Release Date: July 18, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- EPS exceeded expectations, coming in at $0.72 compared to the consensus of $0.65.
- Net interest margin (NIM) increased from 2.57% to 2.72%, driven by successful balance sheet transformation.
- Non-brokered deposits grew by $1.3 billion, with $826 million in non-interest DDA, indicating strong deposit growth.
- Wholesale funding was reduced by $1.2 billion, bringing it down to levels seen at the beginning of the rate cycle.
- The company saw broad-based growth in core commercial segments, with C&I and CRE segments growing significantly.
Negative Points
- Revenue declined by $212 million, despite growth in corporate, commercial, and small business segments.
- Nonperforming CRE loans increased to $51 million, with notable issues in office CRE loans.
- Criticized and classified loans increased by $88 million, primarily in the office segment.
- The cost of interest-bearing deposits increased slightly from 4.21% to 4.26%, indicating ongoing pressure on deposit costs.
- Provision for credit losses was $20 million, driven by risk rating migration and specific reserves, indicating ongoing credit risk concerns.
Q & A Highlights
Q: Congrats on a nice quarter. I just wanted to start on deposits. The growth on the non-interest-bearing front has been impressive. Can you provide a broader target for non-interest-bearing deposits for the year?
A: We are aiming for comfortable double-digit growth, but not 20%-30%. We are targeting somewhere between 13%-16% DDA growth. This is challenging, especially in the current environment, but achievable if conditions remain stable.
Q: Regarding the margin guidance, what is the trade-off in yield as you grow core C&I and CRE while running off mortgage loans?
A: New loan production yields are around 7.5%-8%, while the residential portfolio yields in the mid-threes. We expect a reasonable increase in loan yields going forward, around 5-10 basis points.
Q: Can you elaborate on the DDA growth in the title business and the potential impact of increased mortgage activity?
A: The title business saw the biggest growth this quarter, benefiting from seasonality. The HOA business also grew well. If mortgage activity increases, we could see a 20%-30% lift in average deposit balances, but this is speculative.
Q: How is the office portfolio performing, and what are the main issues you are seeing?
A: The office portfolio is generally performing well, with strong occupancy and debt service coverage ratios. The main issues are asset-specific, such as lease-up and rent abatement periods. We feel the reserve of about 2.5% is adequate.
Q: How are you thinking about capital deployment, given the current economic backdrop and your share price?
A: We are considering capital deployment options, including share repurchases, but our first choice is to deploy capital for profitable growth. We will discuss this further in our August board meeting.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
