Q3 2023 First Commonwealth Financial Corp Earnings Call
Participants
Brian G. Karrip; Executive VP & Chief Credit Officer; First Commonwealth Bank
James R. Reske; Executive VP, CFO & Treasurer; First Commonwealth Financial Corporation
Jane Grebenc; Executive VP, Chief Revenue Officer & Director; First Commonwealth Financial Corporation
Ryan M. Thomas; VP / Finance and IR; First Commonwealth Financial Corporation
Thomas Michael Price; President, CEO & Director; First Commonwealth Financial Corporation
Daniel Tamayo; Research Analyst; Raymond James & Associates, Inc., Research Division
Daniel Edward Cardenas; Director; Janney Montgomery Scott LLC, Research Division
Karl Robert Shepard; Assistant VP; RBC Capital Markets, Research Division
Manuel Antonio Navas; VP & Research Analyst; D.A. Davidson & Co., Research Division
Matthew M. Breese; MD & Analyst; Stephens Inc., Research Division
Michael Anthony Perito; MD; Keefe, Bruyette, & Woods, Inc., Research Division
Presentation
Operator
Ladies and gentlemen, thank you for standing by. My name is Brent, and I would like to welcome everyone to the First Commonwealth Financial Corporation Third Quarter 2023 Earnings Results Release Conference Call. (Operator Instructions). It is now my pleasure to turn today's call over to Mr. Ryan Thomas, Vice President of Finance and Investor Relations. Sir, please go ahead.
Ryan M. Thomas
Thank you, Brent, and good afternoon, everyone. Thank you for joining us today to discuss First Commonwealth Financial Corporation's third quarter financial results. Participating on today's call will be Mike Price, President and CEO; Jim Reske, Chief Financial Officer; Jane Grebenc, Bank President and Chief Revenue Officer; and Brian Karrip, our Chief Credit Officer.
As a reminder, a copy of yesterday's earnings release can be accessed by logging on to fcbanking.com and selecting the Investor Relations link at the top of the page. We've also included a slide presentation on our Investor Relations website with supplemental financial information that will be referenced during today's call.
Before we begin, I need to caution listeners that this call will contain forward-looking statements. Please refer to the forward-looking statements disclaimer on Page 3 of the slide presentation for a description of risks and uncertainties that could cause actual results to differ materially from those reflected in the forward-looking statements.
Today's call will also include non-GAAP financial measures. Non-GAAP financial measures should be viewed in addition to and not as an alternative for our reported results prepared in accordance with GAAP. A reconciliation of these measures can be found in the appendix of today's slide presentation.
With that, I will turn the call over to Mike.
Thomas Michael Price
Thank you, Ryan, and good afternoon, everyone. For the third quarter of 2023, we are pleased to report core net income of $39.6 million, which translates to $0.39 of earnings per share, an ROA of 1.38% and an efficiency ratio of 53.42%. The NIM compressed 9 basis points quarter-to-quarter to 3.76%. The rate of deposit cost increases is slowing, and we believe that the NIM will stabilize going into the end of the year and continue to hold up in 2024.
In a higher-for-longer environment, we believe that improvement in loan yields would likely outstrip growth in deposit cost. Operating expenses were up $1 million from the prior quarter, driven by costs associated with debit cards. Basically, we had a onetime recognition of $900,000 in losses identified as part of a new automated system for processing debit card disputes.
In addition, we had a $600,000 increase in FDIC insurance compared to last quarter due to the acquisition of Centric and the associated deposit balances. This was somewhat offset by $1.1 million in decreases in salaries and benefits due in part to lower hospitalization expenses.
Total loans grew some $102 million in the quarter or 4.6% annualized. Our Northern Ohio and Pittsburgh regions led the way geographically. From a line of business perspective, commercial banking and equipment finance were the key categories driving growth. We've metered loan growth commensurate with deposit growth each of the last 3 quarters. We have also strategically exited some non-relationship borrowers. End-of-period deposits grew $94.8 million or 4.2% annualized in the third quarter, which is just short of the loan growth in the quarter. Average deposits increased by 2.1% from last quarter.
Strong regional contributors included Central Ohio and Community PA. This led to the loan-to-deposit ratio rising slightly, from 96.4% to 96.7% in the quarter. We ended the quarter with solid credit metrics. Total delinquency was 25 basis points and nonperforming loans as a percentage of total loans were flat at 54 basis points. Reserve coverage was a healthy 280%. Criticized loans and classified loans both improved. Net charge-offs annualized as a percentage of average loans were 4 point -- $4 million or 18 basis points, which -- of which approximately $1.2 million was related to the Centric acquisition.
Provision expense for the third quarter totaled $5.9 million, driven by loan growth, and an additional $4.1 million in specific reserves, reflecting an updated appraisal on a nonaccrual commercial loan. The allowance for credit losses at quarter end totaled $134.3 million, and the allowance as a percentage of loans was a healthy 1.51%, which screens well, we believe, relative to our peers.
On the digital front, adoption of Credit Score Manager, a credit score manager tool, and online banking has grown faster than expectations since launched in late April. We now have 30,000 users taking advantage of this robust financial wellness tool we believe is a best-in-class solution.
The focus on our digital account openings has yielded expected growth so far in 2023, especially for checking accounts, with an increase of over 190% in openings compared to the same period last year. We are now opening approximately 1 of every 5 accounts via the digital channel versus in person.
In closing, we've built enough strong revenue engines and have sufficient risk appetite to grow constructively provided we fund the asset growth with organic deposit growth. With that, I'll turn it over to Jim Reske, our CFO. Jim?
James R. Reske
Thanks, Mike. We have been able to produce solid deposit growth all year to fund our loan growth. On a year-to-date basis, making no adjustments whatsoever for our Centric acquisition, loans have grown by $1.28 billion, while deposits have grown by nearly the same amount, $1.24 billion. As a result, our loan-to-deposit ratio has been relatively stable in the mid-90s all year, but that masks our ability to grow our deposit base to fund our loan growth.
Excluding the Centric acquisition, total loans have grown by $354 million year-to-date, while period-end deposits excluding Centric have grown by $597 million. These deposits, however, came at a cost. In the third quarter, we saw our cost of deposits increased by 28 basis points, while our loan yields improved by only 21 basis points.
Deposit rotation from low-yield categories, the higher cost deposit categories continued, but at a slower rate than last quarter. Fortunately, the overall pace of deposit cost increases continued to slow in the third quarter. Average cost of funds increased 48 basis points in the second quarter but only increased 32 basis points in the third quarter. It's too early to call the peak on deposit costs, but loan yields keep coming up nicely as well.
New loans came on the books at an average rate of 7.43% in the third quarter, up nicely from 7.01% in the second quarter and 6.61% in the first quarter. The result, as Mike said, was 9 basis points of margin compression to 3.76%, a level which we still believe compares relatively well with peers.
Our initial outlook for next year continues to show margin stability, though the range of potential outcomes is wider than usual due to the unpredictability of depositor behavior. Our base case rate scenario calls for a Fed funds rate of about 4% by the end of next year. In this projection, the NIM actually expands a bit until mid-'24 and then falls slightly in the second half, ending 2024 right about where it is now, hence, NIM stability. In a higher-for-longer rate scenario, you don't see that dip in the second half of 2024, so the NIM is marginally better, by about 5 basis points.
These forecasts are highly dependent on assumptions regarding depositor behavior. For example, we have fairly conservative assumptions around the continued rotation of customer deposits in 2024 from low-cost categories into higher-yielding loans -- higher-costing loans, even in a falling rate environment. So even in that falling rate environment, we assume that we'll still have about 10% of the low-cost deposits rotate into higher-cost categories, in keeping with our experience in 2023. And even with those assumptions, the 2024 NIM looks stable.
By contrast, in a higher-for-longer rate environment, we get the benefit of higher loan yields in part because the variable rate loan portfolio does not reprice downwards. But in that scenario, we'd expect more deposit rotation into higher cost freight categories, which would offset some of the benefit of higher rates.
Fee income was little changed from last quarter. SBA gain on sale premiums have been under pressure, but our wealth division did better. We expect the income to be little changed next quarter. For next year, we are looking to grow SBA fee income to help offset slowing mortgage gain on sale income and the impact of lost interchange income due to the Durbin Amendment.
Noninterest expense was elevated in the second quarter, in part due to costs associated with debit cards and related items, as Mike described. Our expected noninterest expense is around $65 million to $67 million next quarter. We think expense pressures will continue in 2024, but we're committed to keeping a lid on costs.
We repurchased approximately 260,000 shares in the third quarter at a weighted average price of $12.36. We slowed share repurchases somewhat late in the second quarter to conserve capital. Tangible book value per share increased from $8.24 to $8.35 as retained earnings growth outstripped increased AOCI. Regulatory capital ratios improved slightly while the tangible common equity ratio remained unchanged. And with that, I will turn it back over to Mike.
Thomas Michael Price
Operator, now we'll turn it over for questions.
Question and Answer Session
Operator
(Operator Instructions) Your first question comes from the line of Daniel Tamayo with Raymond James.
Daniel Tamayo
Maybe we start on -- I just want to make sure I heard your guidance correctly here, Jim, on the margin. Yes, I mean just -- I guess I can just tell you why I -- so if the Fed funds rate ends about 4% end of the year, then the NIM is going to expand -- sorry, yes, expand during the year and then end the year around where it is now? Is there any contraction at the beginning of the year? Or is that -- did I hear that just expand and then -- okay.
James R. Reske
I'm sorry, I didn't mean to talk over you. But yes, you got it right the first time. There's a little bit of expansion from now. So you get some of the benefit of the loan portfolio, the rate increases that have happened this year year-to-date and a positive (inaudible) we have been experiencing. So that helps to give you a little bit of expansion. But then rates -- if the Fed funds rate falls that much by the end of next year, there's pressure in the variable rate portfolio. That brings the overall NIM down a bit, so it trails off towards the end of next year and it ends next year and that projection actually exactly where it is right now in the (inaudible).
Daniel Tamayo
Okay. So you've got the margin going up next quarter essentially and then Fed dependent kind of as we move into 2024?
James R. Reske
Yes. With the big caveat that these are all projections and we could always be wrong. They are forecasts, right? So the hard thing to forecast has been depositor behavior, which is one of the reasons I was trying to give a little more disclosure on some of the deposit behavior assumptions underlying the projections. But that's right. You've got that right. In that projection, we think that the low point for the margin is actually this quarter.
Daniel Tamayo
On that note, do you have the -- what the margin was kind of in September? Or just curious how it progressed during the third quarter.
James R. Reske
I don't, but I'll get it for you before the end of the call.
Daniel Tamayo
Okay. That sounds great. And then the -- just wondering, I heard your comment on expense pressure continuing in 2024. Just curious if you could put a little finer point on kind of how you're thinking about that relative to maybe what you've done historically in terms of expense growth.
Thomas Michael Price
I'll start there, Daniel, and great question. Just a week ago, we went through 30 operating plans for regions, lines of business and business support units, and with resolve, we will try to get to a good point of operating leverage in next year's budget. And that will include a combination of making the best assumptions we can about what's going to happen in different optionalities for interest rates, really driving some more costs out and not -- you have enough turnover in a bank, you don't have to announce [rifts] and things like that, but just in process -- coupled with process improvements, but we just expect every line of business, every business unit, every region to get better every year, to grow deposits, to grow loans and create some operating leverage in their own respective budgets. And we're about 50% through that process. So we'll land the plane here in the next 30 days. And -- but that's the goal. And if you look at our track record over the last 11 or 12 years, we're pretty close or good at that. And if we miss, it's not by much.
Operator
Your next question comes from the line of Michael Perito with KBW.
Michael Anthony Perito
I wanted to circle back on the margin conversation a little bit. I was curious if you guys can maybe give us a little incremental color in terms of like what the incremental spread is on your loan and deposit books today, so meaning like your blended commercial loan yield on new originations against kind of your incremental dollar of deposits and where that spread is today. And it would seem like, based on your margin guidance, that you guys feel a bit more confident about being able to maintain or grow that spread moving forward now. But just curious if I'm interpreting that correctly. And any detail there would be helpful.
Thomas Michael Price
Go ahead, Jim.
James R. Reske
I think you're talking about -- well, new loan spreads like on corporate loans, I think, are holding up very nicely.
Thomas Michael Price
They are, and in fact, our biggest category of growth is commercial variable and our spreads there on advances and really all-in are well in excess of 8%.
Michael Anthony Perito
Okay. And on the incremental funding side, roughly where are you guys kind of at today against that excess 8% figure?
James R. Reske
Yes. Incremental funding is going to be driven by the kind of deposit specials we have out right now, which is going to be between 4% and 5%. Current CD special time deposit specials are right about 5% and money market specials are between 4% and 4.5%.
Michael Anthony Perito
Okay. All right. So I mean it sounds like then the incremental spread is very supportive of kind of the margin, which I guess, backing into your commentary, Jim, to the prior question about how you think this could be the bottom for the NIM, I mean that -- those facts would seem to be very supportive. I mean is that kind of the build up in terms of your projections?
James R. Reske
Yes, I think that's right. And just to be (inaudible) clear, the figure [micro-sorting] the yield on some of the corporate categories, if the overall yield and everything coming in is 7.43% in the quarter and your marginal cost of funds is still in the 4% to 5% range, that does kind of support the continued stability of the NIM.
Thomas Michael Price
Yes, and we've pivoted. We're supporting growth in categories, quite frankly, that have the best spread, and we're really believers in all of our businesses, but there's times where we've pinched some of those businesses that have lower yields at this time. We want to keep our producers looking forward, but we're putting on assets in the most attractive categories generally.
Michael Anthony Perito
That's helpful. And then if we think -- as we start, and I realize you're not really providing 2024 guide full yet, but as we think about the growth opportunities next year, it seems to me like it's kind of a balance between your appetite for growth and customers' appetite for taking credit, right? And so I mean on the one hand, it seems like your balance sheet is very well positioned. If the spreads and the risk-adjusted returns are within your comfort level, you guys have room to grow loans on a net basis, pretty -- at least mid-single digits next year without putting too much stress on really anything.
But I guess the flip side of that question is, do you think there's enough customer appetite with, for example, corporate yields north of 8% to drive that type of production based on what you're hearing and seeing today? And I would love just some color on kind of those two sides of the equation as we think about loan growth for 2024 for you guys.
Thomas Michael Price
We do. I mean we're not a market maker, we're a taker. We're -- in most of the markets we're in, there is sufficient volume and opportunities out there for us to compete. And we have a number of competitors, both small and large, that either don't have the flexibility or desire to grow right now. So that's where we're at. It's a good position to be in.
And by the way, that varies by geography. We have 6 markets, capital region in Eastern PA, Community PA, Pittsburgh, Northern Ohio, Central Ohio and Cincinnati. And it does vary by geography, but we believe there's enough out there to comfortably hit what are lower loan figures this year and next year than we've done in the prior 2 years. Part of that is because we're pretty balanced, and we have any more a pretty full range of solutions for clients.
Michael Anthony Perito
Great. And then just last question for me. Obviously, the credit quality of your balance sheet remains pretty stable here. But as we think about the third quarter, there's really been some not so savory data points from many credit card delinquencies, auto delinquencies. Obviously, Discover was pretty bearish on their earnings call. So how do you guys kind of approach the credit piece here?
I mean obviously, you're culling your portfolio and stressing it and looking at it, but there are starting to become somewhat obvious signs of deterioration. Obviously, that doesn't directly correlate to your loan book, right, but could have broader implications for the economy if continued, right? So I just would love some updated thoughts around the current credit environment. And yes, I was just curious how you guys are kind of approaching that just given some of the data points we've gotten in the last kind of week or two.
Thomas Michael Price
Well, we have Jane Grebenc, myself, Brian Karrip and others that have been through several cycles over 35 years or so in each. And this geography we're in tends to do pretty well through cycles and has through -- did through the great financial crisis in certain categories. We've really tightened and we're tough on credit across the board, appropriately so. And there are -- we do feel there'll be some strain, but probably on things in retrospect that we knew we should have done at the time. But we'll work through it and -- but we do think that there's enough demand out there and the credit will hold up relatively well. Brian, do you want to add any color to that?
Brian G. Karrip
Just that we have seen delinquencies in the consumer side pick up a couple of basis points. As we look at it and take it apart, we know that our portfolio for indirect is up a few basis points, roughly 10 basis points quarter-over-quarter. But our portfolio is well underwritten. If you think about the strong FICO score in that business, around 744 weighted average, you think about the granularity in the portfolio, the deal size, the go-to-market strategy, we feel pretty comfortable that we can see what we have in our portfolio and address any increase in delinquencies.
James R. Reske
Brian, if I could add, just kind of looking over your shoulder at your delinquency reports, this still is a little bit mixed. Overall, consumer delinquencies are up as the categories you mentioned, but they're somewhere down as well, I think, right?
Brian G. Karrip
Yes, the HELOC category improved, and we think our portfolio is in good shape entering into this credit cycle.
Michael Anthony Perito
Got it. No, I think that's very fair. I appreciate you guys all pitching in there and providing some color. It's helpful.
Operator
Your next question comes from the line of Karl Shepard with RBC Capital Markets.
Karl Robert Shepard
I wanted to pick up here on the deposit conversation. Jim, I appreciate kind of all the help and the sensitivities in the forecasting. But what are you guys hearing from this field that gives you a little bit of confidence in the forecast? And I know the comment was, I think, slowing deposit pressures. But if you had to give it your best shot, when do you think deposit costs can peak, assuming the Fed is done?
James R. Reske
Yes, you're -- I'll maybe go right to the heart of your question on the deposit peak. The projections we have, even in a falling rate environment, they drift slowly upward. The analogy -- I don't think it's a good analogy, but it's one I came up with, is it's like a motor boat, you shut off the engine and it keeps drifting forward. Even if the Fed cuts rates next year, deposit -- overall deposit costs will continue to drift upward just because of this rotation phenomenon that we've been talking about. That's why we've been trying to track it, understand it.
I think we've been very successful in getting new dollars in the door and growing our deposit base, like I mentioned in my leadoff -- the leadoff to my comments, but it also reprices our own loan book, and that's going to continue next year. So it doesn't -- in our projections, even in a falling rate environment, we don't see a peak. It kind of levels off towards the end of next year. And then in a -- if rates stay higher for longer, if rates don't change from here, in that environment, the deposit rates continue to drift upward. It's just that the loan rates drift upward even -- at an even faster rate. And so that's why it's better from a margin perspective for us.
Thomas Michael Price
Yes. I would just add, and Jane is on the phone, I think her and the team have done a terrific job pivoting to deposits, bringing deposits in. And as you recall, we got off to a late start simply because we had to preempt under $10 billion with Durbin. And -- but once we got focused, we've grown deposits pretty nicely from quarter-to-quarter and added a lot of new deposits. Jane, any color you want to add?
Jane Grebenc
Only that we have seen the request for deposit exceptions decline a bit, which tells us that competitors are slowing down a bit. And our retention rate on the CDs that we have been bringing in, in our money market specials, the retention rates were very good. So we feel good. You can never have too many transaction accounts, but we feel good.
James R. Reske
It's Jim again. If I could jump back in, just because Jane mentioned it, our CD retention rate has been really remarkable. We retain about 80% of the CDs that mature. Now of that, the ones that we retain, we've seen about 60% of those would go to the rack rate, so they're priced lower, but about 40% will take the current special rate. But the retention rate has been really strong. That's been really in our favor.
Let me also just take a minute just to give you a little more color on that, the whole deposit rotation concept we've been talking about, because it really informs our projections for next year. So if I look at the low-cost deposit categories really of noninterest-bearing and savings, those together were about $4.6 billion at the end of the first quarter. And that's a good starting point for us because we closed the Centric acquisition in the first quarter.
Those two categories together fell to about $4.3 billion in the second quarter. That was a 5.8% decline in those categories. But in the third quarter, it fell to $4.2 billion. That was a 3.6% decline in those categories. So just at a macro level, I mean Jane is giving you the color from the street of the day-to-day exceptions that we deal with and customers and those interactions. But on a macro level, I'm watching the numbers and I've seen it slow down. That gives me a lot of confidence.
And even with that, we still have a fairly aggressive assumption that it's going to continue next year. And even with that, we still get instability. Oh, and one more thing. I do have the month-to-month NIM answer from the previous caller from, I think, Danny, you were asking. July NIM was 3.83%, which is pretty consistent with the second quarter, 3.85%. July was 3.83%. August was 3.69% and September was up to 3.76%. So there you go.
Karl Robert Shepard
Okay. Not that, that wasn't a lot of color, but I'm just going to ask a follow-up on deposits. But the strategic focus is growing deposits to fund loan growth, right? We've talked a lot about the pricing pressures and that changing location. Just when you think about driving balanced growth in 2024, it doesn't seem like it's going to be a CD special game. It seems like it's going to be more core relationship growth. But if you could just expand on those comment a little bit, that would be great.
Thomas Michael Price
Jane, do you want to (inaudible) and lead us off there?
Jane Grebenc
Well, I think we're always going to have CD specials, at least for the next couple, 3 years. But as I said before, I don't think the pace or the height of these specials is going to continue. And we still have a very strong transaction account base and we've got a nice savings book. So I feel very good about our deposit positioning.
Thomas Michael Price
We have a good slide on Slide 15. This is Mike. Sorry to interrupt. Thanks for that, Jane. But our average retail account is $11,000. Our average deposit size is $18,000. You might move over 3 or 4 basis points, but you're probably not -- or 300 or 400 basis points, but perhaps not still inclined over an additional 25, and these are loyal customers in small communities. I mean our Community PA, we call it the bread basket of our company, is $3.5 billion of our deposits, and just great clients, deep relationships. Just we do feel confident that we have a good depository and we just -- they could surprise us, as Jim suggested, but we feel like we're well positioned.
Operator
Your next question comes from the line of Manuel Navas with DA Davidson.
Manuel Antonio Navas
What are you kind of assuming on that like loan yield repricing kind of in a normal quarter with no hikes, with no change to the Fed funds rate. Do you have kind of a standard loan yield increase?
Thomas Michael Price
I'll just start where I think Jim might have mentioned it, but our portfolio here in the last quarter was about 7.40% in terms of new loan yields, and that ranged from as high as, in certain categories, as high as well over 8%. And the two key categories are commercial and really equipment finance, and equipment finance is really running in the high 7s. And so those are key categories for us, but there's good volume there, and that volume doesn't evaporate. And even our indirect business has gotten up in almost 7%, 6.85%. So just good progression by the team in terms of getting paid for our risk and wherever they're out on the yield curve. And so that's a nice position to start from. Jim, anything you want to add?
James R. Reske
Yes, Manuel, I'd add, so we keep giving you and we were giving you the new loan yields, but the replacement yields, the differential between the yield on what's coming on versus what's coming off has been expanding. And that also gives us confidence in the margin. So in the second quarter, that differential was 87 basis points. After new loans are coming on the book's at 7.01%, but that was 87 basis points higher than what was running off the books. And this is -- the differential in the third quarter was 115 basis points.
Manuel Antonio Navas
Okay. Okay. That's helpful. Is your thinking about growth in fourth quarter into next year, where does the pipeline stand? And there's usually been a shift towards more commercial at the back half of the year. Is that -- could that keep happening? Just kind of thought process on the mix of [the loan book] at the back half of the year and into next year?
Thomas Michael Price
Pipelines are definitely lighter than they were a year or 2 ago, but the 2 years preceding this, we grew in the low teens. And so the -- understandably, we do think the kind of guidance we've given, mid-single digits from 4% to 6% is very achievable in a variety of ways. And if anything, we're kind of pinching volume if the spread isn't right or it's not in the right category. And at the same time, we kind of -- we cherish a couple of businesses right now that we're pinching a little bit more just because of where the yields are at.
James R. Reske
And by pinching, we mean we're pricing those so that the new origination volume is fairly close to the runoff volume. So the loan portfolio size doesn't grow, but if the price is upward, which doesn't create any capital or funding pressures, but does increase yield and margin. And on the consumer side, that story is playing out fairly nicely.
Manuel Antonio Navas
That's mainly auto, right?
James R. Reske
Yes. I'm thinking particularly of auto. I think we've spoken about that before, but that's exactly what I'm thinking about. And that creates room when do you want to -- for which new growth that you want to fund and capitalize gives you the ability to do that in commercial lending.
Manuel Antonio Navas
Is the -- can you kind of give an update on equipment finance? That's been a nice place of growth. It seems like yields have kind of gotten better, high 7s. Just the latest there? It's obviously gone from a small base, but the growth has been pretty nice.
Thomas Michael Price
Yes. I mean that's -- it's now at, the group...
James R. Reske
$46 million?
Thomas Michael Price
$46 million this past quarter or like $35 million actually, and $46 million of new volume and at 7.69% and just we like the granularity of that. We've even pinched that a little bit in terms of the type of equipment finance that we're doing. And so -- and we just have a terrific team that we did a lift out a few years ago, and we're just pretty bullish on the business in some of our commercial categories.
Manuel Antonio Navas
Just to shift -- I appreciate that. Just to shift for my last question, can you talk a little bit about new deposit flows and how much are coming from current customers bringing in more money or from gaining households?
James R. Reske
Yes. So that relationship is actually something we've been watching this year. It's remained fairly stable. So when we get -- for every $100 of new money that we get in from a deposit special, about $50 is about -- from our own book repricing upward. So that you put out a CD special and now what you're doing is get a little bit from an existing savings account, a noninterest bearing, into the new special CD special or money market special. But the other $50 is new. And that other $50 that's new, about half is from our existing customer base. So it is bringing more money to us, which is great. And then the last $25 is the real -- the new money.
Thomas Michael Price
I think what's helped us there is a year ago, our cost of funds deposits at this time last year, Jim, was 5 basis points, right? And we had all been driven off CD customers.
James R. Reske
Correct.
Thomas Michael Price
And so I just think now that we hang rates, we have loyal customers and we're getting -- they have most of their household with us, but the hot money that might have been somewhere else at a different bank, I think customers are aggregating it with us. How long that continues to play out the way it is currently playing out? Not sure, but -- and again, a lot of that is coming from our rural markets.
Manuel Antonio Navas
Okay. That's great. And I do want to catch up on the buyback. How did that appetite change across the quarter? Kind of just from the 10-year rising to where it did and you wanted to have a little bit more capital and is that -- does that leave you to think it could go up a little bit in terms of pace in the fourth quarter?
James R. Reske
Just actually -- I just changed the cap on the price at which we're buying back the stock. We were early in the quarter buying back at levels below $12.50. And towards the end, I said let's cap it at $12, so we would buy back. And at any given day, we're trading under $12 a share. That slows it down a little bit, probably so we keep some dry powder, but also because we want to be in a position with our sub debt to be able to call it. You recall we have 2 tranches of sub debt at the bank level, $50 million each. One of those tranches is already callable and has lost 20% of its Tier 2 treatment. And so we'd really like to be able to call -- be able to continue to build capital levels to be in a position to call that if we want to buy next June when we lose another 20% of Tier 2 capital treatment. That was the thinking behind that.
Operator
Your next question is from the line of Matthew Breese with Stephens Inc.
Matthew M. Breese
Jim, in the press release, you noted that because of some excess liquidity this quarter, it impacted the NIM by, I think, 8 basis points. I was curious your thoughts on how much excess you're currently holding onto at period end? How long you intend to hold on to it? And if, with some of the margin dynamics you're talking about, there's also some normalization of liquidity in those assumptions?
James R. Reske
Yes. It's been about $250 million of excess liquidity when we took on right after Silicon Valley Bank failed in the first quarter. We started to deploy some of that in the third quarter. I think got it down to about $160 million, but of excess, just excess cash. So when I say excess cash, that means we borrowed money from the FHLB and we parked it at the Fed. We're going to continue to, but though what we've been experiencing is deploying that cash into securities purchases, and we're going to continue to do that here for the rest of the year and into next year as well.
Matthew M. Breese
Okay. So maybe we should think put to work $40-ish million a quarter. Is that a fair way to think about it?
James R. Reske
Probably about right. Might be a little more than that. I think our securities portfolio for -- at least in last year, we were doing almost no purchases to let that run off so if redeployed in the loan growth and it was a good, profitable strategy, but it's gotten to a point where it's a little small in terms of a portion of total assets compared to peers. And so we'd like to get the size of the securities portfolio up a bit.
Matthew M. Breese
Okay. That was actually on my list of questions. We're down to 11% securities to assets. But this quarter, obviously, a pop-up close to 6% period-to-period. Where would you ultimately like to be and over what time frame?
James R. Reske
We don't have a hard target. We just know it's got to get bigger from here, I think, but not aggressively so. I think in our last projections, we were projecting it to grow by another $100 million next year. So it's not -- we're not going to go guns-a-blazing and buy $0.5 billion of securities next year, but we do want the portfolio to grow from where it is now.
Matthew M. Breese
Okay. I think accretable yields represented 10 bps of the NIM this quarter. It's always a hard-to-model figure. Could you just give us the most recent forecast there? How much of an impact every quarter you expect it to be on the NIM?
James R. Reske
Yes. We think it's about 10 basis a year -- 10 basis points, and we're actually trying to make the point that accretable yield and the cash figures kind of offset each other. We think it's probably going to be about 7 basis points next quarter.
Matthew M. Breese
And 7 slowly declining to 5, is that a good estimation for 2024?
James R. Reske
It is. And I don't have the exact number in estimation for you for 2025 -- 2024 yet, I'll get you that next quarter, but it is fading out. So that's probably a fair assumption.
Matthew M. Breese
On the credit front, the one category I'm curious on is auto. There's been some more recent headlines that I think it's subprime auto delinquencies are starting to go higher. I wanted to know what your experience has been and if you see anything underneath the hood there that we should be incorporating into our models, higher charge-offs, delinquencies, things of that nature.
Thomas Michael Price
Well, we only do auto in market. We had good experience through the last credit cycle and probably starting to hook a few more cars. But Brian, why don't you give them the rest of the story?
Brian G. Karrip
Yes. We have a prime business. We don't have subprime. As I mentioned earlier, delinquencies are up from quarter in June, 30 basis points to 40 basis points this quarter. We're watching it closely. We've got a very experienced leadership team in that business. They're managing the business well. The underwriting is tight. And we're going to continue to watch it, Matt. Thank you for your question.
Matthew M. Breese
I also wanted to ask, just staying on the topic of credit, what is the size of your syndicated, if you have one, loan portfolio? How is the credit performance there? And how much of that, if you have any, is that of market?
Brian G. Karrip
Yes, so our -- so the SNC book is $90 million. It's down significantly over the past several years and it's performing fine.
Matthew M. Breese
Okay. And then I did want to touch on the specific reserve this quarter. It was based on a reappraisal. What was the credit? Was it a commercial real estate or commercial credit? And what were some of the primary factors that changed the appraisal enough where you had to put some money aside?
Thomas Michael Price
Brian?
Brian G. Karrip
Yes. Thank you for your question. So this is an office property in the eastern part of the state, Central Business District. The loan was originated in 2018. In the pandemic, the property became 100% vacant. In 2021, we put it on nonaccrual. Our procedure is to get an annual appraisal and the appraisal value that came in most recently showed a significant decrease in value, so we add a specific reserve of $4.1 million. So the appraisal year-over-year reflected a 100 basis point increase in the cap rate, and as I mentioned earlier, the lease-up assumptions from the appraiser, the conclusion it would take a fairly long period of time to lease the property. That's why the value decreased.
Thomas Michael Price
I think we have just one additional nonaccrual borrower that is an office property. They're paying as agreed. It's a $2.2 million loan, and we feel pretty good about that one.
Brian G. Karrip
That's correct.
Matthew M. Breese
The loan where you put aside a specific reserve this quarter, what's the total loan size? And how much are you now covered for on the reserve?
Brian G. Karrip
The loan size is $12.6 million in the specific (inaudible).
Matthew M. Breese
I'm sorry, specifically, it's how much, 6.1?
Brian G. Karrip
It's $4 million is the specific reserve, the loan.
Matthew M. Breese
Okay. Okay. Sorry for the pregnant pause. I'm just curious how much -- how confident are you in the $4 million reserve covering potential loss content there?
Brian G. Karrip
We're as confident as the most recent appraisal, which is 1 month old. We continue to watch and monitor this. Should they find tenants or should they have a desire to sell the building, our special asset people will update the numbers and then we'll post up on a quarterly basis.
Matthew M. Breese
Okay. Last one for me is just around M&A. You still have a pretty strong multiple relative to the group, and I'm curious if you're hearing more from your nearby peers that might not be in such a strong position, there's more conversations, whole bank or fee income?
Thomas Michael Price
Yes, there's more whole bank, and there's definitely a lot more conversation than, I would say, in the last 5 years. And we talk to everybody. And people in the past have come to us a couple of times first, and that's been nice. We're a good partner, quite frankly, and we tend to do right by the people that partner with us, and they do well and we do well.
I think we have a slide in our investor deck that shows how we've grown organically and with small M&A, generally $1 billion or less. And that's been very accretive to us over time. And those would be ideal transactions, kind of tongue in cheek, particularly a rural depository. And so you just don't know. And we're not overaggressive, but we do talk to everybody and it would be a great way to continue to supplement.
We can grow the bank. We've just flat out can. It's just you got to do it right, and you got to do it with low-cost funding. And Jane is all over that, trust me. So is that helpful?
Matthew M. Breese
Very helpful, Mike. I appreciate it.
Operator
(Operator Instructions) Your next question comes from Daniel Cardenas with Janney Montgomery Scott.
Daniel Edward Cardenas
Most of my questions have been asked and answered. Just kind of a couple of modeling questions here for you guys. What -- how should I think about your tax rate on a go-forward basis? I mean it's been fairly consistent here. Is that 20-ish percent still kind of a good run rate?
James R. Reske
It is about -- yes, it's 20.02%, but call it 20%.
Daniel Edward Cardenas
Okay. And then, Jim, I missed your comments on fee income. I guess I can't multitask. Can you maybe just kind of quickly go through those again?
James R. Reske
Yes, sure, Dan. I can't multitask either, by the way. But the fee income is -- we think it's relatively stable. There's -- next year, of course, we have the Durbin impact, right? So that's going to affect fee income, but we are looking at sources like growing SBA income to help offset that.
Operator
There are no further questions at this time. I will now turn the call back over to the CEO, Mr. Mike Price.
Thomas Michael Price
We always appreciate your interest in our company and the opportunity to interact and hear what's on your mind. Thank you for your time today, and thank you.
Operator
Ladies and gentlemen, this concludes today's conference call. You may now disconnect.
