- Adjusted Earnings Per Share: $0.65
- Return on Assets: 1.4%
- Return on Tangible Common Equity: 20.9%
- Loan Growth: 11% annualized
- Average Deposits Growth: 11% annualized
- Net Interest Margin: 4.1%
- Total Adjusted Revenue Increase: $14.4 million or 7% compared to the linked quarter
- Record Adjusted Non-Interest Income: $61.6 million
- Adjusted Expenses Increase: 1.2% compared to the first quarter
- Net Charge-Offs Decline: 23 basis points to 15 basis points
- Allowance for Credit Losses (ACL): 1.36% of total loans
- Provision Expense: $16.4 million
- Annualized Net Charge-Offs: 15 basis points
- Non-Performing Assets (NPAs): 35 basis points of total assets
- Tangible Book Value Increase: $0.44 or 3.5%
- Adjusted Net Income: $61.7 million
- Adjusted Return on Average Tangible Common Equity: 21%
- Pre-Tax, Pre-Provision ROA: 210 basis points
- Loan Yields Increase: 10 basis points
- Investment Portfolio Yield Increase: 22 basis points
- Funding Costs Increase: 13 basis points
- Cost of Deposits Increase: 14 basis points
- Adjusted Uninsured Deposits: $3.2 billion or 23% of total deposits
- Total Fee Income: $62 million
- Core Expenses Increase: $1.4 million
- Total Allowance for Credit Losses: $173 million
- Classified Asset Balances: 1.07% of total assets
- Common Dividend Increase: $0.01 to $0.24
Release Date: July 26, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Adjusted earnings per share was $0.65, resulting in a return on assets of 1.4% and return on tangible common equity of 20.9%.
- Loan growth was exceptionally strong, with balances increasing by 11% on an annualized basis.
- Average deposits grew approximately 11% for the period, driven by interest-bearing deposits and a seasonal increase in public fund balances.
- Record adjusted non-interest income of $61.6 million, with broad-based growth in fee income.
- Net charge-offs declined for the third consecutive quarter, marking a 23 basis points decline to 15 basis points.
Negative Points
- Adjusted expenses increased by 1.2% compared to the first quarter, driven by Agile expenses, annual salary adjustments, and variable compensation.
- Downward credit migration was experienced during the period, although not concentrated in any particular loan type.
- Funding costs increased by 13 basis points during the period, which was significantly lower than in prior periods.
- The deposit mix continues to shift to higher-cost deposits, impacting overall cost structure.
- Provision expense was driven by loan growth and slight credit migration, resulting in $16.4 million of provision expense during the period.
Q & A Highlights
Q: Jamie, how are you thinking about the margin into next year if the forward curve plays out with expected rate cuts?
A: Jamie Anderson, Chief Financial Officer and Chief Operating Officer: We are asset-sensitive and benefited from rate increases over the past six to eight quarters. For the first couple of 25 basis point rate cuts, we expect an 8-9 basis point decline in the margin, with subsequent cuts leading to a 5-6 basis point decline. We anticipate difficulty in reducing deposit costs significantly with the initial cuts.
Q: Archie, how are you thinking about using your excess capital and your model into 2025?
A: Archie Brown, President, Chief Executive Officer, Director: Primarily, we aim to fund the company's growth internally and continue dividend increases. We do not foresee a buyback in the near term, focusing instead on growing our tangible value.
Q: Are you seeing more opportunities for traditional bank M&A versus fee income deals?
A: Archie Brown: We are having early-stage conversations about bank M&A but do not expect anything in the near term. There is more interest in discussions due to the current cycle and expectations of rate cuts. We are not pursuing any other non-bank acquisitions at this time.
Q: What are your thoughts on non-interest-bearing balances over the course of the year, and how do you plan to fund loan growth?
A: Jamie Anderson: We are at or near the bottom in terms of non-interest-bearing balances, currently at 22%. We plan to fund loan growth through deposits rather than borrowing, even if it means utilizing higher-cost deposits like CDs and money market accounts.
Q: Any comments on your transportation C&I portfolio and whether you are seeing any stress there?
A: Archie Brown: We are closely monitoring the transportation sector. While there is some stress, especially among smaller and larger trucking companies, our exposure is manageable, and we have not faced any material issues.
Q: What is driving the loan growth guidance down, and how do you see commercial pipelines and opportunities over the next several quarters?
A: Archie Brown: We had strong loan growth due to decent production and lower-than-normal payoff activity. Pipelines softened mid-second quarter but are strengthening now. We expect more payoffs in commercial real estate and a flattening of Agile's growth in the back half of the year.
Q: How have you managed expenses despite revenue and balance sheet growth, and where have you identified cost-saving opportunities?
A: Archie Brown: We have invested in technology and tools, creating significant capacity. We are methodically reviewing all production and support areas, identifying excess capacity to remove. We have absorbed Agile's expenses and invested in growth areas without significantly increasing our expense base.
Q: How do you expect fee businesses to perform if short rates come down?
A: Archie Brown: We expect fee businesses like Bennett Bernd, leasing, and mortgage to continue performing well. Wealth management will also see incremental improvements due to our investments.
Q: Can you talk about the leasing business pipelines and what is driving their performance?
A: Archie Brown: The leasing business has a national platform with strong pipelines, especially among larger companies. We expect strong origination activity in the back part of the year, particularly in the fourth quarter.
Q: Can you provide more details on downgrades and classified increases?
A: Archie Brown: Downgrades were driven by two multifamily and two C&I credits. We expect classified assets to remain stable, with special mentions down slightly. We believe there are reasonable solutions for the downgraded credits.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
