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This transcript is designed to be used alongside the freely available audio recording on this page. Timestamps within the transcript are designed to help you navigate the audio should the corresponding text be unclear. The machine-assisted output provided is partly edited and is designed as a guide.: Operator: 00:02 Hello, everyone, and welcome to the First Bank Third Quarter twenty twenty one Earnings Conference Call. My name is Bethany, and I'll be coordinating this call for you today. [Operator Instructions]. 00:17 I’d now hand the call over to your host, Patrick Ryan, President and Chief Executive Officer of First Bank. Over to you, Patrick. Patrick Ryan: 00:26 Thank you. I'd like to welcome everyone today to First Bank's third quarter twenty twenty one earnings call. I'm joined today by Andrew Hibshman, our Chief Financial Officer; and Peter Cahill, our Chief Lending Officer. Before we begin, however, Andrew will read the Safe Harbor statement. Andrew Hibshman: 00:45 The following discussion may contain forward-looking statements concerning the financial condition, results of operations and business of First Bank. We caution that such statements are subject to a number of uncertainties and actual results could differ materially, and therefore, you should not place undue reliance on any forward-looking statements we make. We may not update any forward-looking statements we make today for future events or developments. Information about risks and uncertainties are described under Item 1A Risk Factors in our annual report on Form 10-K for the year ended December thirty one, twenty twenty filed with the FDIC. 01:20 Pat, back to you. Patrick Ryan: 01:23 Thanks, Andrew. I’d like to start today with the discussion of the overall results before I turn it over to Andrew and Peter to dive in on the details. I think the third quarter was a continuation of our very strong financial results year to date in twenty twenty one. I'd like to hit on a few of the key financial performance metrics over the past few quarters. 01:46 Q3 was the third straight quarter with return on assets over one point four percent and return on tangible common equity over fifteen percent. Our efficiency ratio has been below fifty percent for four of the past five quarters, pre provision net revenue continues to move higher and our pre-provision ROA has been over one point seven percent each of the past five quarters. 02:13 Furthermore, non-interest income has been averaging one point eight million dollars per quarter over the past five quarters which is up thirty seven percent compared to one point three million dollars which was the average of the prior five quarters. This strong financial performance allowed us to both increase our dividend and renew our stock buyback plan. 02:36 Even as we continue to grow, our earnings profile is generating strong capital cushions. From a lending perspective, net loan growth was muted during the quarter, but this is being driven by payoffs and strong growth in Q2 more so than a lack of new activity. Peter Cahill has some good data that he will share later in the presentation on this point. 02:58 I would just add, the total new loan production year to date in twenty twenty one is consistent with prior years and our lending pipeline is near all-time highs. We have seen reduced C&I line usage as contributing to so far the slower net loan growth year to date. 03:18 Continuing with trends in lending, our asset quality is holding up well. Our SBA Group continues to perform very well, we're seen great results from this team and their results are helping to drive our consistently improved non-interest income. 03:32 We're also excited to add new team leader and market executive, Anthony DeSenzo to help drive and lead our team in Northern New Jersey. From a deposit perspective, we're very excited in early December to be adding over two thousand new customers and over one hundred million dollars in new deposits from two branches we're acquiring from OceanFirst bank. We received regulatory approval and we expect to close in early December. 03:59 The addition of these deposits is timely as our expectations for growth in Q4 shows that we should have strong net loan growth and a need for funding in the quarter. Overall, deposit growth was limited during the quarter, but this was partly by design as we work to manage excess liquidity. We continue to drive our cost of deposits lower, reducing them to twenty five basis points from thirty basis points in the prior quarter. 04:27 And our continued success in our commercial deposit and cash management area led to additional users, increased fees and increased services used per customer. In summary, we view this as another overall very strong quarter. While loan growth didn't materialize as expected, the new business engine is churning and Q4 looks very good. 04:51 Deposit results remain solid with good non-interest bearing growth and improving mix and a continued reduction of our cost of funds. And our dividend and stock buyback announcements reinforce our position of strength and strong financial results. We feel the model is working, we're able to grow, add customers, grow earnings, reward employees, and return capital to shareholders via dividends and buybacks. 05:18 At this time, I'd like to turn it over to Andrew to discuss the financial details for the third quarter. Andrew Hibshman: 05:25 Thanks, Pat. For the three months ended September thirty twenty twenty one, we are at nine million dollars in net income or zero point four six dollars per diluted share. This was the second highest net income quarter in the history of the bank and the highest quarter in the history of the bank in regards to pre-provision net revenue of twelve point three million dollars. Pre-provision net revenue is net interest income plus non-interest income, minus non-interest expense adjusted for merger related expenses. 05:51 The factors contributing to another strong quarter included a stable net interest margin improved non-interest income and controlled non-interest expense growth. From a balance sheet perspective, as Pat mentioned, both loan and deposit growth was muted during the quarter. Excluding PPP loan forgiveness, loans were up approximately thirteen million dollars in Q3 twenty twenty one compared to an increase in non PPP loans of approximately eighty six million dollars in Q2. 06:17 During Q3 twenty twenty one, sixty two point two million dollars in PPP loans were forgiven, leaving seventy seven point eight million dollars in PPP loans outstanding as of September thirty twenty twenty one. During Q3 twenty twenty twenty one we realized one point eight million dollars in PPP fee income compared to one point three million dollars in Q2 twenty twenty one. As of September thirty twenty twenty one, we had two point eight million dollars in deferred PPP loans remaining. 06:45 Going forward, we feel good about the strength of our commercial pipeline and prospects for loan growth in Q4. As Pat had mentioned, Peter will expand on loan activity year to date and the pipeline in his remarks. 06:56 Total deposits were up nine point seven million dollars during Q3, while we continue to reduce our reliance on higher cost time deposits. Non-interest bearing demand deposits as a percentage of total deposits stayed flat compared to the prior quarter at twenty six point three percent, while time deposits dropped to twenty point six percent of total deposits at September thirty compared to twenty three point two percent at June thirty. 07:20 With a significant amount of liquidity in our markets, our strong deposit pipeline and the new customers that we will gain via the OceanFirst Branch acquisition remain confident in our ability to grow our low cost core deposits. In addition to shifting our deposit mix, we have been able to lower the cost on our interest bearing deposits, which coupled with the deposit mix shift has contributed to a significantly lower cost of deposits. 07:44 Our total deposits to cost of deposits, as Pat mentioned, was down five basis points in Q3, but it was down significantly from Q3 of last year, up seventy basis. We believe we can lower the cost of interest bearing deposits further as we have over two hundred million dollars in time deposits maturing over the next six months with a weighted average cost of approximately fifty five basis points, which is forty basis points lower than our highest standard -- current highest standard CD rate. 08:13 Our tax equivalent net interest margin, which bottomed out during the second quarter of twenty twenty to three point zero seven percent held steady at three point five four percent for the quarter Q3 twenty twenty one, compared to three point five seven in the previous quarter. Our margin continues to benefit from the lower cost of deposits and minimizing the decline in the average yield on our interest earning assets. 08:36 Our margin in Q3 benefited from approximately five hundred thousand more in PPP fee income when compared to Q2, but this was offset by lower prepayment penalty income of almost five hundred and sixty three thousand dollars, which was seven hundred and twenty nine thousand dollars in Q2 and only one hundred and sixty six thousand dollars in Q3. Our margin in Q3 was also impacted by the amount of liquidity we carried during the quarter. 08:59 During Q3 twenty twenty one, our average amount of interest bearing deposits with banks had mirrored our Q2 twenty twenty one levels, our margin would have improved to three point six one percent. As a result of limited amount of loan growth during Q3, year to date net recoveries, a continued strong asset quality profile and an improving economic outlook, we recorded a one hundred and fifty eight thousand dollars provision for loan losses in Q3 twenty twenty one compared to a credit to the provision of one hundred and sixty eight thousand dollars in Q2 twenty twenty one. 09:32 With the small provision during Q3 twenty twenty one, our allowance for loan loss as a percentage of loans increased slightly to one point one nine percent, excluding the impact of PPP loans from one point one eight percent at June thirty twenty twenty one. 09:47 Non performing loans were up slightly from the prior quarter, but were still lower as a percentage of loans compared to one year ago at September thirty, twenty twenty. COVID related deferrals were down again this quarter and we have continued to see expanded economic activity in our region. 10:04 In spite some of these positive trends, our allowance as a percentage of loans continues to be elevated compared to pre-COVID levels which were one percent at December thirty one twenty nineteen and this is primarily due to continued level of economic uncertainty. In the third quarter of twenty twenty one, total non-interest income increased to one point nine million dollars from one point three million dollars in Q2 twenty twenty one. 10:27 The increase from Q2 mainly related to gains on sales of loans and an increase in other income. The increase in gains on sale of loans was primarily due to a gain of three hundred and sixty four thousand from the sale of certain lower credit quality loans, which helped reposition our loan portfolio. Many of these loans were acquired loans that were marked down to fair value at the time of acquisition. We were able to sell these loans at a slightly higher price than the markdown value. The increase in other income was primarily due to one hundred and fifty nine thousand dollars gain on the sale of a closed branch building that was done in Q3 twenty twenty one. 11:02 Q3 was a relatively slow quarter in regards to SBA loan sales and loans swap income, while these non-interest income levels may continue to fluctuate, the underlying strength of our non-interest income generation capabilities has improved from prior years, especially related to loan swap income and SBA loan sales. So, we expect good things from both of these areas in Q4. 11:24 In Q3 twenty twenty one, we continue to focus on controlling non-interest expense, which resulted in a less than forty six percent efficiency ratio compared to a forty six point six six percent efficiency ratio for Q2. 11:38 During the quarter, we benefited from the branch and admin space closures that we disclosed in the prior quarters and our other cost containment strategies that we have implemented. Non-interest expense was up slightly over three point six percent during Q3 twenty twenty one when compared to Q2 twenty twenty one. The increase was due to an increase in salaries and employee benefits and merger related expenses. The increase in salary and employee benefits was primarily due to an increase in certain incentive based compensation based on our current year to date results and the merger related expenses were related to the pre mentioned OceanFirst branch acquisition. 12:14 With a strong commercial loan pipeline, continued trend of lower cost funding based and effective management of non-interest expense, we are well positioned to continue our strong and improving core profitability trends. 12:26 At this time, I'll turn it over to Peter Cahill, our Chief Lending Officer for his remarks. Peter? Peter Cahill: 12:34 Thanks, Andrew. As outlined in the earnings release and mentioned by both Pat and Andrew, total loans in the third quarter were down two point four percent from the second quarter. This decline was driven mainly by forgiveness of PPP loans. All lending staff has spent quite a bit of time on PPP loans and the forgiveness of them and those loan volume movements in fee income earned have both been outlined in this and previous earnings releases. With that program winding down, I'll focus my comments today on non-PPP lending. 13:12 As you can see from our numbers so far this year, non PPP loan growth quarter to quarter has experienced some big swings. This has been driven for the most part by loan prepayments that were not expected at the level we experienced them. 13:27 New PPP loans -- I'm sorry, non PPP loans in the first quarter were down by approximately eighty two million dollars. We had about one hundred million dollars in loan prepayments in that quarter. In Q2 alone, we had growth in non PPP loans of eighty five million dollars which offset the eighty two million dollars loan decline in Q1. It was an excellent quarter and we finished the first half of the year a little over breakeven in terms of loan growth. 13:59 Now for the third quarter, we grew non PPP loans thirteen million dollars, so for the nine months we're up around sixteen million dollars. To give you some idea of the number of new loans funded as well as loans prepaid year to date, I'll provide some comparisons to twenty twenty where we had very solid loan growth. 14:21 Through the third quarter last year, we closed and funded two nineteen million dollars in new loans. During the third quarter this year, new loans closed and funded totaled two ninety five million dollars, that's thirty five percent more new loans this year. On the loan payoff side, however, last year at Q3 for the nine months, we had one hundred and three million dollars in payoffs. 14:49 As I mentioned before, we had that in the first quarter this year alone. And at nine thirty twenty one, total payoffs for the nine months were two hundred million dollars, almost twice as many as last year. 15:03 For those who might be interested in where these two hundred million dollars of payoffs came from, ninety five percent were commercial in nature, the remainder were consumer loans. Of the commercial loans, seventy two percent were investor real estate loans. While we look at the reasons behind the one -- approximately one hundred and ninety million dollars of commercial payoffs, we tried to place them into bucket to see where they came from. 15:28 The largest group, thirty five percent of the total were from borrowers who sold their underlying asset, these sell almost exclusively in the investor real estate segment that is basically out of our control. The next largest group of thirty four percent for borrowers who refinanced their loans elsewhere. Most of these loans were investor real estate loans as well. 15:54 Most of the remaining loans were a combination of things, loan participation that either that paid off or refied out of the lead bank loans where average risk – average -- above average risks, and we just got -- rate reduction was not warranted and we had some loans in our workout area and paid off as well. Clearly a sizable portion of the payoffs were loans where we made the strategic decision to maintain our margins, while upgraded quality of the portfolio. 16:29 Something else that has impacted loan outstanding so far this year has been a steady reduction in the utilization of working capital lines of credit. Pat referenced this. While we experienced a five percent growth in the dollar amount of total line of credit commitments through the nine months, we experienced almost a ten percent decline in usage. Utilization rates went from fifty two percent at December thirty one, twenty twenty to forty three percent at September thirty, twenty twenty one. 17:05 Despite all the payoffs, I remain optimistic of how we're going to finish the year. Back in July, I described the loan pipeline at June 30th, which remains strong even after a big second quarter, and it stood at two hundred million dollars in line with the March thirty one figure of two hundred and nine million dollars. I commented that the two hundred million dollars pipeline in June was the third highest it's ever been, and I provided a comparison to the twelve month average for twenty twenty, which was one hundred and fifty four million dollars. 17:39 I’m happy to report now that the loan pipeline for the third quarter grew even stronger and at September thirty, twenty twenty one stood at two hundred and sixty five million dollars, up thirty three percent from the end of the last quarter. The pipeline continues to be well diversified and contains a greater number of loans than ever before. 18:02 We also project loan fundings and payoffs out sixty days from each month end. We've finally seeing some slowing in projected payoffs and with the pipeline I just described, I think we still have an opportunity to meet our non PPP loan growth plans for the year. 18:20 Also regarding the twenty twenty one loan growth and not included everything I've mentioned, but included in the earnings release, there is fourteen million dollars in consumer loans that will pick up via the OceanFirst branch acquisition. So despite loan growth being back ended for the year, the outlook continues to be positive. 18:42 Our relationship managers are out calling on customers and prospects, keeping the pipeline strong. After reporting last quarter, we hired a very solid team leader for our Pennsylvania market, and as Pat mentioned, earlier we also has a start with past Monday, a strong team leader in our Northern New Jersey team and we expect great things there. 19:04 Pat mentioned our SBA lending group earlier, it's ahead of its plan for the year. It has had fee income of almost one point one million dollars through nine months and has a very strong pipeline. Fee income for the year should increase thirty percent to forty percent before year end. We also just came to terms with an additional SBA relationship manager and the SBA Group should have a good finish to the year and a very strong twenty twenty two. 19:33 We've also seen an uptick in construction lending. We've never had large exposures there but we currently have approved, but not yet closed eight loans that total fifty five million dollars that will close shortly, and fund as construction takes place over the next year or so. This should have been fourth quarter and twenty twenty two loan growth. 19:57 Lastly, regarding asset quality. The earnings release provides normal data on where we are, Pat and Andrew touched upon it. I'll just reiterate. Things from my perspective continue to look good and metrics are still very solid. Just in the loan mix are evident, C&I loans were down due to PPP forgiveness and reduced line of credit utilization. On the positive side, owner-occupied real estate loans and investor real estate loans have increased. 20:26 Non-performing loans were up slightly. Delinquencies remain manageable with past dues at the quarter end at eighty basis points, a modest increase from last quarter. And our deferred loans related to COVID-nineteen continued to improve with leisure in lodging and hospitality as well as some in transportation and from just a few borrowers that we know very well. We believe all of the loans are adequately secured. 20:57 Total deferrals declined from eleven point seven million dollars at June to ten point three million dollars at September thirty and we expect most of them to be off deferral by year end. 21:10 That's my report for lending for the third quarter. I’m going to turn it back down to Pat for some final comments. Patrick Ryan: 21:18 Thank you, Peter. Thanks, Andrew. I'll turn it back to the operator to open up for Q&A. Operator: 21:34 Thank you. [Operator Instructions] Our first question comes from Nick Cucharale from Piper Sandler. Nick, please go ahead. Nicholas Cucharale: 21:40 Good morning, everyone. Patrick Ryan: 21:43 Good morning, Nick. Nicholas Cucharale: 21:45 So, with the branch acquisition coming on in December, are you planning on paying down some borrowings with excess liquidity or how are you thinking about the near-term transition with those branches and its impact on the margin? Patrick Ryan: 21:57 Yes, it's a good question. I'll hit on a brief and turn over to Andrew, Nick. But, I think right now, given the strong pipeline, we're looking at, we think a fair amount of that money will end up getting deployed into commercial loans pretty quickly, but there may be some opportunities for some other things as well in terms of reducing overall liquidity. But Andrew, you want to hit on a couple of things you're looking at? Andrew Hibshman: 22:21 Yes. Nick, I mean, I think those branches are going to give us the opportunity to do a bunch of different things. We've started to let some brokered deposits that are maturing, those that rolled off. We've been paying off advances as they mature. We've been letting some high cost kind of hot money, we call it, leave. So, I think it's going to be a combination of a lot of things. We're also -- we were a little bit more active in the investment portfolio during the third quarter than we typically are. 22:49 So I'd say, yes, we are going to pay off some advances, but we're also doing a few other things to manage liquidity and this -- the branches are allowing us to be a little bit more aggressive on letting some higher cost money roll off. Nicholas Cucharale: 23:06 Okay, great. And then you were able to maintain a pretty stable margin this quarter. Can you walk us through your expectations for the margin kind of -- in the near term there? Andrew Hibshman: 23:17 Yes, I can answer that, Pat, and then you can jump on it. I think, we feel like we can maintain the level. Obviously, PPP fees are flowing through the margin. So those are going to roll off. We have about two point eight million dollars, as I mentioned last, we expect probably the majority of that to be realized in the fourth quarter with some rolling into early next year. We have seen very few PPP loans that are not been forgiven. We have a small number that will extend out, so we'll still be earning. Some PPP fee income, out past March of next year, but it will be very immaterial. 23:51 But outside of that, I think we can hold pretty steady. I mean, we're bringing in low-cost money from the branch deal, we're going to manage our liquidity, probably a little bit tighter than we did in the third quarter, which I mentioned, impacted the margin by about seven basis points by carrying as much we put it as we did. So, I feel good about it. A fairly stable margin. I don't know if there is much we can do to improve it significantly. 24:16 Again stripping out kind of the impact of PPP, but I think, we've been doing a good job of bringing in money at very low cost and holding the line on loans. So, we hope to be stable. But, I don't know that we can do much better in terms of margin, but we do believe we can hold it pretty stable going forward. Nicholas Cucharale: 24:38 Great. Thank you for taking my questions. Patrick Ryan: 24:43 Thanks, Nick. Operator: 24:46 Our next question comes from Manuel Navas of DA Davidson. Manuel, your line is open. Manuel Navas: 24:54 Hey, good morning. Patrick Ryan: 24:56 Good morning. Andrew Hibshman: 24:57 Good morning. Manuel Navas: 24:57 So, has there been any structural change in deposit trends or you've been more selective? Is it just this quarter was 1 percent versus other quarters? Anything to take away from that. Patrick Ryan: 25:15 Yes, I'm not sure I would draw any huge trends there. I mean, as we looked at where we were from an overall deposit standpoint and we knew we had the branch deposits from OceanFirst coming on board. I think, we did take a little bit of a harder line in terms of pricing and we didn't see that need to push the envelope as much on the deposit side. So, I think it was more a bit of a balancing act, but there continue to be good opportunity, especially on the commercial deposit side and the cash management pipeline is very active. So, we're not necessarily seeing a massive shift out, if you will, but something we'll certainly be keeping an eye on as we go forward here. Manuel Navas: 26:08 Okay. That's helpful. What are -- going to the other side, what are yields like in the loan pipeline right now and kind of what are you seeing in pricing competition in the marketplace? Patrick Ryan: 26:22 Manuel, I'll hit on it briefly and turn it to Peter. But I think the loan yields have been pretty consistent so far this year. There certainly is competition but in our markets, that's nothing new. There is always a healthy level of competition for quality loans and obviously we're competing as relationship driven, not price driven lenders and so, we try to use that to make sure we're earning good yields, but I think we've been at a pretty consistent level. Peter anything you'd add there? Peter Cahill: 26:57 Yeah. I actually pulled yesterday. We got a report of all new loans booked on a monthly basis. I pulled that report for July, August and September. And interestingly, as Pat mentioned, the rates are -- the average yield is very close. Going July of September it was three eighty eight, four zero five and three ninety seven. So call it three ninety five as the average rate for the quarter. It’s not too bad and consistent over that period. Manuel Navas: 27:36 That's helpful. Can I just had one last question on kind of thought process and sensitivities on the buyback? Can you generate the growth that you're kind of expecting in the fourth quarter and still buy back shares? Patrick Ryan: 27:53 Well, I think from a capital perspective, right now, our capital levels are pretty strong. But obviously, if you look at where we bought back shares in the third quarter, it was kind of thirteen dollar -- sub thirteen dollar and more recently the stock been trading a bit higher. So, I think -- I'm not sure, capitals is the constraints, we're obviously going to keep an eye on overall pricing levels, and our job is to try to scoop up shares. And we think they're attractively priced and the other piece of the capital equation, obviously, is on the dividend, which we did and increase and that we announced a couple of days ago. 28:39 So, I think we have the opportunity to continue to grow at a nice level, but also be active either in terms of buybacks, dividends or some combination or so. Manuel Navas: 28:55 Thank you. Patrick Ryan: 28:57 No problem. Thank you. Operator: 29:03 Our next question comes from Bryce Rowe at Hovde. Bryce, please go ahead. Bryce Rowe: 29:12 Thanks a lot. Maybe, I'll follow up to that last discussion there on the dividend and the decision, obviously, a big percentage increase going from zero point zero three dollars to zero point zero six dollar on a quarterly basis. Just kind of curious, how you're kind of thinking about the dividend and the payout ratio, especially as you put that against what seems to be an inflection in profitability and core profitability really getting meaningfully better here over the recent past? Patrick Ryan: 29:46 Yes, I think, the increase in the dividend, when you look at it on a percentage basis, looks quite large, although, I think if you look back at where we were kind of pre-COVID, we were a little bit lower than our peers, both in terms of payout ratio and yield. And we obviously, chose not to do anything more with the dividend as COVID was playing out, just to be conservative. So I would say, part of the increased price was really candidly catch up in terms of having been a little bit behind. I think another part of the increase was an acknowledgment that our retained profitability relative to our growth is improved nicely. So, there was a little more capacity there. 30:34 And part of it, quite honestly is, we want to make sure that we can continue to deliver on that dividend. And if we can continue to grow and improve profitability that may create opportunities to do something more on that down the road. But it was a level, we felt was the right move today given historically, when we are in start-up mode, we didn't pay any dividends and then we introduced a very modest dividend and then we kind of paused with the dividend increases due to COVID and so a little bit of catch-up and then a little bit as you acknowledged reflection of the reality of the very strong financial results we are seeing right now. Bryce Rowe: 31:17 Okay, that's helpful. Then maybe wanted to shift to the expense side of things. You noted a couple of hires here recently and maybe higher profile type hires. Could you speak to what you expect from an expense run rate perspective here going forward, especially as we layer in the two new branches that you're buying in the fourth quarter here? Patrick Ryan: 31:51 Yes, it's a good question. I mean, I think, we continue to believe, we can manage non-interest expense growth in the low single-digits, sub five percent. And I think we've shown a pretty good track record recently of being able to do that. We did have some nice hires, but some of those are replacements and doing some different things. So not all new hires end up being additive from an expense standpoint. And as -- I'm sure you're seeing and hearing from a lot of folks that you're following and just the trends overall, turnover is up right now. So, we're bringing people in, some of our people are looking to do other things. 32:34 And so net net, I don't think those hires have a -- change the profile in terms of our overall expense management and obviously adding some branches in the short run, we'll add some expenses, but we're obviously looking to add significant revenue along with that and we think there may be some opportunities to find some expense savings there as well over time. 33:00 So, yeah, I think -- I don't think, our expense management profile is really changing despite some of the recent announcements. Q - Bryce Rowe 33:10 Great. Andrew Hibshman: 33:10 Yes, I would just piggy back off that. I think, Pat is right on the money with that five percent, obviously, excluding the branches that we'll be adding, I think the branches are fairly similar in terms of size and expense to our current branch network. So, what we've add is kind of what you would expect from the management of those branches. And as Pat said, there may be some cost-saving opportunities going forward on those branches. But they're pretty standard branches though, they should be similar in terms of cost to our current branch network. Bryce Rowe: 33:45 Great. Thanks for answering the questions. Appreciate your time. Patrick Ryan: 33:50 Thank you, Bryce. Operator: 33:56 [Operator Instructions] Our next question comes from Erik Zwick at Boenning & Scattergood. Erik, your line is open. Erik Zwick: 34:09 Thank you. Good morning, everyone. Patrick Ryan: 34:11 Good morning, Eric. Erik Zwick: 34:14 I joined a couple of minutes late, so apologies if I ask something that's already been covered. But, maybe first just starting on the success you're having in the SBA lending program and selling those loans. How should we think about the growth and the contribution from that source going forward? Patrick Ryan: 34:33 Yes. I mean, listen, it's not a huge component of our overall revenue stream, but it is a significant component of our non-interest interest income, which for us has always been on the lower end, but it certainly an area where in the right areas and red lines of business, we certainly want to add to our non-interest income and we view SBA as a logical extension of our core strengths in small and sized business lending. And so, we're happy with the results year to date, as Peter mentioned, the pipeline is strong. So I think if you look at -- try to annualize what we've done so far this year to give you a sense of kind of an annual amount of income from that area. And quite honestly, I think we can do that or even better next year given the pipeline and the addition of the new member to the team. So we're pretty optimistic about what the group could do there. Peter, anything you'd add? Peter Cahill: 35:32 No, I mean, I think you covered it. I mean who knows, what twenty twenty two is going to bring? But, we're going to finish this year probably at least doubling up the plan, two hundred percent of plan and then we'll have a more aggressive plan next year, but I'm expecting pretty big things. Erik Zwick: 35:56 That's helpful. Thank you. And then with regard to the branch acquisitions, can you remind me what you expect to bring over in terms of deposit balances and also maybe just hit on your strategy and the reach out, you have, to the customers of those branches and how you plan to manage any potential attrition? Patrick Ryan: 36:16 Yes, I mean, the overall numbers we'll get locked in as we get a little bit closer to the actual date of conversion as I'm sure you can appreciate. Right now, those are some customers of OceanFirst and there is fluctuations and new customers coming in and some leaving. So, the final numbers, we'll have to see. I think Andrew and we announced that we are at about one hundred and twenty million dollars in deposits, is that right? Andrew Hibshman: 36:38 Yes, I think we had in the release too. We have one hundred and twenty four million dollars in deposits fourteen million dollars in loans, but as Pat mentioned, that number may fluctuate a little bit before we get to the close in early December. Patrick Ryan: 36:51 I think, in terms of your second question, Erik. I mean, we have locations, not to close but not too far from the locations we're buying. So, we think from a micro market management perspective, we're getting some critical mass within these couple of areas and we think that -- the fact that we have a presence in the area but not right across the street creates an opportunity to give folks a little more added convenience in terms of the products and services we'll be offering there, nearly identical to what they've had. So, we're optimistic that retention will be high and that -- with a little stronger presence in these markets, we can continue to build and grow in those areas. Erik Zwick: 37:42 And within your purchase agreement, are you able to contact the customers before they kind of close or how do -- when and how do the customers get notified of the switch? Patrick Ryan: 37:51 Yeah. The customer notifications are either on their way out or heading out soon and obviously we need to give people the heads up in advance of the conversion. So, those dates and milestones are things, our team is tracking closely and everything is kind of following the normal process there. But, yes, everybody will be notified and they well have the opportunity to touch base with us and make sure they're comfortable that it will be a smooth transition. Erik Zwick: 38:31 Thank you. Thanks for taking my questions. Patrick Ryan: 38:34 Sure. Thank you, Erik. Operator: 38:38 We have a follow-up question from Manuel Navas at DA Davidson. Manuel, your line is open. Manuel Navas: 38:45 Hey, just back on to ask about the loan outlook. Any update to that? Are you still hoping for that simple -- like, the one twenty million dollars for the year? And should we think about that at a similar pace for next year, or are you getting bolder or more confident on returning to like a higher rate of growth next year? Peter Cahill : 39:13 Pat, you want me to jump in there? Patrick Ryan: 39:16 Yes, I'll address it quickly, Peter, then turn it back to you. But yeah, I think, the one twenty million dollars net growth this year is -- as Peter said, it's achievable, although, that's now the higher end of the range in terms of what we might expect in terms of net loan growth for this year. But, I certainly think, given market dynamics, given our larger size and scale, and what we continue to see is a very active pipeline, that net loan growth in twenty twenty two I think, can be an increase over what our target was for this year. Peter Cahill: 39:57 Yes, I'll just add that as we finish the year, I mentioned in my comments that we kind of look forward every month, sixty days. So, we look at October, November, that we're kind of in the middle of, we forecast fundings and payoffs. And pay-offs have gone way down, fundings are around one hundred and fifteen million dollars projected, so, call it -- I think we're about one ten million dollars for six days. I mean even if a lot of that pushes back into December, which sometimes happens, things never seem to go as smoothly as possible. 40:43 I mean we're going to come fairly close, we need about one hundred and four million dollars -- for sixteen million dollars we need one hundred and four million dollars for net loan growth to hit that one hundred and twenty million dollars plan. So, we're going to come close, that -- we also have December and while we don't close in December it's going to roll over and start January off strong. So, we're feeling pretty good about the pipeline. Manuel Navas: 41:10 That's really helpful. It seems like you had pretty strong origination growth year-over-year on the trend. You've added two new people, it sounds like, is there a greater pipeline even -- to get those originations even higher? Peter Cahill: 41:31 Well, sure. I mean we hope to grow at a higher rate next year than we did this year or last year. But, keep in mind that a couple of the announcement -- announced additions to staff were replacement. So, we have one in the EPA, team leader is in addition to staff focused on a new market, so we should see growth there. And the SBA person is going to be generating primarily fee income because we'll close the loan and sell the guaranteed portion and generate that fee. So -- but yeah, I mean, we're seeing -- we expect more growth next year than we've had this year. Manuel Navas: 42:15 Thank you. That's helpful. I appreciate that. Operator: 42:38 [Operator Instruction] We don't appear to be having any more questions coming through. So, I'll hand the call back over to Patrick for any closing remarks. Patrick Ryan: 42:45 Okay, great. Thank you. I just would like to thank everybody for the time to listen in on the call. We appreciate your interest and we'll look forward to being back at the end of Q4 with another update. So thank you, everyone. Operator: 42:59 This concludes today's conference call. Thank you for joining. You may now disconnect your lines.