Release Date: July 16, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Net interest income increased due to lower deposit costs and improved earning asset yields.
- Fee income exceeded expectations and expenses remained well controlled.
- Net charge-offs and provision for loan losses decreased, while reserves grew.
- The company returned capital to investors with a 33% increase in the common stock dividend and repurchased over 300,000 shares.
- Strong growth in capital metrics, ending the quarter with a TCE of 8.77% and a common equity Tier 1 ratio of 13%.
Negative Points
- Deposits were down in the quarter, primarily due to a net reduction in brokered CDs.
- DDAs continued to decline, although at a moderated pace.
- Loan portfolio contracted slightly due to a purposeful decrease in SNC balances.
- Criticized commercial and nonaccrual loans increased, although at a more modest pace.
- The company expects loans to be flat to down slightly from 2023, reflecting a cautious approach to large credit-only relationships.
Q & A Highlights
Q: As you think about the pace of loan yield increases in the back half of the year, is the change that we saw this quarter a good pace to think about what we'll see over the next couple of quarters, just assuming a flat rate environment?
A: Hey, Catherine, this is Mike. We describe the NIM expansion expected in the second half of the year as modest, potentially a couple of basis points in each of the third and fourth quarters. Higher loan yields will drive this, coming from continued repricing of our fixed rate loan portfolio and incremental improvements in our variable loans.
Q: I was surprised to see the expense guidance improve because I know you've been talking a lot about hiring in the back half of the year. Can you walk us through some of the things you're doing to create those savings?
A: Catherine, this is Mike. Our company is known for good cost controls. We're finding ways to control costs in the current base to pay for new initiatives, including new hires. Strategic procurement and outsourcing have been incrementally useful. We pledge to continue this approach to fund new hires.
Q: Can you remind us what the target is for SNC reduction by the end of the year and over the next couple of years?
A: Michael, this is John. We aim to redeploy into higher yield opportunities. We expect about $100 million in additional SNC reductions in the second half of the year and a similar amount in 2025. This would bring us to around 9% of total loans, aligning with peers.
Q: What would change your stance on getting more aggressive on buybacks given your capital levels?
A: Casey, this is Mike. We evaluate buybacks on a weekly basis. The current levels are based on our capital levels and valuation. If our balance sheet growth dynamics change or our valuation improves, we might adjust our buyback strategy.
Q: Can you talk about what gives you confidence in keeping the DDA mix stable to year-end?
A: Brandon, this is Mike. The stability we've seen thus far and our conversations with customers give us confidence. We believe the worst of the remix is behind us, and we expect the DDA mix to stay at 35%-36% through year-end.
Q: Could you characterize what you're seeing in the increase in commercial criticized loans?
A: Hi, Brandon. It's Chris Ziluca. We're seeing less downgrade activity, which is why the inflow is slower this quarter. We did see some upgrades, but not many. Our criticized loan portfolio doesn't show any significant issues in specific sectors or geographies.
Q: Can you discuss the dynamics of your promotional CDs and their impact on deposit costs?
A: Ben, this is Mike. Our highest rate is 5% for three, four, or five-month maturities. We've reduced the ladder rate by 50 basis points. Repricing maturing CDs in the second half of the year will help continue our NIM expansion.
Q: What is driving your ability to bring in new hires versus your peers?
A: Stephen, this is John. Our stability, profitability, and capital levels make us attractive. We have a constructive environment between our credit and banker teams and are clear about our strategic direction. This predictability and our focus on growth make us appealing to potential hires.
Q: Can you update us on the amount of CDs maturing in the third and fourth quarters and their prevailing rates?
A: Gary, in the third quarter, we have about $2.3 billion of CDs maturing at a little over 5%, expected to reprice around 4.65%. In the fourth quarter, $1.9 billion maturing at 4.83%, expected to reprice around 4.70%-4.75%.
Q: Can you discuss your outlook for loan growth and the impact of hiring on this?
A: Gary, this is John. Our guidance is based on a flat rate environment. If rates come down, it could improve our balance sheet growth. Our hiring strategy is focused on adding seasoned bankers and wealth advisors to drive growth in 2025 and beyond.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
