Q2 2024 ConnectOne Bancorp Inc Earnings Call
Thank you for standing by at this time. I'd like to welcome everyone to the ConnectOne Bancorp Inc. second quarter 2024 earnings call.
Unknown Executive: All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you'd like to withdraw your question, press star one again. Thank you. I'd now like to turn the call over to Siya Vansia, Chief Brand and Innovation Officer. Please go ahead.
All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad. If you'd like to withdraw your question, press star 1 again. Thank you.
I'd now like to turn the call over to Siya Vansia, Chief Brand and Innovation Officer. Please go ahead.
Siya Vansia: Good morning and welcome to today's conference call to review ConnectOne's results for the second quarter of 2024 and to update you on recent developments. On today's call will be Frank Sorrentino, Chairman and Chief Executive Officer, and Bill Burns, Senior Executive Vice President and Chief Financial Officer. I'd also like to caution you that we may make forward-looking statements during today's conference call that are subject to risks and uncertainties. Factors that may cause actual results to differ materially from expectations are detailed in our SEC filings.
Siya Vansia: The forward-looking statements included in this conference call are only made as of the date of this call, and the company is not obligated to publicly update or revise them. In addition, certain terms used in this call are non-GAAP financial measures, reconciliations of which are provided in the company's earnings release and accompanying tables or schedules, which have been filed today on Form 8K with the SEC and may also be accessed through the company's website.
Siya Vansia: I will now turn the call over to Frank Sorrentino. Frank, please go ahead. Thank you, Siya.
Frank S. Sorrentino: Thank you, Siya. We appreciate everyone joining us this morning. Navigating through the second quarter of 2024 with our commitment to playing offense, we delivered on our stated objectives. Supporting our clients remains the top priority for ConnectOne. As I've often reiterated, our relationship banking business model has allowed us to strengthen and expand our client base, enter new markets, and grow across various sectors. This disciplined philosophy also played a role in expediting the exit of non-relationship business in the first half of this year.
I will now turn the call over to Frank Sorrentino. Frank, please go ahead. Thank you, Siya. We appreciate everyone joining us this morning.
Frank S. Sorrentino: Navigating through the second quarter of 2024, with our commitment to playing offense, we delivered on our stated objectives.
Frank S. Sorrentino: Supporting our clients remain the top priority for ConnectOne. As I've often reiterated, our relationship banking business model has allowed us to strengthen and expand our client base, enter new markets, and grow across various sectors.
Frank S. Sorrentino: This disciplined philosophy also played a role expediting the exiting of non-relationship business in the first half of this year. Reflecting this commitment, ConnectOne's second quarter results were solid, and we believe are in the early stages of an upswing.
Frank S. Sorrentino: Reflecting this commitment, ConnectOne's second-quarter results were solid, and we believe they are in the early stages of an upswing. This position is further bolstered by the tailwinds forming in our industry, which include the expectation of lower short-term rates combined with improved market liquidity and recent cyclical rotation into regional banking. With that said, let's take a closer look at our recent operating performance. Driven by the efforts of our team and our dedication to the objectives we outlined at the start of the year, we're seeing continued deposit growth from both existing clients, as well as through the continued onboarding of new clients across New York, New Jersey, and our Florida market. We're optimistic that this trend will continue throughout the remainder of the year. Bill will walk us through some additional details in a few minutes.
Frank S. Sorrentino: I'd like to note that while reported deposits remained flat, client deposits increased while brokered deposits decreased. Turning to lending, quarterly origination levels are continuing at an annualized run rate in excess of a billion dollars, with C&I accounting for nearly half of that production. Notwithstanding the strong origination volume, our loan portfolio decreased sequentially, reflecting higher-than-usual paydowns and payoffs.
Frank S. Sorrentino: With that said, let's take a closer look at our recent operating performance.
Frank S. Sorrentino: Notwithstanding the strong origination volume, our loan portfolio decreased sequentially, reflecting higher-than-usual paydowns and payoffs.
Frank S. Sorrentino: This was driven by our strategy to actively manage non-relationship loans off our balance sheet and is intended to not only improve our loan-to-deposit ratio but also enhance our loan lid. Our credit metrics remain healthy, and for the quarter, non-accrual loans declined, while our criticized and classified loans, as well as our delinquencies, remained quite low. Next, during the quarter, we saw an increase in our net interest margin, which widened by eight basis points sequentially. And looking ahead, we expect continued net interest margin expansion. Bill, of course, will cover this in more detail.
Frank S. Sorrentino: Next, during the quarter, we saw an increase in our net interest margin, which widened by eight basis points sequentially, and looking ahead, we expect continued net interest margin expansion. Bill, of course, will cover this in more detail.
Frank S. Sorrentino: We continued momentum in driving sources of non-interest income and seeing improvements in a number of areas, including BowFly and our SBA platform. In addition, we also foresee potential future fee income opportunities through our lending platform. We expect this momentum to continue as we invest in each of these areas. As of June 30, 2024, our capital and our tangible book value per share increased once again, continuing to build capital flexibility, along with a fortified balance sheet.
Speaker Change: We continued momentum in driving sources of non-interest income and seeing improvements in a number of areas, including BowFly and our SBA platform. In addition, we also foresee potential future fee income opportunities through our lending platform.
Bill: We expect this momentum to continue as we invest in each of these areas.
Bill: As of June 30th of 2024, our capital and our tangible book value per share increased once again, continuing to build capital flexibility along with a fortified balance sheet.
Frank S. Sorrentino: Additionally, we declared a quarterly cash dividend of $0.18 a share that will be paid in early September. And with a common dividend payout ratio currently below 40%, we believe ConnectOne's dividend remains well-positioned. So, in summary, we remain deliberate and methodical in our approach to navigating through a challenging time, all while remaining committed to our clients. Our discipline is paying off, and we believe we're just at, we are just beginning to see those benefits. I'll now turn it over to Bill, who'll give us a little more depth and some color on our results.
Bill: Additionally, we declared a quarterly cash dividend of $0.18 a share that will be paid in early September . And with a common dividend payout ratio currently below 40%, we believe ConnectOne's dividend remains well-positioned.
Frank S. Sorrentino: So, in summary, we remain deliberate and methodical in our approach to navigating through a challenging time, all while remaining committed to our clients.
Frank S. Sorrentino: Our discipline is paying off, and we believe we are just beginning to see those benefits. I'll now turn it over to Bill, who will give us a little more depth and some color on our results.
William S. Burns: Great. Thanks, Frank. Good morning to everyone on the call. As Frank just mentioned, we believe we are in the beginning stages of a return to our historical profitability levels and metrics. You may remember that on last year's call I made several opening statements. I'm happy to report that all of them are on track. The first item I stated last quarter was that the margin had stabilized and that we projected a wider net interest margin going forward, and that turned out to be true; the margin improved by eight basis points.
Bill: Great. Thanks, Frank. Good morning to everyone on the call. As Frank just mentioned, we believe we are in the beginning stages of a return to our historical profitability levels and metrics.
Bill: And you may remember on last year's call, I made several opening statements. I'm happy to report that all of them are on track. First item I stated last quarter was that the margin had stabilized and that we projected a wider net interest margin going forward, and that turned out to be true, a margin improved by eight basis points.
William S. Burns: Second, we emphasized a balance sheet focus on relationship business, and relationship-based business. We executed on that in the current quarter, helping to improve the net interest margin, lower our loan-to-deposit ratio, which declined to less than 108% from 111 at year end, and it also improved our CRE concentration ratio. Third, we focused on capital and asset quality; our capital ratios and tangible book value per share increased once again. Nauticals declined, reserve coverage increased, and other credit quality measures remain in historically strong positions. I will emphasize again that although we are just below the $10 billion asset threshold, we have already crossed that bridge from a regulatory oversight perspective.
Bill: Second, we emphasized a balance sheet focus on relationship business, relationship-based business. We executed on that in the current quarter, helping to improve the net interest margin.
Bill: Lower our loan-to-deposit ratio, which declined to less than 108% from $111,000 a year end, and it also improved our CRE concentration ratio.
Bill: Third, we focused on capital and asset quality. Our capital ratios and tangible book value per share increased once again.
Bill: Non-accruals declined, reserve coverage increased, and other credit quality measures remained in historically strong positions. And fourth.
Bill: I will emphasize again that although we are just below the $10 billion asset threshold, we have already crossed that bridge from a regulatory oversight perspective. The actual crossing of $10 billion in assets
William S. Burns: The actual crossing of $10 billion in assets, which we forecast will happen in the middle of next year, will have little impact on the bank. Let me now dive a little deeper into the margin performance and outlook. I'm going to start with the liability side of the equation.
Bill: which we forecast happen middle of next year, will have little impact on the bank.
William S. Burns: Average non-interest-bearing demand deposits and average non-interest-bearing demand loans were roughly flat, while the additional liquidity provided by client deposit growth and a lower loan portfolio was used to pay down upwards of $175 million of federal home loan bank borrowings. Those actions reduced our cost of non-deposit funding by approximately 50 basis points. Thus, although we did experience some increase in our total cost of deposits, that increase was offset by the benefit realized from the wholesale paydowns, resulting in flat funding costs versus the scheduled quarter. And further, with the strong client deposit growth, we lowered our broker deposits outstanding by about $70 million.
Speaker Change: I'm going to start with the liability side of the equation. Average non-interest bearing demand – average non-interest bearing demand deposits were roughly flat.
Speaker Change: While the additional liquidity provided by client deposit growth and a lower loan portfolio was used to pay down upwards of $175 million of federal home loan bank borrowings.
Speaker Change: Those actions reduced our cost of non-deposit funding by approximately 50 basis points. So, although we did experience some increase in our total cost of deposits,
Speaker Change: That increase was offset by the benefit realized from the wholesale paydowns, resulting in flat funding costs versus the scheduled quarter. And further, with the strong client deposit growth, we lowered our broker deposits outstanding by about $70 million.
William S. Burns: Meanwhile, on the asset side, the rate earned on our loans increased by nine basis points. Now, about half that increase resulted from the collection of back interest and yield-related fees, but our loan portfolio yield continues to increase. Let's turn to the outlook for our net interest margin going forward. Without any consideration whatsoever of Fed rate cuts, we project a similar trajectory to this quarter, with the net interest margin widening a few basis points per quarter.
Speaker Change: Meanwhile, on the asset side, the rate earned on our loans increased by nine basis points. Now about half that increase resulted from the collection of back interest and yield related fees, but our loan portfolio yield continues to increase.
Speaker Change: Let's turn to the outlook for our net interest margin going forward.
Speaker Change: And without any consideration whatsoever to Fed rate cuts, we project a similar trajectory to this quarter, with the net interest margin widening a few basis points per quarter. And that's because the portfolio yield...
William S. Burns: And that's because portfolio yields will tend to increase faster than our deposit costs. On top of that, as we've seen before, there should probably be another five basis points of improvement for each Fed rate cut, the first of which is expected in September.
Speaker Change: will tend to increase faster than our deposit costs. On top of that, as we've got it before, there should probably be another five basis points of improvement for each Fed rate cut, the first of which is expected in September .
William S. Burns: So, taking those numbers, those projections out to the end of 2025, our margin could easily surpass 3% or, probably, on a core basis, in the range of 260, 268, 269 and would likely result in pre-tax, pre-provision return on assets ranging near or above 1.5% and returns on tangible common equity back into double digits. Switching now to loan portfolio value, the loan portfolio is down a little bit this quarter, but our estimate for the rest of 2024 calls for slow portfolio growth, I'd say in the 1% to 2% range, and that reflects about a billion dollars or more of annualized originations offset by payoffs and paydowns.
Speaker Change: Taking those numbers, those projections out to the end of 2025, our margin could easily surpass 3%. We're probably on a core basis in the height 260, 268, 269.
Speaker Change: and would likely result in pre-tax, pre-provision return on assets ranging near or above 1.5% and returns on tangible common equity back into double digits.
Speaker Change: Switching now to Loan Portfolio Volume.
Speaker Change: The loan portfolio is down a little bit this quarter, but our estimate for the rest of 24 calls for a slow portfolio growth, I'd say in the 1% to 2% range. And that reflects about a billion dollars or more of annualized originations.
William S. Burns: Going forward, the level of loan paydowns is likely to normalize from the elevated level we experienced in the second quarter, the net result being a slight gain and slow growth in the loan portfolio. Turning to non-use income, it was a strong quarter that was buoyed by a gain on the sale of one large non-relationship loan.
Speaker Change: offset by payoffs and paydowns. Going forward, the level of loan paydowns are likely to normalize from the elevated level we experienced in the second quarter, the net result being slight gain and slow growth in the loan portfolio.
Speaker Change: Turning to non-interest income, it was a strong quarter that was buoyed by a gain on the sale of one large non-relationship loan.
William S. Burns: So for the quarter, gains on sale were a bit elevated, but we still see growth in our SBA lending platform, and BowFly has been building momentum on its core fee income as well as being a feeder for the SBA gains on sale. In terms of operating expense, we did guide on the last call to being up about 1.5%. We were up 1.4% sequentially, and that continues to be the run rate we're currently experiencing and expecting.
Speaker Change: So, for the quarter, gains on sale were a bit elevated, but we still see growth in our SBA lending platform, and BowFly has been building momentum on its core fee income as well as being a feeder for the SBA gains on sale.
Speaker Change: In terms of operating expense, we did guide in the last call to being up about 1.5%. We were up 1.4% sequentially, and that continues to be the run rate we're currently experiencing and expecting.
William S. Burns: Capital ratios, they increased across the board, led by the holding company tangible common equity ratio that increased by 21 basis points to 9.46, reflecting retained earnings and effective management and hedging of our securities portfolio. Meanwhile, the bank leverage ratio increased to 11.3%, which is very, very strong in our view.
Speaker Change: Capital ratios, they increased across the board, led by the holding company tangible common equity ratio that increased by 21 basis points to 9.46, reflecting retained earnings and effective management and hedging of our securities portfolio.
Speaker Change: Meanwhile, the bank leverage ratio increased to 11.3%, very, very strong in our view.
William S. Burns: Stock repurchases for the quarter were subdued, but we expect to complete our current share repurchase program of approximately 640,000 shares by the end of this year. And even with the higher current market pricing, we believe it to be attractive to continue the stock repurchase program. Asset quality remains sound. Non-accrual loans declined for the third consecutive quarter, while allowance coverage increased, albeit slightly.
Speaker Change: Stock repurchases for the quarter were subdued, but we expect to complete our current share repurchase program of approximately 640,000 shares by the end of this year, and even with the higher current market pricing, we believe it to be attractive to continue the stock repurchase program.
Speaker Change: Asset quality remains sound.
Speaker Change: Non-accrual loans declined for the third consecutive quarter, while allowance coverage increased, albeit tightly.
William S. Burns: Our CECL provisioning for the quarter took into account several items, including charge-offs, the decline in loan balances, an improved Moody's economic forecast, and lastly, I would say an increase in qualitative factors to take into account increased risks that are not inherent in the CECL model and that facilitated an increase in overall reserve coverage. We continue to track and monitor repricing stress on the portfolio, and credit quality there remains sound. There certainly could be select credits that come under stress from time to time, but that's not to be unexpected, but our team has done a stellar job managing the portfolio, and we don't expect any significant issues. The effective tax rate was just a tad under 26% for the quarter.
Speaker Change: Our seasonal provisioning for the quarter took into account several items, including charge-offs, the decline in loan balances, improving Moody's economic forecast, and lastly, I would say an increase in qualitative factors.
Speaker Change: to take into account increased risks that are not inherent in the in the CECL model and that facilitated an increase in overall reserve coverage.
William Burns: We continue to track a monitor repricing stress on the portfolio and credit quality there. We may, in sound, a certainly could be select credits that come under stress from time to time, not to be unexpected, but our team has done a stellar job managing the portfolio, and we don't expect any significant issues. The effect of tax rate was just a tad on the 26% for the quarter; that rate could increase slightly, especially if we see strong momentum and pre-tax revenue growth.
Speaker Change: We continue to track and monitor repricing stress on the portfolio and credit quality there remains sound.
Speaker Change: There certainly could be select credits that come under stress from time to time, not to be unexpected, but our team has done a stellar job managing the portfolio and we don't expect any significant issues.
William S. Burns: That rate could increase slightly, especially if we see strong momentum in pre-tax revenue growth. In summary, we're pleased with the quarter's results. We see improved performance ahead, resulting from a number of factors. First, margin improvement. Slow and prudent relationship-based loan growth, non-interest income growth, and continued operating efficiency as we leverage our platform. We will also continue our focus on increasing client deposits, a lower loan-to-deposit ratio, and a continued trend toward lower CRE concentrations. So I'm gonna turn it back over to Frank for closing comments, and we will be happy to open up the lines for questions. Thank you. Thanks, Bill.
Speaker Change: The effective tax rate was just a tad under 26% for the quarter, and that rate could increase slightly, especially if we see strong momentum in pre-tax revenue growth. In summary, we're pleased with the quarter's results.
William Burns: In summary, we're pleased with the quarter's results. We see improved performance ahead resulting from a number of factors: first, marginal improvement; slow and prudent relationship-based growth; non-sustin-come growth; and continued operating efficiency, as we leverage our platform. We will also continue our focus on increasing client deposits, a lower loan deposit ratio, and a continued trend towards lower CRA concentration.
Speaker Change: We see improved performance ahead, resulting from a number of factors. First, margin improvement.
Speaker Change: Slow and prudent relationship-based loan growth, non-interest income growth, and continued operating efficiency as we leverage our platform. We will also continue our focus on increasing client deposits.
Speaker Change: a lower loans of deposit ratio and a continued trend towards lower CRE concentration.
William Burns: So I'm going to turn it back over to Frank for closing comments, and we will be happy to open up the lines for questions.
Speaker Change: So, I'm going to turn it back over to Frank for closing comments, and we will be happy to open up the lines for questions. Frank? Thanks, Bill. In summary, I'm pleased with ConnectOne's performance over the second quarter. We started the year committed to a few key objectives.
Frank S. Sorrentino: Thanks, Bill. In summary, I'm pleased with ConnectOne's performance in the second quarter. We started the year committed to a few key objectives. First, to focus on core relationships. Second, expand our C&I initiatives. And third, invest in opportunities to drive non-interest income.
William Burns: In summary, I'm pleased with Connect One's performance over the second quarter. We started the year committed to a few key objectives. First, we focus on core relationships. Second, expand our CNI initiatives, and third, invest in opportunities to drive non-interesting income. I'm proud of our team for remaining dedicated to these objectives, and that disciplined approach positions us to capitalize on the upswing. We believe this upswing will continue as we look ahead, and we will be further bolstered by the changing interest rate environment. The investments we've made in new markets, including expansion in Long Island, as well as the continued momentum of team members, we've onboarded over the past few quarters.
Frank S. Sorrentino: First, the focus on core relationships, second, expand our C&I initiatives, and third, invest in opportunities to drive non-interest income. I'm proud of our team for remaining dedicated to these objectives, and that disciplined approach positions us to capitalize on the upswing.
Frank S. Sorrentino: I'm proud of our team for remaining dedicated to these objectives, and that disciplined approach positions us to capitalize on the upswing. We believe this upswing will continue as we look ahead, and we'll be further bolstered by the changing interest rate environment, the investments we've made in new markets, including the expansion in Long Island, as well as the continued momentum of team members we've onboarded over the past few. We're moving into the second half of the year well-positioned and prepared to consistently execute on our long-term objectives. As always, we appreciate your interest in ConnectOne, and thanks again for joining us today. Operator, would you please open the line for questions?
Frank S. Sorrentino: We believe this upswing will continue as we look ahead and will be further bolstered by the changing interest rate environment, the investments we've made in new markets, including the expansion in Long Island, as well as the continued momentum of team members we've onboarded over the past few quarters.
William Burns: We're moving into the second half of the year, well-positioned, and prepared to consistently execute on our long-term objectives.
Speaker Change: We're moving into the second half of the year well-positioned and prepared to consistently execute on our long-term objectives. As always, we appreciate your interest in ConnectOne, and thanks again for joining us today. Operator, would you now open the line for questions?
William Burns: As always, we appreciate your interest and connect one, and thanks again for joining us today.
Operator: Operator, would you now open the line for questions? At this time, I'd like to remind everyone to ask a question, press star one on your telephone keypad, and we'll pause for those to accumulate.
Unknown Executive: At this time, I'd like to remind everyone to ask a question; press star one on your telephone keypad. And we'll pause for those to accumulate. Your first question comes from the line of Tim Pfitzer with KBW. Your line is open.
Speaker Change: At this time, I'd like to remind everyone to ask a question, press star 1 on your telephone keypad, and we'll pause for those to accumulate.
Timothy Switzer: Your first question comes from the line of Tim Footster of the KVK; excuse me, KVW. Your line is open. Good morning. Thank you for taking my questions.
Speaker Change: Your first question comes from the line of Tim Futzer with KBW. Your line is open.
Unknown Caller: Hey, good morning. Thank you for taking my question. Go ahead, Sam. Um, yeah, I was wondering if you guys have had an opportunity yet? You maybe discussed this a little bit last quarter, but to kind of selectively lower deposit rates in certain categories or certain markets or promotional rates, what's the customer response you've seen on that?
William Burns: Good afternoon. Yeah, I was wondering, have you guys had an opportunity yet? You may be discussed with a little bit last quarter, but it's kind of selectively lowered the positive rates in certain categories of certain markets or promo rates. And what's the customer response you've seen on that? Well, it's a great question, and we certainly are thinking and anticipating the ability to lower rates, and that will help us as it will help other banks. We are going to be careful as we always have before, and manage clients' expectations and maintain our strong client base, so it's a work in progress, but we are paying a lot focused towards that.
Timothy Jeffrey Switzer: Hey, good morning. Thank you for taking my questions.
Dan: Go ahead, Dan.
Yeah, I was wondering, have you guys had an opportunity yet?
Speaker Change: You maybe discussed this a little bit last quarter, but to kind of selectively lower deposit rates in certain categories or certain markets or promo rates, what's the customer response you've seen on that?
Frank S. Sorrentino: Well, it's a great question, and we certainly are thinking about and anticipating the ability to lower rates. And that will help us, as it will help other banks. But we are going to be careful, as we always have before, and manage client expectations and maintain our strong client base. So I'd say it's a work in progress, but we are paying a lot of attention.
Frank S. Sorrentino: Well, it's a great question and we certainly are thinking and anticipating the ability to lower rates.
Dan: And that will help us as it will help other banks. We are going to be careful as we always have before and manage clients expectations and maintain our strong client base, so
Dan: I'd say it's a work in progress, but we are paying a lot of focus towards that.
William S. Burns: Okay, great. I appreciate all the work done. Tim, let me just add, you know, when rates are actually cut, obviously, there'll be a greater opportunity to lower rates. Right, right. Okay.
William Burns: Okay, great. When I pre-shared those, then let me just say add, you know, letting rates are actually cut. Obviously, there'll be a greater opportunity to lower rates. Right, right.
William S. Burns: Okay, great. I appreciate all the work. Tim, let me just add, you know, when rates are actually cut, obviously, there'll be a greater opportunity to lower rates.
William S. Burns: And I appreciate all the forward commentary you guys had on the margin and revenue outlook. What about on the expense side? You know, are there any levers you're going to pull if, say, if we don't get the rate cuts we're expecting, revenue doesn't improve quite as much, and then vice versa, are there some investments you guys would like to make, you know, if earnings begin to improve here?
William Burns: And I pre-set all the forward commentary you guys had on the margin and revenue outlook. What about on the expense side? You know, are there level levers you're going to pull, if say, you know, we don't get the rate cuts we're expecting, revenue doesn't improve quite as much. And then vice versa, they're like some investments you guys would like to make. Well, if earnings begins to improve here. Well, there are certain investments we've been making, and when those investments are put into place, those expenses start growing. So we have some of that going forward, and therefore that's part of my projection for increased expenses as we put, you know, new investments into service, if you will.
Timothy Jeffrey Switzer: Right, right. Okay.
Speaker Change: And I appreciate all the forward commentary you guys had on the margin and revenue outlook. What about on the expense side?
Speaker Change: You know, are there level levers you're going to pull if say
Speaker Change: You know, if we don't get the rate cuts we're expecting, revenue doesn't improve quite as much. And then, vice versa, are there like some investments you guys would like to make, you know, if earnings begin to improve here?
William S. Burns: Well, there are certain investments we've been making, and when those investments are put into place, those expenses start growing. And so we have some of that going forward. And therefore, that's part of my projection for increased expenses as we put new investments into service, if you will. Certainly, we can make adjustments to the level of staff and, obviously, incentive compensation accruals. So there is some flexibility in the expenses we report depending on revenue growth.
Speaker Change: Well, there are certain investments we've been making, and when those investments are put into place, those expenses start growing. So we have some of that going forward, and therefore, that's part of my projection for increased expenses as we put new investments into service, if you will.
William Burns: Certainly we can make adjustments on, you know, the level of staff, and obviously in sense of compensation accruals, so there is some flexibility into the expenses we report depending on revenue growth, and we've said this in the past. It does, you know, the amount of revenue growth does influence the amount of expenses, and I think that's a good thing. You know, keeps us, keeps us as an efficient company for reporting basis.
William S. Burns: Certainly, we can make adjustments on, you know, the level of staff and obviously incentive compensation accruals. So there is some flexibility into the expenses we report depending on revenue growth. And we've said this in the past. It does.
William S. Burns: And we've said this in the past. It does influence the amount of expenses, and I think that's a good thing, you know, keeps us as an efficient company on a reporting basis.
William S. Burns: You know, the amount of revenue growth does influence the amount of expenses, and I think that's a good thing. You know, keeps us keeps us as an efficient company for a reporting basis.
Unknown Caller: Awesome. That's all for me. Thank you.
Timothy Switzer: That's all for me. Thank you.
Awesome. That's all for me. Thank you.
Unknown Executive: Your next question comes from the line of Frank Schiraldi with Piper Stanley.
Frank Schiraldi: Your next question comes from a line of Frank Sheraldi with Piper Sandley; your line is open. Morning, Frank. Thank you.
Speaker Change: Your next question comes from the line of Frank Schiraldi with Piper Sandler. Your line is open.
Frank Joseph Schiraldi: Morning. I wonder if you could just talk a little bit, Bill, about, you know, the strong customer deposit growth in the quarter and so any guardrails in terms of expectations around deposit growth in the back half of the year. Is it just that you expect it to exceed loan growth and therefore move the loan to deposit ratio in the right direction or any sort of guardrails you can give around expectations there?
William Burns: I wonder if you could just talk a little bit, Bill, about, you know, strong customer deposit growth in the quarter, and, and so any, any guardrails in terms of expectations around deposit growth in the back half of the year. Is it just that, you know, you expected to exceed long growth, and therefore move, long to deposit risk here on the right direction, or any sort of guardrails you can give around expectations there. Well, the trend is looking good. You know, over the past, more than one quarter, two or three quarters, I think we've outpaced the market in terms of deposit growth.
Bill: Morning. Hey, Frank.
Frank Joseph Schiraldi: I wonder if you could just talk a little bit, Bill, about, you know,
Bill: Strong customer deposit growth in the quarter and
Frank Joseph Schiraldi: And so any guardrails in terms of expectations around
Frank Joseph Schiraldi: deposit growth in the back half of the year? Is it is it just that, you know, you expect it to exceed loan growth and therefore move loan to deposit ratio in the right direction or any sort of guardrails you can give around expectations there?
William S. Burns: Well, the trend is looking good. You know, over the past more than one quarter, two or three quarters, I think we've outpaced the market in terms of deposit growth. I think the Fed has eased up a little bit on liquidity as well, so everyone should be seeing some types of deposit growth. So our projections include that level of deposit growth, which is in excess of the guidance that it gave you on loan growth. So things could change, of course, but right now, we're expecting more client deposits than loan growth, leading to lower loan to deposit ratios.
William S. Burns: Well, the trend is looking good. You know, over the past more than one quarter, two or three quarters, I think we've outpaced the market in terms of deposit growth.
William Burns: I think the Fed has eased up a little bit on the liquidity as well, so everyone should be seeing sometimes that deposit growth. So our projections include that level of deposit growth, which is in excess of the guidance that they gave you on long growth. So things could change, of course, but right now we're expecting more client deposits than long growth, leading to lower loans of deposit ratios.
William S. Burns: I think the Fed has eased up a little bit on liquidity as well, so everyone's...
William S. Burns: should be seeing some types of deposit growth.
William S. Burns: So, our projections include that level of deposit growth, which is in excess of the guidance that I gave you on loan growth.
William S. Burns: So, things could change, of course, but right now we're expecting more client deposits than loan growth, leading to lower loan-to-deposit ratios.
William Burns: Okay, and then I guess the cost of funds may be looked like a bottom to the quarter. I mean, hey, down from the bar, you still got some pressure on the pot of the cost I would imagine. So could you either talk your expectation, you know, just for regard setting aside a potential rate cut of, you know, either what the blended rate of deposits coming out of the quarter was or just what you anticipate, maybe, in terms of, you know, basis points, you could write on the deposit cost. Well, yeah, on the non-deposit funding, we obviously had a dramatic improvement there.
William S. Burns: OK, and then I guess the cost of funds maybe looked like it bottomed in the quarter. I mean, paid down, still got some pressure on deposit costs, I would imagine. So could you either talk about your expectation, you know, regarding setting aside a potential rate cut of, you know, either what the blended rate of deposits coming out in the quarter was or just what you anticipate maybe in terms of, you know, basis points you could continue to see on that deposit cost side.
Speaker Change: Okay, and then I guess the cost of funds maybe looked like it bottomed in the quarter. I mean, it came down slightly more.
William S. Burns: You've still got some pressure on deposit costs, I would imagine. So could you either talk about your expectation, you know, just for
Speaker Change: [inaudible] Well.
William S. Burns: Well, yeah, on the non-deposit funding, we obviously had a dramatic improvement there. I would expect some more of that, but not to the same magnitude. Same token, on the increase in deposits, that's slowing down, but I'm just being conservative here and don't want to say for sure right now that deposit costs will not go up, but it is slight. So overall, you know, I feel confident that the rates on our assets will improve at a greater rate than the cost of total funding.
William S. Burns: Yeah, on the non-deposit funding, we obviously had a dramatic improvement there.
William Burns: I would expect some more of that, but not the same magnitude; same token on the increase in the deposit side. That's slowing down, but I'm just being conservative here and don't want to say for sure right now that the deposit cost will not go up. But it is, it is slight. So overall, you know, I feel confident that the rate on our assets will improve at a greater rate than the cost of total funding.
William S. Burns: I would expect some more of that, but not the same magnitude.
William S. Burns: Same token on the increase in deposit side, that's slowing down, but I'm just being conservative here and don't want to say for sure right now that deposit costs will not go up, but it is slight.
William S. Burns: So, so overall, you know, I feel confident that the rate on our assets will improve at a greater rate than the cost of total funding.
William S. Burns: And then, lastly, on the 1-2% loan growth, I guess that seems like it provides room for continued paydowns and payoffs and continued reduction in CRE balances. In the near term, any sort of specifics on goals or expectations of where the CRE concentration levels could trend to, you know, over the next several quarters? Listen, we see a declining trend but not a seismic shift overnight. But we do believe it's prudent to continue to show lower levels of CRE concentration.
William Burns: Okay, and then if I could just lastly on the once 2% long growth, I guess that's why I can give provides room for continued pay-downs and pay-offs and continued reduction in, in cryptocurrencies. I guess in the near term, any sort of specifics on goals or expectations of where the creek concentration levels could trend to, you know, over the next several, right? Listen, we see a declining trend, but not a seismic shift overnight. However, we do believe it's proven to continue to show lower levels of CRE concentration. The business model just provides for that. Heart emphasis on C&I, lending, and the types of businesses that we're looking at is both being reflected in that increase in deposits as well as that trend.
William S. Burns: And then if I could just lastly on the 1-2% loan growth, I guess that seems like it provides room for continued paydowns and payoffs and continued reduction in...
William S. Burns: and Cree Balances, I guess, in the near term. Any sort of...
Speaker Change: specifics on goals or expectations of where the CRE concentration levels could trend to, you know, over the next several quarters. Right. Listen, we see a declining trend.
William S. Burns: but not a seismic shift overnight. But we do believe it's prudent to continue to show lower levels of CRE concentration.
William S. Burns: The business model just provides for that. It provides that, right? Our emphasis on C&I lending and the types of businesses that we're looking at is both being reflected in that increase in deposits as well as that trend. There's no hard line in the sand that we feel we have to get to, but we just believe, over time, having a lower CRE concentration is just healthy for the bank and provides for the types of businesses that provide the, you know, the types of deposits we want and the client relationships we So then it all sort of works hand in hand.
William S. Burns: The business model just provides for that. Our emphasis on C&I lending and the types of businesses that we're looking at is both being reflected in that increase in deposits as well as that trend.
William Burns: There's no hard line in the sand that we feel we have to get to, but we just believe over time, having a lower CRE concentration is just healthy for the bank and provides for the types of business that provide the, you know, the types of deposits we want and the client relationships we want. So, it also to work hand in hand. It's sort of been a focus, right? We and that security feels as a focus from from regulatory agencies to for lower CRE concentration. We've always had a high CRE concentration. We're not feeling a ton of that pressure, but we recognize that the investor community looks at it that way.
William S. Burns: There's no hard line in the sand that we feel we have to get to, but we just believe over time having a lower CRE concentration is just healthy for the bank.
William S. Burns: and provides for the types of business that provide the types of deposits we want and the client relationships we want. So it all sort of works hand-in-hand.
William S. Burns: There's sort of been a focus, right? The investor community feels there's a focus from regulatory agencies to force lower CRE concentration. We've always had a high CRE concentration. We're not feeling a ton of that pressure, but we recognize that the investor community looks at it that way. So, you know, in general, we like to see a directionally change in that ratio, that being lower.
William S. Burns: This has sort of been a focus, right, investing in community fields is a focus from.
William S. Burns: from Regulatory.
William S. Burns: agencies to force lower CRE concentration. We've always had a high CRE concentration. We're not feeling a ton of that pressure, but
William Burns: So, you know, in general, we, we like to see a, a, um, directional, a change in that ratio that being lower.
William S. Burns: We recognize that the investment community looks at it that way. So, you know, in general, we like to see a directionally a change in that ratio, that being lower.
William Burns: Okay. All right. Great.
Frank Joseph Schiraldi: Okay. All right. Great. Thanks for all the callers. Yeah.
William Burns: Thanks for all the color. Yeah. All right.
Frank Joseph Schiraldi: Okay, all right, great. Thanks for all the callers.
Daniel Tamayo: As a reminder, to ask a question, press star one on your telephone keypad. Our next question comes from the line of Daniel Tamile with Raymond James. Your line is open.
Unknown Executive: As a reminder, to ask a question, press star one on your telephone keypad. Our next question comes from the line of Daniel Tamayo with Raymond James. Your line is open.
Unknown Executive: As a reminder to ask a question press star 1 on your telephone keypad. Our next question comes from the line of Daniel Tamayo with Raymond James. Your line is open.
Daniel Tamayo: Thank you. Good morning, guys.
Daniel Tamayo: Thank you. Good morning, guys.
Daniel Tamayo: So, just not to be a dead horse here, but just a clarification on the NIM guidance.
Daniel Tamayo: So just to, not to be a dead horse here, but just clarification on the NIM guidance. Are you assuming further wholesale reductions, like kind of a rotation from FHLB into deposits in that guidance? Or is that, does it depend on loan growth? Like how does that play out in terms of the balance sheet max?
Speaker Change: Thank you. Good morning, guys.
Speaker Change: So just a
William Burns: Are you assuming further wholesale reductions, like kind of a rotation from FHLB into deposits in that guidance, or does that depend on loan growth? How do you think that plays out in terms of balance? Well, a little bit more. There was some significant; there was some different the kinds in the federal home loan bank borrowing lines. Keep in mind that there are some timing issues here. We may have excess liquidity, but those Federal Home Banks have not matured quite yet.
Daniel Tamayo: Not to be a dead horse here, but just a clarification on the NIM guidance. Are you assuming...
Speaker Change: Further wholesale reductions, like kind of a rotation from FHLB into deposits in that in that guidance, or is that Depend on loan growth, like how do you think that plays out in terms of balance sheet mix?
William S. Burns: Well, a little bit more. There were some significant differences; there were some different kinds in the Federal Home Loan Bank borrowing lines. Keep in mind that there are some timing issues here. We may have excess liquidity, but those Federal Home Loan Banks have not matured quite yet. So in the short term, it's hard to say exactly what the benefit's going to be. But over the longer term, we'd like to see more deposits, more wholesale, more client deposits, less broker, and less wholesale funding. Having slow loan growth in the 1% to 2% range helps with regard to those
William S. Burns: Well, a little bit more. There was some significant, there was some different kinds in the Federal Home Loan Bank borrowing lines. Keep in mind
William Burns: So, in the short term, it's hard to say exactly what the benefits are going to be, but over the longer term, we'd like to see more deposits, more wholesale, more client deposits, less broker, and less wholesale funding. Having a slow loan growth, having a slow loan growth in the one's two percent range helps when we guard for those items. Okay, so maybe a longer term trend of reducing it, but not anything. Yeah, I'm just, I'm just being caught.
William S. Burns: So, in the short term...
William S. Burns: It's hard to say exactly what the benefit's going to be, but over the longer term...
William S. Burns: We'd like to see more deposits, more wholesale, more client deposits.
William S. Burns: less brokered and less wholesale.
William S. Burns: Okay, so maybe a longer term trend of reducing it, but not in the near term. I'm just, I'm just being you know, one part of me is extremely optimistic.
William S. Burns: Okay, so maybe a longer-term trend of reducing it, but not anything.
William Burns: You know, one part of me is extremely optimistic when you look at our balance sheet. There's a lot of reasons to believe we're going to have expanding margins, but I want to be conservative here because we just don't know how competition is going to react. And at the end of the day, you know, clients come first.
William S. Burns: When you look at our balance sheet, there are a lot of reasons to believe we're going to have expanding margins. But I want to be conservative here because we just don't know how competition is going to react. And at the end of the day, you know, clients come first. So we're going to make sure that we use whatever flexibility we have to maintain client relationships.
William S. Burns: near term that would be. I'm just I'm just being, you know, one part of me is extremely optimistic when you look at our balance sheet. There's a lot of reasons to believe we're going to have expanding margins.
William S. Burns: But, I want to be conservative here because we just don't know how competition is going to react. And, at the end of the day, you know, clients come first. So, we're going to make sure that we use whatever flexibility we have to maintain client relationships.
William Burns: So, we're going to make sure that we use whatever flexibility we have to maintain client relationships.
Daniel Tamayo: Understood. And then, you know, I guess on capital, so you talked about continuing buybacks and back after the year you've got the authorization there. But actually, we think about what the right level of capital is for you.
William S. Burns: And then, you know, I guess on capital, so you talked about continuing buybacks and coming back after the year. You've got the authorization there. How should we think about what the right level of capital is for you? Obviously, the TCE is strong, the total risk base is strong, but I mean, is there a ratio that is, you know, the most important to you, is that changing, that people are talking more about the total now? You know, how should we think about what the right level of capital is in the future, as capital grows? And yeah, I think I tried. I tried to
William S. Burns: Understood.
William Burns: Obviously, the TCE strong, the total risk-based is strong, but I mean, is there a ratio that is, you know, the most important to you? Is that changing that people are talking more about the total now. You know, how should we think about what a right level of capitalism to the future is, you know, as the capital grows.
William S. Burns: You know the most important to you is that is that changing that people are talking more about the total now you know, how should we think about what a right level of
William S. Burns: of capitalism to the future as, you know, as capital grows and, you know, things improve for the business. I try to avoid...
William Burns: And yeah, yeah, I think for the big slide, I tried, I tried to avoid giving specific guidance as to what the right capital level is. I do, first off, I'm a big believer in, you know, tangible common equity is the most important at the company; it's the most important capital ratio to look at. However, there's lots of other ones with guidance limits, well-capitalized levels, capital cushions, and we try to manage that stack in such a way that they all have similar cushions. So, we're going forward; we feel really comfortable with the position we're in, and if need be, if we need to leverage our capital, we have the ability to do so.
William S. Burns: I try to avoid giving specific guidance as to what the right capital level is. First off, I'm a big believer in, you know, tangible common equity is the most important, ethanol company the most important capital ratio to look at. However, there are lots of other ones with guidance limits, well-capitalized levels, capital cushions, and we try to manage that stack in such a way that they all have similar cushions. [inaudible] So, going forward, we feel really comfortable with the position we're in, and if need be, if we need to leverage our capital, we have the ability to do so, you know, in a moderate way.
William S. Burns: giving specific guidance as to what the right capital level is.
William S. Burns: I do, uh, first off...
William S. Burns: I'm a big believer in, you know, tangible common equity is the most important, ethical company is the most important capital ratio to look at. However, there's lots of other ones with guidance limits, well-capitalized levels.
William S. Burns: Capital Cushions, and we try to manage that stack in such a way that they all have similar cushions.
William S. Burns: So, but going forward, we feel really comfortable with the position we're in, and if need be, if we needed to leverage our capital.
William Burns: And, you know, in a moderate way, I don't see our 9.5 capTC ratio going down to 8.5 very soon, but if it drops 20 to 30 fourth basis points because of, you know, this is some opportunity or some potentially some acquisition, that would be that would be a good thing and that would be fine.
William S. Burns: I don't see our 9.5 TCE ratio going down to 8.5 very soon. But if it dropped 20 or 30 basis points because of some... You know, some opportunity or, potentially, some acquisition, that would be a good thing. And that would be fine.
William S. Burns: We have the ability to do so, you know, in a moderate way. I don't see our 9.5 TCE ratio going down to 8.5 very soon, but if it dropped 20 or 30 basis points because of some...
William S. Burns: you know some opportunity or some potentially some acquisition that would be that would be a good thing and that would be fine.
Daniel Tamayo: Got it.
Daniel Tamayo: Alright, and then maybe this switch and gears here. You know, there was a little bit of an increase in classified loans that looks like up to 150. Yeah. Uh, loans. Just curious if you could provide any detail on what drove that. Yeah, you know, gotta keep in mind that that 150 is an historically low level. It just was at like the best level ever beforehand. So, um, don't view it as, um, that specific change did not lead to, uh, the real potential for additional charges. It's still a low level. Okay. So it's still kind of normalization happening.
William S. Burns: Alright, and then maybe just switching gears here. You know, there was a little bit of an increase in classified loans; it looks like up to 150 loans. Just curious if you could provide any detail on what drove that.
Speaker Change: Got it.
William S. Burns: Alright, and then maybe just switching gears here, you know, there was a little bit of an increase in classified loans, it looks like, up to 150 loans. Just curious if you could provide any detail on what drove that.
William S. Burns: Yeah, you know, got to keep in mind that 150 is a starkly low level. It just was at like the best level ever beforehand.
William S. Burns: Yeah, you know, got to keep in mind that that 150 is a starkly low level. It just was at like the best level ever beforehand. So don't don't view it as that specific change.
William S. Burns: So don't don't view it as that specific change did not lead to the real potential for additional charges. Okay. And it still is a low level. Yeah.
William S. Burns: did not lead to the real potential for additional charges, okay?
William S. Burns: Okay, so there's still kind of a normalization happening.
William S. Burns: And it still is a low level. Yeah.
William S. Burns: Yes, I would say so.
William Burns: Yes. I would say so.
William S. Burns: All right. Thanks for all the color. I appreciate it.
William S. Burns: Okay, so it's still kind of normalization happening.
Daniel Tamayo: Alright. Thanks for, uh, thanks for all the color. Appreciate it.
William S. Burns: Yes, I would say so. Alright, thanks for all the color. Appreciate it. Alright.
Matthew Breese: And the next question comes from the line of Matt Breese with Stevens. Your line is open. Thank you. Not last. Last but not least. I'll pick over the compliment. Yeah.
Unknown Executive: Our next question comes from the line of Matt Breese with Stevens. Your line is open.
Matthew M. Breese: Hey, good morning. Okay, not last. Okay.
Matthew M. Breese: Our next question comes from the line of Matt Breese with Stevens. Your line is open.
Matthew M. Breese: I'll take that as a compliment. I was hoping to dive into the NIM a little bit.
Matthew Breese: I was going to dive into the name a little bit. Um, okay.
William S. Burns: Phil, could you provide what the percentage of pure floating rate loans today are on the balance sheet? What's the yield on those? I'm trying to get a sense for, on the opposite side, what a fixed rate looks like and what the fixed rate loan yields are.
William S. Burns: I'll take that as a compliment. I was hoping to dive into the NIM a little bit. Okay. Phil, could you provide what the percentage of pure floating rate loans today are on the balance sheet? What's the yield on those? I'm trying to get a sense for...
William Burns: Phil, could you provide what one percentage of pure floating rate loans today are on the ground? What's the yield on those? I'm trying to get a sense for on the opposite side. What a fixed rate looks like. And what's the rate? Well, you'll throw. Yeah. I hope I get. I know you're trying to figure out what our margin is going forward. It's relatively low. The pure floating at 20% of the of the loans. And it has a handle right now about 9%. We also have, you know, adjustable rate loans. And those will continue to price upward over time.
William S. Burns: On the opposite side, what a fixed rate looks like and what the fixed rate loan yields are.
William S. Burns: Yeah, I hope I can. I know you're trying to figure out what our margin is going forward. It's relatively low, the pure floating rate at 20% of the loans, and it has a handle right now of about 9%. We also have, you know, adjustable rate loans, and those will continue to price upward over time. It's something like another 10% in the next year or so, followed by 10 plus percent more in 26 and 27.
William S. Burns: Yeah, I hope I can, I know you're trying to figure out what our margin is going forward. It's relatively low, the pure floating at 20% of the loans, and it has a handle right now of about 9%.
William S. Burns: We also have, you know, adjustable rate loans, and those will continue to price upward over time. It's something like...
William Burns: Um, it's something like another, uh, 10% in the next year or so. Followed by 10 plus percent more in 26 and 27. So, you know, where a liability sensitive company will benefit for lower rates as our, as our lots of our deposits of funding will decline in value. And over time, we will see, um, even with rate cuts. We should see increases in the yield on loan portfolio. So, if you look out and everything looks perfect. We could be in a really good spot in a year and a half, two years, you know, 350 or above in margin.
William S. Burns: another 10% in the next year or so followed by 10 plus percent more in 26 and 27 so
William S. Burns: You know, we're a liability-sensitive company and will benefit from lower rates as our lots of our deposits of funding will decline in value. And over time, we should see, even with rate cuts, increases in the yield on our loan portfolio. So if you look out and everything looks perfect, we could be in a really good spot in a year and a half, two years, you know, 350 or above in margin.
William S. Burns: You know, we're a liability sensitive company and will benefit from lower rates as our as our lots of our deposits of funding will decline in value and over time we will see even with rate cuts
William S. Burns: We should see increases in the yield on our loan portfolio. So if you look out and everything looks perfect,
William S. Burns: I temper that by saying that we don't know for sure what the rate curve is going to look like. We don't know for sure what competition is going to be like. But we're going to stick to what we do best, and that is a disciplined approach to loan originations. You know, the pricing must be relevant and must surpass our risk adjusted return hurdles. And banks that put on loans at low spreads get burnt. And that's not what we are.
William S. Burns: We could be in a really good spot in a year and a half, two years, you know, 350 or above in margin. I temper that.
William Burns: Um, I can't put that in that. We don't know if we're sure what the rate curve is going to look like. We don't know if we're sure what competition's going to be like. But we're going to stick to what we do best. And that is discipline approach to loan originations. You know, the pricing must be. The pricing must be, um, relevant and must must surpass our risk of just the return hurdles. And banks that, you know, banks that that put on loans at low, spread, skip burnt. And that's not us.
William S. Burns: in that we don't know for sure what the rate curve is going to look like. We don't know for sure what competition is going to be like, but we're going to stick to what we do best, and that is disciplined approach to loan originations. You know, the pricing must be
William S. Burns: The pricing must be relevant and must surpass our risk-adjusted return hurdles and banks that put on loans at low spreads get burnt, and that's not us.
William Burns: And where are putting on commercial estate loans? What are new loan yields versus what's rolling off in 8%-7? What would you say, Steve? 7% - 7 - 8%, socks away, depending on why we'll, but deals we do. And roll off in the low fires, reporters? Yeah, about that. Now, there's less, you know, there's less turnover than it was a couple years ago, so it has a, it has an effect, but a lower effect than it once did. Okay.
William S. Burns: Okay. And where are you putting on commercial real estate loans? What are the new loan yields versus what's rolling off?
Speaker Change: Understood. And where you are putting on commercial real estate loans, what are new loan yields versus what's rolling off?
Unknown Speaker: 8%? 7? What would you say, Steve?
Steve: 80%? 7? What would you say, Steve? 7 to 8%?
Unknown Speaker: 7 to 8%. It fluctuates depending on what deals we do.
Unknown Speaker: and Roloff in the low fives or fours.
Steve: fluctuates depending on what we'll what deals we do.
Unknown Speaker: Yeah, about that. Now, there's less, you know, there's less turnover than there was a couple of years ago. So it has an effect, but a lower effect than it once did.
Unknown Speaker: and Roloff's in the low fives and fours.
Unknown Speaker: Yeah, about that.
Unknown Speaker: Now there's less, you know, there's less turnover than there was a couple of years ago so it has, it has an effect but a lower effect than it once did.
Matthew M. Breese: Okay. And then I guess the same set of questions on the liability side: what is the duration of borrowings and CDs at this point? And are you starting to price CDs a little bit lower than where they were at?
William Burns: And then, I guess the same set of questions on the, on the, on the liability side. What is the, you know, duration of borrowings and CDs at this point? And are you starting to price CDs a little bit lower than where they were at their peak? We're just in the beginning stages of being more aggressive on CD reprising. The benefit is slight, because right, a lot of the rates that are on our books now are already in a high level. But we're starting to, I want to say, play around with lowering rates, being careful not to lose the positive balances.
Matthew M. Breese: Okay. And then I guess the same set of questions on the liability side. What is the duration of borrowings and CDs at this point? And are you starting to price CDs a little bit lower than where they were at their peak?
William S. Burns: We're just in the beginning stages of being more aggressive on CD repricing. The benefit is slight because, right, a lot of the rates that are on our books now are already at a high level. But we're starting to, I want to say, play around with lowering rates, being careful not to lose deposit balances. But it's worked in our favor before to be ahead of the curve. If rates are going to be cut in September, we don't really need to wait until that date. We can implement that a month before the exam, which is coming up pretty soon.
William S. Burns: We're just in the beginning stages of being more aggressive on CD repricing. The benefit is is slight because, right, a lot of the rates that are on our books now are already in a high level, but we're starting to...
William S. Burns: I want to say play around with lowering rates.
William Burns: But it's worked in our favor before to be ahead of the curve. If rates are going to be cut in September, we don't really need to wait till that date. You know, we can, we can implement that, you know, month before, which is, which is coming out pretty soon. Okay.
William S. Burns: being careful not to lose the positive balances.
William S. Burns: But it's worked in our favor before to be ahead of the curve. If rates are going to be cut in September , we don't really need to wait until that date. You know, we can implement that, you know, a month before, which is coming up pretty soon.
William S. Burns: Two other quick ones. The first one is just that revenue picked up quite a bit this quarter, especially in the other income areas. What drove that, and how sustainable is it?
William S. Burns: Okay.
William S. Burns: Two other quick ones. The first one is just the income picked up quite a bit this quarter, especially in the other income areas. What drove that and how sustainable is it?
William S. Burns: So, like I mentioned in the call, there was one fairly large loan that was a non-relationship loan that we were able to sell for a gain, and we made the decision it was a good idea to get off the balance sheet and book that gain. So the gains on sale were elevated for the quarter. But having said that, underlying in the SBA piece. I'm looking for $500,000 or more next quarter and will continue to build that. Part of that build comes from Boots on the Ground but also BowFly, which can add another $200,000 to $300,000 per quarter in revenue.
William Burns: We did have; there was one fairly large loan that we were, that was a normal relationship loan that we were able to sell for again, and we made the decision it was a good idea to get off the balance, you know, book that game. So, the gains on sale were elevated for the quarter, but, I mean, said that underlying in the SBA piece, I'm looking for 500,000 or more next quarter and continue to build that part of that build. Comes from boots on the ground, but also both lie, which can add another two to 300,000 per quarter in gains.
William S. Burns: So, like I mentioned in the call, we did have, there was one...
William S. Burns: fairly large loan that was a non-relationship loan that we were able to sell for a gain and we made the decision it was a good idea to get off the balance sheet and book that gain. So the gains on sale were elevated for the quarter. But having said that, underlying in the SBA,
William S. Burns: I'm looking for $500,000 or more next quarter and continue to build that. Part of that build
William S. Burns: comes from Boots on the Ground, but also BowFly, which can add another $200,000 to $300,000 per quarter in gains.
William S. Burns: So would it be fair to run other income and call it a million dollar range per quarter?
William Burns: So would be fair to run other income, they call it a million dollar range per quarter. I'm not going to get our financial statement. What was the way, what was the total quarterly, nine percent count? The total was four, three, nine, nine, and other income was 1.277 million. Right. Yeah, I would say that that I would say the, the neck and on sale of loan, the sons of sale should be a little bit lower going forward, but the deposit loan and other income could be up a little, as well as the both, the, as we are in the process restructuring some of that.
William S. Burns: So would it be fair to run other income and call it a million dollar range per quarter?
William S. Burns: I'm not going to get our financial statement. What was the total quarterly non-percent comp? The total was $4,399. Other income was $1.277 million. Okay.
William S. Burns: I'm not going to get our financial statement.
William S. Burns: What was the total quarterly non-income?
Speaker Change: The total is $4,399.
Speaker Change: Other income was $1.277 million.
William S. Burns: Yeah, I would say that I would say the net gain on sales of loans for sales should be a little bit lower going forward, but the deposit loan and other income could be up a little as well as both boldly as we are in the process of restructuring some of that. So probably a little bit down from the June quarter, but up from the quarter before.
William S. Burns: Right.
William S. Burns: Yeah, I would say that the net gain on sales should be a little bit lower going forward, but the deposit loan and other income could be up a little, as well as the BOLI, as we are in the process of restructuring some of that.
William Burns: So, okay, probably a little bit down from the June quarter, but up from the quarter before.
William S. Burns: So, probably a little bit down from the June quarter, but up from the quarter before.
William S. Burns: And then you have $75 million of sub-debt reaching its call date next year. The step up is going to be pretty significant in cost. I'm just curious what your plans for that are. Is there going to be kind of a preemptive sub-debt raise, or are you going to just let it roll into its floating period?
Matthew Breese: And then you have 75 million of sub debt; we can call date next year. The step up is going to be pretty significant and cost; I just want to raise what your plans for that are. Is going to be kind of a preemptive sub debt. Raise or you're going to just, you know, let it roll into its floating period. We're thinking about it, we're watching it, and we'll have to figure out one of the best things to do when the time comes. Okay.
William S. Burns: Bye.
William S. Burns: And then you have $75 million of sub-debt reaching its call date next year. The step up is going to be pretty significant in cost. I'm just curious what your plans for that are. Is there going to be kind of a preemptive sub-debt raise or are you going to just let it roll into its floating period?
William S. Burns: We're thinking about it, we're watching it, and we'll have to figure out what's the best thing to do when the time comes.
William S. Burns: We're thinking about it, we're watching it, and we'll have to figure out what's the best thing to do when the time comes.
Matthew M. Breese: Okay, I will leave it there. Thank you for taking all my questions. Okay. Thanks, Matt.
Matthew Breese: I will leave it there. Thank you for taking all my questions. Okay. Thanks, Matt.
Matthew M. Breese: Okay, I will leave it there. Thank you for taking all my questions. Okay. Thanks, Matt.
Operator: Thank you.
Frank S. Sorrentino: Thank you. I'll now turn the call back over to management for closing remarks.
William Burns: I'll now turn the call back over to management for closing remarks. Well, thank you, everyone. We thank you again for your time today, and we look forward to speaking with you again during the third quarter conference call in a few months.
Frank S. Sorrentino: Well, thank you everyone. We thank you again for your time today, and we look forward to speaking with you again during the third quarter conference call in a few months. Everybody, enjoy your summer, and have a great day.
Frank S. Sorrentino: Thank you. I'll now turn the call back over to management for closing remarks.
Frank S. Sorrentino: Well, thank you, everyone. We thank you again for your time today, and we look forward to speaking with you again during the third quarter conference call in a few months. Everybody enjoy your summer and have a great day.
William Burns: Everybody, enjoy your summer and have a great day. Thank you.
Unknown Executive: Thank you. Ladies and gentlemen, that concludes today's call. Thank you all for joining us. You may now disconnect.
Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Unknown Executive: Thank you. Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.