Release Date: July 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Second-quarter net income of $24.7 million, an increase of $3.2 million or 14.7% on a linked quarter basis.
- Earnings per share increased to $0.81, a 14.1% rise linked quarter.
- Strong asset quality metrics with nonperforming assets decreasing to $6.9 million from $8 million.
- Cost savings initiatives resulted in approximately $600,000 in savings and additional revenue of $500,000.
- Liquidity resources remain solid with $2.24 billion in liquidity lines available as of June 30.
Negative Points
- Net interest margin increased only 1 basis point to 2.87%, indicating limited growth.
- Allowance for credit losses decreased by $762,000, potentially indicating a tighter credit environment.
- Deposits decreased by $49.8 million or 0.8% on a linked-quarter basis.
- Net unrealized loss in the AFS securities portfolio of $48.3 million compared to $48.8 million last quarter.
- AOCI on June 30, 2024, was a net loss of $111 million, slightly up from $110.9 million on March 31, 2024.
Q & A Highlights
Q: Can you quantify the impact of the short-term deposit account on the net interest margin (NIM) or net interest income (NII)?
A: The account started accumulating money in early June, reaching around $120 million by June 30. The average was likely $60 million for one month, benefiting one-sixth of the quarter. The exact basis points impact hasn't been quantified, but the account typically exits in August.
Q: Is there an opportunity for further securities repositioning given the recent pullback in longer-term rates?
A: It's possible, and we will continue to look for opportunities. We've been doing this for the last 18 to 24 months. As rates and spreads change, we actively look for beneficial repositioning opportunities.
Q: What are the expectations for loan growth in the back half of the year, considering the new C&I initiative?
A: The C&I initiative may contribute to growth in the fourth quarter, but significant impact is expected in 2025. Most growth will likely come from continued funding in the construction portfolio and other CRE fronts.
Q: Will the securities portfolio actions taken affect the margin in the third quarter?
A: Most transactions took place in late May and June, so the impact will be seen in the third quarter. The Fed funds rate staying steady will mitigate potential deposit cost increases. When the Fed decreases rates, the pressure will wane.
Q: Can you provide more color on the expense guidance of $37 million for the back half of the year?
A: Originally, the budget was $37.9 million. Cost containment efforts in the first quarter projected an $800,000 impact for the third and fourth quarters. We are being conservative, especially with software expenses remaining steady.
Q: Are there any concerns regarding credit quality given the pristine results and reduced reserve?
A: Monthly watch list meetings show no significant concerns. One small credit may have a loss less than reserved for. Overall, credits are trending in the right direction, and there are no significant concerns at this point.
Q: What are the expectations for fees in the back half of the year?
A: Repricing in wealth management and trust areas will increase fees. Brokerage is doing well, and deposit services fees have exceeded expectations. The extra BOLI income from a death benefit is not expected to recur.
Q: Can you elaborate on the long-term plans for the Houston C&I hiring initiative?
A: The plan is to build out the Houston area first, then move to DFW or Austin. The focus is on small to midsized C&I lending in metro markets. By year-end, we hope to have a large part of the Houston team in place.
Q: How will the new C&I teams complement existing teams in larger metro Texas markets?
A: Existing teams are mostly real estate-based. The new C&I teams will complement them by focusing on small to midsized C&I lending, further expanding our presence in metro markets.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
