Q1 2024 Evans Bancorp Inc Earnings Call Q&A

Operator: Greetings and welcome to the Evans Bancorp first quarter fiscal year 2024 financial results. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Deborah Pawlowski, Investor Relations, for Evans Bancorp. Thank you. You may begin.

Greetings and welcome to the Evans Bancorp first quarter fiscal year 2024 financial results.

At this time all participants are in a listen only mode.

A question and answer session will follow the formal presentation.

If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.

As a reminder, this conference is being recorded.

It is now my pleasure to introduce Deborah Pawlowski Investor Relations for Evans Bancorp. Thank you you may begin.

Deborah Kay Pawlowski: Thank you, Doug, and good afternoon, everyone. We certainly appreciate your taking the time today to join us, as well as your interest in Evans Bancorp. Here with me is David Nasca, our President and CEO, and John Connerton, our Chief Financial Officer. David and John are going to review the results of the 2024 first quarter and provide an update on the company's strategic progress and outlook. After that, we will open the call for questions.

Deborah Kay Pawlowski: Thank you Doug and good afternoon, everyone. We certainly appreciate you taking the time today to join us as well as your interest in Evans Bancorp.

Deborah Kay Pawlowski: You should have a copy of the financial results that were released today after markets closed. If not, you can access them on our website at www.evansbank.com. As you are aware, we may make some forward-looking statements during the formal discussion, as well as during the Q&A. These statements apply to future events that are subject to risks and uncertainties, as well as other factors that could cause actual results to differ materially from what is stated on today's call.

Deborah Kay Pawlowski: With me I have David <unk>, our president and CEO and Jonathan Kim Our Chief Financial Officer, Dave.

Deborah Kay Pawlowski: David and John I'm going to review the results of the 2020 for first quarter and provide an update on the company's strategic progress and outlook.

After that we will.

Speaker Change: Quick question.

Should have a copy of the financial results were released today after market close.

Speaker Change: You can access them on our website at Www Dot Evans Uh huh.

Speaker Change: As you are aware, we may make some forward looking statements during the formal discussion as well as during the Q&A. These statements apply to future events that are subject to risks and uncertainties as well as other factors that could cause actual results to differ materially from what is stated on today's call.

Speaker Change: These risks and uncertainties and other factors are provided in the earnings release as well as with other documents filed by the company with the Securities and Exchange Commission.

Speaker Change: Please find those documents on our website or at FCC that does.

Deborah Kay Pawlowski: These risks and uncertainties and other factors are provided in the earnings release, as well as in other documents filed by the company with securities and exchange permission. Please find those documents on our website or at FCC.gov. So with that, I turn it over to David to begin. Dave. Thank you, Deborah.

Speaker Change: So with that let me turn it over to David to begin David.

David John Nasca: Thank you, Debbie. Good afternoon, everyone.

David: Thank you Debbie good afternoon, everyone. We appreciate your joining us today I'll start with a review of the highlights from the recent quarter and well then hand, it off to John to discuss our results in detail.

David John Nasca: We appreciate your joining us today. I'll start with a review of the highlights from the recent quarter, and we'll then hand it off to John to discuss our results in detail. First quarter results reflect solid performance across key business segments. Against a continued challenging environment, our net interest margin demonstrated resilience and saw some sequential expansion. While the cost of funding continues to rise, we see the rate of increase decelerating, which provides a stabilizing net interest margin outlook, as John will discuss in more detail later.

David: First quarter results reflect solid performance across key business segments against a continued challenging environment. Our net interest margin demonstrated resilience and saw some sequential expansion.

David: While the cost of funding continues to rise we see the rate of increase decelerating, which provides a stabilizing net interest margin outlook as John will discuss in more detail later.

David John Nasca: During the quarter, we opportunistically used market rate movements to lock in a modest amount of wholesale funding to manage against possible higher rates for a longer period, as well as prefunding some deposit seasonality and expected loan growth. This included $50 million in brokerage certificates of deposit and the extension of maturities on $40 million of Federal Home Loan Bank overnight borrowings for three years.

David: During the quarter, we opportunistically used market rate movements to lock in a modest amount of wholesale funding to manage against possible higher rates for a longer period as well as pre funding some deposit seasonality and the expected loan growth.

David: This included $50 million and brokered certificates of deposit.

David: And the extension of maturities on $40 million of federal home loan bank overnight borrowings for three years.

David John Nasca: Our organic deposit gathering during the recent quarter sets a strong foundation for future loan expansion. While growth in loans during the first quarter was muted, we are particularly optimistic relative to our significant loan pipeline, approximating $95 million. Across our market areas, our consumer, business, banking, and commercial teams continue to build a diverse pipeline of high-quality loans in a difficult rate environment. We're also seeing early benefits of strategic investments in our commercial banking team and enhancements to prospecting tools.

David: Our organic deposit gathering during the recent quarter sets a strong foundation for future loan expansion while growth in loans. During the first quarter was muted we are particularly optimistic relative to our significant loan pipeline approximating $95 million.

David: Across our market areas, our consumer business banking and commercial teams continue to build a diverse pipeline of high quality loans in a difficult rate environment.

David: We're also seeing early benefits of strategic investments in our commercial banking team and enhancements to prospecting tools.

David John Nasca: Commercial activity in Rochester has provided additional growth for our pipeline, and in February, in addition to the recently acquired regional director, we bolstered the team with a new relationship manager. While we have been and are vigilant in managing expenses, we recognize the importance of strategic investments in both people and technology. These investments are pivotal in our efforts to effectively scale the organization, drive future efficiencies, and ultimately deliver enhanced customer-facing solutions and experiences.

Commercial activity in Rochester has provided additional growth to our pipeline and in February. In addition to the recently acquired regional director, we bolstered the team with a new relationship manager.

David: While we have been and are vigilant in managing expenses, we recognize the importance of strategic investments in both people and technology.

David: These investments are pivotal and our efforts to effectively scale the organization drive future efficiencies and ultimately deliver enhanced customer facing solutions and experience.

David John Nasca: By continuing to refine operations and invest in the right areas, we are poised to not only weather challenges but also seize opportunities for growth. As we approach our annual meeting of shareholders, I wanted to make note of some changes to our board, which will occur following the meeting on May 7. As outlined in the proxy statement, we will bid farewell to two directors who will not be seeking re-election, Robert Miller Jr. and Kevin Maroney. Their departure will result in a reduction in our board's size to 12 members.

David: By continuing to refine operations and invest in the right areas. We are poised to not only weather challenges, but also sees opportunities for growth.

David John Nasca: Kevin Maroney, who joined us through the Fairport Savings Bank acquisition in 2020, has played a pivotal role in our expansion efforts, particularly in bolstering our presence in Rochester. We extend our gratitude to Kevin for his contributions and wise counsel throughout the integration process and for his leadership after the acquisition. Robert Miller, Jr. has been an integral part of our board for an impressive 23 years. His tenure as the long-serving president of the Evans Agency, the bank's insurance business, and his building of that business until his retirement in 2019, speak volumes of his dedication and expertise.

Speaker Change: As we approach our annual meeting of shareholders I wanted to make note of some adjustments to our board, which will occur following the meeting on May seven.

Speaker Change: As outlined in the proxy statement, we will bid farewell to two directors, who will not be seeking reelection Robert Miller Junior and Kevin Maroney. Their departure will result in a reduction in our board size to 12 members.

Kevin Maroney, who joined us through the Fairport savings Bank acquisition in 2020 has played a pivotal role in our expansion efforts.

Particularly in bolstering our presence in Rochester.

Speaker Change: We extend our gratitude to Kevin for his contributions and wise counsel throughout the integration process and for his governance after the acquisition.

Speaker Change: Robert Millard Junior has been an integral part of our board for an impressive 23 years. His tenure as the long serving president of the Evans agency, the banks insurance business and his building of that business until his retirement in 2019 speaks volumes of his dedication and expertise we owe Baba data grant.

David John Nasca: We owe Bob a debt of gratitude for his unwavering commitment to Evans. His visionary leadership not only left a profound impact on our board but also played a crucial role in driving the growth of the insurance agency organically and through 15 acquisitions, culminating in its successful sale in the fourth quarter of last year. On behalf of the entire board and Evans family, we wish them both the very best in their future endeavors.

Speaker Change: Tuned for his unwavering commitment to Evan <unk>.

Speaker Change: His visionary leadership not only left a profound impact on our board, but also played a crucial role in driving the growth through the insurance agency organically and through 15 acquisitions, culminating in its successful sale in the fourth quarter of last year.

Speaker Change: On behalf of the entire board and Evans family, we wish them, both the very best in their future endeavors.

David John Nasca: As we progress through the year, our primary focus remains on customer acquisition and relationship management to foster loan and deposit growth. Concurrently, we are committed to optimizing operational efficiency and customer experience, as well as managing expenses diligently to deliver sustainable returns. Central to our strategy is our community-based, customer-centric model, which we believe is our core strength. This enables us to effectively support, serve, and expand our client base across all economic environments.

As we progress through the year, our primary focus remains on customer acquisition and relationship management to foster loan and deposit growth.

Speaker Change: Concurrently we are committed to optimizing operational efficiency and customer experience as well as managing expenses diligently to deliver sustainable returns.

Speaker Change: Central to our strategy is our community based customer centric model, which we believe is our core strength. This enables us to effectively support serve and expand our client base across all economic environments.

David John Nasca: By prioritizing clients' needs and fostering strong relationships, we are confident in our ability to navigate the challenges being faced and capitalize on opportunities for growth. With that, I'll turn it over to John to run through our results in greater detail, and then we will be happy to take any questions you may have.

Speaker Change: By prioritizing clients' needs and fostering strong relationships, we're confident in our ability to navigate the challenges being faced and capitalize on opportunities for growth with that I'll turn it over to John to run through our results in greater detail and then we will be happy to take any questions. You may have John.

John B. Connerton: Thank you, David, and good afternoon, everyone. As a reminder, the comparative periods of 2023 include business activity relating to the Evans Agency or TEA. We completed the sale of that business to Arthur J. Gallagher and Company on November 30, 2020. For the recent quarter, we delivered earnings of $2.3 million, or $0.42 per diluted share. The linked fourth quarter of 2023 had net income of $10.2 million, though it included a gain of $20 million from the sale of tea, as well as $1.5 million of insurance revenue that was recognized prior to the sale, partially offset by the $5 million pre-tax loss on the sale of investments. When excluding tea and the atypical items, our poor banking business saw sequential earnings improvements.

John: Thank you David and good afternoon, everyone.

John: As a reminder, the comparative periods of 2023 include business activity related to Evan The Evans agency or T.

John: We completed the sale of that business the Arthur J Gallagher <unk> company on November 30 of 2023.

John: For the recent quarter, we delivered earnings of $2 3 million or <unk> 42 per diluted share.

John: The linked fourth quarter of 2023 had net income of $10 $10 2 million, though included a gain of $20 million from the sale of tea as well as $1 $5 million of insurance revenue that was recognized prior to the sale, partially offset by the $5 million pre tax loss on the sale of investments fair.

John: When excluding <unk> and the atypical items, our core banking business saw sequential earnings improvement.

John B. Connerton: When compared with last year's first quarter earnings of $5.8 million, the primary drivers of the year-over-year change were lower net interest income and a change in provision. Net interest income of $13.9 million was flat with the linked fourth quarter, though it was impacted when compared with the prior year period by higher interest expense given competitive pressure on deposit pricing, which accelerated for most of 2023. This more than offsets increases in interest income driven by growth in our variable rate portfolio.

John: When compared with last year's first quarter earnings of $5 8 million.

John: The primary drivers of the year over year change were lower net interest income and a change in provision.

John: Net interest income of $13 9 million was flat with the linked fourth quarter, though was impacted when compared with the prior year period by higher interest expense given competitive pressure on deposit pricing, which accelerated for most of 2023.

John: This more than offset increases in interest income driven by growth in our variable rate portfolio.

John B. Connerton: First quarter net interest margin came in at 2.79%, four basis points from the linked quarter. This was slightly favorable to our expectations of a flat NIP, as we benefited from the fourth quarter balance sheet restructure and continued prudent pricing strategy. I will talk about our NIM expectations at the end of my remarks.

John: First quarter net interest margin came in at $2, 79% up four basis points from the linked quarter. This was slightly favorable to our expectations of a flat NIM.

John: As we benefited from fourth quarter balance sheet, restructure and continued prudent pricing strategy.

John: I will talk to our NIM expectations at the end of my remarks.

John B. Connerton: The $266,000 provision for credit losses in the recent quarter was due to slower prepayment rates and higher net loan charge-offs, partially offset by improving economic values. Total non-interest income was down $16.3 million from the sequential quarter. The reduction from the fourth quarter of 2023 was due to the gain on sale of T of $20.2 million and $1.5 million in T insurance revenue offset by the $5 million investment loss, which were all recognized in the sequential quarter. The remaining increase in non-interest income from the fourth quarter was primarily due to an increase in the value of mortgage services. Total non-interest income was down $1.8 million when compared with the first quarter of 2023.

John: 266000 provision for credit losses in the recent Florida was due to slower prepayment rates and higher net loan charge offs, partially offset by improving economic fact.

John: Total noninterest income was down $16 3 million from a bunch of Florida. The reduction from the fourth quarter of 2023 was due to the gain on sale of <unk> of $20 2 million and one and a half million dollars in the T insurance revenue offset by the 5 million investment loss, which were all recognize a bunch of Florida.

John: The remaining increase in noninterest income from the fourth quarter was primarily due to an increase in the value of mortgage servicing rights.

John: Total noninterest income was down $1 8 million when compared with the first quarter of 2023. The majority of reduction was related to $2 3 million in key insurance revenue recognized in the first quarter of 2023.

John B. Connerton: The majority of the reduction was related to $2.3 million in T-Insurance revenue recognized in the first quarter of 2023. This was offset mostly by an increase in the value of mortgage servicing rights during the first quarter of 2020. The decrease in non-interest expense from the fourth quarter of 2023 was due to lower incentive accruals of $2.1 million and $1 million of non-interest expense related to T, primarily salaries and employee benefits, that were recognized during the fourth quarter of 2023 prior to the sale. In addition, $300,000 of charitable contributions and $100,000 of pension settlement expenses were included in other expenses during this lunch report.

John: This was offset mostly by an increase in the value of mortgage servicing rights during the first quarter of 2024.

John: The decrease in noninterest expense from the fourth quarter of 2023 was due to lower incentive accruals of $2 1 million and $1 million of noninterest expense related to key primarily salaries and employee benefits that were recognized during the fourth quarter of 2023 prior to the sale.

John: In addition, 300000 of charitable contributions and 100000, a pension settlement expenses were included in other expenses.

Speaker Change: Not support.

John B. Connerton: The recent quarter benefited from lower incentive rules but did include about $500,000 in other costs that are seasonal for the first quarter and not expected to be repeated in subsequent quarters of 2024. Those include the annual resets of FICO and unemployment insurance, the annual payment into our HSA accounts, and some accelerated equity compensation for those employees in retirement-eligible status. The decrease in non-interest expense from the first quarter of 2023 was due to 1.8 million of non-interest expenses relating to T, of which salaries and employee benefits were 1.5. During the first quarter of 2023, salaries and employee benefits, excluding the one and a half million related to T, were $7.9 million, flat with the first quarter of 2024.

Speaker Change: The recent quarter benefited from lower incentive accruals, but did include about $500000 in other costs that are seasonal for the first quarter are not expected to be repeated in subsequent quarters of 2020 for those.

Those include the annual reset of FICA and unemployment insurance the annual payment into our HSA accounts and some accelerated equity compensation for those employees in retirement eligible status.

Speaker Change: The decrease in noninterest expense from the first quarter of 2023 was due to $1 8 million of noninterest expenses relating to P. A with salaries and employee benefits were one 5 million.

Speaker Change: During the first quarter of 2023 salaries employee benefits, excluding the $1 5 million related to T were $7 $9 million flat with the first quarter of 2024.

John B. Connerton: The remaining increase in total non-interest expense of $200,000 is due to higher technology and communication expenses recognized by the bank during the first quarter of 2024, after adjusting for the first quarter additional costs within salaries and benefits and adding for the full impact of merit increases awarded at the end of this first quarter in 2020. The non-interest expense for the first quarter is a close approximation of the expense run rate to use going forward.

Speaker Change: The remaining increase in total noninterest expense of 200000 is due to higher technology and communication expenses recognized by the bank during the first quarter of 2024.

Speaker Change: Adjusting for the first quarter additional cost within salaries and benefits and adding for the full impact of merit increases awarded at the end of this first quarter 2020 for the noninterest expense for the first quarter is a close approximation of the expense run rate to use going forward.

John B. Connerton: Our expectation for the bank's only 2024 year expense, including T's 2023 expenses, is a decrease between 1% and 2%. We continue to strategically strengthen our balance sheet during the recent quarter, adding $55 million of broker deposits at favorable rates and extending approximately $40 million of overnight borrowings in order to manage interest rate risk, as David suggested. Total deposits increased $173 million, or 10% during the quarter, and we're up $41 million, or 2% from the end of last year's first quarter, reflected in the sequential increase for broker time deposits and seasonal inflows of municipal deposits.

Speaker Change: Our expectation for the bank only 2024 year expense, including <unk> 2023 expenses decrease between 1% and 2%.

Speaker Change: We continued to strategically strengthen our balance sheet during the recent quarter, adding $55 million of broker deposits at favorable rates and extending approximately $40 million of overnight borrowings in order to manage interest rate risk as David suggested.

Speaker Change: Total deposits increased $173 million or 10% during the quarter and were up $41 million or 2% from the end of last year's first quarter.

Speaker Change: Reflected in this sequential increase where broker time deposits and seasonal influenza seasonal inflows of municipal deposits.

John B. Connerton: From a product perspective, the only category in which we saw a decrease was commercial savings, which was down $3 million. Those deposit outflows can be considered seasonal and typical in the first quarter due to distributions and tax payments that commercial clients make at the beginning of the year. Total loans were flat with the linked quarter, as net commercial originations were $36.3 million compared with $58 million of net originations in the fourth quarter.

Speaker Change: From a product perspective, the only category in which we saw was commercial savings, which was down $3 million.

Speaker Change: Those deposit outflows can be considered seasonal and typical in the first quarter due to distributions and tax payments and commercial clients make it at the beginning of the year.

Speaker Change: Total loans were flat with the linked quarter as net commercial originations were $36 3 million compared with $58 million of net originations in the fourth quarter.

John B. Connerton: We continue to be selective in underwriting decisions but are seeing opportunities in commercial real estate, doing multifamily and warehousing, and warehouse facilities that meet our credit framework. C&I line balances remain muted and continue to impact growth in that portfolio. We are making some progress to offset the low line usage as the majority of the originations in the first quarter were seen on. Total loans were up 63 million year over year, which reflected commercial real estate loan growth of $76 million, partially offset by commercial and industrial loans, which were down 15 million.

Speaker Change: We continue to be selective in underwriting divisions, but are seeing opportunities in commercial real estate multifamily and warehousing warehouse facilities that meet our credit brands.

Speaker Change: C&I line balances remained muted and continued to impact growth in that portfolio.

Speaker Change: We are making some progress to offset the low line usage as the majority of the originations in the first quarter were C&I.

Speaker Change: Total loans were up $63 million year over year, which reflected commercial real estate loan growth of $76 million, partially offset commercial and industrial loans, which were down 15 million.

John B. Connerton: The current pipeline is strong and stands at $95 million at quarter end. We expect our current liquidity position to be the foundation that supports expected commercial loan growth of approximately 5% in 2024. Credit metrics remain sound with a slight increase in non-performing loans on sequential. Criticized loans were $70 million at quarter end, compared with $72 million at the end of the fourth quarter. This was a $23 million decrease from last year's first quarter of $92 million.

Speaker Change: The current pipeline is strong and stands at 90 $95 million a quarter and we expect our current liquidity position to be the foundation that supports expected commercial loan growth of approximately 5% in 2024.

Speaker Change: Credit metrics remain sound with a slight increase in nonperforming loans on a sequential basis.

Speaker Change: Criticized loans were $70 million at quarter end compared with $72 million at the end of the fourth quarter. This was a $23 million decrease from last year's first quarter of $93 million.

Operator: We have been successful in managing our Deposit Pricing Strategy to include balancing liquidity with profitability and are confident in our ability to continue to navigate the evolving market dynamics. We will continue to fight for deposits by maintaining competitive rates in our markets and, when warranted, offering preferred pricing for poor clients. The balance sheet impact of adding brokered deposits to anticipated seasonal deposit fluctuation and funding expected loan growth with longer-term borrowings was a temporary increase in the Fed Funds Sold Balance.

Speaker Change: We have been successful in managing our deposit pricing strategy to include balancing liquidity with profitability.

Speaker Change: We are confident in our ability to continue to navigate the evolving market dynamics, we will continue to fight for deposits by maintain competitive rates in our markets and when warranted offer preferred pricing for core clients.

Speaker Change: The balance sheet impact for added for adding brokered deposits to anticipated seasonal deposit fluctuation and funding expected loan growth with longer term borrowings was a temporary increase in fed funds sold bank while.

Operator: While the impact of this short-term leverage is adding to net interest income, it will decrease NIM in the second quarter by $13,000. However, positive rate offerings are currently stable in our market. However, we continue to expect modest increases in cost as customers continue to move balances from transactional counts to interest-bearing counts, as well as the CD portfolio continues to be priced. Given those impacts, we expect our NIM to be 2.65% in the second quarter of 2020. With that, Operator, we would now like to open the line for questions.

Speaker Change: While the impact of this short term leverage is adding to net interest income it will decrease the NIM in the second quarter by 13 basis points.

Speaker Change: The rate offerings are currently stable in our market. However, we continue to expect modest increases in cost as customers continue to move balances and transaction accounts.

Speaker Change: Interest bearing accounts as well as the CD portfolio continue to be price.

Speaker Change: Given those impacts we expect our NIM to be $2 six 5% in the second quarter of 2024.

Speaker Change: With that operator, we would now like to open the line for questions.

Speaker Change: Yeah.

Speaker Change: Thank you.

Operator: Thank you. Ladies and gentlemen, at this time, we will be conducting a question and answer session. If you'd like to ask a question, you may press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your headset before pressing the star key. Our first question comes from the line of Alex Twerdahl with Piper Sandler. Please proceed with your question.

Speaker Change: Ladies and gentlemen at this time well be conducting a question and answer session.

Speaker Change: If you'd like to ask a question you May press star one on your telephone keypad.

A confirmation tone will indicate your line is there any question queue.

Speaker Change: You May press star two it feels like to remove your question from the Q.

Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key.

Speaker Change: Our first question comes from the line of Alex toward all with Piper Sandler. Please proceed with your question.

Alexander Roberts Huxley Twerdahl: Good afternoon, guys.

Alex: Hey, good afternoon guys.

Alex: Hi, good afternoon Alex.

John B. Connerton: John, I was hoping maybe you could talk a little bit more about the, you know, sort of the overall balance sheet management strategy as the year progresses. I know you're sitting on a little bit more liquidity at the end of the first quarter than we typically see on the balance sheet, and maybe due to the repurchases and the extension of the borrowings that you alluded to, but how do you see that evolving over the course of the year? And, you know, also, does the balance sheet stay kind of roughly flat from where it is now, or does it shrink a little bit as the year progresses?

Alex: John I was hoping maybe you could talk a little bit more about the sort of the overall balance sheet management strategy.

Alex: As the year progresses, I know youre sitting on a little bit more liquidity at the end of the first quarter than we typically see on balance sheet and it may be due to the broker and the extension of the borrowings that you alluded, but how do you see that evolving over the course of the year and also does the balance sheet say kind of roughly flat from where it is now or does it shrink a little bit a mezzanine.

Alex: Regresses.

John B. Connerton: So yeah, I think, you know, I guess just to talk about the broker CDs and the 40 million FHLB borrowings that are three years, you know, we, those are mostly the broker CDs. You can think of this as, you know, we have a fluctuation season, seasonally, from the municipal portfolio. We're up $84 million in the quarter on municipal deposits alone, and that'll run down and out, and then a So we're utilizing those broker CDs, where we took an opportunity in the quarter where, you know, there were some interest dips, and we went out and got some wholesale funding. So we didn't have to kind of price our market.

Alex: So.

Speaker Change: Yeah I think.

I guess just to talk about the brokerage Cds and the $40 million of <unk> borrowings that are three year.

Speaker Change: Those are mostly the brokerage Cds you can think of this as this is we have fluctuation seasonal seasonally from the municipal portfolio significantly we're up $84 million in the quarter on municipal.

Speaker Change: Missile deposits alone and that'll run down and out and then a little backup a little bit and in the fall and then down through the end of it.

Speaker Change: Excuse me at the end of the winter. So we're utilizing those brokerage Cds or you took an opportunity in the quarter, where there was some interest dips and we went out and got some wholesale funding so.

John B. Connerton: And we're going to utilize that to kind of help kind of mitigate some of that cyclicality in those municipal deposits. So that by itself, again, would consider the balance sheet kind of flat through the entire period and through to the end of the year. The other portion, the 40 million, is an expectation of kind of pre-funding since rates have dropped again, and we wanted to take advantage of the drop in rates on the longer end before it's obviously increased currently, to pre-fund some of our expectations, as we suggest the 5% growth on our loans.

Speaker Change: So we didn't have to kind of price or market.

We're going to utilize that to kind of help.

Speaker Change: Kind of.

Speaker Change: Kind of mitigate some of that cyclicality in those municipal deposit so that by itself again would would consider the balance sheet kind of flat through the through the period and through to the end of the year. The other portion of $40 million as an expectation of kind of pre funding since rates again were dropped and we wanted to take advantage of that the drop.

Speaker Change: Rates on the longer end before it's obviously increased currently.

John B. Connerton: And so again, that kind of offset would again mean that our balance sheet would just be a movement out of the cash into the loans. So yes, in total, for these particular purposes, those two, what I'll call pre-funding transactions, the balance sheet should stay mainly flat. However, we do expect that we'll still have some deposit growth, excluding those two types, such that the balance sheet should trend up, you know, slightly after all said and done, you know, a couple of percentage points.

Speaker Change: <unk> fund some of our expectation as we suggest the 5% growth on our loan and so again that that kind of offset would again be met our balance sheet will just be a movement out of the cash into the.

Speaker Change: Into the loans. So yes in total for that particular purpose is those those two what I'll say pre funding.

Speaker Change: Transactions the balance sheet should stay mainly flat. However, we do expect that we will still have some deposit growth.

Speaker Change: Excluding those two those two type such that the balance sheet should trend up slightly.

Speaker Change: Slightly.

Speaker Change: After all sudden done a couple of percentage.

John B. Connerton: Okay, great. That's, that's, that's a helpful color. And then, you know, when we think about the loan growth and the 5% targets for the year, do you think that that will be pretty evenly spread over the remaining three quarters of the year, or maybe we could talk about sort of what goes into that 5% overall target? Yeah, I think so.

Speaker Change: Okay, Great. That's that's that's helpful color and then when we think about the loan growth in the 5% targets in the year.

Speaker Change: Do you think that that will be pretty evenly spread over the remaining three quarters of the year talk maybe about sort of what goes into that 5% overall target.

John B. Connerton: Yeah I think that's a good assumption, that the rest of the year should be fairly even and evenly spread. Obviously, the fourth quarter's a little bit more of a little bit more of an estimate, but our expectation is that.

Speaker Change: Yeah, I think that's a good that's a good assumption is that the rest of the year should be fairly even evenly spread obviously fourth quarter's a little bit more of a.

Speaker Change: Little bit more of an estimate but our expectation is that.

John B. Connerton: Okay, and then the final question, just wanted to talk a little bit more about how you think about capital management over the next couple quarters. Obviously, you created a lot more flexibility on the capital front with the T sale in the fourth quarter. And just curious if you've got any more considerations or thoughts of things like buybacks or additional restructuring and things like that.

Speaker Change: Okay and then final question just wanted to talk a little bit more about how you're thinking about capital management over the next couple of quarters, obviously created a lot more flexibility in the capital front with the the T cell in the in the fourth quarter and I'm just curious if you've done it.

Speaker Change: Sure.

Speaker Change: Considerations or thoughts on things like buybacks or additional construction things like that.

John B. Connerton: So, yeah, Alex, in the first quarter, we did, you know, we do have, there's a lot of challenges to go out and get buybacks, just based on our low liquidity level in the market and the restrictions that we have on going to get back our own stock, which we did, we did do some buybacks in the first quarter, and we'll continue to, excuse me, look at that and take opportunity when we can. But I think, first and foremost, when we look at it, our capital really there is to make sure that we're supporting our growth, especially from an asset perspective, and then, secondly, to make sure that, you know, now that we're at a somewhat of a lower performance level, we want to definitely support our dividend that, you know, for years we've been consistent with, and then, thirdly, yes, buybacks, but, you know, that, it's a little hard to get those buybacks, so I would suggest that, you know, from a priority perspective, if I were to look at it, it's kind of one, two, three in that order.

Speaker Change: So yes, Alex within the in the first quarter. We did we do there's a lot of challenges to go out and get buyback.

Speaker Change: Based on our low.

Speaker Change: Hello liquidity level in the market and the restrictions that we have I'm going to back to get back or our own stock, which we did.

Speaker Change: We did do some buybacks in the first quarter and will continue to excuse me.

Speaker Change: Look at that and take opportunity when we can.

Speaker Change: But I think first and foremost when we looked at it our capital really there is to make sure that we're supporting our growth, especially from our.

Speaker Change: On asset perspective, and then secondly to make sure that now.

Speaker Change: Now that we're at a somewhat of a lower lower performance level, we want to definitely support our dividend that for years, we've been consistent.

Speaker Change: And then thirdly, yes buybacks, but it's a little hard to get those buybacks. So I would suggest that from a priority perspective, if I were to look at it kind of 123 and that that order.

John B. Connerton: Got them. What was the amount that you did in the first quarter if you had that handy?

Speaker Change: Got them what was the amount that you did in the first quarter. If you have that handy.

John B. Connerton: I don't have it handy, Alex. It's a small amount. I think we did like half a million dollars worth, maybe like 15,000 shares or something like that. Okay.

Speaker Change: I don't have it handy Alex it's a small amount I think we did like half a million dollars worth.

Speaker Change: Maybe like <unk>.

Speaker Change: 15000 shares.

Alexander Roberts Huxley Twerdahl: Okay, thanks for taking my questions.

Speaker Change: Okay. Thanks for taking my questions.

Operator: As a reminder, it is star number one to ask a question. Our next question comes from the line of Christopher O'Connell with KBW. Please proceed with your question.

Speaker Change: As a reminder, it is star one to ask a question.

Speaker Change: Our next question comes from the line of Christopher O'connell with VW. Please proceed with your question.

Christopher O'Connell: Hey, good afternoon.

Christopher O'Connell: Hi, Chris.

Christopher O'Connell: Yeah, appreciate all the guidance around the NIM impact as far as the CDs that were brokered, that were put on in the borrowing extensions. At what point in the first quarter did those start?

Christopher O'Connell: Yep appreciate you know all the guidance from the NIM impact.

Christopher O'Connell: As far as the.

Christopher O'Connell: Cds that were brokered that were put on in the.

Christopher O'Connell: Barring extensions.

Christopher O'Connell: At what point in the in the first quarter.

John B. Connerton: It was in the latter part of March, so you won't see much of an impact in the first quarter.

Christopher O'Connell: Those occur.

Christopher O'Connell: It was in the later of March So you won't see much of an impact in the first quarter.

John B. Connerton: Got it. That's helpful. And how are you guys thinking about, you know, the trajectory of the NIM in the back half of 24 after, you know, the kind of reset in Q?

Speaker Change: Got it that's helpful and in how are you guys thinking about the trajectory of the NIM.

Christopher O'Connell: The back half of the 24 after.

Christopher O'Connell: Kind of reset in Q.

John B. Connerton: Well, our hope with the NIM right now is that the impact, the decreases that we've seen have moderated a little bit, and we're starting to decelerate the betas on deposits here, which should help the NIM. We don't expect to see a lot of NIM expansion, but we certainly think the impacts should be flattened out here a little bit.

Speaker Change: Well, our hope with the NIM right now is that the.

Christopher O'Connell: The impact the decreases that we've seen have moderated a little bit and we're starting to decelerate the betas on deposits here, which should help the NIM, we don't expect to see.

Christopher O'Connell: Lot of NIM.

Christopher O'Connell: NIM expansion.

Christopher O'Connell: We certainly think the impacts should be flattened out here a little bit.

Christopher O'Connell: Okay.

John B. Connerton: Got it. And for the CD portfolio, what's the remaining portion of it that has yet to reprice kind of up toward market rates?

Speaker Change: Got it and.

Speaker Change: For the CD portfolio.

Speaker Change: What's what's the remaining portion of it.

Speaker Change: That has yet to reprice kind of up towards market rates.

John B. Connerton: Probably around 20%. We had a big piece come through in this quarter, but another 20%.

Speaker Change: Probably around 20%, we had a big piece come through in this quarter.

Speaker Change: But another 20%.

Speaker Change: Great.

John B. Connerton: And do you have any idea what the recent loan origination yields have been coming in at or what they are in the pipeline? Yeah, our, our offering rates are, you know.

Speaker Change:

Speaker Change: And do you have a what either the recent loan origination yields have been coming on at or what they are in the pipeline.

John B. Connerton: Yeah, our offering rates are, you know, at least the current offering rates are somewhere between, on our term loans, seven and a quarter, seven and a half, and then our C&I is, you know, better than prime.

Speaker Change: Yeah, our our offering rates are.

Speaker Change: At least the current offering rates are somewhere between on our term loan.

Speaker Change: Quarter to seven five and then our C&I.

Speaker Change: Better than prime.

Speaker Change: Yeah.

Speaker Change: Okay.

Speaker Change: Great.

Speaker Change:

John B. Connerton: And then on the fee side, is there still kind of a lingering amount there, like 150,000 in the insurance line, is that falling out after this quarter? Is that unrelated? Oh, yeah, that's a good question, Chris.

Speaker Change: And then on the I'm in fee side.

Speaker Change: There is still kind of.

Speaker Change: Lingering amount there like 150000 in the insurance line does that is that falling out after this quarters that are unrelated.

Speaker Change: Yeah.

John B. Connerton: Good question, Chris. For comparative purposes, last year was in there. Part of our wealth program, which is around $700,000 a year, has always been in that line. It's been very consistent. So for comparative purposes, we're leaving it in there. Just, you know, we didn't want to reclassify it out of there. But that is so that should be consistent from quote.

Speaker Change: Good question, Chris for comparative purposes last year within that part of our wealth program, which is around $700000. A year has always been in that line.

Speaker Change: <unk> been very consistent.

Speaker Change: So for comparative purposes, we're leaving it and Theyre just.

Speaker Change: Meanwhile, <unk> flash it out of there.

Speaker Change: So that should be consistent.

Speaker Change: Okay got it.

John B. Connerton: Yeah, we did benefit plans for corporations and things like that. We sort of dovetailed with the insurance, so it was in that bucket.

Speaker Change: Yeah, we did benefit plans for corporations and things like that we sort of dovetails with the insurance. So it was in that bucket.

Speaker Change: Great.

John B. Connerton: Staying in and And then on the credit side, any commentary? So what are you kind of seeing in your markets? You know, recently, I know, not much movement this quarter in the NPLs and in the credit size, and net charge-offs pretty good as well. But any stress or any signs of stress you guys are seeing?

Speaker Change: Our sustaining and.

Speaker Change: And then on the credit side any any commentary as to what you're kind of seeing in your markets are you know recently I know you know not much movement this quarter.

Speaker Change: And the Npls in the criticize net charge offs are pretty good as well, but any any stress or any signs of stress that you guys are seeing.

John B. Connerton: We continue to not see any real cracks in the credit armor right now. We believe that companies have been impacted by the higher rates, but we, you know, for all the reasons we've been conservative, and I won't say we're conservative, but we've watched out for making sure that we've done loans appropriately in all environments. So we are not seeing a lot of cracks. As I said, you are seeing that. We're going to see rates higher for longer, we think.

Speaker Change: We continue to not see any real cracks in the credit Army right now.

Speaker Change: We believe that companies had been impacted by the higher rates, but we are you know for all the reasons we've been.

Speaker Change: Credit Conservative and I wouldn't say, we're conservative, but we've watched out for making sure that we've done loans appropriately in all environments. So we're not seeing a lot of cracks as I said you are seeing that.

Speaker Change: Uh huh.

Speaker Change: We're going to see rates higher for longer we think.

John B. Connerton: We think there may be a credit cycle at some point, but we're not seeing that at this point. And we're working through the credits that we had that are non-performing. We continue to make some progress there, and we expect to continue moving forward on repairing those. So we're not seeing a whole lot of impending challenges right now.

Speaker Change: We think there may be a credit cycle at some point, but we're not seeing that at this point and we're working through the credits we had their nonperforming we continue to make some progress there and we expect to continue moving forward on.

Speaker Change: Repairing those so.

Speaker Change: We're not seeing a whole lot of <unk>.

Speaker Change: Pending challenge right. This second.

Christopher O'Connell: That's all I had. Thanks for taking my question. Thanks, Chris.

Speaker Change: Great.

Speaker Change: That's all I had thanks for taking my questions.

John B. Connerton: Thanks, Chris. Thanks, Chris.

Speaker Change: Thanks, Chris Thanks, Chris.

Speaker Change: Yes.

David John Nasca: There are no further questions in the queue. I'd like to hand the microphone back to David Nasca for closing remarks.

Speaker Change: There are no further questions in the queue I'd like to hand, it back to you David <unk> for closing remarks.

David John Nasca: All right. Thank you, Doug. We always appreciate that you're here with us and your continued interest and support. Please feel free to reach out to us at any time. We look forward to talking with all of you again when we report our second quarter 2024 results. We hope you all have a great day. Thank you.

David: Alright, Thank you Doug.

David: Thank you for participating today in the teleconference. We always appreciate that you're here with us and your continued interest and support.

David: Please feel free to reach out to us at any time, we look forward to talking with all of you again, when we report our second quarter 2024 results. We hope you all have a great day. Thank you.

Operator: Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day. Thank you for having us here.

Speaker Change: Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.

David: Okay.

David: I don't know.