CVBF - NASDAQ

Good morning, ladies and gentlemen, and welcome to the Third Quarter 2024 CVB Financial Corporation and its subsidiary, Citizens Business Bank Earnings Conference Call. My name is Shuri, and I'm your operator for today. Please note, this call is being recorded. I would now like to turn the presentation over to your host for today's call, Allen Nicholson, Executive Vice President and Chief Financial Officer. You may proceed.

Thank you, Shuri, and good morning, everyone. Thank you for joining us today to review our financial results for the third quarter of 2024. Joining me this morning is Dave Brager, President and Chief Executive Officer. Our comments today will refer to the financial information that was included in the earnings announcement released yesterday. To obtain a copy, please visit our website at www.cbbank.com and click on the Investors tab. The speakers on this call claim the protection of the safe harbor provisions contained in the Private Securities Litigation Reform Act of 1995. For a more complete discussion of the risks and uncertainties that may cause actual results to differ materially from our forward-looking statements, please see the company's annual report on Form 10-K for the year ended December 31, 2023, and in particular, the information set forth in Item 1A, Risk Factors therein. For a more complete version of the company's safe harbor disclosure, please see the company's earnings release issued in connection with this call. I'll now turn the call over to Dave Brager.

Thank you, Allen. Good morning, everyone. For the third quarter of 2024, we reported net earnings of $51 million or $0.37 per share, representing our 190th consecutive quarter of profitability. We previously declared a $0.20 per share dividend for the third quarter of 2024, representing our 140th consecutive quarter of paying a cash dividend to our shareholders. We produced a return on average tangible common equity of 14.93% and a return on average assets of 1.23% for the third quarter of 2024. Our net earnings of $51 million or $0.37 per share compares with $50 million for the second quarter of 2024, or $0.36 per share and $57.9 million, or $0.42 per share for the prior year quarter. Quarter-over-quarter, our pretax pre-provision income grew by 2%, excluding net gains and losses. Total revenue, excluding gains and losses, grew by 2.9% or $3.7 million compared to the second quarter of 2024, primarily due to a $2.8 million increase in net interest income. Our core noninterest expense increased by 3.8% or $2 million compared to the prior quarter. On September 26th, we completed an early redemption of our $1.3 billion bank term funding program borrowing that was scheduled to mature in January of 2025. Total assets declined by approximately $750 million from the end of the second quarter of 2024 as the BTFP redemption was offset by more than $400 million of growth in deposits and customer repos. As part of our strategy to pay off the BTFP borrowings and deleverage our balance sheet, we executed two sale-leaseback transactions in which we sold and leased back two banking center buildings under long-term leases, realizing gain on sale totaling $9.1 million. In conjunction with these real estate transactions, we sold more than $300 million of available-for-sale investment securities at a cumulative loss of $11.6 million. Although total assets declined to $15.4 billion by September 30, 2024, average earning assets grew by $262 million, or 1.8%, from the second quarter of 2024 to the third quarter of 2024, which drove the $2.8 million quarter-over-quarter increase in net interest income. Our net interest margin was 3.05% in the third quarter, the same as the prior quarter. The third quarter is generally a strong deposit quarter for our bank. We experienced an increase in deposits and customer repos of $408 million from the end of the second quarter to September 30, 2024. The quarter-over-quarter growth in average deposits and customer repos was $251 million. Our average noninterest-bearing deposits were greater than 59% of our average total deposits for the third quarter of 2024. At September 30, 2024, our total deposits and customer repurchase agreements totaled $12.5 billion, a $762 million increase from December 31, 2024. The increase in total deposits and customer repos includes the addition of $400 million in brokered time deposits that were added to the balance sheet during the first quarter of 2024. For the first 9 months of 2024, approximately $200 million of deposits have moved to Citizens Trust. These funds were invested in higher-yielding liquid assets such as treasury notes. This compares to $800 million that was transferred during 2023. Our cost of deposits and customer repos was 101 basis points for the third quarter of 2024, which compares to 87 basis points for the second quarter of 2024 and 51 basis points for the year ago quarter. Our cost of non-maturity deposits has grown from 60 basis points in December 2023 to 88 basis points in September of 2024, while our cost of time deposits has grown from 1.84% in December of 2023 to 3.24% in September of 2024. From the first quarter of 2022 through the third quarter of 2024, our cost of deposits has increased by 95 basis points. Our deposit beta on non-maturity deposits from the beginning of the Fed's 525 basis point increasing rate cycle through the end of the third quarter of 2024 was 16%. Now let's discuss loans. Commercial real estate loan demand continues to be tepid. C&I line utilization also continues to be low, even though we have grown our total C&I loan commitments. Total loans at September 30, 2024, were $8.6 billion, a $109 million or 1% decrease from the end of the second quarter and a $332 million decline from December 31, 2023. The quarter-over-quarter decrease was led by a $46 million decline in commercial real estate loans, a $38 million decline in construction loans, and a $20 million decrease in commercial and industrial loans. The decrease in loans from the end of 2023 included a $77 million decrease in dairy and livestock loans. Dairy and livestock loans see higher line utilization at year-end, which is reflected in the 80% utilization rate at the end of the fourth quarter of 2023 compared to the 71% utilization rate at September 30, 2024. Commercial real estate loans declined by $166 million from December 31, 2023, as commercial real estate loan demand has weakened. Our CRE loan production for the first 9 months of 2024 has lagged the same period in 2023 by more than 30%. Construction loans declined by $52 million over the same period as construction loan origination has been minimal. C&I loans declined by $33 million when comparing the third quarter in balance to December 31, 2023. C&I line utilization continues to be at a rate of less than 30%. We compete on loans very selectively, which can impact new loan production and loan yields. Even considering the high credit quality of our new loan origination -- new loan originations, yields on new loans in 2024 have been greater than 7.25%. However, loan rates have been under pressure recently from competition and near-term originations will likely average below 7%. Our continued focus on banking the best small- to medium-sized businesses and their owners, providing them our full array of products has resulted in a higher percentage of new loans in 2024 that are either owner-occupied or C&I loans. Nonowner-occupied loan originations in 2024 have been approximately 16% of total loan originations, which compares to approximately 26% for the same 9-month period in 2023. We believe our asset quality remains strong as nonperforming loans declined by $3 million and our classified loans remained relatively flat quarter-over-quarter. Our allowance for credit losses totaled approximately $83 million at September 30, the same as June 30, 2024. Net recoveries in the third quarter were $156,000 compared to net charge-offs of $31,000 in the second quarter of this year. At quarter end, nonperforming assets, defined as nonaccrual loans, plus other real estate owned, were $22.6 million or 15 basis points of total assets. The $22.6 million in nonperforming loans compares with $25.6 million for the prior quarter. Classified loans were $125 million for both the third quarter and the prior quarter. Classified loans as a percentage of total loans was 1.45% at quarter end. Classified dairy and livestock and agribusiness loans declined by $3.5 million due to paydowns, while classified commercial and industrial loans increased by $3.5 million, primarily due to the addition of one classified commercial and industrial loan. At September 30th, we had approximately $31 million of commercial real estate loans that were past due more than 30 days but less than 90 days. Two loans that comprised approximately 80% of these past due loans went on nonaccrual in October. We believe that these loans are well secured, and there are no anticipated charge-offs. In October, we also foreclosed on three nonperforming loans, one of which was a $2.2 million loan that was fully paid off by a third party that purchased the asset at foreclosure. Of the two remaining loans, a $4.8 million loan has become an OREO asset, but we have multiple offers that exceed our book value. The third loan is the previously discussed senior living facility participated loan acquired in the Suncrest merger. In October, the loan was foreclosed and became an OREO asset of approximately $4 million. There are multiple offers on this property, which we will believe -- in which we believe will result in a recovery of most or all of the charge-off we took in the first quarter of 2024. I will now turn the call over to Allen to further discuss our net interest income and additional aspects of our balance sheet. Allen?

Thanks, Dave. Interest income grew by $6.7 million over the prior quarter. Our average balance of funds at the Federal Reserve increased from the second quarter by more than $500 million to approximately $1.2 billion. This growth generated an increase in interest income of $7.2 million. Interest income from our security portfolio declined by $1.2 million as we accelerated the decline in this low-yielding bond portfolio by selling $300 million of AFS securities during the third quarter, which contributed to $127 million decline in average balance of our investment securities. Although average loans declined by $126 million compared to the second quarter of 2024, interest income on loans increased by more than $700,000 due to a 5 basis point increase in loan yields. Interest expense increased by $3.9 million over the prior quarter, reflecting a 9 basis point increase in our cost of funds. The increase in interest expense and our cost of funds was primarily due to an increase in interest expense on deposits and customer repos of $5.1 million. Interest-bearing deposits and customer repos grew on average by $279 million and the cost of deposits and customer repos grew by 14 basis points. Third quarter borrowing costs decreased by $1.2 million as average borrowings declined by $121 million. Our total investment portfolio declined by $305 million from the end of the second quarter of 2024, and by $550 million from December 31, 2023. AFS securities declined by $280 million from the end of the second quarter as we sold AFS securities during the third quarter with a book value of approximately $310 million. These security sales resulted in a pretax net loss of $11.6 million. The unrealized loss on AFS securities declined by $120 million from $488 million at June 30, 2024, to $368 million on September 30, 2024. Investment securities held to maturity or HTM securities totaled approximately $2.41 billion at September 30, 2024. The HTM portfolio declined by approximately $25 million from June 30, 2024. The tax equivalent yield on the entire investment portfolio was 2.67% for the third quarter of 2024, compared to 2.71% for the prior quarter. We continue to have positive carry on the fair value hedges we executed in late June of 2023. We received daily SOFR on these pay fixed swaps, which have a weighted average fixed rate of approximately 3.8%. We recorded $4.3 million of interest income in the third quarter related to these swaps based on the spread of 170 basis points. The Federal Reserve's 50 basis point rate reduction in September and the anticipated rate reductions in November and December will reduce the spread we earn on these swaps. The market value of our fair value hedges, combined with our cash flow hedges, declined by approximately $35 million from the end of the prior quarter. As Dave noted previously, we executed two sale-leaseback transactions, and we sold two properties for an aggregate sale price of $17 million. We simultaneously entered into lease agreements with respective purchasers for initial terms of 15 and 18 years. These sale-leaseback transactions resulted in a pretax net gain of $9.1 million during the third quarter of 2024. We currently anticipate two additional sale-leaseback transactions during the fourth quarter of 2024. Once these transactions close, we expect to offset the corresponding gains with some loss trades from our AFS portfolio. Cash and cash equivalents declined to $453 million September 30th as a result of the redemption of the $1.3 billion of bank term funding program borrowings on September 26th. Our allowance for credit losses as of September 30, 2024, was $83 million, same level as the ACL was on June 30, 2024. Our third quarter ACL was 0.97% of total loans, which compares to 0.95% on June 30. Our ACL at December 31, 2023, was $86.8 million, which included a $5.9 million reserve for specifically identified nonperforming loans. Our reserves for specific loans have been essentially 0 since the end of the first quarter of 2024. We did not record a provision in the first 3 quarters of 2024. Our economic forecast continues to be a blend of multiple forecasts produced by Moody's. We continue to have the largest individual scenario weighting on Moody's baseline forecast with downside risk weighted among multiple forecasts. The resulting economic forecast resulted in real GDP declining slightly in the fourth quarter of 2024 and continuing to be negative in the first quarter of 2025. GDP growth is forecasted to be less than 1% for all of 2025 before increasing to 1.4% in 2026 and then growth of 1.9% in 2027. Unemployment is forecasted to increase with unemployment averaging 5.5% for all of 2025. The unemployment rate is forecasted to stay higher than 5.5% until late 2027. Now turning to our capital position. At September 30, 2024, our shareholders' equity increased from the end of 2023 by $120 million to $2.2 billion. The company's tangible common equity ratio at September 30, 2024, was 9.7% compared with 8.7% at June 30, 2024, and 8.5% at December 31, 2023. Our regulatory capital ratios continue to grow and are among the highest in the industry. At September 30, 2024, our common equity Tier 1 capital ratio was 15.8%, and our total risk-based capital ratio was 16.6%. Our effective tax rate decreased during the third quarter of this year as a result of investments in tax credits, bringing our year-to-date effective tax rate to 26.25%. I'll now turn the call back to Dave for further discussions of our third quarter earnings.

Thank you, Allen. Moving on to noninterest income. Our noninterest income was $12.8 million for the third quarter of 2024 or $15.3 million when net gains and losses are excluded. This compares with $14.4 million for the prior quarter. Third quarter BOLI income increased by $557,000 quarter-over-quarter, including the receipt of $320,000 in debt benefits that exceeded the cash surrender values in the third quarter of 2024. In addition, our trust and wealth management fees increased by approximately $140,000 compared to the second quarter of 2024. Now expenses. Noninterest expense for the third quarter was $58.8 million compared with $56.5 million for the second quarter of 2024. The $2.3 million quarter-over-quarter increase was primarily due to a $1.2 million increase in staff-related expense as annual salary increases became effective at the beginning of July. We also had an increase in regulatory assessment expense of approximately $700,000 due to the reduction of our accrual for the special FDIC assessment in the second quarter of 2024. Occupancy expense grew by $330,000 or 7% when compared with the prior quarter, including the impact of the higher occupancy costs for the two banking centers involved in the sale-leaseback transactions. More than half the growth in occupancy expense was seasonal in nature due to higher utility costs. The third quarter of 2024 included $750,000 in recapture provision for unfunded loan commitments compared to $500,000 in recapture in the second quarter of 2024. Noninterest expense totaled 1.42% of average assets for the third quarter of 2024 compared with 1.4% for the prior quarter. Our efficiency ratio was 46.53% for the third quarter of 2024. This compares with 45.1% for the second quarter. This concludes today's presentation. Now Allen and I will be happy to take any questions that you might have.

[Operator Instructions] Our first question will come from the line of Matthew Clark with Piper Sandler.

First one for me, just around the repayment of the BTFP. I wanted to get the yield on the securities sold. And then it looks like you also used some cash to pay that off. Can you just give us the moving parts in terms of the yield give up and -- so we can calculate the lift that you'll get in your NIM from the smaller -- from the deleveraging?

Yes. I mean, the book yield -- the market yield will be different, but the book yield on the securities we sold was less than 3%.

Okay. Any other pieces to the puzzle there? Or is it just cash and those securities?

Cash and securities, I mean, of course, as Dave mentioned, we grew deposits, obviously, which generated additional cash that we deployed, but...

Okay. Okay. And then it looks like deposit costs have stabilized in September based on Slides 41 and 47. What are your thoughts on deposit costs in general from here, assuming we get the forward curve?

Yes. So a couple of things. During the last rate cut, we obviously lagged the market on the way up with a 16%-18% beta. But for us, we did lower our -- some of our money market rates on the first cut. On any future cuts will probably be more -- we will be closer to more of a 100% beta on the downside. We were about a 50% beta maybe on the downside in the first cuts, which really obviously haven't shown up in those deposit costs yet. And we had a little movement, obviously, just going down below 60% on noninterest-bearing, but still right there. So I think all in all, it's definitely stabilized. We're still seeing some requests for higher rates, but the vast majority of those situations are being handled a little bit differently than in the rising rate environment. So on the next cut, we'll take a little bit deeper dive into rates that are probably 1.5% or higher and look at those. So, we did the first round on rates that were 2.5% or higher. So we'll just keep kind of ratcheting that down as the Fed makes moves. I don't know; Allen, do you have anything to add?

No, I think that covers it.

Okay. Great. And then last one for me, just on M&A and buybacks. Any update on whether or not you think you might be able to announce a deal before year-end? And if not, whether or not a buyback is likely?

Yes. So obviously, we're sitting on an enormous amount of capital. One of the, I'll say, restricting factors prior to maybe the last couple of quarters was our TCE ratio. That's obviously much less of a problem today than it was a couple of quarters ago. Working hard at putting together deals, banks are sold, not bought. So we have to stick to our knitting as far as our pricing and the way we structure deals. And sometimes that stops us from announcing anything, but we are working hard to do something. And M&A is definitely, I would say, option 1-A. Notwithstanding the M&A conversation, we still believe that we have the opportunity to do more capital management with respect to buybacks. And that's something that we are evaluating and discussing. And I imagine we'll have something coming out on that relatively shortly.

Thank you, one moment for our next question. And that will come from the line of David Feaster with Raymond James.

I wanted to touch on the growth outlook. You talked about tepid demand and you talked about competition being real headwinds. It's not exactly a great environment to be trying to grow in. I'm curious, how do you think about growth? Where are you seeing opportunities? And how do you win in that type of environment, right, where competition seems to be mispricing credit to an extent?

Ladies and gentlemen, please stand by. One moment please. Please remain on the line, your conference will be resumed shortly. Thank you. We do have our speakers back.

David, it wasn't that we didn't want to answer the question, I promise.

It was such a good question that you guys got kicked off the phone.

No, I don't know what happened. We got disconnected. So I apologize for that. Sorry about that. So just speaking to the loan growth, demand is slow. Competition is fierce. I mean, I've seen a couple of deals we've lost to rates below 6%, which is unbelievable to me. But at the end of the day, we are still growing relationships. They're primarily more C&I operating companies. The investor commercial real estate side has been very tepid. I think that as rates sort of stabilize and front end of the curve goes down maybe a little bit more, maybe the tenure stays around where it is, I think we'll start to see a pickup in in the investor commercial real estate side of things. Because remember, that's all funded debt. And we need to make sure that even on the C&I stuff that we do, we're getting 20% to 30% utilization on, you just have to do a lot more of it to hit the same number as doing an investor commercial real estate loan. But the pipelines are okay. The deposit pipelines are good still. The loan pipelines are a little lighter, but we're very focused on relationship, which includes loans and deposits and fee income opportunities. So we'll continue to focus on that. And then, I think, as I've said in the past, we'll have a little -- there's a little seasonality in the fourth quarter, but we're really sort of setting up the bank for how we're going to perform in '25 and beyond with the payoff of the BTFP. And we have liquidity. We have the ability to do more. So we're really focused on growing those relationships. But I still think it's going to be kind of a little tough sledding going ahead.

Okay. And I just wanted to touch on credit. You touched on this in your prepared remarks, just talking about the credit migration that were -- maybe additional credit migration in October, the commentary on the CRE -- or the ORE trends. But look, your ability to sell at or above loan value and some of the other commentary talks about -- speaks to your credit underwriting discipline. I guess, I was hoping you could just touch on the trends you're seeing in the book. We touched on ag pressures in the past. But I'm curious, what are you hearing from your clients? Where are they seeing pressures? Is there anything specific? And to what extent does declining rates kind of help alleviate a lot of the pressures that these folks are seeing?

Yes. So the issues we've had and the items that I mentioned in our prepared remarks are really totally unrelated to the interest rate environment. Those are -- there's basically two relationships. The first three loans that I mentioned were all multifamily properties, extremely low loan to values, like between 25% and 45% loan to value, where our borrower just went dark on us. And we worked with him and literally 1.5 months before, he brought in $1.5 million to bring everything current and then he disappeared again. And so we ended up putting two up for sale. We got outbid at one at the foreclosure. The second one we took into OREO. We should be closing that this quarter. You won't even see that as an REO theoretically, assuming everything goes according to what is under contract right now. So I think the situations we've experienced have been sort of really one-off. The senior living facility, unfortunately, we're a participant. We're not the agent. And I, candidly, would have moved a lot faster on this than the agent bank did. And so we've sort of just been the tail wagging the dog there a little bit and trying to get them to move. But now we're finally -- we finally have that property. We have an operator in there. The operator wants to buy the property. The property is performing better. We're getting offers that -- I mean, again, theoretically hasn't happened yet, should fully pay us off, plus we would recover the amount that we charged off in the first quarter. So I feel good about that as well. So really, the credit quality has been very stable. Ag, dairy and livestock has improved significantly. And there's just not a lot that's happening there other than these sort of one-off very unique situations. So I don't know, Allen, if you have anything to add to that, but it's been very stable and our customers -- the rates really haven't been a problem. We haven't had borrowers really to a large extent. There have been a few have to rightsize loans on repricing or maturity. So all-in-all, it's been very stable. And you're right, it's based on how we underwrote those loans at origination that gives us that cushion to make sure that we're not losing money even if we have to go through the unfortunate process of foreclosure.

Okay. That's good color. And then last one for me. You touched on the healthy deposit pipeline. It was great to see the increase in NIB balances this quarter. I'm curious kind of when you look at your pipeline and what drove that increase this quarter, I mean, how much is existing clients versus where you're winning more of the wallet share versus new clients coming over? And where you're having success driving core deposit growth today?

Yes. So as you know, we have a couple of, I'd say, heavy, noninterest-bearing lines of business that we really focus on. And so our government services group, our title escrow group, property management group, they've all done well. And remember, those title escrow property managers, their deposits are at probably a couple of year lows just generally from existing customers. Because there's no refinances, there's no escrows open for sales. So we're just not seeing the same deposit level we had a year ago, or 1.5 years ago, for sure. So I think we'll start to see some pickup there. But to answer your question, it's really been new relationships, and it's across the board. It's all different types of operating companies. Our title escrow group, title escrow property management group, is having their best year in originations. The government services group has done a great job. And so it's really across the board, across all industries. But I do think that we'll -- remember, historically for us, we have some seasonality. Generally, the second and third quarters are better. The fourth and first quarters are a little bit worse. But I do think a lot of the excess has been taken out. So I don't know that we'll see exactly the same thing because a lot of the, I'll say, excess deposits have been moved into our trust group or moved to outside investments outside of our trust group. So I think from a relationship side and the deposit side, we're doing a great job. And on the loan side, there's just -- we need to win our fair share of the right deals, and we may have to get a little more aggressive on pricing in order to do that.

One moment for our next question. And that will come from the line of Andrew Terrell with Stephens.

Maybe just a follow-up on, I think, one of Matt's questions around the securities that were sold during the quarter. Do you have the specific timing during the third quarter the securities were sold?

Well, in many ways, they were sold throughout the quarter, but it was probably a little heavier on the back end, particularly in the last month. But you could probably equate the average balance versus the point-to-point change and estimate it from there.

Yes. Okay. And we should just kind of make the assumption that the securities that were sold have a yield that's pretty much in line with the current AFS portfolio or maybe a little bit below? I think it was 3.02% in the third quarter.

Probably -- if you're saying the average of the portfolios -- now, this is a market yield, but of 2.70%, the book yield on these was closer to 3%.

Got it. Okay. And then maybe I wanted to maybe dive a little more into some of the deposit cost commentary. Looking at the kind of non-maturity deposits by month that you guys split out in the presentation, it looks like 88 basis points in September. Still kind of elevated versus the rest of the quarter. And I know that the rate cuts probably weren't overly impactful to that number on a full month basis. But just taking some of the commentary you gave around still getting some rate requests versus going at a 50% beta for the first cut. I was just hoping to get maybe a better sense of maybe not necessarily the exit yield, but should we expect that 88 basis point non-maturity cost in September has kind of moderated so far?

Yes. I think for the most part, that's accurate. There's obviously a lot of moving parts because we do get some rate increases, that's slowed down quite a bit. even when we did that first reduction in rates, we really didn't hit everybody. But in the next reduction in rates, we're going to move further down sort of the rate spectrum of our customers and probably be closer to 100% beta on the second rate cut, assuming it's 25 basis points. So I think moderate is probably a good word. I mean there's a lot of puts and takes, ups and downs. But all-in-all, we should see that sort of stabilize, if not decline slightly.

Yes. Okay. And then just one more actually on the securities portfolio. I think there was a hedge in place against the bond book. I'm curious if anything changed from a hedging standpoint during the quarter, given you did sell some bonds?

No, Andrew. We also continue to have capacity to sell more in the fourth quarter. The hedges were put on with the AFS portfolio. There was a lot of excess capacity. And so we shouldn't foresee any issues there. Now we may evaluate in the fourth quarter. There's three different fair value hedges. They are shortening. And so the implications from a fair value hedge perspective may change a little bit as we move forward. So we may evaluate unwinding some of that, but that's just a possibility, but certainly not all of it.

One moment for our next question. And that will come from the line of Gary Tenner with D.A. Davidson.

I wanted to ask regarding plans to do possibly another sale-leaseback transaction with AFS sales, would the expectation there or goal there be to reinvest or maybe go towards reducing other wholesale funding or broker deposits?

Gary, there's probably a couple of things on the table that we're evaluating. I think it's likely that to some extent, we'll be reinvesting, and maybe all of it be reinvested. We're also evaluating, as I just mentioned, whether we want to take any of the hedges off the balance sheet. And then we -- from a wholesale funding perspective, we have $500 million with FHLB. Which I don't think we're really considering doing anything with that. We have $400 million in brokered CDs, $300 million of which are cash flow hedges. I don't think we'll do anything with those, but there is $100 million that's 90-day resets. And so we'll evaluate how that helps us from an interest rate risk perspective versus cost of funding as we go through the quarter. So -- but definitely, we'll reinvest some of it.

Okay. I appreciate that. And just with regard to the loan yields here in the third quarter, the 5 basis points expansion, just wondering if there was any noise within that at all? And as we're thinking about the fourth quarter, kind of ballpark the impact of the 50 basis point rate cut on loan yields, all else equal?

Yes. We didn't have anything really unusual. I would say it's just -- it was sort of part of what we've been seeing a slow increase and the impact from the Fed was somewhat muted. So the way I would look at it is, we look at our variable loans as loans that would reprice within a year. And depending on the dairy borrowings, that could be 25% to 27% of the portfolio. But we only have roughly 10% or a little bit more than 10% that immediately reset. And so we saw that happen. But there's other ones that reset quarterly or over 3 months or maybe a full month and the full month, obviously, reset didn't happen until October. So the impact of that 50 basis points will sort of bleed out over time.

[Operator Instructions] One moment for our next question. And that will come from the line of Kelly Motta with KBW.

I guess turning back to margin. Now that you paid down the BTSP, I mean, your borrowings there, I know you have the $500 million of FHLB that you've obviously disclosed previously. Wondering, of the repos in there, if there's any color as to where those rates currently are so we can kind of back into how to think about that -- those customer accounts as we look ahead.

Are you talking about the repurchase agreement sweep deposit accounts?

Yes. That's correct.

Yes. So we did have some movement into our repos in the last quarter. There was some movement from noninterest-bearing into that, that sort of impacted some of those rates. They were looking for a little bit higher rate. But obviously, depending on what the Fed does as far as rate cuts going forward, those rates will -- or should start to come down as well. But the repurchase agreement sweeps, albeit they show up as borrowings, they're really just cash management tools that our customers use for excess deposits. So the majority of the portfolio is very low priced. There are a few relationships that are a little bit higher. And depending again on what the Fed does, those rates could start to come down a little bit. So I don't know, Allen, if you have anything you want to add to that?

Yes, Kelly, our customer repos really experienced a very low beta until the most recent quarter where we had some movement out of noninterest-bearing -- so the average cost of those rose over 2%. But now they're also going to probably fall quicker than the [indiscernible] as well.

Got it. Putting together the moving pieces of NII, and I appreciate you guys don't necessarily give guidance, but you paid down some of that BTFP with a negative carry. Net-net, with rates lowering additional pressure on NII from here, at least initially off this 114 level. Is that fair? Or do you think the actions you took should more than offset kind of the initial hit from lower rates?

Well, I think if you think about NII, remember, we had a positive carry on that BTFP, right? And so that's -- as I mentioned in, I think, our prepared remarks, that was over $7 million. So that's a headwind from a net interest income perspective. Also, we made $4.3 million on that carry on the pay fixed swaps, right, the fair value hedges. So that's going to diminish to some extent, certainly based on the Fed moves at the end of September. And depending on what they do in November and December, it could eventually go negative, right? So I don't -- it's not going to go negative in the fourth quarter. So those are both headwinds from an NII perspective going forward.

Okay. Got it. And I apologize, I was a little late to the call. Have you quantified your expectation for future security sales as we start to think through the size of the balance sheet?

Well, we sold, as we mentioned, about $300 million in the prior quarter. I anticipate it will probably be less than that. The security sales we do sell probably will have a lower yield than what I referenced earlier in our remarks as well. Certainly, rates are up since the third quarter, certainly since we sold a lot of our securities. So those unrealized losses we would take may expand, which may mitigate some of the cash we would get from some of it. So it will -- it could be 1/3 to 1/2 of the size would be my guess.

I'm showing no further questions in the queue at this time. I would now like to turn the call back over to Mr. Brager for any closing remarks.

Great. Thank you, Shuri. Citizens Business Bank continues to perform consistently in all operating environments. Our solid financial performance is highlighted by our 190 consecutive quarters or more than 47 years of profitability and 140 consecutive quarters of paying cash dividends. We remain focused on our mission of banking the best small- to medium-sized businesses and their owners through all economic cycles. I would like to thank our customers and associates for their commitment and loyalty. Thanks for joining us this quarter. We appreciate your interest and look forward to speaking with you in January for our fourth quarter 2024 earnings call. Please let Allen or I know if you have any questions. Have a great day.