- Operating EPS: $0.55, up 12% linked quarter.
- Operating Net Income: $23.2 million, up 11% linked quarter.
- ROTCE: 9.65%, up 92 basis points linked quarter.
- Operating ROA: 79 basis points, up 8 basis points linked quarter.
- Net Charge-Offs: 7 basis points of loans, sixth consecutive quarter of decline.
- Loan Loss Allowance: 1.22% of loans.
- Operating Expenses: $71.3 million, down 2% linked quarter.
- Common Equity Tier One Ratio: 11.6%.
- Tangible Common Equity Ratio: 8.2%.
- Share Repurchase: 600,000 shares for $30 million in the second quarter.
- Loans to Deposit Ratio: 96% (92% including New York held for sale balances).
- Average Deposits: Down 2% linked quarter, up 2.2% year-over-year.
- Deposit Costs: Up 6 basis points in the quarter.
- Average Loan Balances: Up 2% linked quarter, up 5% year-over-year.
- Branch Network: Consolidated three branches, total branch count at 93, projecting to 83 by end of third quarter.
- Net Interest Income: $88.5 million, up $400,000 linked quarter.
- Operating Noninterest Income: $20.1 million, up 16% linked quarter.
- Total Operating Revenue: Up 3% linked quarter.
- Provision Expense: $6.5 million, up $0.5 million linked quarter.
- Average Loans: Up $155 million linked quarter, primarily driven by growth in CRE and C&I.
- Net Interest Margin: 3.20%, up 5 basis points linked quarter.
- Operating Noninterest Income: Up $2.8 million or 16% linked quarter.
- GAAP Expenses: $70.9 million, includes an expense reversal relating to buildings sold during the quarter.
- Nonperforming Loans: Flat linked quarter, down 25% year-over-year.
- Net Charge-Offs: $1.7 million, down $2.4 million linked quarter.
- Multifamily Portfolio: $665 million or 7.2% of loans, no non-performing loans or net charge-offs.
- Stock Repurchase: $13.4 million of stock at an average cost of $21.88 in Q2.
- Outlook for 2024: Loan growth closer to low end of range, NIM stable around 3.20%, deposits lower than January guidance, net interest income between $352 million and $354 million, noninterest income between $75 million and $77 million, provision expense between $25 million and $27 million, operating expenses between $287 million and $290 million, taxes closer to high end of 20% to 22% range.
Release Date: July 18, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Operating EPS increased by 12% quarter-over-quarter to $0.55.
- Operating net income rose by 11% quarter-over-quarter to $23.2 million.
- Net charge-offs have declined for six consecutive quarters, reaching a low of 7 basis points.
- Operating expenses decreased by 2% quarter-over-quarter, reflecting cost optimization efforts.
- The bank's digital initiatives have led to record-high Net Promoter Scores and strong mobile app ratings.
Negative Points
- Average deposits decreased by 2% quarter-over-quarter.
- Net interest income was up only modestly quarter-over-quarter and down 5% year-over-year.
- Provision expense increased by $0.5 million quarter-over-quarter.
- The bank's loan growth is expected to be at the low end of the previously provided range.
- Deposit costs increased by 6 basis points in the quarter, indicating ongoing funding cost pressures.
Q & A Highlights
Q: Can you provide insights into the noninterest income, particularly SBA loan sales and wealth management fees?
A: The other line in noninterest income is driven by tax credit amortization changes. SBA loan sales had a strong quarter, slightly above the eight-quarter average, and we expect continued momentum. Wealth management fees dropped due to seasonal tax prep fees in the first quarter but are expected to normalize.
Q: What were the merger and restructuring charges related to, and are there any expected in the future?
A: The $384,000 reversal was related to the sale of three office buildings. We expect minimal merger and restructuring charges in Q3 related to the New York branch sales.
Q: How should we think about the tax rate, given it was 23% this quarter?
A: We expect the tax rate to come down to the high end of our guidance range of 20% to 22% due to an upcoming tax credit in the second half of the year.
Q: Can you comment on the margin outlook, given potential funding cost pressures?
A: We expect to maintain the 3.20% net interest margin (NIM) level, supported by tailwinds from fixed-rate assets repricing higher and fixed hedges rolling off in the near term.
Q: What is the status of the office portfolio, particularly the 8% maturing in 2024?
A: The remaining 8% of the office portfolio maturing in 2024 is split between Class A and B properties. Most properties are 90% occupied, with the lowest at 80%. We are monitoring these closely.
Q: How does the Biden proposal to cap rent increases impact your view on multifamily loans?
A: The proposal does not fundamentally change our approach. We remain focused on the quality of sponsors and properties, leading with relationships and deposits.
Q: What is the current highest offering rate on CDs or deposits?
A: The highest promotional rate on CDs is currently about 4.5%.
Q: Are there any areas of concern in the CRE portfolio outside of office properties?
A: We remain cautiously optimistic. While charge-offs were low this quarter, we continue to monitor all portfolios closely, especially CRE, office, and multifamily.
Q: How much of the $19 million gain on the New York branch sale will drop to the bottom line?
A: The majority of the gain should drop to the bottom line, with an after-tax impact of approximately $15 million to $16 million.
Q: What are your new strategic goals and timeline, given the previous targets were not fully met?
A: We aim to continue improving our momentum, focusing on deposit growth, expense management, and credit quality. We plan to provide updated guidance and potentially a midterm outlook next year.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
