Q2 2024 RBB Bancorp Earnings Call
David Morris, Unknown Executive, Catherine Wei, Lynn Hopkins, David Morris, Lynn Hopkins, David Morris, Unknown Executive, Catherine Wei, Lynn Hopkins, David Morris, Lynn Hopkins,
Operator: Good day, and welcome to the RBB Bancorp second quarter 2024 earnings conference call. At this time, all participants are on a listen-only mode. After management's prepared remarks, there will be a question and answer session. I would now like to turn the call over to your host, Catherine Wei. Please go ahead.
Speaker Change: Good day and welcome to the RBB Bancorp second quarter 2024 earnings conference call. At this time, all participants are on a listen-only mode. After management's prepared remarks, there will be a question and answer session.
Speaker Change: I would now like to turn the call over to your host, Catherine Wei. Please go ahead.
Catherine Wei: Thank you. Good day, everyone, and thank you for joining us to discuss RBB Bancorp's results for the second quarter of 2024. With me today are Chief Executive Officer David Morris, President Johnny Lee, Chief Financial Officer Lynn Hopkins, Chief Credit Officer Jeffrey Yeh, Chief Administrative Officer Gary Fan, and Chief Risk Officer Vincent Liu. David and Lynn will briefly summarize the results, which can be found in the earnings press release and investor presentation that are available on the Investor Relations website.
Catherine Wei: Thank you. Good day, everyone, and thank you for joining us to discuss RBB Bancorp's results for the second quarter of 2024.
Speaker Change: With me today are Chief Executive Officer David Morris, President Johnny Lee, Chief Financial Officer Lynn Hopkins, Chief Credit Officer Jeffrey Yeh, Chief Administrative Officer Gary Fan, and Chief Risk Officer Vincent Liu.
Speaker Change: David and Lynn will briefly summarize their results, which can be found in the earnings press release and investor presentation that are available on the Investor Relations website. And then we'll open up the call to your questions.
Speaker Change: I would ask that everyone please refer to the disclaimer regarding forelooking statements in the investor presentation and the company's SEC filings. Now I'd like to turn the call over to RBB's Chief Executive Officer, David Morris. David?
Catherine Wei: And then we'll open up the call to your questions. I would ask that everyone please refer to the disclaimer regarding the for-location investor presentation and the company's SEC filings. Now I'd like to turn the call over to RBB's Chief Executive Officer, David Morris. David?
David Richard Morris: Good morning, everyone, and thank you for joining us today. RBB reported second quarter net income of $7.2 million, or $0.39 per share, as we saw further signs of stabilization with modest loan growth and no change in funding costs. The net interest margin declined two basis points. But, as Lynn will explain, We are cautiously optimistic that it will begin to expand in the third and fourth quarters. What really is going to drive our results is deposit-funded loan growth.
David Richard Morris: Thank you, Catherine. Good day, everyone, and thank you for joining us today.
Speaker Change: RBB reported second quarter net income of $7.2 million or $0.39 per share as we saw further signs of stabilization with modest loan growth.
Speaker Change: and no change in funding costs. Net interest margin declined two basis points.
Speaker Change: But, as Lynn will explain, we are cautiously optimistic that it will begin to expand in the third and fourth quarters.
David Richard Morris: Loans increased by $20 million in the second quarter, supported by approximately $115 million of loan production at a weighted average rate of 7.4%. However, and more importantly, we are seeing increased loan activity, and our loan pipeline is expanding, which we expect will support further net loan growth going forward. Interest expenses declined from the first quarter as we continue to reduce our reliance on wholesale funding to 4% of Total Deposits.
Lynn: What really is going to drive our results is deposit funded loan growth.
Lynn: Loans increased by $20 million in the second quarter, supported by approximately $115 million of loan production at a weighted average rate of 7.4%. However, and more importantly,
Lynn: We are seeing increased loan activity and our loan pipeline is expanding.
Lynn: which we expect will support further net loan growth during...
Lynn: Going forward.
Lynn: Interest expenses declined from the first quarter as we continued to reduce our reliance on wholesale funding to 4%.
David Richard Morris: This is down from about 16% of deposits a year ago and 7% at the end of last quarter. We did see an increase in non-performing loans in the second quarter, primarily due to three loans migrating to non-accrual, but we believe we are appropriately reserved based on updated appraisals we obtained during the second quarter. These three loans total $22 million and consist of a $10 million C&D loan, a 7.3 million CRE loan, and a 4.7 million C&I loan secured by a personal residence. We are very focused on reducing the levels of NPL.
Lynn: of total deposits. This is down from about 16% of deposits a year ago and 7% at the end of last quarter.
Lynn: We did see an increase in non-performing loans in the second quarter, primarily due to 3 loans migrating to non-accrual, but we believe we are appropriately reserved based on
Lynn: Updated appraisals we have obtained during the second quarter.
Lynn: These three loans total $22 million and consist of a $10 million C&D loan.
Lynn: A $7.3 million CRE loan and a $4.7 million C&I loan secured by a personal residence.
David Richard Morris: And by way of example, we expect to settle through trustee sales two SFR nonaccrual loans totaling $8.1 million with loan-to-values less than 50% in the third quarter. While we recognize that in this environment, or any environment for that matter, a 48% increase in non-performing assets could be a cause for concern, we are comfortable with the underlying collateral of our troubled loans and expect we will be able to resolve them without material loss. With that... And I'll hand it over to Lynn, who can go into some more details about the quarter. Lynn?
Lynn: We are very focused on reducing the levels of NPLs, and by way of example, we expect to settle through trustee sales.
Lynn: Two SFR nonaccrual loans totaling $8.1 million with loan-to-values less than 50% in the third quarter.
Lynn: While we recognize that in this environment, or any environment for that matter, a 48 percent increase in non-performing assets could be a cause for concern.
Lynn: We are comfortable with the underlying collateral of our troubled loans and expect we will be able to resolve them without material loss.
Lynn: With that and I'll hand it over to Lynn who can go into some more details about the quarter. Lynn?
Lynn M. Hopkins: Please feel free to refer to the investor presentation we have provided as I share my comments on the company's second quarter of 2024 financial performance. Slide three of our investor presentation has a summary of the second quarter results. As David mentioned, net income was $7.2 million, or $0.39 per diluted share, a decline of $0.04 from last quarter's $0.43 per share. Net interest margin decreased two basis points due primarily to the impact of the $22.5 million in loans that migrated to non-accruals, which reduced interest income by $710,000 and net interest margin by eight basis points.
Lynn: Thank you, David.
Lynn: Please feel free to refer to the investor presentation we have provided as I share my comments on the company's second quarter of 2024 financial performance.
Lynn: Slide 3 of our investor presentation has a summary of second quarter results. As David mentioned, net income was $7.2 million, or $0.39 per diluted share, a decline of $0.04 from last quarter's $0.43 per share.
David Richard Morris: Net interest margin decreased 2 basis points due primarily to the impact of the $22.5 million in loans that migrated to non-accruals, which reduced interest income by $710,000 and net interest margin by 8 basis points.
Lynn M. Hopkins: Net interest income decreased by $912,000 to $24 million, with $520,000 of that decrease coming from the impact of the non-accrual loans. Interest income decreased $1.9 million due to a $1.7 million decrease in interest income on average cash balances and the aforementioned $520,000 reduction offset by a net increase in loan interest income of about $300,000. Average cash balances decreased $109 million quarter over quarter.
David Richard Morris: Funded interest income decreased by $912,000 to $24 million, with $520,000 of that decrease coming from the impact of the non-accrual loans.
David Richard Morris: Interest income decreased $1.9 million due to a $1.7 million decrease in interest income on average cash balances.
David Richard Morris: and the aforementioned $520,000 reduction offset by a net increase in loan interest income of about $300,000.
David Richard Morris: Average cash balances decreased $109 million quarter over quarter.
Lynn M. Hopkins: Trimming our cash balances allowed us to reduce our reliance on wholesale funding and reduce our expenses, or interest expenses, by a million dollars in the second quarter. Decreasing our wholesale funding also helped us maintain a stable cost of funds compared to the last quarter. Non-interest income increased slightly to $3.5 million and benefited from $359,000 of distributions on an equity investment made for CRA purposes and higher gains on the sale of loans. While we recognized $292,000 in gain on REO, this was less than the $724,000 in gain on REO we recognized last quarter.
David Richard Morris: Trimming our cash balances allowed us to reduce our reliance on wholesale funding and reduce our expenses, or interest expenses.
David Richard Morris: by a million dollars in the second quarter.
David Richard Morris: Decreasing our wholesale funding also helped us maintain a stable cost of funds compared to the last quarter.
David Richard Morris: Non-interest income increased slightly to $3.5 million and benefited from $359,000 of distributions on an equity investment made for CRA purposes and higher gain-on-sale loans.
Speaker Change: Well, we recognized $292,000 in gain on REO. This was less than the $724,000 in gain on REO we recognized last quarter.
Lynn M. Hopkins: Non-interest expenses were relatively stable at $17.1 million, and we expect them to remain at close to this level for the third and fourth quarters. Commercial real estate loans and construction loan development loans were stable at 39 percent and 7 percent of our total loans. Slide 6 has additional details about our disclosures in those portfolios. Slide 7 has details about our $1.5 billion residential mortgage portfolio, which consists of well-secured, non-QM mortgages, primarily in New York and California, with an average LTV of 61%.
Speaker Change: Non-interest expenses were relatively stable at $17.1 million, and we expect them to remain at close to this level for the third and fourth quarters.
Speaker Change: Commercial real estate loans and construction loan development loans were stable at 39% and 7% of our total loans. Slide 6 has additional details about our exposure in those portfolios.
Speaker Change: Slide 7 has details about our $1.5 billion residential mortgage portfolio, which consists of well-secured, non-QM mortgages primarily in New York and California, with an average LTV of 61%.
Lynn M. Hopkins: Starting on slide nine, we added a couple of asset quality slides to the presentation that we hope will help investors understand our non-performing loans in light of the increase we reported this quarter. On slide 12, you will see our allowance for loan losses remain stable at 1.37% of total loans held for investments. However, due to the increase in non-performing loans, our allowance to non-performing loans ratio decreased to 76%. We expect this ratio to recover in future quarters as we resolve the non-performing loans.
Speaker Change: Starting on slide 9, we added a couple of asset quality slides to the presentation that we hope will help investors understand our non-performing loans in light of the increase we reported this quarter.
Speaker Change: On slide 12, you will see our allowance for loan losses remain stable at 1.37% of total loans held for investment.
Speaker Change: However, due to the increase of non-performing loans, our allowance to non-performing loans ratio decreased to 76%.
Speaker Change: We expect this ratio to recover in future quarters as we resolve the non-performing loans.
Lynn M. Hopkins: Slide 13 has details about our deposit franchise. Total deposits were stable from the first quarter at $3 billion, as wholesale funding was successfully replaced by retail deposits. In addition, non-interest-bearing deposits remained relatively flat for the second quarter in a row. Our average all-in cost of deposits for the second quarter was unchanged at 3.59% from the first quarter. Tangible book value per share increased to $2,406 due to earnings and accretive share repurchases, offset by our shareholder dividends of $3 million.
Speaker Change: Slide 13 has details about our deposit franchise.
Speaker Change: Total deposits were stable from the first quarter at $3 billion, as wholesale funding was successfully replaced with retail deposits.
Speaker Change: In addition, non-interest bearing deposits remained relatively flat for the second quarter in a row.
Speaker Change: Our average all-in cost of deposits for the second quarter was unchanged at 3.59% from the first quarter.
Speaker Change: Tangible book value per share increased to $24.06 due to earnings and accretive share repurchases offset by our shareholder dividends of $3 million.
Lynn M. Hopkins: We repurchased about 448,000 shares at an average price per share of $18.01 in the second quarter. Our capital levels remain strong, with all capital ratios above regulatory, well-capitalized levels. With that, we are happy to take your questions. Operator, please open the call.
Speaker Change: We repurchased about 448,000 shares at an average price per share of $18.01 in the second quarter.
Speaker Change: Our capital levels remain strong, with all capital ratios above regulatory, well-capitalized levels.
Speaker Change: With that, we are happy to take your questions. Operator, please open up the call.
Operator: Certainly. The floor is now open for questions. If you have any questions or comments, please press star 1 on your phone at this time. We ask that while asking your question, you please pick up your handset if listening on a speakerphone to provide optimum sound quality. Please hold just a moment while we pull for questions. Your first question is coming from Brendan Nozell with Holbein Group. Please pose your question; your line is live. Hey, folks.
Speaker Change: Certainly. The floor is now open for questions.
Speaker Change: If you have any questions or comments, please press star 1 on your phone at this time. We ask that while posing your question, you please pick up your handset if listening on a speakerphone to provide optimum sound quality. Please hold just a moment while we pull for questions.
Speaker Change: Your first question is coming from Brendan Nozell with Holbein Group. Please pose your question. Your line is live.
Brendan Nozell: Hey folks, hope you're doing well. Good. Thank you. I think just to start off here, you certainly struck a bullish tone on both loan growth and the margin for the back half of the year. I was hoping you could help us size up the opportunities in both these areas over the next two quarters.
Brendan Nozell: Hey folks, hope you're doing well.
Brendan Nozell: Good. Thank you.
Unknown Speaker: Just to start off here, you certainly struck a bullish tone on both loan growth and the margin to the back half of the year. I was hoping you could help us size up the opportunities on both these areas over the next two quarters.
Lynn M. Hopkins: Good. Okay, Lynn will start.
Lynn M. Hopkins: Let me start, and then we can turn it over to a few people for details. So, I think relative to the first half of the year, I think we're cautiously optimistic. We had, you know, reported net no growth in the first quarter and $20 million net growth in the second quarter. So, relative to those two quarters, I think we're expecting increased growth and can definitely appreciate that the current environment is still kind of leaning towards low percent digit growth. So I think.
Speaker Change: Okay, Lynn will start.
Speaker Change: Let me start and then we can turn it over to a few people with details. So I think relative to the first half of the year,
Speaker Change: I think we're cautiously optimistic. We had, you know, reported net no growth in the first quarter and $20 million net growth in the second quarter. So I think relative to those two quarters, I think we're expecting increased growth.
Speaker Change: I can definitely appreciate that the current environment is still kind of leaning towards low percent digit growth. So I think
Lynn M. Hopkins: I don't know if that helps with the bullish tone, and we can go into other details on pipelines. And then on the net interest margin, we had to report the impact of the placement or the migration of a couple of nonaccrual loans, which impacted our net interest margin by eight basis points. So I think with ongoing loan growth, I'm optimistic that we wouldn't have any additional large nonaccruals to report. In the absence of those, I think that's where we would like to see our net interest margin stabilize and possibly come off of the floor we're at now.
Speaker Change: I don't know if that helps with the bullish tone and we can go into other details on, you know,
Speaker Change: Pipeline.
Speaker Change: and then on the net interest margin.
Speaker Change: We had to report the impact of the placing or the migration of a couple of non-accrual loans, which impacted our net interest margin at eight basis points. So, I think with ongoing loan growth,
Speaker Change: You know, optimistic that we wouldn't have any additional large nonaccruals to report. In the absence of those, I think that's where we would like to see our net interest margin stabilize and possibly come off of the floor we're at now.
David Richard Morris: Yep, that's helpful. Thank you. Maybe one more for me, just on the migration you saw in non-accruals, I mean, how would you folks characterize migration for these three credits or maybe talk about the drivers? And given that it's in three different portfolios, it feels like it's tough to say, you know, these are kind of one-offs, but I'm kind of just, you know, curious if there's any common driver in that migration.
Speaker Change: Yep, that's helpful. Thank you.
Speaker Change: And maybe one more for me, just on the migration you saw in Nana Krewel's, I mean, how would you folks characterize the migration for these three credits or maybe talk about the drivers? And given that it's in three different portfolios, it feels like it's tough to say, you know, these are kind of one-offs, but I'm kind of just, you know, curious if there was any common driver in that migration.
Lynn M. Hopkins: I don't think there is a common driver in the migration of the loans that you solve with the increase here.
Lynn M. Hopkins: So I would agree. I don't think we're seeing any trends that we're concerned about based on those moving to non-accrual. Obviously, every time you have something moved to non-accrual, you have to take a hard look at the rest of your portfolio and determine if there's anything else that looks similar that could have exposure. And at this point, I don't think we've identified anything or have anything to report. Two of the loans we did indicate are within one relationship, so they happen to be in different portfolios, but I think that would be the only item, I guess, that had a common denominator.
Speaker Change: ...at all.
Speaker Change: So I would agree. I don't think we're seeing any trends that we're concerned about based on those moving to non-accrual.
Speaker Change: You know, obviously, every time you have something moved in honor call, you have to take a hard look at the rest of your portfolio and determine if there's
Speaker Change: Anything else that looks similar that could have exposure and
Speaker Change: At this point, I don't think we've identified anything or have anything to report. Two of the loans we did indicate are within one relationship, so they happen to be in different portfolios, but I think that would be the only item, I guess, that had a common denominator.
David Richard Morris: Yeah, yeah, that's helpful. Okay. Thank you for taking the questions.
Speaker Change: Yeah, yeah, that's helpful. Okay, thank you for taking the questions.
Kelly Ann Motta: Yes, thank you. Your next question is coming from Kelly Motta with KBW. Please post your question. Your line is live. Hey!
Speaker Change: Yes, thank you.
Speaker Change: Your next question is coming from Kelly Motta with KBW. Please post your question. Your line is live.
Kelly Ann Motta: Hey, thanks for the question. It looks like your loan sales picked up again this quarter. I'm wondering if you could provide any color as to whether that was residential or SBA as well as your pipeline for loan sales as we look towards the back half of this year.
Kelly Ann Motta: Hey, thanks for the question. Um, it looks like your loan sales picked up again this quarter. I'm wondering if you could provide any color as to if that was residential or SBA as well as your pipeline for loan sales as we look for towards the back half of this year.
David Richard Morris: Hey Kelly, how are you? Great. We have seen a pickup in our SBA business, so most of this is SBA, but we still are gaining a little bit of traction in our mortgage portfolio. Okay, so Lynn has the exact numbers, and she can fill you in on any more details if you need it.
Kelly Ann Motta: Okay.
Speaker Change: Hey Kelly, how are you? Great. We have seen a pickup in our SBA, so most of this is SBA, but we still are gaining also a little bit of traction in our mortgage portfolio also.
Speaker Change: Okay, so Lynn has the exact, you know, can fill you in on any more details if you need it.
Lynn M. Hopkins: I don't have those right at my fingertips. I think that on SBA, we're seeing a wide... spread. So that part's been successful. And then I think with the interest rate environment, we've spent a little bit more on the mortgage, but the majority is SBA.
Lynn: Actually, I don't have those right at my fingertips. I think that on SBA, we're seeing widespread, so that part's been successful. And then I think with the interest rate environment, we've seen a little bit more on the mortgage, but the majority is SBA.
Lynn M. Hopkins: Got it. That's helpful. And then maybe a question for you, Lynn. It looks like the securities yields ticked up slightly. Just wondering if you are reinvesting any of the cash flows into the securities book or the driver of that as we think about that side of the margin?
Lynn: Got it. That's helpful. And then maybe a question for you, Lynn. It looks like the securities yields ticked up slightly. Just wondering if you are reinvesting any of the cash flows into the securities book or the driver of that as we think about.
Lynn M. Hopkins: Sure, I think what we're seeing for the yield itself on the securities portfolio is probably a higher percentage that was in short-term commercial paper given the inversion in the yield curve. I think that probably had the most impact as we got a higher percent of our earning assets than average loans. When I look at the whole earning assets, I think that was the main driver of the securities yield increase.
Lynn: You know, that side of the margin.
Lynn: Sure, I think what we're seeing for the yield itself on the securities portfolio is probably a higher percentage that was in short-term commercial paper given the inversion in the yield curve. So I think that probably had the most impact.
Speaker Change: We've got a higher percent of our earning assets than average loans when I look at the whole earning assets. So I think that was the main driver of the securities yield increase.
David Richard Morris: Got it. And I know you guys have been working through and making solid progress towards remediation of several items. I think the SEC investigation is done, and you're still working towards AML. Just wondering if there are any additional expenses or if you continue to expect that those are all currently in the expense run, right?
Speaker Change: Got it. And I know you guys have been working through and making solid progress towards remediation of...
Speaker Change: Several items. I think the SEC investigation is done. You're still working towards AML. Just wondering as you guys work through
Speaker Change: Those processes, if there's any additional expenses or if you continue to expect that, those are all currently in the expense run rate.
David Richard Morris: I believe they're currently in the expect, in Ben's run right now, yo.
Speaker Change: I believe they're currently in the expense run right now.
Kelly Ann Motta: Great, I'll step back. Thank you.
Speaker Change: Yeah.
Speaker Change: Great, I'll step back. Thank you.
Matthew Clark: Your next question is coming from Matthew Clark with Piper Sandler. Please pose your question; your line is live.
Speaker Change: Your next question is coming from Matthew Clark with Piper Sandler. Please pose your question. Your line is live.
Matthew Clark: Hey, good morning, everyone. Good morning. Maybe first on the margin. Lynn, do you have the average margin for the month of June on an adjusted basis, excluding that, eight basis points of interest income reversals, and then maybe the spot rate on deposits at the end of June.
Matthew Clark: Hey, good morning, everyone.
Matthew Clark: Morning.
Speaker Change: Maybe first on the margin.
Matthew Clark: Lynn, do you have the average margin in the month of June , you know, on an adjusted basis, you know, excluding, excluding that...
Speaker Change: Eight basis points of interest income reversals and then maybe the spot rate on deposits at the end of June .
Lynn M. Hopkins: Good question, Matthew. So I think my comments on how the net interest margin is trending, I think, are your question kind of about April, May, and June. Yeah, I think we're seeing it stabilize based on all of the information we shared. And then the spot rate, I meant, I had good intentions of including it in the investor deck, and I apologize for not getting that in there. Just bear with me one moment while I pull that up. Do you have another question, Matthew, in the meantime? Sure, yeah.
Speaker Change: Good question, Matthew. So I think my comment on how the net interest margin is trending, I think, is your question, kind of April , May, June .
Speaker Change: Yeah, I think we're seeing it stabilize based on all of the information we shared. And then the spot rate, I meant, I had good intentions of including it in the investor deck.
Speaker Change: and I apologize for not getting that in there. Just bear with me one moment while I pull that up. Do you have another question, Matthew, in the meantime?
Matthew Clark: Sure. Yeah, I was going to get to... The CDs and the roll rates there just remind us what's maturing in the third and fourth quarter, at what rate, and what you expect them to renew at.
Matthew Clark: Sure. Yeah, I was going to get to...
Matthew Clark: The CDs and the roll rates there just remind us what's maturing in the third and fourth quarter, you know, at what rate and what you expect them to renew at.
Lynn M. Hopkins: Okay, so I think 95% of our CDs mature over 12 months. I think there's a good portion, and it's kind of evenly distributed. I think that interest rates have started to, or the cost of deposits have actually kind of eased just over the last week or two. So if you'd asked the question a month ago, I think my answer would have been different. Because I think what we are seeing is funding rates coming in pretty similar to how they were rolling off because of the hire for longer mantra.
Speaker Change: Okay, so I think 95% of our CD's mature over 12 months. I think there's a good portion. It's kind of evenly distributed.
Speaker Change: I think that interest rates have started to, or the cost of deposits have actually kind of eased just over the last week or two, so if you'd asked the question a month ago I think my answer would have been different.
Speaker Change: Because I think what we were seeing is funding rates come in pretty similar to how they were rolling off because of the hire for longer mantra.
Lynn M. Hopkins: However, I think we are seeing a little bit of softening. I don't think it's a lot of basis points or as much as we would like to see, but I think there's probably opportunity for them to reprice a little bit lower. That would be my general comment. I don't know if I could give you the exact basis points.
Speaker Change: However, I think we are seeing a little bit of softening. I don't think it's a lot of basis points, or as much as we would like to see, but I think there's probably opportunity for them to reprice a little bit lower.
Speaker Change: That would be my general comment. I don't know if I could give you the exact...
David Richard Morris: Anything else you would add, David? No, I mean,
Speaker Change: basis points.
David Richard Morris: Now, I mean... I think you said everything. Our portfolio is... pretty evenly dispersed over the month.
David Richard Morris: Anything else you would add, David? No, I mean...
David Richard Morris: I think you said everything. Our portfolio is pretty evenly dispersed over the months.
Lynn M. Hopkins: Got it. Okay. And then just on the $150 million of FHLB that's maturing in the first quarter, I think it's 118. What are your updated plans for that? For that, those borrowings. Sure.
David Richard Morris: So...
David Richard Morris: Got it. Okay.
Speaker Change: And then just on the $150 million of FHLB that's maturing in the first quarter.
Speaker Change: I think it's 118. What are your updated plans?
Lynn M. Hopkins: Sure. So, obviously, with our loan-to-deposit ratio, you know, at the higher end, and I think a desire to keep a good amount of on-balance-sheet liquidity, there's a likelihood that we would, in the absence of just other organic loan growth, look at the wholesale market and determine the best options at that point, whether it's FHLB advances or tapping a different wholesale source. You know, we'll have to work with the interest rate environment as it is in the first quarter of next year.
Speaker Change: Thank you for those borrowings.
Speaker Change: Sure. So, obviously, with our bond to deposit ratio, you know, at the higher end,
Speaker Change: And I think a desire to keep a good amount of on-balance sheet liquidity. There's a likelihood that we would in the absence of just other organic loan growth.
Speaker Change: look at the wholesale market and determine the best options at that point, whether it's FHLB advances or tapping a different wholesale source. And
Speaker Change: We'll have to work with the interest rate environment as it is in the first quarter of next year. So I don't know that those are necessarily getting pre-funded given the, we expect interest rates to decrease.
Lynn M. Hopkins: So I don't know that those are necessarily getting pre-funded given that we expect interest rates to decrease. So, unfortunately, I think we're probably looking at some source, you know, repricing higher in the first quarter of next year. Okay, great. Thank you. And with respect to spot rates, I'm going to say it's pretty similar to the rate that was the average for the quarter.
Speaker Change: So unfortunately, I think we're probably looking at some source, you know, repricing higher on the first quarter of next year.
Speaker Change: Okay, great.
Speaker Change: Thank you.
Speaker Change: With respect to the spot rate, I'm going to say it's pretty similar to the rate that was the average for the quarter.
Robert Andrew Terrell: Once again, if you do have any remaining questions or comments, please press star 1 at this time. Your next question is coming from Andrew Terrell with Stevens. Please pose your question; your line is now open.
Speaker Change: Once again, if you do have any remaining questions or comments, please press star 1 at this time. Your next question is coming from Andrew Terrell with Stevens. Please pose your question. Your line is live.
David Richard Morris: Hey, there are a couple of quick ones for me, and most of mine were asked already on the loan growth. Just to clarify when I think you said still kind of expectations for low single digits for the year. I think last quarter we were talking about low to mid single digits. I guess any overall change to the loan growth message?
Robert Andrew Terrell: Hey, good morning.
Andrew: Hi, Andrew.
Robert Andrew Terrell: Hey, just a couple of quick ones for me. Most of mine were asked already. On the loan growth, just to clarify, Lynn, I think you said still kind of expectations for
Lynn M. Hopkins: Low single digits for the year. I think last quarter we were talking about low to mid single digits. I guess any overall change to the loan growth message?
Lynn M. Hopkins: I don't think so. If it's, you know, low to mid, I mean, as the years have moved on, I mean, if you're looking kind of for the rest of this year, again, relative to the first half, I think we're looking at something more. I don't know if we want to add a couple of comments on the pipeline or family mortgages. You know, our
Lynn M. Hopkins: I don't think so. If it's, you know, low, low to mid, I mean, as the years moved on, I mean, if you're looking kind of for the rest of this year, again, relative to the first half, I think we're, we're looking at something more.
Speaker Change: I don't know if we want to add a couple of comments on the pipeline or.
David Richard Morris: You know, our pipelines right now, Andrew, are very, very strong. But we also have payoffs and those types of things that also need to be calculated into this. We're also in a very trying environment. It's a very difficult environment right now to try to get loans. We are competing as best we can, but we do expect, relative to the first half of the year, the second half of the year will be better.
Speaker Change: Family Mortgage. You know, our pipelines right now, Andrew, are very, very strong. But we also have payoffs and those type of things that also need to be calculated into this. We're also in a very trying environment.
Robert Andrew Terrell: It's a very trying environment right now to try to get loans and we are competing as best we can. But we do expect relative to the first half of the year, the second half of the year will be better.
David Richard Morris: Yep, I understand. Okay.
Robert Andrew Terrell: Yep, understood. Okay. And any, as you think about just like the composition of the pipeline as it sits today?
David Richard Morris: And any, as you think about just like the composition of the pipeline as it sits today? Any change mix-wise versus three, six months ago? Is it maybe slightly more optimism driven by the pickup in CNI, CRE, single-family, anything specific?
Speaker Change: Any change mix-wise versus 3-6 months ago? Is it maybe slightly more optimism driven by the pickup in C&I, CRE, single-family? Any specific color there?
David Richard Morris: Okay, I don't think so. I think it's 50-50 basically, commercial, and residential, okay?
Speaker Change: Okay, I don't think so. I think it's...
Speaker Change: It's 50-50 basically, commercial, resi, okay?
Lynn M. Hopkins: Have you brought spreads in on new loans at all? I think last quarter we talked about 8.3% new origination yield. I think you mentioned 7.4. For production yields this quarter, there's quite a lot of compression sequentially, maybe it's just a mix, a functional mix. But have you guys actively lowered spreads?
Speaker Change: Okay.
Speaker Change: Have you brought spreads in on new loans at all? I think last quarter we talked about 8.3% new origination yield. I think you mentioned 7.4% for production yields this quarter. It's quite a lot of compression sequentially. Maybe it's just a mix, a functional mix, but have you guys actively lowered spreads?
David Richard Morris: Okay, before you, I'm going to turn it over to you about the current rate, but I think the 8.3 last quarter came from maybe some examples of maybe CNI versus, you know, a part of our production that relates to our single family portfolio, which has a lower commoditized rate. And I think that's how we ended up with the blend of the 7.4% that we reported as our average production yield. So, you know, I think we're, I think if you were to talk by product, there's probably, you know, kind of two ends of that.
Speaker Change: Before you, I'm going to turn it over to about current rate, but.
Speaker Change: I think the 8.3 last quarter came from like maybe some examples of maybe CNI versus, you know, a part of our production that relates to our single family portfolio, which has
Speaker Change: a lower commoditized rate. And I think that's how we ended up with the blend of the 7.4% that we reported as our average production yield. So, you know, I think we're I think if you were to talk by product, they're probably, you know, kind of two ends of that.
David Richard Morris: And then, I think, just a comment on where we're seeing the trend on spreads. I'll turn that over to you, David. Yeah. So, our rates for mortgages are about seven and a quarter. That's the start rate, about.
Speaker Change: And then I think just a comment on where we're seeing the trend on spread, so I'll turn that over to you, David. Yes, so our
David Richard Morris: Our rates for mortgage are about $7.25. That's the start rate. For commercial, they go anywhere from $7.25 to $7.25. Thank you.
David Richard Morris: 675 to 10. Okay, depending on the product.
David Richard Morris: 675 to
David Richard Morris: 10.
David Richard Morris: Okay, depending on the product.
David Richard Morris: Yep. Okay. Perfect. Thank you for taking the questions. And we have...
Speaker Change: Yep. Okay. Perfect. Thank you for taking the questions.
Brendan Nozell: You have a follow-up question coming from Brendan Nozzle with Hoftie Group. Please ask your question.
Robert Andrew Terrell: Thanks Andrew.
Speaker Change: You have a follow up question coming from Brendan Nozzle with Hostie Group. Please post your question, your line is live.
Brendan Nozell: Your line is live. Brendan? Brendan, your line is live.
Speaker Change: Brendan?
Brendan Nozell: I just wanted to hit on the buyback before the call wrapped up. You guys were quite active this quarter repurchasing shares, but the price is up quite a bit from that average price throughout the second quarter. Just kind of curious what your appetite is to continue making use of that authorization over the next two quarters.
Speaker Change: Brendan, your line is live.
Brendan Nozzle: Sorry, apologies, I was on mute. Just wanted to hit on the buyback before the call wrapped up. You know, you guys were quite active this quarter repurchasing shares, but the price is up quite a bit from that average price throughout the second quarter. Just kind of curious what your appetite is to continue making use of that authorization over the next two quarters.
David Richard Morris: Sure. I think we still have a pretty strong appetite since our stock price is still below our tangible book. But to your point, the stock price has moved up nicely, and I think we'll consider looking at all aspects of it. Maybe it could moderate, but we still have half a million shares under our authorization there.
Speaker Change: I think we have still a pretty strong appetite since our stock price is still below our tangible book.
Speaker Change: But to your point, the stock price has moved up nicely and I think we'll consider looking at all aspects of it. You know, maybe it could moderate, but we still have half a million shares under our authorization there.
Brendan Nozell: All right, perfect. Thanks for digging up the follow-up. Yeah, thanks.
Speaker Change: All right, perfect. Thanks for digging the follow-up.
Speaker Change: Yeah, thanks.
Kelly Ann Motta: We have an additional follow-up question with Kelly Motta from KBW. Please put your line in; your line is live.
Speaker Change: Kelly
Kelly Ann Motta: Sorry, I was muted. Thanks for letting me jump back in. I was hoping to get a bit more color on the NPAs.
Speaker Change: We have an additional follow-up question with Kelly Motta from KBW. Please close your line. Your line is live.
Kelly Ann Motta: Sorry, I was muted. Thanks for letting me jump back in. I was hoping to get a bit more color on the NPAs. I appreciate the commentary about
David Richard Morris: I appreciate the commentary about I believe, Lynn, you had said two of them may have been the same borrower. But I know you guys took down specific reserves this quarter. Just wondering if you could provide a bit more commentary on what gives you confidence in your ability to recoup those losses without losses. And just with the uptick we saw this quarter as well. Was this part of a specific review or anything like that?
Lynn M. Hopkins: I believe Lynn, you had said two of them may have been the same borrower, but I know you guys took down specific reserves this quarter. Just wondering,
Speaker Change: If you could provide a bit more commentary on what gives you, you know, confidence on your ability to recoup those without losses.
Speaker Change: Just with the uptick we saw this quarter as well was there was this as part of a specific review or anything like that and is there anything
David Richard Morris: And is there anything on the horizon that you think could migrate inwards to kind of keep the MPAs at this higher level?
Speaker Change: You know on the horizon that you could you think could Migrate in words to kind of keep the MPAs at this higher level
David Richard Morris: Okay, Kelly, I'll start, then we'll pass it off for Lynn for further details. No, this was not a result of any review or examination or audit. This was just normal banking operations, I guess you could say, and all. The really, when you look about it, there are really two loans. There are two borrowers, I guess you could say. They both have very distinct and separate... circumstances that brought them this way and so forth.
Speaker Change: Okay, Kelly, I'll start then we'll pass it off for Lynn for further details. No, this was not a result of any review or examination or audit. This was just normal banking.
Speaker Change: Operations, I guess you could say, and all.
Speaker Change: The really, when you look about it, there's really two loans, there's two borrowers, I guess you could say.
David Richard Morris: We went out, and we did what we're supposed to do. We got new appraisals. Those appraisals came back, and we did a discount on those appraisals, and that's how we calculated if there was impairment or any of those type of things on these loans. We do believe that on the one loan that we've been very proactive, and we're going to be doing a, we expect to accept a deed in lieu of foreclosure on the one loan so we can expedite the selling of the property in a very Lynn, I'll let you go from there.
Lynn M. Hopkins: They both are very distinct and separate.
Lynn M. Hopkins: circumstances that brought them this way, and so forth.
Speaker Change: We went out and we did what you're supposed to do. We got new appraisals.
Speaker Change: Those appraisals came back and we do a discount to those appraisals and that's how we calculate if there's impairment or any of those type of things on these loans.
Speaker Change: We do believe that on the one loan that we've been very proactive and we're going to be doing a
Speaker Change: Calm, normal way to get the most value out of that property.
Lynn M. Hopkins: Kelly, all of the loans that are non-performing, kind of talking to your comment about specific reserves. So, going through, you know, the comprehensive CECL process, we can run a lot of models, but once something's impaired, I obviously have to go through a detailed individual review.
Speaker Change: Lynn, I'll let you go from there.
Lynn M. Hopkins: Kelly, all of the loans that are non-performing, kind of talking to your comment about specific reserves.
Kelly: So, going through, you know, comprehensive CECL process, we can run a lot of models, but once something's impaired, I obviously have to go through a detailed individual review.
Lynn M. Hopkins: So, in some respects, you might take comfort that this group of loans has been specifically looked at and measured. To the extent that it's collateral-dependent, we charge-off, which is the charge-off level that you saw in the quarter. And then there are limited specific reserves on our non-performing loans. So I don't know if that answers your question about specific reserves.
Kelly: So in some respects you might take comfort that this group of loans has been specifically looked at.
Kelly: and measured. To the extent that it's collateral dependent, we do charge off, which is the
Kelly: that you saw in the quarter. And then there's limited specific reserves on our non-performing loans. So I don't know if that answers your question on the specific reserves.
Lynn M. Hopkins: And I agree with David's comments as I, as we looked at, we put in page 10 of the deck. So to facilitate the conversation given the uptick and how we specifically looked at many of our non-accrual loans. Unfortunately, as we all know, it takes some time to work through them. I think we're going to be urgent about it, but we obviously have a lot of things we have to comply with. We'll work through it in the third and fourth quarters of this year.
Kelly: And I agree with David's comments. As I, as we looked at, we put in page 10 of the deck.
Speaker Change: So that to facilitate the conversation given the uptick and how we specifically looked at many of our non-accrual loans. Unfortunately, as we all know, it takes some time to work through them. I think we're going to be urgent about it, but we obviously have a lot of...
Kelly: I think we have to comply with, we'll work through it in the third and fourth quarter of this year.
Kelly Ann Motta: Got it. That's super helpful. Thanks for letting me jump back in.
Speaker Change: Got it. That's super helpful. Thanks for letting me jump back in.
Matthew Clark: Once again, if you do have any remaining questions or comments, please press star 1 at this time. You do have a follow-up question from Matthew Clerk with Piper Sandler. Please pose your question to your line.
Speaker Change: Once again, if you do have any remaining questions or comments, please press star 1 at this time. You do have a follow-up question from Matthew Clerk with Piper Sandler. Please pose your question. Your line is live.
Matthew Clark: Hey, thanks, and I apologize if I missed it, but any commentary on the expense run rate, the non-interest expense run rate going forward? After a Seasonal Declining Comp. Sure. It was a quick one.
Lynn M. Hopkins: Sure. It was a quick one. I think we believe our expense run rate will be approximately at the same or similar level that we had in the second quarter.
Speaker Change: after a seasonal declining comp.
Speaker Change: Sure. It was a quick one. I think we believe our expense run rate will be approximately at the same or similar level that we have in the second quarter.
Speaker Change: Great.
Matthew Clerk: That's all I had, thank you.
David Richard Morris: There appear to be no additional questions in queue at this time. I would now like to turn the floor back over to David Morris for any closing remarks.
Speaker Change: Thanks, Matthew.
Speaker Change: There appear to be no additional questions in queue at this time. I would now like to turn the floor back over to David Morris for any closing remarks.
David Richard Morris: Okay, once again, we thank you for joining us today. We look forward to speaking to many of you in the coming days and weeks. Have a great day.
David Richard Morris: Okay, once again, we thank you for joining us today. We look forward to speaking to many of you in the coming days and weeks. Have a great day.
Operator: Thank you, everyone. This does conclude today's conference call.