accruals and classified assets, there are any underlying credit issues emerging in your portfolios. It seems quite unusual to experience such significant interest rate hikes and shifts in cap rates without any notable credit deterioration.

Stuart Lubow, President and COO

Matt, I understand your point and we are very focused on this. We have discussed over the past three quarters whether we might see any issues in credit, and we are closely monitoring the situation. Currently, we are not observing any problems. On the positive side, our multifamily portfolio has a low loan-to-value ratio of 57% and an average debt service coverage ratio of about 1.43. The total commercial real estate for loan-to-value is also 57%, with an average debt service coverage ratio of 1.78. From a credit perspective, while we always have concerns, especially with rising rates putting pressure on various parts of the portfolio, I would say we are not witnessing any significant stress in any product line. The only area where some customers may face challenges is in the SBA business, which is a small portion of our portfolio, and those customers are experiencing difficulties due to rising floating rates.

Avi Reddy, CFO

One area to highlight is that, when we merged the companies, we had the opportunity to closely examine individual credits. A key difference with our reserves compared to the peer group is that a significant portion is attributed to individually analyzed loans. Out of the approximately $83 million we have, around $31 million is allocated for individual credits. We are aware of which credits are weaker, and we have substantial reserves related to them, which is part of our merger accounting. Unlike others who place everything in a pooled reserve, they will need to establish reserves if something goes wrong. We aim to identify any potential issues, be conservative about it, and assess our exposure ahead of time. This quarter, we noticed some improvements, which is why the provision was nearly zero despite experiencing notable loan growth. This is an important consideration for your modeling.

Stuart Lubow, President and COO

And virtually everything that we have charged off this year was previously identified as a part of the merger, and we took the mark. So the due diligence we did early on proved to be correct. And so we really haven't seen any significant new credits come to us as a problem.

Matthew Breese, Analyst

Great. Understood. That’s all I have. Thanks for taking my questions.

Operator, Operator

The next question comes from Manuel Navas from D.A. Davidson. Manuel, your line is open. Please go ahead.

Manuel Navas, Analyst

Hey, good morning. With your outlook of kind of stay below 108% loan to deposit ratio, what's kind of the thinking on how quickly you might approach that? Would that be something that could happen next quarter or just kind of any color there?

Avi Reddy, CFO

No. What we're trying to convey is that, as Stu mentioned, our pipeline is currently quite strong. We have developed significant business throughout 2022, giving us a clear view of the loan portfolio for the first half of the year. It's important to note that people often perceive the loan to deposit ratio as a period-end figure. We experience some seasonality in deposits, such as escrow deposits, which may remain for the full quarter but could be withdrawn at the quarter's end. We want to establish some boundaries for our operations. Loan growth is likely to be stronger in the first half of the year than in the second half. However, we remain focused on re-entering the consumer market for competitively priced deposits. This is not a monthly or quarterly concern, but we aim to stay below that threshold for this year.

Stuart Lubow, President and COO

Yes. And I also think it's important to understand that we're going to continue to remix the portfolio out of the multifamily business and into the areas where we've really grown capabilities in terms of the middle market C&I, owner-occupied CRE. So you should expect and could expect to see multifamily as a percentage of the total significantly reduced over the next several years. Obviously, what that does is, improve our NIM because we're getting 50 basis points to 100 basis points better yield on the non-multifamily part of the portfolio. And of course, deposits come along with the C&I and relationship business.

Manuel Navas, Analyst

I appreciate that. I think that's going to be my next question about mix and growth. So it's going to be definitely more C&I. Did you give what proportion of the pipeline of C&I at the moment?

Stuart Lubow, President and COO

Yes. So of that $1.5 billion, approximately 40% is C&I and owner-occupied CRE.

Manuel Navas, Analyst

I appreciate that information. I know you prefer not to provide short-term NIM expectations, but could you share any insights on the direction and success of your current offers in the marketplace to help stabilize funding?

Avi Reddy, CFO

Yes, certainly. Regarding consumer deposits, we have some offers available at the beginning of this year, and we've already secured $75 million in deposits from that. Referring back to the loan to deposit ratio, this is a market we can tap into, and many banks are doing the same. It's going to involve a combination of CDs and competitive savings products. I want to highlight for the analysts that if you examine our previous 10-Ks and 10-Qs, particularly at the beginning of the year, our economic value of equity was approximately $1.2 billion. By our September disclosures, that figure had increased to around $1.7 billion to $1.8 billion. This indicates that the present value of cash flows from our assets and liabilities, after going through a full cycle using a discounted cash flow model over three to five years, suggests the bank's valuation has improved by $400 million to $500 million. This appreciation won't necessarily be reflected in quarterly net interest margin since that can fluctuate each quarter. Therefore, analyzing those EVE numbers can provide insights into the franchise value of the company. In our upcoming 10-K, you can expect to see the next EVE number released.

Manuel Navas, Analyst

What do you assume are the ranges for your noninterest-bearing deposit balance in that calculation? Because that could shift that pretty widely, correct?

Avi Reddy, CFO

Yes. No, absolutely, but it's a projection over the course of five years, right? So we see attrition then when we modeled that based on recent history of what we're seeing. But like Kevin said, our noninterest-bearing deposits for the fourth quarter was 36%. I mean, we have escrow deposits that we pay out at the end of the year. So the spot balance is always kind of misleading. But we were 37% when we went into the cycle and we’re 36% right now. So we've done a really nice job keeping it there. And I think like Kevin said, all our goals are really focused on deposits and growing deposits this year. So some level of that, we obviously model a certain level of betas in there. And as I said, we always do our IRR modeling with around 30% betas, and that's kind of what's in there. But I think in the near term, yes, sure, you could see people move out of DDA into interest-bearing deposits. But then over time, once the Fed starts cutting rates again, you could see a migration back into DDA there as well.

Matthew Breese, Analyst

Okay. That color is really helpful. Thank you.

Operator, Operator

The next question comes from Chris O'Connell from KBW. Chris, please go ahead. Your line is open.

Chris O'Connell, Analyst

Hey, good morning. I appreciate the expense guide. I was hoping to just get a little bit of color given the first quarter seasonality, especially in the comp line with some of the things you mentioned as to maybe where the starting point is for the year and then how the cadence kind of progresses from there?

Avi Reddy, CFO

Yes. Chris, I think we typically shouldn't see too much seasonality with our numbers. We try to accrue and pretty much true up towards the end of the year. So I know that some banks that have a significant amount of seasonality probably a little bit less for us. I would say, in general, we kind of met all the goals we set out at the start of the year. So we should be okay on that. I think we try to focus on the full year number because, again, there could be movements up and down. I mean you are right, Q1 sometimes is a little bit more, but not too much more for us. I think within the $206 million to $209 million, like I said, we got the FDIC and we got some items for the pension, which hopefully are not recurring for 2024, right? So 2023 is a little bit of an abnormal year. There's also some investments that we're making in our digital platforms that are part of that. And then in addition to that, there's employee costs and just the cost of running our business. So nothing too much out of the ordinary for us, but we hope to come in line or better than that $206 million to $209 million for the full year, like we did for the last two years.

Chris O'Connell, Analyst

Got it. And so that tension comes in at $0.5 million to the quarterly run rate starting in the first quarter?

Avi Reddy, CFO

Yes. I mean the way the pension works is, you get an estimate at the start of the year, you accrue for the whole year in a certain run rate, and then you do a true-up at the end of the year. So that would kind of be straight line, correct, exactly.

Chris O'Connell, Analyst

Okay, great. And just given the updated outlook on the margin in the near term year for the first part of the year. How do you guys feel about the sub-50% efficiency ratio target?

Avi Reddy, CFO

Yes. We can control what we can. Our expense to assets ratio was 1.55% this past quarter. Achieving or exceeding that is a company goal that we are very focused on. When it comes to the efficiency ratio, since merging the two companies, our aim has been to maintain it below 50%. Aside from the first quarter, I believe we have surpassed that target each quarter, operating at 44% in some periods. This past quarter, it was 47%. While it may fluctuate each quarter, we are committed to being a bank with a sub-50% efficiency ratio, which we have consistently shown over the last 24 months.

Chris O'Connell, Analyst

Great. And as far as just the loan growth, you guys seem to have a robust pipeline still, especially outlook for the first half of the year. Where are you guys seeing the biggest opportunity for growth? And are you getting any kickback from your customers on higher rates on the new originations?

Stuart Lubow, President and COO

The real opportunity for us is in the commercial and industrial sector and owner-occupied commercial real estate because those are relationship-driven businesses. We've experienced significant growth in commercial and industrial. Currently, the average rate in that part of the portfolio is 744. This shows that we can bring in business at these rates while still being conservative underwriters. In terms of commercial real estate and investor commercial real estate, we are maintaining our debt service coverage ratios even with the current interest rates. Our competitive rates for investor commercial real estate are strong today. We're comfortable with our position and are able to foster new relationships and business even in this high-rate environment. Being a local community commercial bank focused on relationship building is crucial. We are attracting business away from larger banks, allowing us to provide the personal service and attention that customers seek. We can compete effectively with the products and services offered by larger commercial banks. This is our opportunity, and we have made significant progress. In the fourth quarter alone, we achieved $450 million in net growth and $680 million in total originations at high yields in the 5% range. This demonstrates our ability to improve yields and grow our business even during these periods of elevated rates.

Matthew Breese, Analyst

Got it. Appreciate the color. Thanks for taking my questions.

Avi Reddy, CFO

Thanks, Chris.

Operator, Operator

We have a follow-up from Steve Moss of Raymond James. Steve, please go ahead. Your line is open.

Steve Moss, Analyst

Yes. Just two follow-ups for me. Maybe just going back to funding costs here. Just curious kind of what the maturity schedule is on the CD portfolio and kind of think about how we can grow that rate pricing up here going forward?

Avi Reddy, CFO

Yes. I mean, we used to provide some disclosure in our press release on the CD portfolio. Maybe we'll put that back. But there's around $600 million that we have. I'd say the biggest piece in the month of May, where we have around $100 million of CDs, the rate on that is around 3%. So I'd say $600 million of that is this year, and the rate on that is around $150 million to $155 million. So the item with that is generally on our CD portfolio, we see retention rates of around 65% to 70% based on current rack rates. And then the remaining 35% of it, you're going to have to go out in the market and fund at a higher rate. So in the near term, you're going to see some deposit cost increase because CDs are pricing up as stuff rolls off. But what we've done, and I've mentioned this in the script was, we're trying to keep everything fairly short so that when the Fed does drop rates, we're not stuck with 24, 36-month maturities over there. So everything is generally fairly short on the CD portfolio.

Steve Moss, Analyst

Okay. That's helpful. And then maybe just on M&A here. Just kind of curious, any updated thoughts you guys may have in terms of the level of discussions and your appetite for a transaction?

Kevin O’Connor, CEO

I think we've been talking about this for the last several quarters. We are focused on the organic opportunities in front of us. This is certainly a challenging environment to think about that. But we have demonstrated that putting these two companies together, we're in a position to do something if it was available. But really, the focus for us is continuing to grow in this marketplace, taking advantage of our position here. And as Stu has shown you on the pipeline, there's plenty of opportunity for us to continue to grow our franchise organically.

Steve Moss, Analyst

Great. Thank you very much, Kevin.

Operator, Operator

As there are no further questions, I will now turn it back to the management team for any final comments.

Kevin O’Connor, CEO

Yes. I want to express how proud we are of our achievements in 2022. On behalf of the Board, I want to thank the entire Dime team for their hard work and focus. I understand there are many questions about margins, but we are confident in our business model, which emphasizes strong customer relationships and a conservative credit philosophy. This model has proven successful for Legacy Bridge and for the team we brought on from Dime. While we are currently facing near-term challenges as we adjust to the current rate environment, organizations like ours, with strong funding foundations, will ultimately thrive. Thank you all for your interest and questions today. Please don't hesitate to reach out if you have any follow-up inquiries.

Operator, Operator

This concludes today's call. Thank you very much for your attendance. You may now disconnect your lines.