Q1 2024 Bridgewater Bancshares Inc Earnings Call
Operator: Good morning and welcome to the Bridgewater Bancshares 2024 First Quarter Earnings Call. My name is Andrea, and I will be your conference operator today. All participants have been placed in listen-only mode. After Bridgewater's opening remarks, there will be a question and answer session.
Good morning, and welcome to the Bridgewater Bancshares 'twenty 'twenty four first quarter earnings call.
Operator: My name is Andrea and I will be your conference operator today.
Speaker Change: All participants have been placed in listen only mode.
After Bridgewater is opening remarks, there will be a question and answer session.
Operator: To ask a question, please press star, then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the key. To withdraw your question, please press star, then 2. Please note that today's call is being recorded. At this time, I would like to introduce Justin Horstman, Vice President of Investor Relations, to begin the conference call. Please go ahead.
Operator: To ask a question. Please press Star then one on your Touchtone phone.
Justin Horstman: If you are using a speakerphone please pick up your handset before pressing the keys.
Speaker Change: To withdraw your question. Please press Star then two.
Justin Horstman: Please note that today's call is being recorded.
Operator: At this time I would like to introduce Justin Horstman, Vice President of Investor Relations to begin the conference call. Please go ahead.
Justin Horstman: Thank you, Andrea, and good morning, everyone. Joining me on today's call are Jerry Baack, Chairman, President, and Chief Executive Officer; Joe Chybowski, Chief Financial Officer; Jeff Shellberg, Chief Credit Officer; and Nick Place, Chief Lending Officer. In just a few moments, we will provide an overview of our 2024 first quarter financial results. We will be referencing a slide presentation that is available on the investor relations section of Bridgewater's website, investors.bridgewaterbankmn.com. Following our opening remarks, we will open the call for questions. In today's presentation, we may make projections or other forward-looking statements regarding future events or the future financial performance of a company. We caution that such statements are only predictions and that actual results may differ materially.
Justin Horstman: Thank you Andrea and good morning, everyone. Joining me on today's call are Jerry Bach, Chairman, President and Chief Executive Officer, Joe Schabowski, Chief Financial Officer, Jeff Shelburne, Chief Credit Officer, and Nick place Chief lending Officer and.
Justin Horstman: And just a few moments we will provide an overview of our 2024 first quarter financial results, we will be referencing a slide presentation that is available on the Investor Relations section of Bridgewater Web site investors out Bridgewater Bank and then dotcom.
Justin Horstman: Following our opening remarks, we will open the call for questions.
Justin Horstman: During today's presentation, we may make projections or other forward looking statements regarding future events or the future financial performance of the company. We caution that such statements are predictions and that actual results may differ materially. Please see the forward looking statement disclosure in the slide presentation, and our 2024 first quarter earnings release for more information about risks and uncertainty.
Justin Horstman: Please see the forward-looking statement disclosure in the slide presentation and our 2024 first quarter earnings release for more information about risks and uncertainties which may affect the company. The information we will provide today is as of and for the quarter ended March 31st, 2024, and we undertake no duty to update the information. We may also disclose non-GAAP financial measures during this call. We believe certain non-GAAP financial measures, in addition to the related GAAP measures, provide meaningful information to investors to help them understand the company's operating performance and trends and to facilitate comparisons with the performance of our peers.
Justin Horstman: Fees, which may affect us.
Justin Horstman: The information we will provide today is as of and for the quarter ended March 31, 2024, and we undertake no duty to update the information.
Justin Horstman: You May also disclose non-GAAP financial measures. During this call we believe certain non-GAAP financial measures. In addition to the related GAAP measures provide meaningful information to investors to help them understand the company's operating performance and trends and to facilitate comparisons with the performance of our peers. We caution that these disclosures should not be viewed as a substitute for operating results.
Justin Horstman: We caution that these disclosures should not be viewed as a substitute for operating results determined in accordance with GAAP. Please see the slide presentation and 2024 first quarter earnings release for reconciliations of non-GAAP disclosures to the comparable GAAP. I would now like to turn the call over to Bridgewater's Chairman, President, and CEO, Jerry Baack. Thank you, Justin, and thank you everyone for joining us today.
Gerald John Baack: Determined in accordance with GAAP.
Gerald John Baack: Please see the slide presentation in 2024 first quarter earnings release for reconciliations of non-GAAP disclosures to the comparable GAAP measures I would now like to turn the call over to Bridgewater, as chairman President and CEO Jerry box.
Gerald John Baack: Thank you Justin and thank you everyone for joining us today.
Gerald John Baack: During the first quarter, we were pleased to see the continuation of many of the same trends we saw over the back half of 2023 as we continue to navigate the current economic environment. Most notably, business activity continued to pick up in the Twin Cities. As we mentioned last quarter, our loan pipeline increased due to rising loan demand. This translated into stronger than expected loan growth in the first quarter, with balances up 6.5% annualized.
Gerald John Baack: During the first quarter, we were pleased to see the continuation of many of the same trends we saw over the back half of 2023 as we continue to navigate the current economic environment.
Gerald John Baack: Most notably as business activity continued to pick up in the twin cities as.
Gerald John Baack: As we mentioned last quarter, our loan pipeline increase due to rising loan demand. This translated into a stronger than expected loan growth in the first quarter with balances up six 5% annualized.
Gerald John Baack: Even more encouraging was that deposit growth outpaced loan growth once again, including annualized core deposit growth of 14.3%. As a result, our loan-to-deposit ratio dropped below 100% for the first time since the first quarter of 2022.
Gerald John Baack: Even more encouraging was the deposit growth outpaced loan growth once again, including the annualized core deposit growth of 14, 3% as.
Gerald John Baack: As a result, our loan deposit ratio dropped below 100% for the first time since the first quarter of 2022.
Gerald John Baack: We have several initiatives in place to help drive continued core deposit growth over time. That's include investments in our Treasury management team through the hiring of a new sales lead as well as the creation of a new deposit coordinator position that we'll be focusing on proactive outreach.
Gerald John Baack: We have several initiatives in place to help drive continued core deposit growth over time. This includes investments in our treasury management team through the hiring of a new sales lead, as well as the creation of a new deposit coordinator position that will focus on proactive outreach. We're also continuing to see traction in our business development initiatives, including implementers of the Entrepreneurial Operating System and the network of women business leaders and entrepreneurs we've mentioned in the past.
Gerald John Baack: We're also continuing to see traction in our business development initiatives, including Implementers of the entrepreneurial operating system and the network of women business leader and entrepreneur as we've mentioned in the past.
Gerald John Baack: While market demand and business activity remain encouraging, the interest rate environment remains challenging in the first quarter as we wait for more progress on inflation and ultimately a more normalized yield curve, a scenario that would be favorable for Bridgewater. With interest rates remaining elevated, we continued to see slight net interest margin compression as expanding loan yields were offset by a slower pace of rising funding costs. Joe will provide more details in a few minutes.
Gerald John Baack: While market demand and business activity remain encouraging the interest rate environment remained challenging in the first quarter as we wait for more progress on inflation and ultimately a more normalized yield curve.
Gerald John Baack: Scenario that would be favorable for Bridgewater.
Gerald John Baack: With interest rates remaining elevated we continue to see slight net interest margin compression as expanding loan yields were offset by a slower pace of rising funding costs, Joe will provide more details in a few minutes.
Gerald John Baack: Expense control was another highlight of the first quarter as noninterest expense declined three 5% from the fourth quarter.
Gerald John Baack: Expense control was another highlight of the first quarter as non-interest expense declined three and a half percent from the fourth quarter. Identifying new operational efficiencies remains a bank-wide effort across the organization in 2024. These could be initiatives that help us reduce costs, get things done quicker, or eliminate tasks that no longer add value.
Gerald John Baack: Identify new operational efficiencies remains a bank wide effort across the organization in 2024.
Gerald John Baack: These could be initiatives that help us reduce costs get things done quicker or eliminate task that no longer add value.
Gerald John Baack: Bridgewater has always operated very efficiently, but we continue to look for ways to take this to the next level. On the other hand, we are continuing to invest in the business through people and technology. For example, we have selected a new online banking platform that will provide an enhanced experience for our retail and small business clients. We are also on track for the implementation of a new CRM platform later this year that will allow us to provide more customized support across our client base.
Gerald John Baack: Bridgewater has always operated very efficiently, but we continue to look for ways to take this to the next level.
Gerald John Baack: On the other hand, we are continuing to make investments in the business through people and technology. For example, we have selected a new online banking platform that will provide an enhanced experience for our retail and small business clients.
Gerald John Baack: We are also on track for implementation of our new CRM platform. Later this year that will allow us to provide more customized support across our client base.
Gerald John Baack: Asset quality was a superb once again with no net charge offs very low levels of nonperforming assets and increased provision due to stronger loan growth.
Gerald John Baack: Asset quality was superb, once again, with no net charge-offs, very low levels of non-performing assets, and increased provision due to stronger loan growth. While our loan portfolio continues to perform well, we also recognize the broader industry concerns around office and multifamily over the past several months. Jeff will share some thoughts on what we are seeing in the Twin Cities in just a few minutes.
Gerald John Baack: While our loan portfolio continues to perform well, we also recognize the broader industry concerns around office and multifamily over the past several months.
Gerald John Baack: Jeff will share some thoughts on what we're seeing in the twin cities in just a few minutes, but overall, we have been pleased with the performance of these portfolios given the experience and expertise of our teams and remain bullish over the long term.
Gerald John Baack: But overall, we have been pleased with the performance of these portfolios given the experience and expertise of our teams and remain bullish over the long term. We also continue to see steady tangible book value per share growth, up another 11.8% in the first quarter. This marks the 29th consecutive quarter of tangible book value per share growth at Bridgewater. Turning to slide 4, you can see our tangible book value is up over 190% during these 29 quarters, compared to a median of just 60% with banks between $3 and $10 billion in assets.
Gerald John Baack: We also continue to see steady tangible book value per share growth.
Gerald John Baack: Another 11, 8% in the first quarter. This marks the 29th consecutive quarter of tangible book value per share growth at Bridgewater.
Gerald John Baack: Turning to slide four you can see our tangible book value is up over 190%. During these 29 quarters compared to a median of just 60% with banks between three and $10 billion in assets.
Gerald John Baack: We continue to feel that this is a true differentiator for Bridgewater and the way we can provide shareholder value going forward. I would also mention that we continued repurchasing shares during the first quarter. We bought back nearly 194,000 shares, or $2.3 million. With that, I will turn it over to Joe. Thank you, Jerry.
Gerald John Baack: We continue to feel that this is a true differentiator for Bridgewater and then the way we can provide shareholder value going forward.
Joe: I would also mention that we continued repurchasing shares during the first quarter, we bought back nearly 194000 shares or $2 $3 million.
Joe: With that I will turn it over to Joel.
Joe: Thank you Gerry turning to slide five the pace of net interest margin compression slowed again in the first quarter down just three basis points compared to a five basis point decline in the fourth quarter, while earning asset yields continued to reprice higher deposit pricing pressures also persisted, albeit at a slower pace given market competition.
Joseph M. Chybowski: Turning to slide five, the pace of net interest margin compression slowed again in the first quarter, down just three basis points compared to a five basis point decline in the fourth quarter. While earning asset yields continued to reprice higher, deposit pricing pressures also persisted, albeit at a slower pace given market competition and mixed shifts within the deposit portfolio. Loan fees have also continued to decline in the current rate environment. With the outlook for potential rate cuts less favorable than it was a few months ago, we expect similar trends in the near term, which could result in continued modest margin pressure. However, our focus remains more on the revenue side than the absolute dollars.
Joseph M. Chybowski: And mix shifts within the deposit portfolio.
Joseph M. Chybowski: Loan fees have also continued to decline in the current rate environment.
Joseph M. Chybowski: With the outlook for potential rate cuts less favorable than it was a few months ago. We expect similar trends in the near term, which could result in continued modest margin pressure.
Joseph M. Chybowski: However, our focus remains more on the revenue side and the absolute dollars, even with modest margin pressure. We believe we are reaching an inflection point on net interest income supported by stronger balance sheet growth.
Joseph M. Chybowski: Even with modest margin pressure, we believe we are reaching an inflection point on net interest income supported by stronger balance sheet growth. I would also remind you that our balance sheet remains well positioned for potential future interest rate cuts and a more normalized yield curve. We have over $1 billion of adjustable funding tied to short-term rates and a loan portfolio that is positioned to continue repricing higher, even in a rates-down environment.
Joseph M. Chybowski: I would also remind you that our balance sheet remains well positioned for potential future interest rate cuts and a more normalized yield curve.
Joseph M. Chybowski: We have over $1 billion of adjustable funding tied to short term rates and a loan portfolio that is positioned to continue repricing higher even in a rates down environment.
Joseph M. Chybowski: Turning to slide 6, you can see the portfolio loan yield steadily moving higher. While the more moderated pace of loan originations over the past year has slowed the repricing in the portfolio, we did see an uptick in loan growth in the first quarter, which could provide some additional support as new money loan yields come on in the mid to high sevens. In addition, the impact of loan fees on the portfolio loan yield was down to just seven basis points in the fourth quarter, compared to a 30 basis point impact in mid-2022, as payoffs have declined in the current environment.
Joseph M. Chybowski: Turning to slide six you can see the portfolio loan yield steadily moving higher.
Joseph M. Chybowski: The more moderated pace of loan originations over the past year had slowed the repricing in the portfolio. We did see an uptick in loan growth in the first quarter, which could provide some additional support as new money loan yields come on in the mid to high Sevens.
Joseph M. Chybowski: In addition, the impact of loan fees on the portfolio loan yield was down to just seven basis points in the fourth quarter compared to a 30 basis point impact in mid 2022 U S. Payoffs have declined in the current environment.
Joseph M. Chybowski: Our securities portfolio continues to support our overall earning asset yields, and securities yields increased another 17 basis points to 4.8%. We have continued to grow our AFS portfolio as loan growth moderated. However, given the loan pipeline build, we do expect the pace of securities portfolio growth to moderate. While funding costs continue to increase, the pace has slowed. Deposit costs increased 13 basis points in the first quarter, while overall funding costs were up 11 basis points, both lower than last time.
Joseph M. Chybowski: Our securities portfolio continues to support our overall, earning asset yields and securities yield increased another 17 basis points to four 8%.
Joseph M. Chybowski: Continued to grow our <unk> portfolio as loan growth moderated however, given the loan pipeline built would you expect the pace of securities portfolio growth to moderate.
Joseph M. Chybowski: While funding cost continued to increase the pace pace has slowed deposit costs increased 13 basis points in the first quarter. While overall funding costs were up 11 basis points, both lower than last quarter with.
Joseph M. Chybowski: With the increased uncertainty around the timing of potential interest rate cuts, we would expect these trends to continue in the near term. Slide 7 shows the pre-provision net revenue stabilization we have seen in recent quarters as the pace of margin suppression has slowed and loan growth resumed. Turning to slide 7, expense control was another highlight of the quarter as non-interest expense declined 3.5% from the fourth quarter of 2023. The decrease was primarily driven by lower salary and benefits, FDIC insurance, and other expenses.
Joseph M. Chybowski: With the increased uncertainty around the timing of potential interest rate cuts. We would expect these trends to continue in the near term.
Joseph M. Chybowski: Slide seven shows the pre provision net revenue stabilization, we have seen in recent quarters as the pace of margin compression has slowed and loan growth resumes.
Joseph M. Chybowski: Turning to slide seven expense control was another highlight of the quarter as noninterest expense declined three 5% from the fourth quarter of 2023.
Joseph M. Chybowski: The decrease was primarily driven by lower salary and benefits FDIC insurance and other expenses.
Joseph M. Chybowski: You may recall that we saw a similar decline in non-interest expense in the first quarter of 2023, with expenses building throughout the rest of the year. We would expect a similar expense trajectory throughout 2024, with four-year expenses again tracking in line with four-year asset growth. We also saw a decline in our efficiency ratio in the first quarter for the first time since the third quarter of 2022. However, keep it in mind that our efficiency ratio remains well below the industry median. Overall, we feel good about our ability to control expenses while still making key investments in the business, technology, and our people. With that, I'll turn it over to Nick.
Joseph M. Chybowski: You may recall that we saw a similar decline in noninterest expense in the first quarter of 2023 with expensive building throughout the rest of the year we.
Nick: We would expect a similar expense trajectory throughout 2024 with full year expenses again tracking in line with full year asset growth.
Joseph M. Chybowski: We also saw a decline in our efficiency ratio in the first quarter for the first time since the third quarter of 2022, keeping in mind that our efficiency ratio remains well below the industry median.
Nick: Overall, we feel good about our ability to control expenses, while still making key investments in the business technology and our people.
Joseph M. Chybowski: With that I'll turn it over to Nick.
Nicholas L. Place: Thanks Joe. Turning to slide 9, we generated strong deposit growth in the first quarter, with total balances up 10.5% annually. This included core deposit balances, which increased $90 million or 14.3% annually. We have continued to see good core deposit momentum since last March, as balances were up 6.8% year-over-year. I would remind you that given the nature of our client base, core deposit growth isn't always linear and may have some ups and downs from quarter to quarter. The second quarter, for instance, tends to be a seasonally low quarter for deposits due to tax season and industry cyclicality.
Nick: Thanks, Joe turning to slide nine we generated strong deposit growth in the first quarter with total balances up 10, 5% annualized. This included core deposit balances, which increased $90 million or 14, 3% annualized with.
Nicholas L. Place: We've continued to see good core deposit momentum funds last March as balances were up six 8% year over year.
Nicholas L. Place: I would remind you that given the nature of our client base core deposit growth isn't always linear it may have some ups and downs from quarter to quarter. The second quarter for instance tends to be a seasonally low quarter for deposits due to tax season and industry cyclicality.
Nicholas L. Place: We also continued to see various deposit mix changes during the quarter, including some non-interest-bearing deposits moving into interest-bearing accounts. This was not surprising, as our non-interest-bearing deposit balances had actually been quite resilient during much of 2023, increasing each of the past three quarters. On the other hand, for the first time since the third quarter of 2022, we saw a nice decline in brokered deposits, with balances down $32 million during the quarter. We will continue to leverage brokered deposits as a way to supplement core deposit growth over time as needed. These overall deposit mix changes have contributed to funding costs continuing to slowly move higher.
Nicholas L. Place: We also continued to see various deposit mix changes during the quarter, including some noninterest bearing deposits moving into interest bearing accounts. This was not surprising as our noninterest bearing deposit balances had actually been quite resilient during much of 2023, increasing each of the past three quarters.
Nicholas L. Place: On the other hand for the first time since the third quarter of 2022, we saw a nice decline in broker deposits with balances down $32 million during the quarter. We will continue to leverage broker deposits as a way to supplement core deposit growth over time as needed.
Nicholas L. Place: These overall deposit mix changes have contributed to funding costs continuing to slowly move higher however from a broader funding perspective, we have ample repricing opportunities if rates move lower.
Nicholas L. Place: However, from a broader funding perspective, we have ample repricing opportunities if rates move lower. As Jerry mentioned, we are executing on several initiatives to support our focus on core deposit growth and have been pleased with the progress so far. Turning to slide 10, loan balances grew 6.5% annualized in the first quarter as a result of the increased demand and growing loan pipelines we started seeing in late 2023. We were pleased to see this activity translate into such strong loan growth so early in the year.
Nicholas L. Place: Jerry mentioned, we are executing on several initiatives to support our focus on core deposit growth and have been pleased with the progress so far.
Nicholas L. Place: Turning to slide 10 loan balances grew six 5% annualized in the first quarter as a result of the increased demand and growing loan pipelines. We started seeing in late 2023.
Nicholas L. Place: We were pleased to see this activity translate into such strong loan growth. So early in the year.
Nicholas L. Place: The level of loan demand in the Twin Cities continues to be higher than last year, which we think will create additional opportunities for growth throughout the year. However, we continue to be disciplined in our lending approach, prioritizing core client relationships.
Nicholas L. Place: The level of loan demand in the twin cities continues to be higher than last year, which we think will create additional opportunities for growth throughout the year. However.
Nicholas L. Place: However, we continue to be disciplined in our lending approach prioritizing core client relationships.
Nicholas L. Place: As we look ahead to the rest of 2024, we would expect to see loan growth continue in the low to mid single-digit range. There are several factors that will impact this, including ongoing loan demand, the interest rate environment, pace of payoffs, and our core deposit growth. Even with the strong loan growth, we were able to lower our loan-to-deposit ratio below 100% due to our continued momentum on the deposit rate. Slide 11 shows the increase we have seen in new loan originations over the past few quarters.
Nicholas L. Place: As we look ahead to the rest of 'twenty 'twenty four we would expect to see loan growth continue in the low to mid single digit range.
Nicholas L. Place: There are several factors that will impact us, including ongoing long demand demand.
Nicholas L. Place: The interest rate environment pace of pay offs in our core deposit growth.
Nicholas L. Place: Even with the strong loan growth, we were able to lower our loan to deposit ratio below 100% due to our continued momentum on the deposit front.
Nicholas L. Place: Slide 11 shows the increase we have seen in new loan originations over the past few quarters and.
Nicholas L. Place: In fact, new loan originations exceeded loan advances in the first quarter for the first time since the fourth quarter of 2022.
Nicholas L. Place: In fact, new loan originations exceeded loan advances in the first quarter for the first time since the fourth quarter of 2022. On the other hand, loan payoffs and paydowns remain at relatively low levels given the higher interest rate environment. On slide 12, you can see the loan growth during the quarter was spread across our various portfolios, led by non-owner occupied CRE and C&I. However, construction and development balances continued to decline as deals completed their construction phase. I'll now turn it over to Jeff. Thanks, Nick.
Jeff: On the other hand loan payoffs and Paydowns remain at relatively low levels, given the higher interest rate environment.
Jeff: On Slide 12, you can see the loan growth during the quarter was spread across our various portfolios led by non owner occupied CRE and C&I.
Jeff: Instruction and development balances continued to decline as deals completed their construction phase.
Nicholas L. Place: I'll now turn it over to Jeff.
Jeff: Thanks, Nick.
Jeff: Slide 13 provides some additional information on our multifamily and office portfolios.
Jeff: Classes that have been in the headlines recently.
Jeff: Over 90% of our multifamily loans are in the twin cities market in which we have a tremendous amount of multifamily experience and expertise.
Jeffrey D. Shellberg: Slide 13 provides some additional information on our multifamily and office portfolios, asset classes that have been in the headlines recently. Over 90% of our multifamily loans are in the Twin Cities, a market in which we have a tremendous amount of multifamily experience and expertise. This is a big reason why we have only experienced $62,000 in net charge-offs in the portfolio since we started the bank in 2005. The Twin Cities multi-family market has historically been a stable market with less volatility than some of the coastal and high growth markets. Key attributes of the market include relative affordability, Roe v. Unemployment strong leeches, and a shortage of single-family housing.
Jeffrey D. Shellberg: This is a big reason why we have the link experienced $62000 of net charge offs in the portfolio. Since we started the bank in 2005.
Jeffrey D. Shellberg: The twin cities multifamily market has historically been a stable market.
Jeffrey D. Shellberg: With less volatility than some of the coastal and high growth markets.
Jeffrey D. Shellberg: Key attributes of the market include relative affordability.
Jeffrey D. Shellberg: Low unemployment.
Jeffrey D. Shellberg: Long wages and a shortage of single family housing.
Jeffrey D. Shellberg: That said this market is not I mean, the normal real estate cycles that they can can impact any asset class.
Jeffrey D. Shellberg: For example, we have seen an uptick in multifamily vacancies due to the amount of new multifamily construction and deliveries in the past few years.
Jeffrey D. Shellberg: That said, this market is not immune to normal real estate cycles that can impact any asset class. For example, we have seen an uptick in multifamily vacancies due to the amount of new multifamily construction and deliveries over the past few years. Looking forward, market vacancies are expected to peak later this year and then decline as absorption now exceeds deliveries and new construction has slowed due to the current interest rate environment. We continue to monitor the portfolio closely, but have been pleased with its performance to date and remain bullish on multifamily in the Twin Cities over the long term. Looking at our non-owner-occupied CRE office portfolio, our exposure remains quite limited, making up just 5% of total loans. This includes only four loans located in the central business districts, totaling $35 million.
Jeffrey D. Shellberg: Looking forward market vacancies are expected to peak later this year and then decline as absorptions now exceed deliveries and new construction has slowed due to the current interest rate environment.
Jeffrey D. Shellberg: We continue to monitor the portfolio closely but have been pleased with its performance to date.
Jeffrey D. Shellberg: Named bullish on multifamily in the twin cities over the long term.
Jeffrey D. Shellberg: Looking at our non owner occupied CRE office portfolio, our exposure remains quite limited, making up just 5% of total loans.
Jeffrey D. Shellberg: This includes only four loans located in the central business districts totaling $35 million.
Jeffrey D. Shellberg: During the first quarter, we moved one of these loans are central business District property in St. Paul to the watch list due to the potential lease rollover risk.
Jeffrey D. Shellberg: Similar to multifamily we continue to monitor this portfolio closely, especially the few central business district loans that we have.
Jeffrey D. Shellberg: During the first quarter, we moved one of these loans, a central business district property in St. Paul, to the watch list due to potential lease rollover risk. Similar to multifamily, we continue to monitor this portfolio closely, especially the few central business district loans that we have. Looking at the office portfolio as a whole, we continue to feel good about the outlook, given the lower average loan amount, diversified client base, and primarily midwestern suburban office exposure.
Jeffrey D. Shellberg: Looking at the office portfolio as a whole we continue to feel good about the outlook given the lower average loan amount diversified client base.
Jeffrey D. Shellberg: Primarily Midwestern suburban office exposure.
Jeffrey D. Shellberg: Turning to slide 14, we continue to see strong performance across the entire portfolio, because we had no net charge offs in first quarter and.
Jeffrey D. Shellberg: Nonperforming assets declined to $269000 or zero point or 1% of total assets.
Jeffrey D. Shellberg: Turning to slide 14, we continue to see strong performance across the entire portfolio, as we had no net charge-offs in the first quarter, and non-performing assets declined to $269,000, or 0.01% of total assets. This is a result of our measured risk selection, consistent underwriting standards, active credit oversight, and experienced lending and credit teams. We remain well-reserved at 1.36% of gross loans. This included $850,000 of provision during the quarter, primarily due to stronger loan growth.
Jeffrey D. Shellberg: This is a result of our measured risk selection consistent underwriting standards.
Jeffrey D. Shellberg: Credit oversight and experienced lending and credit teams.
Jeffrey D. Shellberg: We remain well reserved at 136% of gross loans.
Jeffrey D. Shellberg: This included $850000 a provision during the quarter, primarily due to stronger loan growth.
Jeffrey D. Shellberg: Overall, we continue to feel good about our loan portfolio that said as this higher interest rate environment continues to put pressure on businesses, we do expect to see some credit normalization over time.
Jeffrey D. Shellberg: On Slide 15, you can see that our watch and substandard both declined modestly during the quarter.
Jeffrey D. Shellberg: As I mentioned, we moved one central business District office, one to watch.
Jeffrey D. Shellberg: Leather relationships migrate it out.
Jeffrey D. Shellberg: Overall, we continue to feel good about our loan portfolio. That said, as this higher interest rate environment continues to put pressure on businesses, we do expect to see some credit normalization over time. On slide 15, you can see that our watch and substandard both declined modestly during the quarter.
Jeffrey D. Shellberg: Good about the risk profile of the portfolio and believe it is well positioned moving forward.
Jeffrey D. Shellberg: Now I'll turn it back over to Joel.
Speaker Change: Thanks, Jeff Slide 16 highlights our strong capital ratios, including CET, one which increased from 916 to 921.
Jeffrey D. Shellberg: In addition, we were able to repurchase additional shares during the first quarter as we bought back nearly 140 to 194000 shares at a weighted average price of $11 75 per share for a total of $2 $3 million.
Jeffrey D. Shellberg: As I mentioned, we moved one central business district office loan to watch, while a couple of other relationships migrated out. We feel good about the risk profile of the portfolio and believe it is well-positioned moving forward. I'll now turn it back over to Joel. Thanks, Jeff.
Joel: We still have $18 2 million remaining under our current authorization.
Joel: We will continue to evaluate future repurchases based on a variety of factors, including capital levels growth opportunities and market conditions.
Joseph M. Chybowski: Slide 16 highlights our strong capital ratios, including CET1, which increased from 916 to 921. In addition, we were able to repurchase additional shares during the first quarter as we bought back nearly 194,000 shares at a weighted average price of $11.75 per share for a total of $2.3 million. We still have $18.2 million remaining under our current authorization, and we will continue to evaluate future repurchases based on a variety of factors, including capital levels, growth opportunities, and market conditions.
Joseph M. Chybowski: Share repurchases are just one of our capital priorities, our primary capital priority remains organic growth.
Joseph M. Chybowski: Beyond that we continue to review and monitor potential M&A opportunities.
Joseph M. Chybowski: Turning to slide 17, I'll recap our expectations over the next couple of quarters.
Joseph M. Chybowski: We expect loan growth in the low to mid single digit range over the next few quarters as we continue to see increased levels of loan demand.
Joseph M. Chybowski: Sherry purchases are just one of our capital priorities. Our primary capital priority remains organic growth. Beyond that, we continue to review and monitor potential M&A opportunities. Turning to slide 17, I'll recap our expectations over the next couple of quarters.
Joseph M. Chybowski: Pace of growth will ultimately be impacted by ongoing loan demand market conditions, the pace of pay offs and core deposit growth.
Joseph M. Chybowski: With uncertainty around the interest rate outlook, we expect to continue seeing modest net interest margin pressure in the near term.
Joseph M. Chybowski: However, even with the additional margin pressure. We believe we are reaching an inflection point on net interest income supported by stronger balance sheet growth.
Joseph M. Chybowski: We expect loan growth in the low to mid-single-digit range over the next few quarters as we continue to see increased levels of loan demand. However, our pace of growth will ultimately be impacted by ongoing loan demand, market conditions, the pace of payoffs, and core deposit growth. With uncertainty around the interest rate outlook, we expect to continue seeing modest net interest margin pressure in the near term. However, even with additional margin pressure, we believe we are reaching an inflection point on net interest income supported by stronger balance sheet growth.
Joseph M. Chybowski: Our margin is also well positioned to benefit if we start seeing rate cuts and an upward sloping yield curve.
Joseph M. Chybowski: On the expense side, we expect full year noninterest expense in 2024 to track relatively in line with asset growth.
Joseph M. Chybowski: Similar to prior years. However, we would expect to see a similar trajectory throughout the year as we saw in 2023 with expenses starting out low in the first quarter and building in subsequent quarters.
Joseph M. Chybowski: Our margin is also well positioned to benefit if we start seeing rate cuts and an upward sloping yield curve. On the expense side, we expect full-year non-interest expense in 2024 to track relatively in line with asset growth, similar to prior years. However, we would expect to see a similar trajectory throughout the year as we saw in 2023, with expenses starting out low in the first quarter and building in subsequent quarters. Provision expense will likely be tied to our pace of loan growth and the overall asset quality of the portfolio. Finally, we believe we can continue to maintain strong capital ratios through earnings retention and disciplined growth. I'll now turn it back over to Jerry. Thanks, Joe.
Joseph M. Chybowski: The provision expense will likely be tied to our pace of loan growth in the overall asset quality of the portfolio.
Jerry: Finally, we believe we can continue to maintain strong capital ratios through earnings retention and disciplined growth.
Jerry: Now I'll turn it back over to Gerry.
Jerry: Thanks, Joe finishing on slide 18, I'll provide a quick update on our 2024 strategic priorities.
Jerry: First as we look to optimize our balance sheet for longer term growth. We made strong progress on core deposits with annualized growth of 14, 3% during the first quarter.
Jerry: Second we continue to focus on expanding our client base through additional affordable housing efforts as well as hosting successful networking events at our corporate office for local women business leaders and entrepreneurs in.
Gerald John Baack: Finishing on slide 18, I'll provide a quick update on our 2024 strategic priorities. First, as we look to optimize our balance sheet for longer-term growth, we made strong progress on core deposits with annualized growth of 14.3% during the first quarter. Second, we continue to focus on expanding our client base through additional affordable housing efforts, as well as hosting successful networking events at our corporate office for local women business leaders and entrepreneurs.
Gerald John Baack: In addition, with candidates becoming legal in Minnesota last year were even doing our due diligence on this space to prepare to respond to inquiries from entrepreneurial clients.
Gerald John Baack: Third departments across the bank had been identified ways. They can incrementally approve it.
Gerald John Baack: Improve operational efficiencies within their groups. In addition, we lowered our efficiency ratio in the first quarter for the first time since 2022.
Gerald John Baack: In addition, with cannabis becoming legal in Minnesota last year, we are even doing our due diligence on this space to prepare to respond to inquiries from entrepreneurial clients. Third, departments across the bank have been identifying ways they can incrementally improve operational efficiencies within their groups. In addition, we lowered our efficiency ratio in the first quarter for the first time since 2022.
Gerald John Baack: Finally, we remain proactive in monitoring our portfolios to get ahead of any potential concerns as a result, our overall asset quality has remained superb.
Gerald John Baack: Overall, we were pleased with our strong balance sheet growth, we saw in the first quarter, including both loan activity and core deposits as well as our ability to consistently grow our tangible book value per share through various economic environments.
Operator: Finally, we remain proactive in monitoring our portfolios to get ahead of any potential concerns. As a result, our overall asset quality has remained superb. Overall, we were pleased with the strong balance sheet growth we saw in the first quarter, including both loan activity and core deposits, as well as our ability to consistently grow our tangible book value per share through various economic environments. With that, we will open it up to questions.
Speaker Change: With that we will open it up for questions.
Speaker Change: We will now begin question and answer session.
Speaker Change: Reminder, to ask a question. Please press Star then one on your Touchtone phone.
Speaker Change: If you are using.
Operator: Speakerphone, please pick up your handset before pressing the keys.
Operator: To withdraw your question. Please press Star then two.
Speaker Change: At this time, we will pause a moment momentarily to assemble the roster.
Operator: And our first question comes from Brendan Nosal of Husky Group. Please go ahead.
Speaker Change: Hey, good morning, guys hope you're doing well.
Speaker Change: Hi, Brian.
Speaker Change: Maybe to start off here.
Operator: Thoughts around other on the margin.
Operator: We will now begin the question and answer session. As a reminder, to ask a question, please press star then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble the roster, and our first question comes from Brendan Nosal of Hovde Group. Please go ahead. Hey, good morning guys.
Speaker Change: Hey, you guys. Thanks, Pat for NIM inflection without help from the fed and then kind of along those lines. If we don't get any cuts from the fed.
Brendan Jeffrey Nosal: Until like late in the fourth quarter, you know higher for longer where do you see the margin settling as we get to the end of the year.
Operator: Yeah, Brian This is Joe so yeah to reiterate I think you know, we've said and we've obviously seen it we've message to it that we've seen a slowing pace of margin compression certainly over the last couple of quarters and have been pleased with that slowing compression I. Just think just given the fed now more of a Paula.
Brendan Jeffrey Nosal: Hey, good morning, guys. I hope you're doing well. Hi Brendan. Maybe to start off here on kind of thoughts around the margin, do you guys think there's a path for NIM inflection without help from the Fed and then kind of along those lines, you know, if we don't get any stimulus from the Fed until like late in the fourth quarter, you know, higher or longer, where do you see the margin settling as we get to the end of the year?
Brendan Jeffrey Nosal: <unk> pivot here and the prospect for higher rates for longer.
Speaker Change: It's really where we see potential near term margin pressure.
Brendan Jeffrey Nosal: That's you know, it's really two things.
Joseph M. Chybowski: Yeah, Brendan, this is Joe. So yeah, to reiterate, we've said, and we've obviously seen, we've messaged about it, that we've seen a slowing pace of margin compression, certainly over the last couple of quarters, and have been pleased with that slowing compression. I just think given the Fed, you know, more of a policy pivot here and the prospect of higher rates for longer, this is really where we see potential near-term margin pressure.
Brendan Jeffrey Nosal: And we've talked about it in the prepared remarks.
Joseph M. Chybowski: The mix shift from noninterest bearing to interest bearing.
Joseph M. Chybowski: So again, we've been pleased with how resilient the non interest bearing book has been but the longer we sit here you certainly see clients more actively managing their money and so we have seen some migration, which certainly put some pressure on the margin itself.
Speaker Change: And the other piece is just client acquisition I mean, the market continues to be very competitive.
Joseph M. Chybowski: And I think that's, you know, it's really two things, and we've talked about it in the prepared remarks. It's the next shift from non-interest bearing to interest bearing. So again, we've been pleased with how resilient the non-interest bearing book has been.
Joseph M. Chybowski: And we're really pleased with the core deposit growth, we had in the quarter, but it's competitive from a from a cost standpoint. So I think you put those two together and that's where we see that you could see some near term pressure just the longer that we sit here in this higher for longer environment I think the other thing that I'll say, though is.
Joseph M. Chybowski: But the longer we sit here, you certainly see clients more actively managing their money. And so we have seen some migration, which certainly puts some pressure on the margin itself. And the other piece is just client acquisition. I mean, the market continues to be very competitive. And we're really pleased with the core deposit growth we had in the quarter. But it's competitive from a cost standpoint.
Joseph M. Chybowski: We're more focused and less fixated on on the NIM itself and more just on incrementally building NII and I think we you know as we've talked about with <unk>.
Joseph M. Chybowski: See inflection to that just given the pickup in loan growth, especially in the back half of the first quarter.
Joseph M. Chybowski: So I think you put those two together, and that's where we see that you could see some near-term pressure just the longer that we sit here in this higher-for-longer environment. I think the other thing I'll say, though, is... You know, we're more focused and less fixated on NIM itself and more just on incrementally building NII. And I think we, you know, as we've talked about, we see an inflection to that, just given the pickup in loan growth, especially in the back half of the first quarter. So that remains our focus on, you know, really growing the net interest income contribution rather than, you know, the margin as an output.
Joseph M. Chybowski: So that remains our focus on really growing that.
Joseph M. Chybowski: First income contribution.
Joseph M. Chybowski: Rather than you know the margin is an output.
Joseph M. Chybowski: Yes.
Speaker Change: Totally fair, maybe one more for me.
Speaker Change: Longer term is there like a desire or even the ability to alter the bank's risk positioning to bring the balance sheet closer to neutral should we kind of find ourselves in a similar environment at some point in the future.
Joseph M. Chybowski: Wondering the thought process, there given how spread dependent.
Joseph M. Chybowski: Yeah, that's totally fair. Maybe one more from me. Longer term, is there a desire or even ability to alter the bank's rate risk positioning to bring the balance sheet closer to neutral, should we kind of find ourselves in a similar environment at some point in the future? You know, just wondering the thought process there, given how spread dependent the revenue base is.
Joseph M. Chybowski: The revenue basis.
Speaker Change: Yes, I can talk I mean, probably two sides to that one on the net interest income perspective, and more from a noninterest income perspective, but yes, I mean, the balance sheet and the positioning of that I think certainly you know just given kind of the rate outlook over the last couple of quarters.
Joseph M. Chybowski: I think we've we've really tried to balance out and neutralize but also.
Joseph M. Chybowski: Yeah, I could talk. I mean, there are probably two sides to that, one from the non-interest income perspective and then more from a non-interest income perspective. But yeah, I mean, the balance sheet and the positioning of that, I think certainly, you know, just given kind of the rate outlook over the last couple of quarters, I think we've really tried to balance out and neutralize, but also, you know, not dramatically change the liability sensitivity profile, you know, potentially in the face of Fed cuts.
Joseph M. Chybowski: Not dramatically change the liability sensitivity profile, you know potentially in the face of a fed cut so I think we're really cognizant of.
Joseph M. Chybowski: Of where the exposure is you know across the balance sheet and I think we remain.
Joseph M. Chybowski: Focused on maintaining options both on both sides of the balance sheet.
Joseph M. Chybowski: Composition is a key piece to the to the loan portfolio. So I think we've been really focused on.
Joseph M. Chybowski: The fixed rate composition and to the extent, we can broaden that buy more variable rate funding or variable rate lending I should say as well as can you get more creative from from a swap standpoint, and just being really cognizant of the sensitivity on the asset side.
Joseph M. Chybowski: So I think we're really cognizant of where the exposure is, you know, across the balance sheet, and I think we remain focused on maintaining options on both sides of the balance sheet. You know, composition is a key piece to the loan portfolio, so I think we've been really focused on [inaudible] across the balance sheet, various instruments. And I think the other piece to that, as you mentioned on the revenue side, is that we continue to look at opportunities to incrementally increase non-interest income.
Joseph M. Chybowski: Obviously, maintaining optionality on the on the deposit side. So I think we are we consider you know across across the balance sheet various instruments and I think the other piece to that as you mentioned on the revenue side is because we continue to look at opportunities to incrementally.
Joseph M. Chybowski: Increase our noninterest income.
Joseph M. Chybowski: And I think for us to really move the needle, as we've always said, that likely comes, you know, through M&A. I certainly don't want to build a mortgage company brick by brick. But to the extent that, you know, resides in an M&A transaction, that's certainly something.
Joseph M. Chybowski: And I think for us to really move the needle as we've always said that that likely comes.
Joseph M. Chybowski: Through M&A I think we certainly don't want to build a mortgage company brick by brick.
Joseph M. Chybowski: But to the extent that that you know resides in an M&A transaction.
Speaker Change: And that's certainly something that we would strongly consider.
Brendan Jeffrey Nosal: All right, fantastic. Well, thanks for taking the questions, and nice quarter, guys.
Brendan Jeffrey Nosal: Alright, fantastic well, thanks for taking the questions and nice quarter guys.
Brendan Jeffrey Nosal: The next question comes from Nathan race of Piper Sandler. Please go ahead.
Nathan James Race: This question comes from Nathan Race of Piper Sandler. Hi, everyone. Good morning.
Speaker Change: Hi, everyone. Good morning, Thanks for taking the questions.
Nathan James Race: Hi, Nick.
Nathan James Race: Going back to the last line.
Nathan James Race: Hi everyone, good morning. Thank you for taking the questions. Just going back to the last line of question around the margin outlook, just digging deeper into that. Curious, maybe, Joe, if you could kind of provide us with the amount of loans that you have kind of maturing or repricing higher over the next year. And obviously, you guys had nice growth in the quarter, and I imagine, you know, new coupons are relatively above the portfolio yield, so just trying to kind of think about some of the additional earning asset tailwinds that you could have this year.
Nathan James Race: Question around the margin outlook, just digging deeper into that curious maybe Joe if you can kind of provide us with the amount of loans that you have kind of maturing or repricing higher over the next year and obviously you guys had a nice growth in the corner and I imagine you know new coupons are totally above the portfolio yield. So I'm just trying to kind of think about some of the additional.
Nathan James Race: Earning asset tailwind that you could have.
Nathan James Race: This year.
Speaker Change: Yes, so on the on the loan side, you've got a slide in the appendix that talks about just the fixed rate portfolio in the adjustable rate portfolio. So.
Joe: Just north of 500 million rolling off kind of in a blended 5%.
Joe: So I think when we think about new money yields like I said I mean, it's coming on in the mid to high Sevens.
Joseph M. Chybowski: Yeah, so on the loan side, we've got a slide in the appendix that talks about just the fixed-rate portfolio and the adjustable-rate portfolio, so just north of $500 million rolling off, kind of at a blended 5%. So I think when we think about new money yields, like I said, it's coming on in the mid- to high-7s, so definitely meaningful repricing opportunities there. That's just considering the roll-off and then, obviously, any sort of net new growth.
Speaker Change: So definitely.
Joseph M. Chybowski: Meaningful repricing opportunities there.
Joseph M. Chybowski: I'm just that's just considering the roll off and then obviously any sort of net new growth.
Joseph M. Chybowski:
Speaker Change: Does that answer your question Nathan.
Joseph M. Chybowski: Helpful for sure and just as you guys kind of look about the composition of the pipeline, which it sounds like it's fairly healthy thus.
Joseph M. Chybowski: Thus far in the second quarter is it more C&I weighted obviously, a nice C&I growth in the quarter, but just trying to get a better sense in terms of the drivers.
Joseph M. Chybowski: Ah lunar.
Nathan James Race: Thank you for your time.
Joseph M. Chybowski: Mid single digit growth outlook.
Nicholas L. Place: Hey Nathans, Nick. I mean, our pipeline is pretty consistently spread across what our portfolio looks like. I think we have been pleased to see some growth within our C&I portfolio. I think some of that in Q1 was some line utilization, so, you know, which we expect to sort of bounce around through the year, but across the pipeline, I think it's pretty consistent with our overall portfolio mix. We continue to see good opportunities in both multifamily and non-owner occupied CREs.
Speaker Change: Hey, Nathan.
Nathan James Race: I mean, our pipelines pretty consistently spread across what our portfolio looks like I think we have been pleased to see.
Nicholas L. Place: Some growth within our C&I portfolio I think some of that in Q1 was some some line utilization so.
Nicholas L. Place: Which we expect to sort of.
Nicholas L. Place: You know bounce around through the year, but but across the pipeline I think it's pretty consistent with our overall portfolio mix. We continue to see good opportunities in both multifamily and and and non owner occupied CRE is we did have a pullback in rates sort of at the end of last year and throughout first quarter that did that did start driving.
Nicholas L. Place: We did have a pullback in rates at the end of last year and throughout the first quarter, that did start driving some transactions to pencil. So we're pleased to see where the pipeline's been built to and how it's maintained here through Q1.
Nicholas L. Place: Some transactions to pencil.
Nicholas L. Place: So we're pleased to see where the pipeline has been built to and how it sort of maintained here through Q1.
Nicholas L. Place: Yes, and I understand it's fairly difficult to kind of gauge the deposit gathering pipeline, but obviously, a nice core deposit growth in the quarter.
Nicholas L. Place: Yep, and I understand it's fairly difficult to kind of gauge the deposit gathering pipeline, but obviously, a nice core deposit growth in the quarter. You know, I'm curious in terms of to what extent maybe some of the hires that Jerry alluded to earlier can perhaps kind of accelerate some of the core deposit gathering efforts going forward.
Nicholas L. Place: In terms of to what extent, maybe some of the hires that Terry alluded to earlier can perhaps kind of accelerate some of that core deposit gathering efforts.
Nicholas L. Place: Efforts going forward.
Nicholas L. Place: Yeah, on the deposit front, I mean, the hires that we brought on board are super happy with and, you know, that those are all things we expect to pay off, you know, really in the long term. I think it really adds a depth of talent and capacity to our team that allows us to serve our clients better on the whole.
Speaker Change: Yeah on the deposit front I mean, the the hires that we brought on board, we're Super happy with and you know.
Nicholas L. Place: Those are all.
Nicholas L. Place: Things, we expect to pay off really in the long term I think it really adds a depth of talent.
Nicholas L. Place: And capacity to our team that allows us to serve our clients better on the whole.
Nicholas L. Place: You know, I think on deposits overall, we were really pleased with how Q1 came together. I think a lot of that was, you know, good core deposit wins with some new client relationships and deepening and expanding some existing client relationships. There was some sort of excess liquidity build up through a couple clients in the first quarter, and Q2 does tend to be a seasonally low quarter for us. So, with tax time and property tax time and the sort of nature of our client base, we do tend to see Q2 be a little slower from a deposit perspective.
Nicholas L. Place: I think on the deposits overall, we're really pleased with how Q1.
Nicholas L. Place: It came together I think a lot of that was.
Nicholas L. Place: Good core deposit wins with some with some new client relationships and deepening and expanding some existing client relationships.
Nicholas L. Place: There was some sort of excess liquidity build through a couple of clients in the first quarter.
Nicholas L. Place: Q2 does tend to be a seasonally low quarter for us so with tax time and property tax time and sort of the nature of our client base. We do tend to see Q2 be a little slower from a deposit perspective, so we're anticipating that a bit but on the whole the initiatives we put in place the hires that we have.
Nicholas L. Place: So, you know, we're anticipating that a bit. But on the whole, the initiatives we put in place, the hires that we have, the brand that we have in the market, we really feel like that's a good competitive advantage for us that will continue to pay dividends along the way.
Nicholas L. Place: The brand that we have in the market.
Nicholas L. Place: We really feel like that's a good competitive advantage for us that will continue to pay dividends long term.
Nathan James Race: Okay, great. And then just one last one. Obviously, you know, we're seeing a nice flowing upward trajectory in terms of deposit costs here in the first quarter. Just curious if you have the spot rate on deposit costs coming out of March.
Speaker Change: Okay, Great and then just one last one obviously you know we're seeing a nice flowing upward trajectory in terms of deposit costs.
Speaker Change: Here in the first quarter, just curious if you have the spot rate on deposit costs coming out of March.
Joseph M. Chybowski: Yeah, it was 337.
Speaker Change: Yeah, I mean, it was a $3 37.
Speaker Change: Okay, but it sounds like Joe that the pace of deposit cost increases steadily slowing.
Joseph M. Chybowski: Okay, but it sounds like, Joe, that the pace of deposit cost increases is steadily slowing over the course of the last several months, though, still?
Joseph M. Chybowski: Over the course of the last several months so still.
Joe: Yeah definitely it is slowing I think like I mentioned, the mixing pieces is harder to anticipate but I do think.
Joseph M. Chybowski: Yeah, definitely. It is slowing. I think, like I mentioned, the mixing piece is harder to anticipate, but I do think that impact of, you know, from NIB to interest pairing is there, but yeah, we are seeing the absolute level moderate for sure. Okay, great.
Joseph M. Chybowski: That impact of you know from Niv to interest bearing it's there, but yeah, we are seeing the absolute level.
Joseph M. Chybowski: Moderator for sure.
Nathan James Race: Okay, great. I appreciate all the color. Nice quarter, guys. Thank you.
Joseph M. Chybowski: Okay great.
Speaker Change: Appreciate the color nice quarter guys. Thank you.
Nathan James Race: The next question comes from Jeff Lewis of D. A Davidson. Please go ahead.
Jeffrey Allen Rulis: The next question comes from Jeff Rulis of D.A. Davidson. Please go ahead. Thanks. Good morning.
Jeffrey Allen Rulis: Thanks, Good morning.
Jeffrey Allen Rulis: Thanks, good morning. A question on the, maybe if we could, Jeff, on the multifamily book. Could you give us a sense for the percent of those in that book that matures at 25 and beyond?
Jeffrey Allen Rulis: Just a question on the maybe.
Jeffrey Allen Rulis: Maybe if we could Jeff on the multifamily.
Jeffrey Allen Rulis: Books could you give us a sense for the percent of those that book that matures in in 'twenty five and beyond.
Jeffrey Allen Rulis: Jeff will have to get that for you after the call I don't have it exactly offhand.
Jeffrey D. Shellberg: Yeah, we'll have to get that for you after the call. I don't have it exactly on hand.
Jeffrey D. Shellberg: I just think if you look at the fixed rate.
Jeffrey D. Shellberg: I just think if you look at the fixed rate... With 500, we show obviously multi-families. Yeah, Jeff, what I would say is, somewhat similar to 2023, we were getting in front of our relationships regarding repricing. So we've identified everything that's maturing in 2024, either maturing or repricing in 2024. We've reached out to those customers, and you know, we're developing plans in terms of what they're planning on doing with the property, whether the property alone needs to be right-sized based on performance, if they're going to refinance with agency, or potentially sell the property. So I think that we seem to be on top of it. We haven't seen anything that really causes us a lot of concern, and we'll just continue to move forward with those sponsors.
Jeffrey D. Shellberg: The 500, we show obviously multifamily is within that.
Speaker Change: Yeah, Jeff what would I wouldn't say it has some similar to 2023, we were getting in front of our our relationships regarding where pricing standpoint, so we've identified.
Jeffrey D. Shellberg: Thank you that's maturing in 2020 for either maturing or repricing in 2024.
Jeffrey D. Shellberg: Reach out to those customers and we're developing plans in terms of what they're planning on doing it looked at.
Jeffrey D. Shellberg: The property, whether the property the loan needs to be right size based on performance, if we're going to refinance with agency or potentially sell the property. So I think that we seem to be on top of that we haven't seen anything that really causes us a lot of concern and will disappear.
Jeffrey D. Shellberg: Can you move forward with those.
Jeffrey D. Shellberg: Okay.
Jeffrey D. Shellberg: Okay, and Jeff, I think you mentioned certainly the dynamics of the Twin City market with supply and inventory being pretty light, and not a lot of new construction coming on. Anything else to kind of pitch in on the Twin City market relative to other kinds of headline risk? You know, what amount of kind of rent control or regulation do you see? Just any other distinguishing kind of characteristics of your market.
Speaker Change: Okay, Jeff I think you mentioned.
Jeffrey D. Shellberg: Certainly the dynamics of the twin city market with.
Jeffrey D. Shellberg: Supply of inventory pretty light in <unk>.
Jeff: A lot of new construction coming on I.
Jeffrey D. Shellberg: Anything else to kind of pitch in on the twin city market relative to other kind of headline risk.
Jeffrey D. Shellberg: What amount of kind of rent control and regulation.
Jeffrey D. Shellberg: Do you see.
Jeffrey D. Shellberg: Just any other.
Jeffrey D. Shellberg: Separating kind of characteristics.
Jeffrey D. Shellberg: Of your market.
Jeffrey D. Shellberg: Yeah.
Jeffrey D. Shellberg: Yeah, I think that, you know, we do feel good about the overall market. I've seen in an article recently that it ranks in the top two or three in the country just in terms of consistency of rent growth. It may not be a fast-growing market, but it's something that, both from an absorption standpoint and from a rent growth standpoint, it's kind of a steady-eddy. You know, that being said, you're always going to have some properties that exhibit, you know, some level of distress due to potential vacancies in the pocket where the property is located.
Jeff: Yeah, I think that.
Jeff: You know, we do feel good about the overall market.
Jeffrey D. Shellberg: Seen in an article recently that it ranks in the top two or three in the country. Just in terms of consistency you have rent growth. It may not be a high growing might think well that's something that both from an absorption standpoint and from a rent growth standpoint, it's kind of a steady Eddie.
Jeffrey D. Shellberg:
Jeffrey D. Shellberg: That being said that Europe, youre always going to have some properties that exhibit some level of distress due to potential break it seems in the pockets of where the property is located that could be expensive.
Jeffrey D. Shellberg: Could be expenses. Could be interest rates. Fortunately, we know the market really well. We have really good sponsors. I've always had a good, strong client relationship and am able to work with them in terms of identifying solutions for those problems.
Jeffrey D. Shellberg: Could be interest rates.
Jeffrey D. Shellberg: Fortunately.
Jeffrey D. Shellberg: We know the market really good we have really good sponsors.
Jeffrey D. Shellberg: I've always had a good strong client relationship and are able to work with them in terms of identifying solutions for those problems.
Jeffrey D. Shellberg: The rent control that you mentioned, the St. Paul rent control that was implemented, I think it was two years ago. It's been somewhat of a non-event. I think that it has, in part, reduced the amount of new development that's going on in St. Paul, which means that it's been better for rent growth for the existing properties that are there. And the jury's still out on Minneapolis rent control. That was because the city council had passed, or the voters had passed it a year ago.
Jeffrey D. Shellberg: Rent control that you mentioned the St. Paul rent control that was implemented I think it was two years ago. It was.
Jeffrey D. Shellberg: Our non event I think that it has.
Jeffrey D. Shellberg: In part reduced the amount of new development.
Jeffrey D. Shellberg: Going on in St. Paul, which meant that it's been better for rent growth for the existing properties are there.
Jeffrey D. Shellberg: And the jury is still out on all the Minneapolis rent control that was the city Council had Pat or the voters passed that a year ago. They still have a task force that they put together and they're trying to come up with what that might look like.
Jeffrey D. Shellberg: They still have a task force that they put together, and they're trying to come up with what that would look like. I would say that the mayor has come out publicly and said that he is against any type of severe rent control if he feels it would impact development in the city.
Speaker Change: I wouldn't say that the mayor has come out publicly and said that he was again when we talk about severe rent control.
Jeffrey D. Shellberg: So it was impossible.
Jeffrey D. Shellberg: Yeah.
Jeffrey D. Shellberg: Given the.
Jeffrey D. Shellberg: Low loss history in.
Jeffrey D. Shellberg: Given the low loss history in kind of multifamily and CRE in general at the bank, you know, I'm interested in your view of the greater risk to the portfolio, either in CRE or even C&I. We're starting to see a lot more C&I one-offs perk up from other banks. Just curious as to how you would peg the risk to C&I versus CRE.
Jeffrey D. Shellberg: And kind.
Jeffrey D. Shellberg: Kind of multifamily and CRE in general at the bank.
Jeffrey D. Shellberg: In your view of.
Jeffrey D. Shellberg: Yeah.
Jeffrey D. Shellberg: The greater risk to the portfolio, either in CRE or or even C&I, we're starting to see a lot more C&I.
Jeffrey D. Shellberg: One offs picked up from.
Jeffrey D. Shellberg: From other from other banks, just curious as to what how would you peg the risk to C&I versus CRE.
Jeffrey D. Shellberg: I think our C&I is relatively limited; I don't see a lot of risk, you know. We've always been more of a heavily CRE, multi-family institution, so if you look at pure dollars out the door, those would probably be the ones that are most exposed. As I said, we feel good about the portfolio at this point in time, but, you know, there's always going to be, when you have a portfolio that's $3.7 billion, you're always going to have specific properties that may have some type of issue that needs to be dealt with.
Jeffrey D. Shellberg: I think our C&I is relatively.
Jeffrey D. Shellberg: Limited I don't see a lot of risk you know, we've always been more of a heavily on CRE.
Jeffrey D. Shellberg: <unk> multifamily.
Jeffrey D. Shellberg: Institutional thing if you look at pure dollars out the door.
Jeffrey D. Shellberg: Those are probably the ones that are most exposed.
Jeffrey D. Shellberg: As I said, we feel good about the portfolio at this point in time, but.
Jeffrey D. Shellberg: There's always been.
Jeffrey D. Shellberg: A portfolio of about $3 $7 billion Youre always going to have specific properties that they are having some type of an issue.
Jeffrey D. Shellberg: Butler and our credit departments working real hard in order to identify properties that aren't meeting performance. So that we can get in front of them and work with the client.
Jeffrey D. Shellberg: And our credit department is working really hard in order to identify properties that aren't performing so that we can get in front of them and work with the client. We feel really good when we have identified properties that are underperforming, and when our clients are willing to step up and inject capital, and when they're willing to work with us and they can do that, we're usually able to find solutions. I think it all really starts with the sponsor, the client that we're working with, and I think we've had a really good history of picking the right players that are doing business in the Twin Cities, and I think that bodes well for us going forward.
Jeffrey D. Shellberg: We felt really good when we have identified.
Jeffrey D. Shellberg: Properties that are underperforming, but our clients are willing to step up and then jet capital.
Jeffrey D. Shellberg: They are willing to work with us and they can do that we're usually able to find solutions I think it all it all really starts with the sponsor.
Jeffrey D. Shellberg: Okay.
Speaker Change: A little bit more.
Jeffrey D. Shellberg: I think like Poland sort of doing business on the peninsula.
Jeffrey D. Shellberg: That bodes well for us going forward.
Joseph M. Chybowski: Great. Thanks. And one last one. Joe, do you have the March... Interest margin? I think the December margin was maybe a bit of a head bake relative to the Q4 average, but just wanted to see what the March margin was.
Speaker Change: Great. Thanks, and one last one Joe do you have the.
Joseph M. Chybowski: March.
Speaker Change: <unk> margin I think.
Joseph M. Chybowski: The December margin was maybe a bit of a head fake relative to the Q4 average, but just wanted to see what March margin wise.
Joseph M. Chybowski: Yeah, March was 2-23. So Bates is playing lower than the quarter. Yeah, all right. I appreciate it.
Joe: Yes March was $2 23.
Joseph M. Chybowski: So basis point lower than the quarter.
Speaker Change: Alright I appreciate it thank you.
Jeffrey Allen Rulis: All right, I will appreciate it. Thank you.
Joseph M. Chybowski: Yeah.
Jerry: This concludes our question and answer session I would like to turn the conference back over to Jerry box for any closing remarks.
Gerald John Baack: This concludes our question and answer session. I would like to turn the conference back over to Jerry Baack for any closing remarks.
Gerald John Baack: Thank you everybody for joining our call today. We continue to be encouraged by our loan and deposit growth and then in our overall business models, and we continue to have a very strong brand.
Gerald John Baack: Thanks, everybody for joining our call today, we continue to be encouraged by our.
Gerald John Baack: Loan and deposit growth and then in our overall business model and continue to have a very strong brand and.
Gerald John Baack: Our team members have done a phenomenal job here. Today is Bring Your Kid to Work Day. It's odd when we're sitting here during a conference call, and there are little kids running all over. So, if anybody wants free babysitting... There are 60 to 70 kids here. Thanks, everybody. Bye.
Gerald John Baack: Our team members have done a phenomenal job here today or in your Kid to work there. So it's it's.
Gerald John Baack: It's odd when we're sitting here during the conference call and Theres Little Tim Jordan all over so if anybody wants free babysitting.
Gerald John Baack: There are 60 to 70 kids here.
Gerald John Baack: Thanks, everybody bye.
Operator: The conference is now concluded. Thank you for attending today's presentation, and you may now disconnect.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.
Operator: Yeah.
Operator: [music].