Q2 2024 First Internet Bancorp Earnings Call

Good day everyone and welcome to the First Internet Bancorp earnings conference call for the second quarter of 2024. At this time all lines are in a listen-only mode. Following the presentation we will conduct a question-and-answer session.

Operator: earnings conference call for the second quarter of 2024. At this time, all lines are in a listen-only mode.

Operator: Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Thursday, July 25, 2024. I would now like to turn the conference over to Larry Clark from Financial Profiles, Inc. Please go ahead. Thank you, Lara.

If at any time during this call you require immediate assistance, please press star zero for the operator.

This call is being recorded on Thursday, July 25th, 2024. I would now like to turn the conference over to Larry Clark from Financial Profiles, Inc. Please go ahead, Mr. Clark.

Larry Clark: Good day, everyone, and thank you for joining us to discuss First Internet Bancorp's financial results for the second quarter of 2024. The company issued its earnings press release yesterday afternoon, and it's available on the company's website. In addition, the companies included a slide presentation that you can refer to during this call. You can also access these slides on the website. Joining us today from the management team are Chairman and CEO David Becker and Executive Vice President and CFO Ken Lovik. David will provide an overview, and Ken will discuss the financial results. Then we'll open up the call to your questions.

Speaker Change: Thank you, Lara. Good day, everyone, and thank you for joining us to discuss First Internet Bancorp's financial results for the second quarter of 2024. The company issued its earnings press release yesterday afternoon, and it's available on the company's website.

In addition, the companies included a slide presentation that you can refer to during this call. You can also access these slides on the website.

Speaker Change: Joining us today from the management team are Chairman and CEO David Becker and Executive Vice President and CFO Ken Lovik.

Speaker Change: David will provide an overview and Ken will discuss the financial results, then we'll open up the call to your questions.

Larry Clark: Before I begin, I'd like to remind you that this conference call contains four forward-looking statements with respect to the future performance and financial condition of First Internet Bancorp that involve risks and uncertainty. Various factors could cause actual results to be materially different from any future results expressed or implied by such a forward-looking statement. These factors are discussed in the company's SEC filings, which are available on the company's website. The company disclaims any obligation to update any forward-looking statements made during this call. Additionally, management may refer to non-GAAP measures, which are intended to supplement but not substitute for the most directly comparable GAAP measures.

Speaker Change: Before we begin, I'd like to remind you that this conference call contains four looking statements.

Speaker Change: with respect to the future performance and financial condition of First Internet Bancorp that involve risks and uncertainties.

Speaker Change: Various factors could cause actual results to be materially different from any future results expressed or implied by such forward-looking statements.

Speaker Change: These factors are discussed in the company's SEC filings, which are available on the company's website.

Speaker Change: The company disclaims any obligation to update any forward-looking statements made during this call. Additionally, management may refer to non- GAAP measures which are intended to supplement but not substitute for the most directly comparable GAAP measures .

Larry Clark: The press release, available on the website, contains the financial and other quantitative information to be discussed today, as well as the reconciliation of the GAAP to non-GAAP measures. This time, I'd like to turn the call over to David. Thank you, Larry. Good afternoon, everyone.

Speaker Change: The press release, available on the website, contains the financial and other quantitative information to be discussed today, as well as the reconciliation of the GAAP to non-GAAP measures.

Speaker Change: At this time, I'd like to turn the call over to David.

David B. Becker: And thanks for joining us today as we discuss our second quarter 2024 results. To bring forward our commentary from last quarter, most of you will recall that three quarters ago we called the bottom. In late October, we predicted that the third quarter of 2023 would mark the low point for net interest margin and net interest income. We also estimated net interest margin would turn higher from there, regardless of whether or not and at what pace the Federal Reserve chose to start reducing short-term interest rates.

David B. Becker: Thank you, Larry. Good afternoon, everyone, and thanks for joining us today as we discuss our second quarter 2024 results.

Speaker Change: To bring forward our commentary from last quarter, most of you will recall that three quarters ago we called the bottom.

David B. Becker: In late October we predicted that the third quarter of 2023 would mark the low point for net interest margin and net interest income. We also estimated net interest margin would turn higher from there regardless of whether or not

David B. Becker: And at what pace the Federal Reserve chose to start reducing short-term interest rates.

David B. Becker: Since then, we have reported three consecutive quarters of double-digit earnings growth and improved profitability, driven in large part by the recovery in our margin and the growth in net interest income that we have projected. This quarter, results continue to demonstrate the meaningful progress we have made repositioning the loan portfolio, optimizing our overall balance sheet mix, and further diversifying our revenue base while keeping deposit costs in check and improving our interest rate risk profile. Starting with the highlights on slide three, I would like to discuss some additional key themes for the quarter.

Speaker Change: Since then, we have reported three consecutive quarters of double-digit earnings growth and improved profitability, driven in large part by the recovery in our margin and the growth in net interest income that we have projected.

David B. Becker: This quarter results continue to demonstrate the meaningful progress we have made repositioning the loan portfolio, optimizing our overall balance sheet mix, and further diversifying our revenue base while keeping deposit costs in check and improving our interest rate risk profile.

David B. Becker: Starting with the highlights on slide three, I would like to discuss some additional key themes for the quarter.

David B. Becker: As I just noted, we continue to transition the composition of our loan portfolio and optimize both sides of the balance sheet. We have had strong deposit growth through the first half of the year, and we were able to deploy a portion of that liquidity to pay down a significant amount of higher-cost broker deposits while also funding net loan growth of $51 million, or over 5% on an annualized basis. The new funded loan origination yields were 8.88%, four basis points from the first quarter and up 46 basis points from the second quarter of 2023. The yield on the overall loan portfolio increased 10 basis points. From the first quarter, we'll only increase deposit costs by four basis points.

David B. Becker: As I just noted, we continue to transition the composition of our loan portfolio and optimize both sides of the balance sheet.

David B. Becker: We have had strong deposit growth.

David B. Becker: through the first half of the year, and we were able to deploy a portion of that liquidity to pay down a significant amount of higher-cost broker deposits while also funding net loan growth of $51 million or over 5% on an annualized basis.

David B. Becker: The new funded loan origination yields were 8.88% of four basis points from the first quarter.

Speaker Change: and up 46 basis points from the second quarter of 2023. The yield on the overall loan portfolio increased 10 basis points from the first quarter, while deposit costs only increased 4 basis points.

David B. Becker: As a result, net interest income was up almost 3%, and fully taxable equivalent net interest margin was up one basis point over the prior quarter. Compared to the third quarter of last year, when we believe these metrics hit their lowest, net interest income for the second quarter was up 23%, and net interest margin expanded by 27 basis points. With our emphasis on improving the composition of the loan portfolio and stabilizing deposit prices, we remain confident that net interest income and net interest margin will trend higher for the back half of this year, which is consistent with the guidance we issued earlier this year. However, notably, I would remind you, our estimates are based on short-term rates remaining flat through the end of the year.

Speaker Change: As a result, net interest income was up almost 3%, and fully taxable equivalent net interest margin was up one basis point over the prior quarter.

Speaker Change: Compared to the third quarter of last year, when we believe these metrics hit their low, net interest income for the second quarter was up 23%, and net interest margin has expanded by 27 basis points.

Speaker Change: With our emphasis on improving the composition of the loan portfolio and stabilizing deposit prices, we remain confident that net interest income and net interest margin will trend higher for the back half of this year, which is consistent with the guidance we issued earlier this year.

Speaker Change: Notably, I would remind you, our estimates are based on short-term rates remaining flat through the end of the year. If we do get a cut from the Fed this year, and it's looking increasingly likely that we will, that would only serve to improve our results.

David B. Becker: If we do get a cut from the Fed this year, and it's looking increasingly likely that we will, that would only serve to improve our results. The continued performance of our SBA business has been a key driver in our efforts to reposition the loan portfolio and diversify revenue streams. The team continued to perform exceptionally well, delivering strong production and another record quarter of gain on sale. Compared to the first half of 2023, year-to-date SBA originations were up 15%, and solid loan volume was up 58%, demonstrating the tangible results of the investment we have made in providing growth capital to entrepreneurs and small business owners throughout the country. Small business pipeline continues to flourish, and currently, we are the sixth largest SBA 7A lender in the country, year-to-date for the SBA's 2024 physical year. Congratulations to our SBA team on another standout quarter.

Speaker Change: The continued performance of our SBA business has been a key driver in our efforts to reposition the loan portfolio and diversify revenue streams. The team continued to perform exceptionally well, delivering strong production and another record quarter of gain on sale.

Speaker Change: Compared to the first half of 2023, year-to-date SBA originations were up 15% and solid loan volume was up 58%.

Speaker Change: demonstrating the tangible results of the investment we have made in providing growth capital to entrepreneurs and small business owners throughout the country.

Speaker Change: Small business pipeline continues to flourish and currently we are the sixth largest SBA 7a lender in the country, year-to-date for the SBA's 2024 physical year. Congratulations to our SBA team on another standout quarter.

David B. Becker: It's a combination of all these efforts, solid loan growth, net interest income growth, net interest margin expansion, and non-interest income powered by record gains on sale revenue that drove an 11% increase in total revenue over the prior quarter, a third consecutive quarter of positive operating leverage and continued improvement in operating efficiency and profitability. The growth of our SBA business has also helped us to further diversify our revenue base, with non-interest income comprising nearly one-third of our total revenues for the first half of this year, compared to just under one-quarter of total revenues for the comparable period last year.

Speaker Change: And it's the combination of all these efforts, solid loan growth, net interest income growth, net interest margin expansion, and non-interest income powered by record gains on sale revenue that drove an 11% increase in total revenue over the prior quarter.

Speaker Change: a third consecutive quarter of positive operating leverage and continued improvement in operating efficiency and profitability.

Speaker Change: The growth of our SBA business has also helped us to further diversify our revenue base with non-interest income comprising nearly one-third of our total revenues for the first half of this year, compared to just under one-quarter of total revenues for the comparable period last year.

David B. Becker: Credit quality remains healthy with non-performing loans to total loans at 33 basis points and non-performing assets to total assets at 24 basis points at quarter end, both of which were relatively consistent with the first quarter. Net charge-offs remain relatively low at 14 basis points, mostly from the franchise finance and the small business portfolio. To provide an update on a topic from last quarter's call, we continue to monitor and work to reduce our Red Lobster exposure as a result of its Chapter 11 bankruptcy filing. We have reduced our outstanding balances by $3 million in the second quarter. The average loan-to-value of these loans remains low at 52%, and importantly, we have not experienced any delinquencies related to these properties.

Speaker Change: Credit quality remains healthy with non-performing loans to total loans at 33 basis points and non-performing assets to total assets at 24 basis points at quarter end.

Speaker Change: both of which were relatively consistent with the first quarter. Net charge-offs remained relatively low at 14 basis points, mostly from the franchise finance and the small business portfolios.

Speaker Change: To provide an update on a topic from last quarter's call, we continue to monitor and work to reduce our Red Lobster exposure as a result of its Chapter 11 bankruptcy filing.

Speaker Change: We have reduced our outstanding balances by $3 million in the second quarter. The average loan-to-value of these loans remains low at 52%. And importantly, we have not experienced any delinquencies related to these properties.

David B. Becker: As it relates to current industry concerns around office space, our exposure to office commercial real estate remains less than 1% of our total loan portfolio and does not include any central business district exposure. A key measure of shareholder value creation is growth in tangible value per share. Ours increased over 1% during the quarter and is up over 6% year-over-year. Since 2018, First Internet has grown tangible book value per share in excess of 50%, compared to an average of around 30% for all publicly traded banks.

Speaker Change: As it relates to current industry concerns around office space, our exposure to office commercial real estate remains less than 1% of our total loan portfolio. It does not include any central business district exposure.

Speaker Change: A key measure of shareholder value creation is growth in the tangible value per share.

Speaker Change: Ours increased over 1% during the quarter and is up over 6% year-over-year. Since 2018, First Internet has grown tangible book value per share in excess of 50%, compared to an average of around 30% for all publicly traded banks.

David B. Becker: We are among just a small handful of banks that have grown tangible book value per share in each of the past five years, which is also, in part, a testament to our prudent balance sheet management and operational discipline through a very challenging period for the banking industry. As a result of our continued improvement in operating performance, we reported net income of $5.8 million, up 11.5%, and diluted earnings per share of $0.67, up 11.7% from the first quarter. Excluding $600,000 of non-reoccurring expenses, adjusted net income was $6.2 million, and adjusted diluted earnings per share was $0.72.

Speaker Change: We are among just a small handful of banks that have grown tangible book value per share in each of the past five years, which is also, in part, a testament to our prudent balance sheet management and operational discipline through a very challenging period for the banking industry.

Speaker Change: As a result of our continued improvement in operating performance, we reported net income of $5.8 million, up 11.5%, and diluted earnings per share of $0.67, up 11.7% from the first quarter.

Speaker Change: excluding $600,000 of non-reoccurring expenses, adjusted net income was $6.2 million and adjusted diluted earnings per share was $0.72.

David B. Becker: On an adjusted basis, this marks the third consecutive quarter of earnings growth in excess of 20%. I do not believe there are too many other banks that can make this statement, and we are well ahead of other reporting banks thus far this quarter, with average growth rates in the low single digits. Turning to slide four, I will spend a couple of minutes discussing our lending activity during the quarter. We produced solid overall loan growth in the quarter, led by our commercial lending teams, where balances were up $47 million from the first quarter, or over 6% on an annualized basis.

Speaker Change: On an adjusted basis, this marks the third consecutive quarter of earnings growth in excess of 20 percent. I do not believe there are too many other banks that can make

Speaker Change: this statement, and we are well ahead of other reporting banks thus far this quarter, with average growth rates in the low single digits.

Speaker Change: Turning to slide four, I will spend a couple minutes discussing our lending activities during the quarter.

Speaker Change: We produced solid overall loan growth in the quarter, led by our commercial lending teams, where balances were up $47 million from the first quarter, or over 6% on an annualized basis.

David B. Becker: Consistent with prior quarters, we experienced growth in investor commercial real estate, small business, and franchises. Our construction team had another solid quarter, originating over $115 million of new commitments. While quarter-end balances were impacted by early pay-downs, average construction loan balances were up 16 percent compared to the first quarter as borrowers drew on existing lines to fund their projects. At quarter end, total unfunded commitments in our construction line of business were $529 million.

Speaker Change: Consistent with prior quarters, we produce growth in investor commercial real estate, small business, and franchise loans.

Speaker Change: Our construction team had another solid quarter, originating over $115 million of new commitments.

Speaker Change: While quarter end balances were impacted by early paydowns, average construction loan balances were up 16% compared to the first quarter as borrowers drew on existing lines to fund their projects.

Speaker Change: At quarter end, total unfunded commitments in our construction line of business were $529 million.

David B. Becker: Draws on these lines in the upcoming months will play a meaningful role in the continued shift of our loan portfolio towards higher yielding bearable rate loans. Additionally, the construction team sourced new deals and investor commercial real estate as those balances increased $60 million during the quarter. However, one particular larger deal closed very late in the quarter, and therefore had very little benefit to interest income for the quarter, yet was fully reserved in the provision for loan loss.

Speaker Change: Draws on these lines in the upcoming months will play a meaningful role in the continued shift of our loan portfolio towards higher yielding bearable rate loans.

Speaker Change: Additionally, the construction team sourced new deals and investor commercial real estate as those balances increased $60 million during the quarter.

Speaker Change: However, one particular larger deal closed very late in the quarter, therefore had very little benefit to interest income for the quarter, yet was fully reserved in the provision for loan losses.

David B. Becker: On the consumer side, balances were up modestly as new originations in our specialty consumer channels rebounded from the seasonal low during the winter months. We focus on super prime borrowers in our consumer lending, and rates on new production were in the mid-8% range, consistent with the first quarter. Furthermore, delinquencies in these portfolios remain low at just one basis point of total loan.

Speaker Change: On the consumer side, balances were up modestly as new originations in our specialty consumer channels rebounded from the seasonal low during the winter months.

Speaker Change: We focus on super prime borrower in our consumer lending and rates on new production were in the mid 8% range consistent with the first quarter Furthermore delinquencies in these portfolios remain low at just one basis point of total loans

David B. Becker: Before I turn the call over to Ken to cover our results in more detail, I want to provide an update on our FinTech partnership. We believe these partnerships are vital to the evolution of financial services. We are committed to fostering these relationships to develop innovative solutions for the market while also enhancing shareholder returns. As I mentioned last quarter, this isn't a new concept for us. We have over 20 years of partnership experience, always focusing on quality over quantity.

Speaker Change: Before I turn the call over to Ken to cover our results in more detail, I want to provide an update on our FinTech partnerships.

Speaker Change: We believe these partnerships are vital to the evolution of financial services. We are committed to fostering these relationships to develop innovative solutions to the market, while also enhancing shareholder returns.

Kenneth J. Lovik: As I mentioned last quarter, this isn't a new concept for us. We have over 20 years of partnership experience, always with a focus on quality over quantity.

David B. Becker: Our total revenue for this line of business continues to grow and is up 300% for the first half of 2024 compared to the same period last year, and we expect to see further growth in the second half of the year. To wrap up my comments, we continue to deliver improved performance in the second quarter. We enter the second half of the year with momentum and confidence. Liquidity and credit quality remain strong, and capital levels are sound.

Kenneth J. Lovik: Our total revenue for this line of business continues to grow and is up 300% for the first half of 2024 compared to the same period last year. And we expect to see further growth in the second half of the year.

Kenneth J. Lovik: To wrap up my comments, we continue to deliver improved performance in the second quarter. We enter the second half of the year with momentum and confidence.

Kenneth J. Lovik: Liquidity and credit quality remain strong and capital levels are sound.

David B. Becker: With the continued evolution of our loan portfolio mix and stabilized deposit pricing, we believe we are well positioned to continue to achieve higher earnings and improved profitability for the remainder of 2024 and beyond. Finally, I want to personally thank the entire First Internet team for their hard work and contributions toward our strong results.

Kenneth J. Lovik: With the continued evolution of our loan portfolio mix and stabilized deposit pricing, we believe we are well positioned to continue to achieve higher earnings and improve profitability for the remainder of 2024 and beyond.

Kenneth J. Lovik: Finally, I want to personally thank the entire First Internet team for their hard work and contributions towards our strong results. Our success is driven by their unwavering commitment to our four core competencies.

David B. Becker: Our success is driven by their unwavering commitment to our four core competencies, customer focus, teamwork, adaptability, and initiative. Now, I'll turn the call over to Ken for more details on our financial results for the quarter. Thanks, David.

Speaker Change: customer focus, teamwork, adaptability, and initiative.

Speaker Change: Now I'll turn the call over to Kent for more details on our financial results for the quarter.

Kenneth J. Lovik: As David covered the loan portfolio, let's turn to slides five and six, where I will cover deposits in more detail. While the average balance of deposits increased by over $185 million or 4.7% during the second quarter, period-end deposits were essentially flat quarter-over-quarter. Similar to the first quarter, we experienced continued growth in CDs and fintech partnership deposits and used a portion of the liquidity provided by this growth to pay down $139 million of higher-cost brokered deposit balance. Non-maturity deposits were up almost $55 million, or 2.8%, driven by increases in FinTech partnership deposits.

Kent: Thanks, David. As David covered the loan portfolio, let's turn to slides five and six where I will cover deposits in more detail.

Kent: While the average balance of deposits increased by over $185 million, or 4.7% during the second quarter, period-end deposits were essentially flat with the quarter-over-quarter.

Kent: Similar to the first quarter, we experienced continued growth in CD's and Fintech Partnership deposits and used a portion of the liquidity provided by this growth to pay down $139 million of higher cost broker deposit balances.

Kent: Non-maturity deposits were up almost $55 million, or 2.8%, driven by increases in fintech partnership deposits.

Kenneth J. Lovik: Deposits from our fintech partners, including those classified as broker deposits, were up 34% from the first quarter and totaled $375 million at quarter end. Additionally, these partners generated almost $8.5 billion in payments volume, which was up 40% from the volume we processed in the first quarter. Total FinTech partnership revenue was $582,000 in the second quarter, down slightly from the linked quarter, with the majority of this revenue consisting of recurring interest income, oversight, and transaction fees.

Kent: Deposits from our fintech partners, including those classified as broker deposits, were up 34% from the first quarter and totaled $375 million at quarter end.

Speaker Change: Additionally, these partners generated almost $8.5 billion in payments volume, which was up 40% from the volume we processed in the first quarter.

Speaker Change: Total FinTech partnership revenue was $582,000 in the second quarter, down slightly from the linked quarter, with the majority of this revenue consisting of recurring interest income, oversight, and transaction fees.

Kenneth J. Lovik: Related to CD activity during the quarter, total balances were up $91 million from the linked quarter, driven by continued strong demand in the consumer channel. We originated $404 million in new production and renewals during the second quarter at an average cost of 4.97% and a weighted average term of 19 months. These were partially offset by maturities of $345 million with an average cost of 4.88%.

Speaker Change: Related to CD activity during the quarter, total balances were up 91 million dollars from the linked quarter, driven by continued strong demand in the consumer channel.

Speaker Change: We originated $404 million dollars in new production and renewals during the second quarter at an average cost of 4.97% and a weighted average term of 19 months. These were partially offset by maturities of $345 million dollars with an average cost of 4.88%.

Kenneth J. Lovik: Looking forward, we have $397 million of CDs maturing in the third quarter of 2024 with an average cost of 5.05%, and $224 million maturing in the fourth quarter with an average cost of 5.03%. So, assuming new production rates remain in line with those in the second quarter, we've reached an inflection point on CD pricing, which should contribute heavily to stabilizing and perhaps even reducing deposit costs in future periods under a higher-for-longer rate environment. Should the Fed begin to lower interest rates, there is potential for added benefit, but again, the commentary I provided is not dependent on that. Moving to slide six.

Speaker Change: Looking forward, we have 397 million dollars of CDs maturing in the third quarter of 2024 with an average cost of 5.05 percent and 224 million dollars maturing in the fourth quarter with an average cost of 5.03 percent.

Speaker Change: So, assuming new production rates remain in line with those in the second quarter, we have reached an inflection point on CD pricing, which should contribute heavily to stabilizing and perhaps even reducing deposit costs in future periods under a higher-for-longer rate environment.

Speaker Change: Should the Fed begin to lower interest rates, there is potential for added benefit, but again, the commentary I provided is not dependent on that.

Kenneth J. Lovik: At quarter end, total liquidity remains very strong, as we had cash and unused borrowing capacity of $1.7 billion. As mentioned a moment ago, we deployed some of the liquidity provided by deposit inflows to pay down higher-cost broker deposits as well as to fund loan growth and securities purchases during the quarter. With total loan balances up about $51 million while deposit balances were flat quarter over quarter, the loans-to-deposit ratio increased modestly to 92.7 percent from 91.5% at the end of the first quarter. At quarter end, our cash and unused borrowing capacity represented 150% of total uninsured deposits and 197% of adjusted uninsured deposits.

Speaker Change: Moving to slide 6, at quarter end total liquidity remains very strong as we had cash and unused borrowing capacity of 1.7 billion dollars.

Speaker Change: As mentioned a moment ago, we deployed some of the liquidity provided by deposit inflows to pay down higher cost broker deposits, as well as to fund loan growth and securities purchases during the quarter.

Speaker Change: With total loan balances up about $51 million, while deposit balances were flat quarter over quarter, the loans to deposit ratio increased modestly to 92.7%.

Speaker Change: from 91.5% at the end of the first quarter. At quarter end, our cash and unused borrowing capacity represents 150% of total uninsured deposits and 197% of adjusted uninsured deposits.

Kenneth J. Lovik: Turning to slides 7 and 8, net interest income for the quarter was $21.3 million and $22.5 million on a fully taxable equivalent basis, up 2.9% and 2.6%, respectively, from the first quarter. The yield on average interest-earning assets increased to 5.54% from 5.45% in the linked quarter, due primarily to a 10-basis point increase in the yield earned on loans and a 21-basis point increase in the yield earned on securities, partially offset by an 11-basis point decline in the yield earned on other earning assets.

Speaker Change: Turning to slide 7 and 8, net interest income for the quarter was 21.3 million dollars and 22.5 million dollars on a fully taxable equivalent basis, up 2.9% and 2.6% respectively from the first quarter.

Speaker Change: The yield on average interest earning assets increased to 5.54% from 5.45% in the linked quarter due primarily to a 10 basis point increase in the yield earned on loans and a 21 basis point increase in the yield earned on securities.

Speaker Change: partially offset by an 11 basis point decline in the yield earned on other earning assets.

Kenneth J. Lovik: The higher yields on interest-earning assets combined with the growth in average loan and securities balances produce solid top-line growth in interest income, increasing over four percent compared to the linked quarter. Factoring in growth in average interest-bearing deposit balances and a modest increase in the cost of deposit funds, net interest income was up almost 3% during the quarter, building on last quarter's increase and further distancing us from the low point in the third quarter of 2023, as shown in the bar chart on slide 7. The net interest margin for the first quarter was 1.67 percent and 1.76 percent on a fully taxable equivalent basis, both increases of one basis point from the first quarter.

Speaker Change: The higher yields on interest earning assets combined with the growth in average loan and securities balances produce solid top-line growth in interest income, increasing over 4% compared to the linked quarter.

Speaker Change: Factoring in growth in average interest-bearing deposit balances and a modest increase in the cost of deposit funds,

Speaker Change: Net interest income was up almost 3% during the quarter, building on last quarter's increase and further distancing us from the low point of the third quarter of 2023, as shown in the bar chart on slide 7.

Speaker Change: Net interest margin for the first quarter was 1.67% and 1.76% on a fully taxable equivalent basis, both increases of one basis point from the first quarter.

Kenneth J. Lovik: The net interest margin rolled forward on slide eight highlights the drivers of change in fully taxable equivalent net interest margin during the quarter. One item I would like to point out on this chart related to the impact of deposits in the quarter is that the impact is really more a factor of volume than it is rate. That is, as I mentioned earlier, average interest-bearing deposits were up over $185 million during the quarter, whereas average loan balances were only up $44 million.

Speaker Change: The net interest margin rolled forward on slide 8 highlights the drivers of change in fully taxable equivalent net interest margin during the quarter.

Speaker Change: One item I would like to point out on this chart related to the impact of deposits in the quarter is that the impact is really more a factor of volume than it is rate.

Speaker Change: That is, as I mentioned earlier, average interest bearing deposits were up over $185 million during the quarter, whereas average loan balances were only up $44 million.

Speaker Change: The pace of increase in net interest income and net interest margin was down compared to the past two quarters due primarily to lower growth in average loan balances as we experienced both early payoffs and later than expected funding of some larger balanced loans.

Kenneth J. Lovik: The pace of increase in net interest income and net interest margin was down compared to the past two quarters due primarily to lower growth in average loan balances as we experienced both early payoffs and later than expected funding of some larger balanced loans. Specifically, we saw paydowns of certain commercial and industrial and construction balances, all of which had attractive pricing, and we experienced a delay on a large investor commercial real estate deal that was supposed to fund early in the quarter but did not get closed until the last week of June. In total, we estimate that these items negatively impacted net interest income by approximately $375,000 and the net interest margin by two basis points.

Speaker Change: Specifically, we saw paydowns of certain commercial and industrial and construction balances, all of which had attractive pricing, and we experienced a delay on a large investor commercial real estate deal that was supposed to fund early in the quarter but did not get closed until the last week of June .

Speaker Change: In total, we estimate that these items negatively impacted net interest income by approximately $375,000 and net interest margin by two basis points.

Kenneth J. Lovik: However, loan pipelines remain strong, and with our focus on improving the composition of the loan portfolio and replacing lower yielding assets with higher yielding and variable rate production, we continue to forecast growth in total interest income throughout the rest of the year. Currently, we expect the yield on the loan portfolio to be up in the range of 10 to 15 basis points in the third quarter and another 15 to 20 basis points in the fourth quarter.

Speaker Change: However, loan pipelines remain strong and with our focus on improving the composition of the loan portfolio and replacing lower yielding assets with higher yielding and variable rate production, we continue to forecast growth and total interest income throughout the rest of the year.

Speaker Change: Currently, we expect the yield on the loan portfolio to be up in the range of 10 to 15 basis points in the third quarter and another 15 to 20 basis points in the fourth quarter.

Kenneth J. Lovik: Related to deposits, looking at the graph on slide 8 that tracks our monthly rate on interest-bearing deposits against the Fed Funds rate, you can see the stability in deposit costs over the last several months. So going forward, with short-term rates stabilized and CD pricing expected to reach an inflection point here in the third quarter, we anticipate that interest-bearing deposit costs should be relatively consistent with the second quarter, which should be a catalyst for driving. Turning to non-interest income on slide 9, non-interest income for the quarter was $11 million, up $2.7 million, or 32% from the first quarter.

Speaker Change: Related to deposits, looking at the graph on slide eight that tracks our monthly rate on interest-bearing deposits against the Fed funds rate, you can see the stability in deposit costs over the last several months.

Speaker Change: So, going forward, with short-term rates stabilized and CD pricing expected to reach an inflection point here in the third quarter, we anticipate that interest-bearing deposit costs should be relatively consistent with the second quarter, which should be a catalyst in driving continued net interest margin expansion.

Speaker Change: Turning to non-interest income on slide 9, non-interest income for the quarter was $11 million, up $2.7 million, or 32% from the first quarter. Gain on sale of loans totaled $8.3 million for the quarter, up 27% over the first quarter, and setting another quarterly record for our SBA team.

Kenneth J. Lovik: Gain on sale of loans totaled $8.3 million for the quarter, up 27% over the first quarter and setting another quarterly record for our SBA team. Loan sale volume was $98.6 million, up 19% and rebounding from the seasonally low first quarter, while net gain on sale premiums saw a modest increase of six basis points. Other non-interest income was also up compared to the prior quarter, increasing $1.2 million due primarily to distributions received from fund investments. However, these increases were partially offset by a decline in net servicing revenue due to the fair value adjustment to the loan servicing asset.

Speaker Change: Loan sale volume was $98.6 million, up 19% and rebounding from the seasonally low first quarter, while net gain on sale premiums saw a modest increase of six basis points.

Speaker Change: Other non-interest income was also up compared to the prior quarter, increasing 1.2 million dollars due primarily to distributions received from fund investments. These increases were partially offset by a decline in net servicing revenue due to the fair value adjustment to the loan servicing asset.

Kenneth J. Lovik: Moving to slide 10, non-interest expense for the quarter was $22.3 million, up $1.3 million from the first quarter. Included in our results for the quarter were almost 600,000 in non-recurring expenses, consisting mostly of costs related to terminated technology contracts and, to a lesser extent, expenses associated with the 25th anniversary of First Internet Bank. Excluding these items, non-interest expense totaled $21.8 million for the quarter, up $700,000, or 3.5% from the first quarter, and relatively in line with our forecast.

Speaker Change: Moving to slide 10, non-interest expense for the quarter was $22.3 million, up $1.3 million from the first quarter.

Speaker Change: Included in our results for the quarter were almost 600,000 of non-recurring expenses consisting mostly of costs related to terminated technology contracts and, to a lesser extent, expense associated with the 25th anniversary of First Internet Bank.

Speaker Change: Excluding these items, non-interest expense totaled $21.8 million for the quarter, up $700,000, or 3.5% from the first quarter, and relatively in line with our forecast.

Kenneth J. Lovik: Turning to asset quality on slide 11, David covered the major components of asset quality for the quarter in his comments, so I will just add some commentary around the allowance for credit losses and the provision for credit losses. The allowance for credit losses as a percentage of total loans was 1.10 percent at the end of the second quarter, up five basis points from the first quarter.

Speaker Change: Turning to asset quality on slide 11, David covered the major components of asset quality for the quarter in his comments, so I will just add some commentary around the allowance for credit losses and the provision for credit losses.

Speaker Change: The Allowance for Credit Losses as a Percentage of Total Loans

Speaker Change: was 1.10% at the end of the second quarter, up five basis points from the first quarter. The increase in the allowance for credit losses reflects the growth in the loan portfolio and the continued shift in the composition of the loan portfolio towards certain loan types with higher coverage ratios.

Kenneth J. Lovik: The increase in the allowance for credit losses reflects the growth in the loan portfolio and the continued shift in the composition of the loan portfolio towards certain loan types with higher coverage ratios. The increase also reflected additional reserves related to small business lending, partially offset by the positive impact of economic data on forecasted loss rates in other portfolios. The provision for credit losses in the second quarter was $4 million, compared to $2.4 million in the first quarter.

Speaker Change: The increase also reflected additional reserves related to small business lending, partially offset by the positive impact of economic data on forecasted loss rates in other portfolios.

Speaker Change: The provision for credit losses in the second quarter was $4 million compared to $2.4 million in the first quarter. The provision for the second quarter was driven by loan growth and the changes in the composition of the loan portfolio, net charge-offs, and the additional reserves related to small business lending.

Kenneth J. Lovik: The provision for credit losses was driven by loan growth and changes in the composition of the loan portfolio, net charge-offs, and the additional reserves related to small business lending. If you exclude the balances and reserves on our public finance and residential mortgage portfolios, which have lower coverage ratios given their lower inherent risk, the allowance for credit losses represented 1.32 percent of the loan balance.

Speaker Change: If you exclude the balances and reserves on our public finance and residential mortgage portfolios, which have lower coverage ratios given their lower inherent risk, the allowance for credit losses represented 1.32% of loan balances.

Kenneth J. Lovik: Furthermore, with minimal office exposure, we do not require the excess reserves around that asset class that many other banks have. Moving to capital on slide 12. Our overall capital levels at both the company and the bank remain solid. The tangible common equity ratio was 6.88%, a nine basis point increase from the first quarter. If you exclude accumulated other comprehensive losses and adjust for normalized cash balances of $300 million, the adjusted tangible common equity ratio would be 7.59%.

Speaker Change: Furthermore, with minimal office exposure, we do not require the excess reserves around that asset class that many other banks have.

Speaker Change: Moving to capital on slide 12. Our overall capital levels at both the company and the bank remain solid. The tangible common equity ratio was 6.88%, a nine basis point increase from the first quarter.

Speaker Change: If you exclude accumulated other comprehensive loss and adjust for normalized cash balances of $300 million, the adjusted tangible common equity ratio would be 7.59%.

Kenneth J. Lovik: From a regulatory capital perspective, the Common Equity Tier 1 Capital Ratio remains solid at 9.47%. Before I wrap up, I would like to provide some updates on our outlook for the remainder of 2024. As a reminder, our approach to forecasting this year is to assume that the Federal Reserve maintains its higher-for-longer outlook and does not lower the Fed funds rate during 2024 despite the increasing commentary that rate cuts may happen as soon as September. We still feel confident that annual earnings per share for the full year of 2024 will be in the range of $3 per share.

Speaker Change: From a regulatory capital perspective, the Common Equity Tier 1 Capital Ratio remains solid at 9.47%.

Speaker Change: Before I wrap up, I would like to provide some updates on our outlook for the remainder of 2024.

Speaker Change: As a reminder, our approach to forecasting this year is to assume that the Federal Reserve maintains a higher-for-longer outlook.

Speaker Change: and does not lower the Fed funds rate during 2024 despite the increasing commentary that rate cuts may happen as soon as September .

Speaker Change: We still feel confident that annual earnings per share for the full year of 2024 will be in the range of $3 per share.

Operator: With regard to net interest income, as I mentioned earlier, we expect loan yields to continue to increase while interest-bearing deposit costs should be relatively flat for the remainder of the year. With annual loan growth in the range of 7.5 to 10 percent for the year, we still expect annual net interest income to be up 20 percent for 2024, with fully taxable equivalent margin continuing to increase throughout the year and be in the range of 1.90 percent to 2 percent. As for non-interest income and non-interest expense, our view is fairly consistent with our comments on last quarter's call.

Speaker Change: With regard to net interest income, as I mentioned earlier, we expect loan yields to continue to increase while interest-bearing deposit costs should be relatively flat for the remainder of the year.

Speaker Change: With annual loan growth in the range of 7.5% to 10% for the year, we still expect annual net interest income to be up 20% for 2024, with fully taxable equivalent margin continuing to increase throughout the year.

Speaker Change: and be in the range of 1.90% to 2% in the fourth quarter.

Speaker Change: Related to non-interest income and non-interest expense, our view is fairly consistent with our comments on last quarter's call.

Operator: With the combination of our SBA team continuing to deliver consistently higher origination activity and stabilization in secondary market pricing, our outlook remains extremely optimistic. And as a reminder, the expectations for higher fee revenue will be partially offset by higher expenses as we continue to add additional personnel in SBA and risk management, as well as make additional investments in technology and our risk management processes around our FinTech partnerships program. With that, I will turn it back to the operators so we can take your questions.

Speaker Change: With the combination of our SBA team continuing to deliver consistently higher origination activity and stabilization in secondary market pricing, our outlook remains extremely optimistic.

Speaker Change: And as a reminder, the expectations for higher fee revenue will be partially offset by higher expenses as we continue to add additional personnel in SBA and risk management, as well as make additional investments in technology and our risk management processes around our FinTech Partnerships Program.

Speaker Change: With that, I will turn it back to the operators so we can take your questions.

Operator: Thank you, sir. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the number one on your touchtone phone. You will hear a three-tone prompt acknowledging your request. Should you wish to decline from the polling process, please press star followed by the number two. If you are using a speakerphone, please lift your handset before pressing any key.

Speaker Change: Thank you, sir. Ladies and gentlemen, we will now begin the question and answer session.

Speaker Change: Should you have a question, please press star followed by the number one on your touchtone phone.

Speaker Change: You will hear a three-tone prompt acknowledging your request.

Speaker Change: Should you wish to decline from the polling process, please press star followed by the number 2. If you are using a speakerphone, please lift your handset before pressing any key.

Operator: One moment, please, for your first question. Our first question comes from the line of Tim Switzer from KBW. Go ahead. Hey, good afternoon. Thank you guys for taking my question. Hi, Tim. Hi, Kevin.

Speaker Change: One moment, please, for your first question.

Speaker Change: Our first question comes from the line of Tim Switzer from KBW. Go ahead, please.

Speaker Change: Hey, good afternoon. Thank you guys for taking my questions.

Speaker Change: Hi, Tim. Hi, Tim.

Timothy Jeffrey Switzer: My first question is related to the reserve bill this quarter. I mean, the credit performance overall looked pretty solid. And you guys provided a little bit of commentary about the reserve. It was related to small business loans and all that. Could you provide just a little bit of... more color, I guess, on what you're seeing, underline all that? And was this kind of more driven by the loan growth or some qualitative reserves you guys decided to take? It was probably a little bit of both.

Timothy Jeffrey Switzer: My first question is related to the reserve bill this quarter. I mean, the credit performance overall looked pretty solid. And you guys provided a little bit of commentary about the reserve.

Speaker Change: It was related to small business loans and all that. Could you provide just a little bit of more color, I guess, on what you're seeing underlying all that? And was this kind of more driven by the loan growth or some qualitative reserves you guys decided to take? Thank you.

David B. Becker: I would say there is some, I mean, there are several dynamics at play here. One is, you just had growth to begin with, and some of it, too, is just the migration of the portfolio. You know, if you look year over year, some of our portfolios that have lower coverage ratios, like residential mortgage, public finance, even healthcare finance, those balances are down, and they're being replaced by construction and SBA, and franchise that have higher coverage ratios. So some of that is just a migration there on a build there.

Speaker Change: It was probably a little bit of both. I would say there is some, I mean, there's several dynamics at play here. One, you just, you had growth to begin with.

Speaker Change: And some of it too is just the migration of the portfolio. If you look year over year, some of our portfolios that have lower coverage ratios, like residential mortgage, public finance,

Speaker Change: even Health Care Finance. I mean those balances are down and they're being replaced by construction and SBA and franchise that have higher

Speaker Change: coverage ratio. So some of that is just a migration there on a build there. And in SBA too, we took a look at, we just

David B. Becker: And in SBA, too, we took a look at where our Q factors were and adjusted some of those upward just to start, just to be building some extra reserve there. We also, as Ken stated, in the last couple of days of the month, we had like $60 million in loans closed in the last two days of the month. So we had, even though they didn't show up and offset any of the interest income, we took the full expense for the loan loss reserve on those on the final two days. So that kind of...

Speaker Change: You know, looked at where our Q factors were and adjusted some of those upward just to start, just to be building some extra reserve there.

Speaker Change: We also, as Ken stated, in the last couple days of the month, we have like $60 million in loans closed.

Speaker Change: The last two days of the month. So we had, even though they didn't show up and offset any of the interest income, we took the full expense for the loan loss reserve on those on the final two days.

David B. Becker: Confounded things a little bit, but part of it was timing, as Ken just said. Part of it was re-evaluation on the portfolios, and again, the change in mix. SBA, commercial real estate, and stuff had much higher reserving factors, C&I, than the public finance in the other portfolios. Yeah, okay, that that's helpful.

Speaker Change: convoluted things a little bit, but part of it was timing, as Ken just said, part of it was re-evaluation on the portfolios and again the change in mix.

Speaker Change: SBA, commercial real estate and stuff have much higher reserving factors, C&I, than the public finance and the other portfolios.

Timothy Jeffrey Switzer: Um, and then I wanted to ask you about your Fintech BAS initiative. And you know, you're getting very good growth on the deposit side. We're seeing it come through with the revenue. How has the... more intense regulatory environment changed at all how you have decided to run the business, and has it altered your investment plans at all? Has it either maybe caused more customers to be more cautious or maybe even some potential customers to come to you given the difficulties some competitors are having? You hit just about everything there, Tim, that I think you could hit on that's going on in the BASC space.

Speaker Change: Okay, that's helpful. And then I wanted to ask about...

Speaker Change: with your fintech BAS initiative and that you know you're getting very good growth on the deposit side. We're seeing it come through at the revenue.

Speaker Change: How is the...

Speaker Change: More intense regulatory environment changed at all how you have decided to run the business and you know has it altered your investment plans at all or

Speaker Change: Has it either maybe caused more customers to have either more caution or maybe even some potential customers come to you given the difficulties some competitors are having?

Speaker Change: You hit just about everything there, Tim. I think you could hit what's going on in the BASC space. Regulatory scrutiny is off the charts, no question about that.

David B. Becker: Regulatory scrutiny is off the charts, no question about that. But 90% of that we were already doing. They have, I will tell you, finally, during this last quarter, defined guidelines a lot better as to how we should interact with the FinTechs and the Banking as a Service products. So we have a much better roadmap than we've had from the beginning of time in this space, which we're complying with. And I will tell you, our due diligence has stepped up because of some of the things that are going on in the industry. If there's a common theme from some of our prospects, it's, oh my God, nobody ever asks us this question.

Speaker Change: Ninety percent of that we were already doing. They have, I will tell you, finally...

Speaker Change: And during this last quarter, defined guidelines a lot better as to how we should interact with the FinTechs and the Baking as a Service product. So we have a

Speaker Change: much better roadmap than we've had from the beginning of time in this space.

Speaker Change: which we're complying with.

Speaker Change: And I will tell you, our due diligence has stepped up because of some of the things that are going on in the industry. If there's a common theme from some of our prospects, it's, oh my God, nobody ever asks us this question. Why are you guys digging in so deeply? And, you know, I've been in and around the software business, particularly software as a service.

David B. Becker: Why are you guys digging in so deeply? You know, I've been in and around the software business, particularly software as a service, my whole life, practically. And so I understand where some of the pitfalls and issues are, and we're digging in deeper, and the market has changed, not just pure growth. They want the FinTechs to show a path to profitability, so that's changed a lot of the focus and timing and play.

Speaker Change: My whole life, practically, so I understand where some of the pitfalls and issues are, and we're digging in deeper, and the market has changed.

Speaker Change: not to just pure growth. They want the fintechs to show a path to profitability. That's changed a lot of the focus and timing and play.

David B. Becker: I don't think until the dust settles on the synapse issues and everybody gets a true handle on what's going on there, I don't see a lot of... tremendous growth for people taking risks until they can kind of figure out what blew up and what went wrong there. But, as I said in my comments, we've got some phenomenally good quality fintech and banking-as-a-service clients, and they're all growing. We have $8 billion in ACH clearings.

Speaker Change: I don't think until the desk settles on the synapse issues and everybody gets a true handle on what's going on there. I don't see a lot of...

Speaker Change: Tremendous growth of people taking risk until they can kind of figure out what blew up and what went wrong there. But as I said in my comments...

Speaker Change: We've got some phenomenally good quality fintechs and banking as a service clients, and they're all growing.

David B. Becker: The lending side is a little slower than the deposit side, but it's catching up speed here quickly. So we've got plenty on the plate. We'll hit the numbers we had projected, and we're real comfortable where we're at. You were spot-on on your kind of last comment.

Speaker Change: 8 billion in ACH clearings.

Speaker Change: The lending side is a little slower than the deposit side, but it's catching up speed here quickly.

Speaker Change: So...

Speaker Change: We've got plenty on the plate. We'll hit the numbers we have projected.

Speaker Change: We're real comfortable where we're at. You were spot on on your kind of last comment.

David B. Becker: We are starting to get inquiries as the dust settles with Synapse and Evolve. People are looking for either a backup source or potentially a new source. We had a client we were talking with, Nicole and I, just a couple days ago. There was another vendor, we're getting about a third of their business; they're thinking about moving, and switching roles. We would get two-thirds; the other vendor would get a third. So everything's on the table right now; we're adjusting it one by one as we go. Okay, yeah, that's interesting. I appreciate your thoughts on it. I'll get back in the queue.

Speaker Change: starting to get inquiries as the dust is settling with Synapse, and of all people are looking for either a backup source or potentially a new source.

Speaker Change: We had a client we were talking with, Nicole and I, just a couple of days ago. There was another vendor, we're getting about a third of their business, they're thinking about moving, switching roles. We would get two-thirds, the other vendor would get a third. So everything's on the table right now, we're addressing them one by one as they come up.

Speaker Change: Okay, yeah, that's interesting. I appreciate your thoughts on it. I'll get back in the queue.

Operator: Thank you. Our next question comes from the line of George Sutton from Craig Hallam. Go ahead.

Speaker Change: Thank you. Our next question comes from the line of George Sutton from Craig Hallam. Go ahead, please.

George Frederick Sutton: Thank you, Ken. I was pleased to hear that you still seem comfortable with the $3 number for the year, even in a zero rate change environment. I just want to clarify anything that you're building into expectations that may be different in the second half. Um, you know, Not really, George.

George Frederick Sutton: Thank you. Ken, I was pleased to hear that you still seem comfortable with the $3 number for the year, even with a zero-rate change environment. I just want to clarify anything that you're building into expectations that may be different in the second half.

Kenneth J. Lovik: I mean, I think we still again, as we've seen the SBA business grow, we've seen the non-interest income continue to go up. Obviously, there's a little bit of an offset on the expense side with that. But what SBA is doing is tracking and exceeding, even exceeding, what we forecast. And on the non-interest income side as well, I mean, we continue to forecast that that's just going to continue to stair-step up through the rest of the year. So in terms of that outlook, there's really, really not a lot that has changed.

Kenneth J. Lovik: You know, not really, George. I mean, I think we still, again,

Speaker Change: As we've seen the SBA business grow, we've seen the non-interest income continue to go up. Obviously, there's a little bit of offset on the expense side with that. But what SBA is doing is tracking and exceeding, even exceeding to what we forecast.

Speaker Change: and on the non-interest income side as well. I mean, we continue to forecast that that's just going to continue to stair-step up through the rest of the year or so. In terms of that outlook, there's really not a lot has changed.

David B. Becker: One of the things that's helping that forecast, and I guess just our confidence level, George, is the bump up in the commercial real estate, quoted that we have over $500 million in the pipeline. So that's a big, big opportunity for us, and a lot of that will start to actually be drawn down and put to work here in the second quarter of the year. What we hope doesn't happen to us this past quarter, we had two or three that we were kind of anticipating hanging onto for a few months that were bought in the secondary market. We're doing the construction side. We're not doing permanent financing on those products.

Speaker Change: One of the things that's helping that forecast, I guess, just our confidence.

Speaker Change: level. George is the bump up on the commercial real estate. He quoted that we have over $500 million in the pipeline.

Speaker Change: That's a big, big opportunity for us, and a lot of that will start to actually be drawn down and put to work here in the second quarter of the year. What we hope doesn't happen to us this past quarter, we had two or three that we were kind of anticipating hanging onto for a few months that were bought in the secondary market. We're doing the construction side.

David B. Becker: So there's still good demand for, particularly warehouse refrigeration systems, et cetera, which is kind of the market we're playing in. So we lost a couple big assets we were hoping to hang onto for a few more months, but we do have a great pipeline of activity coming up. We've grown that by over 25% just in the first half of the year compared to year-end. We already talked a little bit about the FinTech opportunities continuing to grow.

Speaker Change: doing permanent finance on those products. So there's still a good demand for particularly warehouse refrigeration systems, etc., which is kind of the market we're playing in. So we lost a couple big assets we were hoping to hang on to for a few more months.

Speaker Change: But we do have a great pipeline of activity coming up. We've grown that by over 25% just in the first half of the year compared to year-end.

David B. Becker: So there's a lot of positive in what we're doing today, and if the Fed makes a move, and there's more and more dialogue on a daily basis, that would be just icing on the cake. So, David, you keep building bigger and bigger goals for your SBA lending, and you're now the sixth largest. I'm curious, how much bigger do you imagine SBA could be for you? I just met with the two leads of that department yesterday, and they said, okay, what kind of number are you going to throw out here?

Speaker Change: We already talked a little bit about the fintech opportunities continuing to grow, so there's a lot of positive in what we're doing today, and if the Fed makes a move, and that's more and more dialogue on a daily basis, that would be just icing on the cake.

Speaker Change: So, David, you keep building bigger and bigger goals for your SBA lending, and you're now the sixth-largest. I'm curious, how much bigger do you envision SBA could be for you?

Speaker Change: I just met with a...

David B. Becker: to lead to that department yesterday, and they said, okay, what kind of number are you going to throw out here? I think we can very easily get to that probably 500 million mark this year, maybe a little higher. I foresee possibilities in the next 18 to 24 months that could move up to a billion a year.

George Frederick Sutton: I think we can very easily get to that probably 500 million mark this year, maybe a little higher. I foresee possibilities in the next 18 to 24 months that could move up to a billion per year. We really have no limitations, and at the current time, we're really spending a lot of time on the tech side. If there's any one piece of our business where tech is a little bit outdated, it's in the SBA world; nobody's changed anything. Some of the subsystems are almost green screen capability.

Speaker Change: We really have no limitations and at the current time we're really spending a lot of time on the tech end side. If there's any one piece of our business where tech is

Speaker Change: A little bit outdated. It's in the SBA world. Nobody's changed anything. Some of the subsystems are almost green screen capability.

David B. Becker: So we're bringing in some new tools, we're doing some pretty cool things with Salesforce, we're doing some new things with spreading the loans, and so our efficiency is getting better day by day. And it's a situation in the last couple of years as we've had tremendous growth; we kind of threw bodies at it. Now we're starting to use technology, so it's getting easier, and people that really understand the SBA business are kind of hard to find in the marketplace.

Speaker Change: So we're bringing in...

Speaker Change: Some new tools, we're doing some pretty cool things with Salesforce, we're doing some new things and spreading the loans. And so our efficiency is getting better day by day.

Speaker Change: And it's a situation over the last couple of years as we've had tremendous growth, we've kind of thrown bodies at it.

Speaker Change: Now we're starting to throw technology, so it's getting easier, and bodies that really understand the SBA business are kind of hard to find in the marketplace. So we think the efficiencies we'll gain with the new tech will allow us to continue to push that number up. Are we going to double year over year like we have been? No, that's not going to happen.

David B. Becker: So we think the efficiencies we'll gain with the new tech will allow us to continue to push that number up. But are we going to double year over year like we have been? No, that's not going to happen.

George Frederick Sutton: That would be kind of foolish on our part, we'd get out over our skis for sure, but picking up a couple hundred million a year in new productivity is very, very doable. Just one quick question for Ken, you mentioned the termination of some tech contracts under your one-time expenses. Can you just give us a sense of what kind of technology that is and whether you are reducing capabilities or changing capabilities there? Thanks, guys.

Speaker Change: That would be kind of foolish on our part. We'd get out over our skis for sure, but picking up a, you know, a couple hundred million a year in new productivity, that's very, very doable.

Kenneth J. Lovik: Just one quick question for Ken. You mentioned the termination of some tech contracts under your one-time expenses. Can you just give us a sense of

Speaker Change: What kind of technology that is and are you reducing capabilities or changing capabilities there? Thanks guys

George Frederick Sutton: Yeah, no, these actually relate to one of the platform partners we were working with in the fintech partnership space, where it was a company that changed its business model, and we weren't getting a lot of traction with them. So we just exited the agreement and had to write off some of our some of the software investment in that, but it has nothing to do with any of our internal bank tech or any of our investments in, you know, account opening on the deposit side or small lending or anything like that.

Kenneth J. Lovik: Yeah, no, these actually relate to one of the platform partners we were working with in the fintech partnership space where they just, it was a company that changed its business model and we weren't getting a lot of traction with them.

Kenneth J. Lovik: So we just exited the agreement and had to write off some of the software investment in that. But it has nothing to do with any of our internal bank tech or any of our investments in, you know, account opening on the deposit side or small lending or anything like that.

George Frederick Sutton: The other big piece of it, George, was a product we were in the queue for from PyServe, and we actually, over the almost years of installation on that, we found another alternative to a better product. There was a, we had a write-down of that particular piece of software.

Kenneth J. Lovik: The other big piece of it, George, was a product we were in the queue from PyServe and we actually

Kenneth J. Lovik: years of installation on that, we found another alternative on a better product.

Kenneth J. Lovik: They're working with us to give us a credit against future maintenance, so there's a chance that's going to come back as a positive to us. But yeah, as Ken said, we're not cutting back on any technologies. We had a third-party vendor that just didn't get the relationship going.

Kenneth J. Lovik: We had a write-down of that particular piece of software. They're working with us to give us a credit against future maintenance, so there's a chance that's going to come back.

Kenneth J. Lovik: As Ken said, we're not cutting back on any technologies. We had a third-party vendor that just didn't get the relationship going.

George Frederick Sutton: Great. Thanks, guys. Appreciate it. Thank you, George. Thank you. Our next question comes from the line of Nathan Race from Piper Sandler. Go ahead, please. Hi, guys. Good afternoon. Thanks for taking the call. Hey, Nate.

Speaker Change: Great. Thanks, guys.

George Frederick Sutton: Appreciate it. Thanks, George.

Speaker Change: Thank you. Our next question comes from the line of Nathan Race from Piper Sandler. Go ahead, please.

Operator: I'm just curious, you know, just going back to the SBA discussion, how you guys are thinking about that revenue trajectory in the back half of the year. I imagine it may be difficult to replicate the production in 2Q, but just any thoughts on how you guys are thinking about kind of year-over-year growth in SBA revenue in 24. You know, I think, obviously, we had a very, very strong quarter this past quarter, and I think, right, you know, our forecast right now for the third quarter actually has that going up a little bit from there. The fourth quarter is sometimes a little bit softer there, so that's probably not quite as high as the third quarter, but probably more in line there, maybe a little bit higher than the second quarter.

Nathan James Race: Hi, guys. Good afternoon. Thanks for taking the questions.

Nathan James Race: Just curious, you know, just going back to the SBA discussion, how you guys are thinking about that revenue trajectory in the back half of the year. I imagine it may be difficult to replicate the production in 2Q, but just any thoughts on how you guys are thinking about kind of year-over-year growth in SBA revenue in 24?

Nathan James Race: You know, I think, you know, obviously we had a very, very strong quarter in

Nathan James Race: in this past quarter.

Speaker Change: And I think, right, you know, our forecast right now for third quarter actually has that going up a little bit from there.

Speaker Change: Fourth quarter is sometimes a little bit softer there, so that's probably not quite as high as the third quarter, but probably

Nathan James Race: So I think as we've continued, you know, our origination volume, it's not static throughout the year. It's been continuing to grow, and so we're just continuing to see that on the revenue side, but I think we feel really good that we've gotten to a level where we can just maintain a consistently higher level of originations, and the team continues to look at and add high-quality salespeople. Okay, that's great to hear.

Speaker Change: Probably more in line. They're maybe a little bit higher than the second quarter So I think as we've continued, you know our origination volume, it's it's not static throughout the year it's been continuing to grow and

Speaker Change: So we're just continuing to see that on the revenue side, but I think we feel really good that we've gotten to a level where we can just maintain a consistently higher level of originations and the team continues to look at and add high quality salespeople.

Nathan James Race: And then maybe just turn to expenses, you know, if we exclude some of the one-time items in the quarter, kind of around 22 in the back half of the year, how do you guys kind of think about the run rate? trending in 3Q and 4Q. I'd like to remind you guys to factor in, as that SBA continues to grow, there is a cost to that on the commission side. We will see, certainly it's not dollar for dollar with revenue, but you will see the costs go up on the salaries and employee benefits line item. So you're probably getting close to 22 to maybe a little bit over 22 in the fourth quarter as we continue to produce there. Okay. Very helpful.

Speaker Change: Okay, that's great to hear. And then maybe just turn to expenses, you know, if we exclude some of the one-time items in the quarter.

Speaker Change: You're kind of around 22 in the back half of the year. How do you guys kind of think about the run rate trending in 3Q and 4Q?

Speaker Change: You know, it's probably one of the things that you, you know, I'd like to remind you guys to factor in, though, is as that SBA continues to grow, there is a cost to that on the commission side. So we will see, now certainly it's not dollar for dollar with revenue, but you will see the costs go up.

Speaker Change: on the salaries and employee benefits line item. So you're probably getting close to 22 to maybe a little bit over 22 in the fourth quarter as we continue to produce there.

Nathan James Race: And then just any updated thoughts on the buyback, obviously, the stock's still trading below tangible book value, but you guys are also growing, you know, organically, pretty nice clip. So just curious to hear how you guys are thinking about that appetite these days. Well, as we get closer and closer to 40 on the trading side, we're thinking less and less about the stock buyback side of things. Quite honestly, right now, we're really kind of focused on getting the Tier 1 capital back up above 7%, including the markdown on the security side.

Speaker Change: Okay, got it. Very helpful. And then just any updated thoughts on the buyback. You know, obviously the stock is still trading below tangible book value, but you guys are also growing, you know, organically. Pretty nice clips. So just curious to hear how you guys are thinking about that appetite these days.

Speaker Change: Well as we get closer and closer to 40, the trading side, we're thinking less and less about the stock buyback side of things.

Speaker Change: Quite honestly, right now we're really kind of focused on getting

Speaker Change: The Tier 1 capital is back up above 7%.

Speaker Change: including the markdown on the security side, so unless rates really start to plummet.

Nathan James Race: So unless rates really start to plummet at the Fed level, which brings down our mark-to-market, we probably won't be doing any share buybacks, at least here in the third quarter. We'll reevaluate when the fourth quarter comes around, but I wouldn't forecast any for the third quarter. Okay, got it. And then maybe, Ken, can you just remind us in terms of the margin impact with each 25 cut from the Fed, particularly as it relates to what you have that moves immediately within the loan book and then what also reprices down kind of one for one within deposits? Yeah, let me try it.

Speaker Change: On the Fed level, which brings down our mark-to-market, we probably won't be doing any share buybacks, at least here in the third quarter. We'll reevaluate when the fourth quarter comes around, but I wouldn't forecast any for the third quarter.

Speaker Change: Okay, got it. And then maybe, Ken, can you just remind us in terms of the margin impact with each 25 cut from the Fed, you know, particularly as it relates to what you have that moves immediately within the loan book and then what also reprices down kind of one-for-one within deposits?

Kenneth J. Lovik: Yeah, there are a couple different ways to look at this. And maybe just to think about, you know, on the deposit side, we got about $1.1 billion of deposits that would have 100% beta with a Fed rate cut. And then we probably got another, I call it 800 to 900 million, that's maybe a 40 to 50% beta. And then we probably will have another 1.3 billion CDs that mature over the course of the next year.

Kenneth J. Lovik: Yeah, let me, yeah, there's a couple different ways to look at this and maybe just to think about, you know, on the deposit side, we got about $1.1 billion of deposits that will have 100% beta with a Fed rate cut.

Kenneth J. Lovik: And then we probably got another, I call it 800 to 900 million, that's maybe a 40% to 50% beta. And then we have another 1.3 billion of CDs that mature over the course of the next year.

Kenneth J. Lovik: So I think that that provides a lot of earnings potential for, for rates, you know, should, you know, when and if the Fed begins to cut rates. If we kind of look at it over the course of a 12-month period, you know, kind of an annualized 25 basis point cut, that could benefit net interest income as much as $2.8 million. Okay.

Kenneth J. Lovik: So I think that provides a lot of earnings potential for rates, you know, when and if the Fed begins to cut rates.

Kenneth J. Lovik: If we kind of look at it over the course of a 12-month period, you know, kind of an annualized 25-basis point cut, that could benefit net interest income as much as $2.8 million.

David B. Becker: We've given you guys the kind of $700,000 figure before, which was really, as Ken said, just looking at the stuff that's pegged off at funds; we really didn't bring in the CD portfolio to that mix. But as it's getting more and more likely something could happen here in September, Ken's team dug a little deeper here in the last few days, anticipating this question was coming up. And when we throw in that CD repricing, that would happen over the next 12 months. And the $2.8 million? You can't split that into four equal quarters and have the same impact.

Kenneth J. Lovik: Okay. We've given you guys the kind of $700,000 figure prior, which was really, as Ken said, just looking at the stuff that's pegged off at funds. We really didn't bring in the CD portfolio to that mix, but as it's getting more and more likely something could happen here in September .

Speaker Change: Ken's team dug a little deeper here in the last few days Anticipating this question was coming up

Kenneth J. Lovik: And when we throw in that CD repricing, that would happen over the next 12 months. And the $2.8 million, you can't split that into four equal quarters and have the impact.

Kenneth J. Lovik: There'll be $300,000 to $400,000 in the first quarter, $600,000 to $700,000 in the second quarter, et cetera. As the CDs roll over, that's where a big, big part of that impact is going to come in. Just pure cash and the money markets and stuff that are pegged to Fed funds, that's worth $700,000 over the course of the year.

Kenneth J. Lovik: There will be $300,000 to $400,000 in the first quarter.

Kenneth J. Lovik: 6 to 7 in the second quarter, etc. As the CDs roll over, that's where a big, big part of that impact is going to come in. So just pure cash and the money markets and stuff that are pegged

Nathan James Race: Then the rolling of the CDs will bring in another $2 billion or $2 million plus. It's a big number. And if we can get a couple, two, or three rolls here this year or early next year, it could be very impactful in 2025. Yep, definitely. Just one last housekeeping question.

Kenneth J. Lovik: to Fed funds that's worth $700,000 over the course of the year. And the rolling of the CDs will bring in another $2 billion or $2 million plus.

Kenneth J. Lovik: So it's a big number, and if we can get a couple, two or three rolls here yet this year or early next year, it could be very impactful in 2025.

Nathan James Race: Any updated thoughts on the tax rate going forward? I think last quarter we were talking somewhere in the 8 to 10 percent range. Yeah, I would say, you know, that's probably, maybe as we kind of build income as we get kind of into the fourth quarter with kind of that step up in earnings, it's probably not, you know, maybe the 8% would be good in the fourth quarter. I think right now we still get a pretty nice benefit from the tax, the tax benefit from the public finance portfolio.

Speaker Change: Yep, definitely. Just one last housekeeping question. Any updated thoughts on the tax rate going forward? I think last quarter we were talking somewhere in the eight to ten percent range.

Speaker Change: Yeah, I would say, you know, that's probably maybe, as we kind of build income, as we get kind of into the fourth quarter with kind of that step up in earnings, it's...

Speaker Change: Probably not, you know, maybe the 8% would be good in the fourth quarter.

Speaker Change: I think right now we still get a pretty nice tax benefit from the public finance portfolio.

Kenneth J. Lovik: So fortunately, from a tax perspective, that's been allowing us to keep the tax rate low. You know, probably a 4 to 5% here in the next quarter is probably applicable, probably appropriate, and kind of just move that up as earnings go up. Okay.

Speaker Change: Fortunately, from a tax perspective, that's been allowing us to keep the tax rate low. Probably a 4 to 5 percent here in the next quarter is probably applicable, probably appropriate, and kind of just move that up as earnings go up.

Nathan James Race: And then, sorry, just one last clarifying question. Ken, your guidance for loan yields to expand was 10 to, I'm sorry, 15 to 20 basis points in the fourth quarter. That does not include the impact of a Fed rate cut on your floating rate vote. No, not at all.

Speaker Change: Okay, got it. And then, sorry, just one last clarifying question. Ken, your guidance for loan yields to expand, I believe it was 10 to, I'm sorry, 15 to 20 basis points in the fourth quarter. Yeah. That does not include the impact of a Fed rate cut on your floating rate book?

Kenneth J. Lovik: No, that does not work. Okay, great. Sounds good. I appreciate all the color.

Speaker Change: No, not at all. No, that does not.

Speaker Change: Okay, great. Sounds good. I appreciate all the color. Thanks guys. Okay. Thanks, Nate. Thank you, sir.

Nathan James Race: Thanks, guys. Okay. Thanks, Nate. Thank you, sir. Thank you. Our next question comes from the line of Brett Rabatin from Hefty Group. Go ahead. Hey guys, good afternoon. Hey Brett.

Speaker Change: Thank you. Our next question comes from the line of Brett Rabatin from Hefty Group. Go ahead, please.

Operator: Hey, how are you doing, sir? Good. I wanted to go back to the NII guidance of 20% for the full year. And when I look at the margin guidance of 190 to 2% by the fourth quarter, assuming the high end of that range and just a tiny bit of balance sheet growth, I'd be shy of that 20%. How much balance sheet growth? I know the balance sheet's obviously been managed, um, and you've had excess liquidity, but how much balance sheet growth are you guys looking for in the back half of the year? So that's what we're thinking about on the loan side.

Brett D. Rabatin: Hey, guys. Good afternoon.

Speaker Change: Hey, Brett. Hey, how are you doing, sir?

Brett D. Rabatin: Good. Wanted to go back to the NII guidance of 20% for the full year. And when I look at the margin guidance of 190 to 2% by the fourth quarter, I assume the high end of that range.

Speaker Change: and just a tiny bit of balance sheet growth. I'd be shy of that 20%. How much balance sheet growth? I know the balance sheet's obviously been managed.

Speaker Change: and you've had excess liquidity, but how much balance sheet growth or?

Speaker Change: You guys looking forward in the back half of the year? Well, I think, you know, I think one of my comments earlier in the call was, you know, we're forecasting loan balances to be up, you know, seven and a half to

Speaker Change: Somewhere between seven and a half to ten percent, and you're probably, you know, the model right now probably says it's closer to, say, nine-ish than the seven and a half.

Speaker Change: So that's what we're thinking about on the loan side.

Brett D. Rabatin: You know, overall balance sheet growth is going to be somewhat less than that just because cash balances will be lower. But there's probably a little bit of growth in securities balances as well. But, you know, I guess maybe if you plug in the loan growth, and I don't know what that does for your average balances, but our average balances are probably up a little bit higher than perhaps what your model has.

Speaker Change: You know, overall balance sheet growth is going to be somewhat less than that just because cash balances will be lower.

Speaker Change: You know, there's probably a little bit of growth in securities balances as well.

Speaker Change: But, you know, I guess maybe if you plug in the loan growth, and I don't know what that does for your average balances, but our average balances are probably up a little bit higher than perhaps what your model has.

Kenneth J. Lovik: OK. And I guess I will say, sorry, Brett, one thing I'd probably just say is to go back to the timing, you know, this is a topic, it was on one of George's questions and David talked about the loans that we had pay down in the quarter, so probably a little bit of there may be a little in between third quarter and fourth quarter some timing difference, but I think by the time we get through the fourth quarter and feel really good about that and get to the end of the year, that 20% growth in NII is still what we're on track to do, and that margin guidance I gave you for the fourth quarter is exactly where we are today in our models. And then just wanted to go back to, you know, I know you have the CDs maturing in the third quarter at, you know, 5.05%. Where are you guys being able to produce new CDs? currently in terms of rate, and then just how do you fund the balance sheet growth from here? Is it going to be bass?

Speaker Change: Okay.

Brett D. Rabatin: And I guess I will say, sorry Brett, one thing I'd probably just say is to go back to the timing.

Speaker Change: You know, this is a topic, it was on one of George's questions and David talked about the loans that we had pay down.

Speaker Change: in the quarter, so probably a little bit of, there may be a little, in between third quarter and fourth quarter, some timing difference, but I think by the time we get through the fourth quarter and feel really good about that and get to the end of the year, that 20% growth in NII is still what we're on track to do.

Speaker Change: And that margin guidance I gave you for the fourth quarter is exactly where we are today in our models.

Speaker Change: Okay.

Speaker Change: That's so cool.

Speaker Change: And then just wanted to go back to, you know, I know you have the CDs maturing in the third quarter at, you know, 5.05%. Where are you guys being able to produce new CDs?

Speaker Change: Currently, in terms of rate, and then just how do you fund the balance sheet growth from here? Is it going to be bass? Is it going to be CDs? Are you looking for growth in some of the lower cost pieces of the businesses?

Kenneth J. Lovik: Is it going to be CDs? Are you looking for growth in some of the lower cost pieces of the business? On the like new like new production coming in the door for CDs is actually being, you know, right now coming in at about 485, and that's across different types. Usually, what we're seeing is there's a big piece of that in one year, and then we're seeing people go out four and five years on that. So it's kind of a call it a two year average duration.

Speaker Change: On the like brand new like new production coming in the door for CDs is actually being you know right now coming in at about $4.85.

Speaker Change: and that's across different you know usually what we're seeing is there's there's a big piece of that in one year and then we're seeing people go out four and five years on that so it's kind of a call it a two-year average duration and that's been pretty consistent now for about four or five months.

Kenneth J. Lovik: And that's been pretty consistent now for about four or five months. The one thing that does impact that is the renewal rate, and sometimes that's a little bit hard to predict because not everybody renews. Sometimes we'll see a one-year CD that they call in on, and they want to renew, but they move to a five-year product or vice versa.

Speaker Change: The one thing that does impact that is the renewal rate and sometimes that's a little bit hard to predict because not everybody renews. Sometimes we'll see a one-year CD that they call in and they want to renew but they move to a five-year product or vice versa.

Kenneth J. Lovik: So that piece is a little bit hard to predict, but new production coming in the door today is $4.85. And I think what you'll continue to see on the deposit side, I think with the CDs have been growing. Probably slowed down a little bit of growth there, but there's still production there.

Speaker Change: So that piece is a little bit hard to predict, but new production coming in the door today is 485.

Speaker Change: And I think what you'll continue to see on the deposit side, I think, with the CDs have been growing.

Speaker Change: probably slowed down a little bit of growth there, but there's still production there. We're still, we're usually not at the top of the rate board, but we're competitive. And we are seeing good production on the FinTech partnership side. So I think, again, that probably

Kenneth J. Lovik: We're still, we're usually not at the top of the rate board, but we're competitive. And we are seeing good production on the FinTech partnership side. So I think, again, that probably going forward, you might see a little bit more growth on the FinTech side than on the CD side. But maybe, in the near term, it might be a little bit balanced between the two. Okay.

Speaker Change: Probably going forward you might see a little bit more growth on the fintech side than the CD side But maybe here in the near term it might be a little bit balanced between the two

Brett D. Rabatin: And then just lastly, for me, you know, thinking about the back half of the year, one of the headwinds to your loan growth has been single tenant, lease financing, public finance, health care finance, you know, having decreases. Are you expecting those to stop declining from here? Or any thoughts on some of the pieces of the portfolio that have been, Well, some of that's by design a little bit because with the inverted yield curve, doing longer term fixed rate products hasn't made a whole lot of sense.

Speaker Change: Okay.

Speaker Change: And then just lastly for me, you know, thinking about the back half of the year, you know, one of the one of the headwinds for your lung growth has been single-tenant.

Speaker Change: lease financing, public finance, health care finance, you know, having, having decreases. Are you expecting those to stop declining from here or any thoughts on some of the pieces of the portfolio that have been shrinking?

Brett D. Rabatin: And then you just have market competition for this, single tenants. A good example, you have, you know, other competitors in that space who are pricing deals that don't make sense for us. I mean, we have been opportunistic there; our team is still out working. And if we can get a good deal that fits within our pricing parameters, we'll do it. You know, the same thing applies to public finance as well.

Speaker Change #100: Well, some of that is some of that's by by design a little bit because with the inverted yield curve, doing longer term fixed rate product hasn't made a whole lot of sense. And then you just have market competition to this is single tenants. A good example you have

Speaker Change #100: other competitors in that space who are pricing deals

Speaker Change #100: that don't make sense for us. I mean, we have been opportunistic there. Our team is still out working. And if we can get a good deal that fits within our pricing parameters, we'll do it.

Brett D. Rabatin: It's supply in the public finance world is down; the municipalities just aren't offering, you know, issuing as much debt as they have in the past because they're sitting on a lot of stimulus money. So there just haven't been a lot of opportunities there.

Speaker Change #101: You know, the same thing for public finance as well. There's supply in the public finance world is down. The municipalities just aren't issuing as much debt as they have in the past because they're sitting on a lot of stimulus money.

Speaker Change #101: So there just haven't been a lot of opportunities there. And then what is there, you know, it's really, a lot of it's been going to the public market because people are starved to buy muni bonds and there's a lot of competition. So I think when, you know, when and if, knock on wood, we eventually get to the point where we have a normalized yield curve.

Kenneth J. Lovik: And then what is there, you know, it's really a lot of it that's been going to the public market because people are starved for muni bonds. And there's a lot of competition. So I think when we know when and, if, knock on wood, we eventually get to the point where we have a normalized yield curve.

Speaker Change #101: and the activity in those channels picks up and is priced rationally, then I think we'll be back in those markets.

Operator: Jones, those channels picks up and is priced rationally, then I think we'll be back in those markets. Okay, that's all.

Brett D. Rabatin: And, and, and there, you know, if the activity in those those channels picks up and is priced rationally, then I think we'll be back in those markets. Okay, that's helpful. Thanks for all the color, guys. Appreciate it. Thank you, sir. Thank you. There seem to be no further questions at this time.

George Frederick Sutton: Thanks for all the color, guys. Appreciate it. Thanks, sir.

Speaker Change #102: Okay, that's helpful. Thanks for all the color, guys.

Speaker Change #103: Appreciate it. Thanks, sir.

Operator: Thank you.

Speaker Change #104: Thank you.

David B. Becker: I'd now like to turn the call back over to Mr. David Becker for his final closing comments. Thank you, Larry. Thank you for joining us on today's call. Given our strong first half and current pipelines, we're extremely optimistic about our outlook for the remainder of the year. Our commercial consumer teams are still working hard, as Ken just said, to drive revenue and growth and greater diversification. When you add in the stabilized deposit costs, we really have a clear pathway to finishing the year really strong and profitable. The optimism is not considering Fed rate cuts, which when they do happen, could provide a really strong acceleration to growth and net interest income and net interest margin.

Speaker Change #104: There seems to be no further questions at this time. I'd now like to turn the call back over to Mr. David Becker for final closing comments.

Laura: Thank you, Laura.

David B. Becker: As always, as fellow shareholders, we remain committed to driving improved profitability and enhanced shareholder value. We thank you for your support, your time today, and wish you a good afternoon. Thanks, guys. Thank you, sir. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a lovely day.

David B. Becker: Thank you for joining us on today's call, given our strong first half and current pipelines. We're extremely optimistic about our outlook for the remainder of our year. Our commercial consumer teams are still working hard. This can just fit to drive revenue and growth greater diversification. When you add in the statewide deposit costs, we really have a clear pathway to finish in the year, really strong and profitable. The optimism is not considering Fed Rick Cuts, which when they do happen good to provide a really strong acceleration to growth in that interest and come in that interest margin.

David B. Becker: Thank you, Lyra.

David B. Becker: Thank you for joining us on today's call. Given our strong first half and current pipelines, we're extremely optimistic about our outlook for the remainder of our year.

David B. Becker: Our commercial consumer teams are still working hard, as Ken just said, to drive revenue and growth.

Kenneth J. Lovik: Greater diversification. When you add in the stabilized deposit costs, we really have a clear pathway to finishing the year really strong and profitable.

Speaker Change #108: The optimism is not considering Fed rate cuts, which when they do happen could provide a really strong

Brett Rabatin: As always, as fellow shareholders, we remain committed to driving the improved profitability and enhanced shareholder value. We thank you for your support.

Speaker Change #107: Acceleration to Growth and Net Interest Income and Net Interest Margin.

Speaker Change #105: As always, as fellow shareholders, we remain committed to driving the improved profitability and enhanced shareholder value. We thank you for your support, your time today, and wish you a good afternoon. Thanks, guys.

Operator: You're time today and wish you a good afternoon.

Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask which are please disconnect your lines.

Speaker Change #106: Thank you, sir. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your line.

Operator: Have a lovely day.

Speaker Change #106: Have a lovely day.