Q1 2023 Bridgewater Bancshares Inc. Earnings Call
Good morning, and welcome to the Bridgewater Bancshares 2023 first quarter earnings call. My name is Jordan and I'll be your conference operator today.
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After Bridgewater is opening remarks, there'll be a question and answer session.
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At this time I would like to introduce Justin Horstman director of Investor Relations to begin the conference call. Please go ahead.
Thank you Jordan and good morning, everyone. Joining me on today's call are Jerry Bach, Chairman, President and Chief Executive Officer jokes about E Chief Financial Officer, Jeff Shelburne, Chief Credit Officer, and Nick place Chief lending officer in just a few moments we will provide an overview of our 2023 first quarter financial results.
Be referencing a slide presentation that is available on the Investor Relations section of Bridgewater as website investors Dot Bridgewater Bank M N Dot com.
Following our opening remarks, we will open it up for questions.
During today's presentation, we may make projections or other forward looking statements regarding future events or the future financial performance of the company. We caution that such statements are predictions and that actual results may differ materially. Please see the forward looking statement disclosure in our 2023 first quarter earnings release for more information about risks and uncertainties, which may affect us.
The information we will provide today is as of March 31, 2023, and we undertake no duty to update the information.
We may also disclose non-GAAP financial measures. During this call. We believe certain non-GAAP financial measures. In addition to the related GAAP measures provide meaningful information to investors to help them understand the company's operating performance and trends.
Facilitate comparisons with the performance of our peers, we caution that these disclosures should be viewed or should not be viewed as a substitute for operating results determined in accordance with GAAP. Please see our 2023 first quarter earnings release for reconciliations of non-GAAP disclosures to the comparable GAAP measures.
I would now like to turn the call over to Bridgewater, as chairman President and CEO Jerry box.
Thank you Justin and thank you everyone for joining us today before we dive into our financial results for the quarter I want to take a moment to share our perspective on the current banking environment.
However, we believe the best way forward is to simply continue doing the things that have made us successful for the last 18 years, including.
Providing a differentiated level of service to our clients growing the bank in a highly efficient manner and effectively managing and mitigating our risks.
We have confidence in this strategy for a variety of reasons. It all starts with our simple business model, serving local clients and the twin cities that we have known well and have long standing relationships with.
This became even more apparent as we had proactive conversations with clients in March to remind them of our support and offer solutions to put their mindset is this.
This included educating them on ways to ensure larger deposit balances such as leveraging the <unk> network, which we have had in place for many years.
Only 24% of our deposits were uninsured as of March 31.
We also have a strong capital and liquidity position and high quality securities portfolio with no held to maturity securities.
We have taken several actions to increase our borrowing capacity without using the new bank term funding program and now have available liquidity of 1.9 billion more than twice the level of uninsured deposits.
Finally, we have been proactive in managing our interest rate risk in recent years, including adding derivatives to mitigate the unrealized losses on the securities portfolio.
This was evident through 2022 as we are able to continue growing tangible book value, even as interest rates continued to rise and our peers experienced material negative impact to OCI.
Despite the unpredictability in the current environment.
I remain confident that BW b can meet the challenges and take full advantage of the opportunity to gain market share.
The <unk> team is incredibly talented strong solution oriented and resilience.
Our low efficiency ratio is only possible because of the commitment and effort of the hardworking internal team.
I'm grateful for the skills and the work ethic of each and every one of our team members at.
BW be it a client relationship remains priority number one this is what is disbranch aided us in the past and I strongly believe it is what will lead us to succeed in the future.
Turning to slide four given all the noise in the banking sector and challenging rate environment. We are pleased with our 'twenty to 'twenty three first quarter results as we earned <unk> 37 per share.
As we indicated on our 'twenty to 'twenty, two fourth quarter earnings call, we expected to see more moderated levels of balance sheet growth and additional margin pressure in the first quarter, both of which we experienced.
Loan balances grew at a 30%, 13% annualized pace as the loan pipeline slowed and we remain more selective on deals.
Deposit balances declined slightly as we saw typical seasonal outflows in March and as we turned much of our attention towards deposit retention initiatives later in the quarter.
As expected this funding pressure resulted in additional margin pressure.
Joe will provide more details on the margin in just a minute.
Expenses were very well controlled in the first quarter and helped offset some of the near term revenue headwinds.
We maintained a very strong efficiency ratio in the mid 40% range as we execute on opportunities to better manage discretionary spend in the current environment.
Asset quality also remains superb with low nonperforming assets and our ninth consecutive quarter of no net charge offs.
We adopted Cecil during the first quarter and it had an impact on our lower net provision due to a reduction in unfunded commitments.
With that I'll turn it over to George both SKU.
Thank you Gerry turning to slide five I'll provide some additional details on the net interest margin, which saw expected further compression in the first quarter.
The margin declined 44 basis points to 272 as funding costs continued to increase at a pace faster than earning asset yields in this higher rate environment.
Fed continues to raise rates, we have seen a deposit mix shift from noninterest bearing to interest bearing similar to other banks.
We also saw some upward pressure on deposit costs later in the quarter as we worked to retain balances given the banking disruption in mid March.
In addition, while the overall pace of loan growth moderated during the quarter, we did leverage some additional wholesale deposits and borrowings to supplement loan funding.
Which impacted funding costs as well.
Net interest income declined on a linked quarter basis due to the lower margin and more moderated pace of loan growth.
NII was also impacted by reduced loan fees as the pace of payoffs continued to slow.
On slide six you can see the various components of the margin.
Portfolio loan yields should continue to grind higher for the foreseeable future, especially with yields on new originations typically coming on at six 5% to 7% many of which are being structured with strong prepayment penalties, which will help cement these higher yields for longer.
In addition, we have over $400 million of fixed and adjustable rate loans scheduled to reprice over the next year.
And over 600 million of variable variable rate loans efficiently floating today.
Funding costs are also likely to trend higher due to elevated competition on both core deposits and rates given treasuries and other market alternatives.
With the evolving banking industry and interest rate dynamics over the past couple of months margin outlook is becoming more difficult to predict we will likely see some additional margin pressure in the second quarter, Although we expect it to be at a more modest pace than we saw in the first quarter.
Ultimately the margin going forward will be impacted by the path of interest rates the shape of the yield curve and our pace of core deposit growth.
Our current assumption is that fed funds peaks at 5% and remains there throughout 2023.
Turning to slide seven we continue to demonstrate our long track record of strong revenue and profitability.
<unk> seen pressure on the revenue side over the past couple of quarters, given the vast majority of our revenue is spread based however.
However on the fee side noninterest income increased 11, 8% from the fourth quarter, primarily due to higher letter of credit fees and nearly 300000 of FH lb prepayment income, which we don't expect to occur reoccur.
Overall, we've been pleased with enhancements across the business that will incrementally benefit noninterest income over the long run.
Turning to slide eight we continue to operate with a strong efficiency ratio of 46, 2% due to our ability to manage the expense base and in an environment where revenue growth is more challenging.
In fact, we saw noninterest expense declined six 7% from the fourth quarter as we reduced some discretionary expenses, including marketing spend.
As we've shared in the past we have historically grown expenses in line with asset growth.
While this remains our target over the long term, we will continue to look for opportunities to operate more efficiently, especially in the current environment.
With that I'll turn it over to Nick place.
Thanks, Joe.
On slide nine overall deposit growth was relatively flat during the first quarter as we turned our focus toward deposit retention given the market dynamics in March.
Our team did an amazing job of engaging with our existing clients to provide comfort solutions around their deposits.
The strong ongoing relationships, we have with our clients really help with these conversations.
That said there were some deposit modest deposit outflows, but overall balances held strong although like most banks, we did see a shift from noninterest bearing into interest bearing accounts.
As we mentioned last quarter, our focus remains on better aligning loan growth with core deposit growth over the course of 2023, we expect this to be a bit more challenging in the near term given the unprecedented market dynamics and longer client acquisition and Onboarding lead times, we're still getting in front of numerous new loan and deposit opportunities and remain confident.
That are local and responsive service model will drive future growth.
Slide 10 provides some additional detail on our deposit base.
As we look at core deposit flows we saw net outflows during the middle of March with balances stabilizing and beginning to grow at the end of the month.
The majority of these outflows were due to normal seasonality, including tax season in it and industry cyclicality as well as continued moves towards higher rate alternatives.
In fact as you can see on the slide the trajectory of deposit flows in March of 2023 tracked very closely with the deposit flows we saw in March 2022.
As we've said before our deposit growth typically isn't linear and this is an example of that.
Levels of uninsured deposits have also been in the spotlight and this is an area, where we feel very comfortable at year end, 38% of our deposits were uninsured, which was in line with industry median we took steps over the past few months to educate our clients on the traditional ways to increase FDIC insurance on their accounts, while also discussing the inter pipe product, which.
Allows them to fully insured larger balances.
In fact, our interim high balances increased $266 million during the first quarter lowering our uninsured deposit level to 24% of total deposits.
Finally, our cycle to date deposit beta as at the end of the first quarter was 40% in line with our expectations. The largest increase we've seen in the beta was from the third quarter of 2022 to the fourth quarter with the pace slowing in the first quarter.
Turning to slide 11, we saw the pace of loan growth in the first quarter moderate to 13, 1% annualized.
The slower pace of growth was expected due to slower loan demand and our own efforts to be more selective on opportunities as we better align loan growth with our funding outlook.
We expect full year loan growth in the high single digit to low double digit range. In 2023, we will continue to support our clients and communities with new loan originations in line with our core verticals.
Turning to slide 12, with the reduced loan demand in the market. We continued to see a slower pace of originations, which totaled 75 million in the first quarter down 69% year over year. In fact, the primary driver of our loan growth in the first quarter was advances on existing loans.
Offsetting the reduced originations are slower payoffs and paydowns, which declined 39% year over year.
Overall loan growth going forward will be somewhat dependent on advances on existing loans, which will continue to create loan portfolio grow throughout the year as well as the pace of pay offs, which can be difficult to predict in the current environment.
We have also been managing our loan growth by selling participations on new originations, including $80 million of participations in the first quarter.
Portfolio participations sold has increased each quarter over the past year now totaling over $500 million and over $640 million included including unfunded commitments.
In addition to helping manage our growth. This servicing provides an added revenue benefit as well.
On Slide 13, you can see we had strong first quarter loan growth across all loan types led by construction and development driven by draws on existing loans, most of which are multifamily related.
As these projects complete their construction days in many of these balances will migrate into other loan portfolios.
Overall, we feel very comfortable with our non owner occupied CRE portfolio the.
The majority of the book is fixed rate, which helps from a risk repricing risk standpoint.
We have been actively engaging with clients that have maturing of resetting rates over the next 12 months and identifying situations of possible cash flow stream, while recommending solutions earlier in the process if necessary.
As of quarter end, we had $195 million of non owner occupied CRE office exposure, which is just 5% of total loans. This includes only three loans in the central business districts of Minneapolis, and St. Paul totaling 26 million.
This is obviously a portfolio we are monitoring closely but we feel good about the outlook given the lower average loan amount, which demonstrates a diversified loan base and are primarily Midwestern suburban exposure I'll now turn it over to Jeff Shelburne.
Thanks, Matt turning to slide 14, our asset quality continues to be superb nonperforming assets remained at very low levels, making up just 0.02% of total assets at the end of March in.
In addition, we essentially had no net charge offs for the ninth consecutive quarter. In fact, we have had cumulative net charge offs of just 379000 over the past six plus years. This.
This is largely due to our measured risk selection consistent underwriting standards.
Credit oversight and experienced lending and credit teams.
But we have seen an extended period without any credit issues. We do expect normalization at some point given the higher interest rate environment and potential recession on the horizon.
Therefore, we continue to take proactive steps to address potential credit concerns.
As Nick mentioned, we're paying special attention to our CRE portfolio, including evaluating loan repricing risk by assessing our clients' ability to meet loan covenants in the current interest rate environment.
We are also taking a deeper look into our non owner occupied office portfolio to identify potential underperforming properties impacted by the remote work environment.
In addition, we adopted <unk> on January one 2023.
The day, one impact included a 650000 increase to the allowance for credit losses, and a $4 $9 million increase to the allowance for unfunded commitments.
The tax affected impact totaled $3 9 million and was recorded as an adjustment to retained earnings.
Overall, our total reserve stands at 1.36% of gross loans at the end of the first quarter up two basis points from the last quarter.
In terms of classified assets, we saw an increase of $8 3 million in the first quarter due to the downgrade of one CRE office loan.
Slide 15 provides some more detail on our classified assets, which made up less than 1% of total loans and less than 7% of total capital.
Classified assets are pretty evenly split between C&I and CRE loans.
Watch list balances declined by $4 7 million, primarily due to one C&I loan being upgraded.
Overall, we feel good about the risk profile of the portfolio and feel it is well positioned as we move through 2023.
Now I'll turn it back over to Joe.
Thanks, Jeff Slide 16 highlights our high quality available for sale Securities portfolio, which is up 21, 9% over the past year.
Portfolio is well diversified with a strong mix of mortgage backed securities municipal bonds and corporate securities.
The portfolio is highly rated with over 80% rated investment grade or better.
It's also important to note that we do not have any held to maturity securities.
In addition, the in the money derivatives portfolio, we have in place is helping to offset some of the unrealized losses in the securities portfolio, resulting in a OCI to capital of just three 4% compared to the peer bank median of 10, 5% in the fourth quarter, we feel very comfortable with our securities portfolio in the current.
Environment.
Turning to slide 17, we took several actions in March to reinforce our already strong liquidity position as we increased our on and off balance sheet liquidity by $544 million to $1 9 billion more than twice the level of our uninsured deposits.
These actions included pledging loans and securities to create $833 million of additional borrowing capacity at the federal reserve and adding $129 million of cash on the balance sheet.
It is worth noting that the securities. We pledged we're generally those with higher unrealized losses effectively optimizing liquidity certainty we.
We did not utilize any borrowings from the FRB discount window or the new bank term funding program during the quarter.
When you look collectively at our insured deposits capital and liquidity position and securities portfolio, we feel very comfortable with where we stand moving forward.
Slide 18 highlights our strong capital ratios and tangible book value growth, we remain comfortable.
Comfortable with our current capital levels are C. T. One remains stable at 8.48%, while tangible common equity dropped slightly to seven 3% primarily due to the day, one impact of seesaw, which went through retained earnings.
We will look to build our tangible common equity and CET one ratios back up throughout 2023 with a slower pace of loan growth and continued earnings retention.
From a capital priority standpoint organic growth remains our primary focus beyond that we continue to review and evaluate potential M&A opportunities.
We also have a $25 million stock repurchase program that was approved by the board in 2022.
However, it is unlikely we will we will repurchase shares in the near term as we look to be conservative with our capital in the current environment.
We continue to consistently grow tangible book value your various market ups and downs. This includes recent challenges such as Covid and unprecedented fed hiking cycle and a series of recent bank failures.
Tangible book value per share increased another 2.2% to 11 95 in the first quarter.
Turning to slide 19, I'll summarize our thoughts on near term expectations.
We continue to expect loan growth in the high single to low double digit range for the full year of 2023.
We remain focused on aligning this more closely with core deposit growth over the course of the year keeping in mind that our core deposit growth will likely be more challenging in the near term due to recent industry developments.
Our loan to deposit ratio target remains 95 to 105, but we were but we may sit slightly above this in the near term given the current environment.
As I mentioned earlier, we will likely see additional net interest margin compression in the second quarter, given the changing industry dynamics. However.
We expect this pressure to be less than what we have seen in recent quarters overall the margin outlook will likely depend on the path of interest rates the shape of the yoga curve and our pace of core deposit growth.
Given the margin outlook, we could see the efficiency ratio moved to the mid to high 40% range in the near term as we continue to manage expenses in the current environment.
And as I mentioned from a capital standpoint, we will look to build our tangible common equity and CET one ratios throughout 2023.
I'll now turn it back to Jerry.
Thanks, Joe finishing up on slide 20, we want to remind everyone of our strategic priorities for 2023, which include managing our high quality balance sheet growth continue.
Continuing to operate in a highly efficient manner, while investing in the business continued scalability of the E. R M function, including proactively assessing asset quality risks and implementing longer term readiness strategies.
As part of our longer term strategic readiness priority. We recently purchased a piece of land in Lake, Minnesota for a future de Novo branch. This will help us fill out our footprint in our higher growth East Metro area.
It's also an opportunity to help supplement core deposit growth down the road.
With that we'll open this up for questions.
If youre using a speakerphone please pick up your handset before pressing the keys.
At this time, we will pause momentarily to assemble our roster.
First question comes from Brendan Nosal with Piper Sandler. Please go ahead.
Hey, good morning, guys hope you're doing well.
Just to start off here.
Can you maybe walk us through kind of the evolution in deposit pricing kind of month to month throughout the first quarter and give us a sense of where our stock funding costs to water at the end of March.
Hey, Brian This is Joe.
Yeah. So I think you know when we last quarter when we guide into two margin and obviously you talked about you know the components that drive the margin.
You know, we certainly talked about a competitive.
I think there's there's certainly competition for for deposits and there is certainly plenty of alternatives.
Amongst treasuries and other money market alternatives. So I mean, we were experiencing elevated funding costs really.
At the beginning of the quarter.
Really talk to them about the situation you know inevitably that resulted in some separate conversations that ultimately resulted in repricing events.
So what you've got to put that altogether.
The pressures I would say that the deposit costs accelerated at the back half of the quarter and I think you'll still see that translate here in the next quarter.
As as we talked last quarter, you know I think a helpful data point that we provided.
You know it was December net interest margin stand alone, which was was 3% and so you know as you a couple of some of these comments that I've talked about along with interactions with clients and really just the challenges to grow core deposits as.
<unk> Standalone margin, which was at right around two 6%.
So I think you know you couple all that and you you you add that together yeah. I think that's a helpful data point to think about margin on a go forward basis.
But you know that the environment remains challenging I think theres a lot of you know the market itself. There's a lot of dynamics. If you think about you know what's really the fed going to do on a go forward basis, the shape of the yield curve itself the ability for us to continue to grow core deposits I think all of those you know certainly make margin on.
A go forward basis, you know harder to predict so that's probably more than you bargained for but I think it is helpful that its really get it out there and talk about those dynamics.
Yes.
That's great Joe Thanks for the color and the March NIM spot is definitely helpful.
And then maybe one more from me before I step back.
Just on expenses you guys did a really really nice job kind of working to control the cost base looks like it was mostly odd on comp accruals. So.
Yes, trailing toilet, bringing down that expense to average assets ratio.
Revenue pressure.
Just kind of curious.
What insight you have into kind of comp accrual line and overall expenses as we move through the year fighting revenues and at what point does that kind of reset to its typical run rate.
Yeah.
Yeah, I think I think you're right that it definitely reset lower and so really as you think about building on that you know high level I'll start.
We've always said that expense growth will will run you know in lockstep or at least alongside asset growth in and also you know in terms of revenue. So if we saw some revenue challenges here with with our NII and net interest margin. We obviously you also were able to pull back on expenses and knows that.
Relationship was maintained on a go forward basis as we talk about you know kind of you know.
High single digit asset growth really driven through you the loan side.
Think from this starting point moving forward I think that's a fair assumption when you think about noninterest expense on a go forward basis, and I think for US the comp line in total salaries has always kind of run you know in that low 60% of the expense composition. So I think that's.
Also a fair assumption.
And so I think you know as we look at throughout the year you know, it's certainly going to look to other opportunities to continue to to manage discretionary spend we obviously talked about some pullback in marketing, but I think we're also cognizant of you now a growth company that invest in our people and certainly invest in technology.
And we've definitely done that you know over the last couple of years and we certainly don't want to shy away from continuing the efficiency of the company. So that you know that will involve some investment but overall I think you know the expense line as always will hold up and in line with asset growth.
Yeah.
Got it alright, great. Thank you for taking the questions.
Our next question comes from Jeff <unk> with them.
D. A davidson. Please go ahead.
Thanks, Good morning.
First off on the deposit side.
Loved the March deposit graph, I think that's a pretty telling year over year and just to kind of walk through.
I'm interested in inflows.
So far in April you, probably got some tax activity, but wanted to kind of just track how how that's gone and then narrowed down those expectations for deposit balance expectations.
A little further out kind.
Kind of in the balance of <unk> and in the second half.
Hey, Jeff This is Nick I'll take that one.
You know the momentum that we saw at the tail end of March with.
With balances rebuilding you know that that trend continued through the first two weeks of April .
And then is with is expected and is typical seasonality with tax season, we saw some of those balances then.
You know should drift back down.
Around tax time, so we.
So we feel good about that.
Momentum that we had that carried through the first part of April and that if we look back similar to what we did in March are comparing 'twenty three to 'twenty two.
That that layers right on top of what we saw in in April of 2022 as well so you.
You know that the balances that have held in and that sort of cyclicality has continued.
Looking further out we feel really good about the you know the brand and our staff and our ability to continue to get in front of good good.
Good client relationships, we just had a.
Sort of a town hall meeting with our lending and deposit staff last night, and and we'd probably spend an hour talking about some really amazing wins that the team has had having with with great new core customers that really span the spectrum of size from small deposit relationships to large ones.
So we feel really good about the momentum that we have going forward and you know the challenges that we experienced in March as just another thing that will we will have to sell through and I feel confident in our team's ability to do that and ultimately what has served us well and taking market share.
Over 18 years and in the sense of are.
Phenomenal people and our responsive service model will continue to win out and will continue to allow us to take market share. So we feel good about our ability to continue to grow the deposit base.
And Nick.
Alluded to the cycle to date beta at 40% and that pace is slowing.
Have you updated or kind of through the cycle expectation for ultimate peak beta.
No Jeff I think this is Joe.
I think we're pleased with with the experience we've had thus far I think you know, it's we kind of go back to prior cycles, you know and it's it's tough because we talk about this cycle is certainly unlike any other and you couple of events that happened in March and I think some of that you know.
<unk>.
It makes beta assumptions on a go forward basis challenging I think when we look at the core deposit beta.
38% I think we feel good.
You know from a modeling perspective, that's in line with expectations of prior.
Rate cycles, when you kind of look back to 18 and 19, but again you know we were up 500 basis points over 12 months 12 months. So I think it's hard to it's hard to anticipate where that goes and where that peaks, but thus far we're pleased with the experience.
Sure.
Tough tough one day.
I wanted to just hop to cap Oh, excuse me credit.
Jeff.
I.
Thought I heard you say that the increase in classifieds was was largely off a CRE one could you confirm or.
Or just clarify that and then and then two.
Any thoughts on the on the provision obviously impacted by seasonal this quarter trying to track you.
You know what.
Yeah.
Low single digit or excuse me low double digit high single digit loan growth pace, just wanted to check in on expectations for the provision line.
Sure I'll start off on the on the CRE and then let Joe talk about the provision, but that you have the downgrade was it was a long term client or is a long term client of the institution.
It was the acquisition acquisition and reposition it.
Existing property loan has been on the books for about five years, but they hit the pandemic can had some traction but the property, but it just hasn't reached stabilization. So.
We just made the determination that we felt that we needed to downgrade the credit.
And then Jeff I'll talk to the <unk> line I mean, so you know just kind of what transpired in the first quarter and then and then really from a go forward basis. So as we talked about you know day, one the allowance for credit losses, we saw an increase of 650 Grand.
And then the allowance for unfunded commitments the ACL for unfunded commitments you know we saw a.
Roughly a I want to say it was a four and a half million dollar.
Increase to the allowance for unfunded. So overall the net effect as we as we talked about you know to retained earnings on a tax affected basis was $3 9 million.
So then as we translate you know we moved throughout the quarter loan growth itself, we provided for the ACL for a.
$1 five.
And as a lot of those unfunded commitments funded and moved to funded loans, we actually experienced a reverse provision on unfunded commitments. So ultimately that the P&L impact in the first quarter was 625 Grand.
And then you know we're comfortable with that 136 on a go forward basis.
Hmm.
Obviously, barring the environment changing but we feel good about that.
Level okay.
We should kind of.
Look at that reserve to loans is is it good.
Oh, that's 50 ish is a good mark.
Yeah, assuming assuming you know things things don't change in the environment certainly.
Understood Okay last one.
Hum.
Maybe Jerry just on capital I'm It sounds it touch more cautious understandable given the environment.
More on that.
On the M&A side.
Big M&A shop, but you've always.
Hum.
Those conversations.
Interested in your thoughts about you know the current kind of environment is is a little choppy, but thinking about opportunities on.
Potentially the other side of this any any thoughts on.
On M&A.
From your perspective.
Yeah.
My overall thoughts on that.
Clearly this.
This year is gonna be a real tough environment for M&A I don't think there's really.
Sellers out there at this point, but I do feel the long term. After we go through this this current cycle that there will be more opportunities than there have been in the past.
Frankly, just due to fatigue.
For some of these bankers.
And we just we continue to do as we've done in the past I mean, we've only done one deal, but we certainly talked to a lot of owners and Oh banks locally and some outside of the twin cities also in just continue to have those talks and make sure that they know what it would like an opportunity to.
To meet with them if they if they decide at some point to sell and you know it certainly had some conversations with some of that.
Are really leaning toward that in the next two to five years, but we will see what happens in the market. So.
I'm not sure I really answered your question, probably the same as I always do so.
Yeah, Thanks, Jamie and thank you all appreciate it.
Yeah.
Our next question comes from.
Carolyn.
Please go ahead.
Hey, good morning, guys.
I've been I was curious if we could I mean, when you think about deposit here, it's obviously been a tough environment and by no means am I picking on you guys, but.
Loan growth continues kind of working against your goal the loan to deposit ratio is there any kind of a red line, where like you will not exceed it.
Deposits continue to.
Kind of underwhelmed overall deposit or loan growth.
Hey, Ben this is Nick maybe I'll start with just sort of what we're seeing on the loan growth side of things and then I'll maybe pass it over that.
Joe and he can add some color on the loan to deposit ratio, but you know I.
I think we've done a lot to manage the loan growth I think if we look at Q1.
The bulk of the funding is coming from.
Existing loan advances really just that construction book so.
Loans that were closed.
18 months ago that are that are funding their construction balances you know we've done a lot of work to model that forward to try to get some visibility into how much that will continue to provide for further loan growth.
Coming quarters.
And then we're certainly moderating the pace of new loan originations down.
Down to a level that we.
So we feel like we can we can better fund with with with core deposit growth and if you look at our our our.
Our loan growth in Q1 at 13% annualized and it was a bit elevated with some fundings on some loans that.
You know that came in towards the end of the quarter, but you know.
That's really in line with what R. R.
Five quarter.
Deposit growth pace was so we're making progress on that front.
We will continue to support our client relationships, though I mean, we've got great long term client relationships that that we will continue to to be there for them as they need us and then as we think about opportunities to to bring on great New core long term client relationships and a lot of cases those comes with those come with with the.
The need of on the loan side as much as it does on.
Providing opportunity for us to bring their deposits over to the bank. So.
Those dynamics were well aware I will continue to moderate that as best we can and we have a lot of initiatives in place to to manage our loan growth like that.
Participations that were selling and that will continue to sell to manage through that.
But like I said, we will continue to support our customers as we always have.
Yeah, Ben I, just I just piggyback on Nick I think what Nick said is exactly right and I think we when we just think purely from the ratio standpoint, I mean, our long term target is always 95 to 105, and so you know being slightly over that I think everything that Nick mentioned that we're doing I mean, we feel comfortable we can get back within that range.
And certainly not a hard and fast you know if we if we go over that we're going to completely shut down the pipeline.
We're cognizant of it and we're certainly even more cognizant of it given the environment I think there's obviously.
Our attention to that line item and to the extent you know the core deposit growth doesn't keep pace or at least it's less linear I mean, we've certainly demonstrated we're willing to put on broker deposits to supplement you know being cognizant of that ratio.
Gotcha, that's fair when you think I don't know.
Bigger picture longer term are there any sort of.
New strategies or peripheral deposit gathering resources might be.
So ask me.