Q1 2024 Sandy Spring Bancorp Inc Earnings Call
Yeah.
Operator: Good afternoon, ladies and gentlemen. Thank you for joining today's Sandy Spring Bancorp Earnings Conference Call. My name is Tia, and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call, with an opportunity for questions and answers at the end. If you would like to ask a question, please press star 1 on your telephone keypad. I will now pass the call over to Daniel J. Schrider, CEO and President. Please proceed.
Good afternoon, ladies and gentlemen, thank.
Tia: Thanks for joining today Sandy Spring Bancorp earnings Conference call. My name is Tia and I will be our moderator for today's call.
Tia: All lines will be muted during the presentation pushing up the call with an opportunity for questions and answers at the end.
I would like to ask a question. Please press star one on your telephone keypad.
Speaker Change: I will now pass the call over to Daniel J Schreiter C. O M. President. Please proceed.
Daniel J. Schrider: Thank you and good afternoon, everyone. Thank you for joining us to discuss Sandy Spring Bancorp's performance for the first quarter of 2024. This is Dan Schrider speaking, and I'm joined here by my colleagues Phil Mantua, our Chief Financial Officer, Charlie Cullum, Deputy Chief Financial Officer, and Aaron Kaslow, General Counsel and Chief Administrative Officer. Today's call is open to all investors, analysts, and the media. There will be a live webcast of today's call, and a replay will be available on our website later today. Before we get started covering highlights from the quarter and taking your questions, Aaron will cover the customary safe harbor.
Speaker Change: Thank you Anne and good afternoon, everyone. Thank you for joining us.
To discuss Sandy spring Bancorp's performance for the first quarter of 2024. This is Dan Schreiter speaking and I'm joined here by my colleagues, Phil Mantua, Our Chief Financial Officer, Charlie column, Deputy Chief Financial Officer, and Aaron Kaslow General Counsel and Chief administrative officer.
Speaker Change: Today's call is open to all investors analysts and the media. There is a live webcast of todays call and a replay will be available on our website later today.
Aaron Michael Kaslow: Get started covering highlights from the quarter and taking your questions Aaron will cover the customary safe Harbor statement.
Aaron Michael Kaslow: Thank you, Dan. Good afternoon, everyone.
Thank you Dan and good afternoon, everyone.
Aaron Michael Kaslow: Sandy Spring Bancorp will make forward-looking statements in this webcast that are subject to risks and uncertainties. These forward-looking statements include statements of goals, intentions, earnings, and other expectations, estimates of risks and future costs and benefits, assessments of expected credit losses, assessments of market risk, and statements of the ability to achieve financial and other goals. These forward-looking statements are subject to significant uncertainties because they are based upon or affected by management's estimates and projections of future interest. Because of these uncertainties, Sandy Spring Bancorp's actual future results may differ materially from those indicated. In addition, the company's past results...
Aaron: Sandy Spring Bancorp will make forward looking statements in this webcast that are subject to risks and uncertainties. These forward looking statements include statements of goals intentions earnings and other expectations estimates of risks and future costs and benefits assessments of expected credit losses assessments of market risk and statements of the ability to achieve financial and other goals. These forward looking.
Statements are subject to significant uncertainties, because they are based upon or affected by managements estimates and projections of future interest rates market behavior, other economic conditions future laws and regulations and a variety of other matters, which by their very nature are subject to significant uncertainties because of these uncertainties Sandy spring bancorp's actual future results may differ materially.
Aaron: Really from those indicated in addition, the companys past results of operations do not necessarily indicate its future results.
Daniel J. Schrider: Thanks Aaron. As you read in our press release today, we reported several strong categories, including core deposits, fee income, our liquidity position, and asset quality. At the same time, we remain focused on improving our profitability as well as continuing to shore up core funding, manage expenses, and reduce commercial real estate exposure while diversifying growth and other loan categories. We operate in a region with a strong local economy, which we will continue to use to our advantage as we navigate a challenging operating environment for our industry. That includes shifting economic forecasts, an uncertain interest rate picture, and a national election in November, as well as unrest in many parts of the world.
Speaker Change: Thanks, Erin as you read in our press release today, we reported several strong categories this quarter, including core deposits fee income, our liquidity position and asset quality.
Speaker Change: At the same time, we remain focused on improving our profitability as well as continuing to shore up the core funding manage expenses and reduce commercial real estate exposure, while diversifying grows in other loan categories.
Speaker Change: We operate in a region with a strong local economy, which we will continue to use to our advantage as we navigate a challenging operating environment for our industry.
Speaker Change: That includes the shifting economic forecasts and uncertain interest rate picture international election in November as well as unrest in many parts of the world.
Daniel J. Schrider: Despite these external factors, our results show that our fundamentals are solid, and we have 156 years of experience navigating business cycles and much more throughout our history. So with that, let's review the results for the first quarter. Today we report a net income of $20.4 million, or $0.45 per diluted common share, for the quarter ended March 31st, compared to a net income of $26.1 million, or $0.58 per diluted common share, for the fourth quarter of 2023 and $51.3 million, or $1.14 per diluted common share, for the first quarter of 2023.
Speaker Change: Despite these external factors our results show that our fundamentals are solid and we have 156 years of experience navigating business cycles.
Speaker Change: And much more throughout our history, so with that let's review the results for the first quarter.
Speaker Change: Today, we reported net income of $20 4 million or <unk> 45 per diluted common share for the quarter ended March 31, compared to net income of $26 1 million or <unk> 58 per diluted common share for the fourth quarter of 2023, and $51 3 million or $1 14 per diluted common share for the first quarter.
Speaker Change: 2023.
Daniel J. Schrider: Current quarter's core earnings were $21.9 million, or $0.49 per diluted common share, compared to $27.1 million, or $0.60 per diluted common share for the quarter ended December 31st, and $52.3 million, or $1.16 per diluted common share for the quarter ended March 31st, 2023. This quarter's decline in net income and core earnings compared to the linked quarter was driven by an increase in the provision for credit losses, lower net interest income, and higher non-interest expense.
Speaker Change: Current quarters core earnings were $21 9 million or <unk> 49 per diluted common share compared to $27 1 million or <unk> 60 per diluted common share for the quarter ended December 31.
Speaker Change: $52 3 million or $1 16 per diluted common share for the quarter ended March 31 2023.
Speaker Change: This quarters decline in net income and core earnings compared to the linked quarter was driven by an increase to the provision for credit losses lowered net interest income and higher noninterest expense.
Daniel J. Schrider: Total provision for credit losses for the current quarter is $2.4 million. Provision directly attributable to the funded loan portfolio was $3.3 million for the current quarter compared to a credit of $2.6 million in the previous quarter and a credit of $18.9 million in the prior year quarter. The current quarter also included a credit to provision on unfunded commitments of $900,000 because of higher utilization rates on lines of credit. Additionally, within our CECL methodology, we adjusted risk factors for specific industries in the commercial real estate segment, which caused an increase in the provision. However, this was partially offset by lower individual reserves and the reduced probability of an economic recession.
Speaker Change: Total provision for credit losses for the current quarter is $2 4 million provision directly attributable to the funded loan portfolio was $3 3 million for the current quarter compared to a credit of $2 6 million in the previous quarter and a credit of $18 9 million in the prior year quarter.
Speaker Change: The current quarter also included a credit to provision on unfunded commitments of 900000 because of higher utilization rates on lines of credit.
Speaker Change: Within our seasonal methodology, we adjusted risk factors for specific industries in the commercial real estate segment this quarter.
Which caused an increase to the provision.
Speaker Change: It was partially offset by lower individual reserves and the reduced probability of an economic recession.
Daniel J. Schrider: Shifting to the balance sheet, total assets decreased 1 percent to $13.9 billion compared to $14 billion on December 31. However, total loans were stable at $11.4 billion compared to the previous quarter. Investment commercial real estate loans decreased $106.5 million, or 2% quarter over quarter, while the ADC portfolio grew $101.3 million, or 10% during this period. Commercial business loans and total mortgage and consumer loan portfolios remained relatively unchanged, and overall, the loan portfolio mix remained consistent compared to the previous quarter.
Speaker Change: Shifting to the balance sheet total assets decreased 1% to $13 9 billion compared to <unk> 14 billion at December 31.
Speaker Change: Total loans were stable at 11 4 billion compared to the previous quarter.
Speaker Change: Investment commercial real estate loans decreased $106 5 million or 2% quarter over quarter.
Speaker Change: While the ADC portfolio grew $101 3 million or 10% during this period.
Speaker Change: Commercial business loans, and total mortgage and consumer loan portfolios remained relatively unchanged and overall the loan portfolio mix remained consistent compared to the previous quarter.
Daniel J. Schrider: As expected, commercial loan production was softer this quarter due to normal seasonality and our continued curtailment of CRE growth. Commercial loan production totaled $241 million, yielding $168 million in funded production. This compares to commercial loan production of $245 million, yielding $153 million in funded production in the late quarter. We do expect funded loan production to fall between $200 and $250 million per quarter over the next couple of quarters.
Speaker Change: As expected commercial loan production was softer this quarter due to normal seasonality and our continued curtailment of CRE growth.
Speaker Change: Commercial loan production totaled $241 million, yielding $168 million in funded production.
Speaker Change: This compares to a commercial loan production of $245 million, yielding $153 million in funded production and the linked quarter.
Speaker Change: We do expect funded loan production to fall between 200 $250 million per quarter over the next couple of quarters and based on pipelines, we expect commercial loan growth.
Daniel J. Schrider: And based on pipelines, we expect commercial loan growth in the two to three-fifths, in the second range, in the second quarter. Given the stability we achieved in our core deposit base, we are building pipelines of more lending activity that achieves profitability targets. However, we are being margin conscious and exercising pricing discipline with whatever we produce. If you look at the supplemental information we released this morning, pages 7-9 provide more detail on the composition of our loan portfolios. Data related to specific property types in our commercial real estate portfolio and specific commercial real estate composition in the urban markets of D.C. and Baltimore.
Speaker Change: 3%.
Speaker Change: Second range in the second quarter.
Speaker Change: Given the stability, we achieved in our core deposit base. We are building pipelines of more lending activity that achieves profitability targets. However, we are being margin conscious and exercising pricing discipline with whatever we produce.
Speaker Change: If you look at the supplemental information we released this morning pages seven through nine provide more detail on the composition of our loan portfolios.
Speaker Change: Data related to specific property types in our commercial real estate portfolio and specific commercial real estate composition in the urban markets of DC and Baltimore.
And on slide 16 through 20, we provide a detailed commercial real estate overview of our retail multifamily office flex slashed warehouse and hotel portfolios.
Daniel J. Schrider: And on slides 16 through 20, we provide a detailed commercial real estate overview of our retail, multifamily, office, flex slash warehouse, and hotel portfolio. As you may notice when reviewing these slides, we are lending in our primary market that we know well. We have three delinquent credits among all reference portfolios and only a handful of non-performing loans that have been subject to early identification and appropriately reserved. We continue to feel good about our overall credit quality and continue to stay close to our clients, assessing loans that are subject to repricing throughout the year and closely monitoring other portfolios.
Speaker Change: As you may notice when reviewing these slides we are lending in our primary market that we know well we have three delinquent credits among all referenced portfolios in only a handful of nonperforming loans that had been subject to early identification and appropriately reserved.
Speaker Change: We continue to feel good about our overall credit quality and continue to stay close to our clients assessing credits that are subject to repricing throughout the year and closely monitoring other portfolios.
Speaker Change: On the deposit side, we continue to gain momentum and our ability to grow core fund.
Speaker Change: Any of our key initiatives are tied to core deposit generation.
Speaker Change: Deposits increased $237 million or 2% to $11 2 billion compared to <unk> $11 billion at the linked quarter.
Speaker Change: As interest bearing deposits increased $326 9 million, while noninterest bearing deposits declined $96 2 million.
Daniel J. Schrider: On the deposit side, we continue to gain momentum in our ability to grow core funding. Many of our key initiatives are tied to core deposit generation. Deposits increased $230.7 million, or 2%, to $11.2 billion compared to $11 billion in the linked quarter, as interest-bearing deposits increased $326.9 million, while non-interest-bearing deposits declined $96.2 million. Strong growth in the interest-bearing deposit categories was mainly within savings accounts, which grew by $303.9 million compared to the linked board.
Speaker Change: Strong growth in the interest bearing deposit categories was mainly within savings accounts, which grew by $303 9 million compared to the linked quarter.
Interest checking and money market accounts increased $64 5 million and $51 $6 million, respectively, while time deposits decreased $93 million.
Speaker Change: The decline within noninterest bearing deposit categories was driven by lower balances in commercial and small business checking accounts.
Speaker Change: We attribute the first quarter decline in noninterest bearing.
Speaker Change: Deposits to seasonal runoff, but we did start to see DDA growth in the later half of the quarter, which is a positive.
Daniel J. Schrider: Interest checking and money market accounts increased $64.5 million and $51.6 million, respectively, while time deposits decreased $93 million. The decline within non-interest bearing deposit categories was driven by lower balances in commercial and small business checks. We attribute the first quarter decline in non-interest bearing deposits to seasonal runoff, but we did start to see DDEA growth in the later half of the quarter, which is positive. We reduced total broker deposits by $55.8 million during the quarter.
Speaker Change: We reduced total broker deposits by $55 $8 million during the quarter, excluding broker deposits core deposits represented 93% of total deposits compared to 92% in the linked quarter, reflecting continuous strength and stability of the core deposit base.
Speaker Change: The deposit growth during the quarter resulted in the loan to deposit ratio declining to 101% on 103% at December 31.
Speaker Change: And total uninsured deposits at March 31st were approximately 33% total deposits.
Speaker Change: So across the company, we continue to shift.
Speaker Change: We continue the shift in strategy to focus on activities driving core deposits all lines of business, our laser focus on deepening relationships with an effort to bring in low cost deposits.
Daniel J. Schrider: Excluding broker deposits, core deposits represented 93% of total deposits compared to 92% in the late quarter, reflecting continued strength and stability of the core deposits. Deposit growth during the quarter resulted in the loan-to-deposit ratio declining to 101% from 103% at December 31, and total uninsured deposits at March 31st were approximately 33% of total deposits. So across the company, we continue the shift in strategy to focus on activities driving core deposits. All lines of business are laser focused on deepening relationships, with an effort to bring in low-cost deposits.
Speaker Change: Over the course of 2023, we generated over 2200, new deposit accounts with our high yield savings product to turn these accounts into full relationships. We recently introduced a new DDA product specifically aimed at this client segment.
Speaker Change: As well as our wealth businesses continue to outreach to these clients as well.
Speaker Change: Additionally, we know that there's a high correlation between home equity products and core deposit relationships to that end, we recently enhanced the automation of our home equity products to make the application process easier and cut the delivery of our closed loans by over 50%.
Speaker Change: A final example is leveraging our success during PPP not that we want to repeat that event, but we did learn the effectiveness of delivering to clients through automation and the small business administration.
With that we recently brought in a team of SBA lending officers focused on driving small business relationships to the bank accompanied by the report.
Daniel J. Schrider: Over the course of 2023, we generated over 2,200 new deposit accounts with our High Yield Savings Program. To turn these accounts into full relationships, we recently introduced a new DDA product specifically aimed at this client sector, as well as our wealth businesses continue to outreach to these clients as well. Additionally, we know that there is a high correlation between home equity products and core deposit relations. To that end, we recently enhanced the automation of our home equity products to make the application process easier and cut the delivery of a closed loan by over 50%. The final example is leveraging our success during PPP. Not that we want to repeat that event, but we did learn the effectiveness of delivering to clients through automation and the Small Business Administration.
Speaker Change: Business accounts.
Speaker Change: Just a few examples of our continued focus on core deposit growth as well as diversification of our lending activity.
Speaker Change: Shifting to other liabilities borrowings declined $353 4 million at March 31, compared to the previous quarter.
Speaker Change: Due to the full pay off of $300 million in outstanding borrowings through the Federal Reserve Bank term funding program and $50 million reduction in <unk> advances.
Speaker Change: I am pleased to report for the first quarter of 2020 for noninterest income increased by 11% to $18 3 million compared to the linked quarter.
Speaker Change: Over the year over year basis, noninterest income grew by 15%.
Speaker Change: This improvement is primarily due to wealth management income and the performance of the market during the quarter.
Speaker Change: Assets under management at quarter end totaled $6 2 billion, representing a two 8% increase since December 31.
Daniel J. Schrider: With that in mind, we recently brought in a team of SBA lending officers focused on driving small business relationships to the bank, accompanying their core business. Those are just a few examples of our continued focus on core deposit growth as well as diversification of our lending equity. Shifting to other liabilities, borrowings declined $353.4 million at March 31st compared to the previous quarter, due to the full payoff of $300 million in outstanding borrowings through the Federal Reserve's Bank Term Funding Program and $50 million reduction in FHLB advantages. I'm pleased to report that for the first quarter of 2024, non-interest income increased by 11%, 18.3 million, compared to the previous quarter. Over a year-over-year basis, non-interest income grew by 15%.
Speaker Change: We are pleased with the success of Sandy Spring Trust and our two wealth management subsidiaries.
Speaker Change: Especially as it relates to the retention of our clients.
Speaker Change: And all segments of our wealth business continue to be optimistic about the balance of 2024.
Speaker Change: Compared to the linked quarter income from mortgage banking activities and credit related fees increased $1 1 million or expectations for mortgage banking revenue should fall in the $1 2 million and $5 range per quarter.
Speaker Change: During the first quarter the mortgage loan portfolio was relatively unchanged housing supply continues to be a challenge, which lowers mortgage demand on the part of consumers.
Speaker Change: Our net interest margin was 241% compared to 245% for the first quarter.
Speaker Change: 2023, and $2 nine 9% for the linked quarter.
Speaker Change: We are encouraging we are encouraged that the rate of net interest margin contraction has slowed and we experienced margin improvement during the month of March since.
Speaker Change: Since 2023 of the competitive landscape has shifted somewhat in our market and the competition for deposits via rates is generally less aggressive.
Daniel J. Schrider: This improvement is primarily due to wealth management income and the performance of the market during the quarter. Assets under management at quarter end totaled $6.2 billion, representing a 2.8% increase since December 31st. We're pleased with the success of Sandy Spring Trust and our two wealth management subsidiaries, especially as it relates to the retention of our clients, and all segments of our wealth business continue to be optimistic about the balance of 2024.
Speaker Change: Compared to the fourth quarter 2023, the rate paid on interest bearing liabilities rose 10 basis points, while the yield on interest earning assets increased nine basis points. This reflects our disciplined approach to pricing in order to improve the margin over time.
Speaker Change: Looking ahead, we believe that the margin has bottomed out this quarter and even with the change in the outlook regarding future fed driven rate cuts, we see the margin expanding throughout the remainder of 2024 for two to four basis points per quarter.
Speaker Change: We believe the fed will cut rates just once late in the year and we further anticipate four rate cuts during 2025, which should accelerate our margin expansion during that next year toward a low 3% margin by year end 2025.
Daniel J. Schrider: Compared to the previous quarter, income from mortgage banking activities and credit-related fees increased $1.1 million. Our expectations for mortgage banking revenue should fall in the million to a million and a half dollar range per quarter. During the first quarter, the mortgage loan portfolio was relatively unchanged. Housing supply continues to be a challenge, which lowers mortgage demand on the part of consumers.
Speaker Change: Noninterest expense for the current quarter increased 900000, or 1% compared to the linked quarter to $68 million. This quarter is representative of where we see expenses going forward and we look to manage and the $66 million to $68 million range per quarter going forward.
Daniel J. Schrider: Our net interest margin was 2.41% compared to 2.45% for the first quarter of 2023 and 2.99% for the linked quarter. We are encouraged that the rate of net interest margin contraction slowed, and we experienced margin improvement during the month of March. Since 2023, the competitive landscape has shifted somewhat in our market, and the competition for deposits via rates is generally less aggressive. Compared to the fourth quarter of 2023, the rate paid on interest-bearing liabilities rose 10 basis points, while the yield on interest-earning assets increased 9 basis points.
Speaker Change: The non-GAAP efficiency ratio was $66, 73% for the first quarter of 2024 compared to $66 16 for the linked quarter and $56 87 for the first quarter of 2023.
Speaker Change: The increase in the non-GAAP efficiency ratio, reflecting a decline in efficiency from their first quarter of 2023 to the first quarter of 2024 was primarily the result of the 13% decline in non-GAAP revenue, while non-GAAP expenses increased only 1%.
Speaker Change: Shifting to credit quality the level of nonperforming loans to total loans improved to 74 basis points compared to 81 basis points in the fourth quarter of 2023. This quarter's production was due to several full payoffs and the transfer of one investment commercial real estate loan from nonaccrual to other real estate owned.
Daniel J. Schrider: This reflects our disciplined approach to pricing in order to improve the margin over time. Looking ahead, we believe that the margin has bottomed out this quarter, and even with the change in the outlook regarding future Fed-driven rate cuts, we see the margin expanding throughout the remainder of 2024 by two to four basis points per quarter. We believe the Fed will cut rates just once late in the year, and we further anticipate four rate cuts during 2025, which should accelerate our margin expansion during that next year toward a low 3% margin by year-end 2025.
Speaker Change: Total nonperforming loans during the first quarter amounted to $84 4 million compared to $91 8 million for the previous quarter and new loans placed on non accrual during the first quarter of 2024 were $1 5 million compared to 47 9 million in the linked quarter and $19 7 million in the first quarter of 2023.
Speaker Change: Total net charge offs for the current quarter amounted to $1 1 million compared to recoveries of 100000 for the fourth quarter of 2023, and 300000 of net recoveries for the first quarter of 2023.
Daniel J. Schrider: Non-interest expense for the current quarter increased $900,000 or 1% compared to the previous quarter to $68 million. This quarter is representative of where we see expenses going forward, and we look to manage in the $66 to $68 million range per quarter going forward. The non-GAAP efficiency ratio was 66.73% for the first quarter of 2024, compared to 66.16% for the late quarter and 56.87% for the first quarter of 2023. The increase in the non-GAAP efficiency ratio, reflecting a decline in efficiency from the first quarter of 2023 to the first quarter of 2024, was primarily the result of a 13% decline in non-GAAP revenue, while non-GAAP expenses increased only
Speaker Change: The change in the current quarter's allowance is mainly qualitative and is based on a more favorable economic forecast assumptions less portfolio concentration in investor real estate loans and improvement in overall credit administration across all portfolios.
Speaker Change: At March 31 company had a total risk based capital ratio of 15.05.
Speaker Change: Common equity tier one risk based ratio of 10, 96 tier one risk based capital ratio of 10 96 in the tier one leverage ratio of 956. These ratios remain well in excess of minimum regulatory requirements.
Speaker Change: And before we conclude our call I want to update you on a couple of other items as I mentioned at the top of the call. Charlie column is with US today the transition towards film into his retirement. During this year is going extremely well so as with this call and Darren during current recent and upcoming Investor meetings will continue to introduce Charlie.
Daniel J. Schrider: Shifting to credit quality, the level of non-performing loans to total loans improved to 74 basis points compared to 81 basis points in the fourth quarter of 2023. This quarter's reduction was due to several full payoffs and the transfer of one investment commercial real estate loan from non-accrual to other real estate owned. Total non-performing loans during the first quarter amounted to $84.4 million compared to $91.8 million for the previous quarter. And new loans placed on non-accrual during the first quarter of 2024 were $1.5 million compared to $47.9 million in the late quarter and $19.7 million in the first quarter of 2024.
Speaker Change: To our partners and the investment community and.
Speaker Change: And we're also pleased to issue our third annual corporate responsibility report entitled here for the future of our community I encourage you to visit our website to learn more about our efforts to support our clients communities and.
Speaker Change: Our workforce to this concludes my comments and we will now move to your questions.
Speaker Change: With greater we can move to questions.
If you would like to ask a question. Please press star followed by one or you touched on keypad.
Speaker Change: If for any reason you would like to remove that question. Please press star followed by Tim.
Speaker Change: To ask a question press star one.
As a reminder, if you are using a speaker phone. Please remember to pick up your handset before asking a question.
Daniel J. Schrider: Total net charge-offs for the current quarter amounted to $1.1 million compared to recoveries of $100,000 for the fourth quarter of 2023 and $300,000 in net recoveries for the first quarter of 2022. The change in the current quarter's allowance is mainly qualitative and is based on more favorable economic forecast assumptions.
Speaker Change: We will pause briefly to allow questions to generate in Q.
Speaker Change: First question comes from the line of Catherine Mealor.
Catherine Fitzhugh Summerson Mealor: With <unk>. Please proceed.
Catherine Fitzhugh Summerson Mealor: Thanks, Good afternoon.
Catherine Fitzhugh Summerson Mealor: Hi, guys good afternoon.
Catherine Fitzhugh Summerson Mealor: Okay.
Catherine Fitzhugh Summerson Mealor: Just to start on the margin.
Speaker Change: Appreciate that.
Speaker Change: Right out of your guidance per quarter increase.
Daniel J. Schrider: Less portfolio concentration in investor real estate loans and improvement in overall credit administration across all portfolios. At March 31st, the company had a total risk-based capital ratio of 15.05, a common equity Tier 1 risk-based ratio of 10.96, a Tier 1 risk-based capital ratio of 10.96, and a Tier 1 leverage ratio of 9.56. These ratios remain well in excess of minimum regulatory requirements.
Speaker Change: It's less than maybe we were thinking if we were getting cut this year.
Speaker Change: Environment, where are we.
Don't see rate cuts a stable rate environment.
Speaker Change: Can you talk maybe first about just kind of the pace of loan repricing may expect to see maybe what percentage or dollar amount of loans fixed rate lending.
Untapped repriced this year.
Speaker Change: And as I think.
Loan yields increased about 6% this quarter is that kind of the pace that we should expect to model.
Daniel J. Schrider: And before we conclude our call, I want to update you on a couple of other things. As I mentioned at the beginning of the call, Charlie Cullum is with us today. The transition toward Phil Mantua's retirement during this year is going extremely well. So, as with this call and during recent and upcoming investor meetings, we'll continue to introduce Charlie to our partners in the investor community. And we are also pleased to issue our third annual Corporate Responsibility Report entitled, Here for the Future of Our Community.
Back half of the year.
Speaker Change: Hi, Catherine this is Charlie.
Speaker Change: Yes.
Charlie: The pace of.
Charlie: The pace of loan repricing and should remain relatively consistent.
Charlie: Throughout the rest of the year and that will pick up a little bit as we approach the second half of 2024 and then even.
Charlie: Little higher as we head into 2025.
Charlie: Per quarter, we've got between $250 $350 million.
Daniel J. Schrider: I encourage you to visit our website to learn more about our efforts to support our clients, communities, and our workforce. So this concludes my comments, and we'll now move to your questions. Operator. We can move to questions. If you would like to ask a question, please press star 1.
Charlie: Fixed rate.
Charlie: Charities.
Charlie: For the rest of this year and it falls, a little bit to $200 million to $250 million for 2025.
Charlie: But all of those loans are going to be repricing up the curve.
Charlie: Excess of a 100 basis points. So that's really what contributes to the expansion in loan yields without the movement in the yield curve.
Operator: If you would like to ask a question, please press star followed by one or your touchtone keypad. If, for any reason, you would like to remove that question, please press star followed by 2. Again, to ask a question, press star 1. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking a question. We will pause here briefly to allow questions to generate in queue. The first question comes from the line of Catherine Mealor with KBW. Please proceed.
Speaker Change: Okay great.
Speaker Change: And then on the deposit side it seems like you.
Speaker Change: You mentioned Dan.
Speaker Change: It started.
Speaker Change: To stabilize in the back half of the quarter and March was even down a little bit can you talk over that where deposit costs ended the quarter and is there I mean arena scenario, where you could actually see deposit costs decline as we move into <unk>, we're not quite there yet.
Speaker Change: Hi, Catherine this Charlie again.
Catherine Fitzhugh Summerson Mealor: So overall deposit cost did decline from February to March by three basis points.
Catherine Fitzhugh Summerson Mealor: I wanted to just start on the margin. I appreciate that you took rate cuts out of your guide, and so, you know, the per-quarter increase is less than maybe we were thinking if we were getting cuts this year. In an environment where we, you know, don't see rate cuts, so a stable rate environment, can you talk maybe first about just kind of the pace of loan repricing that you expect to see, maybe what percentage or dollar amount of loans, fixed rate loans, you've got on tap to reprice this year? And I think loan yields increased about 6 bps. This quarter is that kind of a pace that we should expect to see over the back half of the year.
Charlie: Our cost of interest bearing deposits was $3 55 in February and $3 52 in March.
Charlie: I would anticipate some.
Charlie: Moderation of deposit costs I don't know if I would expect a continued decline the recent expectations around fed cuts have caused time deposit rates to spike back up a bit but I don't.
Charlie: Don't expect significant increases in deposit costs as we go forward I think that has stabilized at this point.
Speaker Change: Okay, and maybe one follow up on that where is your high yield savings account kind of average rate right now.
Speaker Change: So we pulled the retail high yield savings rate down to four 5%.
Charlie Cullum: Hi Catherine, this is Charlie. Yes, the pace of Hey. The pace of loan repricing should remain relatively consistent throughout the rest of the year. It'll pick up a little bit as we approach the second half of 2024, and then it will even be a little higher as we head into 2025. Per quarter, we've got between $250 and $350 million in fixed rate maturities for the rest of this year. That falls a little bit to $200 to $250 million for 2025. But all of those loans are going to be repricing up the curve in excess of 100 basis points. So that's really what contributes to the expansion in loan yields without movement and the yield curve.
Speaker Change: As of the end of the quarter.
Speaker Change: Okay.
Speaker Change: And then your new CD costs are coming on around where today.
Speaker Change: We have a 5% CD.
Speaker Change: For seven months out there currently and a 14 month at $4 75.
Speaker Change: A pretty healthy blend of the two.
Speaker Change: Great very helpful. Thank you.
Speaker Change: Thanks Catherine.
Thank you.
Speaker Change: The next question comes from the line of Casey Whitman with Piper Sandler. Please proceed.
Casey Cassiday Orr Whitman: Hey, good afternoon.
Casey Cassiday Orr Whitman: Please.
Casey Cassiday Orr Whitman: Okay.
Casey Cassiday Orr Whitman: Going along with catherines questions on the margin.
Casey Cassiday Orr Whitman: I guess how helpful can you remind us just how helpful. The first rate cuts would be for you can you drop deposit rates quickly then.
Casey Cassiday Orr Whitman: Thanks.
Casey Cassiday Orr Whitman: Our expectation is that we would be able to move our deposit base relatively quickly once the fed does begin to reduce interest rates.
Catherine Fitzhugh Summerson Mealor: And then on the deposit side, it seems like... You mentioned, Dan, that deposit costs started to stabilize in the back half of the quarter and March was even down a little bit. Can you talk a little bit about where deposit costs ended the quarter? And are we in a scenario where you could actually see deposit costs decline as we move into 2Q or not quite there yet?
Casey Cassiday Orr Whitman: So here, we're guiding somewhere in the two to four basis points per quarter improvement without the cuts with the cuts it's a little more than twice that.
Casey Cassiday Orr Whitman: Closer to 10 basis points per quarter of margin improvement.
Casey Cassiday Orr Whitman: Part of that expectation isn't just related to the short end moving but it's anticipating the long end doesn't drop significantly. So we get some value out of some normalization in the shape of the yield curve as well as the short end coming down.
Charlie Cullum: Hi Catherine, it's Charlie again. So overall deposit costs did decline from February to March by three basis points. So our cost of interest-bearing deposits was $3.55 in February and $3.52 in March. I would anticipate some... moderation of deposit costs. I don't know if I would expect a continued decline. The recent expectations around Fed cuts have caused time deposit rates to spike back up a bit. But I don't expect significant increases in deposit costs as we go forward. I think that has stabilized the system.
Casey Cassiday Orr Whitman: And that's 10 basis points a quarter with every 25.
Casey Cassiday Orr Whitman: Based on what you mean.
Casey Cassiday Orr Whitman: Exactly.
Speaker Change: Yes, yes.
Speaker Change: We get about 40% of the cut.
Speaker Change: Okay.
Okay, and then on the asset side I think Catherine asked about the loan yield the same question.
Speaker Change: Just on the security side, what do you have naturally.
Speaker Change: <unk> over the next year are maturing.
Catherine Fitzhugh Summerson Mealor: Great. And maybe one follow-up on that.
Speaker Change: Yes.
Speaker Change: The securities portfolio re prices about $15 million to $20 million per month.
Catherine Fitzhugh Summerson Mealor: Where is your high yield savings account kind of average rate right now?
Daniel J. Schrider: So we pulled the retail high yield savings rate down to 4.5% as of the end of this month.
Speaker Change: Those yields are pretty low.
Speaker Change: Low to mid twos so.
Daniel J. Schrider: And then your new CD costs are coming on around where today?
Speaker Change: So they're repricing up the curve quite a bit our strategy right now is to buy seasoned MBS.
Daniel J. Schrider: We have a 5% CD for seven months out there currently, and a 14 month at 4.75, a pretty healthy blend of the two. Great. Very helpful. Thank you
Speaker Change: Floating rate kind of a blend of the two a barbell strategy. So we're getting average yields close to 6% or greater.
Catherine Fitzhugh Summerson Mealor: Great, very helpful. Thank you.
Speaker Change: On a blended basis between.
Casey Cassiday Orr Whitman: The next question comes from the line of Casey Whitman with Piper Sandler. Please proceed.
Speaker Change: Of the two so we should see some nice improvement in the overall yield on that securities portfolio as we progress throughout the year.
Casey Cassiday Orr Whitman: Hey, so just going along with Catherine's questions on the margin, I guess how helpful can you remind us just how helpful the first rate cuts would be for you? You know, can you drop deposits rates rates quickly then?
Speaker Change: Okay I'll switch gears I do want to say, we appreciate the outlook slide you guys provided today.
Speaker Change: Okay, just looking at capital just.
Speaker Change: Just given where the stock is today can you remind us your view on buybacks.
Daniel J. Schrider: Our expectation is that we would be able to move our deposit base relatively quickly once the Fed does begin to reduce interest rates. So here we're, you know, guiding somewhere in the 2 to 4 basis points per quarter improvement without the cuts. With the cuts, it's a little more than twice that, you know, closer to 10 basis points per quarter of margin improvement. And part of that expectation isn't just related to the short end moving, but it's anticipating the long end doesn't drop significantly. So we get some value out of some normalization in the shape of the yield curve as well as the short end coming down.
Speaker Change: Next year is there something that might make sense for you or would you rather horde capital.
Speaker Change: I would answer it this way Kathryn it makes entire sense to us to be repurchasing shares but.
Speaker Change: But I think that.
Just with some of the uncertainty.
Speaker Change: And as we work our way back from a profitability standpoint, I think preserving as is probably item number one but.
Speaker Change: I regret that we're not in a position to be active at the moment, but.
Speaker Change: That could change with more clarity.
Speaker Change: And the environment around us.
Speaker Change: But we're not looking to be active in the immediate future.
Daniel J. Schrider: and that's 10 basis points a quarter with every 25 basis point cut.
Speaker Change: Got it thank you guys.
Speaker Change: Yeah.
Speaker Change: Thanks Keith.
Daniel J. Schrider: Yes, yeah, we'll get about 40% of the cut.
Speaker Change: Thank you.
Speaker Change: The next question comes from the line of Russell Gunther with Stephens. Please proceed.
Casey Cassiday Orr Whitman: Okay. And then on the asset side, I think Catherine asked about the loan yields, but same question, just on the securities book, like what do you have naturally repricing over the next year or two or maturing?
Russell Elliott Teasdale Gunther: Good afternoon guys.
Russell Elliott Teasdale Gunther: Hi, Russell I wanted to.
Russell Elliott Teasdale Gunther: Hey, guys.
On the loan growth discussion, Dan you mentioned.
Russell Elliott Teasdale Gunther: Expectation in the second quarter on 3% for commercial just to expand upon that a bit if you're able to share where the pipeline stands today versus may be linked quarter, and then from a mix perspective your target between kind of CRE C&I, what the drivers maybe.
Daniel J. Schrider: I have to.
Daniel J. Schrider: The securities portfolio reprices about $15 to $20 million per month. Those yields are pretty low. [inaudible] So we should see some nice improvement in the overall yield on that securities portfolio as we progress throughout the year.
Casey Cassiday Orr Whitman: Okay, I'll switch gears. I do want to say we appreciate the outlook slide you guys provided today. Okay, just looking at capital, just given where the stock is today, can you remind us your view on buybacks? Is buying back shares here something that might make sense for you? Or would you rather hold on to capital? I would answer it this way, Catherine. It might.
Russell Elliott Teasdale Gunther: Yes.
Speaker Change: So in terms of mix perspective, we are.
Speaker Change: We're basically allowing ourselves to.
Speaker Change: Take care of some existing clients on the <unk> side of things without materially growing that portfolio. So.
Speaker Change: Over time, we like to see it shrink as a concentration of capital that's not necessarily by shrinking the portfolio a whole lot, but just not just keeping it.
Daniel J. Schrider: I would answer it this way, Catherine, it makes complete sense for us to be repurchasing shares, but I think that just with some of the uncertainty. And as we work our way back from a profitability standpoint, I think preservation is probably item number one. So I regret that we're not in a position to be active at the moment, but that could change with more clarity in the environment around us. But we're not looking to be active in the immediate future.
Speaker Change: Is it pretty level. So the emphasis is going to be in the C&I and owner and accompanying owner occupied lending activities as well as some uptick in consumer lending activities as we ramp up our home equity.
Speaker Change: I would say that the.
Speaker Change: The pipeline is more consistent more of a C&I that blends from kind of a small business to what we look at it as kind of our bread and butter community commercial as well as our move upmarket into into middle market. So I think it's a blend of all so the most of what youre going to see and funded.
Russell Elliott Teasdale Gunther: The next question comes from the line of Russell Gunther with Stevens. Please proceed.
Russell Elliott Teasdale Gunther: Good afternoon, guys. Hi, Russell. I wanted to say, hey, Dan. Hey, guys.
Speaker Change: Production in quarter over quarter that I commented on is going to be in that C&I and accompanying owner occupied commercial real estate.
Daniel J. Schrider: On the loan growth discussion, Dan, you mentioned expectations in the second quarter around 3% for commercial. Just expand upon that a bit if you're able to share whether the pipeline stands today versus maybe the linked quarter. And then from a mixed perspective, you know, your target between kind of CRE, C&I, what the drivers may be.
Speaker Change: Alright, great. Thank you and then you mentioned the team of SBA lenders got on.
Speaker Change: Intra quarter.
Speaker Change: Any additional kind of thoughts around the recruiting how do you characterize the environment for the ability to bring over some teams likelihood C&I his background in.
Daniel J. Schrider: So in terms of a mixed perspective, we're basically allowing ourselves to take care of some existing clients on the Cree side of things without materially growing that portfolio. So over time, we like to see a shrink as a concentration of capital. That's not necessarily by shrinking the portfolio a whole lot but just not just keeping it pretty level.
Speaker Change: Your appetite to do some what the opportunity set looks like.
Speaker Change: Yes.
Speaker Change: Less so on.
Speaker Change: The team side of things outside of what we just recently did with with building out that SBA, which is it's very early we have the producers and now we're just getting them geared up but.
Daniel J. Schrider: So the emphasis is going to be on C&I and accompanying owner-occupied lending activities, as well as some uptick in consumer lending activities as we ramp up our home equity. But I would say the pipeline is more consisting of C&I. And that blends from kind of small business to what we look at as kind of our bread and butter community commercial, as well as our move up market into the middle market.
Speaker Change: But on the on the other commercial in middle market activity, it's more one off than it is bringing in teams.
Is there opportunities we've been successful, thus far and bringing in new folks and that goes for Treasury management as well.
Speaker Change: And most of those.
Daniel J. Schrider: So I think it's a blend of all of them. So most of what you're going to see in funded production and quarter over quarter that I commented on is going to be in that C&I and accompanying owner-occupied commercial real estate.
Speaker Change: Folks that we can attract our commercial bankers that are with kind of the unnamed superregional and larger players that.
Speaker Change: Yes that find what we can deliver in terms of capacity products and services are comparable to the largest banks, but we do it in a.
Russell Elliott Teasdale Gunther: All right, Dan, great. Thank you.
Daniel J. Schrider: And then you mentioned the team of SBA lenders brought on intra-corridor. Any additional thoughts around recruiting? How do you characterize the environment for the ability to bring over some teams, likely with a CNI background, and your appetite to do so with the opportunity set?
Speaker Change: Higher touch way.
Speaker Change: So it's.
Speaker Change: That's where we can we can win in terms of attracting talent, we're competitive in terms of comp so.
Speaker Change: And we're obviously want to grow.
Speaker Change: Our commercial business and we're going to get them.
Speaker Change: Okay.
Daniel J. Schrider: Yeah, probably less so on the team side of things outside of what we just recently did with building out that SBA, which is, it's very early, we have the producers, and now we're just getting them geared up. But on the other commercial and middle market activity, it's more one-off than it is bringing in.
Speaker Change: Thanks, Dan and then just a follow up with regard to the margin discussion.
Speaker Change: As we get rate cuts, if we get rate cuts.
Speaker Change: Do you share the percent of deposits you guys had indexed to fed funds and that you think would sort of formally index or would move pretty immediately.
Daniel J. Schrider: Is there opportunities? We've been successful thus far in bringing in new folks, and that goes for treasury management as well, and most of those Folks that we can attract are commercial bankers that are with kind of the unnamed super regional and larger players that find what we can deliver in terms of capacity. Products and services are comparable to the largest banks, but we do it in a, you know, a higher touch way. And so that's where we can win in terms of attracting talent. We're competitive in terms of pay, and we obviously want to grow our commercial business, and that's where we're going to get them.
Speaker Change: Today, we have seen.
Dan: Say in the $3 million to $500 million range of deposits that are directly tied to fed funds outside of broker and our client relationships that are tied to fed funds, but that number is fluid as those balances move around by the day.
Okay, Great and then thank you for that last one for me in terms of the transfer.
Dan: Into NPL front.
Dan: CRE credit is there any additional color you can disclose there.
Russell Elliott Teasdale Gunther: Thanks, Dan. And then just a follow-up with regard to the margin discussion, you know, as we get rate cuts, if we get rate cuts, do you just, do you share the percent of deposits you guys have indexed to Fed funds or that you think would, whether formally indexed or would move pretty immediately?
Dan: Yes.
Dan: One about the move out of NPL into other real estate owned.
Yes, I'm, sorry, yes, yes.
Dan: Yes, yes, yes.
It was a.
Dan: It's small.
Dan: Small office property that.
Daniel J. Schrider: Today we have, say, in the $300 million to $500 million range of deposits that are directly tied to Fed funds outside of brokered, you know, client relationships that are tied to Fed funds. But that number is fluid as those balances move around by the day.
Dan: We actually took back into Oreo.
Dan: We still believe that based on most current appraisal that where collateral good on that so we.
Dan: We think we will successfully move move out of it but it was again it was a small property and market.
Russell Elliott Teasdale Gunther: Okay, great. And then, thank you for that. Last one for me in terms of the transfer, into NPL for the CRE credit. Is there any additional color you can disclose there?
Dan: That we don't see sitting on the books for what for long.
Speaker Change: Okay, and then are you able to share what the.
Speaker Change: Decline in value from the updated appraisal was.
Daniel J. Schrider: You know, you're talking about the move out of NPL into other real estate owned?
Speaker Change: I don't have that but I know it far exceeds our.
Russell Elliott Teasdale Gunther: Yes, I'm sorry. Yes, Dan, thank you. Yeah, yeah.
Speaker Change: Carrying costs.
Speaker Change: Got it.
Daniel J. Schrider: Yeah, yeah, yeah, it was a small office property that we actually took back into Oreo. And we still believe that, based on the most recent appraisal, that we're collateral good on that. So we think we'll successfully move out of it. But again, it was a small property in the market that we don't see sitting on the books for long.
Speaker Change: Okay, great guys. Thanks for taking my questions Thats It for me.
Speaker Change: Thanks Russell.
Speaker Change: Thank you.
Speaker Change: The next question comes from the line of Matt Manual novice with D. A Davidson. Please proceed.
Manuel Antonio Navas: Hey, good afternoon.
Manuel Antonio Navas: Hey, Brian.
Manuel Antonio Navas: Okay.
Manuel Antonio Navas: The increase.
Manuel Antonio Navas: Net charge offs to range is a bit higher than kind of your recent experience, it's still low at that 5% to 50 basis points.
Russell Elliott Teasdale Gunther: And then, are you able to share what the decline in value from the updated appraisal was?
Daniel J. Schrider: I don't have that, but I know it far exceeds our carrying cost.
Russell Elliott Teasdale Gunther: Okay, great. All right, guys. Thanks for taking my questions. That's it for me.
Manuel Antonio Navas: What are you watching most what kind of.
Speaker Change: Have you.
Speaker Change: Shooting for that range and this year you might outperform it we just kind of any added thoughts on that net charge off range for the year.
Manuel Antonio Navas: The next question comes from the line of Manuel Navas with DA Davidson. Please proceed.
Manuel Antonio Navas: Hey, good afternoon. Hey, Manuel.
Speaker Change: Yeah.
Daniel J. Schrider: When you arrive, the............ What drives the increase? in net charge-offs to ranges a bit higher than your recent experience. It's still low at 5 to 15 basis points, but what are you watching most? What kind of has you..., shooting for that range this year. You might outperform it, but just kind of any added thoughts on that net charge-off range for the year.
Dan: Yes, well. This is this is Dan Thats, a really tough one too.
Dan: To predict and the further we get into the year.
Dan Thats: Obviously, the easier it is to predict because things take a while to kind of move through <unk>.
Process, if things goes out.
Daniel J. Schrider: Yeah, Manuel, this is Dan. That's a really tough one to predict. And the further we get into the year, obviously, the easier it is to predict, because things take a while to kind of move through the credit process if things go south. There's nothing material about what we saw this quarter, a few smaller credits that we ran through the cycle. We typically, just to speak plainly, we typically look at about five basis points of annualized net charge-offs a year in any given year. And then we normally come in with one or two, or zero.
<unk>.
Dan Thats: There is nothing.
Material about what.
Dan Thats: What we saw this quarter is smaller.
Dan Thats: Smaller credits that.
Dan Thats: That.
Dan Thats: We ran it through the cycle.
Speaker Change: Typically we just speak plainly, we typically look at about five basis points of annualized net charge offs a year in any given year and then we normally come in with one or two or zero.
Daniel J. Schrider: You know, I think in all likelihood, I've kind of described what we're seeing on the credit side of things as maybe some dings and dents along the way, but nothing that significant. So I don't have a projection of where NCOs will end up for the year. But if they ended up in the 5 to 10 basis point annualized number, that would appear to be reasonable. We don't have an outlook that points to that, but I'm just saying it wouldn't be unreasonable.
Speaker Change: I think in.
In all likelihood.
Speaker Change: I've kind of described.
Speaker Change: What we're seeing on the credit side of things as maybe some things in dense along the way.
Speaker Change: But nothing that significant so I don't.
Speaker Change: Have a projection of where Ncos will end up for the year, but if they ended up in that.
In the five to 10 basis point annualized number that would appear to be reasonable. We don't we don't have an outlook that points to that but I'm, just saying it wouldn't be unreasonable.
Speaker Change: Sure.
Manuel Antonio Navas: I noticed through the extra portfolio disclosures that multifamily and hotel have a little bit more loans repricing this year as a percentage of total. Anything there that you're kind of reserving extra for? You're as confident as there is at Royal.
Speaker Change: I noticed through.
Speaker Change: Through the <unk>.
Speaker Change: Extra portfolio disclosures that multifamily and hotel have a little bit more loans are pricing this year as a percentage of total.
Speaker Change: Anything there.
Speaker Change: You kind of reserving extra board.
Speaker Change: Got it.
Speaker Change: You're as confident as there is everywhere else it seems like.
Daniel J. Schrider: Yeah, I think the... The multifamily portfolio is pretty diverse. We've got properties that are in urban settings. We have properties in suburban. The ones that we're watching closely and we don't have any significant concerns about are the ones that have come out of the ground the last couple of years that have yet to stabilize. And, you know, we're clearly underwritten on a trend of rents that was going, up over time. And so, you know, those might be, assets that ultimately are closer to breakeven than maybe the projected cash flow coverages during underwriting, occupancy change in the interest rate environment, and then in the urban settings, the fact that some of those initial tenants, you know, never paid rent, and it takes a while to get rid of them, are all, you know, going to aim to probably a little bit of short-term cash flow pain, again, closer to break-even than maybe the underwritten cash flow coverage that was expected, but nothing that's giving us, you know, big concerns.
Speaker Change: Yes, I think.
Speaker Change: The multifamily.
Speaker Change: Portfolio is pretty diverse we've got properties that are in urban settings, we have properties in suburban.
Speaker Change: The ones that are.
Speaker Change: We're watching closely and we don't have any significant concerns about are the ones that are.
Speaker Change: Coming out of the ground in the last couple of years that have yet to stabilize.
Speaker Change: And we're clearly underwritten on a trend of rents that was going.
Speaker Change: Both overtime and so those those might be.
Speaker Change: Assets that ultimately are closer to breakeven than maybe the projected cash flow coverages.
Speaker Change: During underwriting and so.
Speaker Change: It's both.
Speaker Change: Occupancy.
Change in interest rate environment, and then in the urban settings. The fact that some of those initial tenants never paid rent and it takes a while to get rid of them.
Speaker Change: Going to aim to probably a little bit of short term cash flow pain again closer to breakeven than than maybe the the underwritten cash flow coverage that was expected, but nothing that's giving us.
Big concerns.
Speaker Change: Yeah.
Speaker Change: Okay I appreciate that I appreciate the disclosures here.
Manuel Antonio Navas: Okay, I appreciate that. I appreciate the disclosures here.
Speaker Change: Shifting.
Daniel J. Schrider: Just kind of shifting, shifting topics. You talk a little bit about better fee income for the guide for the year. Wealth Management is a big part of that. You talk about the AUM increase. Are there other like kinds of fees within Wealth Management that are also driving that? Or is it mainly if the market's doing well, it's going to do just as well? Was there any seasonality to this first quarter's result, in part on the Wealth Management side?
Speaker Change: Shifting topics.
Speaker Change: You talked a little bit about better fee income.
Speaker Change: And the guide for the year.
Los Angeles is a big part of that you talked about the AUM increase are there other kind of feeds within wealth management that are also driving that or is it mainly if the market is doing well.
We can do just as well was there any seasonality to this first quarter's results in part on the wealth management side.
Speaker Change: No.
Daniel J. Schrider: No, and it did not affect this quarter. The only thing that might hit from time to time, and it's not significant relative to the overall, is if we have a disposition of a trust within our trust division that may have some one-time fees. But what you see and what you would expect for the remainder of the year is going to be driven by both market performance and our ability to attract new assets under management.
Speaker Change: The only the only.
Speaker Change: It did not affect this quarter, the only thing that might hit from time to time and it is not significant relative to the overall is if we have a disposition of a trust.
Speaker Change: Within our trust division that May have some one time fees, but but what you what you saw and what you would expect for the remainder of the year is going to be driven by.
Speaker Change: Both market performance and our ability to attract new assets under management.
Manuel Antonio Navas: And it's really interesting that you're seeing, or you're testing it, and probably seeing some early success. Can you talk a little bit more about that cross-sell with the high yield savings account? I think that kind of speaks to your branding and the kind of strength of these high yield savings that you've brought on are able to cross-sell. Can you just talk a little bit more about that early success so far?
Speaker Change: And it's really interesting that youre seeing.
Speaker Change: We're testing it and probably see some early success can you talk a little bit more about that cross sell with the high yield savings account I think that kind of speaks to your branding.
And kind of strength of the high yield savings that you've brought on.
Speaker Change: Our able to cross sell can you just talk a little bit more about that early success so far.
Daniel J. Schrider: Yeah, it is early. You know, we spent a good bit of 2023 just focusing on stabilizing the core deposit base. And the outreach, as I mentioned, is both from our commercial bankers, our folks in our retail offices, and our wealth management pros that are reaching out. As I also mentioned, we created a DDA account that we think has attributes that will be very attractive to the profile of the client that's in the high-yield savings.
Speaker Change: Yes. It is early.
Speaker Change: We spent a good bit of 2023, just focusing on stabilizing the core deposit base.
Speaker Change: And the outreach as I mentioned.
Speaker Change: As both from our commercial bankers are folks in our retail offices and our wealth management grows that are reaching out.
Speaker Change: Got it.
Speaker Change: I also mentioned we created a DDA account, we think that has attributes that are.
Speaker Change: We will be very attractive to the profile of the client that's in the high yield savings and so I think next quarter, we'll have.
Daniel J. Schrider: So I think next quarter we'll have more data on our success in driving those portfolios. So, a little bit early at this point. But I do believe, and history would support, I think, where you were going, Manuel, and that is, you know, the reputation of the bank. The relationship approach we take, I think, gives us a higher probability of deepening those relationships and turning them into full banking clients.
Speaker Change: More data on our success.
Speaker Change: Driving into those portfolios.
Speaker Change: So little bit little bit early at this point, but I do believe and history would support.
I think where you were going Manuel and that is the reputation of the bank.
Speaker Change: Our relationship approach, we take I think gives us a higher probability of deepening those relationships and turning them into full banking clients.
Manuel Antonio Navas: Thank you for the color.
Speaker Change: Thank you for the color.
Thank you.
Manuel Antonio Navas: The next question comes from the line of Daniel Cardenas with Janie Montgomery Scott. Please proceed.
Speaker Change: The next question comes from the line of Daniel Cardenas with Janney Montgomery Scott. Please proceed.
Daniel Cardenas: Good afternoon guys.
Manuel Antonio Navas: Good afternoon, guys. Could you maybe give us an update on the health of the D.C. market? potentially, you know, what kind of impact there could be if the government does decide to reduce its office space substantially in the coming couple of years as there's a proposal out there to potentially do so.
Manuel Antonio Navas: Dan could you maybe could you maybe give us an update on the health of the DC market.
Manuel Antonio Navas: Potentially.
Manuel Antonio Navas: What kind of impact there could be if the government does decide to reduce its office space substantially in the coming couple of years.
Manuel Antonio Navas: There is a proposal out there to <unk>.
Manuel Antonio Navas: Potentially do sale.
Daniel J. Schrider: I think it could obviously have a material impact on the office and D.C. surrounding areas. Thank you.
I think it is.
Manuel Antonio Navas: It could have obviously a material impact on office in and DC surrounding areas.
No.
Daniel J. Schrider: The return to work within government agencies hasn't happened yet. It's really a function of whether they dispose of the property and let the leases roll. And I think it's going to affect, you know, those properties that are, you know, the large floor plate office buildings that are very difficult to re-tenant in a short window of time. So I do believe it could have an impact on investors in those types of properties. It's tough to predict how much, Dan, you know, of an impact it would have.
Manuel Antonio Navas: The return to work within the government for the agency's Hasnt happened and it's really a function of whether they dispose of the property and let the leases roll.
Manuel Antonio Navas: And I think it's going to affect those properties that are.
Manuel Antonio Navas: The large floor plate office buildings that are very difficult to re tenant in a short window of time.
So I do believe it could have an impact on investors in those types of properties.
Manuel Antonio Navas: Tough to predict how much Dan and impact it would have.
Daniel J. Schrider: You know, we look closely at our book. We don't have exposure to those large floor plate relationships. We've stayed... small professional office space, smaller individual units that are easier to rent to service businesses where being present is important from an occupancy standpoint. But it certainly could have an impact. I don't think it'll have a material impact on us, but it would, you know, investors in that type of property.
Manuel Antonio Navas: <unk>.
We look closely at our book, we don't have.
Manuel Antonio Navas: Exposure to those large floor plate relationships.
Manuel Antonio Navas: We stayed.
Manuel Antonio Navas: Small professional office space smaller individual units that are easier to re tenant with service businesses, where.
Manuel Antonio Navas: <unk> being present.
Manuel Antonio Navas: Important for from an occupancy standpoint.
Got it.
Speaker Change: It certainly could have an impact I don't think we will have a material impact.
On us but.
Speaker Change: But it would and investors and that type of property.
Speaker Change: Okay.
Manuel Antonio Navas: All right. Thanks. All my other questions have been asked and answered. Thank you. Thanks, Jim.
Speaker Change: Alright. Thanks, all my other questions have been asked and answered. Thank you.
Thanks, Thank you.
Speaker Change: Yes.
Operator: Thank you again. To ask a question, please press star 1. We will pause here briefly to allow questions to arise. There are no additional questions left at this time. I will hand the microphone back to the management team for closing remarks.
Speaker Change: <unk>.
Speaker Change: Thank you again to ask a question. Please press star one.
Speaker Change: We will pause briefly to allow questions to generate.
Speaker Change: There are no additional questions at this time I will hand, it back to the management team for closing remarks.
Daniel J. Schrider: Thank you. And thank you again, everyone, for joining our call this afternoon. If you have any other questions, please feel free to reach out to me, and we'll be glad to get you the answers. But we appreciate you spending your time with us and hope you have a great afternoon.
Thank you and thank you again, everyone for joining our call. This afternoon. If you have any other questions. Please feel free to reach out to myself.
Speaker Change: And we'll be glad to get you the answers, but we appreciate you spending your time and hope you have a great afternoon.
Operator: That concludes today's conference call. Thank you. You may now disconnect your line.
Speaker Change: That concludes today's conference call. Thank you you may now disconnect your lines.
Operator: We appreciate you spending your time here and hope you have a great afternoon.
Speaker Change: You spend your time and hope you have a great afternoon.
Speaker Change: Yes.