Release Date: July 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Stabilized net interest margin at 2.24%, halting previous compression trends.
- Return to revenue growth driven by higher net interest income and loan fees.
- Continued superb asset quality with no net charge-offs and very low levels of nonperforming assets.
- Tangible book value per share growth for 30 consecutive quarters, up 9.8% annualized from the first quarter.
- Recognition as a top workplace by the Star Tribune for the 5th year in a row, highlighting strong corporate culture.
Negative Points
- Loan and deposit growth were more muted in the second quarter due to higher levels of payoffs and seasonal factors.
- Continued deposit pricing pressures, with deposit costs increasing by 14 basis points in the second quarter.
- Elevated payoffs, which increased nearly $50 million from last quarter, contributing to slower loan growth.
- Potential headwinds from anticipated higher levels of loan payoffs in the back half of the year.
- Ongoing pressure on businesses from the higher interest rate environment, with expectations of some credit normalization over time.
Q & A Highlights
Q: Your asset quality remains pristine, but we've heard regulators are increasing capital requirements for CRE-heavy banks. Can you discuss your relationship with regulators and their understanding of your business model?
A: We've maintained the same platform since 2005 and have ongoing conversations with our regulators. They are comfortable with our enterprise risk management and how we monitor concentrations. Our concentrations have come down, but this was not a regulatory requirement. We have an exam in August and expect it to be business as usual.
Q: Can you update us on your appetite for share repurchases given the pricing has firmed up above tangible book value?
A: We consider various factors, including share price, future growth opportunities, and market conditions. We are pleased with our activity over the last three quarters, given the blended cost of repurchases. We will continue to evaluate this on an ongoing basis.
Q: Do you have spot rates for both deposit costs and the margin at quarter end to give us a sense of trends?
A: June's net interest margin was 2.20%, and spot rates for deposits were 3.50%.
Q: Can you discuss the acceleration of loan yields and whether this is more timing-related?
A: Strong growth in the back half of the first quarter propelled loan yields in the second quarter. Payoffs, which allow us to recycle cash into higher-yielding loans, also contributed. We expect loan yield growth to be driven by overall growth and payoff activity.
Q: How do you feel about deposit gathering in the second half of the year given the seasonality?
A: Q2 tends to be a low point for deposits due to tax season and cyclicality. We feel good about new client acquisitions and recent hires, which should drive pipeline growth. We expect deposit inflows and outflows to continue over the long term.
Q: Can you provide an update on M&A activity and recent conversations?
A: We continue to have conversations with local banks, and some have gone well. While M&A activity is heating up nationally, it remains slow in the Twin Cities. We will continue to stay in front of potential targets.
Q: How do the CDs maturing in Q3 and Q4 compare to current replacement rates?
A: We've shortened the maturity of CDs in anticipation of potential rate cuts. The 12-month CD rate has decreased from 5.25% to the low 5%. We also have optionality with brokered CDs, allowing us to call and reissue them as needed.
Q: Were the elevated payoffs in the quarter as expected, and what visibility do you have into future payoffs?
A: We anticipated some increase in payoffs due to rate drops at the end of last year. Payoffs have continued into Q3, and we expect this trend to persist. This allows us to recycle cash into new, higher-yielding transactions, benefiting loan yields and fees.
Q: The securities yields on the taxable portfolio increased nicely last quarter. Any repositioning of note?
A: No significant repositioning, just active portfolio management. We sold some floating-rate securities and reoriented the portfolio in line with the rest of the balance sheet.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
