Q2 2024 First Bank Earnings Call

All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you'd like to ask a question during that time press star one on your telephone keypad. If you would like to withdraw your question from the queue Press Star One again as a reminder, today's call is being recorded I would now.

Now hand, todays call over to Patrick Ryan President and CEO. Please go ahead Sir.

Patrick L. Ryan: Thank you I'd like to welcome everyone today to first bank's second quarter 2024 earnings call I'm joined by Andrew Hibshman, Our Chief Financial Officer, Darlene Gillespie, our chief retail banking officer, and Peter Cahill, Our Chief lending officer before we begin however, Andrew will read the safe Harbor statement.

Andrew L. Hibshman: The following discussion may contain forward looking statements concerning the financial condition results of operations and business of first bank. We caution that such statements are subject to a number of uncertainties and actual results could differ materially and therefore, you should not place undue reliance on any forward looking statements. We make we may not.

Andrew L. Hibshman: Annual report on Form 10-K for the year ended December 31, 2023 filed with the FDIC Pat back to you.

Speaker Change: Thank you Andrew I'll start with some overall comments and then turn it over to the team to provide some more details.

Speaker Change: First of all I thought it was another solid quarter of results despite the challenging environment.

Andrew L. Hibshman: To use a sports analogy, we continue to take what the defense gives us we're not trying to force growth, we're doing the best deals available.

Andrew L. Hibshman: We're also letting loans pay off if the rate structure is not appropriate we continue to work to optimize both our deposit and loan portfolios shifting to more core funding by not chasing growth and allowing payoffs. We also generated growth in our specialized lending areas to gradually shift our loan portfolio.

Andrew L. Hibshman: Should we.

Andrew L. Hibshman: We continue to feel good about our commercial real estate portfolios and in the long term value that line of business creates as we shift some of our balance sheet into specialized CNI niches, allowing us to meet our strategic goals and evolving into more of a middle market commercial bank.

Andrew L. Hibshman: We continue our modest balance sheet repositioning with the sale of $24 million in lower yielding acquired commercial real estate loans, allowing us to improve the overall quality of our portfolio and the yield on that portfolio.

Andrew L. Hibshman: As a result of those activities during the quarter, we had solid financial results, we achieved a 123% return on average assets our margin held steady at 362%.

Andrew L. Hibshman: We enjoyed continued strong asset quality performance and we saw meaningful book value and capital growth during the quarter.

Andrew L. Hibshman: Our asset based lending and small business segments saw nice growth in the quarter and they have strong momentum our private equity fund banking group has been a little less active so far this year given the market conditions, but the pipeline in that area is growing.

Andrew L. Hibshman: The deposit environment continues to be a challenge customers remain rate sensitive and excess cash continue to chase yield outside of the banking sector.

Andrew L. Hibshman: We expect to be able to normalize as rates move lower and the inverted yield curve disappears in the meantime, we are happy with our current healthy net interest margin. Despite having lived through two years of an inverted yield curve.

Andrew L. Hibshman: Our loan pipeline remains robust.

Andrew L. Hibshman: But throughput is definitely down in this environment more borrowers are taking a wait and see approach and as mentioned, we're not we're not winning as many deals given our discipline with rate and structure.

Andrew L. Hibshman: The first quarter did include a few non standard items that are worth mentioning here our loan sale generated a pretax loss of $1 2 million.

Andrew L. Hibshman: Changes to the new Jersey, corporate tax rate and structure.

Andrew L. Hibshman: Negative going forward actually generated a one time gain of $1 1 million due to the increase in the value of our deferred tax assets. We also had eliminated provision for credit losses in the quarter due to our strong asset quality metrics and the lack of loan growth within the portfolio during the quarter.

Andrew L. Hibshman: So in summary, I think we're doing the right things to create value in this environment, we're generating quality earnings and we're growing book value, we're optimizing our portfolios and we're also creating additional balance sheet flexibility as we move through this year and into 2025.

Andrew L. Hibshman: At this time I'd like to turn it over Andrew to discuss additional financial details for the second quarter Andrew.

Andrew: Thanks, Matt for the three months ended June 30th 2024, we recorded net income of $11 1 million or <unk> 44 cents per diluted share and a one 3% return on average assets are strong quarterly earnings metrics were driven by a stable margin solid asset quality metrics continued strong efficiency metrics and some onetime tax.

Andrew L. Hibshman: That's offset somewhat by losses on the sale of low yielding noncore commercial real estate loans, our net interest margin declined slightly to 362% in the second quarter of 2024 compared to $3, 64% in the prior quarter deposit cost continued to increase during the second quarter of 2004, rising 18 basis points.

Andrew L. Hibshman: But that was mostly offset by an increase of 15 basis points on the yield on loans, we expect some minimal deposit pricing increases in Q3, as we still have some Cds repricing higher at maturity and the competitive environment is still difficult. However, we expect yields on loans to continue to move higher as well, which we expect to result in a relative.

Andrew L. Hibshman: The stable margin in the third quarter.

Andrew L. Hibshman: Our results did benefit from minimal credit loss expenses recorded during the second quarter. The minimal expense was primarily due to the low level of loan growth during the quarter combined with limited charge offs and strong loan credit metrics.

Andrew L. Hibshman: Led to our allowance for credit losses to loans declining slightly to one point to 1% at June 30 of 2024 from one point to 2% at March 31, 2024, including General acquisition accounting credit marks that are not included in the allowance our ratio increases to a little over one 5%.

Andrew L. Hibshman: During the second quarter, we executed approximately $24 million in additional non core commercial real estate loan sales, which continued our strategy of optimizing our balance sheet and help to further reduce our investor commercial real estate concentration the loans had a weighted average rate of approximately $3 six 1% and the sale resulted in a loss of approximately one.

Andrew L. Hibshman: Point 2 million, we've already redeploy those funds into significantly higher yielding loans, which produces a minimal earn back period.

Andrew L. Hibshman: Overall loans were up by $5 6 million during the second quarter of 2024 during the quarter Investor commercial real estate loans declined by $32 5 million, which includes multifamily and construction and development, while owner occupied commercial real estate and C&I loans increased by a combined $44 1 million during the current quarter.

Andrew L. Hibshman: Total deposits were down slightly during the quarter, however, noninterest bearing balances rebounded and were up $29 million. During the quarter. We were pleased to maintain our overall level of deposit balances and increased noninterest bearing deposits, while marketing contingent conditions continued to be challenging. In addition, we increased our liquidity position slightly during the quarter.

Andrew L. Hibshman: And we still have significant unused borrowing capacity. We're also working to increase our capacity with both the <unk> and Federal Reserve Bank, primarily by pledging additional commercial loans and we also have a number of wholesale deposit relationships for contingent funding purposes.

Andrew L. Hibshman: Minimal growth and strong earnings had a positive impact on our capital ratios and our total risk based capital ratio increased to over 11, 6% at June 30th 2024.

Andrew L. Hibshman: Total noninterest income was down compared to the first quarter of 2024, primarily due to the aforementioned loss on sale of loans. In addition included in our Q1 2024 was bank owned life insurance income from a death benefit of approximately 187000.

Andrew L. Hibshman: Noninterest expenses were $18 million in the second quarter of 2024 compared to $17 8 million in the first quarter of 2020 for the slight increase was primarily due to an increase in professional fees and some other minor increases which were all primarily timing related.

Andrew L. Hibshman: We are fully realized all of the expected cost saves from the Malvern acquisition, while we continue to focus on our efficiency. We're very pleased with our efficiency ratio remaining relatively stable at 55, 9% for the quarter compared to 55, 6% during the first quarter of 2024, and we continue to track well below peer averages.

Andrew L. Hibshman: Our Q2 2024 tax expense was reduced due to the revaluation of our deferred tax asset based on the recent two 5% New Jersey search ex that was signed into law at the end of June the increase in our tax rate resulted in a write up of our deferred tax assets and a corresponding reduction of tax expense for the second quarter.

Andrew L. Hibshman: Lee.

Andrew L. Hibshman: This new surtax will negatively impact our future effective tax rate by approximately 1%, we anticipate that our effective tax rate going forward will now be in a range of 24% to 25% up slightly from 23% to 24% prior to the new tax while we continue to operate in a difficult rate environment. We are very pleased with our second quarter.

Andrew L. Hibshman: The results. We are also excited about the prospects for the remainder of 2024 and beyond as we are operating from a position of strength and are well positioned to react to any changes in interest rates or other market conditions.

Darleen Gillespie: At this time I'll turn it over to Darlene Gillespie, our chief retail banking officer for her remarks Sterling.

Darleen Gillespie: Thank you Andrew and good morning, everyone as Pat and Andrew have already mentioned deposit growth was muted for the second quarter of this year, which is attributed to the higher for longer rates intimate.

Darleen Gillespie: And the continued effects of the inverted yield curve alright.

Andrew L. Hibshman: Alright total deposits were down approximately $2 6 million from the first quarter of 2024, and basically flat year to date. However.

Andrew L. Hibshman: However shifts within our deposit mix has started to moderate in our favor as we saw our interest bearing.

Andrew L. Hibshman: Portfolios decrease and an increase in our non interest bearing portfolio by $29 million or 1% from the previous quarter. The increase in our non interest bearing was primarily with commercial business.

Andrew L. Hibshman: Some of this shift is attributed to customers continuing to seek a higher return on their fund, but a big part of the story is the efforts our sales teams are making onboarding full commercial relationships for <unk>.

Andrew L. Hibshman: Every loan we make our teams have been able to effectively communicate we want your full relationship and we are seeing that success.

Andrew L. Hibshman: We continue to take advantage of opportunities to let costlier and non relationship funding leave the bank.

Andrew L. Hibshman: Despite our efforts deposit costs increased 18 basis points from the previous quarter, we continue to adjust and lower exception and promotional rate offers while remaining mindful of the continued pricing competition in the market as.

Andrew L. Hibshman: As previously mentioned it is a strategic focus to reduce our deposit cost.

Andrew L. Hibshman: We realize that we will not see an immediate impact of the changes we are making now, but we continue to position ourselves to realize these benefits in the months ahead.

Andrew L. Hibshman: The deposit funding pipeline remains strong with primarily commercial business, we are leveraging our deposit campaigns to attract new customers in the commercial and consumer portfolios and we will continue to evaluate our product mix to ensure we have attractive offerings in the market.

Andrew L. Hibshman: Place.

Andrew L. Hibshman: Our online account opening platform went live in June making it easier for customers to open accounts. When they are not located near one of our 26 locations or simply just want the convenience of opening an account from their home or place of business.

Andrew L. Hibshman: We will be relocating our Glen Mills, Pennsylvania branch.

Andrew L. Hibshman: So media, Pennsylvania, and opening a new location in Trenton, New Jersey, which are both slated for September of 2024.

Andrew L. Hibshman: We're excited about the deposit and overall opportunities that will present itself by expanding into these markets.

Andrew L. Hibshman: And clothing deposit funding customer expansion and monitoring of our deposit costs continue to be some of our key drivers the environment remains challenging, but we are very optimistic and we remain optimistic and committed to the great results. We have achieved so far this year.

Andrew L. Hibshman: Year.

Andrew L. Hibshman: At this time I will turn it over to Peter Cahill, our chief lending officer for his remarks Peter.

Peter: Thanks Sterling.

Peter J. Cahill: As you've heard a few times now our goal of first bank is to avoid business. It is only the transaction and prioritize our efforts on building relationships, where we believe we're getting our share of it.

Speaker Change: Customers banking business as well as their interest rates on our loans.

Speaker Change: This has resulted in a greater focus on C&I lending, which includes owner occupied real estate loans, which by its nature brings greater deposits and other business with it.

Speaker Change: While we still like Investor real estate lending and expect to keep doing it we've become more selective about what we will do in that area.

Speaker Change: This has resulted in some runoff in that portfolio, reducing our concentrations in investor real estate loans.

Speaker Change: In the first quarter of this year total loans were down $29 million from December.

Speaker Change: Patent Andrew mentioned total loans in the second quarter were basically flat up 6 million from March 31st.

Speaker Change: And Andrew also mentioned the $24 million loan sale. This past quarter. The loans sold were investor real estate nature and reduce our exposure there.

Speaker Change: Absent the loan sale organic loan growth would've been up approximately $30 million for the quarter and resulted in flat loan growth for the first six months of the year.

Speaker Change: The results in the earnings release breakdown the loan portfolio in the various segments.

Speaker Change: They continue to head the right direction with growth in the C&I area offset by reductions in.

Speaker Change: Investor Real estate.

Speaker Change: As I mentioned last quarter. The overall volume of business. We're looking at continues to be so.

Speaker Change: The second.

Speaker Change: Reported last quarter that new loans closed and funded in Q1 totaled $78 million and the $78 million has exceeded the quarterly average roll all of 2023.

Speaker Change: For our most recent quarter, new loans closed and funded totaled $99 million an increase of 27%.

Speaker Change: I'm pleased that the C&I loans made up 75% of these new loans rather than keep too.

Speaker Change: For comparison last year in 2023, C&I made up 69% of new loans closed and funded for the year in 2022, and 2021 CNI loans for 42% and 39% respectively. So there is good evidence there I think that we're executing on our plan.

Speaker Change: We continue however to experience a fairly high level of pay offs.

Speaker Change: Including the $24 million in loan sales this quarter in each of the first two quarters. This year, we experienced payoffs of $75 million looking back. The last couple of years in 2022, and 2023, we average less than $50 million in payoffs each quarter.

Speaker Change: We do track the reasons the loans get paid off the number one reason through the first half of 2024 was at the asset underlying alone was sold.

Speaker Change: If there is any good news behind these payoffs are sits at 72% of them were in the Investor Real estate segment, which helps us in repositioning. The makeup of the loan portfolio, but one with a higher level of C&I loans.

Pat: Pat referenced the positive movement in the 300% regulatory guidance ratio of Investor real estate to risk based capital. This movement was aided by the loan sales. Obviously they were part of the payoffs I mentioned along with the increase this quarter in risk based capital.

Speaker Change: I'll now comment on our pipeline at June 30th it stood at $342 million of what we call probable funding's up 14% from the March 31st level of $300 million.

Speaker Change: Obviously pleased with these results we continue to have active calling efforts.

Pat: Continuing to see good diversification between the groups and if one breaks down the components of the pipeline CNI loans made up 57% investor real estate, 41% and consumer loans, 2% of the overall pipeline.

Pat: The top because of asset quality portfolio continues look solid charge offs were down nonperforming loans continued to decline from the uptick in Q3 last year with Malvern was acquired and delinquencies were minimal.

Pat: At quarter end.

Pat: Slide deck released with the earnings report also provides a lot of additional information about the makeup of the portfolio.

Speaker Change: So to wrap things up our regional teams, including a new team in Palm Beach County, Florida are active in the market and they continue to do.

Pat: Deposit and loan business, our specialty areas as Pat referenced asset base lending private equity backing.

Pat: Small business banking are all doing well.

Pat: Those are the highlights for lending and conclude my comments are related to Q2, I'll turn things back over to Pat for final comments.

Pat: Thank you Peter and thank you Darlene and Andrew and at this point.

Pat: We will open it up for Q&A.

Speaker Change: As a reminder, if you'd like to ask the question Press Star one on your telephone keypad. If you would like to remove yourself from the queue Press Star One again, we'll pause for just a moment to compile the Q&A roster.

Speaker Change: Your first question is from the line of Justin Crowley with Piper Sandler.

Justin Frank Crowley: Hey, good morning, everyone.

Justin Frank Crowley: Alright, just was.

Justin Frank Crowley: I was wondering if you could remind us your thinking on how you expect the NIM to behave through the first couple of rate cuts.

Speaker Change: And just how competition you're seeing on the deposit gathering side informs that beyond maybe just like a flat margin for the next quarter or so.

Justin Frank Crowley: Yes, it's a great question, Justin we've obviously taken a look at that especially in light of.

Justin Frank Crowley: The most recent market activity and some of the commentary from the fed it does feel like.

Pat:

Pat: Some of the prior comments about future rate cuts or more speculative and it seems like it's more likely that we're going to see some activity on that front as we move to the back end of the year.

Pat: Obviously, the biggest variable on the impact in margin is how quickly can we lower liability costs as the fed lowers rates and.

Pat: That's not something that's easy to predict right youre talking about elasticity of demand and competitiveness in the marketplace and I think we'll have room to move whether we'll be able to lower as quickly on the non maturity funding side to match some of the declines on the asset yield side I think we probably.

Pat: We will I think we'll be looking at.

Pat: An environment, where the margin holds in relatively well, but we're obviously going to have to pay attention to the competitive dynamics and see what is happening in the market and then the other piece, which we obviously don't know is the shape of the yield curve. If we see an environment, where the yield curve is less inverted and ultimately upwards.

Pat: Being I think that will be a significant net positive for us in terms of our margin but.

Pat: That's obviously difficult to predict as well so we can certainly run numbers that shows there's plenty of ability.

Pat: The ability to lower liability costs as some of the asset yields comes down but.

Pat: The full impact is obviously based on other factors that we don't know how thats going to play out.

Pat: Okay and have you like preliminarily at all experimented with dropping deposit rates a little ahead of any potential fed rate cuts early seen any competition doing yeah. We've done a couple of things there Justin and I'll, let Darren jump in but we have been gradually reviewing our preferred rates.

Darren: And making adjustments there as we felt was necessary and.

Speaker Change: We're constantly reviewing and resetting our promotional rates.

Darren: Based on what we're seeing out in the marketplace. So not only do you want to jump in and talk a little more about that.

Darren: Sure Yeah, just to do with Pat has said we have moved forward from probably the earlier part of the year and making adjustments with some of that special pricing and.

Pat: Promotional.

Speaker Change: <unk> that we put out into the market and I think that the reaction to our customer base has been relatively positive we're not seeing a lot of run off as a result of making those adjustments and clients are willing to have conversations and stay in a product that might be.

Pat: A few basis points lower than the bank down the street, so I would anticipate as those.

Pat: That cuts come into fruition.

Pat: It would not negatively affect our deposit growth opportunity.

Pat: Okay.

Speaker Change: Okay, Great I appreciate all the color there.

Pat: And then Pat maybe stepping back a bit here you've closed the Malvern deal a year ago now in the past 12 months building capital.

Pat: Pruning the balance sheet. So as we sit here today, how do you look at current capital levels sounds like organic growth to the extent that you can get it is the number one goal, but beyond that how would you prioritize deployment options. When we think about things like potential M&A.

Speaker Change: Wish you, obviously have experience with or share repurchase activity.

Speaker Change: Yeah, I mean listen I think as you think about quote unquote excess capital you've got a variety of options. You know if you'd asked me that question three weeks ago, I, probably would've said buybacks were.

Pat: Far and away.

Pat: The top priority given where we're trading.

Pat: Obviously, the world is a little bit different today, but I think we're building capital for a variety of reasons and even if the buyback isn't an immediately on our radar. It certainly something we'd like to know we have capital there to deploy in that manner, if market conditions create opportunities to buy it back.

Pat: Back at attractive prices, so we're not going to forget about the buyback, but obviously the world today is a little different than it was a few weeks ago.

Pat: You've got organic growth you got M&A and you got dividends I think all of those are.

Pat: Important considerations, depending on what happens in a lot of times it comes down to well what what are the best opportunities in the market. If you can grow organically and deploy capital effectively that way that is certainly.

Pat: Wrong priority that being said if the market conditions are such that yields on loans are low or credit structures are weak, we're not going to chase deals just to find growth and so then you look at other things like either the buyback or the dividend and M&A is always there is something where.

Pat: Thoughtful about but it's not generally a driver if we can find a good deal at the right price that creates value I think we're always interested in pursuing those opportunities but.

Pat: From a capital deployment standpoint, we're not sitting here, saying, Hey, we got to do a deal in the next couple of years to deal with excess capital that that's never our mindset. So.

Pat: Jumping around a little bit there, but hopefully that was helpful.

Speaker Change: Yes, no that was helpful. I appreciate it.

Speaker Change: And then just.

Speaker Change: Small one but looking at the SBA gain on sale in the quarter or what are your early expectations here in terms of sale volume in.

Speaker Change: Just the revenue stream could look like going forward.

Speaker Change: Yeah, we we set a target to try to generate a million dollars in gain on sale income through SBA production. This year.

Speaker Change: Through the first six months, we're on track to do that.

Speaker Change: You know if you sort of annualize the results from the first half of the year that being said how much you can generate in gain on sale income is obviously driven by whats happening with the rate environment and.

Speaker Change: There's lots of SBA deals to look at but similar to what we described in talking about the pipeline. It seems like it's taking longer to get deals to the finish line. So.

Speaker Change: We're hopeful we'll hit our goal if we do hit that million dollar gain on sale goal that would be up significantly from where we've been in prior years. So I think it would be nice progress and.

Speaker Change: We're continuing to invest time and effort to build out that group and.

Speaker Change: Look for that to be continued growth engine for us so slow and steady there, but I think we're making nice progress Justin.

Justin Frank Crowley: Okay, Great and then.

Justin Frank Crowley: One last one for me just on expenses.

Justin Frank Crowley: What's the best way to think about run rate here or you know are there any areas in particular that youre looking to make more investment into now that Malvern cost saves are fully pulled through.

Justin Frank Crowley: Okay.

Speaker Change: Well listen I mean in any given.

Speaker Change: Period, we're looking at investment opportunities and cost savings opportunities together so.

Speaker Change: We continue to believe that there will be a need to digitize and monitor modernize some of our product offerings and capabilities through our channels. We've made a lot of progress in the last couple of years through an online loan application platform for small business and now an online deposit account opening platform.

Speaker Change: We've made a significant investment in middleware, which is going to allow us to tap into best in class applications across a variety of areas. So I think Texas is an area, where we will have to continue to invest as we've said many times, where we're not looking to win on tech, but we got to make sure we're competitive and.

Speaker Change: I think we're doing the right things there and.

Speaker Change: Andrew why don't you jump in and talk a little bit I know you spent a lot of time looking at the expense numbers and you know where do you think were headed so maybe you can provide a little extra color there.

Andrew: Yeah, I don't see anything that any huge expenditures is darlene mentioned, we have some branch.

Andrew: Kind of optimization stuff going on so there may be a little bit of noise.

Andrew: Noise, just although we get some of that stuff going over the next couple of quarters, but there isn't really much in terms of significant expenditures on IP or any other area for that matter and nothing significant again, Pat as Todd mentioned every time, we spend some more money and we're looking at opportunities to cut.

Pat: Cut costs, so I don't expect there to be any material changes in the long long run expense base.

Speaker Change: Okay, Great and then apologies if I could just sneak one last one and but you know you spent a lot of time over the past couple of years talking about some of the specialty C&I areas and we've seen a lot of success there and then certainly on this call speak.

Speaker Change: Speaking to just taking you know.

Speaker Change: What's out there the opportunities present themselves.

Speaker Change: Geographically, how does that shake out in terms of what you're seeing and then particularly maybe some of the legacy Malvern markets suburban Philly markets.

Speaker Change: And you wanted to.

Andrew: Jump in there Andrew.

Andrew: So he's talking Johnson.

Andrew: Johnson Youre talking about geography in terms of lending businesses, maybe Peter.

Peter J. Cahill: Can jump in.

Peter J. Cahill: Yes exactly.

Peter J. Cahill: Sorry, Peter.

Peter J. Cahill: Yes, I'm here.

Speaker Change: Yeah I'd say.

Andrew: We're bullish on pencil.

Andrew: Eastern Pennsylvania, So we're.

Andrew: Italy, keeping our eyes open for folks that can help us fill in some gaps we have a couple of regional offices, there Westchester Doylestown, we've had for two years now in the.

Andrew: You have a pipeline across the board, whether it's P. A P teams of the New Jersey regional teams.

Andrew: Geographically oriented.

Andrew: Our pipelines are pretty strong so.

Andrew: You know, it's kind of like.

Andrew: As I just mentioned.

Andrew: Look for people and fill in gaps.

Andrew: Maybe it's a center city, Philadelphia County, orientation, or something like that but.

Andrew: Our business is pretty consistent across the various markets is that answer your question or.

Speaker Change: Yeah, absolutely that's helpful. I appreciate you guys taking my questions.

Speaker Change: Yeah. Thank you.

Andrew: Okay.

Speaker Change: As a reminder to ask a question press star one on your telephone keypad.

Malware Novice: Next question is from the line of malware and novice with D. A Davidson.

Speaker Change: Hey, good morning is there a current like CRE concentration target you are trying to get to your back to levels prior to the deal and just just trying to see.

Speaker Change: Okay.

Speaker Change: Where are you trying to head to I am sure its lower is better.

Speaker Change: Yeah got you Amit Yeah. Good question Theres No magic number of Emmanuel we've operated our business in a very consistent fashion for the last.

Speaker Change: 15 years, and we've sort of oscillated between 300% on the low end to 400% on the high end, obviously, we ticked up a little higher than 400 as a result of the immediate impact of the Malvern merger in terms of.

Speaker Change: The short term reduction to capital and then.

Speaker Change: They obviously had a little bit of a concentration in commercial real estate, but I think you know we've operated in between that 300, and 400% range for a long time.

Speaker Change: Doing all the things that the regulators are asking for any bank that operates above 300% I think.

Speaker Change: I think they're happy with what we're doing in terms of risk management and monitoring I think we're operating in segments that we know well I think our.

Speaker Change: Credit quality and charge off history in those portfolios.

Speaker Change: Speaking to.

Speaker Change: The strength of the underwriting that we're doing there. So again, we think it can be a valuable part of the the revenue pie and we're not looking to get out of it by any stretch but.

Speaker Change: Obviously, it's important that as we grow we continue to find ways to diversify and so long and short I think you know for living in between the three and 400% I think were comfortable there if we can.

Speaker Change: Tick above 400 for some reason based on a strategic transaction I think we'd probably look to try to maneuver down closer to the 400 and if through regular market mechanisms that.

Speaker Change: Ratio continues to move lower below the 400, where obviously fine with that too so.

Speaker Change: I appreciate that in context of your capital stack.

Speaker Change: Obviously, you have strong levels of PCE is the is.

Speaker Change: Is the push to build capital really because of the total risk based capital ratio of 11, 7%.

Speaker Change: Is that kind of where you feel like you could be higher.

Speaker Change: Well again.

Speaker Change: I'm not sure I'd position it as needed to be higher right at the end of it okay.

Speaker Change: I think our capital levels today are good.

Speaker Change: That being said if you want to start thinking about buybacks or increased dividends.

Speaker Change: You're really talking about excess capital and so I like where we are right now in terms of our levels and.

Speaker Change: Given the strong earnings profile and a more moderate growth profile I think.

Speaker Change: Anything else, we're going to continue to grow capital and then the question becomes what do we do with it do we look at a buyback do we look at the dividend.

Speaker Change: And I think all else equal.

Speaker Change: It's better to have a little more capital than not enough and so we like building capital to have capital flexibility, but obviously the goal isn't just to build it up and let it sit there we're either going to put it to good use or we're going to give it back to the shareholders.

Speaker Change: Yes, I would just add knowing well that the total risk based capital tends to be the most restrictive for us. So that's the one we usually highlight because that's the one that's going to come under pressure that the soonest. So that's why we talk about that one but yes. I mean, we wanted to I think put some distance between the Malvern acquisition, which was dilutive to capital.

Speaker Change: And just continue to show that the capital accretion, but now I think we're in a real good position with a lot of different levers that we can push to use some of that capital we built up over the last 12 months.

Speaker Change: Hi.

Speaker Change: Have you has your growth expectations changed much.

Speaker Change: Much.

Speaker Change: I know that.

Speaker Change: Balances were impacted by loan sale, otherwise and kind of would have been at the right.

Speaker Change: Ranger.

Speaker Change: That 5% level ish plus or minus.

Speaker Change: Is that still the right target.

Speaker Change: Or is it just is a different environment, it's quarter by quarter.

Speaker Change: Yeah, I mean listen I think it's always quarter by quarter right like at the end of the day, it's nice to have targets they provide some high level guidance, but.

Speaker Change: You got to see what the market conditions are right. So we're not going to chase bad deals are low margin deals in an ultra competitive sector. Just because we told everybody we're going to grow 5%. So I think at the end of the day, what we're seeing right now is <unk>.

Speaker Change: Prudence is valuable and ironically in the commercial real estate segment some of the nonbank lenders are getting.

Speaker Change: Pretty aggressive in terms of rate and term and so.

Speaker Change: Some of the slowdown there isn't just about all of the regulators don't like it. It's it's a marketplace that surprisingly seems to be.

Speaker Change: Having some for some pretty pretty aggressive structures out there so I think for us.

Speaker Change: I always sort of talked about growing plus or minus $200 million on the asset side as we get bigger 200 million is a smaller percentage of the balance sheet, but yeah listen at the end of the day zero because that's what the market dictates, we'll find ways to make money in that environment.

Speaker Change: I think as I look out over the next six months I think we'll see some reasonable organic growth opportunities to you know.

Speaker Change: Show some growth between now and the end of the year. So.

Speaker Change: And it seems that to match kind of maybe what you're doing on the loan side Youre comfortable at this hunter on 1% loan to deposit ratio Youre not youre not.

Speaker Change: Do anything you would.

Speaker Change: On the deposit side, you're not doing anything that you don't feel like you're being forced to grow there based on current.

Speaker Change: Awesome side growth is that the right way to think about it.

Speaker Change: Yeah, I think that's right I mean at 100% loan to deposit ratio Thats down from where we've operated.

Speaker Change: In the past, but I think given some of the turmoil of last spring and other things, it's probably prudent to add a little more liquidity on hand, and a little lower loan to deposit ratio. So I think we're comfortable where we are obviously, we're cognizant that liquidity took an added importance and.

Speaker Change: Thankfully, we've seen strong retention within our core customer base and we didn't have a major outflows win win.

Speaker Change: When some other banks are seeing them so.

Speaker Change: I think it's a reasonable level I wouldn't want to see it go a whole lot higher than at the end of the day, if we're generating core deposits and we don't have immediate loans to make in that ratio comes down a little bit that would be fine too.

Speaker Change: Yeah.

Speaker Change: Can I just have a <unk>.

Speaker Change: Brief update on some of your commercial lending teams and new product any one that's kind of getting out of them.

Speaker Change: Park, one that you are hoping to ramp even more than they have just kind of can you run through you've added a number of different types of products are you just kind of wanted to get an update on that.

Speaker Change: Yeah, well so the three main ones when we talk about our asset base lending private equity fund banking and small business.

Speaker Change: Asset based lending.

Speaker Change: <unk> had a great start to the year, they've got a very robust pipeline and I think theyre going to do.

Speaker Change: Well above the internal goals, we set for that group for the year. So we're excited about that private equity was a strong growth last year things did slow down towards the end of last year. The first part of this year.

Speaker Change: Some of that I think it was a function of just what was occurring.

Speaker Change: In the private equity space and the number of transactions et cetera.

Speaker Change: But we haven't seen recently, there does seem to be a little bit of an uptick in activity there and so I think we'll end up having a strong finish to the year for that group.

Speaker Change: Ultimately hit our hit our growth goals and.

Speaker Change: Our small business group.

Speaker Change: Has done a really nice job leveraging the new technology in the online application and our business Express product to the point, where we're ahead of schedule for six months with that group as well so.

Speaker Change: I'd say across the board, we feel pretty good in those segments.

Speaker Change: I appreciate that thank you I'll step back into the queue.

Speaker Change: Yeah sure no problem. Thank you Emilio.

Speaker Change: Yeah.

Speaker Change: At this time there are no further questions I will now hand todays call back over to Mr. Ryan for any closing remarks.

Ryan: Okay wonderful. Thank you. We appreciate everybody, taking the time to listen and thanks for the questions and well.

Patrick L. Ryan: We will look forward to getting back together at the end of the third quarter was another update thank you everyone.

Speaker Change: This concludes today's call. Thank you for joining you may now disconnect your lines.

Speaker Change: Yeah.

Speaker Change: [music].