Q4 2023 ConnectOne Bancorp Inc Earnings Call

Participants

William Burns; Chief Financial Officer, Executive Vice President; ConnectOne Bancorp Inc

Presentation

Operator

Hello, and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I'd like to welcome everyone to the ConnectOne Bancorp, Inc. fourth quarter 2023 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session if you would like to ask a question during this time, simply press star then the number one on your telephone keypad. If you'd like to withdraw your question, press star one again, I'd now like to turn the conference over to Steve Anthea, Chief Brand and Innovation Officer. Please go ahead.

Good morning and welcome to today's conference call to review Connect one's results for the fourth quarter of 2023. And to update you on recent developments on today's conference call will be Frank Sorrentino, Chairman and Chief Executive Officer, and David Niederman, Vice President and Chief Financial.
I'd also like to caution you that we may make forward-looking statements during today's conference call that are subject to risks and uncertainties. Factors that may cause actual results to differ materially from expectations are detailed in our SEC filings and the forward looking statements included in this conference call are only made as of the date of this call and the Company is not obligated to publicly update or revise. In addition, certain terms used in this call are non-GAAP financial measures, reconciliations of which are provided in the company's earnings release and accompanying tables or schedules which have been filed today on Form eight K, the SEC and may also be accessed through the company's web.
I will now turn the call over to Frank Sorrentino brakes. Please go ahead.

Thank you, Susie, and good morning, everyone.
Thanks for joining us today.
Connect one persevered through an environment marked by significant challenges and risks as 2023 was a complicated period for the banking industry. The Fed's unprecedented tightening had an adverse effect on industry earnings, including Connect ones, causing a contraction in net interest margins, but our key profitability measures, efficiency and asset quality ratios were solid. We remained a focused, disciplined and strong financial institution. I'm proud to say with the continued strength of our balance sheet, our culture and the commitment of our entire organization, we were able to stay the course and continue the path that has made connect one of success since our inception nearly 20 years ago. As I've discussed many times over the years, providing unparalleled support for our clients has always been a strategic priority for connect one. This isn't anything new but it's this philosophy, consistent track record and an approach that I believe positions us to outperform in 2024 and beyond.
Now let me turn to some of the recent highlights and the near term outlook. Throughout the course of the past year, we strengthened our capital and liquidity levels and entered 2024 with a fortified balance sheet that positions us to support both existing and new clients, reflecting Connect one's long-standing focus on relationship-based lending. During the fourth quarter, we had strong sequential C&I loan growth of nearly 7% and saw a positive traction in non-interest bearing demand deposit trends.
Looking ahead, while our loan pipeline remains robust, we will continue to be disciplined while maintaining our sound approach to both credit as well as spreads. Overall, we can currently anticipate continued gradual opportunistic growth in 2024. As Bill will discuss this momentarily.
Our fourth quarter net interest margin compressed sequentially and trends seem to be stabilizing. We're seeing a flattening of deposit costs and anticipate that the margin will widen at the Fed eases its interest rate stance for the year. We were also able to increase our tangible book value per share by more than 6%, a metric that we've consistently increased since Connect one's inception almost 20 years ago. Additionally, while Connect one's efficiency ratio has been impacted by the compressing margins. Our annualized operating expenses remain below 1.5% of average assets, placing us among the top tier of efficiency among banks.
Turning to credit Connect one's metrics remained solid, reflecting our high credit standards, our relationship-based client philosophy and our track record of avoiding riskier subsegments. Additionally, we have been and will continue to be proactive and prudently maintaining reserve levels commensurate with our growth. So obviously, we'll provide some more on credit metrics in a few minutes supporting Connect one's focus on driving superior growth and profitability over the long term.
We've also continued key technology initiatives. This includes efforts to enhance the client experience while expanding opportunities to support our deposit franchise. Further to drive future organic growth. We continue to hire quality talent away from other banks, adding to an already experienced team of bankers here at ConnectOne.
Finally, we remain committed to enhancing shareholder value. Last year, we increased our common stock dividend nearly 10% to $0.17 a share, and we'll consider another dividend increase in the next quarter. Our stock outperformed much of the industry during 2023, but we still believe it's undervalued and good, and we'll continue share repurchases in 2024.
In closing, we firmly believe that connect one's financial strength, conservative client-centric model talent base and a track record of prudent underwriting and profitability position us to capitalize on emerging opportunities to enhance Connect one's valuable franchise as we plan ahead and remain committed to our client first operating model to drive deposits even in a competitive market. We'll look to maintain continued emphasis on growth of our C&I division as our new team members continue to build momentum, and we're also we're also excited about the opportunities to strengthen our position in both Long Island and South Florida. We're projecting modest growth and remain well positioned to capitalize on opportunities across our markets.
And so at this time, I'd ask Bill to review our fourth quarter and year-end financial highlights.

William Burns

Bill?
All right. Thanks, Frank. Good morning, everyone. So as I've done in prior calls, I'm going to give more color on the fourth quarter and also provide some estimated forward guidance.
Let me start off with deposits. Our client deposits grew sequentially as we continued to execute on the initiatives and incentives for our team to accelerate deposit traction. And to that end, client deposits, which exclude brokered increased 100 million sequentially, which is about 5% annualized. And within that number, non-interest-bearing demand increased by $35 million and that's an 11.5% increase on an annualized basis. I want to give you a little a little more color here. Monthly average non-interest bearing demand increased each month from October through January. So with that, I feel confident that at a minimum, we've hit a floor here with potentially some growth going into 2024. The net interest margin contracted sequentially by five basis points. I think that's in line with the previous guidance I gave you, and it reflects a 22 basis points increase in our total cost of deposits, which is now up to 3.14 notwithstanding that increase in deposit costs, which is based on averages pertaining to the fourth quarter versus the third quarter, we saw a measurable slowdown in interest-bearing deposit rates, which were flat in December versus November, and that was due to CD repricing, which has essentially run its course. And then also with no recent Fed increases savings and money market rates have stabilized with that, it appears that our margin will trough in the first quarter, I would say slightly below the fourth quarter level. And then going forward from there, I think we'll stick with our previous guidance and margin will expand with roughly five basis points of widening for each 25 basis point rate cut. As you know, there are many moving parts to modeling net interest margin forecast, but we feel relatively comfortable with the direction, the magnitude and the timing of our guidance and the caveat to that guidance, our nonrecurring items such as prepayment fees, which can be difficult to predict and increased quantitative tightening, which would increase competitive pressures and therefore slow the speed of deposit rate declines as to the impact of loan portfolio yields, which is a note holder of limb forecasting, we expect to benefit from a loan pipeline, which is predominantly wider spread, C&I and construction, while tighter spread multifamily originations have been limited. I do want to mention that we had very, very strong growth in C&I in the fourth quarter, but a portion was related to line usage, some of which has already been repaid. And although we anticipate a continuation of our emphasis on C&I growth, it will likely be lower than this past quarter.
Moving on to non-interest income, I want to mention one item here that is SBA loan sales, which have been running about 500,000 per quarter. We expect to continue and improve on that pace throughout 2024 in terms of operating expenses, we have essentially been flat the past two quarters. Annualized operating expenses percentage of average assets remains less than 1.5%. And looking into next year, my expectation is for an approximately 5% to 7% increase in expenses with a larger share of that increase coming in the first quarter that you've that usually works that way for us, there continues to be some inflationary pressures and there is still a tight labor market keeping keep in mind some of our independent decisions take into account revenue growth so we can and have adjusted mid-course in past years.
Just a little bit on liquidity. Our liquidity position remains very strong by almost any measure. Readily accessible. Liquidity remains well above two times adjusted uninsured deposits. And that uninsured deposit number excludes collateralized municipal deposits as well as inter-company deposits. So that number stands now at 22% of total deposits.
Turning to capital for a second. Our tangible common equity ratio, all the Company is very strong at 9.3%. That's up from 9%, 9.0% a year ago, while subsidiary bank leverage ratio reached 1120 at year end, up from 10 to 60 a year ago. Tangible book value per share has now surpassed $23 is consistently increased for many years, dating back more than a decade and also was largely unaffected by AOCI. repurchases for the fourth quarter were slightly more than 100,000 shares at an average price of 21. That repurchase level was a bit below the prior quarter, but we have 900,000 shares left in our authorization. And I would expect to utilize that capacity in its entirety during 2024.
Our credit quality metrics, it was an action that did not impact earnings or loan loss provisioning. We charge off taxi medallion loans that were previously reserved for in our allowance that added approximately 20 basis points of the charge-off ratio for the quarter. Our taxi loan portfolio is $10 million, and it's valued at 125,000 per medallion. In addition, we had charge-offs in the quarter totaling approximately 5 billion isolated flood credits that did not materially impact earnings either the annualized charge-off ratio for the quarter, excluding the tax charge, was 24 basis points. Credit quality remains sound as measured by positive trends we see in criticized and classified classified assets and delinquencies, and there's no discernible trend in any sector or subsector. Nevertheless, we agree with Wall Street analyst models and that it's prudent to expect a more normalized charge-off percentage for the industry, which is a little higher than what was experienced in 2023.
One last note on the effective tax rate, it was a little bit lower this quarter at 24.4. That was due to a lower level of pretax income. But I'd expect the regular run rate for 24 to be back around 26%. And with that, right, back to you.

Thanks, Phil.
In summary, in what's been a challenging year for most of the industry, we are connecting on yet again demonstrated our ability to perform in extraordinary times.
While we're optimistic about 2024, we do expect it will have its challenges. However, with our strong capital foundation, our commitment to our core business and track record of navigating through uncertain times. Our team is prepared to be opportunistic about the year ahead. As always, we appreciate your interest in connect one and thanks again for joining us today. And operator, we'll now open the line for questions.

Question and Answer Session

Operator

At this time, I'd like to remind everyone in order to ask a question, simply press star, one on your telephone keypad.
Our first question will come from the line of Daniel Tamayo with Raymond James. Please go ahead.

Morning, guys.
Thanks for taking my question. And Bill, I appreciate all the detail on the NII guide and the margin as well. I guess I'll start on the and on that I appreciate the it five basis points, but just curious like what all is going into that in terms of deposit repricing assumptions, what is going to be immediately replaceable VERSUS, you're hoping you'll be able to pass through that sort of stuff Yes, on there's a lot to our deposit makeup.

William Burns

But like I said in the call, you know, we think we've maxed out our interest bearing balances are. And so, you know, I think first off, the deposit costs seem to be leveling off. And so we'll balance that pickup in margin by having our assets continue to reprice higher. So that's going to lead to the stopping of contraction and the beginning of a widening of the margin. And then as the Fed cuts in our mind, what our models show about for which we have for cuts throughout the year. We've got right now we're modeling about a 50% beta on that. So I hope that helps to helps answer your question.

No, that's helpful. And you're modeling that to take place immediately or with a bit of a lag?

William Burns

Well, like I said, it's there's a lot of moving parts. So I am actually saying it's concurrent worker. So it's 50 base, it's 50%. There's different ways of looking at data. You can look at it is it's immediate 50% or you could look at that as a lag that gets to Andrew. But the way the model works, we have it at 50% and media.
Got it.

And then maybe one for Frank, just on the loan growth. I know you also mentioned that you're expecting C&I to slow from the strong growth that you saw in the fourth quarter. But I'm wondering if you could just kind of put a finer point on and what type of loan growth you're expecting that's coming as you can?

Sure.
I think we are we've mentioned a number of times that we've been focusing a lot on our construction portfolio. We think it's actually a really great asset class at this point in time on notwithstanding the fact that interest rates are higher, there's a tremendous amount of demand for the product that most of our builders are bringing to market, and we're seeing that with complete projects. And so we've continued to expand not only the size of the portfolio, but also the geographies in which we operate. And so we're pretty excited about that. And as you know, over the last 10 years, we've been saying that we've been slowly but surely building out our C&I team and pretty much every quarter we see more and more C&I loans coming into the portfolio. And that's just, you know, an evolution that's occurring that we're pretty happy about deemphasizing a little bit of the commercial real estate and a little bit more on the on the commercial side. So I'm pretty confident that those trends will continue. As you know, in the certainly in the greater New York market, we're woefully under house. And so I don't I don't see anything that's going to change my opinion about the housing market or the construction market in general, at least not not at the moment and in the C&I world, when you look at the strength of businesses today, their balance sheets are in some of the best shape they've ever been, notwithstanding some of the changes since the end of COVID, but the businesses in general in and around the New York market are doing quite well. And so we're pretty confident about the types of businesses that we've been in, whether it's in the school space, whether it's in managed light manufacturing, whether it's in the health care environment, all of those areas are all had really very, very promising futures. And so we keep building the capabilities to service those clients and they like the Kinect one model.

So so you expect growth to accelerate as the year goes on as your pipelines kind of fill back up. Is that a good way to think about it.

I wouldn't call it an acceleration necessarily.
I think we will have growth.
I just as I said in my comments, I think the year is going to be a challenging one overall for a lot of different reasons. But I do think that we will, as we did in this last quarter, eke out growth and it will be on an opportunistic basis. I really don't want to project whether it's going to be 3%, 5% or whatever, 10%. I think it's going to be on an on a one-off opportunistic basis. We're doing things that seem to make sense. We'll be happy with any growth this year. I think there will be growth, but I again, there are a lot notwithstanding my positive comments. We are involved in three words, you know, we have an uncertain Fed at this moment. We have a presidential election coming up. There's lots of things that give me pause about where we may or may not be going forward. And the competitive environment, while we found it to be a favorable for us at the moment. I'm not so sure it's going to stay that way going forward.

All right.
Understood. I appreciate all the color, Subrah.

Operator

Your next question comes from the line of Frank Schiraldi with Piper Sandler.

Please go ahead more than we were.
Just wondering about just following up on the new dynamics.
Yes, I mean, Bill, is it we've so just the five basis points, I guess were given 25 basis point rate cut on the app that I would assume it sounds like you have kind of a steady beta, but is it maybe reasonable to assume that deposit pricing that that 5%, five basis points is sort of average 25 bps? And if there is some lag on generic, it could take maybe a little bit longer run through the math that there's some lag on deposit pricing. Is that the best way to do that?

William Burns

It certainly could happen, but that's not exactly what I was trying to communicate to you because on it, it could be the beta to be higher with a lag the situation. Do you have a higher beta with a lag or 50% immediate on. And the way the model runs out on the different scenarios, the best way to run the model in my view is to improve down if the average rate for a quarter is up X percent to 20% of that number in terms of if the Fed funds rate is down on average by a certain number of basis points, I predict our margin will be up 20% of that number.

Right. Okay.

William Burns

So okay. And you don't really I wouldn't really put a lag on the 50 days on the 50%.
Okay.

And then just in terms of growth, to the extent you got it and you talked about some of the higher yielding product that there's some opportunity and even if C&I growth is as great as it was in the quarter. Just wondering your thoughts on aside from Fed home and deposit rates stabilizing overall, where net new business is kind of coming on the books in terms of loan yields versus the funding costs as new business comes on in business and what the spreads are on our business and the good thing about C&I is it's generally comes along with the deposits, and that's why we focus on T. and I.

William Burns

But I think the spreads are three, three on 3 to 400 basis points on C&I lending. It's similar for construction, perhaps a little higher. We rely on structure.
Okay.

And then just thinking through just I think you said thank you so far thought maybe in the 5% to 7% expense growth year over year?

William Burns

Yes, that's what I have bottled, then there's still inflationary pressures. Labor market is still a little bit tight. And so a lot of that is compensation expense. We usually see a bigger uptick in the first quarter. But when I look at my current projections versus the total for 23, I come to the 5% to 7% range.

Okay. Is there anything baked in there or maybe you could just remind us and going through, you know, the threshold of food. I've got $10 billion in assets, some timing there and any incremental costs that might be baked into that 5% to 7% growth.

William Burns

We're almost already there. You know, the on this, this pullback and the Fed tightening slows things down, but we were ready to go over. And so everything we're doing today from a regulatory perspective, is if we're already there.
Okay.

So it's already baked in on.

William Burns

Yes.

And then if I could just sneak in a last one, just on buybacks. And I know you thought you guys were sensitive around tangible book value and your buyback if the stock dipped below and it looks like in the quarter you're buying on average below tangible book, but sounds like maybe that's not the right way to think about it going forward. You said long, you know, maybe less price-sensitive than anticipate completed the program this year.

William Burns

Yes.
I mean, I do remember saying that it makes all the sense in the world when it's below tangible book. But even now given our retained earnings and the growth and the dividends, we still have room to buy back stock and the 900,000 shares over the course of this year. And what we're seeing in terms of earnings to me is not a dramatically large number. So feel very comfortable with that at I can't say at any price. But, you know, for the foreseeable future, I would stay on that plan.

Right. Okay.
Thanks for the color.

You're correct.

Operator

Your next question comes from the line of Michael Perito with KBW. Please go ahead.

Hey, guys.
Happy New Year. I just couldn't hear from you. Thanks for taking my questions.
Just a couple of follow-ups.
One on the on just on the balance sheet makeup. As we think about the loan opportunities and being opportunistic, Frank and and the environment where coming out of flash still? And I mean, is it do you guys expect in the budget for the loan-to-deposit ratio to maybe drift lower as deposit growth kind of steadily outpaced loan growth. I don't even know if it's a caution or what the right word for it is, but is that just kind of the normal range for now in terms of what you guys would hope to see on the balance sheet growth side or or not necessarily look, I know opportunistic is a really big wide word, but it really defines who we are and who we've been as a company.

We've operated anywhere from about 105% loan-to-deposit ratio up as high as 120. We've averaged around where we are right now. We've been bouncing around between one only one, 12 and sort of around the 110, I think is where we are at the moment?
Yes, I'd like to see that number come in a bit just based on changes in the marketplace and things that we've seen, I think are doubling down on really re-examining the entire balance sheet and portfolio and list of clients and making sure we have the relationship-type clients that we are determined to have. I think we'll pressure that loan to deposit ratio lower. So I'm happy about some of the results we saw there. We saw it on some of the lending attributes relative to a little bit more C&I, a little bit more construction on. So I think over time, yes, I would say all things being equal, that number should drift down.
But again, we're going to be opportunistic.
And here's a great opportunity to onboard a client that we think is going to create a lot of value for us going forward.
We're going to do that.
And so I don't want to guide to a number, but I would say the general direction would be for a lower loan-to-deposit ratio.

Helpful.
And maybe switching over to and expense growth question, just on the SBA side. I mean, when you talk about the 5% to 7% expense growth, Bill, I imagine there's still some like FT. adds maybe on a net basis. But like commercial lenders, SBA producers in the budget. Can you talk about that that business? And it seems like that's probably the most capital-efficient fee growth opportunity you guys have on the horizon. Just want to trying to get a better handle of what that opportunity looks like today?

William Burns

Yes, I think we continue to build that on spread out for us with some great people there and make sure we have the right support core to increase the portfolio and volume going through there on. But it's but it's baked into the numbers we're not adding. We're not doubling the team. We add people kind of one at a time around the organization. On same token, there are people that have left the institution. And so we think we've upgraded around the organization. We've hired some great people, some others have left and the on the staff count increase has actually not been that high.

Okay.
And then just lastly, for me just as we think about 24, some of that initiatives you guys have announced over the last couple of quarters like Nimbus or even longer dated stuff like BofI and any kind of deliverables or certain things that you're comfortable telling us from an expectation standpoint about where we can maybe start to see some of those things impact financials and 24? Or is it still not entirely kind of clear yet the timing of some of those some benefits?

I think on the on the case of both live, we've seen a lot of improvements around the entire company. It's part of what's driving our SBA division, and you're seeing some of those numbers are there. We have we have been increasing pretty dramatically the number of franchise doors that we have that we service on the both live platform, which is driving other incremental business into the into the organization. Both live really acts as sort of a lynch pin or a center pin for lots of other things that are going on within the Company, which just show up in other places and hard to just put on a BoeFly, quote, unquote balance sheet or financial statement, but we're very, very happy with the results that are accruing there. And at some point, I do think we will be able to show some level of financial metrics for that unit.
On the member side, we just launched that the family and friends recently, the platform is up and running and we're seeing some successes there. I don't have to remind you that that entire vertical was turned upside down in March and April. And so we're rethinking how we're going to go after that marketplace and where do we want to add value for that specific vertical. But that the Nimbus platform is up venture on is live, and we're pretty confident that that's going to make a difference as we move through 24 and 25.

William Burns

We're also implementing mantle throughout the organization, the omnichannel deposit origination on And look, the hope there is that we improve conversion rates and that will lead to higher deposit origination.

Great.
Very good, guys.
Thanks for taking my time and for the color this morning.

Operator

And as a reminder, to ask a question, press star one on your telephone keypad. Your next question comes from the line of Nick, could you rally with Hudbay Group, please go ahead.

Pointing everyone.
Our you are just to follow up on the composition of the loan growth. Just given the strong C&I momentum and the positive construction commentary, is it your expectation that most of the loan growth this year is driven by those two segments?

William Burns

Yes, C&I and construction.
Yes, I think that's fair. I sort of pipeline.
Yes, I think there are other CRE opportunities that are out there that we continue to we. So we're not abandoning any of our any of our clients or any of the verticals that we're in. So but we are seeing momentum. And we have seen for years momentum building in the US in the C&I portfolio. And construction's always been a place where we've had very deep amount of experience. And as you know that portfolio rises and falls depending on what's going on in the economy. I have to tell you I don't think I've ever seen a stronger time or a better time to be in construction based on the demographics based on what's going on based on where people want to live and based on just the available supply of housing units. So I would not I would look to increase it even more if I could. As you know, it's a very fast moving assets. So as quickly as you put it on the books, it comes off. So yes, typically, these projects last anywhere from 10 or 11 months out to 18 or so months, so that so the turnover is very, very quick in the construction portfolio. So maintaining even maintaining our standing still in that portfolio means we're putting a lot of assets on that was very helpful.

And then as it relates to the $10 billion asset threshold. Is there incremental cost that you need to incur or is that already baked into the numbers? And then secondarily, are there any containment strategies plan to pursue in order to manage that crossing until 2025, I would say no need to build risk controls related to being over 10 billion.

William Burns

So yes, there's more to come but it's no more of an increase than what's in those numbers that I'm forecasting.

Sorry, perfect.
And then just lastly for me, just to clarify, the 5% to 7% expense growth guide that that year-over-year increase excludes the special assessment in the fourth quarter?

William Burns

Correct?
Correct.

Thank you for taking my questions.

William Burns

Great.

Operator

Our final question comes from the line of Matthew Breese with Stephens. Please go ahead.

Good morning.
I'm sorry, Matt, from hedge funds open for some additional color on new loan yields.
I heard you loud and clear on C&I and construction spreads. But as you look at the pipeline today, what is kind of the blended all in rate and obviously what is rolling off as you as you put these new loans on?

William Burns

Well, it's it's about a 25, 30 50.
Is the new rate going on on the loans coming off is in the sense is that 7%? So is that based on the volume and that spread, it does add basis points five to eight basis points to a quarter as we move forward on the path we've had expense of deposit costs increase greater than that. So it really depends on how much volume we see going forward.

The more the greater the growth rate, the greater the increase in our margin in my view, considering what you just said, the month coming off 7% range, what's going on is north of eight, but then considering your average loan yield this quarter is kind of five 80 ish, does that right? Does that imply that the pace of payoffs is really slow right now? Or could you characterize that?
I would agree with 800 Okay.

William Burns

Yes. So yes, it is slow. And that number relative to the size of the 9 billion, our interest-earning assets isn't as isn't as big as you might think. And so the impact of it is not all that.
Great.

And then kind of live hogs and then Tyco, forget your five years, five years ago, we were less than 5 billion in size or have precisely R&I.

So are those loans that are renewing are small relative to that, right?

William Burns

That's right.
Okay.

And then considering considering what you just said, which is be north of 8% stuff is going on, and we're starting to see stability in deposit costs. It feels like to me as we enter the middle part of the year, but the N and expansion on Fed cuts should be greater than five base?

William Burns

Well, it could be Matt. I am being conservative. I'll tell you why. I am one where I have is that the quantitative tightening is even more than we expect, and that's going to suck deposits out of the system and makes the competition with deposits greater. And we're going to it's going to slow the decline in the rate of deposits, which means the beta of 50 could be lower. So that that's the offset to that the projection you just sort of just make it's not just the rig.
Right.

Understood.

William Burns

Okay.

And then, Tony, I'm sorry to interrupt. We go had no plan.

William Burns

No, go ahead.
I'm sorry.

You had mentioned kind of a normalization of charge-offs on Friday. That being said, the reserve was down 10 basis quarter. I'm assuming some of that was taxi, but I was hoping you could just comment on lower reserve level heading into a year where credit might normalize? Can we anticipate some hold throughout the year?

William Burns

Yes, you were a little bit garbled there, but we had about I think it's 15 or 16 basis points of charge-offs on 23. There's nothing that I see specifically that's making me say the number should be larger. But I think everyone is sort of agreeing that in the 20s is not a bad way to project charge-offs. So that's one part of your question. The other is the reserve ratio. It went down but that's it's more of an accounting geography because say those those balances, those reserves were in a specific reserve and that would take it out and take it off the loan balance. So there was no real change to our allowance coverage per se and being under one. Listen, this is the way our our CECL model works. We have additional a lot of additional qualitative amounts in there. And so we feel very comfortable with where our allowance is today.

And then along the credit line, and can you provide us an update of what your I know it's small, but your rent regulated multifamily, what's your exposure there? And have you seen any sort of credit deterioration, which I assume it was under 100 million.

William Burns

And on for the most part to well, there's one or two situations that we're working on, but we're working through those on a lot of tools in our arsenal for it. So I don't see anything material coming from that small portfolio.
Okay.

And then last one for me. You know, I've covered you guys for a long time. It's a challenging rate challenging macro environment, I think given that you're generally under earning virtually versus kind of historical levels as you look out 24, 25, when do you think you can get to profitability as measured by ROA back to A. over 1% level somewhere, we're all more accustomed to seeing.

William Burns

Well, I am optimistic about the years beyond 24. There's a lot of this, there's hundreds of millions, if not 1 billion of loans that are going to reprice either maturing or adjustable rate. So even that even though rates are coming down our adjustable portfolio is going to reprice higher. So when you combine all those things, we are rates coming down potentially potentially that we could be a situation where our deposit costs are going down and roll-off yields keep going up. And now we get us to spreads over three, 40. And if we're in that level, we would certainly be You now have back to 15% ROA.

Got it.
Okay. That's all I had.
Appreciate my questions.

William Burns

Thank you.

Operator

I'll turn the call back to management for any closing remarks.

Well, thanks again, for everyone's time today.
And certainly we look forward to speaking to you again during our first quarter conference call that will take place in April. So everyone have a very nice day. Thank you.

Operator

That does conclude today's conference call, and we thank you all for joining. You may now disconnect.