Community Bank System Inc
NYSE:CBU
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Community Bank System Inc
Earnings Call Analysis
Q3-2024 Analysis
Community Bank System Inc
The third quarter of the year presented a solid performance for the company with earnings per share (EPS) reported at $0.83, which reflects a slight increase of $0.01 from the same quarter of the previous year, although it dipped by $0.08 compared to the linked second quarter. The year-over-year growth in EPS was primarily driven by higher net interest income and noninterest revenues, alongside a reduced number of diluted shares outstanding. However, these positive factors were somewhat counterbalanced by rising noninterest expenses and an increased provision for credit losses.
Total operating revenues for the quarter reached $189.1 million, up 7.8% from the prior year and 3.2% from the linked quarter. This marks the fifth consecutive quarter of revenue growth. Net interest income, a critical metric, rose to $112.7 million, which is an increase of 3% from the previous quarter, marking continuous expansion. The company anticipates ongoing net interest income growth into the fourth quarter, benefiting from stable funding costs and solid loan growth.
Noninterest revenues increased in all four major business lines compared to the previous year, contributing to over 40% of total operating revenues. Banking-related noninterest revenues saw a notable 17.1% increase driven by robust mortgage banking activities and enhanced deposit service fees. Employee benefit services and insurance services also reported double-digit growth, reflecting strong market demand and successful business strategies.
The company's noninterest expenses for the quarter totaled $124.2 million, marking a 6.6% rise year-over-year, primarily due to increases in salaries and employee-related costs. The provision for credit losses increased significantly to $7.7 million, up from $2.9 million compared to the same quarter last year, indicating a cautious approach amidst a normalizing credit environment. However, the overall asset quality remains strong, with the allowance for credit losses representing over eight times the trailing 12-month net charge-offs.
The company is actively expanding its branch network, with the recent opening of its Hanover Square location in Syracuse as part of a planned rollout of 18 new branches in upcoming quarters. This expansion aims to enhance market presence without significantly increasing the overall expense base, thus adhering to a net-neutral growth strategy. As the company navigates through potential economic uncertainties, it aims to maintain modest mid-single-digit growth in operating expenses.
Looking towards the future, management has expressed optimism, citing a favorable trajectory for net interest margins and overall economic activity driven by new investments and market conditions in Upstate New York. The anticipated steady growth in the economy, supported by government incentives and shifts in manufacturing, positions the company well for long-term sustainable growth.
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Good day, and welcome to the Community Financial Systems Inc. Third Quarter 2024 Earnings Conference Call. [Operator Instructions] Note, this event is being recorded.
I would now like to turn the conference over to Dimitar Karaivanov, President and Chief Executive Officer. Please go ahead.
Thank you, Daniele. Good morning, everybody, and thank you for joining our third quarter earnings call. I would characterize the quarter as one with solid operating performance as evidenced by our PPNR of $1.29 per share which was consistent with the prior quarter and grew 11.2% compared to last year's third quarter. Bottom line earnings were impacted by a couple of items, which I wanted to touch on before we get into each business unit.
The first item is the increase in our provision expense. We've been observing the general industry trends towards normalization of credit for a few quarters now. And as you may recall, we added some reserves back in the first quarter of this year. Since then, that industry trend has continued. If you look at the industry-wide loan classifications of special mention and substandard balances, they are now close to long-term averages. We also have the Federal Reserve embarking on an easing cycle which is typically a late cycle development and comes with expectations for increased unemployment, which is the main driver of credit costs. Our own credit experience continues to be one of low losses and minimal delinquencies and the quantitative results in our CECL models remain steady. With that said, we consider it prudent and conservative to add to our reserves at this point in time.
The second main item that drove differences to the prior quarter was an increase in the accrual for performance-based incentive compensation expense. We typically refine our estimates in the third quarter with a look towards the full year results as compared to prior year and that drove most of the delta in that expense line compared to the last quarter.
Now turning to underlying business performance. Our banking business had a strong quarter. Net interest income surpassed the prior peak from the fourth quarter of 2022, and we're now up on a year-to-date basis compared to 2023. This positions us well for the fourth quarter, and I expect that we will continue our annual net interest income growth streak which dates back to 2006. Balance sheet growth was excellent on both sides and pipelines remain in good shape. I will note that loan growth this quarter was a bit higher than trend driven by a couple of larger closings, which are relationships we've been working on for multiple quarters.
Just last week, we celebrated the opening of our first branch from our strategic branch expansion plan, which we announced late last year. Our Hanover Square branch in Syracuse is now open and off to a great start, and we're progressing well on the other 17 locations. Our benefit administration business did very well as well. Both revenues and profitability expanded and outlook remains bright. BPAS was recognized for the third year in a row as a top 5 record keeper across multiple categories by the National Association of Plan Advisors. Our insurance services business also reached a new high in revenues, we've been hard at work in reorganizing the business and creating the infrastructure to support the excellent revenue growth in the future. This has impacted profitability year-to-date, but should position us better for 2025 and beyond.
[indiscernible] Group was also recently recognized as the 66th largest broker in the U.S. by the insurance journal, an improvement from being ranked 75 last year. Our Wealth Management Services business also performed well. Organic growth has been supported by very strong market growth, and we've been using the revenue gains to reinvest back in the business by adding sales capacity and addressing some geographical presence gaps.
In aggregate, I would say that I'm particularly encouraged by two things: number one, our ability to continue to attract both leadership and execution talent with a few key hires this quarter across all businesses. And number two, the momentum with new client acquisition across all businesses. We continue to operate from a position of strength and actively gain market share.
Quick comment on M&A. We continue to be an active participant and had a number of opportunities in this past quarter. Ultimately, the risk and reward equation did not work for us due to various reasons, but the opportunity set remains interesting. This covers predominantly our banking and insurance verticals and to a lesser degree, benefits. We will continue to be active and continue to keep our risk and reward principles in line with our investment thesis.
Lastly, I wanted to note to the Investor Day we hosted last month at the New York Stock Exchange. I want to thank all of our investors and analysts for a tremendous interest and encourage those of you who weren't able to attend to view the recorded event and presentation on our Investor Relations website.
With that, I will turn it over now to Joe for additional color on the quarter.
Thank you, Dimitar, and good morning, everyone. The third quarter was a solid one for the company. Earnings per share of $0.83 were up $0.01 over the third quarter of the prior year, but down $0.08 on a linked quarter basis. The year-over-year increase in earnings per share were driven by increases in both net interest income and noninterest revenues and a decrease in fully diluted shares outstanding, but were largely offset by increases in noninterest expenses, the provision for credit losses and income taxes. The decrease in linked quarter earnings results, driven by increases in the provision for credit losses and noninterest expenses offset in part by increases in net interest income and noninterest revenues and a decrease in income taxes.
Similarly, operating diluted earnings per share were $0.08 in the quarter or $0.01 higher than the same quarter in the prior year, but $0.07 lower than the linked second quarter results while operating pretax preProvision net revenue per share of $1.29 was up $0.13 or 11.2% over the prior year's third quarter and consistent with linked quarter results. Third quarter results were marked by new quarterly records in total operating revenues, net interest income, bank-related noninterest operating revenues, employee benefit services revenues and insurance services revenues. More specifically, the company recorded total operating revenues of $189.1 million in the third quarter, this was up $13.7 million or 7.8% from 1 year prior and up $5.9 million or 3.2% from the linked second quarter and marked the fifth consecutive quarter of increases in total operating revenues.
The company recorded net interest income of $112.7 million in the third quarter this represents a $3.4 million, a 3% increase over linked second quarter results and also marks the second consecutive quarter of net interest income expansion, an improvement in the yield on interest-earning assets supported by loan growth and subsiding pressure on funding costs helped drive improvement in both net interest income and net interest margin in the quarter. During the quarter, the cost of deposits was 1.23%, which was consistent with the linked second quarter while the total cost of funds increased 7 basis points from 1.37% in the second quarter to 1.44% in the third quarter due to an increase in borrowed funds costs. The company's fully tax equivalent net interest margin increased 1 basis point from 3.04% in the linked second quarter to 3.05% in the third quarter. The outlook remains positive for continued net interest income expansion in the fourth quarter and then on a full year basis.
Operating noninterest revenues were up in all 4 businesses compared to the prior year's third quarter and represented over 40% of total operating revenues. Banking-related operating noninterest revenues were up $3 million or 17.1% over the same quarter of the prior year, driven by increases in mortgage banking revenues and deposit service and other banking fees, including interest rate swap fee revenues. Employee benefit services revenues were up $3.2 million or 10.7% over the prior year's third quarter, reflective of an increase in the total participants under administration and growth in asset-based fees. Insurance Services revenues were up $1.5 million or 12.7%, reflective of both acquired and organic growth, while Wealth Management services were up $1 million or 12.1% reflective of more favorable market conditions over the same period.
On a linked-quarter basis, operating noninterest revenues were $2.6 million or 3.5%, driven by higher revenues in all 4 businesses. During the third quarter, the company recorded $124.2 million in noninterest expenses. This represents a $7.7 million or 6.6% increase from the prior year's third quarter driven primarily by a $7.3 million or 10.4% increase in salaries and employee benefits expenses due to merit and market-related increases in employee wages, higher incentive plan costs and acquisitions between the periods. Total noninterest expenses were also up $5.2 million or 4.4% over the linked second quarter results. On a year-to-date basis, total operating noninterest expenses were up $18.7 million or 5.6%, consistent with the mid-single-digit growth rate pension during prior quarterly earnings calls.
Reflective of an increase in loans outstanding and qualitative factor adjustments, the company recorded a $7.7 million provision for credit losses during the third quarter of 2024. This compares to $2.9 million in the prior year's third quarter and $2.7 million in the linked second quarter. The effective tax rate for the third quarter of 2024 was 23%, up from 21.2% in the third quarter of 2023. The lower effective tax rate in the prior year was largely driven by the balance sheet repositioning completed during 2023.
Ending loans increased $227.8 million or 2.3% during the third quarter. This marks the 13th consecutive quarter of loan growth and is reflective of the company's continued investment in its organic loan growth capabilities. This included growth in both the business lending and consumer lending portfolios. Ending loans are up $801.6 million or 8.5% from 1 year prior. The company's ending total deposits increased $338.3 million or 2.6% during the third quarter, driven by seasonal inflow of municipal deposits. Third quarter deposit funding costs of 123 basis points were flat compared to the linked second quarter results. Noninterest bearing and lower rate checking and savings accounts continue to represent almost 2/3 of the company's total deposits. The company's full cycle deposit beta of 24% was one of the best in the banking industry during the Fed's 2022 to 2024 rate hiking phase. It reflects the stability of the company's core deposit base. Ending deposits were also up $445.4 million or 3.4% from 1 year prior.
The company's liquidity position remains strong, readily available source of liquidity, including unpledged cash and cash equivalents and investment securities, fund availability at the Federal Reserve Bank discount window, and unused borrowing capacity at the Federal Home Loan Bank of New York totaled $4.49 billion at the end of the third quarter. These sources of immediately available liquidity represent approximately 200% of the company's estimated uninsured deposits, net of collateralized and intercompany deposits. The company's loan-to-deposit ratio at the end of the third quarter was 76.1%, 76.1%, providing future opportunity to migrate lower-yielding investment securities into higher-yielding loans. At the end of the third quarter, all the companies and the bank's regulatory capital ratio significantly exceeded well-capitalized standards more specifically, the company's Tier 1 leverage ratio was 9.12%, which substantially exceeds the regulatory well capitalized standard 5%.
At September 30, 2024, nonperforming loans totaled $62.8 million or 16 basis points of total loans outstanding. This represents a $12.3 million or 11 basis point increase from the end of the linked second quarter due primarily to the transfer of one loan relationship to nonaccrual status. Comparatively, nonperforming loans were $36.9 million or 39 basis points of total loans outstanding 1 year prior. Loans 30 to 89 days delinquent were also up slightly on a linked-quarter basis from $45.1 million or 45 basis points of total loans at the end of the second quarter to $47.2 million or 46 basis points of total loans outstanding at the end of the third quarter.
The company recorded net charge-offs of $2.8 million or 11 basis points of average loans annualized during the third quarter this is up from $1.2 million or 5 basis points in the same quarter of the prior year. The company's allowance for credit losses was $76.2 million or 74 basis points of total loans outstanding at the end of the third quarter up $4.7 million from the end of the second quarter and up $11.2 million from 1 year prior. Although credit loss reserves increased during the third quarter due to qualitative factors. Overall, the company's asset quality remains strong.
The allowance for credit losses at the end of the third quarter represented over 8x the company's trailing 12-month net charge-offs. We believe company's diversified revenue profile, strong liquidity and regulatory capital reserves, stable core deposit base and historically strong asset quality provide a solid foundation for future opportunities and growth. Looking forward, we are encouraged by the revenue outlook in all 4 of our businesses and prospects for continued organic growth. We will continue to play offense leading the growth and deploy capital in the best manner possible for our shareholders. Thank you.
Now I will turn it back over to Daniele, to open the line for questions.
We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Matthew Breese of Stephens Inc.
I was hoping we could just start on the NII and NIM outlook. It sounds like there's quite a bit of confidence that the trajectory is kind of up into the right on NII. Perhaps you could just give us some sense for expectations around deposit cost and deposit betas and maybe some of the actions you've taken so far on the back of the Fed cut. And then just remind us the maturity schedule on loans, how much is expected to reprice over, call it, the next 6 to 12 months?
Sure. Matt, I'll kick it off and Joe can add some of the more detailed answers there. But I think if you look at just kind of where we are, this is the second quarter of expansion in NII. And really, this was before the Fed cut essentially, which was very late in the quarter. So we sit back here and we look at our asset side, and we have a lot of loans that are continuing to move up at a much bit better spread than the back book. So that's going to continue to go up. Even with the cut, we have a lot more loans that are repricing up than down. So that seems reasonably optimistic on that side.
Then you look on the deposit side, and we already on the deposit side, we're flat this quarter. We did make some adjustments throughout the year. And I think we talked a little bit about that in prior calls, but we've already -- we had already adjusted some rates down during the year and we certainly adjusted rates down post the Fed cut as well. We didn't capture all of the cuts in this initial kind of a move. We captured on our most sensitive deposits, we captured probably about 50% of the cut. There are some things that are more I would call them index to the market in the sense of the municipal deposits where we're matching some rates. So those will move as the market rates move. But I expect that on the next cut, when and if that comes, we're going to capture potentially a higher beta than what we captured on the first one.
Yes, Matt, regarding the loan repricing, I would just probably direct you to the investor deck towards the back of the deck. There's kind of a summary of the expectations around loan maturities and repricing opportunity. And just in kind of broad deal terms, the fixed rate loan portfolio, we would expect about $1.5 billion in cash flows off of that portfolio over the next 12 months. When we sort of published that slide, the weighted average rate on that -- on those maturity loans was a little over 5%. We've been booking new loans kind of in the call it, 7.25% range, if you will.
So we do nothing more than just turn over that fixed book. That's obviously going to be additive to NII. I would also mention that there is about $1 billion, $1.1 billion or so of truly floating rate loans, which are sold for prime based. So obviously, they come down a bit as rates move down, then there's an adjustable set of loans, which is relatively small which is -- it's a price reset with, for example, a loan that might have a 10-year maturity with a 5-year reset. So there's a portion of those. So I think when you kind of blend all of those components on the loan side, is going to be a net positive to the book yield as we move throughout the year.
Great. I appreciate that. And then Dimitar, I know you had mentioned that there was a couple of kind of chunkier credits that were closed this quarter. Could you just discuss the size of those or maybe give us some idea of what you'd expect in terms of the forward outlook on loan growth? I know it's going to be higher than you have been historically, given the entrance or penetration of the denser markets. But maybe just discuss the -- what happened this quarter and what the kind of normalized outlook is?
Yes. I mean I think this quarter $200-plus million of loan growth is not our current trend line, that's high single digits. That's not kind of where we are. As I mentioned, we -- our market share has been tremendous in terms of gains and the quality of the people and the customers that we continue to attract is really exciting for us. So we've been hard at work on a number of cases what I would call it more key type opportunities and clients across our markets. And as we just said, a couple of those come to fruition, they take a long time. Typically, those are takeaways from other larger institutions and that kind of boosted that rate.
I expect that it will be closer run rate, kind of where we were in the past couple of quarters than this particular third quarter. going forward. So that's what I would think about in terms of our growth on the balance sheet.
Okay and I had two others, if you don't mind. The first one is just given your comments around kind of late cycle and trending towards normalized credit, coupled with increased loan growth. Is it fair to assume that the reserve continues to increase moderately from current levels and the provision will kind of increase in kind? I was hoping you could comment on that.
Yes. I think, Matt, so the CECL model we have is quite sophisticated, as I'm sure everybody is moderate. There's a whole bunch of variables that go into all of that. At the end of the day, I try to think of it as a little bit of a common sense model in my head, and we're sitting here at 11 basis points of charge-offs. And our, I guess, year-to-date, it's actually below 10 but, let's say, 11 in this past quarter. And our ACL coverage is 74 basis points. So that's almost 7 years' worth of losses, which seems a little bit high.
So then the question really is what we think that 11 basis points is through the cycle. And as we talked about at our Investor Day, our goal is through the cycle with the ups and the downs to be below 15. So if I take that 15 and I think about our loan book, which life is somewhere between 5 and 6 years. You can kind of do the math of the coverage, if that's 5 years and change, what that would mean kind of on the ACL.
So I think from that perspective, I would agree with you that you can probably see a couple of basis points here and there depending on the quarters as we move forward in terms of ACL.
Great. And then last one for me. One of the standout moments during the Investor Day was your commentary in regards to just general economic activity. Beyond the chip manufacturing stuff. I think it was in the teens or high teens models of what it has been historically. And I was just hoping you could comment a little bit more on that and why that is? What's going on in Upstate New York versus what's been going on historically that it's driving so much more economic activity? That's all I had, thanks you.
Sure. Yes. I mean that hasn't changed. I don't think it's going to change for a while. You have a number of things, as we mentioned at the Investor Day, it really is kind of the onshoring of a lot of the manufacturing that was offshore over the past number of decades. The government tax, be it the Chips Act or the Inflation Reduction Act, also provided for a whole lot of subsidies that New York turned out to be very well positioned for. So you're looking at what's happening with solar, what's happening with wind investments, what's happening with carbon credits. A lot of that is happening in New York state. And so we're clearly a beneficiary of that. there's kind of a move towards, let's say, advanced technology in upstate New York as well on the back of basically the skilled the skilled labor force from all the colleges and be it in Central New York or in Rochester, kind of the former technology investments there as well.
So a lot of that is happening in our markets. And we're seeing that happening on the back of what has been a constrained infrastructure and housing availability as well over the years. So there's a lot of infrastructure that's being built to support that growth and that's kind of creating a lot of opportunities. But our manufacturing clients are doing really well across the board. The consumer is doing really well. And we just happen to be in a moment in time where we are adding our own capabilities on top of that in terms of market share gains and you're kind of seeing all of that in the results.
The next question comes from Steve Moss from Raymond James.
I apologize I hopped onto the call a bit late here, but I did want to just kind of follow up on -- or touch base on expenses here, in particular, just kind of curious, I heard you, Dimitar kind of midway through your comments talking about you made a number of hires this quarter. And just kind of wondering how you guys are thinking about the expense run rate here going forward?
Yes, Steve, this is Joe. I would still kind of characterize it as mid-single digits on a full year basis. Obviously, there's a little bit of call it, volatility up and down from quarter-to-quarter depending on sort of what happens in the quarter and what accruals we have to put through. But I think if you look at it kind of on a longer-term basis, that mid-single-digit growth rate is still not unreasonable and on a year-to-date basis, [indiscernible] we're up a little over 5.5%. And I think that's a fair expectation. As Dimitar has said to me multiple times, we're investing through our P&L, right? We're putting the organic growth capabilities in place, and so that requires some continued investment in the company. And so that mid-single-digit growth rate is probably, I think, a fair expectation.
I would say this is that a lot of the investments that were made in 2023 and year-to-date 2024, we are starting to see results from those investments. So I wouldn't expect that pace, if you will, would replicate what we did in 2023. But so I think 2024 is more indicative of a longer-term expense rate.
Okay. Great. Appreciate that. And then just on the credit front, I think you guys in the text said it was -- the uptick in NPLs was primarily due to one commercial credit. Was there a specific reserve tied to that credit that was included in the provision this quarter?
No, there wasn't, Steve. I mean so to give you a little bit more color, it's a fully paying basically never delinquent credit going back to 2006. It's a long-standing relationship. The borrower probably over expanded a little bit, and we felt that given the fact that the borrower is going through restructuring themselves to position them for kind of scaling back some of their investment, it's appropriate that we would put it on nonaccrual. But again, the loan is actually fully paying nondelinquent, and we expect that to continue.
Okay. Great. I appreciate that color. And then in terms of fee income here, it was strong across the board. I trust that those trends are likely to continue for employment benefits, insurance services and wealth management. But deposit service charges were also -- and banking fees were also strong here. Just kind of curious if there was anything idiosyncratic there?
Steve, I wouldn't say anything -- nothing really idiosyncratic. We rolled out some new services in the last year or so. We're doing more swap fees in some, call them, for lack better term capital market transactions where we're participating out some loans. There's some fee income generation from those activities. And so now they're kind of embedded in our infrastructure. So nothing really idiosyncratic per se. I think this quarter is a fair representation of what the expectations are going forward. This was an area where we needed to actually find new fees over the last, call it, 5, 6, 7 years, remember, we kind of experienced durbin and then we experienced some reductions I'll call them competitive and regulatory pressure on NSF fees and the like. So that deposit service fee line item is going to be challenged. So we've had to find other opportunities in the banking base, and I think we've been pretty successful in doing that here. And so I would expect that, that this quarter is a fair representation of expectations going forward.
Okay. Great. I appreciate all the color. I'll step back.
The next question comes from Manuel Navas from D.A. Davidson.
Hello. This is Sharanjit on for Manuel. I had one quick question for loan and deposit growth were pretty solid this quarter. And how is the pipeline mix looking?
The pipeline is looking pretty good. I would say it's consistent with probably more so the first and the second quarter than the third quarter. I think we talked about -- we had a couple of more significant events in the third quarter. So I would think about those rates of growth is more indicative of going forward. As it relates to deposits, we have seasonal inflows because of our municipal deposits. So that kind of ramped up that rate of growth in the third quarter.
I will say that this was the first quarter in a while, just kind of an aggregate comment on deposits outside of municipals where we trended actually a little bit better on the individual and commercial deposits than historical medians, back -- going back to the summer of 2022, we started observing the kind of the drift below medium performance as the industry was experiencing the kind of the sticking out of liquidity. And we've been bouncing around kind of the bottom quartile to medium quartile performance in the retail and commercial side in terms of deposit performance over the past 8 quarters. And this was the first quarter where we kind of broke up a little bit over that. So I'm a little bit more optimistic probably on average on the retail and commercial side. But we'll see. It's a sample size of [indiscernible] so far in terms of booking that trend.
Next question comes from Chris O'Connell from KBW.
You guys mentioned earlier that you moved rates on the most sensitive kind of deposit buckets as well as the munis. Any sense of just the dollar amounts of those 2 buckets that you guys have moved rates on?
Yes, I'm not sure I can give you a precise amount, Chris. But we do carry money market balance is about $2.4 billion. There's a fair amount of that. It's not hasn't been priced up all that significantly. So there's not a lot of opportunity to go down. But we do have, I'll say, probably in the ballpark of billion of opportunity that has kind of a little more rate-sensitive money that was priced up during the rate hikes. And so that it's probably where most of the adjustments will be made is when and if rates continue to come down.
And is that inclusive of the muni deposits or separate?
Yes. Yes. Correct.
Got it. And do you have what either the spot total or interest-bearing deposit costs are as of either today or kind of the most recent date?
Yes. So interest-bearing deposit costs for Q3 was about 170 basis points.
And do you have what it was either at the end of the quarter or early in October kind of after those rate moves?
It was the same interest-bearing deposit costs were about -- just about the same in Q2. There's a little bit of a mix shift. So there's some, I'll call it, rate adjustments on -- as rates move down, but there was also a mix shift to more time deposits and interest-bearing, interest-bearing accounts, but the blended rate was about the same in Q2 as it was in Q3.
No. Yes, I'm talking about like post Q3 or either at the end or just after Q3, after the move, just kind of a spot rate, not the average.
Yes, I don't know that I have that specifically, Chris, but it's down a [indiscernible] basis point.
Okay. Got it. And then I think the -- on the rising rate cycle, the interest-bearing beta kind of shook out around 30% or so. How are you guys thinking about that beta over the course of the cutting cycle?
Well, I think we -- to be honest with you, we look at the total beta versus the interest-bearing. So probably haven't framed the question that way in our heads. But I think our expectation is that it's going to be a little bit slower initially. And as the industry responds, it's going to kind of get closer to those levels in the aggregate. I think one of the things that maybe is -- there's a couple of things going maybe in different directions.
One is I think everybody in the banking space is looking forward to cutting rates on deposits. On the flip side, everybody is also now all of a sudden trying to grow their assets. And there is not a lot of liquidity that we generated over the past number of quarters. So I think both of those are going to go in different directions in terms of determining that data. But as it relates to us, I think I mentioned, we captured roughly half of that, 50% beta on the first move for those rate sensitive buckets. And we're expecting that maybe we're trying to capture a little bit more on some of the other ones. But again, on the aggregate deposit base, because again, we have 70% of our deposits that are in truly very low cost type of accounts. So we have savings accounts paying 4 and 5 basis points. So we're not going to be able to move them as much and we may not touch them for a little bit of time.
So I think in the aggregate deposit beta, it's we're probably going to get to those 24% that we experienced, but it might take us a little bit longer.
Got it. And just thinking about the trajectory of the margin from here under the assumption of the forward curve. I appreciate the NII guide up in the fourth quarter and year-over-year. And how are you thinking about the margin into Q4 and kind of the trajectory as we get into 2025?
I think, Chris, that the expectations are that kind of along with NII, the margin would continue to drift up into Q4 and into Q5. I think a fair expectation is 3, 4, 5 basis points a quarter. I think that's not unreasonable given kind of what we have turning over on the loan book, in particular and the fact that we've kind of stabilized the call it, the cost of deposits. So I think it's fair to assume that drifting up 5, 6, 7 basis points or 4 or 5 basis points of a quarter.
Great. Very helpful. And then can you just give us an update on the pace and the outlook of the branch plan in terms of the rollout and timing you guys equipped on this quarter? And then I believe the intention is for it to be kind of net neutral on the overall expense base and just kind of where some of the puts and takes are to help keep that from kind of adding to the overall expense run rate too much going forward?
Yes. So as we look towards 2025, have a whole lot slated for late first quarter and second quarter in terms of openings. We have -- we've been, frankly, a little bit slower than we would like to because of a whole bunch of logistical reasons, plus we're now running into the kind of the colder months of the year in upstate New York. So opening branches in Buffalo in December may not be the most optimal timing. So we're going to hold off on a couple of those situations. But again, most of them, I think, are going to come kind of late first quarter, second quarter. And then we've got a number of others coming in the third quarter and a little bit less so in the fourth quarter of next year.
So by the end of next year, our plan is to be almost fully open across the board. Hopefully, as we have committed to our shareholders, we're also going to be looking to make that net neutral in terms of both branch count and expenses. The first part of that is already in our numbers because of some of other retail optimization staffing with it late last year. And we have a whole number of other locations that we're considering in terms of consolidating for 2025.
So that how I would think about it. It's going to be a little bit lumpy. These things are not perfectly matched in terms of cost and savings across the year. So some things might come a little bit sooner. Some things might come a little bit later. But in the aggregate, our plan is to stick to what we promised.
Great. I appreciate the time. Thank you.
This concludes our question-and-answer session. I would like to turn the conference back over to Dimitar Karaivanov for closing remarks.
Thank you, everybody, for joining us on the third quarter call. We're excited and optimistic about the future here with everything that's going on at our company, and look forward to speaking with you back in January. Thank you.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.