Release Date: July 22, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Successful completion of the final major conversion to a new core operating system for loans and deposits.
- Net interest margin expanded by four basis points on a linked quarter basis and improved six basis points year-over-year.
- Strong accretion to tangible book value, which increased 20.1% year-over-year.
- Net charge-offs remain low at just 10 basis points annualized as a percentage of average loans for the quarter.
- Positive trends in higher revenue, well-managed expenses, and satisfactory risk outcomes.
Negative Points
- Customer deposit balances declined by just under 1% in the quarter on a period-end basis.
- Fee income growth has been somewhat sluggish during the first half of the year.
- Increase in classified loan balances by $298 million, with over three-quarters in the C&I portfolio.
- Adjusted expenses in the current period were up 2% compared to the second quarter of 2023.
- Nonperforming assets increased by $14 million or four basis points as a percentage of loans and other real estate-owned.
Q & A Highlights
Q: Can you provide an update on the non-interest bearing deposit trends during the quarter and expectations for the rest of the year?
A: (CFO) We observed a very modest decrease in non-interest bearing deposits during the quarter, which gave us confidence in tightening our deposit migration models. We don't anticipate significant migration to higher-cost products, and we believe we can manage interest-bearing deposit costs effectively.
Q: How are you thinking about the trajectory of loan growth, especially given the current economic uncertainty and upcoming elections?
A: (CEO) While there is some uncertainty, we don't see it as a major factor. The economy is showing signs of slowing, but our markets remain relatively healthy. We expect loan growth to be stable to slightly increasing, supported by marketing programs and small business lending initiatives.
Q: Can you provide more color on the increase in classified loans and how it might influence the reserve outlook?
A: (Chief Risk Officer) About 70% of the increase in classified loans came from our C&I portfolio, with no specific industry concentration. The criticized loan increase was more real estate-related, particularly in multi-family. We are not overly concerned as we are coming off a very low base of criticized and classified loans.
Q: What is the fixed asset repricing opportunity, and how does it impact your net interest income?
A: (CFO) The rundown of our investment securities portfolio, which saw $840 million in cash flows this quarter, allows us to fund loan growth and improve yields. The front-book loan yields are coming in at around 7.82%, compared to a back-book yield of 7.6%, indicating favorable repricing.
Q: How does the new core operating system translate to shareholder benefits?
A: (CEO) The new core system reduces operational risks and improves efficiency. It allows real-time processing, better fraud detection, and easier navigation for employees, leading to better customer service. Over time, these improvements should enhance our competitive position and shareholder value.
Q: Can you provide more details on your client campaigns to attract new deposits?
A: (COO) We are focusing on SBA lending and making significant efforts in customer appreciation calls, which have led to increased deposits and small loans. We are also pushing hard on middle market and commercial banking prospects to reignite loan growth.
Q: What are the drivers behind your optimism in expanding capital market capabilities?
A: (CEO) We have a strong team in place and are seeing good engagement with commercial bankers. The pipeline looks promising, and we expect notable improvement in the second half of the year, although the business will be lumpy.
Q: How are small businesses within your C&I portfolio navigating the current environment?
A: (CEO) Small businesses are generally healthy, with good credit quality. Only about 30% of our small business customers are borrowing, and those that do are managing well. We are not seeing robust growth but are maintaining good health in this segment.
Q: What is your outlook on capital given the current build-up?
A: (CEO) We expect to continue building capital in the near term, especially with the potential changes from Basel III endgame. We are making progress in improving tangible book value and will consider share buybacks once we have more clarity on regulatory requirements.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
