Q1 2024 Enterprise Financial Services Corp Earnings Call

Okay.

Cath: Thank you for standing by. My name is Cath, and I will be your conference operator. At this time, I would like to welcome everyone to the Enterprise Financial Services Corp. first quarter 2024 earnings conference. All lines have been placed on mute to prevent any background noise.

Kat: Thank you for standing by my name is Kat and I will be your conference operator today.

Kat: At this time I would like to welcome everyone to the Enterprise Financial Services Corp, first quarter of 'twenty 'twenty four earnings conference call.

Kat: All lines have been placed on mute to prevent any background noise.

Cath: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, press star 0. Thank you. I would now like to turn the call over to James Lally, President and CEO. Please go ahead.

Kat: After the Speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question Press Star. One again. Thank you I would now like to turn the call over to Jim Lally, President and CEO. Please go.

James Brian Lally: Thank you, Cat. And good morning, everyone. And thank you very much for joining us this morning. And welcome to our 2024 First Quarter Earnings Call. Joining me this morning is Keene Turner, EFSC's Chief Financial Officer and Chief Operating Officer, Scott Goodman, President of Enterprise Bank and Trust, and Doug Bauche, Chief Credit Officer of Enterprise Bank and Trust. Before we begin, I would like to remind everybody on the call that a copy of the release and accompanying presentation can be found on our website.

Kat: Hedges.

James Brian Lally: Thank you Kat and good morning, everyone and thank you very much for joining us This morning, and welcome to our 2024 first quarter earnings call. Joining me. This morning is Keene Turner <unk>, Chief Financial Officer, and Chief Operating Officer, Scott Goodman, President of Enterprise Bank and Trust and Doug <unk>, Chief Credit Officer of Enterprise Bank and trust before we begin.

James Brian Lally: I would like to remind everybody on the call that a copy of the release and accompanying presentation can be found on our website.

James Brian Lally: The presentation and earnings release were furnished on SEC Form 8K yesterday. Please refer to Slide 2 of the presentation titled Forward-Looking Statements and our most recent 10K and 10Q for reasons why actual results may vary from any forward-looking statements that we make today. The first quarter represents fundamentally sound performance amid a higher for longer economic and interest rate environment. Our business model, associate base, and management team have been constructed to perform during all economic environments.

James Brian Lally: Presentation and earnings release for furnished on SEC form 8-K yesterday. Please refer to slide two of the presentation titled forward looking statements and our most recent 10-K 10-K and 10-Q for reasons why actual results may vary from any forward looking statements that we make today.

James Brian Lally: The first quarter represents fundamentally sound performance amid a higher for longer economic and interest rate environment, Our business model Associate base and management team has been constructed to perform during all economic environments. However, the curve at current pivot and the interest rate policy from year end will further assist us in stabilizing our margins.

James Brian Lally: However, the current pivot in the interest rate policy from year end will further assist us in stabilizing our margins and, therefore, our profitability in the upcoming quarter. As we've stated during previous earnings calls and investor meetings over the last several years, we have worked diligently to diversify our business model such that we do not have to depend on any one business, market, or asset class to produce high-quality and predictable earnings. Our first quarter financial performance has resulted in this focus strategy, and I'm confident that we can continue to perform at this level, or better, for the remainder of 2024. Our financial scorecard begins on slide three. For the quarter, we earned a net income of $40.4 million, or $1.05 per diluted share.

James Brian Lally: And therefore, our profitability in the upcoming quarters.

James Brian Lally: Like we've stated during previous earnings calls and Investor meetings over the last several years, we have worked diligently to diversify our business model such that we do not have to depend on anyone business market or asset class to produce high quality and predictable earnings are.

James Brian Lally: Our first quarter financial performance as a result of this focus strategy and I'm confident that we can continue to perform at this level or better for the remainder of 2024.

James Brian Lally: Yeah.

James Brian Lally: Our financial Scorecard begins on slide three.

James Brian Lally: For the quarter, we earned net income net income of $44 million or $1 <unk> per diluted share and we produced an adjusted R. O a a a $1 one 4% and the PPE and our ROA of one 5% and 8%. These results are representative of our typical first quarter trends and bodes.

James Brian Lally: And we produced an adjusted ROAA of 1.14% and a PPNR ROAA of 1.58%. These results are representative of our typical first quarter trends and bode well for delivering upon our expectations and goals for 2024. Keene will provide much more detail on this in his comments.

James Brian Lally: Well for delivering upon our expectations and goals for 2020 for Keene will provide much more detail on this in his comments.

James Brian Lally: Our interest income was essentially flat compared to the previous quarter when considering day count at just under $140 million. Looking back over the last five quarters, we've been able to hold this number at or around $140 million despite challenging competitive and interest rate conditions. This reflects the strength of the franchise we built, and we remain positioned to produce high-quality earnings that consistently improve shareholder value through deep-rooted client relationships. Our stable net interest income was aided by the defense and resilience of our net interest margin at 4.13%.

Our net interest income was essentially flat compared to the linked quarter when considering day count at just under $140 million.

James Brian Lally: Looking back over the last five quarters, we've been able to hold this number at or around $140 million, despite challenging competitive and interest rate conditions. This reflects the strength of the franchise rebuilt and we remain positioned to produce high quality earnings consistently improves shareholder value through deep rooted client relationships.

James Brian Lally: Stable net interest income was aided by the defense and resilience of our net interest margin of four 3%. This is a direct result of our appropriately priced stable deposit base and our ability to originate commensurate to the needs of our clients, but priced well amid the current interest rate environment.

James Brian Lally: This is a direct result of our appropriately priced, stable deposit base and our ability to originate commensurate with the needs of our clients but priced well amid the current interest rate environment. As we thought would happen, loan growth moderated in the quarter, largely due to lower demand for investor-owned CRE and a few of our specialty lending businesses.

James Brian Lally: As we thought would happen loan growth moderated in the quarter, largely due to lower demand and investor owned CRE and a few of our specialty lending businesses. However, we remained on pace to deliver mid single loan growth for the year growing loans by $144 million to 11 billion led by growth in C&I.

James Brian Lally: However, we remained on pace to deliver mid-single loan growth for the year, growing loans by $144 million to $11 billion, led by growth in C&I, LIPF, and construction lending. Scott will provide much more detail on our markets and businesses in his... Like we did in 2023, we are committed to funding our full year's loan growth with our client deposits. During the first quarter, we experienced our typical seasonal deposit outflow as our business clients used their cash for bonus payments and tax distribution. We re-buffered this with a slight increase in brokered CD's, resulting in total deposits remaining flat compared to the previous quarter at $12.3 billion.

James Brian Lally: <unk> and construction lending Scott will provide much more detail on our markets and businesses in his comments.

James Brian Lally: Like we did in 2023, we are committed to funding our full year's loan growth with our client deposits. During the first quarter, we experienced our typical seasonal deposit outflow as our business clients user cash for bonus payments and tax distributions. We buffered this with a slight increase in brokerage Cds, resulting in total deposits remained flat compared to the linked quarter.

James Brian Lally: At $12 $3 billion, our loan to deposit ratio increased slightly to 90%, while our DDA level remained in excess of 30% of total deposits.

James Brian Lally: Our loan-to-deposit ratio increased slightly to 90%, while our DDA level remained in excess of 30% of total deposits. Our balance sheet remains well-positioned for our planned growth. Capital levels at quarter end remain stable and strong, with our TCE to TA ratio of 9.01% and Adjusted Return on Average Tangible Common Equity of 12.53%. Annual book value for common shares was $34.21, an annualized increase of 4%.

James Brian Lally: Our balance sheet remains well positioned for our planned growth capital levels at quarter end remained stable and strong with our TCE to ta ratio of 9.0% to 1% and adjusted return on average tangible common equity of 12 five 3%.

Tangible book value per common share was $34 in 2021 and.

James Brian Lally: An annualized increase of 4% given the strength of our earnings and our confidence in our continued execution, we increased the dividend by <unk> <unk> per share in the second quarter of 2024 and have begun modest common stock repurchases to manage growth of excess capital.

James Brian Lally: Given the strength of our earnings and our confidence in our continued execution, we increased the dividend by one cent per share in the second quarter of 2024 and have begun modest common stock repurchases to manage the growth of excess capital. Before discussing areas of focus in 2024, I would like to provide an update on credit. Last quarter, I characterized our charge-off levels as extraordinary and uncharacteristic. Asset quality stabilized as expected in Q1 as classified loan levels were flat, MPAs declined 11%, and charge-offs netted out to roughly 5 basis points in the quarter. It is also worth mentioning that the large majority of the amounts charged off during this quarter were residual loan amounts from two relationships that were charged down in the fourth quarter of 2023.

Speaker Change: Before discussing areas of focus in 2024, I would like to provide an update on credit.

Speaker Change: Last quarter I characterized our charge off levels is extraordinary and uncharacteristic.

Speaker Change: Asset quality stabilized as expected in quarter, one as classified loan levels were flat npa's declined, 11% and charge offs netted out to roughly five basis points in the quarter.

Speaker Change: It's also worth mentioning that the large majority of the amounts charged off during this quarter, where residual loan amounts from two relationships that were charged down in the fourth quarter of 2023. Both of these relationships has now been fully charged off.

James Brian Lally: Both of these relationships have now been fully charged off. Finally, we did complete our internal review of the agricultural portfolio, inclusive of site visits, and found no surprises in the field that the portfolio is in sound condition. We've engaged a third party to validate our findings.

Speaker Change: Finally, we did complete our internal review of the agricultural portfolio inclusive of site visits and found no surprises it feel that the portfolio is in sound condition. We've engaged a third party to validate our findings will have this report delivered in the next few weeks.

James Brian Lally: We'll have this report delivered in the next few weeks. We're seeing some of these clients refinance their debt with other institutions, and we'll likely see this $200 million portfolio reduced by at least 50% between now and year-end. Slide five shows where we are focused for the foreseeable future. Just like we did for all of 2023, we will continue to be focused on funding future loan growth with client deposits. This will be accomplished by sticking to our relationship-oriented sales approach and capitalizing on our continued success in our community associations, property management, and third-party escrow and trust services deposit business.

Speaker Change: We're seeing some of these clients refinanced our debt with other institutions and we will likely see this $200 million portfolio reduced by at least 50% between now and year end.

Speaker Change: Slide five shows will be a focus for the foreseeable future.

Speaker Change: Just like we did for all of 2023, we will continue to be focused on funding future loan growth with client deposits. This will be accomplished by sticking to our relationship oriented sales approach and capitalizing on our continued success in our community associations property management, and third party escrow and trust services deposit businesses. Additionally, I'm confident.

James Brian Lally: Additionally, I'm confident that we can continue to improve shareholder value through the execution of our strategy. Our focus, combined with continued improvement in all business lines, markets, and credit, along with steadfast expense management, should consistently produce strong earnings amid the current economic and rate environment that we are in. Our clients remain largely optimistic, too.

Speaker Change: We can continue to improve shareholder value through the execution of our strategy. Our focus combined with continued improvement in all business lines markets and credit along with steadfast expense management should consistently produce strong earnings amid the current economic and rate environment that we're in.

Speaker Change: Our clients remain largely optimistic too for the most part the operating companies with whom we partner produce very good results for 2023, and our budgeting for 2024 to be flat to slightly down from these results cash conversion cycles continue to elongate requiring higher use of lines of credit and capital expenditures will be lower than previous years as companies.

James Brian Lally: For the most part, the operating companies with whom we partner produce very good results for 2023, and our budgeting for 2024 to be flat is slightly down from these results. Cash conversion cycles continue to elongate, requiring higher use of lines of credit, and capital expenditures will be lower than previous years as companies curb spending to defend sales levels or to increase production for known increases in sales. Supply chains have improved, the war on talent has not worsened, and the impact of higher rates on debt service has been absorbed in their monthly cash flow. The impact of on-shoring is beginning to show residual opportunities in the trades and corresponding suppliers that support this. In my opinion, this will only improve the economic prospects of a portion of our clients.

Speaker Change: <unk> spending to defend sales levels or to increase production for known increased sales supply chain or improve the war on talent has not worsened and the impact of higher rates on debt service has been absorbed and their monthly cash flow impact of onshoring is beginning to show residual opportunities in the trades and corresponding suppliers that <unk>.

Speaker Change: Support this in my opinion this will only improve the economic prospects of a portion of our client base.

Speaker Change: Our CRE clients, we're seeing opportunities in most asset classes, but the elevated interest rates are keeping many of these projects on the drawing board for now.

Speaker Change: We believe that a slight a decrease in short term interest rates will be the psychological impetus for some of these projects to move to the next level, even though the return related to 25 or 50 basis point decrease as was largely negligible.

James Brian Lally: Our CRE clients are seeing opportunities in most asset classes, but the elevated interest rates are keeping many of these projects on the drawing board for now. I really believe that a slight decrease in short-term interest rates will be the psychological impetus. We enjoy a great reputation and corresponding market share of middle market businesses in our mature geographies and specialized lending businesses. As such, I am confident that we will continue to get more than our fair share of corresponding opportunities.

Speaker Change: We enjoy a great reputation and corresponding market share of middle market businesses and.

Speaker Change: Mature geographies and specialized lending businesses as such I am confident that we will continue to get more than our fair share of corresponding opportunities are newer markets and higher growth areas will provide similar levels of opportunities. While we continue to build our reputation in these markets. This blend is what gives me high confidence that we will continue to grow.

Speaker Change: <unk> and earn at a predictable rate, while continuing to compound tangible tangible book value at a higher level than our peers over the foreseeable future.

James Brian Lally: Our newer markets and higher growth areas will provide similar levels of opportunities while we continue to build our reputation in these markets. This blend is what gives me high confidence that we will continue to grow and earn at a predictable rate while continuing to compound tangible book value at a higher level than our peers over the foreseeable future. With that, I would like to turn the call over to Scott Goodman.

Speaker Change: With that I would like to turn the call over to Scott Goodman Scott.

Thank you Jim and good morning, everyone.

Scott R. Goodman: I'd like to turn to slide six.

Scott R. Goodman: Loan growth of $144 million in the quarter pushed us past the $11 billion, Mark and represents just over 10% growth year over year.

Scott R. Goodman: Thank you, Jim, and good morning, everyone. If you'd like to turn to slide six, Loan growth of $144 million in the quarter pushed us past the $11 billion mark and represents just over 10% growth year-over-year. To illustrate Jim's comments on diversification, the breakdown of this year-over-year growth by sector on slide 7 shows that 25% roughly is within the general C&I category and represents a diverse list of business types throughout our geographic markets, with the remainder well balanced across the other major segments of our business.

Scott R. Goodman: To illustrate Jim's comments on diversification that the breakdown of this year over year growth by sector on slide seven.

Scott R. Goodman: So that 25% roughly is within the general C&I category and represents a diverse list of business types throughout our geographic markets with the remainder well balanced across the other major segments of our business.

Scott R. Goodman: For the quarter loan growth was recognized most prominently in the C&I and owner occupied real estate space as well as life insurance premium finance and construction development categories.

Scott R. Goodman: Within our commercial banking Metro markets, we continue to have success, attracting and onboarding new relationships, while existing client operating businesses are generally doing well and despite higher rates remain willing to actively support growth.

Scott R. Goodman: Borrowing here represents a variety of capital investment activities by these businesses.

Scott R. Goodman: For the quarter, loan growth was recognized most prominently in the C&I and owner-occupied real estate space, as well as life insurance, premium finance, and construction development categories. Within our commercial banking metro markets, we continue to have success attracting and onboarding new relationships, while existing client operating businesses are generally doing well and, despite higher rates, remain willing to actively support growth. Borrowing here represents a variety of capital investment activities by these businesses and increased working capital facilities with revolving line usage up roughly 5.5% in the quarter. Construction projects and processes continue to move forward, providing an increase in related loan balances for the quarter.

Scott R. Goodman: And increased working capital facilities with revolving line usage up roughly five 5% in the quarter.

Construction projects in process continue to move forward, providing an.

Scott R. Goodman: Increase in related loan balances for the quarter.

Scott R. Goodman: And while new construction requests have slowed overall, we did originate new project loans for a few current clients for the expansion and renovation of existing properties.

Scott R. Goodman: Investor CRE origination has slowed somewhat impacted more heavily by the higher rate environment and reacting with more caution, particularly in sectors, such as multifamily office and retail.

Scott R. Goodman: Within the specialized banking sectors life insurance premium finance posted solid growth with strong new origination volumes and the seasonal uptick from premium advances on existing policy loans.

Scott R. Goodman: Tax credit loans move slightly lower in the quarter, but consistent with the typical Q1 seasonal pay down that we see on project loans from the proceeds of the sale of 2023 tax credits.

Scott R. Goodman: And while new construction requests have slowed overall, we did originate new project loans for a few current clients for the expansion and renovation of existing property. Investor CRE origination has slowed somewhat, impacted more heavily by the higher rate environment and reacting with more caution, particularly in sectors such as multifamily, office, and retail. Within the specialized banking sectors, life insurance premium finance posted solid growth, strong new origination volumes, and a seasonal uptick from premium advances on existing policies.

Scott R. Goodman: SBA results were generally in line with expectations as originations kept pace with recent quarters pre.

Scott R. Goodman: Prepayments, which have stressed the portfolio due to rising rates did continue to trend positively moving lower during the quarter.

Scott R. Goodman: However, net growth for the period was impacted by our decision to generate liquidity in income due to the sale of a $20 million $23 million pool of guaranteed loans in March which Keene will touch on further in his comments.

Scott R. Goodman: Sponsor finance origination activity continued to moderate in Q1, consistent with a more restrained in patient patient posture.

Scott R. Goodman: By private equity sponsors.

Scott R. Goodman: Pay ups associated with the sale of portfolio companies have begun to move towards a more normalized level. Following a pause in this activity for most of 2023.

Scott R. Goodman: Tax credit loans moved slightly lower in the quarter, but consistent with the typical Q1 seasonal pay down that we see on project loans from the proceeds of the sale of 2023 tax bonds. SBA results were generally in line with expectations, as Originations kept pace with recent quarters.

We do expect growth in this sector for the year, our approach will remain disciplined as it relates to credit structure.

Scott R. Goodman: In originations, we focus primarily on well known and top tier sponsor relationships.

Scott R. Goodman: Regionally, we did experienced growth across our commercial banking footprint in all major regions as displayed on slide eight.

Scott R. Goodman: Prepayments, which have stressed the portfolio due to rising rates, did continue to trend positively, moving lower during the quarter. However, net growth for the period was impacted by our decision to generate liquidity and income through the sale of a $23 million pool of guaranteed loans in March, which Keene will touch on further in his presentation on sponsor finance.

Scott R. Goodman: In the Midwest markets of St. Louis and Kansas City loans rose $74 million or eight 9% annualized.

Scott R. Goodman: Significant new originations include equipment loans for our civil General contractor.

Our new relationship with a longstanding automotive dealership.

Scott R. Goodman: Origination activity continued to moderate in Q1, consistent with a more restrained and patient posture by private equity. Payoffs associated with the sale of portfolio companies have begun to move toward a more normalized level, following a pause in this activity for most of 2020. While we do expect growth in this sector for the year, our approach will remain disciplined as it relates to credit structure, and Originations will be focused primarily on well-known and top-tier sponsor relations.

Scott R. Goodman: And recapitalization of our construction supply company.

Scott R. Goodman: These markets, which have deeper C&I portfolios also experienced increases related to heavier working capital line usage.

Scott R. Goodman: Our southwest region loan portfolio rose $40 million in the quarter and is up 21% year over year.

Scott R. Goodman: Larger new loans included in Aesop conversion for our longstanding food services client in Arizona.

Scott R. Goodman: Construction of a medical facility for new Mexico client.

Scott R. Goodman: As well as new relationships with a metal fabricator and a specialty contractor with an owner occupied construction project in Las Vegas.

Scott R. Goodman: Regionally, we did experience growth across our commercial banking footprint in all major regions, as displayed on slide eight. In the Midwest markets of St. Louis and Kansas City, loans rose $74 million, or 8.9% annualized. Significant new originations include equipment loans for a civil general contractor, a new relationship with a long-standing automotive dealership, and the recapitalization of a Construction Supply. These markets, which have deeper C&I portfolios, also experienced increases related to heavier working capital lines.

In our western region of Southern California loans rose by $20 million in the quarter and 10, 2% year over year.

Scott R. Goodman: We successfully on boarded several new private lender finance relationships as well as a variety of smaller C&I loans to new relationships and the lighting medical services and specialty stainless steel equipment manufacturing industries.

Scott R. Goodman: Overall growth was somewhat moderated this quarter by timing issues related to larger paydowns on revolving lines with a few of our finance and private lending clients.

Scott R. Goodman: Moving on to deposits on slide nine.

Scott R. Goodman: Our Southwest region loan portfolio rose $40 million in the quarter and is up 21% year-over-year. Larger new loans included an ESAP conversion for a longstanding food services client in Arizona, construction of a medical facility for a New Mexico client, as well as new relationships with a metal fabricator and a specialty contractor with an owner-occupied construction project in Las Vegas. In our western region of Southern California, loans rose by $20 million in the quarter and 10.2% year-over-year. We successfully onboarded several new private lender finance relationships as well as a variety of smaller C&I loans to new relationships in the lighting, medical services, and Specialty Stainless Steel Equipment Manufacturing Industry.

Scott R. Goodman: Total deposit balances were up $78 million for the quarter, and $1 1 billion or roughly 9% year over year.

Scott R. Goodman: Breaking this down noninterest bearing DDA accounts were down by $387 million attributable to the remixing of idle balances interest bearing alternatives.

Scott R. Goodman: While lower yielding savings accounts also declined for similar reasons.

Scott R. Goodman: In aggregate however, we've been able to successfully grow client deposits by $810 million or seven 5% over the past 12 months.

Scott R. Goodman: For the quarter similar activity continued but growth was slowed by the typical seasonal first quarter outflows related.

Scott R. Goodman: Related to distributions bonuses and tax payments.

Scott R. Goodman: Regionally year over year growth has been fairly well balanced between the specialty deposit verticals and other geographic markets and lending businesses.

Scott R. Goodman: As shown on slide 10.

Scott R. Goodman: For the quarter client balances were down $98 million or less than 1% with the seasonal outflows most heavily impacting the St Louis and California markets.

Scott R. Goodman: Overall, growth was somewhat moderated this quarter by timing issues related to larger paydowns on revolving lines with a few of our finance and private lending customers. Moving on to deposits, on slide nine. Total deposit balances were up $78 million for the quarter and $1.1 billion, or roughly 9%, year-over-year. Breaking this down, non-interest-bearing DBA accounts were down by $387 million, attributable to the remixing of EIDL balances and interest-bearing alternatives. A lower yielding savings account also declined for similar reasons.

Scott R. Goodman: On a combined basis year over year, non specialty customer deposits within our geographic regions are up $340 million or over 4%.

Scott R. Goodman: This has been the result of focused development of sales campaigns and product enhancements directed a client outreach expansion of existing relationships and targeting a specific business types and competitors.

Scott R. Goodman: Specialty deposit businesses were up $123 million for the quarter and have grown year over year at 19, 3%.

These business lines are highlighted in more detail on slide 11.

Scott R. Goodman: Community Association balances rose by $69 million.

Scott R. Goodman: And typically experienced seasonal increases in Q1 as HOA assessments are billed and paid.

Scott R. Goodman: The property management segment also grew in the quarter $119 million.

Scott R. Goodman: In aggregate, however, we've been able to successfully grow client deposits by $810 million, or 7.5% over the past 12 months. Similar activity continued, but growth was slowed by the typical seasonal first quarter outflow related to distributions, bonuses, and taxes. Regionally, year over year, growth has been fairly well balanced between the specialty deposit verticals and other geographic markets and lending businesses, as shown on slide 10. For the quarter, client balances were down $98 million, or less than 1%, with seasonal outflows most heavily impacting the St. Louis and California markets.

Scott R. Goodman: As we continue to fund and open new accounts for our best relationships.

Scott R. Goodman: Third party escrow balances are down slightly but mainly relate to some planned larger $2 31 in class action account disbursements.

Scott R. Goodman: Overall key relationships are intact, and we continue to expand these deposit focused lines of business with new accounts and new relationships.

Scott R. Goodman: Additional detail on the core funding mix and account activity as shown on slide 12.

Scott R. Goodman: First vacation of these balances by channel remains fairly consistent with the prior period.

Scott R. Goodman: As you heard from Jim roughly 31% of total deposits being noninterest bearing.

Scott R. Goodman: The pace and magnitude of the aforementioned Remixing continues to slow.

Scott R. Goodman: And we remain focused on building and retaining stable relationship based funding.

Scott R. Goodman: The underlying account activity also continues to trend favorably.

Scott R. Goodman: And reflect our intentional efforts towards emphasizing of granular and diversified core deposit base with new accounts opened exceeding closed accounts and.

Scott R. Goodman: On a combined basis, year-over-year, non-specialty customer deposits within our geographic regions are up $340 million, or over $4.5 million. This has been the result of the focused development of sales campaigns and product enhancements directed at client outreach.

Scott R. Goodman: And net balance increases when comparing new accounts to close accounts across all channels.

Scott R. Goodman: With that I'd like to turn the call over to Keene Turner for his comments Keith.

Keene S. Turner: Thanks, Scott and good morning, everyone turning to slide 13, we reported earnings per share of $1 <unk> in the first quarter on net income of $40 million.

Scott R. Goodman: Expansion of Existing Relationships, and Targeting of Specific Business Types and Competitors. Specialty Deposit Businesses were up $123 million for the quarter and have grown year-over-year at $19.3%. These business lines are highlighted in more detail on slide 11. Community Association balances rose by $69 million and typically experience seasonal increases in Q1 as HOA assessments are billed and paid.

Keene S. Turner: Earnings included the impact of an additional FDIC special assessment and expenses related to our core conversion project.

Keene S. Turner: Putting these items EPS was $1 <unk> per share.

Keene S. Turner: Net interest income declined $3 million from the linked quarter, mainly due to day count and higher purchase accounting premium amortization.

Keene S. Turner: Earning asset growth and improved yields were enough to offset the increase in interest expense in the quarter caused by marginally higher deposit costs and seasonal changes in funding mix.

Scott R. Goodman: The property management segment also grew in the quarter, $119 million, as we continue to fund and open new accounts for our best relationships. Third-party escrow balances are down slightly, but mainly relate to some planned larger 1031 and class action account disbursements. Overall, key relationships are intact, and we continue to expand these deposit-focused lines of business with new accounts and new relationships. Additional detail on the core funding mix and account activity is shown on slide 12.

Keene S. Turner: Fee income declined from the fourth quarter, mainly due to tax credit income that's typically highest at the end of each year.

Keene S. Turner: The provision for credit losses decreased from prior quarters as nonperforming loans has stabilized and is largely reflective of net charge offs loan growth and adjustments to qualitative factors.

Keene S. Turner: Noninterest expense was higher in the current quarter, primarily due to a seasonal increase in compensation and benefits, partially offset by a decrease in deposit servicing costs.

Keene S. Turner: Turning to slide 14, net interest income for the first quarter of 2024 was $138 million, which was a decrease of $3 million compared to the linked quarter.

Scott R. Goodman: Diversification of these balances by channel remains fairly consistent with the prior period, with, as you heard from Jim, roughly 31% of total deposits being on interest. The pace and magnitude of the aforementioned renexing continue to slow, and we remain focused on building and retaining stable, relationship-based funding. The underlying account activity also continues to trend favorably and reflect our intentional efforts toward emphasizing a granular and diversified core deposit, new accounts opened, exceeding closed accounts, and Net Balance increases when comparing new accounts to closed accounts across all channels. With that, I'd like to turn the call over to Keene Turner for his comments. Thanks, Scott. Good morning, everyone.

Keene S. Turner: Interest income increased zero point $7 million during the first quarter of 2024, driven mainly by higher earning asset balances and improved rates on the loan and investment portfolios.

Keene S. Turner: Loan income grew $1 $7 million from the linked period and.

Keene S. Turner: As higher balances and yields resulted in a $3 $5 million increase in interest income, which was partially offset by $1 $1 million decline in purchase accounting amortization and zero point $7 million of reduced net loan fees the average loan.

Keene S. Turner: Loan origination rate in the first quarter was 784%, which is accretive to the overall portfolio yield of 687% in the quarter.

Keene S. Turner: Turning to slide 13, we reported earnings per share of $1.05 in the first quarter on net income of $40 million. Reported earnings included the impact of an additional FDIC special assessment and expenses related to our core conversion project. Excluding these items, EPS was $1.07 per share.

Keene S. Turner: Income from the investment portfolio grew by nearly $1 million as the portfolio continues to benefit from higher rates on cash flow reinvestment with an average yield of five 1% on purchases within the quarter.

Keene S. Turner: Net interest income declined $3 million from the late quarter, mainly due to day count and higher purchase accounting premium amortization. Earning asset growth and improved yields were enough to offset the increase in interest expense in the quarter caused by marginally higher deposit costs and seasonal changes in funding. The income declined from the fourth quarter, mainly due to tax credit income that's typically highest at the end of each year.

Keene S. Turner: Average cash levels declined in the first quarter as we redeployed funds into other earning assets, reducing interest income by nearly $2 1 million.

Keene S. Turner: More detailed follow on slide 15.

Keene S. Turner: Interest expense grew $3 6 million in the quarter due to a higher cost of funds from expected unfavorable changes in our funding mix.

Keene S. Turner: Paid on interest bearing deposits, excluding brokered Cds was $2 8 million higher as a result of balanced growth and higher rates.

Keene S. Turner: The provision for credit losses decreased from prior quarters as non-performing loans stabilized. This is largely reflective of net charge-offs, loan growth, and adjustments to qualitative factors. Non-interest expense was higher in the current quarter primarily due to a seasonal increase in compensation and benefits, partially offset by a decrease in deposit servicing costs.

Keene S. Turner: And just on borrowed funds increased $1 $5 million in the quarter due to seasonally higher customer repo balances and elevated levels of <unk> advances.

Keene S. Turner: This was partially offset by lower expense on brokered time deposits.

Keene S. Turner: Turning to slide 14, net interest income for the first quarter of 2024 was $138 million, which was a decrease of $3 million compared to the length order. However, interest income increased $0.7 million during the first quarter of 2024, driven mainly by higher earning asset balances and improved rates on the loan and investment portfolio. Loan income grew $1.7 million during the length of the loan as higher balances and yields resulted in a $3.5 million increase in interest income, which was partially offset by a $1.1 million decline in purchase accounting amortization and $0.7 million of reduced net loan fees.

Keene S. Turner: The resulting net interest margin for the first quarter was $4 one 3% a decrease of 10 basis points on a linked quarter I.

Keene S. Turner: I would note that the negative change in loan purchase accounting combined with a $62 million improvement in unrealized losses on the investment portfolio reduced margin by five basis points in the quarter.

Keene S. Turner: The remaining change in net interest margin was generally in line with our expectations.

Keene S. Turner: Our outlook on margin remains unchanged, while interest rates remain at current levels are for longer and we expect that overall funding cost will continue to move slightly higher over the next couple of quarters, and we will see margin drift of around five basis points per quarter.

Keene S. Turner: The average loan origination rate in the first quarter was 7.84%, which is accreted to the overall portfolio yield of 6.87% in the quarter. Income from the investment portfolio grew by nearly $1 million as the portfolio continues to benefit from higher rates on cash flow reinvestment with an average yield of 5.21% on purchases within the quarter.

Keene S. Turner: The existing balance sheet.

Keene S. Turner: Asset growth funded with core deposits at reasonable spreads should allow us to defend or even add to net interest income dollars over the next couple of quarters, albeit at a somewhat lower marginal cost overall.

Without rate types, we would see margin level out somewhere around 4% by year end.

Keene S. Turner: When we do begin to see rate cuts, we anticipate each quarter point reduction in fed funds equates to an additional six to eight basis points of margin loss. Initially two to $2 5 million of quarterly net interest income.

Keene S. Turner: Average cash levels declined in the first quarter as we redeployed funds into other earning assets, reducing interest income by nearly $2.1 million. More details follow on slide 15. Interest expense grew $3.6 million in the quarter due to a higher cost of funds from expected unfavorable changes in our funding.

Keene S. Turner: Our expectation is that deposit rates will be more resistant to repricing initially in order to remain competitive.

With additional fed funds cuts, we will be more deliberate and moving deposit rates just as we were when rates were increasing.

Keene S. Turner: Interest paid on interest-bearing deposits, excluding brokered CDs, was $2.8 million higher as a result of balance growth and higher rates. Interest on borrowed funds increased $1.5 million in the quarter due to seasonally higher customer repo balances and elevated levels of FHLB advances. This was partially offset by lower expenses on brokered time deposits. The resulting net interest margin for the first quarter was 4.13%, a decrease of 10 basis points from the linked quarter.

Keene S. Turner: And while not a component of net interest income reductions in interest rates would positively impact deposit related noninterest expense trends as more than half of the underlying balances are indexed to the federal funds rate.

Keene S. Turner: Each 25 basis points in fed funds equates to approximately $1 million in quarterly expense.

Keene S. Turner: So net we expect pretax income to decline by one to one $5 million for every 25 basis points fed funds each quarter at that level, we estimate that mid to high single digit loan growth will replace lost earnings from interest rate cuts as long as they are limited to 25 basis points at a time.

Keene S. Turner: I would note that the negative change in loan purchase accounting, combined with a $62 million improvement in unrealized losses on the investment portfolio, reduced margin by five basis points in the quarter. The remaining change in net interest margin was generally in line with our expectations. Our outlook on margin remains unchanged.

Keene S. Turner: Slide 16 shows our credit trends credit trends are stable or improving from last quarter.

Keene S. Turner: Charge offs were $5 $9 million for the quarter or 22 basis points of average loans. The majority of charge offs in the quarter were related to loans that went into nonperforming status in the fourth quarter.

Keene S. Turner: While interest rates remain at current levels, higher for longer, we expect that overall funding costs will continue to move slightly higher over the next couple of quarters, and we will see margin drift of around five basis points per quarter on the existing balance sheet. Asset growth funded with core deposits at reasonable spreads should allow us to defend or even add net interest income dollars over the next couple of quarters, albeit at a somewhat lower marginal cost overall.

Keene S. Turner: This included a charge off of the remaining balance of the agricultural loan that was previously disclosed.

Keene S. Turner: Nonperforming assets were 30 basis points of total assets compared to 34 basis points at the end of December the.

The provision for credit losses was $5 $8 million during the first quarter and reflects the impact of net charge offs loan growth improvement in economic forecasts and additional qualitative reserve build on our agricultural and office CRE portfolios.

Keene S. Turner: Without rate cuts, we would see margin level out somewhere around 4% by year-end. When we do begin to see rate cuts, we anticipate each quarter point reduction in Fed funds equates to an additional 6 to 8 basis points of margin loss, initially $2 to $2.5 million of quarterly net interest income. Our expectation is that deposit rates will be more resistant to repricing initially in order to remain competitive. With additional Fed funds cuts, we will be more deliberate in moving deposit rates, just as we were when rates were increasing. And while not a component of net interest income, reductions in interest rates would positively impact deposit-related non-interest expense trends, as more than half of the underlying balances are indexed to the federal funds rate.

Keene S. Turner: Slide 17 presents the allowance for credit losses, the allowance for credit losses represents one 3% of loans or 134% when adjusting for government guaranteed loans.

Keene S. Turner: Reserve reflects a weighted at economic forecast that leans more toward the downside scenario than we believe is appropriate in this environment.

Keene S. Turner: On slide 18 first quarter fee income of $12 million was a decrease of $13 million from the fourth quarter and primarily in the tax credit income line item, which is seasonally strongest in the fourth quarter.

Keene S. Turner: Each 25 basis points in said funds equates to approximately $1 million in quarterly expense. To net, we expect pre-tax income to decline by $1 to $1.5 million for every 25 basis points of Fed funds each quarter. At that level, we estimate that mid-to-high single-digit loan growth will replace lost earnings from interest rate cuts as long as they are limited to 25 basis points at a time. Slide 16 shows our credit trends.

Keene S. Turner: In addition to the seasonality credits that are carried at fair value were impacted by movements in 10 years or so for rate, which increased roughly 35 basis points in the quarter.

Keene S. Turner: Linked quarter decreases related to community development private equity.

Keene S. Turner: Foley and servicing fees were partnered with partially mitigated by a gain on sale of $23 million in SBA loans.

Keene S. Turner: Credit trends are stable or improving from last quarter. Net charge-offs were $5.9 million for the quarter, for 22 basis points of average loans. The majority of charge-offs in the quarter were related to loans that went into non-performing status in the fourth quarter. This included a charge-off of the remaining balance of an agricultural loan that was previously disclosed. Non-performing assets were 30 basis points of total assets compared to 34 basis points at the end of December.

Keene S. Turner: As a reminder.

Keene S. Turner: As a reminder, community development and private equity distributions will fluctuate from period to period.

Turning to slide 19, first quarter noninterest expense was $94 million, an increase of $1 million compared to the fourth quarter.

Keene S. Turner: Included in the current quarter was <unk> 6 million of additional FDIC special assessment expense related to updated loss estimates on the deposit in certain songs.

Keene S. Turner: And zero point $4 million of core conversion related expenses.

Compensation and benefits were higher compared to the linked quarter, primarily due to the annual reset of payroll taxes. That's accrued PTO. In addition to a month's worth of worth of annual Merit increase.

Keene S. Turner: The provision for credit losses was $5.8 million during the first quarter and reflects the impact of net charge-offs, loan growth, improvement in economic forecasts, and additional qualitative reserve bills on our agricultural and office CRE portfolio. Slide 17 presents the allowance for credit losses. The allowance for credit losses represents 1.23% of loans, or 1.34% when adjusting for government-guaranteed loans.

Keene S. Turner: Deposit service expenses were lower compared to the linked quarter despite growth in average balances as certain allowances expired unused in the first quarter.

Keene S. Turner: We would expect this line item to grow off of the fourth quarter. As we expect continued specialized deposit growth to be a significant contributor to overall growth as planned.

Keene S. Turner: Our reserve reflects a weighted economic forecast that leans more toward a downside scenario than we believe is appropriate in this environment. On slide 18, first quarter fee income of $12 million, with a decrease of $13 million from the fourth quarter and primarily in the tax credit income line item, which is seasonally strongest in the fourth quarter. In addition to the seasonality, credits that are carried at fair value are impacted by movements in the 10-year SOFA rate, which increased roughly 35 basis points in the quarter.

Keene S. Turner: Other expenses decreased in the quarter due to a combination of lower Oreo and loan workout expenses and evidence of prudent cost control affecting travel and entertainment expenses.

Keene S. Turner: The first quarter's core efficiency ratio was 62% compared to 53, 1%.

Keene S. Turner: Linked quarter with the decrease being primarily attributable to the decline in fee income.

Keene S. Turner: We expect core expenses to expand sequentially due.

Keene S. Turner: Late-quarter decreases related to community development, private equity distributions, Foley, and servicing fees were partially mitigated by a gain on the sale of $23 million in SBA loans. As a reminder, community development and private equity distributions will fluctuate from period to period.

Keene S. Turner: Due to normalization of deposit service charges.

Our capital metrics are shown on slide 20, our tangible common equity ratio was 9% at the end of the first quarter up slightly from the end of the year or.

Keene S. Turner: Our strong earnings profile and are manageable dividend payout continues to build capital and offset the impact of RCI Aoc.

Keene S. Turner: Turning to slide 19, first quarter non-interest expense was $94 million, an increase of $1 million compared to the fourth quarter. Also included in the current quarter was $0.6 million of additional FDIC special assessment expense related to updated loss estimates in the deposit insurance funds, and $0.4 million of core conversion-related expenses. Compensation and benefits were higher compared to the late quarter, primarily due to the annual reset of payroll tax limits, accrued PTO, in addition to a month's worth of annual merit increase. Deposit service expenses were lower compared to the previous quarter, despite growth in average balances, as certain allowances expired unused in the first quarter.

Keene S. Turner: Hey, OCI losses, the increase in the quarter and reduced our tangible common equity ratio by 81 basis points at quarter end.

Keene S. Turner: On a per share basis tangible book value increased to $34 21 per share.

Keene S. Turner: A 4% annualized increase over the fourth quarter with the strength of our earnings and our current capital position, we have put a repurchase plan in place to acquire shares at a price that's attractive based on the value of our company. In addition to the previously announced one for common share increase of the quarterly dividend.

Keene S. Turner: The first quarter was a solid start to the year for us and was generally in line with our expectations.

Keene S. Turner: We would expect this line item to grow off of the fourth quarter as we expect continued specialized deposit growth to be a significant contributor to overall growth as planned. Other expenses decreased in the quarter due to a combination of lower OREO and loan workout expenses and evidence of prudent cost controls affecting travel and entertainment expenses. The first quarter's core efficiency ratio was 62% compared to 53.1% for the linked quarter, with the decrease being primarily attributable to the decline in fee income.

Keene S. Turner: With an adjusted return on average tangible common equity of 12, 5% and a 114% adjusted return on average assets.

Keene S. Turner: Feel good about our growth prospects on both loans and deposits and we believe will continue to grow both tangible book value and shareholder value in the coming quarters.

Speaker Change: I appreciate your attention today, and we're now going to open the line for analyst questions.

Speaker Change: Thank you we will now begin the question and answer session. If you have dialed in and I would like to ask a question. Please press star one on your telephone keypad to raise your hand and joined the queue.

Keene S. Turner: We expect core expenses to expand sequentially due to the normalization of deposit service charges. Our capital metrics are shown on slide 20. Our tangible common equity ratio was 9% at the end of the first quarter, up slightly from the end of the year. Our strong earnings profile and our manageable dividend payout continue to build capital and offset the impact of AOCI. AOCI losses increased in the quarter and reduced our Tangible Common Equity Ratio by 81 basis points at quarter end. On a per share basis, Tangible Book Value increased to $34.21 per share, a 4% annualized increase over the fourth quarter.

Speaker Change: You would like to withdraw your question. Please press star one again.

Speaker Change: To ask a question in our listening via loud speaker on your device. Please pickup your handset and assure that your phone is not on mute.

Speaker Change: When asking your question again Crestar one to try to keep and your first question comes from the line of Jeff <unk> with D. A Davidson your line is open.

Jeff: Thanks, Good morning, a couple of questions.

Jeff: The loan growth.

Jeff: <unk>.

Jeff: Sure.

Jeff: Jim I think you mentioned I would just want to confirm that the mid single digit loan growth guidance does that include the anticipated runoff out of the AG portfolio.

James Brian Lally: It does Jeff yes.

Keene S. Turner: With the strength of our earnings and our current capital position, we have put a repurchase plan in place to acquire shares at a price that's attractive based on the value of our company, in addition to the previously announced $0.01 per common share increase to the quarterly dividend. The first quarter was a solid start to the year for us and was generally in line with our expectations. We need an adjusted return on average tangible common equity of 12.5% and a 1.14% adjusted return on average asset.

James Brian Lally: Okay, all organic with growth in other areas.

James Brian Lally: Okay, I think that balance was in the $200 million range. So you got about 100 million run off for a headwind is that.

James Brian Lally: That's about right as we can.

James Brian Lally: We expect between now and year end about $100 million in run off.

Speaker Change: Appreciate it.

Speaker Change: And maybe for Scott.

Speaker Change: Im seeing that uptick in line utilization.

Missed it.

Scott R. Goodman: Is there any commonality or is there any timing to that or could you read into that.

Scott R. Goodman: Maybe an improvement in what you've seen.

Speaker Change: Yes, Jeff I think.

Speaker Change: Again, I think we see our company has used cash in the first quarter.

Keene S. Turner: We feel good about our growth prospects for both loans and deposits, and we believe we'll continue to grow both tangible book value and shareholder value in the coming quarters. I appreciate your attention today, and we're now going to open the line for analyst questions. 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.

Speaker Change: Some of the outflow I think you also see some of that on the lines.

Speaker Change: But I think it also reflects as I said I think companies are basically optimistic about their business and they're willing to drawdown working capital whether it's hiring good people if they can find them or.

Speaker Change: Just opportunistically investing in the business. So I think it's a combination of those two things.

Speaker Change: I know that the.

Speaker Change: Higher for longer the general story has been more sidelines sitting and waiting.

Speaker Change: The longer we go with higher for longer.

Speaker Change: Is there any do you see any.

Keene S. Turner: If you would like to withdraw your question, simply press star 1 again. If you are called upon to ask a question and are listening via the loudspeaker on your device, please pick up your handset and ensure that your phone is not in mute when asking your question.

Speaker Change: Expectation that borrowers say look this could take a while I'm ready to get back into the pool or you getting any indication that that may be playing out that are higher for longer that reality, and just kind of move on with projects.

Operator: Again, press star 1 to join the queue, and your first question comes from the line of Jeff Rulis. P.A. Davidson

Speaker Change: Yes, I think thats a good observation I think.

Speaker Change: What I would say I'm encouraged by the activity and the pipeline on the loan side overall, but I think what we've seen now for some time that the pace of those things move very slowly and I think there has been a little bit of a wait and see particularly when when the expectations were maybe for lower rates earlier this year, but I think now with maybe the.

Jeffrey Allen Rulis: Your line is open. Thanks. Good morning.

James Brian Lally: A couple of questions on the... Jim, I think you mentioned, I would just want to confirm that the mid-single-digit loan growth guidance does that include the anticipated runoff out of the ag portfolio? Yes, Jeff, yes. We'll work on that with growth in other areas. I think that balance was in the $200 million range, so you got about a $100 million runoff for a headwind. Is that correct?

Speaker Change: And then it's going to be higher for longer.

Speaker Change: You may see some of this stuff start to move a little quicker because those decisions have been made a system matter of of when not if.

Speaker Change: Got it and Scott while I have you just.

I wanted to touch on that it looks like deposit run off in the West was a particular.

Scott R. Goodman: That was a bigger driver more there was there anything specific to that outflow or do you have a greater percentage of.

James Brian Lally: That's about right. That's what we would expect. Between now and year-end, about $100 million would run off, and maybe for Scott. Kind of seeing that uptick in line utilization. I may have missed it.

Speaker Change: Tax and bonus type activity that.

Speaker Change: Occurred out west for any reason.

Speaker Change: Yes, I think the reasons are similar.

Speaker Change: But I think that the dollar amounts were a little larger and I think if you dial into it.

Speaker Change: It's a group of our top tier clients out there that are also some of our largest depositors and borrowers. So I think it I think it is just a function of the same behavior that we've seen in other markets with taxes.

Scott R. Goodman: Is there any commonality or is there any timing to that, or could you read into that? Maybe there's an improvement in what you've seen. Yeah, Jeff, I think, you know, again, I think we see our companies use cash in the first quarter. And that was some of the outflow. I think you also see some of that on the lines.

Speaker Change: Distributions dividends and.

Speaker Change: Those relationships for the most part are all still intact and it continued to be strong.

Speaker Change: Great.

Speaker Change: And last one thank you.

Scott R. Goodman: But I think it also reflects, as I said, I think companies are basically optimistic about their business. And they're willing to draw down working capital, whether it's, you know, hiring good people if they can find them or just opportunistically investing in the business. So I think it's a combination of those. Do you know that the kind of Hire for Longer, the general story has been, you know, more sidelines sitting and waiting?

Speaker Change: All communicated there the capital side TCE now above 9% when you get the dividend's gone peer, but but also just wanted to see is that.

Speaker Change: You touched on the buyback authorization are those two exclusive of one another or do you feel like you could pull off of a dividend increase and be nimble with the buyback as well.

Speaker Change: Yes, Jeff This is Jim I would say this that we can certainly dribble with both hands in this regard and do both we've announced the dividend increase and we'll be opportunistic relative to the buyback.

Scott R. Goodman: You know, the longer we go with Hire for Longer, is there any expectation that borrowers say, look, this could take a while, I'm ready to get back into the pool, or are you getting any indication that that may be playing out, that Hire for Longer's the reality, and it's time to move on with projects? Yeah, I think that's a good observation.

Speaker Change: Okay and at this point, Jim M&A as that.

Speaker Change: Anywhere on the radar.

James Brian Lally: Not really I think we just continue to create relationships, but given where the stock prices today and we will focus the discussion makes sense at this point in time.

Speaker Change: Great. Thank you.

Speaker Change: And your next question comes from the line of Andrew Liesch with Piper Sandler. Please go ahead.

Scott R. Goodman: I think, you know, what I would say is that I'm encouraged by the activity and the pipeline on the loan side overall, but I think what we've seen now for some time is that the pace of those things moves very slowly, and I think there has been a little bit of a wait and see, particularly when the expectations were maybe for lower rates earlier this year. But I think now, with maybe the conclusion that it's going to be higher for longer, I think you may see some of this stuff start to move a little quicker because of those decisions. And, Scott, while I have you, I just want to say thank you to all of you for being here.

Andrew Brian Liesch: Hey, guys. Good morning, Thanks for taking the questions.

Andrew Brian Liesch: Can you just just on the margin at least in the near term I hear the five basis points, but.

Andrew Brian Liesch: You also had in this last quarter five basis points or maybe not one time items, but.

Andrew Brian Liesch: Not necessarily recurring item. So do you think maybe that tide.

Andrew Brian Liesch: Hi basis points off this last quarter's $4 13 may not be as drastic as five.

Speaker Change: Yes, Andrew.

Speaker Change: What I think about going to 4%.

Speaker Change: At the end of the year with with no rate cuts I do think that the first the second quarter in terms of margin compression is probably more similar to <unk>.

Scott R. Goodman: I wanted to touch on that. It looks like deposit runoff in the West was a particular driver or more there. Was there anything specific to that outflow, or do you have a greater percentage? A tax and bonus type activity that occurred out west for any reason.

Speaker Change: Trends, though so five with maybe some some worsening and then we see more firming up the reason would be I think we expect.

Scott R. Goodman: Yeah, I think the reasons are similar, but I think that the dollar amounts were a little larger, and I think if you dial into it, you know, it's a group of our top tier clients out there that are also some of our largest depositors and borrowers. So I think it is just a function of the same behavior that we've seen in other markets with taxes, distributions, and dividends, and those relationships, for the most part, are still intact and continue to be strong.

Speaker Change: Continued seasonal pressure on deposits I don't think we expect to see as much growth until the second half similar to last year and then.

Speaker Change: With the agricultural head.

Headwind, we expect that to maybe be a little bit more near term than in the latter parts of the year and also I think we expect loan growth is typically stronger for us in particular in the fourth quarter. So I think those things makes me a little bit less optimistic of <unk> QQ.

Scott R. Goodman: And the last one, I think you all communicated the capital side, TCE, now above 9%. You get the little dividend bump here, but also just wanted to see, are those two exclusive of one another, or do you feel like you could pull off a dividend increase and be nimble with the buyback as well? Yeah, Jeff. This is Jim.

Speaker Change: Maybe it would seen.

Speaker Change: <unk>.

Speaker Change: Those pieces are in la so I appreciate you pointing those out there.

Speaker Change: We've got a fairly significant premium still on SBA loans because of the weighted average life, it's roughly $24 million and so it also.

James Brian Lally: I would say this, we can certainly dribble with both hands in this regard and do both. We've announced the dividend increase and will be opportunistic relative to the buyback. Okay, and at this point, Jim, M&A, is that anywhere on the radar? Not really.

Speaker Change: The debt.

Speaker Change: With activity there has been fairly robust and that can cause net interest income and margin to move around quite a bit on a quarterly basis I don't know that we have done as good a job of shining a light on that but you get some payoffs in that activity in that.

James Brian Lally: I think, you know, we just continue to create relationships, but given where the stock price is today and where we're focused, it just doesn't make sense at this point in time. Great. Thank you. And your next question comes from the line of Andrew Liesch with Piper's. Hey guys, good morning.

Speaker Change: Can push the forecast around but I think we think dollars are reasonably stable with some growth.

Andrew Brian Liesch: Thanks for taking the question. Keene, just on the margin, at least in the near term, I hear the five basis points, but you also had in this last quarter five basis points of maybe not one-time items but, like, not necessarily recurring items. So do you think maybe that five basis points off this last quarter's 413 may not be as drastic as five? Yeah, Andrew. I guess when I think about going to 4%-ish by the end of the year with no rate cuts, I do think that the first and second quarter in terms of margin compression is probably more similar to the 4Q to 1Q trend, so 5 with maybe some worseness, and then we see more firming up. The reason would be that I think we should expect continued seasonal pressure on deposits.

Speaker Change: <unk>.

Speaker Change: Maybe a little bit of growth there and then some growth in the second half on on dollars.

Got it all right that's really helpful. There thanks for the clarity.

Speaker Change: And then just on the expense front.

Speaker Change: Pretty big increase in the seasonal bonus accruals payroll taxes, what have you.

Speaker Change: Much of that do you expect to fall out of the run rate here in the second quarter.

Speaker Change: Yes, I think theres, a little bit of a trade off here because the.

Speaker Change: Deposit costs in the quarter normalized of roughly $22 five.

Speaker Change: That.

Speaker Change: The 22 had a reversal of two and a half in there and I think those essentially trade off.

Keene S. Turner: I don't think we expect to see as much growth until the second half, similar to last year. And then with the agricultural headwind, we expect that to maybe be a little bit more near term than in the latter part of the year. And also, I think we expect loan growth to be typically stronger for us, in particular in the fourth quarter. So I think those things make me a little bit less optimistic about 1Q to 2Q than it maybe would seem. And those pieces aren't lost, so I appreciate you pointing those out where we've got a fairly significant premium still on SBA loans because of the weighted average life. It's roughly $24 million in total.

Speaker Change: Some of the expenses that that were in the run rate, so with with a little bit of an additional uptick.

Speaker Change: In core related expenses I think for the second quarter, we think it's more like 94 to 96 of expenses.

Speaker Change: The higher end being.

Speaker Change: With a little bit heavier core and sort of in the middle with.

Speaker Change: A little bit of abatement of.

Speaker Change: Payroll tax and some of those seasonal items, but the specialized deposit costs are going to snap back to the run rate and then if we expect that there'll be some growth in those balances so with the ECR loving just over 3%.

Keene S. Turner: So that prepayment activity there has been fairly robust, and that can cause managers' income and margin to move around quite a bit on a quarterly basis. I don't know that we have done as good a job of shining a light on that, but you get some payoffs in that activity, and that can push the forecast around. But I think we think dollars are reasonably stable with some growth, 1Q to 2Q, maybe a little bit of growth there, and then some growth in the second half of dollars. And then just on the expense front, pretty big increase in seasonal bonus accruals, payroll taxes, what have you.

And in terms of the accrual rate, if that's going to be so.

Speaker Change: <unk> increase in.

Speaker Change: Push what is otherwise we think expense controls into that that range of <unk> 94 to 90 sites.

Speaker Change: Got it.

Speaker Change:

Speaker Change: Great helpful. There and then on the <unk>.

Speaker Change: Core conversion any update or is it still early stages to provide any sort of financials around that.

Speaker Change: Yes, I guess, what I would say Andrew is that we continue to make progress in.

Speaker Change: Making sure the dollars going out the door for.

Speaker Change: Are those related expenses are well managed I think some of it just depends on where it is in terms of what's coming through the P&L, but I still think $45 million in the year.

Keene S. Turner: How much of that do you expect to fall out of the run rate here in the second quarter? Yeah, I think there's a little bit of a trade-off here because the deposit costs in the quarter normalized are roughly $22.5. The $20.2 had a reversal of $2.5 in it, and I think those essentially trade off some of the expenses that were in the run rate. So with a little bit of an additional uptick in core-related expenses, I think for the second quarter, we think it's more like $94 to $96 in expenses, the higher end being, you know, with a little bit heavier core and sort of in the middle with a little bit of abatement of payroll tax and some of those seasonal items.

Speaker Change: Is is likely to occur we are getting a few more of those dollars here.

Speaker Change: First quarter second quarter, I thought they'd be maybe more third quarter fourth quarter.

Speaker Change: Heavy but we're getting some that are trickling through and to the extent that we get any more updates there will we'll let you know, but things are going well and as planned in those dollars I think there are money well spent to make sure that we have a smooth transition and we also have access to the information when we.

Speaker Change: Wake up on Monday and go to work.

Speaker Change: Got it.

Speaker Change: Very helpful. All right. Thanks for taking the questions I'll step back.

Keene S. Turner: But the specialized deposit costs are going to snap back to the run rate, and then we expect that there'll be some growth in those balances, so with the ECR running just over 3% in terms of the accrual rate, that's going to be a sequential increase and push what is otherwise, we think, expense controls into that range of $94 to $96.

Speaker Change: Thanks, Andrew.

And your next question comes from the alignment line of Damon Delmonte with Keybanc your.

Damon Paul DelMonte: Your line is open.

Damon Paul DelMonte: Hey, good morning, guys hope everybody's doing well today.

So first question on the tax credit income line Keene.

Damon Paul DelMonte: Can I understand I appreciate the the impact on the with the move in rates.

Damon Paul DelMonte: Net loss that was reported this quarter, how much of the rate movement impact that.

Keene S. Turner: Great, helpful there. And then on the core conversion, any update, or is that still early stages to provide any sort of financials around? Yeah, I guess what I would say, Andrew, is that we continue to make progress on this, and things are trickling through. To the extent that we get any more updates there, we'll let you know. But things are going well and as planned, and, you know, those dollars, I think, are monies well spent to make sure that we have a smooth transition and we also have access to the information when we, you know, wake up on Monday and Got it. Very helpful. All right. Thanks for taking the questions.

Damon Paul DelMonte: Okay.

Keene S. Turner: Yes, Damon it's essentially all <unk>.

Keene S. Turner: All right related impact that maybe there were some credits that offset that.

Speaker Change: A little.

Speaker Change: A little bit but.

Speaker Change: 10 basis points is roughly a $1 million in sofa was up 35, so it's largely driven by the <unk>.

Speaker Change: That negative in terms of what the rate movement was.

Speaker Change: Okay.

Speaker Change: So if you is there any.

Speaker Change: Such a big variable to add to the bottom line there with the swings.

Speaker Change: I mean do you absent any material move in rates here in the second quarter.

Speaker Change: Do you think that you will go back to us.

Andrew Brian Liesch: I'll step back. Thanks, Andrew. And your next question comes from the line of Damon DelMonte with KBW. Hey, good morning, guys. Hope everybody's doing well today.

Speaker Change: $1 million to $2 million level or is it just impossible to gauge that.

Speaker Change: No I think we do think that at least here in the second quarter, there's going to be some activity and I think overall, we expect to overcome the negative on rate so still like.

Damon Paul DelMonte: So, first question on the tax credit income line, Keene. I can understand and appreciate the impact of the move in rates. Of that loss that was reported this quarter, how much did the rate movement impact that? Yeah, Damon, it's essentially all rate-related impact.

Speaker Change: Plus $10 million for the year four.

Speaker Change: 2020 for as long as rates don't hurt us too much. So I think the fundamentals of that business and the activity. There are are still good its just a little bit of a tough to to outrun some of those larger swings in the quarter.

Keene S. Turner: It's, it's maybe there were some credits that offset that a little bit, but, you know, 10 basis points is roughly a million dollars, and SOFR was up 35. So it's largely driven by that, you know, negative in terms of what the rate movement was. Okay, so if you, is there any, it's such a big variable to the bottom line there with the swings, but I mean, do you, absent any material move in rates here in the second quarter, do you think that, you know, you go back to a one to $2 million level, or is it just impossible to gauge?

Speaker Change: Got it Okay, and then as far as like the provision goes.

Speaker Change: The reserves at 123, you cleaned up a couple a couple of credits here this quarter.

Should we kind of think about the provision level over the upcoming quarters.

Speaker Change: Yeah, I think that.

Speaker Change: We think that with maybe some of the AG portfolio going away or we put some extra there were optimistic that we won't necessarily need that.

Speaker Change: And.

Speaker Change: It's tough to say, what's going to happen with the economic data I mean, my expectation is that.

Speaker Change: The rate forecast, we'll probably put some negatives into a longer and economic data, but that net net the <unk>.

Keene S. Turner: No, I think we do think that at least here in the second quarter, there's going to be some activity, and I think overall, we expect to overcome the negative on rates, so still like a, you know, plus $10 million for the year in 2024, as long as rates, you know, don't hurt us too much. So I think the fundamentals of that business and the activity there are still good. It's just a little bit tough to outrun some of those larger swings in the quarter.

Speaker Change: Economic assumptions underlying that it'll be unchanged.

Speaker Change: And some of it will just depend on how much since we're a little bit more weighted towards the negatives.

Speaker Change: Just in terms of how the model works out.

Speaker Change: How much that the revisions downward way on that I think are our goal.

Speaker Change: Goal is that we want.

Speaker Change: Investors and everyone to feel secure about that we've got sufficient reserve then we're going to continue to be maybe.

Keene S. Turner: Got it. Okay. And then as far as the provision goes, you know, the reserves at 123, you cleaned up a couple of credits here this quarter. You know, how should we kind of think about the provision level for the upcoming quarter? Yeah, I think that, You know, we think that with maybe some of the ag portfolio going away, we should put some extra there. We're optimistic that we won't necessarily need that. And, you know, it's tough to say what's going to happen with the economic data.

Speaker Change: Maybe a little bit more on the conservative end, but I think without.

Speaker Change: Really degradation of credit or a material growth I think there is some opportunity for the the provision level, particularly here in the next quarter to move.

Speaker Change: Move in our favor a little bit.

Speaker Change: Got it Okay and then just lastly, if you look at the average earning asset yields I think it was flat at 620% quarter over quarter.

Speaker Change: Are you surprised by that would you expect that there'll be some expansion still.

Speaker Change: Yes.

Keene S. Turner: I mean, my expectation is that the rate forecast will probably put some negatives into the longer-end economic data, but that net-net, you know, the economic assumptions underlying that'll be unchanged, and some of it will just depend on, you know, how much, because we're a little bit more weighted toward the negative, just in terms of how the model works out, you know, how much the revisions downward, you know, weigh on I think our goal is that investors and everyone should feel secure about that we've got sufficient reserves and we're going to continue to be, you know, maybe a little bit more on the conservative end, but I think without, you know, really degradation of credit or material growth. I think there is some opportunity for the provision level, particularly in the next quarter, to move in our favor a little bit. I got it.

I think that the purchase accounting weighed on that just a hair so.

Speaker Change: Thank you.

Speaker Change: Fundamentally as we look out.

Speaker Change: New loan originations are still helping us.

Speaker Change: Reinvestment is helping us and I don't expect that we're going to really have the remixing that was negative in terms of the proportion of cash balances I think will be similar cash balances. So I would expect.

Speaker Change: The yield to be more positively trending in the upcoming quarter here as long as some of the variables in terms of premium amortization.

Speaker Change: Asia and some of those things are are generally in line or cooperate, but I think we kind of had a few factors going against us, but the fundamentals of of loan yield and investment yield and those things remain favorable.

Keene S. Turner: Okay. And then, just lastly, if you look at the average earning asset yield, I think it was flat at 6.20%, quarter over quarter. Are you surprised by that, or would you have expected there to be some expansion still?

Speaker Change: Despite that we were a little off in terms of how we guided.

Speaker Change: Margin forecast.

Speaker Change: Feel like the pieces that we missed the mark really on.

Speaker Change: Recurring fundamental things that materially affect our run rates for Q3, Q et cetera.

Keene S. Turner: I think the purchase accounting weighed on that just a hair. So, you know, I think that fundamentally, as we look out, new loan originations are still helping us, and reinvestment is helping us. And I don't expect that we're going to really have the remixing that was negative in terms of the proportion of cash balances. I think we're, you know, we'll have similar cash balances. So, I would expect the yield to be, you know, more positively trending in the upcoming quarter here as long as, you know, some of those variables in terms of, you know, premium amortization and some of those things are generally aligned or cooperate. But I think we kind of had a few factors going against us.

Speaker Change: Got it okay. That's all that I had thank you.

Speaker Change: Thanks Damon.

Brian: And your next question comes from the line of Brian Morgan Stanley.

Brian: Shannon.

Brian Joseph Martin: Hey, good morning, guys.

Brian Joseph Martin: Hi, Brian.

Brian Joseph Martin: Maybe just one on just the margin just I guess I appreciate the commentary.

Speaker Change: The outlook if rates if we do see some rate cuts then that kind of 4% threshold or maybe target. You are thinking about is is lower depending on when we get those rate cuts. If we get some later this year.

Speaker Change: Then that number interest a bit lower based on your commentary about the impact of cuts fair.

Speaker Change: Yes, Brian I think if we start seeing some cuts I mean, I think we're starting to head south of 4%.

Keene S. Turner: But the fundamentals of loan yield and, you know, investment yield and those things, you know, remain favorable. So, I mean, despite that we were a little off in terms of how we guided the margin forecast, I feel like the pieces that we missed weren't really on, you know, recurring fundamental things that materially affect the run rate, you know, for 2Q, 3Q, etc. Got it. Okay, that's all that I had. Thank you. Thanks, Damon. And your next question comes from the line of Brian Martin, Liz Chan. Hey, good morning guys, and Brian.

Speaker Change: Yes.

Speaker Change: One call it.

Speaker Change: Early to mid second quarter Im sorry, the third quarter and then depending on how much you get by the end of the year when they occur.

Speaker Change: You'll have some more of that impact in the fourth quarter, but really it will start to impact first quarter of 'twenty five, but yes I think.

Speaker Change: When I look at it.

Speaker Change: Two or three rate cuts.

Speaker Change: We start heading just south of 4% margin.

Speaker Change: Yes, Okay understood and then just remind me are there.

Speaker Change: I guess the.

As far as in terms of the fixed assets that repricing fixed rate loans that reprice I mean is that a meaningful number I mean in terms of what you guys have or is that not a not a big number there what might be repricing over the balance of the year.

Brian Joseph Martin: Hey, Keene, maybe just one on just the margin, just, I guess, I appreciate the commentary and just the outlook. If rates, if we do see some rate cuts, then that kind of 4%, you know, threshold or maybe target you're thinking about is lower, depending on when we get those rate cuts. If we get some later this year, then that number drifts a bit lower based on your commentary about the impact of cuts. Yeah, Brian, I think if we start seeing some cuts, I mean, I think we're starting to head south of 4%. Yeah. You know, if you get one, you know, call it, early to mid-third quarter.

Speaker Change: 12 months, However, you think about it.

I mean, it's a fairly decent amount I mean, if you think about the weighted average life of the loan portfolio sort of ex SBA.

Speaker Change:

Speaker Change: It is.

Speaker Change: Three to four years.

Speaker Change: And then you look at the proportions I mean do you get.

Speaker Change: <unk> 600 million of fixed rate loan repricing in the next next 12 months. So it's insignificant.

Speaker Change: It is helpful and I think that's part of the new loan origination yield that that.

Keene S. Turner: And then depending on how much you get by the end of the year or when they occur, you'll have some more of that impact in the fourth quarter, but really, it'll start to impact in the first quarter of 2025. But yeah, I think when I look at, you know, two or three rate cuts, we start heading just south of 4%. Okay, understood.

Speaker Change: I indicated I think was a good fundamental we had maybe a little bit more in the first quarter here in terms of some of the tax credit stuff that repriced with a little bit of a headwind so origination yield wasn't quite as good but moving forward ex that the seasonality in those fundings occurs first half as well I think we are.

Keene S. Turner: And then just remind me, are there, you know, I guess the, as far as terms of the fixed assets that reprice or fixed rate loans that reprice, I mean, is that a meaningful number? I mean, in terms of what you guys have, or is that not a, not a big number there as far as what might be repricing over the balance of the year or, you know, next 12 months, however you think about it?

Speaker Change: We're optimistic about fix.

Speaker Change: Fixed rate repricing continuing to to improve yields and just overall loan origination improving yields yes.

Speaker Change: Yes, and the pickup I mean, if it is 500 and $600 million over the next 12 months is that what kind of yield is that coming off at versus what you mentioned as far as what the new origination yields or is it kind of in the four five range or I guess.

Keene S. Turner: I mean, it's a fairly decent amount. I mean, if you think about the weighted average life of the loan portfolio, you know, sort of XSBA, you know, three to four years. And then you look at the proportions.

Speaker Change: And idea of how much pickup you get on that.

Yeah, I mean, we have been originating roughly.

Keene S. Turner: I mean, you get, you know, five, six hundred million of fixed-rate loan repricing in the next, you know, next 12 months. So it's significant, and it's helpful. And I think that's part of the new loan origination yield that, Yeah. And the pickup, I mean, if it's half, you know, 500, 600 million over the next 12 months, is that, what kind of yield is that coming off at versus what you mentioned as far as what the new loan origination yields are? Is it kind of in the four and a half range or not?

Six 5% on fixed rate loans than we.

Speaker Change: We're probably picking up 200 basis points on that just sort of depending on when it was originated so.

Speaker Change: So it's a fairly.

Speaker Change: Decent.

Speaker Change: Decent trade and then variable rate pricing is.

Speaker Change: Closer to eight five or 9% that helps drive up that overall origination.

Speaker Change: Origination rates.

Speaker Change: Got you Okay I appreciate it and how about just jump into credit for a moment just on the on the classifieds look like they were down a touch in the quarter just any commentary on just kind of criticized or just kind of a special mentioned loans, how they are trending here.

Keene S. Turner: Yeah, I mean, we've been originating roughly at 6.5% on fixed rate loans. And, you know, we're probably picking up 200 basis points on that, just sort of depending on when it was originated. So, you know, it's a fairly decent trade. And then, you know, variable rate pricing is closer to 8.5% or 9%.

Speaker Change: Quarter.

Speaker Change: Yeah, Brian It's you're right classifieds were flat, but criticized loans were also flat in the quarter. So really the combination criticized classifieds represented just about 4% of total loans and really as we expected just kind of a return to a more stabilized level here in the first quarter.

Brian Joseph Martin: Got you Okay. Thanks, Doug and then.

Douglas N. Bauche: That helps drive up that overall origination rate. Gotcha. Okay. I appreciate it. And how about just jump into credit for a moment, just on the classifieds look like they're down a touch in the quarter, any commentary on just kind of criticizing or just kind of special mention loans, how they're trending here in, you know, the quarter? Yeah, Brian, it's Doug. You're right. Classifieds were flat, but criticized loans were also flat in the quarter.

Speaker Change: Just on the and.

Speaker Change: And maybe just one more on credit can you talked about the provision, but just the higher for longer does that impact maybe thinking about this incremental impact on credit that that could have maybe you take the reserve up a bit is that more kind of your commentary about being more cautious here I guess.

Speaker Change: Just trying to understand how youre thinking about that.

Yes, I guess, what I would say is in the quarter.

Speaker Change: It's probably a little bit of our we reflected it in the qualitative factors and then my comments, we're just trying to get out. The fact that I think we use Moody's is our data source, there and we think that they'll contemplate that in some of the information. So I think what we've seen happening is the short term information in the mall.

Douglas N. Bauche: So, really, the combination of criticized and classified loans represents just about 4% of total loans and, really, as we expected, just kind of returned to a more stabled level here in the first quarter. Okay, thanks, Doug. And then just on the, you know, maybe just one more on credit, Keene, you talked about the provision, but just the hire for longer, you know, does that impact, you know, maybe thinking about, you know, just the incremental, you know, impact on credit that that could have, you know, that maybe you take the reserve up a bit, is that more kind of your commentary about being more cautious here? You know, I guess, to try and understand what you're thinking.

Speaker Change: Model.

Speaker Change: Better, but the longer term information with rates higher for longer probably the grades a little bit and so I think we're positioned to deal with that transition from a key factor to the underlying data.

Speaker Change: I don't know how much will.

Speaker Change: Uh huh.

Speaker Change: We will lean on it or take a position one way or the other unless we see that that affecting our own data, but we do rely on the forecast and we will sort of be it in the same boat as everyone else.

Speaker Change: Okay and then the last one for me was just on the you guys.

Keene S. Turner: Yeah, I guess what I would say is in the quarter, you know, it's probably a little bit of our, we reflected it in the qualitative factors. And then my comments were just trying to get at the fact that I think, you know, we use Moody's as our data source there. And we think that they'll contemplate that in some of the information. So, I think what we've seen happening is the short-term information in the model, you know, looks better, but the longer-term information with, you know, rates, I think we're positioned to deal with that transition from a Q factor to the underlying data.

Speaker Change: Recognizing the SBA gains in the quarter, just kind of wondering how you're thinking about that and then just maybe kind of that.

Speaker Change: The fee income line, maybe kind of asking your commentary about.

Speaker Change: The tax credit being somewhat volatile Keene I guess in terms of how we think about that here in the coming quarters.

Speaker Change: Yeah, I'll say on SBA gains, it's really a function of deposit growth and loan opportunities I think you heard from Jim We got strong demand and Scott in a variety of areas and so the SBA portfolio provides a nice relief.

Keene S. Turner: I don't know how much we'll... You know, we'll lean on it or take a position one way or the other unless we see, you know, that it is affecting our own data. But, you know, we do rely on the forecast, and we'll sort of be in the same boat as everyone else.

Speaker Change: Valve for customers that don't typically bring material funding to that to the bank. So.

Speaker Change: When we look at selling alone.

Speaker Change: SBA and then our ability to originate and then an additional one somewhere else I think that's a it's a good trade and I think youll see us continue to at least make that trade.

Keene S. Turner: Yeah, okay, and then the last one for me was just on the, you guys recognized some SBA gains in the quarter, just kind of wondering how you're thinking about that, and then maybe just kind of that, you know. The Income Line may be kind of asking you your commentary about, you know, the tax credit being somewhat volatile in terms of how we think about that here in the coming years. Yeah, I'll say on SBA gains, it's really a function of deposit growth and loan opportunities.

Speaker Change: Stent that we have sufficient origination activity that drives good yields.

Speaker Change: The upcoming quarters or at least <unk> and then we'll we'll keep evaluating it. So I think it's a it's a part of the balance sheet management and also that's where we can use to help mitigate pressures from some of the deposit repricing and.

Keene S. Turner: I think you heard from Jim, we've got strong demand and Scott in a variety of areas. And so the SBA portfolio provides a nice relief valve for customers that don't typically bring, you know, material funding to the bank.

Speaker Change: I think we had a loss of $2 million go on through the tax line item with you.

Speaker Change: One 3 billion of negative fair value and I think my comment as we expect with long as we don't get rates moving around or against us too too much.

Keene S. Turner: So, you know, when we look at selling a loan in SBA and then our ability to originate an additional one somewhere else, I think it's a good trade. And I think you'll see us continue to at least make that trade to the extent that we have, you know, sufficient origination activity that drives good yields in the upcoming quarters here, at least 2Q, and then we'll keep evaluating it. So I think it's a part of the balance sheet management and also a tool we can use to help, you know, mitigate pressures from, you know, some of the positive repricing. And then I think, you know, we had the loss of 2 million going through the tax credit line item with, you know, what, 3 billion of negative fair value.

Speaker Change: The activity in that business for the remainder of the year should.

If you could sort of get us to the level that we saw net net in total last year was just under $10 million and I do think that some of that.

Speaker Change: Ken occur here in the second quarter.

Speaker Change: But we also expect most of it will be fourth quarter weighted.

Speaker Change: Okay, Yes, I guess I was asking more about just the kind of the impact if you think about fee income exited the tax credit.

Speaker Change: To pick up some more gains here on SBA, just kind of relative to how youre thinking about fee income last quarter versus going forward do you have more gains does that maybe boost your outlook on fee income ex tax credit or is it more just.

Keene S. Turner: And I think, you know, my comment is we expect, as long as we don't get rates moving around or against us too much, the activity in that business for the remainder of the year should, you know, should sort of get us to the level that we saw in that net, in total, last year was just under 10 million. And I do think that some of that can occur here in the second quarter. But we also expect most of it will be in the fourth quarter.

Speaker Change: An offset to maybe some other areas being a little bit less or whatnot as we go forward.

Speaker Change: Yes, I mean, I think all else being equal last year, we had on <unk>.

Speaker Change: Fortunately a boldly death benefit included in the in the gains, but otherwise I think we expect private equity Cte some of those things to be episodic and contribute similarly, along with SBA gains. So the SBA to your question would be additive to our overall expectations gotcha. Okay. Perfect. I. Appreciate you guys taking the questions. Thanks.

Keene S. Turner: Okay. Yeah, I guess I was asking more about just the kind of the impact, if you think about fee income, you know, the tax credit, you know, if you continue to pick up some more, you know, gains here on SBA, just kind of relative to how you were thinking about fee income last quarter versus going forward, if you have more gains, does that maybe boost your outlook on fee income ex-tax credit, or is it more just, you know, an offset to maybe some other, you know, areas being a little bit less or whatnot as we go forward?

Speaker Change: Thanks, Brian.

Speaker Change: Again, if you would like to ask a question fresh star one on your telephone keypad.

Speaker Change: And there are no questions at this time I will now turn the conference back to Jim Lally for closing remarks.

James Brian Lally: Okay. Thank you and thank you all for joining US this morning and for your interest in our company and we certainly look forward to speaking to you again at the end of the second quarter have a great day.

Keene S. Turner: Yeah, I mean, all else being equal, last year, we had, you know, unfortunately, a bully death benefit included in the gains. But otherwise, I think, you know, we expect private equity, CDE, some of those things to be episodic and contribute similarly, along with SBA gains.

James Brian Lally: Ladies and gentlemen that concludes today's call. Thank you all for joining you may now disconnect.

Speaker Change: Please wait the conference will begin shortly.

Speaker Change: Sure.

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Keene S. Turner: So the SBA to your question would be additive to our overall expectation. Gotcha. Okay, perfect. I appreciate you guys taking the time to answer the questions. Thanks. Thanks, Brian. Again, if you would like to ask a question, press star 1. There are no questions at this time. I will now turn the conference back to Gene Lally for closing. Cat, thank you. Thank you all for joining us this morning and for your interest in our company, and we certainly look forward to speaking to you again at the end of the second quarter. Have a great day. Ladies and gentlemen, that concludes today's call. Thank you all for joining us. You may now disconnect. Please wait; the conference will begin shortly.

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