Release Date: July 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Net Interest Margin (NIM) showed improvement, indicating favorable asset repricing and stability on the deposit side.
- Loan yields increased by 15 basis points quarter-over-quarter, reflecting positive trends in the rising rate environment.
- Deposit growth was strong at 1% quarter-over-quarter, with a focus on soundness, profitability, and growth.
- The Better Bank initiative has led to significant expense reductions, including an 8.5% reduction in headcount.
- The company is seeing positive trends in credit quality, with a focus on proactive management and low loss rates in runoff portfolios.
Negative Points
- Deposit balances were down $500 million quarter-over-quarter, influenced by timing and seasonality factors.
- The competitive environment for deposits remains intense, with some competitors offering higher rates.
- Loan demand is expected to be tepid, with no plans to sacrifice profitability for growth.
- The inflationary environment and wage pressures continue to pose challenges, despite some easing.
- Unfunded commitments are expected to remain low, reflecting conservative borrower behavior and a cautious outlook.
Q & A Highlights
Q: Can you discuss the factors that contributed to the net interest margin (NIM) improvement this quarter and whether this momentum can continue into the second half of the year?
A: James Brogdon, President, highlighted that the NIM has been stable over the past few quarters, with recent prints at $2.68, $2.66, and $2.69. He emphasized favorable asset repricing and stability on the deposit side. CFO Charles Hobbs added that loan yields increased by 15 basis points quarter-over-quarter, driven by a rising rate environment and good deposit growth.
Q: How do you view potential bond sales given the recent pullback in longer-term rates?
A: James Brogdon, President, stated that the company is more constructive on bond sales due to the movement in the 10-year rate. He emphasized a patient and incremental approach, focusing on maintaining optionality and balancing capital and earnings.
Q: What is the status of the Better Bank initiative, and how do you balance investing in new hires versus cutting costs?
A: James Brogdon, President, mentioned ongoing discipline on the expense side and continued investments in people and systems. CEO Robert Fehlman noted a significant reduction in headcount by 275, or 8.5%, through the Better Bank initiative, emphasizing that it was not just layoffs but process improvements.
Q: Can you provide an update on credit quality and any areas of concern?
A: James Brogdon, President, stated that credit issues are primarily isolated to runoff portfolios, with no broad-based concerns. He highlighted proactive measures to identify problem credits and noted positive trends in past dues, indicating a stable credit environment.
Q: What are your capital priorities, and how do you view M&A opportunities?
A: CEO Robert Fehlman outlined capital priorities, including dividend payments, organic growth, and measured balance sheet optimization. He mentioned that M&A is currently a lower priority, with a focus on becoming a better bank and integrating past acquisitions.
Q: What is your strategy for funding in the back half of the year, particularly regarding borrowings?
A: James Brogdon, President, explained that the strategy is to be opportunistic with wholesale funding and focus on reducing it. He emphasized driving core customer accounts and deepening relationships in commercial areas to maximize retail network efficiency.
Q: Can you discuss the expected cash flows from the securities portfolio and their use?
A: James Brogdon, President, confirmed that cash flows from the securities portfolio would be used to fund loan growth and reduce wholesale funding, prioritizing these areas in that order.
Q: What is your outlook on loan growth given the current environment?
A: James Brogdon, President, indicated a cautious outlook on loan growth, expecting low single-digit growth due to the current rate environment. He emphasized maintaining credit standards and profitability without sacrificing for loan growth.
Q: How do you manage unfunded commitments, and where do you expect them to land?
A: James Brogdon, President, noted that unfunded commitments are expected to have a floor due to line of credits with commercial borrowers. He mentioned that borrowers are showing conservatism, paying off lines of credit, and fortressing their balance sheets.
Q: Can you provide insights into the mix of fixed and floating loans in the pipeline?
A: James Brogdon, President, stated that there is a healthy mix of fixed and floating loans in the pipeline, with recent activity showing more focus on floating rates. He mentioned opportunities with loans generating swap fees and a balanced approach to managing the pipeline.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
