Release Date: July 23, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Capital ratios improved somewhat in the quarter as the company deemphasized asset growth and stabilized earnings.
- Credit remains strong with non-accruing loans at 54 basis points and past due loans at 21 basis points of total loans.
- Expenses are down quarter over quarter, reflecting lower staffing levels and payroll tax expense.
- Fee-based businesses, wealth and mortgage, performed well and generated higher revenues in the quarter.
- The company introduced new deposit growth-oriented tools to enhance customer experience and reward referrals.
Negative Points
- Net interest income was $31.6 million with a margin of 1.83%, indicating continued pressure on the margin.
- Non-interest income was down by $503,000 or 3% from Q1, despite a gain on the sale of the operations center.
- Total loans were down by $56 million or 1% from March 31, indicating a decrease in both commercial and residential loans.
- In-market deposits were seasonally down by $37 million from March 31, reflecting a reduction in brokered deposits.
- The wealth management business experienced outflows of $163 million, partly due to the departure of two advisors and an unexpected death of another.
Q & A Highlights
Q: It looked like you replaced $300 million or so of brokered deposits with FHLB advances. What was the rough difference in rate between the broker deposits and the FHLB advances?
A: (Ronald Ohsberg, CFO) It could be 10 to 15 basis points. We look at those as pretty much interchangeable sources of funding, so we tend to go with whichever is cheaper.
Q: The loan-to-deposit ratio is starting to creep up. How high are you willing to let that go?
A: (Ronald Ohsberg, CFO) It's back down to 107% after adding those deposits back. We don't want that ratio to be any higher than it is now. (Edward Handy, CEO) We've deemphasized asset growth and are focused on deposit growth as our number one priority.
Q: You had a bit of an outflow in the wealth management business. Any more departures of relationship people recently?
A: (Mary Noons, President & COO) We had departures of two advisers and an unexpected death of one adviser. The departures were unrelated and minimal outflow was attributed to them. We are keeping a close eye on this.
Q: What are your thoughts on the outlook for the NIM, assuming maybe one Fed cut in September, and the outlook for expenses in the third quarter?
A: (Ronald Ohsberg, CFO) We think NIM in Q3 will be in line with Q2. Lower rates are beneficial to us overall. For expenses, we expect Q3 to be about $35 million, with mortgage commissions and advertising being a bit higher.
Q: Are you expecting any material cost savings related to the sale of the operations center?
A: (Ronald Ohsberg, CFO) Yes, about $200,000 to $300,000 annually, which is already incorporated.
Q: Are there any areas of the portfolio where you're seeing some signs of stress, particularly in commercial real estate?
A: (William Wray, Chief Risk Officer) We pay attention to office properties a lot. We have about a dozen maturities in the next couple of years, but we're not seeing any adverse trends elsewhere in the portfolio.
Q: How are you thinking about overall fee income in the back half of the year?
A: (Ronald Ohsberg, CFO) Wealth income largely depends on markets. We expect Q3 to look similar to Q2 in terms of wealth revenue, with mortgage income up by 5% to 10%.
Q: The $163 million of client outflows in 2Q, how much was related to the two advisors who departed?
A: (Ronald Ohsberg, CFO) That number is net of new business, lost business, and routine client flows. New business and lost business were a net zero.
Q: Can you provide more detail on the $18.4 million currently on non-accrual cash fee?
A: (William Wray, Chief Risk Officer) That's two properties, one 50% vacant and the other only tenanted with street front retail. Both properties are stable to improving.
Q: How does the maturity schedule look for office properties in the next few quarters?
A: (William Wray, Chief Risk Officer) There are not many maturities in the next few quarters. We manage each property assuming we will be with it to maturity and beyond.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
