Release Date: July 26, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Strong financial performance with good loan production and improving deposit trends.
- Credit quality remained excellent with several key credit metrics improving.
- Solid non-interest income and good expense discipline.
- Stable deposit mix with non-interest bearing deposits at 34% of total deposits.
- Well-capitalized with growing capital levels.
Negative Points
- Total visitor arrivals and spending were down compared to 2023 levels.
- Japanese visitor numbers remain well below pre-pandemic levels.
- Total deposits were down by $351 million, driven by a decline in public deposits.
- Higher deposit costs partially offset benefits from asset repricing.
- Uncertainty around the impact of potential rate cuts on net interest income.
Q & A Highlights
Q: I want, you basically have flat, by my math, you need 300, 400 million of growth to hit the low single digit in the second half. Could you walk us through how you'll get there? Like what will change that dramatically versus the first half?
A: Yes. We saw some paydowns in the first half that we don't anticipate in the second half. That's part of it or not swimming upstream as much. We think that the rate of indirect runoff was slow for residents till we think that will continue to be a challenge, candidly, for based on what we saw the first half. But on the commercial and C&I side, there's a number of transactions that are in the pipeline that we think are going to meaningfully. You've also in dealer filled. But I mean back a few site kid with Kevin and Jim, you say it enough times event, actually, it will be true which happens to be that would be the case this quarter. But I think those are the really the key areas, C&I, CRE, less so on the consumer side.
Q: Can you help us understand? So if you look at the paydowns that occurred in the first half, just so we see what you're looking at it, why you're confident they're not going to repeat again, the second half is just maturities you had in the first half. You don't have the same degree in the second half. Just help us understand what gives you the confidence on the paid outside?
A: Yes, we saw several loans payoff on the construction side in the first half, one of those we liked, which was this quarter we talked about on the last call was that $24.5 million substandard multifamily deal that paid off of that was sooner than expected, but welcome the capital we just sold at par. You know, we're not looking to prune the portfolio anymore at this time. So that is again, helpful. We're not expecting too much in the way of construction completion during the course during the second half of the year. So, that that can continue to build is the draws come in over the next six months of the things Steve. The wildcard is still a little bit the dealer floorplan. It's hard to predict exactly what those balances will be.
Q: And then on the on the margin and our outlook. So it looks like we're basically going to hold them with cuts. Can you grow net interest income, which is probably even more important in the backdrop of the Fed cutting rates on or once per quarter, something like that?
A: Yes, it's a great, great question, Steve, on And so from that from a new perspective, I guess I would say that that we can we expect the trajectory of the NIM to continue to rise. But if there is a rate cut just on an absolute level, the name will decline in the quarter that there is a rate cut. We still do have a slightly asset-sensitive balance sheet, and we'd also expect one month so far due to lower itself in anticipation of rate cuts as well. So yes, the repricing of loans happens slightly ahead and pricing of deposits. And, so you'll see a small decline in and then based on that, but then the underlying dynamics of the balance sheet to allow us to actually increase. Even through the backdrop of a of rate cuts, but at a lower absolute levels.
Q: And what about your ability to grow net interest income of the freight? So net interest income?
A: That's is that, yes, sorry about that. The so the that will be dependent upon loan growth, continued rotation out of securities into loans that we that could help us grow. And I but why not on an apples to apples basis, the I would not decline in that scenario.
Q: Just wanted to dig into maybe some of the core deposit trends you laid out some of the dynamics that we saw in the quarter, public funds moving out some of the pressures on retail and commercial deposits. But I was hoping you could maybe talk to you about some of the movement that you saw throughout the quarter. Kind of from early in the quarter to quarter read and what gives you confidence that that things are stabilizing?
A: Yes. Thanks, Dave. And so we saw we saw most of the deposit outflow happen in the first part of the quarter. Now we have the same thing in first quarter as well. But the overall magnitude of the change, in particular in non-interest bearing deposit side was up significantly less in Q2 than it was in Q1. And so we continue to be cautious around that. But we think that that the magnitude of the deposits shift changing the way that is really makes us hopeful for the rest of the year, it gives us some confidence that we think those dynamics are slowing for secure. And again, when you think about this in the context of the greater the greater economy and rate cuts looming, we think that we think that the kind of the worst is over in terms of folks shifting out of noninterest-bearing into interest-bearing deposits.
Q: How do you think about the size of the balance sheet going forward? Obviously, we talked about loan growth improving and maybe to the extent that we do get core deposit growth. Would you expect to reduce higher cost funding and new securities cash flows to fund growth and the balance sheet, maybe we remain relatively stable or even decline. I just kind of curious, how do you how do you think about it?
A: Yes, Dave, maybe I'll start and then hand it over to Jamie up. So we see that the shrinkage slowing deposit runoff slowly, and that's what really drives that for us. We are in a situation was 70% loan to deposit ratio where we're stretching and doing outside funding your market based funding to be able to fund loan growth. So as the securities portfolio runs off the deposits stabilize, that should give us a floor on really where the balance sheet as at the changing anything you'd add to that?
Q: Just wanted to touch on the heel oxide looked at the largest portion of your NPAs and just wanted to get a sense of what you're seeing in that book. It may be. How do you think about the mortgage portfolio as well? And I know you mentioned that things are stable and but just any thoughts on the housing market more broadly?
A: Maybe I'll start to see if we have any comments that, you know, the housing market is just so strong here. It's really we saw pricing continued to move up. There's very little supply coming on market. What is out there are still getting multiple multiple bids. So, we're not seeing the need to really be the borrowers to discount. So, we're not seeing that as an issue.
Q: On question on capital here. Continues to build these last several quarters now above the CET1 ratio at 12% that you've been targeting
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
