Q1 2024 First Financial Bancorp Earnings Call
Okay.
Mandeep: Thanks for standing by. My name is Mandeep, and I'll be your conference operator. At this time, I'd like to welcome everyone to First Financial Bancorp.
Martin: Thank you for standing by my name is Martin deep and I'll be your conference operator today at this time I'd like to welcome everyone to the first financial Bancorp.
Mandeep: 2024 Earnings Conference Call and Webcast. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you'd like to withdraw your question, press star 1 again. Thank you. I would now like to turn the conference over to Scott Crawley, Corporate Controller. You may begin.
Martin: 'twenty 'twenty four earnings conference call and webcast.
Martin: All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you'd like to ask a question. During this time simply press star followed by the number one on there.
Martin: Your telephone keypad.
Martin: To withdraw your question Press Star one again, thank you all.
Martin: I'd now like to turn the conference over to Scott Crawley Corporate controller, you may begin.
Scott T. Crawley: Thank you, Mandeep. Good morning, everyone, and thanks for joining us on today's conference call to discuss First Financial Bancorp's First Quarter Financial Results. Participating on today's call will be Archie Brown, President and Chief Executive Officer, Jamie Anderson, Chief Financial Officer, and Bill Harrod, Chief Credit Officer. Both the press release we issued yesterday and the accompanying slide presentation are available on our website at www.bankitfirst.com under the Investor Relations section. We'll make reference to the slides contained in the accompanying presentation during today's call.
Scott T. Crawley: Thank you Marty good morning, everyone and thanks for joining us on today's conference call to discuss first financial Bancorp's first quarter financial results.
Scott T. Crawley: Speaking on today's call will be Archie Brown, President and Chief Executive Officer, Jamie Anderson, Chief Financial Officer, and Bill Harrod, Chief Credit Officer.
Scott T. Crawley: The press release, we issued yesterday and the accompanying slide presentation are available on our website at www Dot banking first dot com under the Investor Relations section.
Scott T. Crawley: We'll make reference to the slides contained in the accompanying presentation during today's call.
Scott T. Crawley: Additionally, please refer to the forward-looking statement disclosure contained in the first quarter 2024 earnings release, as well as our SEC filings for a full discussion of the company's risk factors. Information we will provide today is accurate as of March 31st, 2024, and we will not be updating any forward-looking statements to reflect facts or circumstances after this call. I'll now turn the call over to Archie Brown.
Scott T. Crawley: Additionally, please refer to the forward looking statements disclosure contained in the first quarter 2024 earnings release as well as our SEC filings for a full discussion of the Companys risk factors.
Scott T. Crawley: The information we will provide today is accurate as of March 31, 2024, and we will not be updating any forward looking statements to reflect facts or circumstances. After this call.
Scott T. Crawley: Now I'll turn the call over to Archie Brown. Thanks.
Archie M. Brown: Thanks, Scott. Good morning, everyone, and thank you for joining us on today's call. Yesterday afternoon, we announced our financial results for the first quarter. I'll provide some high-level thoughts on our recent performance, and then I'll turn the call over to Jamie to provide further details. I'm pleased with our first quarter results and encouraged by our trends, several of which were bolstered by actions we took during the quarter. These actions included repositioning a portion of the investment portfolio, a workforce efficiency initiative, and the acquisition of Agile Premium Finance.
Archie M. Brown: Thanks, Scott Good morning, everyone and thank you for joining us on today's call.
Archie M. Brown: Yesterday afternoon, we announced our financial results for the first quarter.
Archie M. Brown: I'll provide some high level thoughts on our recent performance and then I'll turn the call over to Jamie to provide further details.
Archie M. Brown: I am pleased with our first quarter results and encouraged by our trends several of which were bolstered by actions. We took during the quarter. These actions included a repositioning of a portion of the investment portfolio, a workforce efficiency initiative and the acquisition of agile premium finance.
Archie M. Brown: We also commenced the restructuring of a portion of our bank-owned life insurance portfolio, which is expected to increase income in the back half of the year. Adjusted earnings per share was $0.59, which resulted in a return on assets of 1.3% and return on tangible common equity of 19.1%.
James Michael Anderson: We also commenced the restructuring of a portion of our bank owned life insurance portfolio, which is expected to increase income in the back half of the year.
James Michael Anderson: Adjusted earnings per share was <unk> 59, which resulted in a return on assets of one 3%.
James Michael Anderson: And return on tangible common equity of 19, 1%.
Archie M. Brown: At 4.1%, the net interest margin remains very strong. Asset yields remained steady during the quarter, however, as expected, the continued rise of funding costs negatively impacted our net interest margin. Additionally, loan growth was robust for the second consecutive quarter with balances increasing by 10% on an annualized basis. However, average deposit growth slowed for the quarter to a 2.3% annualized growth rate, and it included a seasonal outflow of approximately $100 million in business deposits early in the quarter.
James Michael Anderson: At four 1% the net interest margin remains very strong asset yields remained steady during the quarter. However, as expected. The continued rise of funding costs negatively impacted our net interest margin.
James Michael Anderson: Additionally, loan growth was robust for the second consecutive quarter with balances increasing by 10% on an annualized basis.
James Michael Anderson: Average deposit growth slow for the quarter to a two 3% annualized growth rate.
And it included a seasonal outflow of approximately $100 million in business deposits early in the quarter.
Archie M. Brown: I'm pleased that non-interest income rebounded from the fourth quarter with increases across most of our free fee revenue areas. During the quarter, we incurred a loss on the sale of investment securities associated with the repositioning of a portion of the investment portfolio. This repositioning has a very short earn-back period and should enhance our asset yields going forward. We also intensified our focus on expenses during the quarter. Our Workforce Efficiency Initiative resulted in a reduction of approximately $5 million in annual expenses, and we expect to realize an additional $10 to $12 million in annualized expense reduction by the end of 2024. While expenses increased on a linked quarter basis, most of the increase was related to seasonal employee costs and variable compensation tied to the increase in C income.
James Michael Anderson: I am pleased that noninterest income rebounded from the fourth quarter with increases across most of our free risk fee revenue areas.
James Michael Anderson: During the quarter, we incurred a loss on the sale of investment Securities.
James Michael Anderson: So stated with the repositioning of a portion of the investment portfolio.
James Michael Anderson: This repositioning has a very short earn back and should enhance our asset yields going forward.
James Michael Anderson: We also anticipate our focus on expenses during the quarter.
James Michael Anderson: Our workforce efficiency initiatives resulted in a reduction of approximately $5 million in annual expenses.
James Michael Anderson: And we expect to realize an additional $10 million to $12 million in annualized expense reductions by the end of 2024.
James Michael Anderson: While expenses increased on a linked quarter basis, most of the increase was related to seasonal employee costs and variable compensation tied to the increase in fee income.
Archie M. Brown: We're excited to add Agile to our mix of specialty businesses. An overview of the company and transaction can be found on slide 13. Agile operates an impressive business model that originates high-quality, short-duration loans at attractive yields. At closing, we acquired $93 million in loans, which grew to $119 million at the end of the quarter. Agile will further diversify the loan portfolio and is a perfect complement to our Oak Street and commercial banking businesses.
James Michael Anderson: We're excited to add agile to our mix of specialty businesses and overview of the company and transaction can be found on slide 13.
James Michael Anderson: AGL operates an impressive business model, which originates high quality short duration loans at attractive yields.
James Michael Anderson: At closing, we acquired $93 million in loans, which grew to $119 million at the end of the quarter.
James Michael Anderson: As I will further diversify the loan portfolio and is a perfect complement to our Oak Street and commercial banking businesses.
Archie M. Brown: Asset quality was stable for the quarter. Net charge-offs declined for the second consecutive quarter to 38 basis points and were primarily driven by charges on two office loans that had been on non-accrual since early 2023. These two loans have been charged down to their net realizable value, and no other office loans had a classified risk rating at the end of the first quarter. Overall, classified assets increased 12 basis points to 0.92% of assets. While non-performing assets declined 9.8% from the prior quarter.
James Michael Anderson: Asset quality was stable for the quarter.
James Michael Anderson: Net charge offs declined for the second consecutive quarter to 38 basis points and were primarily driven by charges on two office loans that had been on non accrual since early 2023.
James Michael Anderson: These two loans have been charged down to their net realizable value and no. Other office loans had a classified risk rating at the end of the first quarter.
James Michael Anderson: Overall classified assets increased 12 basis points to 92% of assets.
James Michael Anderson: While nonperforming assets declined nine 8% from the prior quarter.
Archie M. Brown: With that, I'll now turn the call over to Jamie to discuss these results in greater detail, and then after Jamie's discussion, I'll wrap up with some additional forward-looking commentary and closing remarks.
James Michael Anderson: With that I'll now turn the call over to Jamie to discuss these results in greater detail and then after Jamie's discussion I'll wrap up with some additional forward looking commentary and closing remarks.
James Michael Anderson: Thank you, Archie. Good morning, everyone.
James Michael Anderson: Thank you Archie and good morning, everyone Slide four five and six provide a summary of our first quarter financial results. The first quarter was another solid quarter highlighted by strong earnings net interest margin that was in line with expectations.
James Michael Anderson: Slides four, five, and six provide a summary of our first quarter financial results. The first quarter was another solid quarter highlighted by strong earnings and a net interest margin that was in line with expectations. Solid Loan Growth and the Purchase of Agile Premium Finance. Similar to last quarter, our net interest margin declined due to increasing deposit costs but remains very strong at 4.1%. Additionally, we repositioned a portion of the securities portfolio, which included selling $228 million of securities at a $5.2 million loss.
James Michael Anderson: <unk> loan growth and the purchase of agile premium finance.
James Michael Anderson: Similar to last quarter, our net interest margin declined due to increasing deposit costs, but remains very strong at four 1%.
James Michael Anderson: Additionally, we repositioned a portion of the securities portfolio, which included selling $228 million of securities at a $5 $2 million loss.
James Michael Anderson: We expect the reinvestment from these sales will bolster the margin in coming periods with a 278 basis point increase in yield. We anticipate further net interest margin contraction in the coming periods due to additional pressure on deposit prices and Changes in Funding. However, we expect the pace of the decline to moderate.
James Michael Anderson: We expect the reinvestment from these sales will bolster the margin in coming periods with a 278 basis point increase in yield.
We anticipate further net interest margin contraction in the coming periods due to additional pressure on deposit pricing and changes in funding mix. However, we expect the pace of the decline to moderate.
James Michael Anderson: Total loans grew 10% on an annualized basis, which exceeded our expectations. However, loan growth was concentrated in commercial real estate, with smaller increases across the various other portfolios. Loan balances also included $93 million of acquired balances from Agile, which is a finance company specializing in insurance premium lending. We acquired Agile in an all-cash transaction at the end of February, and the deal resulted in the creation of $5.6 million of intangible assets, primarily consisting of Goodwill and a customer list asset.
James Michael Anderson: Total loans grew 10% on an annualized basis, which exceeded our expectations.
James Michael Anderson: Loan growth was concentrated in commercial real estate with smaller increases across the various other portfolios.
James Michael Anderson: Loan balances also included $93 million of acquired balances from agile, which is a finance company specializing in insurance premium lending.
James Michael Anderson: We acquired agile in an all cash transaction at the end of February and the deal resulted in the creation of $5 $6 million of intangible assets, primarily consisting of goodwill and a customer list asset.
James Michael Anderson: Excluding the loss and the sale of investment securities, non-interest income increased compared to the linked quarter. Leasing and wealth management once again had solid quarters while foreign exchange, client derivative, and mortgage income increased from lower levels in the fourth quarter. Non-interest expenses increased from the linked quarter due to seasonal employee costs and higher variable compensation.
James Michael Anderson: Excluding the loss on the sale of investment Securities non interest income increased compared to the linked quarter.
James Michael Anderson: Leasing and wealth management once again had solid quarters, while foreign exchange client derivatives and mortgage income increase from lower levels in the fourth quarter.
James Michael Anderson: Noninterest expenses increased from the linked quarter due to seasonal employee costs and higher variable compensation.
James Michael Anderson: Overall, asset quality trends were stable, with lower net charge-offs and a declining non-performing asset balance, with an increase in classified assets. Annualized net charge-offs were 38 basis points during the period, which was an 8-basis point decline from the linked quarter, while non-accrual loans decreased 10%. We recorded $11.2 million of provision expense during the period, which was driven by net charge-offs and loan growth. However, our ACL coverage remains conservative at 1.29% of total volume.
James Michael Anderson: Overall asset quality trends were stable with lower net charge offs and declining non performing asset balances with an increase in classified assets.
James Michael Anderson: Annualized net charge offs were 38 basis points during the period, which was an eight basis point decline from the linked quarter, while non accrual loans decreased 10%.
James Michael Anderson: We recorded $11 $2 million of provision expense during the period, which was driven by net charge offs and loan growth.
James Michael Anderson: Our ACL coverage remains conservative at 129% of total islands.
James Michael Anderson: From a capital standpoint, our regulatory ratios are in excess of both internal and regulatory targets, tangible book value increased slightly, while our tangible common equity ratio increased by six basis points during the period. Slide 7 reconciles our gap earnings to adjusted earnings, highlighting items that we believe are important to understanding our quarterly performance. Adjusted net income was $55.8 million, or $0.59 per share, for the quarter. Adjusted earnings exclude the impact of the FDIC special assessment, losses on the sales of investment securities, as well as acquisition, severance, and branch consolidation costs. As depicted on slide 8, these adjusted earnings equate to a return on average assets of 1.3%, a return on average tangible common equity of 19%, and an efficiency ratio of 60%.
James Michael Anderson: From a capital standpoint, our regulatory ratios ratios are in excess of both internal and regulatory targets.
James Michael Anderson: Tangible book value increased slightly while our tangible common equity ratio increased by six basis points during the period.
James Michael Anderson: Slide seven reconciles our GAAP earnings to adjusted earnings highlighting items that we believe are important to understanding our quarterly performance.
James Michael Anderson: Adjusted net income was $55 $8 million or <unk> 59 per share for the quarter.
James Michael Anderson: Adjusted earnings exclude the impact of the FDIC special assessment losses on the sales of investment securities as well as acquisition severance and branch consolidation costs.
James Michael Anderson: As depicted on slide eight these adjusted earnings equate to a return on average assets of one 3%.
James Michael Anderson: Return on average tangible common equity of 19% and an efficiency ratio of 60%.
James Michael Anderson: Turning to slides nine and 10, net interest margin declined 16 basis points from the linked quarter to 4.1%. As we expected, higher funding costs outpaced increases in asset yields, primarily due to a 19 basis point increase in funding costs. These costs were partially offset by a modest increase in asset yields during the period. However, our cost of deposits increased 22 basis points compared to the linked quarter. And we expect these costs to continue to increase in the coming months, but at a slower pace than we saw in the first quarter.
James Michael Anderson: Turning to slides nine and 10 net interest margin declined 16 basis points from the linked quarter to four 1%.
James Michael Anderson: As we expect a higher funding costs outpaced increases in asset yields primarily due to a 19 basis point increase in funding costs.
James Michael Anderson: These costs were partially offset by a modest increase in asset yields during the period.
James Michael Anderson: Our cost of deposits increased 22 basis points compared to the linked quarter and we expect these costs to continue to increase in the coming months, but at a slower pace than we saw in the first quarter.
James Michael Anderson: Slide 11 details the betas utilized in our Net Interest Income Modeling. Deposit costs increased in the first quarter, moving our current beta up 5 percentage points to 43%. Our modeling indicates that our through-the-cycle data is approximately 40 to 45%.
James Michael Anderson: Slide 11 details debate is utilized in our net interest income modeling deposit costs increased in the first quarter moving our current beta up five percentage points to 43%.
James Michael Anderson: Our modeling indicates that our through the cycle beta is approximately 40% to 45%.
James Michael Anderson: Slide 12 outlines our various sources of liquidity and borrowing capacity. We continue to believe we have the flexibility required to manage the balance sheet through the expected economic environment. Slide 14 illustrates our current loan mix and balance changes compared to the linked quarter. As I mentioned before, loan balances increased 10% on an annualized basis, with growth concentrated in ICRE and moderate growth in almost every other portfolio. Additionally, the acquisition of Agile contributed $119 million in growth during the quarter.
James Michael Anderson: Slide 12 outlines our various sources of liquidity and borrowing capacity. We continue to believe we have the flexibility required to manage the balance sheet through the expected economic environment.
James Michael Anderson: Slide 14 illustrates our current loan mix and balance changes compared to the linked quarter.
James Michael Anderson: As I mentioned before loan balances increased 10% on an annualized basis with growth concentrated in CRE and moderate modest to moderate growth in almost every other portfolio.
James Michael Anderson: Additionally, the acquisition of agile contributed $119 million of growth during the quarter.
James Michael Anderson: Slide 5 provides detail on our loan concentration by industry. We believe our loan portfolio remains sufficiently diversified to provide protection from deterioration in any particular industry. Slide 16 provides detail on our office portfolio. About 4% of our total loan book is concentrated in office space, and the overall portfolio performance metrics are strong. No office relationships were downgraded and became non-accrual during the quarter, and our total non-accrual balance for this portfolio declined to $17 million.
James Michael Anderson: Slide five provides detail on our loan concentration by industry. We believe our loan portfolio remains sufficiently diversified to provide protection from deterioration in any particular industry.
James Michael Anderson: Slide 16 provides detail on our office portfolio.
James Michael Anderson: 4% of our total loan book is concentrated in office space and the overall portfolio performance metrics are strong.
James Michael Anderson: No offense relationships were downgraded to nonaccrual during the quarter and our total non accrual balance for this portfolio declined to $17 million.
James Michael Anderson: Slide 17 shows our deposit mix as well as a progression of average deposits from the linked quarter. In total, average deposit balances increased $76 million during the quarter, driven primarily by a $198 million increase in money market accounts and a $186 million increase in retail CDs. These increases offset declines in non-interest bearing deposits, public funds, and savings accounts. This was expected as the current interest rate environment has driven customers to use cost deposit products.
James Michael Anderson: Slide 17 shows our deposit mix as well as a progression of average deposits from the linked quarter and total average deposit balances increased $76 million during the quarter, driven primarily by a $198 million increase in money market accounts and a $186 million increase in retail Cds.
James Michael Anderson: These increases offset declines in noninterest bearing deposits public funds and savings accounts.
James Michael Anderson: This was expected as the current interest rate environment has driven customers to higher cost deposit products.
James Michael Anderson: Slide 18 illustrates trends in our average personal, business, and public fund deposits, as well as a comparison of our borrowing capacity to our uninsured deposits. At the bottom right of the slide, you can see our adjusted uninsured deposits for $3.2 billion. This equates to 24% of our total deposits. We remain comfortable with this concentration and believe our borrowing capacity provides sufficient flexibility to respond to any event that would stress our larger deposit balance.
James Michael Anderson: Slide 18 illustrates trends in our average personal business and public fund deposits as well as a comparison of our borrowing capacity to our uninsured deposits.
James Michael Anderson: On the bottom right of the slide you can see our adjusted uninsured deposits were $3 $2 billion.
James Michael Anderson: This equates to 24% of our total deposits.
We remain comfortable with this concentration and believe our borrowing capacity provide sufficient flexibility to respond to any event that would stress our larger deposit balances.
James Michael Anderson: Slide 19 highlights our non interest income for the quarter total fee income was relatively unchanged at $46 $5 million during the first quarter and included a loss on the investment portfolio that I previously mentioned.
James Michael Anderson: Slide 19 highlights our non-interest income for the quarter. Total fee income was relatively unchanged at $46.5 million during the first quarter and included the loss on the investment portfolio that I previously mentioned. Wealth management and leasing business income remained strong while mortgage, foreign exchange, and client derivative income all increased from fourth quarter levels. Non-interest expense for the quarter is outlined on slide 20, and core expenses increased $4.2 million during the period. This was driven by an increase in variable compensation tied to fee income, as well as higher employee costs, which included annual raises and a seasonal increase in payroll tax. Turning now to slides 21 and 22.
James Michael Anderson: Wealth management and leasing business income remained strong while mortgage foreign exchange and client derivative income all increased from fourth quarter levels.
James Michael Anderson: Noninterest expense for the quarter as outlined on slide 20.
James Michael Anderson: <unk> expenses increased $4 $2 million during the period.
James Michael Anderson: This was driven by an increase in variable compensation tied to fee income as well as higher employee costs, which includes annual raises and a seasonal increase in payroll taxes.
James Michael Anderson: Turning now to slides 21, and 'twenty two our ACL model resulted in a total allowance, which includes both funded and unfunded reserves of $160 million and $11 2 million of total provision expense during the period.
James Michael Anderson: Our ACL model resulted in a total allowance, which includes both funded and unfunded reserves, of $160 million and $11.2 million of total provision expense during the period. This resulted in an ACL that was 1.29% of total loans, which was unchanged from the fourth quarter. Revision expense was driven by net charge-offs and loan growth; net charge-offs accounted for $10.6 million or 38 basis points on an annualized basis, which was an eight basis point decline from the linked quarter. In other credit trends, non-accrual loans decreased 10% during the period, while classified asset balances increased to 92 basis points of total assets, primarily due to the downgrade of two relationships.
James Michael Anderson: This resulted in an ACL that was 129% of total loans, which was unchanged from the fourth quarter.
James Michael Anderson: Provision expense was driven by net charge offs and loan growth net charge offs were $10 6 million or 38 basis points on an annualized basis, which was an eight basis point decline from the linked quarter.
James Michael Anderson: And other credit trends non accrual loans decreased 10% during the period, while classified asset balances increased to 92 basis points of total assets, primarily due to the downgrade of two relationships.
James Michael Anderson: Our ACL coverage was unchanged and we continue to believe we have model we have modeled conservatively to build a reserve that reflects the losses, we expect from our portfolio.
James Michael Anderson: Our ACL coverage was unchanged, and we continue to believe we have modeled conservatively to build a reserve that reflects the losses we expect from our portfolio. We anticipate our ACL coverage will remain relatively flat or increase slightly in future periods as our model responds to changes in the macroeconomic environment. Finally, as shown on slides 23, 24 and 25, regulatory capital ratios remain in excess of regulatory minimums and internal targets. During the first quarter, tangible book value increased slightly, and the TCE ratio increased six basis points due to our strong earnings. Absent the impact of AOCI, the TCE ratio would have been 9.18% compared to 7.23% as reported.
James Michael Anderson: We anticipate our ACL coverage will remain relatively flat.
James Michael Anderson: Our increased slightly in future periods as our model responds to changes in the macroeconomic environment.
Finally, as shown on slides 23, 24, and 25% regulatory capital ratios remain in excess of regulatory minimums and internal targets during.
James Michael Anderson: During the first quarter tangible book value increased slightly and the TCE ratio increased six basis points due to our strong earnings.
James Michael Anderson: Absent the impact from <unk>.
James Michael Anderson: The TCE ratio would have been nine 8% compared to seven 3% as reported.
James Michael Anderson: Slide 24 demonstrates that our capital ratios would remain in excess of regulatory targets, including the unrealized losses in the securities portfolio.
James Michael Anderson: Slide 24 demonstrates that our capital ratios would remain in excess of regulatory targets, including the unrealized losses in the securities portfolio. However, our total shareholder return remains robust, with 43% of our earnings returned to our shareholders during the period through the common dividend. We believe our dividend provides an attractive return to our shareholders and do not anticipate any near-term changes. However, we will continue to evaluate various capital actions as the year progresses.
James Michael Anderson: Our total shareholder return remains robust with 43% of our earnings returned to our shareholders during the period through the common dividend.
James Michael Anderson: We believe our dividend provides an attractive return to our shareholders and do not anticipate any near term changes. However, we will continue to evaluate various capital actions as the year progresses.
James Michael Anderson: I'll now turn it back over to Archie for some comments on our outlook Archie Thank you Jamie.
Archie M. Brown: Before we end our prepared remarks, I want to comment on our forward looking guidance, which can be found on slide 26.
Archie M. Brown: Loan pipelines remain healthy payoff trends remain lower and we expect seasonal tailwind from our recent acquisition of agile to contribute to overall growth of 10% to 12% on an annualized basis over the near term.
James Michael Anderson: I'll now turn it back over to Archie for some comments on our outlook. Archie? Thank you, Jamie.
Archie M. Brown: For Securities, we expect the portfolio to remain stable deposit growth has been solid and we expect to grow moderately over the next quarter.
Archie M. Brown: Before we end our prepared remarks, I want to comment on our forward-looking guidance, which can be found on slide 26. Loan pipelines remain healthy, payoff trends remain lower, and we expect seasonal tailwinds from our recent acquisition of Agile to contribute to overall growth of 10 to 12% on an annualized basis over the near term. For securities, we expect the portfolio to remain stable. Deposit growth has been solid, and we expect it to grow moderately over the next quarter.
Archie M. Brown: Net interest margin has remained strong and resilient and we expect it to be between 395% and four 5% for the next quarter, assuming no fed cuts.
Archie M. Brown: We expect our credit costs remain consistent with the prior quarter prior quarter, while ACL coverage as a percentage of loans is expected to be stable to slightly increasing for.
For the full year, we expect net charge offs to be approximately 30 basis points.
Archie M. Brown: Fee income is expected to be between 56% and $58 million ASP increase from seasonal lows.
Archie M. Brown: Our net interest margin has remained strong and resilient, and we expect it to be between 3.95% and 4.05% for the next quarter, assuming no Fed cuts. We expect our credit costs to remain consistent with the prior quarter, while ACL coverage as a percentage of loans is expected to be stable to slightly increase. For the full year, we expect net charge-offs to be approximately 30 basis points. Fee income is expected to be between $56 and $58 million as fees increase from seasonal lows.
Archie M. Brown: And this includes $12 million to $14 million foreign exchange at $15 million to $17 million for leasing business revenue.
Archie M. Brown: Noninterest expense is expected to be between a 120 and $122 million.
Archie M. Brown: Which includes $9 million to $11 million and depreciation expense for the leasing business.
Archie M. Brown: Specific to capital our capital ratios remained strong and we expect to maintain our dividend at the current level.
Speaker Change: Overall im pleased with our quarter and the work our teams are doing to continuously improve the company. While we're in a difficult operating environment for the industry I am encouraged by our results and trends and expect that we will continue to have a strong year, we'll now open up the call for questions.
Archie M. Brown: This includes $12 to $14 million for an exchange and $15 to $17 million for leasing business revenue. Non-interest expense is expected to be between $120 and $122 million, which includes $9 to $11 million in depreciation expense for the leasing business.
Speaker Change: Okay.
Speaker Change: Thank you we will now begin the question and answer session.
Speaker Change: <unk> would like to ask a question. Please press star one on your telephone keypad to raise their hand and joined the queue.
Archie M. Brown: Specific to capital, our capital ratios remain strong, and we expect to maintain our dividend at the current level. Overall, I'm pleased with our quarter and the work our teams are doing to continuously improve the company. While we're in a difficult operating environment for the industry, I'm encouraged by our results and trends and expect that we will continue to have a strong year. We'll now open the call to questions.
Speaker Change: He'd like to withdraw your question simply press Star one again.
Speaker Change: You are called upon to ask a question and are listening via loud speaker on your device. Please pickup your handset and ensure that your phone is not on mute when asking your question.
Speaker Change: Again.
Speaker Change: One to join the queue.
Speaker Change: Our first question comes from the line of Daniel Tamayo with Raymond James. Please go ahead.
Operator: Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you'd like to withdraw your question, simply press star 1 again. If you are called upon to ask a question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Again, press star one to join the queue. Our first question comes from the line of Daniel Tamayo with Raymond James. Please go ahead.
Daniel Tamayo: Thank you and good morning, Archie good morning, Jamie.
Daniel Tamayo: Good morning.
Daniel Tamayo: Maybe we start on the on the loan growth guidance.
Daniel Tamayo: Good strong number but just curious if you could kind of deconstruct that for US where you are expecting that and I know you've put a lot of information on the agile acquisition in the deck, which.
Certainly appreciate but just.
Speaker Change: You could incorporate how agile fits into the loan growth as well thanks sure Danny.
Daniel Tamayo: Thank you. Good morning, Archie. Morning, Jamie. Morning, Jamie.
Speaker Change: So the first quarter.
Speaker Change: See it on the slide it was a little bit more.
Daniel Tamayo: Maybe we start with the loan growth guidance. It's a good, strong number, but just curious if you could kind of deconstruct that for us of where you're expecting that. And I know you put a lot of information on the Agile acquisition in the deck. I certainly appreciate it, but just if you could incorporate how Agile fits into that loan growth as well. Thanks.
Danny: CRE and agile we are probably the bigger drivers I think our view of the second quarter is going be a little more broad based ICR. He is going to probably fall back a little bit for.
Danny: For the quarter.
But we're going to see more broad based agile will probably be about a third of that overall.
Danny: Growth in the quarter.
Danny: Commercial banking, our Oak Street units summit funding.
Danny: We will all contribute more of we believe in the second quarter again, ICR, we will contribute some just not as much as what you saw in Q1.
Danny: Okay.
Danny: And.
Archie M. Brown: Sure, Danny. Thanks. So the first quarter, you see it on the slide, was a little bit more ICRE and Agile were probably the bigger drivers. I think our view of the second quarter is gonna be a little more broad-based. ICRE is probably gonna fall back a little bit for the quarter, but we're gonna see more broad-based growth. Agile will probably be about a third of that overall growth for the quarter. Commercial banking, our Oak Street units, and summit funding will all contribute more, we believe, in the second quarter. Again, ICRE will contribute some, just not as much as you saw.
Speaker Change: I'm sorry.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: You mentioned cross selling opportunities from agile just curious what your what youre thinking about the opportunities there are.
Speaker Change: Yes.
Speaker Change: Theres going to be some work, it's not going to happen immediately but.
Speaker Change: We know that our commercial businesses or.
Speaker Change: Sometimes theres a lump payment due to.
Speaker Change: For property and casualty insurance and we've got the ability to help finance that over over a one year or a little bit less than a one year window.
Speaker Change: For them, so some will want to take.
Speaker Change: Take that opportunity to do that so we need to just introduce agile and work them into.
Speaker Change: Getting to know our commercial bankers and offering that as another alternative.
Archie M. Brown: I'm sorry, were you going to say something? Nope. Okay. And you mentioned cross-selling opportunities from Agile. Just curious what you think about the opportunities there. Yeah, there are
Speaker Change: Offering for our clients.
Speaker Change: <unk>.
Speaker Change: Okay.
Speaker Change: Okay and then.
Speaker Change: Finally, just again on an agile just the.
Archie M. Brown: There's going to be some work. It's not going to happen immediately, but we know that our commercial businesses sometimes have a lump payment due for property and casualty insurance, and we've got the ability to help finance that over a one-year or a little bit less than a one-year window for them. So some will want to take that opportunity to do that. So we need to just introduce Agile and work them into getting to know our commercial bankers and offering that as another alternative for our clients.
Speaker Change: <unk> had 10 to 20 basis points as the credit loss expectation for that business.
Speaker Change: How should we think about that is that kind of full cycle or near term or.
Speaker Change: If you could yes, I'd say I'd say thats as it ramps up and gets to kind of to its full run rate that we would start to see that.
Speaker Change: I would say more think about more later on as opposed to near term.
Speaker Change: When we acquired the portfolio.
Archie M. Brown: Okay, and then finally, just again, on Agile, just the, I think you had 10 to 20 basis points as the credit loss expectation for that business. How should we think about that? Is that kind of full cycle or near term? Or, you know, just if you could kind of Yeah, I'd say I'd say that as it ramps up and gets to kind of to its fuller run rate, we would start to see that if I would say more think about more later on as opposed to near term.
Speaker Change: We did spend time selecting what we think we're the highest quality assets.
Speaker Change: Making sure the strategy fit with our kind of our credit appetite. So I would tell you when it matures thats, what we would expect but in the near term it would be less of that.
Speaker Change: Okay.
Speaker Change: Terrific. Thanks for taking my questions.
Speaker Change: Thanks Danny.
Speaker Change: Our next question comes from the line of.
Speaker Change: Terry Mcevoy with Stephens. Please go ahead.
Terence James McEvoy: Good morning, guys.
Terence James McEvoy: Hey, Terry.
Archie M. Brown: When we acquired the portfolio, we did spend time selecting what we think were the highest quality assets and making sure the strategy fit with our kind of credit appetite. So I would tell you when it matures, that's what we would expect. But in the near term, it'd be less. All right, well, terrific. Thanks for taking my question. Thanks, Danny.
Terence James McEvoy: Jamie I was wondering if you could help us think about the margin in the second half of the year when you take into consideration the bully restructuring.
Terence James McEvoy: The security sale that occurred in the first quarter.
Yes.
So just to be clear on the Bally restructuring that that income is down in fee income. So that is included in our in our fee income.
Terence James McEvoy: Our next question comes from a line by Terry McEvoy with Stevens. Please go ahead.
Terence James McEvoy: Hey Terence, hey Terence.
Terence James McEvoy: Outlook and that that restructuring it takes a little bit of time for that to kind of.
James Michael Anderson: Jamie, I was wondering if you could help us think about the margin in the second half of the year when you take into consideration the BOLI restructuring as well as the security sale that occurred in the first quarter.
Terence James McEvoy: For the insurance carriers to process that so it will typically take.
Terence James McEvoy: <unk> 90 to 120 days kind of edge for that.
James Michael Anderson: Yep. So just to be clear on the BOLI restructuring, that income is down in fee income. So that is included in our fee income outlook. And that restructuring takes a little bit of time for that to kind of, for the insurance carriers to process that.
Terence James McEvoy: <unk> when we get those dollars reinvested, but that that hits down in fee income so its not really a margin.
Terence James McEvoy: Not really a margin items, so, but but on that just to clarify that'll hit mostly in the starting in the third quarter, but it won't really be.
James Michael Anderson: So it typically takes 90 to 120 days kind of ish for that to pull through, and we get those dollars reinvested. But that hits down in fee income, so it's not really a margin item. But on that, just to clarify, that'll hit mostly in the third quarter. There won't really be a large, we'll get some of it, but it won't be a large second quarter item.
Terence James McEvoy: Large well get some of it but it won't be at large.
Terence James McEvoy: Second quarter item, but obviously then on that on the margin.
The the securities repositioning is going to.
Terence James McEvoy: It is going to help our asset yields also.
James Michael Anderson: But obviously, then on the margin, the securities repositioning is going to help our asset yields. Also, the agile acquisition will help increase our asset yields, plus just the reinvestment of assets into current rates is obviously helping as well. So as the agile assets, their yield is around 9%. So that is, you know, at least 100 basis points or so higher than the rest of our current offering rates on the loan book. So that's going to help.
Terence James McEvoy: The agile acquisition as well will help.
Increase our asset yields plus just the reinvestment of.
Terence James McEvoy: Of assets into into current rates is obviously, helping as well so.
Terence James McEvoy: And the agile assets their yield is around 9% so that is.
Terence James McEvoy: At least 100 basis points or so higher than that of the rest of our.
Terence James McEvoy: Yes.
Terence James McEvoy: Current operating rates on the loan book, So thats going to help and so when we look at the margin and the obviously, we gave the outlook for that as a near term in the second quarter. When we look out in the back half of the year.
James Michael Anderson: And so when we look at the margin out in the, obviously, we gave the outlook for the kind of near term or the second quarter. But when we look out in the back half of the year, we see the margin stabilizing. So our forecast currently has two rate cuts, one kind of still in the middle of the year, whether that'll happen or not remains to be seen. And one tool in the back half of the year, in that November, December timeframe.
Terence James McEvoy: We see the margin.
Terence James McEvoy: Stabilizing so our forecast we currently have two rate cuts one kind of still in the middle of the year, whether that will happen or not.
<unk> the same and one towards the back half of the year in that November December timeframe, and so we have our margin.
James Michael Anderson: And so we have our margin stabilizing in the back half of the year, in that, you know, three in that 390 to 395 range. And then if we don't get any cuts, you know that just helps our margin stay a little bit higher for a little longer. So it would be maybe in that higher 390 range if we don't get any cuts.
Terence James McEvoy: Stabilizing and in.
Terence James McEvoy: In the back half of the year and that.
Terence James McEvoy: Three in that $3 90 to $3 95 range and then if we don't get any cuts.
Terence James McEvoy: That we just that just helps our margin say a little bit higher for a little longer so they would be maybe in that in.
Terence James McEvoy: And that higher $3 90 range, if we don't get any cuts.
Terence James McEvoy: Perfect. Thanks. Thanks for all that information.
Terence James McEvoy: Okay.
Speaker Change: Perfect. Thanks, Thanks for all that information and then as a follow up on expenses.
Archie M. Brown: And then as a follow-up on expenses, the actions taken last quarter, is that built into the $120 to $122 expense outlook, or should we expect expenses to come down later this year? Was it $10 to $12 million? I couldn't write it down as quickly as I wanted to when Archie was discussing it.
Speaker Change: The reactions.
Speaker Change: Taken last quarter that built into the 120 to $1 22 expense outlook.
Speaker Change: Or should we expect expenses to come down later later this year.
Speaker Change: Was it $10 million to $12 million I Didnt I couldnt write it down as quickly as I wanted to one virtue is discussing it.
Archie M. Brown: Yeah, Terry, this is Archie. So the $5 million I referred to that we realized in the first quarter, by the end of the quarter, I think we've got that baked into our near-term expense outlook to fully cover the cost of the Agile operating expenses. So it does a nice job of that. But it's all baked into the near term. The 10 to 12 additional expense savings on an annualized basis, we think that'll be realized by the end of the year, so that it affects more next year in full.
Speaker Change: Yes, Terry this Archie so the $5 million I referred to.
Archie M. Brown: Did we realized in the first quarter by the end of the quarter.
Archie M. Brown: I think we've got that baked into our our near term expense outlook.
Archie M. Brown: That did.
Archie M. Brown: Fully cover the.
The cost of the agile operating expenses. So it does a nice job of that.
But it's all baked into the near term the 10 to 12 additional.
Archie M. Brown: Expense savings on an annualized basis, we think that will be realized by the end of the year sort of affect more next year in full but theres going to be some gradual.
Archie M. Brown: But there's going to be some gradual, you know, each quarter some gradual incremental reductions coming from that work. It just won't be fully in effect or impacting the company until we get to the end of the year.
Archie M. Brown: So each quarter some gradual.
Archie M. Brown: Incremental reductions coming from that work it just won't be fully.
Archie M. Brown: I guess in effect are impacting the company until we get to the end of the year.
Terence James McEvoy: Great, thanks for taking my questions. Have a nice weekend.
Speaker Change: Great. Thanks for taking my questions have a nice weekend.
Operator: Thank you, Terry. Thank you.
Speaker Change: Thanks, Eric.
Speaker Change: Yeah.
Christopher Edward McGratty: Our next question comes from Chris McGratty with KBW. Please go ahead.
Speaker Change: Our next question comes from Chris Mcgratty with key BW. Please go ahead.
Christopher Edward McGratty: Good morning. Hey Chris. Good morning.
Christopher Edward McGratty: Hey, good morning.
Christopher Edward McGratty: Hey, Chris.
James Michael Anderson: Jamie, a question on funding, with the step-up in loan growth. What's the plan to fund it? Are you going to borrow? Are you going to do something with the CDs? What's the plan to fund the extra growth?
Christopher Edward McGratty: Good morning, Jamie question on the funding with the step up in the in the loan growth.
Christopher Edward McGratty: What's the plan to fund it or you're going to borrow youre going to.
Christopher Edward McGratty: Do something on the Cds, what's the plan to fund the extra growth.
James Michael Anderson: Well, I mean, it'll be a little bit of everything, you know, so we have about 5% projected deposit growth for the remainder of the year, kind of across the board. And then we will, you know, obviously, depending on where the loan growth plays out, you know, so if you look at 5% deposit growth, that's about in that $175-$200 million a quarter deposit growth on that side.
Christopher Edward McGratty: Well I mean, it will be a little bit of everything.
Chris Mcgratty: So we have.
Chris Mcgratty: About 5% project projected.
Chris Mcgratty: Deposit growth for the remainder of the year.
Chris Mcgratty: Kind of across the board and then we will.
Chris Mcgratty: Obviously, depending on where the loan growth.
Chris Mcgratty: Where the loan growth plays out so if we look at if you look at 5% deposit growth that's about in that $175 million to $200 million.
Quarter.
Chris Mcgratty: Deposit growth on the on that side and the.
James Michael Anderson: And the, you know, if we have, we're showing around 10% or so growth in the second quarter in loans. And that doesn't quite cover that 10%, so we would fill in the rest with, with borrowings. And then, you know, then we'll see where loan growth shakes out for the rest of the year. But about 5% deposit growth, and then again, we'll just fill in with, fill in with borrowings.
Chris Mcgratty: If we have we're showing around 10% or so growth in the second quarter and loans.
Chris Mcgratty: And that doesn't quite cover that 10%. So we would fill in the rest with.
Chris Mcgratty: With borrowings and then then we'll see where loan growth shakes out for the rest of the year, but about 5% deposit growth.
Chris Mcgratty: And then again, we'll just fill in with fill them with borrowings.
Christopher Edward McGratty: Okay, great. And then just a couple housekeeping items on the bond restructure. Do you have the spot rate for the bond portfolio?
Speaker Change: Okay great.
Speaker Change: And then just a couple housekeeping items on.
Speaker Change: On the bond restructure what's the do you have the spot rate for the bond portfolio.
James Michael Anderson: The spot with the current yield, is that what you're asking?
Christopher Edward McGratty: Yeah, I'm just trying to get like second quarter security yields. I'm trying to get it.
Speaker Change:
Speaker Change: With our current yield is that what youre asking.
Speaker Change: I'm, just trying to like second quarter like security yields Okay, I'm trying to get at.
James Michael Anderson: Yeah, give me one second here. So yeah, total total investment yield projected around round 415.
Speaker Change: Give me one second here.
So, yes, total total investment yield projected around.
Speaker Change: We're around $4 15.
Archie M. Brown: And then maybe I'll sneak one in on capital, Archie. I mean, you talked about organic growth, tuck and deal. Is there any change in conversations or activity on traditional banks? Obviously, the marks are hard with rates, but you guys have a multiple. I was just wondering if you had any thoughts there. Yeah, Chris.
Speaker Change: Yes.
Speaker Change: And then maybe I'll sneak one in on.
Speaker Change: Capital Energy I mean, you talked about organic growth tuck.
Speaker Change: Tuck in deal is there any any change in conversations activity on traditional bank servicing the marks are hard with rates, but you guys have a multiple well just wondering if any thoughts there.
Archie M. Brown: Yeah, Chris, it's Archie. I mean, there you are. I'd say we just had each quarter, some conversations, and you know, I think things generally advance a little bit, but I can't tell you if there's anything we're seeing right now in the near-term that would use up the capital we're building. So it's something we'll keep working on to see if something makes sense for us, but there's nothing right now that's immediate or imminent.
Speaker Change: Yes, Chris this is Archie I mean there.
Archie M. Brown: I'd say were just we were having.
Archie M. Brown: Each quarter some conversations.
Archie M. Brown: I think things generally advanced a little bit.
Speaker Change: Can't say that there's anything we're seeing right now near term that would.
Archie M. Brown: With the use of the capital were building and so that's something we'll keep we'll keep working on to see if something makes sense for us, but there's nothing right now that is immediate or imminent.
Speaker Change: Great. Thank you.
Speaker Change: Yep.
Speaker Change: Our next question comes from the line of John.
Jon Glenn Arfstrom: Our next question comes from the line of John Arfstrom, with RBC.
John: Our strong with.
Jon Glenn Arfstrom: Hey, thank you. Good morning, guys. Hey John. Hey John.
John: With RBC capital markets. Please go ahead great. Thank.
John: Thank you good morning, guys.
John: Hey, John Hey, John few follow ups on agile.
Jon Glenn Arfstrom: A few follow-ups. On Agile, Archie Brown... Where do you think this business could go? I see your $80 million ending. Target, but what kind of longer-term growth expectations do you have for it?
John: Archie.
Speaker Change: Or do you think this business could go I see your $80 million in the year target what kind of longer term growth expectations you have for it.
Archie M. Brown: Yeah, John, it's gonna be over for some time. I mean, this year, I think we're probably gonna be a little bit shy of 200 million by year end, and it may actually look at some seasonality in the middle part of the year. So it may peak out around 200 million in the summer and then, you know, slightly fall back to around 190 or so by year end. But then next year, we think that can ramp up some more.
Speaker Change: Yeah, John it's going to be over some time I mean this year I think we are.
Speaker Change: It's probably going to be a little bit shy of $200 million by year end. It may actually slow got some seasonality in the middle part of the year. So it may it may peak out around $200 million in the summer and then.
Speaker Change: Slightly fall back to around 190, or so by year end.
Speaker Change: But then next year, we think that can ramp up some more so I think over over three years to four years. If you were talking about our business.
Archie M. Brown: So I think over, over three to four years, if you're talking about a, you know, maybe a half billion dollar range. That's probably what we would say right now. You know, these loans are very short and tenor. They're probably, you know, 10 months, something like that.
Speaker Change: So maybe a <unk> $5 billion range.
Speaker Change: That's probably what we would say right now these loans are very short in tenor there probably.
Speaker Change: 10 months something like that so.
James Michael Anderson: So you have to do a lot in order to keep it going. But if we get into that four or $500 million range over the next several years, I think that's probably where it will end up. It's a nice, what we like though, John, it's got great granularity, high quality, it's another lever, it helps us diversify the overall loan book, it complements the commercial banking team. So we like all
<unk> got to do a lot in order to keep it going but if we get into that $4 million to $500 million range over the next several years I think thats probably work issue.
Speaker Change: This is what we like to John It's got great granularity.
Speaker Change: High quality.
Speaker Change: Another lever it helps us diversify the overall loan book it complements the commercial banking teams. So we like all the different facets that come with it.
Speaker Change: No I think it makes sense.
Jon Glenn Arfstrom: James, on your behalf, I hear you on the margin pressures, but how about net interest income inflection? When do you think that could occur? Given the loan growth? Maybe that happens before the margin? Is that fair?
Speaker Change: Jamie for you I hear you on the margin pressures, but how about net interest income inflection when do you think that could occur given the loan growth maybe that happens before the margin is that fair.
James Michael Anderson: And John, just to make sure I understand, you're talking about dollars of net interest income and when that starts to move up again? Yep, more like more like towards the end of the year. I mean, obviously, with, you know, we are still looking at, first quarter to the second quarter of call it about 10 basis points of margin compression, you know, around that area. And then, so keeping the dollars the same here, first and second quarter, probably is unlikely.
Speaker Change: And John just to make sure I understand youre talking about.
Speaker Change: Of net interest income and all that stuff.
Speaker Change: When that starts to move up again.
Speaker Change: <unk>.
More like more like in the towards the end of the year I mean, obviously with.
Speaker Change: We are looking at still here first quarter to the second quarter of call. It about 10 basis points of margin compression.
Speaker Change: That area and then so.
Speaker Change: So keeping the dollars the same here first and second quarter, probably is unlikely but.
James Michael Anderson: But really, then in the back half of the year, as the margin stabilizes a little bit more, you'll see that with the growth that we have, you'll see that those dollars start to stabilize and then move up.
But really then in the back half of the year as the margin.
Speaker Change: <unk> is a little bit more youll see that with the growth that we have youll see that.
Speaker Change: Those dollars start to stabilize and then move up.
Jon Glenn Arfstrom: Okay. All right. Thank you.
Speaker Change: Alright. Thank you and then bill maybe for you just on <unk>.
William R. Harrod: And then, Bill, maybe for you, just on credit in general, how you feel about credit, and then your I'd like that office maturity schedule slide or Cable on slide 16. What are you seeing on some of those loans that are coming up for renewal, from your point of view? And how do you kind of look ahead to get ahead of any problems?
Speaker Change: Credit in general how Youre feeling about credit and then.
William R. Harrod: I'd like that office maturity schedule slides.
William R. Harrod: Table on slide 16, what are you seeing on some of those.
William R. Harrod: Loans that are coming up from renewal.
William R. Harrod: From your point of view.
William R. Harrod: And how do you how do you kind of look ahead to get ahead of any problems.
William R. Harrod: Yeah, absolutely. In the office, in particular, we have a quarterly cycle for review, including stress testing of the book from all the different angles that you would expect. And then we supplement that with portfolio review discussions on the buckets that we identify as having potential issues. And we do this on a quarterly basis. And as we look at, you know, 24 and 25, we have a manageable handful of deals to work through during that time.
Yeah, absolutely so.
William R. Harrod: On the office.
William R. Harrod: Particular.
William R. Harrod: We have a quarterly cadence.
William R. Harrod: We'll review, including stress testing of the book.
William R. Harrod: From all the different angles that you would expect and then we supplement that with portfolio review discussions on the buckets that we identify with potential issues.
William R. Harrod: When we do this on a quarterly basis.
William R. Harrod: And as we look at 24% and 25.
William R. Harrod: A manageable handful of deals.
William R. Harrod: But overall, we feel good about our office book as it sits today, and we monitor that every, like I said, every quarter. On the global book, I do feel good about it. I think as I look out in the future, we have the office nice and ring-fenced. Our C&I is performing very, very well, and I feel pretty good.
William R. Harrod: To work through during that time, but overall, we feel good about our office bucket as it sits today.
William R. Harrod: And when we monitor every like I said every quarter.
William R. Harrod: The global book.
William R. Harrod: Do I feel good about it.
William R. Harrod: I think as I look out into the future.
William R. Harrod: <unk>.
William R. Harrod: We have the office nice ring fence, our C&I is performing very very well.
William R. Harrod: And feel pretty good.
Jon Glenn Arfstrom: All right. Thanks, guys. Thanks, John.
Speaker Change: Okay Alright.
Alright, thanks, guys for the help.
Speaker Change: Thanks Chuck.
Speaker Change: Okay.
Operator: Again, if you'd like to ask a question, press star then the number one on your telephone keypad. Our next question comes from the line of Alex Thirdwall with Piper Sandler. Please go ahead.
Speaker Change: Again, if you would like to ask a question Press Star then the number one on your telephone keypad.
Speaker Change: Okay.
Our next question comes from the line of Alex Stewart Wall.
With Piper Sandler. Please go ahead.
Alex Thirdwall: Thanks. Good morning, guys.
Speaker Change: Thanks, Good morning, guys.
Alex Thirdwall: I just wanted to go back to the loan growth guide. I think that 10 to 12 percent in the near term makes sense given, you know, that ramp up that you talked about with Agile and some of the other pieces contributing to the second quarter. But, I mean, is that sustainable into the back half of the year, or do you think that there's going to be maybe? You know, as rates remain high, maybe that cools down a little bit in the third and fourth quarters.
Speaker Change: Hey al.
Speaker Change: Okay.
Speaker Change: Just wanted to go.
Speaker Change: Go back to the loan growth guide I think that 10% to 12% in the near term that makes sense given that ramp up that you talked about with agile and some of the other pieces contributing in the second quarter, but I mean is that sustainable into the back half of the year or do you think theres going to be maybe.
Speaker Change: As rates remain high and maybe maybe that that cools down a little bit in that.
Archie M. Brown: Yeah, Alex. Yeah, it's a little harder to tell our pipeline. Coming into the quarter, they were ramping up in Q1, they're healthy, and they're remaining pretty strong and stable. We can look out into the middle of the year and feel pretty good. Just a little murkier, if I'm handicapping, I would tell you, it feels like it may be just a little bit lighter than that 10-12% annualized rate that we're talking about right now when you get in the back half.
Speaker Change: Third and fourth quarter.
Speaker Change: Yes, Alex.
Alex: Yes, it's a little harder to tell our pipelines.
Coming into the quarter were they were ramping up in Q1, they're healthy and they're remaining pretty strong and stable. We can look out into the middle of the year and feel pretty good.
Alex: Just a little murkier.
Alex: Im Handicapping I would tell you it's probably it feels like it may be just a little bit lighter than that 10% to 12% annualized rate that we're talking about right now when you get in the back half.
Speaker Change: Yes that makes sense.
Speaker Change: <unk> rejecting that pace of loan growth at all this year so.
Alex Thirdwall: Yeah, that makes sense. Not a lot of banks projecting that pace of loan growth at all this year. So I guess, you know, going to the NIM, you know, with the agile loans coming on, you know, with the 9% plus The Securities Restructuring, you know, some of the other dynamics. Kind of, I guess, a little surprised to see that amount of NIM compression still expected for the second quarter.
Speaker Change: I guess.
Speaker Change: You go into the.
To the NIM.
Speaker Change: With the agile loans coming on at the 9% plus.
Speaker Change: The securities restructuring.
Some of the other dynamics I guess im a little surprised to see that amount of NIM compression still expected for the second quarter.
Alex Thirdwall: So are there some, is it really just the funding, just like, you know, some higher tranches of borrowings maybe repricing during the quarter, or, you know, maybe talk about kind of really what's driving that level of compression in the second quarter still?
So are there some is it really just a funding dislike.
Speaker Change: Some higher tranches of borrowings maybe repricing during the quarter or maybe talk about kind of really whats driving that that level of compression in the second quarter. So.
James Michael Anderson: Yeah, Alex, it's Jamie. Yeah, it's really the funding side that's driving all of that still. And really, what we are seeing is just that continued mixed shift on the deposit side. You know, the dollars moving out of, you know, the lower cost buckets into the money market and CD specials. And that just continues to drive up the, we would start to see that mitigated some in the back half of the first quarter, but we still see some of that, some of that going on in the second quarter.
Speaker Change: Yes, Alex it's Jamie so.
Alex: Yes, it's really the funding side, that's driving all of that still and we're in really what we are saying is just that.
James Michael Anderson: Continued mix shift on the deposit side.
James Michael Anderson: The dollars moving out of.
James Michael Anderson: The lower cost buckets into the.
James Michael Anderson: Money market and CD specials.
James Michael Anderson: And Thats just continues to drive up the we were starting to see that.
James Michael Anderson: <unk> mitigate some in the in the back half.
James Michael Anderson: Of the first quarter, but we still see some of that some of that going on in the second quarter and Thats just driving the cost that we're seeing dollars continue to move out.
James Michael Anderson: And that's just driving the cost that we're seeing dollars continue to move out slowly still in our business DDA balances. And the average balance of those accounts is still higher than what they were historically. So we're still seeing some dollars move out there, and we're replacing those dollars with CDs and money market accounts. So that's just driving up the funding. And so, yeah, we get a little bit of benefit on the asset yields. I mean, obviously, Agile helps.
Slowly still in it.
James Michael Anderson: And our business DDA.
James Michael Anderson: <unk>.
James Michael Anderson: And the average balance of those accounts are still higher than what they were historically, so we're still seeing some dollars move out there and we're replacing those dollars with.
James Michael Anderson: Cds and money market accounts. So it's just drive that is driving up the funding.
James Michael Anderson: So, yes, we get a little bit of benefit from the on the on the asset yields I mean, obviously agile helps it's just it's just a small.
James Michael Anderson: It's just a small, you know, a couple hundred million on the loan base. It obviously helps, but it's not enough here in the very near term to offset that funding pressure that we're seeing. But we expect that funding pressure, again, to, you know, another quarter of that with maybe a little still some of it in the third quarter, not as much as the second quarter. And we just see that deposit costs start to stabilize, again, absent any rate cuts.
James Michael Anderson: A couple of hundred million I'll, let Don.
James Michael Anderson: Our loan base and it obviously helps but its not enough here and that in the very near term to offset the.
James Michael Anderson: To offset that funding pressure that we're seeing but we're but we expect that funding pressure.
James Michael Anderson: Again.
James Michael Anderson: Another quarter of that with maybe a little still some of it in the third quarter.
James Michael Anderson: Not as much in the second quarter, and we just see that.
James Michael Anderson: The deposit costs start to stabilize again absent any rate cuts.
Alex Thirdwall: I appreciate that color. And then, you know, as I think about agile and the, I guess, really more broad, broad term for the, for specially financed businesses, I got to think that their funding costs are getting pressured, you know, even more than banks. And I'm just curious, you know, have you seen an increase in these types of deals? Like how many would you typically look at in any given year?
Speaker Change: Okay I appreciate that color.
Speaker Change: And then just thinking about the agile I guess, it really more broad broad term for the specialty finance businesses I've got to think that they are funding costs again pressure, even more than banks and I'm just curious.
Speaker Change: Have you seen an increase in these types of deals like how many would you typically look at in any given year.
Alex Thirdwall: And is that, you know, some of the specially financed type transactions, are they going to be, I guess, should we expect them to be part of the overall growth strategy for 24, you know, beyond the agile acquisition?
Speaker Change: And is that.
Speaker Change: Some of the specialty finance that transactions are they going to be I.
Speaker Change: I guess should we expect them to be part of the overall growth strategy for 'twenty for beyond the agile acquisition.
Archie M. Brown: Yeah Alex, this is Archie. I'll discuss it with you. You know we do, I think because we have acquired several specialty companies. We are higher on, I'm gonna use an old term, the Rolodex of bankers that are calling around for different companies, but we really never responded to those. Everything that we've really acquired has been, in a way, based on some relationships we have or a network we have with people. So we're really not out looking for more. I would tell you certainly in the wealth space that if we ever found something that made sense and the pricing could be rationalized right, we would consider something like that.
Archie M. Brown: Yeah, Alex as Archie I'll discuss it.
Archie M. Brown: We do I think because we have acquired several specialty companies.
Speaker Change: We are higher on.
I will turn the rolodex of of bankers that are calling around for four different companies, but we really never responded to those everything that we've really acquired has been.
Speaker Change: And in a way based on some relationships. We have are our network, we have with with people.
Speaker Change: So we're really not out looking for more.
Speaker Change: Yes.
Speaker Change: I would tell you certainly in the wealth space, if we ever bounce off that it made sense.
Speaker Change: The pricing can be rationalized right, we would consider something like that but we're not really out looking for more specialty companies. This was.
Archie M. Brown: But we're not really looking for more specialty companies. This was a deal that came in through some connections we had, and we really liked what this business looked like in terms of, again, the diversity, the yields, the compliments, commercial banking, and the granularity. We liked all that. So yeah, and it's a Chicago company, and that's right here, not far. We've got other presences in the Chicago area, so not looking for more, but it fits in the pattern of the things we've acquired in recent years.
Speaker Change: It came in through through some connections, we had and we really like what this business looks like in terms of again the diversity of the yields.
Speaker Change: Our comprehensive commercial banking the granularity, we'd like to all of that so.
Speaker Change: Yes.
Speaker Change: Chicago.
Speaker Change: Company and Thats right here not far and we've got other presence in the Chicago area. So.
Speaker Change: Not looking for more.
But it fits in the pattern of the things we've acquired over recent years.
Alex Thirdwall: Great, I appreciate all the additional color. Thanks for taking my question. Thanks, Alex.
Speaker Change: Great I appreciate all the additional color thanks for taking my questions.
Operator: Thanks, Alex. Have a good day.
Speaker Change: Thanks, Alex have a good day.
Archie M. Brown: That concludes our Q&A session. I will now turn the conference over to Archie Brown for closing remarks.
Speaker Change: That concludes our Q&A session I will now turn the conference over to Archie Brown for closing remarks.
Archie M. Brown: Well, thank you for joining us on today's call and following along with us for a quarter. We look forward to talking again next quarter. Have a great weekend.
Well, thank you for joining us on todays call and following along with us for a quarter. We look forward to talk to again next quarter have a great weekend.
Operator: This concludes today's conference call. You may now disconnect.
Speaker Change: Bye now.
Speaker Change: This concludes today's conference call you may now disconnect.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Thank you.