Q2 2024 Financial Institutions Inc Earnings Call
Ladies and gentlemen, thank you for standing by.
Unknown Executive: Ladies and gentlemen, thank you for standing by. Welcome to the Financial Institutions Incorporated Second Quarter, 2024 and its call. All lines have been placed on mute during a presentation portion of the call.
Speaker Change: Welcome to the financial institutions incorporated second quarter 2020 full on its call all lines have been placed on mute during the presentation pushing up the cool, but if an opportunity for question and answer.
Unknown Executive: With an opportunity for question and answer at the end, if you would like to ask a question, please press start, followed by one on your telephone keypad.
Speaker Change: If you'd like to ask a question. Please press star followed by one on your telephone keypad.
Kate Croft: I would now like to hand the conference call over to your host, Kate Croft, Director of Investor Relations. Please go ahead when you are ready. Thank you for joining us for today's call.
Houghton: I would now like to hand, the conference call I thought to your highest cost direct towards Investor Relations. Please go ahead when you're already.
Speaker Change: Thank you for joining us for today's call, providing prepared comments will be president and CEO, Marty Birmingham and CFO Jack lap it will be joined by additional members of the company's leadership team during the question and answer session.
Unknown Executive: Thank you for joining us for today's call. Providing prepared comments will be President and CEO Marty Birmingham and CFO Jack Plants. They will be joined by additional members of the company's leadership team during the question and answer session.
Kate Croft: Providing prepared comments will be present at CEO, Marty Birmingham, and CFO, Jack Lam. It will be joined by additional members with the company's leadership team during the question and answer session. Today's prepared comments and Q&A will include forward-looking statements. Actual results may differ materially from forward-looking statements due to a variety of risks, certainties, and other factors.
Unknown Executive: Today's prepared comments and Q&A will include forward-looking statements. However, actual results may differ materially from forward-looking statements due to a variety of risks, uncertainties, and other factors. We refer you to yesterday's earnings release and investor presentation, as well as historical FEC filings, which are available on our investor relations website, for a safe harbor description and a detailed discussion of the risk factors relating to forward-looking statements. We will also discuss certain non-GAAP financial measures intended to supplement and not substitute for comparable GAAP measures. Reconciliations of these measures, the GAAP financial measures, were provided in the earnings release filed as an exhibit to Form A-K or in our latest investor presentation, available on our IR website, www.ir.gov.
Speaker Change: Today's prepared comments and Q&A will include forward looking statements actual results may differ materially from forward looking statements due to a variety of risks uncertainties and other factors. We refer you to yesterday's earnings release, and Investor presentation above historical SEC filings, which are available on our Investor Relations website for Safe Harbor description and a detailed discussion.
Kate Croft: We refer you to yesterday's earnings release and investor presentation, as well as historical IPC filings, which are available on our investor relations website for a safe harbor description and a detailed discussion with the risk factors relating to forward-looking statements. We will also discuss certain non-guest financial measures that tend to supplement and not substitute for comparable GAAP measures. Our conciliations of these measures, the gap financial measures, were provided in the earnings release filed as an exhibit to Form 10-K or in our latest investor presentation available on our IR website, www.psi-investors.com.
Speaker Change: The risk factors relating to forward looking statements. We will also discuss certain non-GAAP financial measures.
Speaker Change: Matt knock off Q4 comparable GAAP.
Speaker Change: A reconciliation of these measures to GAAP financial measures were provided in the earnings release filed as an exhibit to a form 8-K or in our latest investor presentation available on our IR website Www Dot ISI dash investors Dot Com. Please note that this call includes information that may only be accurate as of today July 26.
Unknown Executive: Please note that this call includes information that may only be accurate as of today's date, July 26, 2024.
Speaker Change: 2024, I'll now turn the call over to President and CEO, Marty Birmingham. Thank you Kay.
Martin Birmingham: I'll now turn the call over to President CEO, Marty Birmingham. Thank you, Kate. Good morning, everyone, and thank you for joining us today. Our strong earnings performance in the second quarter of 2024 reflects both the successful event secure of our insurance subsidiary and the strength of our core business amid a continued challenging operating environment. Record quarterly net income was accompanied by net interest margin expansion, improvement of our already strong asset quality metrics, and meaningful build in our regulatory and tangible capital ratio. That these record results come on the heels of the most challenging quarter we have ever experienced is not lost on me.
Martin K. Birmingham: Good morning, everyone, and thank you for joining us today. Our strong earnings performance in the second quarter of 2024 reflects both the successful divestiture of our insurance subsidiary and the strength of our core business amid a continued challenging operating environment. That these record quarterly net income was accompanied by net interest margin expansion, improvement of our already strong asset quality metrics, and meaningful build in our regulatory and tangible capital ratio is not lost on me.
Martin K. Birmingham: Good morning, everyone and thank you for joining us today.
Martin K. Birmingham: Our strong earnings performance in the second quarter of 2024 reflect both the successful divestiture of our insurance subsidiary and the strength of our core business amid a continued challenging operating environment.
Speaker Change: Quarterly net income was accompanied by net interest margin expansion and improvement of our already strong asset quality metrics and meaningful bill and our regulatory and tangible capital ratio.
Speaker Change: These record results come on the heels of the most challenging quarter, we have ever experienced it's not lost on me.
Martin Birmingham: If anything, our second quarter financial and operating performance is a testament to the strength and resolve of our team to stay focused on serving our customers and communities in that strong execution on our strategic priorities. Since the deposit-related fraud event we discovered and disclosed in early March, we have worked tirelessly to thoroughly review and understand all the facts and identify every opportunity to prevent future recurrence, including engaging a third-party expert to support our review and advise on best practices for fraud prevention and detection, and implementing enhanced training. As we recorded the full exposure of this event in the first quarter, we have continued to aggressively pursue our legal rights and are actively seeking any and all recovery outcomes.
Speaker Change: If anything our second quarter financial and operating performance is a testament to the strength and resolve of our team stayed focused on serving our customers and communities and our strong execution on our strategic priorities.
Martin K. Birmingham: If anything, our second quarter financial and operating performance is a testament to the strength and resolve of our team to stay focused on serving our customers and communities and on strong execution on our strategic priorities, since the deposit-related fraud event we discovered and disclosed in early March. We have worked tirelessly to thoroughly review and understand all the facts and identify every opportunity to prevent future recurrence, including engaging a third-party expert to support our review and advise on best practices for fraud prevention and detection and implementing enhanced training.
Speaker Change: Since the deposit related front out of that we've discovered and disclosed in early March.
Speaker Change: We've worked tirelessly to thoroughly review and understand all the facts and identify every opportunity to prevent future recurrence, including engaging a third party expert to support a review and advise on best practices for fraud prevention and detection and implementing enhanced training.
Martin K. Birmingham: As we recorded the full exposure of this event in the first quarter, we have continued to aggressively pursue our legal rights and are actively seeking any and all recovery avenues. In the second quarter, this led us to add three individuals as defendants in our civil case, based on a forensic analysis of transaction activity.
Speaker Change: As we recorded the full exposure of this event in the first quarter.
Speaker Change: Continued to aggressively pursue our legal rights and are actively seeking any and all recovery app.
Martin Birmingham: In the second quarter, this led us to add three individuals as defendants in our civil case based on a forensic analysis of transaction activity. We are also pleased that our request for receiver to oversee the defendant's multiple businesses was granted swiftly by the court. In the second quarter, we also recorded a small recovery of 143 thousand. While we cannot comment on a likelihood or timing of any criminal action, we have fully cooperated with law enforcement and promptly responded to all requests for information. We've been proactive and engaged with our executive team for regulators and law enforcement and will continue to do so.
Speaker Change: In the second quarter.
Speaker Change: That is to add three individuals as defendants in our Sim update based on a forensic analysis of transaction activity.
Speaker Change: We were also pleased that our request for a receiver to oversee the defendants multiple businesses granted swiftly by the court.
Martin K. Birmingham: We're also pleased that our request for a receiver to oversee the defendant's multiple businesses was granted swiftly by the court. We also reported a small recovery of $143,000. While we cannot comment on the likelihood or timing of any criminal action, we have fully cooperated with law enforcement and promptly responded to all requests for information.
Speaker Change: In the second quarter, we also recorded a small recovery of 143000.
Speaker Change: While we cannot comment on the likelihood or timing of any criminal action.
Speaker Change: Fully cooperated with law enforcement and properly responded all requests for information.
Speaker Change: We have been proactive and engaged with our executive team board regulators and law enforcement and we'll continue to do so.
Martin K. Birmingham: We've been proactive and engaged with our executive team, board, regulators, and law enforcement and will continue to do so. We strive to bring the same transparency to our shareholders as we navigate the legal process. We expect to provide updates through our quarterly earnings disclosures and on our 10-Qs moving forward in the aftermath of this fraud event, as appropriate, both in terms of what is meaningful to our results and expectations and what we are able to share given the ongoing litigation and law enforcement investments.
Martin Birmingham: We strive to bring the same transparency to our shareholders as we navigate the legal process. We expect to provide updates to our quarterly earnings disclosures and on our 10-Qs moving forward in the aftermath of this fraud in that as program, both in terms of what is meaningful to our results and expectations and what we are able to share given the ongoing litigation and law enforcement investigation.
Speaker Change: We strive to bring the same transparency to our shareholders as we navigate the legal process.
Speaker Change: We expect to provide updates to our quarterly earnings disclosures in our 10-Q is moving forward in the aftermath of this fraud event as appropriate.
Speaker Change: In terms of what is meaningful to our results and expectations and what we are able to share given the ongoing litigation and law enforcement investigation.
Martin Birmingham: Our team's ability to vigorously manage this event while completing a successful and accretive transaction and driving very solid core operating results is something I'm incredibly proud of. Record-gap net income available to common shareholders from 25.3 million or $22 per diluted share in the second quarter compared to 1.7 million or 11 cents per diluted share in the link first quarter. Here today, we reported a return on average assets of 90 basis points and an efficiency ratio of 75 percent. Setting aside expenses relating to the March 2024 fall event that were incurred during the first and second quarters of the year, as well as the second quarter game associated with the SDN sale, our core business performed very well.
Speaker Change: Our team's ability to vigorously manage this event, while completing a successful and accretive transaction and driving very solid core operating results is something I'm incredibly proud of.
Martin K. Birmingham: Our team's ability to vigorously manage this event while completing a successful and accretive transaction and driving very solid core operating results is something I'm incredibly proud of. Record gap net income available to common shareholders of $25.3 million or $1.62 per diluted share in the second quarter compared to $1.7 million or $0.11 per diluted share in the linked first quarter.
Speaker Change: Record GAAP net income available to common shareholders was $25 3 million.
Speaker Change: Or $1 62 per diluted share in the second quarter compared to $1 7 million or <unk> 11 per diluted share in the linked first quarter.
Martin K. Birmingham: Year-to-date, we reported a return on average assets of 90 basis points and an efficiency ratio of 75%. Setting aside expenses related to the March 2024 fraud event that were incurred during the first and second quarters of the year, as well as the second quarter gain associated with the SDN sale, our core business performed very well. Excluding the aforementioned items, normalized year-to-date ROAA was 1.07%, while our efficiency ratio was 66%.
Speaker Change: Year to date, we reported a return on average assets of 90 basis points and an efficiency ratio of 75%.
Speaker Change: Setting aside the expenses related to the March 2024, part of that that were incurred during the first and second quarters of the year as well as the second quarter gain associated with the SDN sale, our core business performed very well.
Martin Birmingham: Excluding the aforementioned items, normalized year-to-date ROAA was 1.07 percent, while our efficiency ratio was 66 percent. Diluted EPS on an adjusted basis was $1.12 and 96 cents in the first and second quarters of 2024, respectively. You'll find a non-GAAP reconciliation on these selected and other metrics published in our second quarter 2024 investor presentation. Turning back to our reported gap results, certainly the most significant driver of improvements from prior period was the sale of our insurance authority, SDN Insurance Agency, to NFP Property and Casualty Services. This strategic transaction, which we announced and closed on April 1st, capitalized on both promvaluations of insurance businesses in the market, and what we believe was T.E.B.D.R.
Speaker Change: Excluding the aforementioned items normalized year to date ROA.
Speaker Change: Was 1.07%, while our efficiency ratio was 66%.
Martin K. Birmingham: The diluted EPS on an adjusted basis was $1.1296 in the first and second quarters of 2024, respectively. You'll find a non-GAAP reconciliation on these select and other metrics published in our second quarter 2024. Turning back to our reported gap results, certainly the most significant driver of improvements from prior periods was the sale of our insurance subsidiary, SDN Insurance Agency, to NFP Property and Casualty Services. This strategic transaction, which we announced and closed on April 1st, capitalized on both strong valuations of insurance businesses in the market and what we believe were peak EBITDA margins for SDM, generated a pre-tax gain of $13.5 million and eliminated $11.3 million of goodwill and other intangible assets.
Speaker Change: Diluted EPS on an adjusted basis was $1 12, and 96 in the first and second quarters of 2024, respectively.
Speaker Change: You'll find the non-GAAP reconciliation on these select and other metrics published in our second quarter 2024 investor presentation.
Speaker Change: Turning back to our reported GAAP results certainly the most significant driver of improvements from prior period was the sale of our insurance subsidiary SDN Insurance agency to NSP property casualty services.
Speaker Change: This strategic transaction, which we announced and closed on April one.
Speaker Change: Capitalized on both strong valuations of insurance businesses in the market and what we believe was peak EBITDA margin for SDN.
Martin Birmingham: margin for SDN. The sales generated a pre-tax gain of 13.5 million and eliminated 11.3 million of goodwill and other intent. As a result, we saw meaningful growth in our capital ratios, including a 60 basis point increase in our common equity tier one ratio and a 69 basis point increase in our TCE ratio from March 31st to 2024. I'm proud of our strong execution on this transaction and pleased with our ability to source capital in a creative manner. Our core business is also performing well. Total loans were up modestly during the quarter. As commercial growth was offset by anticipated and intentional runoff in our indirect portfolio, while total deposits were down 4.9%, reflecting seasonality of our public deposit portfolio.
Speaker Change: The sale generated a pretax gain of $13 5 million and eliminated 11 3 billion of goodwill and other enhanced.
Speaker Change: As a result, we saw meaningful growth in our capital ratios, including a 60 basis point increase in our common equity tier one ratio at 69 basis point increase in our TCE ratio for March 31 2024.
Martin K. Birmingham: As a result, we saw meaningful growth in our capital ratios, including a 60 basis point increase in our Common Equity Tier 1 ratio and a 69 basis point increase in our TCE ratio from March 31st, 2024. I'm proud of our strong execution on this transaction and pleased with our ability to source capital in a creative manner. Our core business is also performing well.
Speaker Change: I am proud of our strong execution on this transaction I am pleased with our ability to source capital in an accretive manner.
Jack Lapit: Our core business is also performing well auto loans were up modestly during the quarter as commercial growth was offset by anticipated and intentional runoff in our indirect portfolio. While total deposits were down four 9%, reflecting seasonality of our public deposit portfolio Jack.
Martin K. Birmingham: Total loans were up modestly during this quarter, as commercial growth was offset by anticipated and intentional runoff in our indirect portfolio, while total deposits were down 4.9%, reflecting seasonality in our public deposit portfolio. Jack will dive deeper into year-to-date cash flows, the type of yields we are seeing, and our expectations through the second half of the year, but I'd first like to comment on the continued strength of our asset quality. 53% of total loans are commercial loans, which grew 47.2 million, or 1.7%, during the second quarter. Our commercial franchise is well diversified by client type and geography.
Martin Birmingham: Jack will die deeper in a year-to-day cash flow, the type of yield we are seeing in our expectations through the second half of the year, but at first light the comment on the continued strengths of our asset quality. 53% of total loans are commercial loans, which grew 47.2 man and 1.7% during the second quarter. Our commercial franchise is well-diversified by client and geography, with loan production offices in suburban Maryland and Syracuse, New York, complementing our legacy Western and Central New York markets. Our lenders have both deep experience and relationships in our footprint, and their expertise contributes to the strong and stable credit quality metrics we've seen in our portfolio.
Jack Lapit: Jack will dive deeper into year to date cash flow type of yields we are seeing and our expectations through the second half of the year, but I'd first like to comment on the continued strength of our asset quality.
Jack Lapit: 63% of total loans are commercial loans, which grew $47 2 million and one 7% during the second quarter.
Jack Lapit: Our commercial franchise is well diversified by client type and geography with loan production offices in suburban Maryland in Syracuse, New York, Complementing, our legacy Western and Central New York markets.
Martin K. Birmingham: Loan Production Offices in suburban Maryland and Syracuse, New York complement our legacy Western and Central New York markets. Our lenders have both deep experience and relationships across our footprint, and their expertise contributes to the strong and stable credit quality metrics we've seen in our portfolio. We reported zero annualized net charge-offs to average loans for the commercial portfolio in the second quarter of 2024, following a similar result in the first quarter of 2020.
Jack Lapit: Our lenders have both deep experience and relationships in our footprint and their expertise contributes to the strong and stable credit quality metrics, we've seen in our portfolio.
Martin Birmingham: We reported zero annualized net charge jobs to average loans for the commercial portfolio in the second quarter of 2024, following a similar result in the first quarter. Commercial not-for-forming loans totaled 16.1 million at June 30th, 2024, compared to 16.8 million in March 31st. The majority of this continues to relate to the single commercial relationship that we placed on not a pool in the fourth quarter of 2023. We have seen software commercial loan growth this year as generally economic conditions remain unfavorable. Interest rate friction remains, and plates favoring the use of excess cash over higher rate borrowings for operating needs and commercial real estate.
Jack Lapit: We reported zero annualized net charge offs to average loans for the commercial portfolio in the second quarter of 2024. Following a similar result in the first quarter.
Martin K. Birmingham: Commercial non-performing loans totaled $16.1 million on June 30, 2024, compared to $16.8 million on March 31. The majority of this continues to relate to the single commercial relationship that we placed on non-exploitation in the fourth quarter of 2020. We have seen softer commercial loan growth this year as general economic conditions remain unfavorable. However, interest rate friction remains in place favoring the use of excess cash over higher-rate borrowings for operating needs and commercial real estate.
Commercial nonperforming loans totaled $16 1 million at June 32024, compared to $16 8 million at March 31.
Jack Lapit: The majority of this continues to relate to the single commercial relationship that we placed on non accrual in the fourth quarter 2023.
Jack Lapit: We have seen softer commercial loan growth this year as general economic conditions remain unfavorable inter.
Jack Lapit: Interest rate friction remains in place favoring the use of excess cash over higher rate borrowings for operating needs and commercial real estate.
Martin Birmingham: Our team continues to focus on re-building pipelines and paying close attention to our customers to ensure we meet their loan and deposit needs while monitoring credit's performance. We continue to work with capable commercial operators and high-quality CRE sponsors without compromising our commitment to credit discipline, loan growth. The consumer side residential loans were relatively flat on a link quarter basis at 723.2 million, given the tight housing inventory and competitive landscape in our off-state New York markets. The credit quality of the SaaS at class has been solid and consistent for us, and net charge off every main relatively benign.
Jack Lapit: Our team continues to focus on rebuilding pipelines and paying close attention to our customers to ensure we meet their loan and deposit needs while monitoring credit performance.
Martin K. Birmingham: Our team continues to focus on rebuilding pipelines and paying close attention to our customers to ensure we meet their loan and deposit needs while monitoring credit performance. We continue to work with capable commercial operators and high-quality CRE sponsors without compromising our commitment to credit discipline. On the consumer side, residential loans were relatively flat on a late-quarter basis at $723 million.
Jack Lapit: We continue to work with capable commercial operators and high quality CRE sponsor without compromising our commitment to credit disciplined loan growth.
Jack Lapit: On the consumer side residential loans were relatively flat on a linked quarter basis at $723 2 million.
Martin K. Birmingham: Given the tight housing inventory and competitive landscape in our upstate New York market, the credit quality of this asset class has been solid and consistent for us, and net charge-offs have remained relatively benign. Our indirect portfolio totaled $894.6 million on June 30, 2024, down $25.8 million, or 2.8% from March 31. This report saw meaningful improvement in the indirect net charge-off ratio between periods, from 128 basis points in the first quarter to 38 basis points in the second, and Jack will provide more detail on indirect charge-offs and their link to the link and how they flow through our provision in just a moment.
Jack Lapit: The tight housing inventory in competitive landscape and our upstate New York markets.
Jack Lapit: The credit quality of the SaaS that class has been solid and consistent for net charge offs have remained relatively benign.
Martin Birmingham: Our indirect portfolio total of 894.6 million in June 30th, 2024, down 25.8 million or 2.8 percent from March 31st. We saw meaningful improvement in the indirect net charge off ratio between periods from 128 basis points in the first quarter to 38 basis points in the second, and Jack will provide more detail on indirect charge off and the linkancies and how they flow through our provision in just a moment. Overall, we remain very confident in the health of our won't portfolio and associated asset quality metrics, and are pleased with the link quarter improvement we experience.
Jack Lapit: Our indirect portfolio totaled $894 6 million at June 32024, down $25 8 million or two 8% from March 31, we.
Jack Lapit: We saw meaningful improvement in the indirect net charge off ratio between period from 128 basis points in the first quarter to 38 basis points in the second and Jack will provide more detail on indirect charge offs and delinquencies and how they flow through our provision in just a moment.
Jack Lapit: Overall, we remain very confident in the health of our loan portfolio and associated asset quality metrics and are pleased with the linked quarter improvement we experience.
Martin K. Birmingham: Overall, we remain very confident in the health of our loan portfolio and associated asset quality metrics and are pleased with the late quarter improvement we experienced. I'd like to turn the call over to Jack for additional details on financial results and 2024 guidance. Thank you, Marty. Good morning, everyone.
Jack Lam: I'd like to turn the color over to Jack for additional details on financial results and 2024 guidance. Thank you, Marty. Good morning, everyone. At the start of the year, we guided the lowest single-digit loan growth and indicated that we believed we'd reached a bottom-on margin. That held true is we achieved net interest margin stability in the first quarter and a lift in the second. We reported men on a fully taxable equivalent basis 287 basis points for the second quarter of 2024. Up 9 basis points from 278 in the link first quarter. Interest earning asset yields increased seven basis points, while the overall cost of one declined two basis points.
Jack Lapit: Now I'd like to turn the call over to Jack for additional details on financial results and 2020 for guidance.
William Jack Plants: At the start of the year, we guided to low single-digit loan growth and indicated that we believed we had reached a bottom-on mark. That held true as we achieved net interest margin stability in the first quarter and a lift in the second. We reported MIM on a fully taxable equivalent basis of 287 basis points for the second quarter of 2024, up 9 basis points from 278 in the linked first quarter. Interest earning asset yields increased seven basis points, while the overall cost of funds declined two basis points.
Thank you Marty good morning, everyone.
Jack Lapit: At the start of the year, we guided to low single digit loan growth and indicated that we believed we had reached the bottom on margins.
Jack Lapit: That all true as we achieved net interest margin stability in the first quarter and a lift in the second.
Jack Lapit: We reported NIM on a fully taxable equivalent basis 287 basis points for the second quarter of 2024.
Jack Lapit: Up nine basis points from 278, and the linked first quarter.
Jack Lapit: Interest, earning asset yields increased seven basis points, while the overall cost upon declined two basis.
Jack Lapit: Net interest income of $41 2 million for the second quarter was up $1 1 million from the first quarter of 2024.
Jack Lam: Net interest income of 41.2 million for the second quarter was up 1.1 million from the first quarter of 2024. Margin expansion and net interest income growth has come as we've been able to re-invest cash flows into higher yielding origination. Year-to-date actual cash flow from the loan portfolio was about 428 million, while originations were 448 million. This is a bit lighter than what we've modeled for the first half of the year, but not significantly. Through the first half of the year, loaner-internations have come on with net yields above 8%. We're placing loans rolling off at an average yield of about 6.65%.
William Jack Plants: Net interest income of $41.2 million for the second quarter was up $1.1 million from the first quarter of 2020. Margin expansion and net interest income growth have come as we've been able to reinvest cash flows into higher yielding originations. Year-to-date actual cash flow from the loan portfolio was about $428 million. All originations were 448.
Jack Lapit: Margin expansion net interest income growth comments, we've been able to reinvest cash flows in the higher yielding origination.
Year to date actual cash flow from the loan portfolio was about $428 million.
Jack Lapit: All originations were $448 million.
Jack Lapit: This was a bit lighter than what we've modeled for the first half of the year.
William Jack Plants: This is a bit lighter than what we've modeled for the first half of the year, but not significant; through the first half of the year, loan originations have come on with net yields above, and placement loans are rolling off at an average yield of about 6.65%. Furthermore, cash flow from our investment securities portfolio continues to provide opportunities to improve overall yield on the balance. Looking out over the second half of the year, we're budgeting about $550 million in total cash flow from our loan and securities portfolio, providing ample opportunity to drive margin expansion. For the next 12 months, we continue to expect more than $1 billion in total cash.
Jack Lapit: But not significantly.
Jack Lapit: Through the first half of the year loan originations have come on with not yields above 8%.
Speaker Change: Replacing loans rolling off at an average yield of about 665%.
Speaker Change: Furthermore, cash flow from our investment securities portfolio continues to provide opportunities to improve overall yield on the balance sheet.
Jack Lam: Furthermore, cash flow from our investment securities portfolio continues to provide opportunities to improve overall yield on the balance sheet. Looking out over the second half of the year, we're budgeting about $550 million in total cash flow from our loaned securities portfolio, providing ample opportunity to drive margin expansion. For the next 12 months, we continue to expect more than $1 billion in total cash flow. As Margin mentioned, the linked quarter decline in deposits was largely due to seasonal outflow in our public, or municipal portfolio, along with the reduction in broker TVs. While we continue to experience disinerted deviation into higher cost-time deposits in the ongoing high rate environment, we were able to reduce short-term borrowing in broker deposits late in the first quarter, which brought our overall cost of funds down between periods.
Speaker Change: Looking out over the second half of the year, we're budgeting about $550 million in total cash flow from our loan and securities portfolio.
Speaker Change: Providing ample opportunity to drive margin expansion.
Speaker Change: For the next 12 months, we continue to expect more than $1 billion in total cash flow.
Speaker Change: As Marty mentioned the linked quarter decline in deposits was largely due to seasonal outflows are public our municipal portfolio.
William Jack Plants: As Marty mentioned, the linked quarter decline in deposits was largely due to seasonal outflows in our public or municipal portfolio, along with a reduction in brokered CDs. While we continue to experience disintermediation into higher-cost time deposits and the ongoing high rate, we were able to reduce short-term borrowing and broker deposits late in the first quarter, which brought our overall cost of funds down between periods. In looking at our total deposit portfolio, relative to the magnitude of FOMC rate increases that occurred in 2022 and 2023, we have experienced a cycle-to-date beta of 48. Excluding the cost of time deposits, the non-maturity deposit portfolio had a beta of 29%.
Martin K. Birmingham: Along with a reduction in brokered Cds.
Martin K. Birmingham: While we continue to experience disintermediation into higher cost time deposits.
Martin K. Birmingham: Ongoing high rate environment.
Martin K. Birmingham: We were able to reduce short term borrowings and broker deposits late in the first quarter, which brought our overall cost of funds down between periods.
Jack Lam: Looking at our full deposit portfolio, relative to the magnitude of FOMC rate increases that occurred in 2022 and 2023, we have experienced a cycle-to-date beta of 48%. Moving the cost of time deposits, the non-maternity deposit portfolio had a beta of 29%. Given FOMC expectations and internal modeling, we expect the trajectory of cost of funds to continue to flow throughout 2024. Non-interest income totaled 24 million in the first quarter, up 13.1 million on a linked quarter basis, as we reported a $13.5 million gain on sale in the current quarter related to our insurance deteriorary transaction. Excluding this gain, non-interest income of 10.5 million was down only 407,000 quarter of a quarter.
Martin K. Birmingham: Looking at our total deposit portfolio relative to the magnitude epilepsy rate increases that occurred in 2022 and 2023.
Martin K. Birmingham: We have experienced a cycle to date beta.
Martin K. Birmingham: Yes.
Martin K. Birmingham: Including the cost of time deposits.
Martin K. Birmingham: The non maturity deposit portfolio had a beta of 29%.
William Jack Plants: Given FOMC expectations and internal modeling, we expect the trajectory of cost of funds to continue to flow throughout 2020. Non-interest income totaled $24 million in the first, up $13.1 million on a linked order basis, as we recorded a $13.5 million gain on sale in the current quarter related to our insurance subsidiary transaction. Excluding this gain, non-interest income of $10.5 million was down only $407,000 quarter-over-quarter, as increases in several areas partially offset the decline in insurance revenues. The results for the second quarter include all operations of the insurance agency, which was sold on April 1.
Martin K. Birmingham: Given <unk> expectations and internal modeling, we expect the trajectory of cost of funds continue to flow throughout 2024.
Noninterest income totaled $24 million in the first quarter.
Martin K. Birmingham: $13 1 million on a linked quarter basis.
Martin K. Birmingham: As we recorded a $13 $5 million gain on sale in the current quarter related to our insurance subsidiary transaction.
Martin K. Birmingham: Okay.
Martin K. Birmingham: Excluding this gain noninterest income of $10 5 million was down only 407000 quarter over quarter.
Jack Lam: It had increases in several areas, partially offset the decline in insurance repetitions. The results for the second quarter include all operations of the insurance agency, which was sold on April 1st. We placed a historic tax credit investment with a New York State refundable component into service from the second quarter, that resulted in a $406,000 net gain compared to in that law, 370,000 in the length of first quarter. With the large majority of committed projects in service, we expect it will be several quarters before we have capacity for meaningful investments in additional tax credits. Income from limited partnerships increased 461,000, driven by the favorable performance of underlying investments and swapped these more than double from the link order of 233,000 due to increased back-to-back swap activity in the second quarter.
Martin K. Birmingham: Increases in several areas, partially offset the decline in insurance revenue.
Martin K. Birmingham: Increases in several areas, partially offset the decline in insurance revenue.
Martin K. Birmingham: The results for the second quarter in all operations of the insurance agency and sold in April one.
Martin K. Birmingham: We placed the historic tax credit investment in the New York State Refundable component and distributed in the second quarter that resulted in a $406000 gain compared to a net loss of 300.
William Jack Plants: We placed a historic tax credit investment with a New York State refundable component into service in the second quarter that resulted in a $406,000 net gain compared to a net loss of $375,000 during the length of the first quarter, with a large majority of committed projects and service. We expect it will be several quarters before we have capacity for meaningful investments and additional tax credits. Income from limited partnerships increased $461,000, driven by the favorable performance of underlying investments, and swap fees more than doubled from a linked order of $203,000 due to increased back-to-back swap activity in the sector.
Martin K. Birmingham: The linked first quarter.
Speaker Change: With a large majority of committed project and service we.
Speaker Change: We expect it will be several quarters before we have capacity for meaningful investments in additional tax credits.
Speaker Change: Income from limited partnerships increased 461000 drill.
Speaker Change: Driven by the favorable performance of underlying investment.
Speaker Change: And swap fees more than doubled from the linked quarter up 203000 due to increased back to back swap activity in the second quarter.
Speaker Change: Revenue from career capital, our wealth management firm with $3 billion in assets under management.
Jack Lam: Revenue from Career Capital, our wealth management firm, with $3,000,000,000 in assets under management, along with our branch delivered retail wealth offering totaled a company 2.8 million in the second quarter, up 197,000, 7.6% for that in the first quarter. Positive trends in the overall market for the primary driver of this growth. Not interest expense was $33 million in the second quarter of 2024 compared to $54 million in the link period. Excluding fraught-about related expenses from both periods, non-interest expense declined 2.2 million or 6.2%. This was primarily due to lower salaries and employee benefits expenses as a result of our April 1 insurance subsidiary sale, lower occupancy and equipment costs due to seasonality in our market relative to snow-blown charges, and lower professional services expenses.
William Jack Plants: Revenue from Courier Capital, our wealth management firm with $3 billion in assets under management, along with our brand-delivered retail wallpapers, totaled a combined $2.8 million in the second quarter of $197 million.6% in the first positive trends in the overall market were the primary driver of this. Non-interest expense was $33 million in the second quarter of 2024, compared to $54 million in the linked period. Excluding Fraud-Evac-Related Expenses from Both Periods, non-interest expense declined $2.2 million, or $6.2%.
Speaker Change: Along with our brands delivered retail wealth offering totaled a combined $2 8 million in the second quarter.
Speaker Change: Up 197007, 6% in the first quarter.
Speaker Change: Positive trends in the overall market were the primary driver of this growth.
Speaker Change: Noninterest expense was $33 million in the second quarter of 2024 compared to $54 million in the linked period.
Speaker Change: Excluding <unk> related expenses from both periods noninterest expense declined $2 2 million or six 2%.
Speaker Change: This was primarily due to lower salaries and employee benefits expenses as a result of our April 1st insurance subsidiary sale, lower occupancy and equipment costs due to seasonality in our markets relative to snow plowing charges and lower professional services expenses.
William Jack Plants: This was primarily due to lower salaries and employee benefits expenses as a result of our April 1st insurance subsidiary sale, lower occupancy and equipment costs due to seasonality in our markets relative to snow plowing charges, and lower professional service.
Jack Lam: We recorded a provision for credit losses of $2 million in the second quarter of 2024 compared to a benefit of $5.5 million in the first quarter. As a reminder, indirect delinquencies impact the qualitative factor of our model and are purely quantitative in nature, corresponding to a range of delinquencies in the portfolio over the lookback period since 2006. The lower call we saw considerable reduction in indirect delinquencies between near-end 2023 and March 31, 2024, which drove improvement in the qualitative factor and contributed to the first quarter of 2024. As delinquencies are a leading indicator of charge-offs, we saw a notable reduction in indirect net charge-offs in the second quarter of 2024 at just $844,000, or an annualized 38 basis points of average loans in this portfolio.
Speaker Change: We recorded a provision for credit losses of $2 million in the second quarter of 2024 compared to a benefit of $5 5 million in the first quarter.
William Jack Plants: We recorded a provision for credit losses of $2 million in the second quarter of 2024 compared to a benefit of $5.5 million in the first quarter. As a reminder, indirect delinquencies impact the qualitative factor of our model and are purely quantitative in nature, corresponding to a range of delinquencies in the portfolio over the lookback period since 2006. You'll recall, we saw a considerable reduction in indirect delinquencies between year-end 2023 and March 31st, 2024, which drove improvement in the qualitative factor and contributed to the first quarter of 2024.
Speaker Change: As a reminder, indirect delinquencies impact the qualitative factor of our model and our purely quantitative in nature.
Speaker Change: Bonding to a range of delinquencies in the portfolio, where the look back period since 2007.
Speaker Change: Youll recall, we saw a considerable reduction in indirect delinquencies between year end 2023, and March 31, 2024, which drove improvement in the qualitative factor and contributed to the first quarter of 2020 for return.
Speaker Change: As delinquencies are a leading indicator of charge offs. We saw a notable reduction in indirect net charge offs in the second quarter 2024.
William Jack Plants: As delinquencies are a leading indicator of charge-offs, we saw a notable reduction in indirect net charge-offs in the second quarter of 2024, at just $844,000, an annualized 38 basis points of average loans in this portfolio. While indirect delinquency has ticked up a bit in the second quarter, contributing to our reserve build in the recent period.
Speaker Change: Adjust 844000.
Speaker Change: An annualized 38 basis points of average loans in this portfolio.
Jack Lam: While indirect delinquencies ticked up a bit in the second quarter, contributing to our reserve build in the recent period, they remain 38% less than where they were at year-end. We continue to expect overall charge-off to fall within our guided annual range. Income tax expense was $4.5 million in the quarter, representing an effective tax rate of 15%. Our accumulated other comprehensive law was $125.8 million in June 30, 2024, a decrease of about $490,000 from March 31. We reported a TCE ratio at June 30 of 6.41% in tangible common book value per share, $25.17. Excluding the AOTI impact, the TCE ratio in tangible common book value per share would have been at $8.27% in $32.44 for respect.
Speaker Change: While indirect delinquencies ticked up a bit in the second quarter contributing to our reserve build in the recent period.
William Jack Plants: They remain 38% less than where they were a year ago. We continue to expect overall charge-off the fall within our guided annual income tax expense was $4.5 million, representing an effective tax rate of $15,000. Our Accumulated Other Comprehensive Loss was $125.8 million on June 30, 2020, a decrease of about $490,000 from March. We reported a TCE ratio at June 30 of 6.41%. Intangible Common book value per share $25.17. Excluding the AOCI impact, the TCE ratio and tangible common book value per share would have been at 8.27% and $32.44 respectively.
Speaker Change: It remains 38% last one where they were at year end.
Speaker Change: We continue to expect overall charge offs, all within our guided annual rate.
Speaker Change: Income tax expense was $4 5 million in the quarter, representing an effective tax rate was 15%.
Speaker Change: Our accumulated other comprehensive loss with $125 8 million at June 30 of 2024.
Speaker Change: Decrease of about 490000 from March 31.
Speaker Change: We reported a TCE ratio at June $36 four 1%.
Speaker Change: Intangible common book value per share $25 17.
Speaker Change: Excluding the OCI impact the TCE ratio and tangible common book value per share would have been $8, two 7% and $32 44, respectively.
Jack Lam: We continue to expect these metrics to return to more normalized levels over time, given the high credit quality and cash flowing nature of our indefinite portfolio.
Speaker Change: We continue to expect these metrics to return to more normalized levels over time, given the high credit quality and cash flow nature of our investment.
William Jack Plants: We continue to expect these metrics to return to more normalized levels over time given the high credit quality and cash flow nature of our investments. I will now provide an update on our guidance for the second half of 2020. We now expect the 2024 effective tax rate to fall within a range of 11 to 13%, including the impact of the fraud event in the first quarter, the SDM sale in the second quarter, and the additional tax credit investments placed in service in the current quarter. Additionally, the non-interest income and expense guidance we shared on our April investor call to reflect the sale of the FDN remains unchanged, including recurring quarterly non-interest income of $8.5 to $9 million and non This guidance excludes income related to investment tax credits, limited partnerships, and Gains or Losses on Investment Securities, including from the FDM.
Speaker Change: Yeah.
Jack Lam: I will now provide an update on our guidance for the second half of 2024. We now expect the 2024 effective tax rate to fall within a range of 11 to 13%. Including the impact of the fraud event in the first quarter, the SDN sale in the second quarter, and the additional tax credit investments placed in the current quarter in recent years. The non-interest income and expense guidance we shared on our April investor call to reflect the sale of SDN remains unchanged, including recurring quarterly non-interest income of $8.5 to $9 million. And non-interest expense 33 to 34 million per quarter.
Speaker Change: I will now provide an update on our guidance for the second half of 2024.
Speaker Change: We now expect the 2024 effective tax rate to fall within a range of 11% to 13%.
Speaker Change: Including the impact of a fraud event in the first quarter.
Speaker Change: The SDN sale in the second quarter and the additional tax credit investments placed in service in the current quarter in recent year.
Speaker Change: The noninterest income and expense guidance, we shared on our April investor call to reflect the sale.
Speaker Change: It remains unchanged.
Speaker Change: <unk> recurring quarterly noninterest income of eight $5 million to $9 million.
Speaker Change: And noninterest expense of $33 million to $34 million per quarter.
Jack Lam: This guidance excludes income related to investment tax credits, limited partnerships, and gains or losses on investment securities and assets, including from the SDN sale. At this time, we are also maintaining our previous guidance on loan and deposit growth between 1 to 3%, and that interest margin of between 285 to 295 basis points can fully earn that charge off within our annualized historical range of 30 to 40 basis points.
Speaker Change: This guidance excludes income related to investment tax credits limited partnerships and gains or losses on investment securities and assets, including from the SDN sale.
Speaker Change: At this time, we're also maintaining our previous guidance on loan and deposit growth between 1% to 3%.
William Jack Plants: At this time, we are also maintaining our previous guidance on loan and deposit growth between 1 to 3 percent, that interest margin of between 285 to 295 basis points, and full-year net charge-offs within our annualized historical range of $30 to $40 billion. That concludes my prepared remarks and updated guidance. I'll now turn the call back to Mark. Thank you, Jack.
Speaker Change: Net interest margin of between 285 to 295 basis points.
Speaker Change: Full year net charge offs within our annualized historical range 30 to 40 basis points.
Jack Lam: That includes my prepared remarks and updated guidance.
Speaker Change: That concludes my prepared remarks, and updated guidance I'll now turn the call back to Marty.
Martin Birmingham: I'll now turn the call back to Marty. Thank you, Jack. Our continued focus on liquidity, capital, and earnings led to strong second quarter 2024 outcomes. Including a common equity tier one ratio, surpassing 10% of 60 basis points from March 31st, 2024, and up 93 basis points from 2nd, 30th, 2023, and meaningful growth in tangible common book value per share of 9%, and 16% from the end of the length and year-ago quarters, effectively. The stronger capital position we are in today will allow us to better capitalize on future opportunities. Substitute improvement in capital has followed meaningful progress bolstering liquidity in the last 18 months, and we look forward to building on the possible momentum of our core business to deliver sustained incremental improvement in operating performance in the quarters ahead.
Martin K. Birmingham: Thank you Jack our continued focus on liquidity capital and earnings led to strong second quarter 2024 outcomes.
Martin K. Birmingham: Our continued focus on liquidity, capital, and earnings led to strong second quarter 2024 outcomes, including a common equity tier one ratio surpassing 10%, up 60 basis points from March 31st, 2024, and up 93 basis points from June 30th, 2023, and meaningful growth in tangible common book value per share of 9% and 16% at the end of the length and year-ago quarters expected. The stronger capital position we are in today will allow us to better capitalize on future opportunities.
Martin K. Birmingham: Including our common equity tier one ratio, surpassing 10% up 60 basis points from March 31, 2024, and up 93 basis points from June 30 of 2023 and meaningful growth in tangible common book value per share of 9% and 16% from the end of the linked and.
Martin K. Birmingham: Year ago quarters, respectively.
Martin K. Birmingham: The stronger capital position, we are in today will allow us to better capitalize on future opportunities.
Martin K. Birmingham: Substantive improvement in capital as follow meaningful progress bolstering liquidity in the last 18 months.
Martin K. Birmingham: Substantial improvement in capital has followed meaningful progress bolstering liquidity in the last 18 months, and we look forward to building on the positive momentum of our core business to deliver sustained incremental improvement in operating performance in the quarters ahead. That concludes our prepared remarks. Operator, please open the call to questions.
Martin K. Birmingham: And we look forward to building on the positive momentum of our core business to deliver sustained incremental improvement in operating performance in the quarters ahead.
Unknown Executive: That concludes our prepared remarks.
Speaker Change: That concludes our prepared remarks, operator, please open the call for questions.
Unknown Executive: Operator, please open the call for questions. Thank you. If you would like to register a question, please press star, followed by one on your telephone keypad.
Speaker Change: Thank you.
Operator: Thank you. If you would like to register a question, please press star followed by one on your telephone keypad, ensuring you are unmuted locally. If at any time you wish to withdraw your question, you can do so by pressing start followed by two. Our first question comes from the line of Damon DelMonte of KBW. Your line is now open; please go ahead.
Speaker Change: I'd like to thank you. So a question. Please press star followed by one on your telephone keypad.
Unknown Executive: Ensuring you are unmuted locally. If at any time you wish to withdraw your question, you can do so by pressing star, solid by two.
Mike: And you are on mute today is it any time you wish to withdraw your question you can do say both Christians thoughtful it's Mike.
Speaker Change: Our first question comes from.
Damon Delmonte: Our first question comes from the line of Damon Del Monte of KBW. Your line is open. Please go ahead.
Speaker Change: Damon Delmonte of KC W. Your line is now open. Please go ahead.
Damon Delmonte: Hey, good morning, everyone. Hope you're all doing well, and thanks for taking my questions. So, first question I had was some of the margin, Jack. I was hoping you could just give us a refresh look on your expected response to the margin.
Damon Paul DelMonte: Hey, good morning, everyone hope, you're all doing well and thanks for taking my questions.
Damon Paul DelMonte: Hey, good morning, everyone. I hope you're all doing well. And thanks for taking my questions. So the first question I had was this on the margin. Jack, I was hoping you could just kind of give us a refresher on your expected response to the margin should we start to see some cuts by the Fed, at least one here in the back half of the year and just a little bit longer out as we look into 2025. If there starts to be more cuts, just kind of how the margins position.
Damon Paul DelMonte: First question I had was just on the margin.
Speaker Change: Jack.
Speaker Change: I was hoping you could just kind of give us a refresh refresh look on.
Speaker Change: Youre expected response to the margin should we start to see some some cuts by the fed at least one here in the back half of the year and just a little bit longer out as we look into 2025, if there starts to be more cuts just kind of how the margins position.
Damon Delmonte: Should we start to see some cuts by the Fed, at least one here in the back half of the year, and just a little bit longer out as we look into 2025, if there starts to be more cuts, just kind of how the margins position.
Jack Lam: So, Damon, thanks for the question. We're fairly neutral to the first couple of cuts from the Fed, but as we look out on a longer-term basis, we have a pretty short duration on our CD portfolio and on our public and reciprocal portfolios, which are sizable.
Damian: So damian so.
William Jack Plants: Sir, Damon, so thanks for the question. We're fairly neutral on the first couple of cuts from the Fed. But as we look out on a longer-term basis, we have a pretty short duration on our CD portfolio and on our public and reciprocal portfolios, which are sizable. Those would be the first to see some downward shifts. So I think that if the Fed's more aggressive in 2025, it does provide some benefits margin, but the first couple cuts will be fairly neutral.
Damian: Thanks for the question were.
Speaker Change: We're fairly neutral to the first couple of cuts from the fed.
Speaker Change: As we look out over a longer term basis, we have.
Speaker Change: Pretty.
Speaker Change: Short duration on our CD portfolio and on our public and reciprocal portfolios, which are sizable those would be the first to see some downward shifts. So I think that if the fed is more aggressive in 2025, but it does provide some benefits margin, but the first couple of cuts will be fairly neutral.
Jack Lam: Those would be the first to see some downward shifts. But the first couple of cuts will be fairly neutral.
Speaker Change: Got it okay. Thank you and your guidance does that include any cuts by the fed correct.
Damon Delmonte: Okay, thank you.
William Jack Plants: Got it. Okay. Thank you. And your guidance does not include any cuts by the Fed, correct? That's correct. All right, great. And then with respect to the loan growth, appreciate the color there one to 3%, you know, kind of being driven by commercial. Is the commercial growth going to be kind of split between CNI and CRE? Or are you feeling a little bit more confident about one area over the other?
Damon Delmonte: And your guidance does not include any cuts by the Fed, correct?
Damon Delmonte: That's correct. Okay, and then with respect to the loan growth, I appreciate the color there, one to three percent, you know, kind of being driven by commercial.
Speaker Change: That's correct.
Speaker Change: Alright, great and then with respect to the loan growth.
Speaker Change: I appreciate the color there, 1% to 3% kind of being driven by commercial.
Martin Birmingham: You know, is the commercial growth going to be kind of split between C and I and TRE? Are you feeling a little bit more confident about one area over the other?
Speaker Change: As the commercial growth going to be kind of split between C&I and CRE.
Speaker Change: Are you feeling a little bit more confident about one area over the other.
Speaker Change: Hi, good morning, it's Marty.
Damon Delmonte: I figured morning, it's Marty. Actually, we're thinking about that. We're thinking about that, the growth in terms of both CRE and C and I. I think it's not unique to either segment. They're both thinking carefully about, you know, taking on debt, taking on pursuing projects in the higher rate environment and kind of waiting it out and trying to use their own cash. So, but we are promising all of our commercial activities from small business C and I to CRE. Got it. Okay, great. Okay, that's all that I had for now. I'll step back.
Martin K. Birmingham: Good morning, it's Marty. Actually, we're thinking about growth in terms of both CRE and CNI. I think it's not unique to either segment. They're both thinking carefully about, you know, taking on debt, pursuing projects in these higher-rate environments and kind of waiting it out and trying to use their own cash. But we are canvassing all of our commercial activities from small business CNI to CRE.
Speaker Change: <unk>.
Speaker Change: We're thinking about that.
Speaker Change: About the growth in terms of both CRE and C&I.
Speaker Change: I think it's not unique to either segment.
Speaker Change: They are both thinking carefully about.
Speaker Change: Taking on debt taking out pursuing projects.
Speaker Change: Bob.
Speaker Change: And this higher rate environment kind of waiting it out and try to use our own cash so.
Speaker Change: But we are canvassing all of our commercial activities start small business C&I and CRE.
Speaker Change: Got it okay great.
Martin K. Birmingham: Got it. Okay, great. Okay, that's all that I have for now. I'll step back. Thank you.
Speaker Change: Thats all that I had for now I'll step back thank you.
Damon Delmonte: Thank you.
Matthew Breeze: Thanks, Damon. The next question comes from the line of Matthew Breeze of Stevens. Your line is open. Please go ahead.
Damon Paul DelMonte: Thanks Damon.
Damon Paul DelMonte: The next question comes from the line of Matthew Breese with Stephens. Your line is now open. Please go ahead.
Operator: The next question comes from the line of Matthew Breese of Stevens. Your line is now open; please go ahead.
Matthew Breeze: Good morning. I was hoping we could touch on the income and the feeing can guide a little bit. You know, I know there's some moving parts with non-operating items is quarter and then backing out some of the limited partnership stuff. I guess in short, is this quarter's run rate a decent decent something we should use going forward for the rest of the year? Yeah, certainly is, especially since it's moved the impact of all the operations of SDS, so it's a good proxy for the next couple of quarters.
Hey, good morning.
Matthew M. Breese: I was hoping we could touch on fee income and the fee income guide a little bit. You know, there's some moving parts with non-operating items this quarter and then backing out some of the limited partnership stuff. I guess, in short, is this quarter's run rate a decent one we should use going forward for the rest of the year?
Matthew M. Breese: I was hoping to touch on fee income as it's being you can guide a little bit I know, there's some moving parts with non operating items. This quarter and then backing out some of the limited partnership stuff.
Speaker Change: I guess in short is this quarter's run rate.
Matthew M. Breese: Decent.
Speaker Change: It's something we should use going forward for the rest of the year.
Speaker Change: Yes, certainly as especially since it through the impact of all of the operations of SDN.
William Jack Plants: Yeah, it certainly is, especially since it's removed the impact of all the operations of SDM. So it's a good proxy for the next couple of quarters.
Speaker Change: Good proxy for the next couple of quarters.
Jack Lam: Okay, and then I was hoping for an update on what is the percentage of sheer floating rate loans, you know, priced off prime or so far on the balance sheet. And what is the blended yield on those goals, you know, versus everything else versus the fixed and adjustable report. Yeah, the floating rate portfolio, which is so for prime based, equates to about 38% of total loans. Yeah, I think it's pretty good. I would approximate it around eight percent.
Speaker Change: Okay, and then I was hoping for an update on what is the percentage.
William Jack Plants: Okay, and then I was hoping for an update on what is the percentage of pure floating rate loans, you know, priced off prime or so on the balance sheet? And what is the blended yield on those loans versus everything else versus the fixed and adjustable rate portfolio?
Speaker Change: Floating rate loans.
Speaker Change: Priced off prime or so for on the balance sheet.
Speaker Change: What is the blended yield on those loans versus versus everything else versus the fixed and adjustable rate portfolios.
Speaker Change: Yes.
Speaker Change: Yes, the floating rate portfolio, which is sofa or prime based equates to about 38% of total loans.
William Jack Plants: Yeah, that was good.
William Jack Plants: Yeah, the floating rate portfolio, which is SOFR prime based, equates to about 38% of
Speaker Change: Okay.
Speaker Change: Do you have in Europe.
William Jack Plants: and David Naboff. Yeah.
Speaker Change: Yes.
William Jack Plants: I think it's pretty good. I would approximate it around 8.
Speaker Change: Yes, I think it's pretty good.
Speaker Change: I would approximate at around 8%.
Speaker Change: Okay.
Jack Lam: Okay, so that is kind of implied that the fixed rate portion is kind of in the low five percent range, and just curious what new course real estate yield. and you've hit three yields are coming on it. Yeah, we actually put a slide in the investor presentation that shows the yields that are rolling off the portfolio. So that's slide 25. You can see the roll-off yield that we've experienced in 2023 and then in the second quarter across all of our portfolios. So on the crease side, we saw yields coming off around 7%, C&I, 6.8, down to the rising side of 4%. The new origination that we've been experiencing in the portfolio have been coming on it around 8%.
Speaker Change: Does that kind of imply that the fixed rate portion is kind of in the low 5% range and.
William Jack Plants: Does that kind of imply that the fixed rate portion is kind of in the low 5% range? And just curious what new commercial real estate yields and new six-rate yields are coming on it.
Speaker Change: Just curious what new commercial real estate yields.
Speaker Change: A new fixed rate yields are coming on it.
Speaker Change: Yes, we actually put a slide in the investor presentation that shows the.
William Jack Plants: Yeah, we actually put a slide in the investor presentation that shows the yields that are rolling off the portfolio. So that's slide 25.
Speaker Change: Yields that are rolling off the portfolio. So that's why on slide 25.
William Jack Plants: You can see the roll-off yield that we've experienced in 2023 and then in the second quarter across all of our portfolios. So on the Cree side, we saw a yield coming off around 7% TNI of 6.8%, then down to the resi side at 4%. The new originations that we've been experiencing in the portfolio have been coming on at around 4%.
Speaker Change: You can see the roll off yield that we've experienced in 2023, and then in the second quarter across all of our.
Speaker Change: Our portfolios so on.
Speaker Change: On the <unk> side, we saw yields coming off around 7% C&I.
Speaker Change: Six eight.
Speaker Change: Down to the resi side of 4% the new originations that we've been experiencing in the portfolio have been coming on at.
Speaker Change: Ravi.
Matthew Breeze: Got it. Okay.
Ravi: Got it okay.
Speaker Change: And then two other quick ones.
Matthew Breeze: And then two other quick ones. One, any idea I'm provisioning, it's been a little bit all over the place. The last handful of quarters is just give where the reserve is, next vacation for Charles, 5 million bucks a quarter feels like the right place to be. I'm just curious in that kind of sense that for your expectations. And giving the credit performance from the portfolio and going for the rest of the year, that's probably a little high. A lot of provisioning fluctuations we saw in the first quarter and second quarter was driven by delinquency trends.
Speaker Change: One.
Speaker Change: Any idea on provisioning, it's been it's been a little bit all over the place the last handful of quarters.
William Jack Plants: And then two other quick ones, you know, one. Any idea on provisioning? It's been a little bit all over the place the last handful of quarters. Just given where the reserve is and expectations for charge-offs, $5 million a quarter feels like the right place to be.
Speaker Change: Just given where the reserve is an expectation for charge offs 5 million Bucks a quarter. It feels like the right place to be and I'm. Just curious does that syncs up with your expectations.
Speaker Change: Yes, given the credit performance of the portfolio and loan growth for the rest of the year.
William Jack Plants: And given the credit performance in the portfolio and low growth for the rest of the year, that's probably a little high. A lot of the provisioning of fluctuation we saw in the first quarter and second quarter was driven by delinquency trends in the indirect portfolio, which have largely stabilized versus where they were in the 3rd and 4th quarter of last year. We did see a little bit of a pickup, but it's down significantly from where it was a year ago.
Speaker Change: Hi.
Speaker Change: So a lot of our provisioning a fluctuation that we saw in the first quarter and second quarter was driven by delinquency trends in the indirect portfolio, which have largely stabilized versus where they were.
Jack Lam: In the indirect portfolio, which have largely stabilized versus where they were in the third and fourth quarter of last year. We did see a little bit of a pickup, but it's down significantly from where I was at the year end. That's a separate growth. Yeah, that's a, yeah, window lower level of loan growth has tried that as well. So I'm comfortable with the 99 basis point of coverage or 1% provisioning expectations for the rest of the year will be influenced by national unemployment forecast, which is our primary loss driver. Long grow and charge us. Okay.
Speaker Change: For the third and fourth quarter of last year.
Speaker Change: We did see a little bit of a pick up but it's down significantly from where it was a hero.
Speaker Change: Temperate growth yes.
William Jack Plants: Yeah, that's a yes with the lower level of loan growth as I'm comfortable with a 99 basis points coverage ratio of 1%. Provisioning expectations for the rest of the year will be influenced by the National Unemployment Forecast, which is our primary loss driver, loan growth, and charges.
With a lower level of loan growth.
Speaker Change: That small cells I'm comfortable with.
Speaker Change: 99 basis points coverage ratio to 1%.
Provisioning expectations for the rest of the year will be influenced by Nash.
Speaker Change: National unemployment forecast, which was our primary loss driver loan growth and charge offs.
William Jack Plants: Okay. All right. And then the last one for me is, I think you have roughly $35 million in subdebt reaching its reset date next year. I'm just curious about any plans there, whether just to pay it off or do some sort of preemptive raise.
Speaker Change: Okay Alright.
Matthew Breeze: All right.
Speaker Change: Alright.
Matthew Breeze: And then that's one for me is, I think you have roughly 35 million sub debt reaching a three set date next year. I'm just curious on any plans there, whether just to pay it off or, you know, do some sort of preemptive raise. Yeah, we're reviewing our capital stack strategically. We have two facilities that are actually our reprising next year. We're evaluating the potential to reissue that market or potentially replace alternative capital. Great. Okay.
Speaker Change: And then last one for me is.
Speaker Change: I think you have roughly 35 billion and so that.
Speaker Change: We think it's reset next year.
Speaker Change: I'm just curious on any plans there whether it's just to pay it off or.
Speaker Change: So sort of preemptive Reyes.
Speaker Change: Got it.
Speaker Change: Yes.
William Jack Plants: Yeah, we're, we're reviewing our capital stack strategically. We have two facilities that are actually repricing next year. We're evaluating the potential to reissue that in the market or potentially replace an alternative.
Speaker Change: We are reviewing our capital stack strategically.
Speaker Change: We have two facilities there actually are repricing next year.
Speaker Change: We are evaluating.
Speaker Change: Potential to reissue that in the market or potentially replace with alternative forms of capital.
Speaker Change: Great Okay.
William Jack Plants: Great. Okay. That's everything for me. I appreciate taking all the questions. Thank you. Thanks, Matt.
Matthew Breeze: That's everything for me. I appreciate you taking on the questions. Thank you.
Speaker Change: That's everything for me I appreciate taking all my questions. Thank you.
Unknown Executive: Thanks, Matt.
Matt: Thanks, Matt.
Matt: Sure.
Unknown Executive: Also reminder, if you'd like to ask a question, please press star. Followed by one on your telephone. Thank you very much.
Speaker Change: As a reminder, if you'd like to ask a question. Please press star followed by one on your telephone keypad.
Operator: As a reminder, if you'd like to ask a question, please press start, followed by 1 on your telephone keypad. As there are no additional questions waiting at this time, I'd like to hand the conference back over to Martin Birmingham for closing remarks.
Matt: Yes.
Speaker Change: I'm showing no additional questions waiting at this time I would like to hand, the conference with Teva to multi band income took place at Newmont.
Well, thank everybody for participating this morning, we look forward to talking to you again.
Martin K. Birmingham: Thank you, everybody, for participating this morning. We look forward to talking to you again with our third quarter release.
Speaker Change: With our third quarter release.
Speaker Change: Ladies and gentlemen, I would like to thank you for joining today's call have a great rest of your day you may now disconnect your line.
Operator: Ladies and gentlemen, I'd like to thank you for joining today's call. Have a great rest of your day. You may now disconnect your line.
Unknown Executive: And I'd like to thank you for joining today's call. Have a great rest of your day.
Unknown Executive: You may now disconnect your lives.
Speaker Change: Okay.
Matthew Breeze: Matthew Breese, Alexander Twerdahl
Speaker Change: Yes.