Release Date: July 26, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Record quarterly net income of $25.3 million or $1.62 per diluted share.
- Net interest margin expanded to 287 basis points, up 9 basis points from the previous quarter.
- Successful divestiture of the insurance subsidiary, generating a pretax gain of $13.5 million.
- Improvement in asset quality metrics, with zero annualized net charge-offs in the commercial portfolio.
- Meaningful growth in regulatory and tangible capital ratios, including a 60 basis point increase in the common equity Tier 1 ratio.
Negative Points
- Total deposits decreased by 4.9%, reflecting seasonality and reduction in broker CDs.
- Provision for credit losses increased to $2 million in the second quarter, compared to a benefit of $5.5 million in the first quarter.
- Indirect loan portfolio saw a decline of $25.8 million or 2.8% from the previous quarter.
- Noninterest income, excluding the gain from the insurance subsidiary sale, was down $407,000 quarter-over-quarter.
- Commercial loan growth has been softer due to unfavorable economic conditions and interest rate friction.
Q & A Highlights
Q: Can you provide an updated outlook on the net interest margin (NIM) if the Federal Reserve starts cutting rates?
A: We're fairly neutral to the first couple of cuts from the Fed. However, if the Fed is more aggressive in 2025, it could benefit our margin. Our CD portfolio and public and reciprocal portfolios, which are sizable, would be the first to see a downward shift. Our guidance does not include any cuts by the Fed.
Q: What is driving your loan growth guidance of 1% to 3%?
A: The growth is expected to come from both commercial real estate (CRE) and commercial and industrial (C&I) loans. Both segments are carefully considering taking on debt in the current higher rate environment.
Q: Is this quarter's fee income a good proxy for the rest of the year?
A: Yes, especially since it excludes the operations of SDN. It should be a good proxy for the next couple of quarters.
Q: What percentage of your loan portfolio is floating rate, and what is the blended yield on those loans?
A: About 38% of our total loans are floating rate, primarily based on SOFR or prime, with an approximate yield of around 8%.
Q: What are your expectations for provisioning given recent fluctuations?
A: Given the credit performance and loan growth expectations, $5 million per quarter is probably a bit high. Provisioning will be influenced by national unemployment forecasts, loan growth, and charge-offs.
Q: Do you have any plans for the $35 million in subordinated debt reaching a reset date next year?
A: We are reviewing our capital stack strategically and evaluating the potential to reissue in the market or replace it with alternative forms of capital.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
