S&T Bancorp Inc
NASDAQ:STBA

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Earnings Call Analysis

Q3-2024 Analysis
S&T Bancorp Inc

S&T Bancorp's Q3 2024 Highlights: Solid Performance Amid Market Challenges

In Q3 2024, S&T Bancorp reported net income of $33 million, or $0.85 per share, showing strong customer deposit growth exceeding $100 million, which rose over 5% annualized. Although net interest margin slightly declined to 3.82%, net interest income improved by $900,000. The loan pipeline surged by over 50% as market confidence grew. While loans declined by $25 million due to heightened payoffs, the company anticipates low to mid-single-digit loan growth for Q4 and mid-single-digit for 2025. Enhanced asset quality resulted in lower provisions, positioning S&T well for future growth despite a predicted 10 to 12 basis point margin compression.

Steady Performance Amid Challenges

S&T Bancorp reported a net income of $33 million for the third quarter of 2024, translating to $0.85 per share. This marks a slight decline from the previous quarter, but key performance indicators remain strong with a return on tangible common equity (ROTCE) of 13.5% and return on assets (ROA) of 1.35%. The bank faced challenges due to $2 million in securities losses, which were strategically incurred to cushion against potential declines in interest rates.

Growth in Customer Deposits

In a climate of rising rates and economic uncertainty, S&T Bancorp's customer deposit growth was a bright spot, exceeding $100 million in the quarter and achieving over 5% annualized growth. The strength of customer deposits has allowed the bank to reduce reliance on higher-cost wholesale and brokered deposits, positioning it for a healthier net interest margin in future quarters.

Challenges in Loan Growth

Loan balances decreased by nearly $25 million during the quarter as a result of a significant $76 million reduction in commercial loans, attributed mainly to elevated payoffs, which soared by nearly 50%. However, the outlook remains positive, anticipating low to mid-single-digit loan growth for both Q4 2024 and 2025, driven by a 50% increase in the loan pipeline quarter-over-quarter.

Asset Quality Improvements

The asset quality metrics show continued improvement, with the bank's allowance for credit losses (ACL) falling to 1.36% of total loans. Nonperforming assets decreased to $31.9 million, representing only 41 basis points of total loans. This was supported by a decline in criticized and classified assets, which fell by 17% year-to-date and 31% year-over-year. Charge-offs remain manageable, aligning with expectations at $2.1 million for the quarter.

Net Interest Margin and Future Expectations

The net interest margin was reported at 3.82%, which represents a 3 basis point decline from the prior quarter. Despite this, net interest income grew by $900,000. Looking ahead, the bank projects an additional decline in net interest margin of 10 to 12 basis points in 2024, anticipating total rate cuts of 100 basis points throughout the year. However, stabilization of the net interest margin is expected by early 2025 in the low 3.70s, supported by a favorable deposit mix and improvements in loan repricing.

Noninterest Income and Expenses

S&T's noninterest income declined by $1.4 million, influenced by securities repositioning and a significant drop in the fair value of Visa stock. The run rate for normal noninterest income remains consistent at approximately $13 million to $14 million per quarter. Meanwhile, noninterest expenses increased by $1.8 million, driven primarily by salary hikes linked to incentive payouts reflecting the bank's robust performance.

Strategic Outlook and Growth Opportunities

As S&T Bancorp navigates a complex regulatory landscape, including potential impacts from crossing the $10 billion asset threshold, management expresses confidence in their ability to adapt. They project organic growth strategies to generously offset the projected $6 million to $7 million hit from compliance costs as regulatory frameworks evolve. The focus remains on expanding their geographic footprint in regions like Southeastern Ohio and Northern Virginia, where they see substantial growth potential.

Earnings Call Transcript

Earnings Call Transcript
2024-Q3

from 0
Operator

Welcome to the S&T Bancorp Third Quarter 2024 Conference Call. [Operator Instructions]

Now I would like to turn the call over to Chief Financial Officer, Mark Kochvar. Please go ahead.

M
Mark Kochvar
executive

Great. Thank you, and good afternoon, everyone, and thank you for participating in today's earnings call.

Before beginning the presentation, I want to take time to refer you to our statement about forward-looking statements and risk factors. This statement provides the cautionary language required by the Securities and Exchange Commission for forward-looking statements that may be included in this presentation.

A copy of the third quarter 2024 earnings release as well as this earnings supplement slide deck can be obtained by clicking on the materials button in the lower right section of your screen. This will open up a panel on the right where you can download these items. You can also obtain a copy of these materials by visiting our Investor Relations website at stbancorp.com.

With me today are Chris McComish, S&T's CEO; and Dave Antolik, S&T's President. I'd now like to turn the call and program over to Chris.

C
Christopher McComish
executive

Mark, thank you, and good afternoon, everyone. I'm going to begin my comments on Page 3. I'd like to welcome everybody to the call. I certainly appreciate the analysts being here with us today, and we look forward to your questions.

I also want to thank our employee, shareholders and others listening in on the call. To our leadership team and employees, your commitment and engagement is what drives these financial results. And as I've said, every quarter, these results are yours, and you should be very proud.

Our performance this quarter reflects our continued progress centered on S&T's people forward purpose and the connection of our purpose to our core drivers of performance. Our drivers of performance are centered on the health and growth of our customer deposit franchise, consistently solid credit quality, strong core profitability, all of which are underpinned by the talent and engagement level of our teams, which lead to the results we're going to speak to today.

To sum it up, we have made strong progress on all of our performance drivers. And in Q3, the continued growth of our deposit franchise and improving asset quality led the way to deliver very solid results for the quarter.

Additionally, as you're aware, over the past few years, due to the results we've been able to deliver, we have been able to build a significant amount of capital. Our performance, combined with our strong capital levels, gives us real optimism as we head into the end of 2024 and into 2025. We are excited about our prospects for growth while delivering for our customers, shareholders and the communities that we serve.

Turning to the quarter. Our $33 million in net income equated to $0.85 per share, down slightly from Q3. Our return metrics were again excellent, with a 13.5% ROTCE, 1.35% ROA. And while our PPNR remains solid at 1.69%. It is important to note, our PPNR was impacted by a little bit more than $2 million of securities losses that we proactively decisioned to help mitigate impacts of a future declining rate environment.

Our net interest income showed growth in Q2, while our net interest margin at 3.82% declined slightly, but remained very strong. Again, this is the direct result of another quarter of very solid customer deposit growth. Mark will provide more details on both our net interest income and our net interest margin in a few minutes.

Asset quality continues to improve as we had another quarter of declining/improving ACL, and Dave is going to dive more deeply here in a few minutes. He's also going to touch on the pickup we are seeing in our loan pipelines and activity.

Moving to Page 4. While loans did not grow during the quarter, it's a reflection of lower pipelines from earlier in the year, combined with a higher level of payoffs. On the deposit side, customer deposit growth was more than $100 million in the quarter, producing over 5% growth annualized. While some mix shifts continued, overall DDA balances remained very strong at 28% of total balances.

The customer deposit growth allowed us to reduce wholesale and brokered deposits and borrowings by $150 million combined, which will obviously have a positive impact on our future net interest margin.

I'm going to stop right there, and I'm going to turn it over to Dave, and he can talk a little bit more about the loan book and credit quality, then Mark will provide more color on the income statement and capital. Following that, we'll have some questions. I look forward to answering that.

D
Dave Antolik
executive

Thank you, Chris. Yes. Wonderful. Continuing with the discussion of our balance sheet, particularly as it relates to loan balance activities, we did see a reduction in balances of nearly $25 million for the quarter. This was primarily the result of reduced commercial loan balances of $76 million.

And in the commercial segment, production in Q3 was just slightly lower than what we saw in Q2. What really impacted the balance reduction were payoffs that increased by nearly 50% in the quarter. These elevated payoff levels were driven by continued demand for multifamily loans in the permanent market, slightly lower C&I utilization rates and payouts in our C&I portfolio as we manage asset quality.

It's very important to note that we do not anticipate this high level of commercial payoff activity in the coming quarter.

During the quarter, we also experienced growth in all segments of consumer loans with the exception of construction.

When looking more closely at Q3 activity, production was slower early in the quarter and much stronger in September. We expect this positive growth momentum to carry forward into Q4. Looking forward and in support of a return to loan growth in Q4, our total pipeline has increased by over 50% quarter-over-quarter, primarily due to improved commercial both in the CRE and C&I spaces. We've also seen an increase in the consumer pipeline as customer activity shifts from purchase to home equity.

If I can now direct your attention to Page 5 of the presentation in order to discuss our asset quality results for the quarter, I'm starting with the allowance for credit losses, which declined by approximately $2 million and moved from 1.38% to 1.36% of total loans. This reduction was a result of several factors, including a decline in our nonperforming assets of $3 million.

As you can see, nonperforming assets remain low at $31.9 million or 41 basis points of total loans. We also saw further declines in our criticized and classified assets of almost 3% during the quarter. This represents the fourth consecutive quarter of reductions in criticized and classified loans, and they have reduced by 17% year-to-date and 31% year-over-year. Just as a reminder, these criticized and classified loans require higher levels of reserves.

In addition, charge-offs for the quarter were in line with expectations at $2.1 million, up from the previous quarter's $400,000 net recovery.

Finally, we anticipate loan growth in Q4 to be in the low to mid-single-digit range, and we are targeting mid-single-digit loan growth for 2025.

I'll now turn the program over to Mark.

M
Mark Kochvar
executive

Great, Dave. Thanks. Next slide. We have the third quarter net interest margin rate at 3.82%, that's down 3 basis points from the second quarter, while net interest income improved by $900,000 compared to last quarter, primarily due to an extra day.

The impact of late September Fed rate decrease and the leading SOFR rate changes can be seen in the reduction of quarterly loan yield improvement to about 1 basis points in the third quarter compared to 5 to 6 basis points per quarter in the first half of the year.

We're also still experiencing an increase in cost of funds in the third quarter. That's driven by deposit mix changes and continued upward repricing activity throughout most of the quarter. We did implement nonmaturity deposit repricing in response to the Fed cut in late September, with CD rates being lowered earlier in the quarter.

Strong customer deposit growth allowed for the reduction in more expensive brokered CDs of $126 million. Wholesale borrowings are down $25 million. But this did not happen until very late in the quarter. So the third quarter should represent the peak in our cost of funds as we expect this to decline going forward as our liabilities reprice.

So looking ahead, we expect an additional 10 to 12 basis points of net interest margin compression from here. That assumes another 50 basis points of rate cuts or 100 basis points of cuts in total in 2024.

After that first 100 basis point of cuts and as we move into 2025, we do expect to find an equilibrium net interest margin rate in the low [ 3.70s ], and that should happen early in the year. We anticipate that level to hold even if rate cuts continue as the market expects throughout 2025. A support for that net interest margin stability spike us further cuts will come from favorable fixed and armed loan and securities repricing, our received fixed swap ladder beginning to mature, a very short duration CD portfolio that will reprice and an improving ability to implement nonmaturity rate cuts as rates move lower.

Now moving on to noninterest income. Noninterest income declined in the third quarter by $1.4 million. The quarter-over-quarter variance is related to 2 main things: securities repositioning and our Visa Class B-1 shares. In the second quarter, we recognized a $3.2 million fair value adjustment in the Visa stock and also repositioned about $49 million of securities, taking a loss for approximately the same amount at $3.2 million. So these 2 actions netted to 0.

In the third quarter, however, we executed another securities repositioning, also for about $48 million, $49 million. But this time, taking a loss of $2.2 million, but without an offset like we had in the second quarter. Our normal noninterest income run rate remains approximately $13 million to $14 million per quarter.

Related noninterest expenses on the next slide, we saw an increase of $1.8 million in the third quarter compared to the second. Two main things drove that. Salaries and benefits are higher due to increased incentive payout expectations due to our performance. And in the data processing line, that's higher due to some timing related to some technology investments. We expect run rate and expenses to be $54 million to $55 million per quarter.

And lastly, on capital, TCE ratio increased by 64 basis points this quarter. A lower over half of that 36 basis points was due to the AOCI improvement. Our TCE and regulated capital, as Chris mentioned, positioned us very well for the environment, and will enable us to take advantage of both organic and inorganic growth opportunities.

Thank you very much. At this time, I'd like to turn the call back over to the operator to provide instructions for asking questions.

Operator

[Operator Instructions]

Your first question comes from the line of Daniel Tamayo with Raymond James.

D
Daniel Tamayo
analyst

Maybe first on credit, where the story just continually gets better every quarter seemingly for you guys. So that's certainly good news. But just curious now with NPAs down to the level they're at and net charge-offs seeming to slow. If you had updated thoughts on what would be kind of a more normalized or regular type of cadence for net charge-offs or provision, however, we should think about it going forward?

D
Dave Antolik
executive

Yes. I think what you saw in the quarter would be closer to what I would call as normalized relative to the charge-off levels. What we're hoping to see relative to provisioning is as we return to loan growth, that we would need to keep provision in place to support that loan growth.

We do think there is still room for us to improve, though. I mentioned the criticized and classified assets. So I think about adversely classified assets, generally, there's still room for improvement there for us. So the ACL level may move as a result of those continued improvements.

D
Daniel Tamayo
analyst

Okay. All right. Terrific.

And then I guess just a clarification for Mark on the net interest margin guidance. So you talked about a stabilization in the early 2025 in the, let's say, here the 3.70s low 3.70s, even assuming further rate cuts.

So I'm just curious, I guess if we didn't get those rate cuts, does that mean that margin would -- you'd expect it to stabilize higher? Or I guess then get down to the low 3.70s and rise from there? Or like -- I'm just curious kind of what the embedded impact from rate cuts would be within that forecast that you're giving?

M
Mark Kochvar
executive

Yes. I mean a lot of the finer details is just going to depend on the timing and on the competition. But if the Fed moves a lot slower, I would expect it to take potentially longer to get to that stabilization point. And as you kind of alluded to, it probably would be slightly higher than the 3.70s that we're looking at now with a much deeper cut.

Operator

Your next question comes from the line of Kelly Motta with KBW.

K
Kelly Motta
analyst

It sounds like the pipeline is really strong, and you were impacted by some elevated payoffs and paydowns this quarter. I'm just wondering what gives you the confidence that, that kind of headwind will flow? And how should we be thinking about the potential risk that going forward with customer potentially looking to refi as rates come down?

D
Dave Antolik
executive

Yes. As rates reduce, of course, customers will be looking at the potential to refinance. We do have rate protection in many of our loan products with prepayment penalties and make-whole. So we're able to get ahead of those and understand when those maturities or rate changes occur, and the bankers have proactive conversations relative to those. And if we can get ahead of them, make sure that we understand what the impact is and what -- really what the customer desires and what's best for them, that's our focus.

And then in terms of adding additional volume, we've seen some pretty good activity, as I mentioned, at the end of Q3 that carries into the beginning of Q4 here relative to new customer calling activities.

C
Christopher McComish
executive

And Kelly, I think that -- this is Chris, but part of what we're hearing a lot from customers is many of them have been waiting on the sidelines, either in the C&I space for capital expenditures waiting to find out what's going to happen with the rate environment or some of our CRE customers. And having some better clarity around the direction of rates, I think, is helping people be more confident to make decisions about future investment, which obviously leads to a bigger pipeline for us.

So it may not be -- while it was a little unusual to see the level of payoffs. Some of it, as Dave talked about, was credit related for us, continuing to focus on credit quality and returns, it also is going to help us -- the pipeline coming in was lower in the year just simply because of what I would define as some uncertainty as to what people wanted to understood about the future.

K
Kelly Motta
analyst

Got it. That's helpful. Maybe a bit of a housekeeping question for the model. Just looking at the average balance sheet, it looks like interest-bearing cash was a bit elevated. Just wondering how we should be thinking about managing liquidity levels and the size of the balance sheet? Was that because loan growth was a little slower, and you're expecting to deploy that as we look to Q4? Just -- any color on managing the liquidities there and how you guys are looking to optimize that?

M
Mark Kochvar
executive

So on an average basis, we were a little bit high. I mentioned these brokered CDs that we paid off, and that happened at the very end of the quarter. So we knew that was coming and it was our intent to pay those off. So we let some of the cash levels build. That was coming from our customer deposit growth, so that we could pay those off and not replace them at the end of the quarter. So on average, we did have a little bit higher cash, but I think it got some more normal level if you looked at just the quarter end point.

K
Kelly Motta
analyst

Got it. Okay. That's really helpful. And then as we look ahead, you're just under $10 billion in assets. Just wondering if you have any updated thoughts on potentially crossing next year? And how you guys are thinking about what potential levers you have to offset that initial hit from Durbin?

C
Christopher McComish
executive

Yes. And some of it, obviously, is timing associated with Durbin. And as we've talked about before, Kelly, it's about $6 million, $7 million of initial impact. Normal loan growth, as we've talked about, kind of in that mid-single digit range would put us there some time in 2025.

I have really no concerns from the standpoint of will we be able to absorb the kind of the additional regulatory oversight. We've been building for that over the course of the past couple of years. If you look, that's where a lot of -- some of our expense growth has come in and enhancing all of our risk management, audit, compliance, BSA/AML, all of those areas that are critical to growing the franchise, whether we go over $10 billion or not.

So we recognize organically, it's $6 million to $7 million. That's a big reason why we're so focused on things like our treasury management and initiatives and deepening some other forms of fee income to offset some of that, as well as just expanding our customer base.

So it's not a huge hit for us. We made $33 million this quarter. So we're going to have to absorb it, but it's something that we'll be able to grow into. And then, again, we believe that as inorganic opportunities will present themselves, and we're preparing for that as well.

Operator

Your next question comes from the line of Manuel Navas with D.A. Davidson.

M
Manuel Navas
analyst

I appreciate the NIM outlook. But could you just dive a little bit deeper into some of the assumptions there? You talked about some swaps. I'm interested in what you're assuming on loan and deposit betas initially and maybe through the cycle? Just any extra color you could add there as you build that 10 to 12 basis point decline into next year? It's not immediate, but just any extra color there would be really helpful.

M
Mark Kochvar
executive

Okay. So I mean, overall, I mean, when I talk about the full '24 and '25, we're looking at, in aggregate, a 200 basis point drop is kind of what we're modeling. That seems to be somewhat of a consensus from the market and the Fed. So going from the [ 5.50 ] to [ 3.5 ], so that's kind of our baseline Fed piece.

So the declines that we have on the core rates, a lot of those are coming from how we're addressing the exception pricing book that we have. And so our goal there is to -- as we go deeper into the tranches to make deeper and deeper cuts on those lower levels of deposits.

So for example, in this initial cut, with 50 basis points, we came close to the 50 basis points in the highest tranches, but there were some tranches lower that we were -- we didn't touch. So the deeper that we go into the rate stack over time as rates get lower, the more we'll be able to -- balances will be able to impact. And then eventually, we should be able to also change some of the rates that we have on our non-exception book. So it's that sort of improving over the course of the year.

The other piece, the swap book that you mentioned, we have about a $500 million received fixed swap ladder that we've built as rates began to rise. That starts to mature at the pace of about $50 million per quarter, starting in the first quarter. So we're underwater on those, anywhere from 200 to 300 basis points. So as those mature, if we let those fully go, that will also provide some margin support that will show up really in the loan line versus -- in the deposit space.

Then we also have the CD book that we've intentionally, over the course of this past year, have priced very short, like many others. So we do expect -- we've already repriced that lower starting early September, late August. Most of those are going into the kind of the 6-month area. So over the course of the year, we expect to get a couple of price decline attempts out of those.

And then on the securities, both securities and the fixed loans, based on where those are repricing, there's still better rates with those being put on at newer rates or at the current rate levels versus what they're maturing at.

So I can't tell you the exact betas because the betas are going to change over the course of that year. They're going to be a little bit higher or a little bit different going into the cycle and then improve as we are able to implement more of those deposit rate changes later in '25.

M
Manuel Navas
analyst

That's really helpful color. So how should I think about like end-of-period deposit costs this quarter and you're kind of already -- you're saying this is the peak. So you're already expecting with the exception pricing moves you've made, deposit costs to decline next quarter?

M
Mark Kochvar
executive

Right. Yes. With the Fed moving so late in September, we move within a few days after that, but really didn't see much of an impact. The bulk of the momentum going for the quarter happened in July, August, the first part of September, we still continue to see the mix changes and continued exception pricing. So we're definitely going to -- and when we look at spot rates, our spot rates as of September 30 were down already from that month in average. So we know we're going to have a better cost of funds, cost of deposits in the fourth quarter for sure.

M
Manuel Navas
analyst

Is your deposit strength potentially a wild card here that could even help the NIM more? Can you just kind of talk about your success in deposit flows and where that could go going forward?

M
Mark Kochvar
executive

Yes. We think -- I mean, there's a lot of emphasis being placed on that, both on the business side, commercial side and also on the consumer side. We still have about $375 million of wholesale borrowings that are also very short and relatively high price that we can pick up some advantage if we're able to replace those with a decent mix of customer deposits.

C
Christopher McComish
executive

Manuel, it's Chris, and this is more anecdotal than anything, but the good news is, with -- rates are in the -- above the fold from a standpoint of what's being talked about in the marketplace as a whole. And so that leads to more customer conversations, both with existing customers as well as prospective customers.

So we feel very good about obviously the progress that we've made and kind of the infrastructure that we built in order to continue this. And I think changing rates lead to customer conversations, and that's a good thing.

M
Manuel Navas
analyst

That's good color. Can I switch over to fees for a moment? If you have 200 basis points in cuts, what could that do on the fee side for you?

M
Mark Kochvar
executive

This year, I mean, I think we're relooking and repositioning our mortgage business. We've really been portfolioing most of that activity, but we're getting ready to make a concerted effort to sell more of that production going into next year. That's probably our biggest kind of interest rate-related ability or potential on the fee side is right now.

The only mortgage activity we're seeing right now is just the fees from the servicing side, but there's an opportunity as we shift some of that production to sales, that we would pick up possibly a couple of million dollars next year of fee income.

M
Manuel Navas
analyst

Do you feel like you have the right capacity? Or is that part of the adjustments you're going to make? You might have to make some hires. Like how do you compare your capacity versus where you were 3 years ago, for example?

M
Mark Kochvar
executive

I think from a capacity standpoint, it's similar in terms of origination. We haven't been selling a lot, so some of the back office functions need to be reset to make that process smoother.

C
Christopher McComish
executive

But it's not a dramatic lift. I mean, the fact -- the only thing that could -- and if you're talking specifically about mortgage, is if mortgage rates decline rapidly and it becomes a big refi boom, that could create capacity issues not only for us but everybody in the industry because we've -- we're at a much lower run rate than we were 3 years ago when the refi activity was really high.

M
Manuel Navas
analyst

And then -- I appreciate that color. We could be going in that direction.

Going back to your comment about inorganic growth, what are some places that you're interested in growing that and where are opportunities that you would be excited to geographically?

C
Christopher McComish
executive

Yes. So we've talked about this before, I'll continue to reiterate it. We look at our core geographic franchise today is kind of the southern half of Pennsylvania, East to West and into Northeast Ohio and Central Ohio. Those are all really, really attractive markets for us. We also have lots of interest in throughout the state of Ohio into that area of the Midwest. And then further south into Maryland, Northern Virginia, D.C., those areas. Geographically, if you think about it, from Pittsburgh to Washington, D.C. is not that far as far as it is to get all the way to Philadelphia, for example.

So we think about markets -- the makeup of markets relative to our culture and what we're trying to build. And there's interesting opportunities, both east and west, as well as here in Western Pennsylvania. So we continue to build relationships in the best way that we can build relationships from an inorganic standpoint, deliver performance and have the currency necessary to have these conversations, and that's where we're focused.

Operator

Your next question comes from the line of Matthew Breese with Stephens.

M
Matthew Breese
analyst

Just a couple of questions, most have been answered. First, just any -- are you contemplating any additional securities restructurings? If so, maybe sense for how much? And is that included in any way, shape or form into your 2025 NIM outlook?

M
Mark Kochvar
executive

We're still looking at it. We're not anticipating anything significant. So we've done 2, both of them, just under $50 million. I mean it would certainly be less than that.

The opportunities, with the shape of the curve changing a little bit and just what we've sold already, is kind of being the best candidate kind of the cost benefit of the activity is less than it was. So if we were to do anything more, it would be -- it wouldn't be any larger than the ones we've already done. And there's a fair chance we wouldn't do anymore.

M
Matthew Breese
analyst

And remind us again what the yield pickup was on both of those restructurings?

M
Mark Kochvar
executive

And so the first one was about 370 basis points. The second one was maybe 270.

M
Matthew Breese
analyst

Okay. And the other topic I just wanted to touch on, and it's been brought up a handful of times on the call. It's just payoff activity, commercial real estate, multifamily related. How much of that was by design, meaning these were nonstrategic or non-full relationship type customers? And then how much of it was rate driven?

One thing we've been hearing a lot of this quarter is that there's been some stiffer competition on the commercial real estate front, from insurance companies, some of the agencies, some of the bigger banks even. And so I wanted to get a sense for how much of that was going on and how different the types of rate offerings were between yourselves and some of the other players?

D
Dave Antolik
executive

Yes. Sure. To your point, there is still a significant amount of competition relative to these permanent mortgages for multifamily. We had 2 relatively large $20 million range deals that paid off during Q3. They are both with existing customers. They're not transactional deals, just normal course of business where we do a construction loan. That construction loan converts to a permanent loan on a bridge basis typically to get to permanent financing.

So in both of these cases, it is a normal course that they would take these to a permanent facility. And normally, the reason that that's done is to take advantage of a longer-term fixed rate, typically a 10-year rate, and remove recourse.

The second being the most important, right? So these large builders and developers want to preserve equity in their deal, have it owned in a single-asset entity and not have recourse back to the sponsorship. So -- and those are things that would fall outside of our credit risk appetite. So we view that as, again, sort of normal course of business for these types of transactions.

M
Matthew Breese
analyst

Got it. Was there any meaningful delta between yourselves and other sources, other competition or other competitors?

D
Dave Antolik
executive

From a structure perspective, LTVs are generally similar, rates may be slightly more aggressive depending on if it's an insurance company or a CMBS insurance companies. Looking for assets tend to be a little more aggressive.

But the big difference in structure is the recourse, right? We require recourse even if it's limited after some point of stabilization, these facilities in the permanent market tend to be completely nonrecourse.

C
Christopher McComish
executive

Matt, if you're talking about bank competitive pressures from a rate standpoint, I would say that any of that is more kind of anecdotal, one-off-driven, specific transaction than it is anything that we're seeing in the marketplace.

We have seen in some areas of our geography, which is -- makes you scratch your head. We've seen some deals that were maybe, as you described, not necessarily long-term relationship deals that were actually taken out by large credit unions. That's an unusual place for a C&I or commercial real estate customer of ours, but there are some pockets of the geography, particularly the eastern part of the state of Pennsylvania, where we're seeing some of that activity.

D
Dave Antolik
executive

Yes. I think, Matt, bottom line for us relative to asset quality. I think it speaks well for that segment.

In our geographies, those multifamily projects continue to perform very well. They can take advantage of the permanent market, and we can continue to play a role as the depository institution for those borrowers and look at their ongoing construction needs.

M
Matthew Breese
analyst

Yes, absolutely. Good for asset quality, but headwind to growth.

D
Dave Antolik
executive

You got it.

C
Christopher McComish
executive

That's why we have 4 drivers.

Operator

Your next question comes from the line of Daniel Cardenas with Janney Montgomery Scott.

D
Daniel Cardenas
analyst

Just a couple of questions here for you all. In terms of deposit -- your deposit growth outlook for 2025 on a percentage basis, do you think that can mirror what you're looking for on the lending side? Or could it be a little bit better, just kind of given where the loan-to-deposit ratio is right now?

C
Christopher McComish
executive

Yes. Dan, you know what, we feel good about the momentum that we have and the focus on our deposit franchise and deposit business. We've invested in it, in people and product and improving processes. We're going to continue that focus.

As I said, I think the rate environment leads to opportunities, both with existing customers as well as new customers. As we talk about the kind of declining rate environment that Mark is speaking to, that's going to put, as I would define it, as a lot of money in motion. And so that's -- our targets are to continue to look for growth in the range that we're seeing.

D
Daniel Cardenas
analyst

Okay. And then given where capital levels are right now, what are your thoughts in terms of stock repurchase activities going forward?

M
Mark Kochvar
executive

Yes. I mean that's going to be our least favorite event, especially given the run-up in price, it just makes it a little more difficult for that to make economic sense. So our first priorities are going to be on the growth side and to use the capital that way.

D
Daniel Cardenas
analyst

Kind of growth, dividends and then maybe buybacks, if it makes sense, mathematically?

M
Mark Kochvar
executive

Right.

D
Daniel Cardenas
analyst

Okay. And then just a housekeeping question. What was your AOCI number for the quarter?

M
Mark Kochvar
executive

End of the quarter was $77 million.

Operator

There are no further questions at this time. I would like to turn the call over to Chief Executive Officer, Chris McComish, for closing remarks.

C
Christopher McComish
executive

Okay. Well, thanks, everybody, for the great questions and the dialogue. We really appreciate your engagement and your interest in our company. We look forward to being with you over the coming weeks and months, and let's have a great rest of the earnings season. Thank you. Bye-bye.

Operator

This does conclude today's call. You may now disconnect.

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