Q2 2024 First Commonwealth Financial Corp Earnings Call

Regina: Hello, and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the First Commonwealth Financial Corporation second quarter 2024 earnings release conference call. All lines have been placed on mute to prevent any background noise.

Operator: Hello, and thank you for standing by.

Regina: My name is Regina, and I'll be your conference operator today.

Regina: Hello, and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the First Commonwealth Financial Corporation second quarter 2024 earnings release conference call. All lines have been placed on mute to prevent any background noise.

Regina: At this time, I would like to welcome everyone to the first Commonwealth Financial Corporation second quarter 2024 earnings release conference call. All minds have been placed on me to prevent any background noise.

Regina: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you'd like to withdraw your question, press star one again. I would now like to turn the conference over to Ryan Thomas, Vice President of Finance and Investor Relations. Please go ahead.

Regina: After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you'd like to withdraw your question, press star one again.

Regina: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star then the number one on your telephone keypad.

Ryan Thomas: I would now like to turn the conference over to Ryan Thomas, Vice President of Finance and Investor Relations. Please go ahead.

Regina: If you'd like to withdraw your question, press star 1 again. I would now like to turn the conference over to Ryan Thomas, Vice President of Finance and Investor Relations. Please go ahead.

Ryan M. Thomas: Thanks, Regina, and good afternoon everyone. Thank you for joining us today to discuss First Commonwealth Financial Corporation's second quarter financial results. Participating on today's call will be Mike Price, President and CEO, James Reske, Chief Financial Officer, Jane Grebenc, Bank President and Chief Revenue Officer, Brian Karrip, Chief Credit Officer, and Mike McEwen, our Chief Lending Officer. As a reminder, a copy of yesterday's earnings release can be accessed by logging on to fcbanking.com and selecting the Investor Relations link at the top of the page.

Ryan Thomas: Thanks, Regina, and good afternoon, everyone. Thanks for joining us today to discuss First Commonwealth Financial Corporation second quarter financial results. Participating on today's call will be Mike Price, president of the EO, Jamer S.B., chief financial officer, Jinger Benz, bank president and chief revenue officer, Brian Carrick, chief credit officer, and Mike McEwan, our chief lending officer.

Ryan M. Thomas: Thanks, Regina, and good afternoon, everyone. Thank you for joining us today to discuss First Commonwealth Financial Corporation second quarter financial results.

Speaker Change: Participating on today's call will be Mike Price, President and CEO , James Reske, Chief Financial Officer, Jane Grebenc, Bank President and Chief Revenue Officer, Brian Karrip, Chief Credit Officer, and Mike McKeown, our Chief Lending Officer.

Ryan Thomas: As a reminder, a copy of yesterday's earnings release can be accessed by logging on to fcbanking.com and selecting the Investor Relations link at the top of the page. We've also included a slide presentation on our Investor Relations website with supplemental information that will be referenced during today's call.

Speaker Change: As a reminder, a copy of yesterday's earnings release can be accessed by logging on to FCBanking.com and selecting the Investor Relations link at the top of the page.

Ryan M. Thomas: We've also included a slide presentation on our Investor Relations website with supplemental information that will be referenced during today's call. Before we begin, I need to caution listeners that this call will contain forward-looking statements. Please refer to our forward-looking statements disclaimer on page 3 of the slide presentation for a description of risks and uncertainties that could cause actual results to differ materially from those reflected in the forward-looking statement. Today's call will also include non-GAAP financial measures.

Speaker Change: We've also included a slide presentation on our investor relations website with supplemental information that will be referenced during today's call. Before we begin, I need to caution listeners that this call will contain forward-looking statements.

Ryan Thomas: Before we begin, I need to caution listeners that this call will contain forward-looking statements. Please refer to our forward-looking statements disclaimer on page three of the slide presentation for a description of risks and uncertainties that could cause actual results to differ materially from those reflected in the forward-looking statement.

Speaker Change: Please refer to our forward-looking statements disclaimer on page 3 of the slide presentation for description of risks and uncertainties that could cause actual results to differ materially from those reflected in the forward-looking statement.

Ryan Thomas: Today's call will also include non-GAAP financial measures. Non-GAAP financial measures should be viewed in addition to and not as an alternative for reported results prepared in accordance with GAAP. Reconciliation of these measures can be found in the appendix of today's slide presentation.

Ryan M. Thomas: Non-GAAP financial measures should be viewed in addition to and not as an alternative for reported results prepared in accordance with GAAP. Reconciliation of these measures can be found in the appendix of today's slide presentation. Hey, thanks.

Speaker Change: Today's call will also include non-GAAP financial measures.

Mike: non-GAAP financial measures should be viewed in addition to and not as an alternative for a reported results prepared in accordance with GAAP. Reconciliation of these measures can be found in the appendix of today's slide presentation. With that, I will turn the call over to Mike.

Mike Price: With that, I will turn the call over to Mike. Hey, thank you, Ryan, and welcome everyone. Core earnings per share of 36 cents beat consensus estimates by one penny for the second quarter of 2024. Pre-tax pre-provision net revenue was up by $3.6 million over last quarter. Headline numbers for the second quarter include a core return on assets of 1.29%, a core pre-tax pre-provision ROA of 1.88%, a core return on tangible common equity of 15.93%, and a core efficiency ratio of 53.34%. Importantly, the net interest margin expanded by five basis points to 3.57%, as the increase in loan yields outpaced the increase in funding costs for the first time since the fourth quarter of 2022.

Mike Price: Hey, thank you, Ryan, and welcome everyone. Core earnings per share of 36 cents beat consensus estimates by one penny for the second quarter of 2024. Pre-tax, pre-provision net revenue was up by $3.6 million over last quarter. Headline numbers for the second quarter include a core return on assets of 1.29%, a core pre-tax, pre-provision ROA of 1.88 percent, a core return on tangible common equity of 15.93 percent, and a core efficiency ratio of 53.34 percent.

Mike: Hey, thank you, Ryan. And welcome, everyone. Core earnings per share of 36 cents beat consensus estimates by one penny for the second quarter of 2024.

Mike: Pre-tax, pre-provision net revenue was up by $3.6 million over last quarter. Headline numbers for the second quarter include a core return on assets of 1.29 percent,

Mike: A core pre-tax, pre-provision ROA of 1.88%, a core return on tangible common equity.

Mike: of 15.93% and a core efficiency ratio of 53.34%.

Mike Price: Importantly, the net interest margin expanded by five basis points to 3.57 percent as the increase in loan yields outpaced the increase in funding costs for the first time since the fourth quarter of 2022. Other trends follow, low, and outstandings were flat. Even as average deposit balances grew 8.7% in the second quarter, looking at loans a little closer, total loans grew just under 1%, with growth centered on equipment financed and, to a lesser extent, SBA.

Mike: Importantly, the net interest margin expanded by five basis points to 3.57% as the increase in loan yields outpaced the increase in funding costs for the first time since the fourth quarter of 2022.

Mike Price: Other trends follow; low and outstanding were flat, even as average deposit balances grew 8.7% in the second quarter. Looking at loans a little closer, total loans grew just under 1% with growth centered on equipment financed, into a lesser extent SBA. Over the last year, we pinched consumer loans, mortgages, home equity loans, and indirect auto. It had not chased volume at the expense of spread. We've moved prices up, and now the prospect of rate cuts, these consumer categories could become more attractive to us in the next few quarters. Similarly, we have been cautious over the last year with investment real estate, and coupled with tepid demand, originations have dropped.

Mike: Other trends follow. Loan outstandings were flat, even as average deposit balances grew 8.7% in the second quarter. Looking at loans a little closer.

Mike: Total loans grew just under 1% with growth centered on equipment financed and to a lesser extent SBA.

Mike Price: Over the last year, we've pinched consumer loans, mortgages, home equity loans, and indirect auto loans and have not chased volume at the expense of spread. We've moved prices up, and now, the prospect of rate cuts could make these consumer categories could become more attractive to us in the next few quarters. Similarly, we have been cautious over the last year with investment real estate, and coupled with tepid demand, originations have dropped.

Speaker Change: Over the last year, we've pinched consumer loans, mortgages, home equity loans, and indirect auto, and have not chased volume at the expense of spread.

Speaker Change: We've moved prices up, and now...

Mike: With the prospect of rate cuts, these consumer categories could become more attractive to us in the next few quarters.

Mike: Similarly, we have been cautious over the last year with investment real estate and coupled with tepid demand, originations have dropped.

Mike Price: We are starting to see more good looks in both CNI and commercial real estate, and pipelines are building. As we've shared in the past, our loan growth in Ohio continues to outpace our Pennsylvania loan growth. Looking ahead, we are confident in our loan origination capabilities, and we believe we can get to well structured and well priced mid single digit loan growth by the fourth quarter and into 2025. Conversely, deposit gathering has been broad-based across most of our footprint. Deposit performance in our community PA market continues to be exceptional. Community PA just happens to be our largest low-cost deposit region as well.

Mike Price: We are starting to see more good looks in both C&I and commercial real estate, and pipelines are building. As we've shared in the past, our loan growth in Ohio continues to outpace our Pennsylvania loan growth. Looking ahead, we are confident in our loan origination capabilities, and we believe we can get to well-structured and well-priced mid-single-digit loan growth by the fourth quarter and into 2025. Conversely, deposit gathering has been broad-based across most of our footprint, and deposit performance in our community PA market continues to be exceptional. Community PA just happens to be our largest low-cost deposit region as well.

Mike: We are starting to see more good looks in both C&I and commercial real estate, and pipelines are building.

Mike: As we've shared in the past, our loan growth in Ohio continues to outpace our Pennsylvania loan growth.

Mike: Looking ahead, we are confident in our loan origination capabilities, and we believe we can get to well-structured and well-priced mid-single-digit loan growth by the fourth quarter and into 2025.

Speaker Change: Conversely, deposit gathering has been broad-based across most of our footprint. Deposit performance in our community PA market continues to be exceptional.

Mike: Community PA just happens to be our largest low-cost deposit region as well. We've seen an increasing number of competitors lower deposit rates in our market area.

Mike Price: We've seen an increasing number of competitors lower deposit rates in our market area. Taking some pressure off of pricing, we continue to offer competitive rates on time deposits because we want to bring our loan deposit ratio down to create the liquidity to fund expected loan growth. But we're doing so at shortened terms to allow for reprising as rates fall. One other important dynamic worth noting is that we saw non-interest bearing balances increase slightly over last quarter. We're hopeful that means we are at or nearing the end of outflow of pandemic surge deposits, as Jim likes to call them.

Mike Price: We've seen an increasing number of competitors lower deposit rates in our market area. Taking some pressure off of pricing, we continue to offer competitive rates on time deposits because we want to bring our loan-to-deposit ratio down to create the liquidity to fund expected loan growth, but we're doing so at shortened terms to allow for repricing as rates fall. One other important dynamic worth noting is that we saw non-interest-bearing balances increase slightly over last quarter. We're hopeful that means we're at or nearing the end of the outflow of pandemic surge deposits, as Jim likes to call them.

Mike: Taking some pressure off of pricing, we continue to offer competitive rates on time deposits because we want to bring our loan-to-deposit ratio down to create the liquidity to fund expected loan growth, but we're doing so at shortened terms to allow for repricing as rates fall.

Mike: One other important dynamic worth noting is that we saw non-interest-bearing balances increase slightly over last quarter. We're hopeful that means we are at or nearing the end of outflow of pandemic surge deposits, as Jim likes to call them.

Mike Price: Non-interest bearing deposits were 24.5% of total deposits this quarter, relatively unchanged from 24.9% last quarter. Non-interest income grew $1.2 million to $25.2 million in the second quarter on the strength of higher wealth management fees and interchange income. The increase in wealth management fees was due to strong fixed annuity sales in our wealth division as customers sought out instruments to protect their investments from falling rates. The increase in interchange income was welcome, but we expect a roughly $3.5 million quarterly downdraft in interchange income due to the Durbin impact starting next quarter, which appears to already have been baked into our estimates.

Mike Price: Non interest bearing was 24.5% of total deposits this quarter, relatively unchanged from 24.9% last quarter. Non interest income grew 1.2 million dollars to 25.2 million dollars in the second quarter on the strength of higher wealth management fees and interchange income. The increase in wealth management fees was due to strong fixed annuity sales in our wealth division as consumers, customers sought out instruments to protect their investments from falling rates. The increase in interchange income was welcome, but we expect a roughly $3.5 million quarterly down draft in interchange income due to the Durban impact starting next quarter, which appears to be already have been baked into our estimates.

Jim: Non-interest bearing was 24.5% of total deposits this quarter, relatively unchanged from 24.9% last quarter.

Jim: Non-interest income grew $1.2 million to $25.2 million in the second quarter on the strength of higher wealth management fees and interchange income.

Speaker Change: The increase in wealth management fees was due to strong fixed annuity sales in our wealth division as customers sought out instruments to protect their investments from falling rates.

Speaker Change: The increase in interchange income was welcome, but we expect a roughly $3.5 million quarterly downdraft in interchange income due to the Durban impact starting next quarter, which appears to be already have been baked into our estimates.

Mike Price: Expenses continue to be well controlled at $65.8 million as our FTE remained down from year end even as we staff appropriately to support crossing 10 billion. Our core efficiency ratio improved to 53.6%. Charge-offs of 4.4 million were relatively flat quarter over quarter. Provision expense, however, was elevated as we set aside further specific reserves for non-performing loans. Non-performing loans increased 14.7 million dollars for the quarter. Roughly 75% of the increase in NPLs was attributable to the former centric loans. Of course, Centric is fully integrated into the First Commonwealth now as our capital region, so we'll soon stop reporting such items separately, but for now we would note that approximately half of all of our current NPLs are related to loans acquired in that acquisition, which was about 10% of our total assets at the time.

Mike Price: Expenses continue to be well controlled at $65.8 million as our FTE remained down from year end, even as we staff appropriately to support crossing $10 billion. Our core efficiency ratio improved to 53.6%. The charge-offs of $4.4 million were relatively flat quarter over quarter.

Speaker Change: Expenses continue to be well controlled at $65.8 million, as our FTE remained down from year-end, even as we staffed appropriately to support crossing $10 billion. Our core efficiency ratio improved to 53.6%.

Speaker Change: Charge-offs of $4.4 million were relatively flat quarter over quarter. Provision expense, however, was elevated as we set aside further specific reserves.

James R. Reske: Provision expense, however, was elevated as we set aside further specific reserves for non-performing loans. Non-performing loans increased $14.7 million for the quarter. Roughly 75% of the increase in NPLs was attributable to the former Centric loans. Of course, Centric is fully integrated into First Commonwealth, now our capital region, so we will soon stop reporting such items separately, but for now, we would note that approximately half of all of our current NPLs are related to loans acquired in that acquisition, which was about 10% of our total assets at the time.

Speaker Change: for non-performing loans. Non-performing loans increased $14.7 million for the quarter.

Speaker Change: Roughly 75% of the increase in NPLs.

Speaker Change: was attributable to the former Centric Loans.

Speaker Change: Of course, Centric is fully integrated into First Commonwealth, now as our capital region. So we'll soon stop reporting such items separately. But for now, we would note that approximately half of all of our current NPLs are related to loans acquired in that acquisition.

Mike Price: We understood we would have credit pressure during the diligence. We set a fairly robust credit mark and priced the transaction accordingly. And given the achievement of announced cost-save, the transaction has been accretive to income despite the obvious credit work out headways.

James R. Reske: We understood we would have credit pressure during due diligence. We set a fairly robust credit mark and priced the transaction accordingly, and given the achievement of announced cost saves, the transaction has been accretive to income despite the obvious credit workout headwind. As Jim Reske will discuss in more detail, we also used $5.6 million, a gain of $5.6 million from the sale of Visa B shares, to absorb a loss on the sale of $75 million of low-yielding securities, which were replaced with securities at current market rates.

Speaker Change: which was about 10% of our total assets at the time.

Speaker Change: We understood we would have credit pressure during due diligence. We set a fairly robust credit mark and priced the transaction accordingly. And given the achievement of announced cost saves, the transaction has been accretive to income despite the obvious credit workout headwinds.

Mike Price: Actions. As Jim Reske will discuss in more detail, we also used a $5.6 million gain at $5.6 million from the sale of Visa B shares to absorb a loss on the sale of $75 million of low-yielding securities, which were replaced with securities at current market rates.

Speaker Change: As Jim Reske will discuss in more detail, we also used a $5.6 million

James R. Reske: Again, a $5.6 million from the sale of Visa B shares to absorb a loss on the sale of $75 million of low-yielding securities.

Mike Price: We also redeemed a $50 million tranche of sub debt in early June. Both of these will result in an annual picked up in pre-tax income and will be accretive to our net interest margin.

James R. Reske: We also redeemed a $50 million tranche of sub-debt in early June. Both of these will result in an annual pickup in pre-tax income and will be accretive to our net interest margin. In closing, second quarter financials were solid, particularly pre-tax, pre-provision profitability, and ongoing efficiency, and we continue to take steps to grow deposit liquidity to support broad-based loan growth into the future. With that, I'll turn it over to Jim. Thanks, Mike.

James R. Reske: which were replaced with securities at current market rates. We also redeemed a $50 million tranche of sub-debt in early June . Both of these will result in an annual pickup in pre-tax income and will be accretive to our net interest margin.

Mike Price: In closing, second quarter financials were solid, particularly pre-tax, pre-provision profitability and ongoing efficiency, and we continue to take steps to grow the positive liquidity to support broad-based loan growth into the future.

James R. Reske: In closing, second quarter financials were solid, particularly pre-tax, pre-provision, profitability, and ongoing efficiency, and we continue to take steps to grow deposit liquidity to support broad-based loan growth into the future.

Jim Reske: With that, I'll turn it over to Jim. Thanks. We had a few unusual transactions in the quarter that I'd like to walk you through before I turn to our core operator results. First, as previously disclosed and as Mike just mentioned, on June 1st, we redeemed $50 million of the $100 million subordinated debt that we had outstanding. The sub debt was issued at the bank level in 2018. The $50 million that we redeemed was a 10-year instrument, so the Tier 2 capital treatment was already in the period and was about to lose another 20% of its capital treatment.

James R. Reske: With that, I'll turn it over to Jim. Thanks, Mike.

James R. Reske: We had a few unusual transactions in the quarter that I'd like to walk you through before I turn to our core operator. First, as previously disclosed, and as Mike just mentioned, on June 1st, we redeemed $50 million of the $100 million in subordinated debt that we had outstanding. The security was issued at the bank level in 2018. The $50 million that we redeemed was a 10-year instrument, so the Tier 2 capital treatment was already in the phase-out period and was about to lose another 20% of its capital.

James R. Reske: We had a few unusual transactions in the quarter that I'd like to walk you through before I turn to our core operating results.

James R. Reske: The other $50 million that remains outstanding is a 15-year instrument and so remains eligible for 100% Tier 2 capital treatment for another four years at a fixed rate of 5.5%. The $50 million that we redeemed was floating at a rate of about 7.5%, and we called it using excess cash on hand, so calling it on June 1st gave us one month of benefit in our net interest margin for the quarter. This was the perfect quarter to redeem the sub-debt since capital ratios grew strongly due to capital generation combined with limited balance sheet growth.

James R. Reske: First, as previously disclosed, and as Mike just mentioned, on June 1st, we redeemed $50 million of the $100 million in subordinated debt that we had outstanding.

Speaker Change: The sub-debt was issued at the bank level in 2018. The $50 million that we redeemed was a 10-year instrument, so the Tier 2 capital treatment was already in the phase-out period and was about to lose another 20% of its capital treatment.

Jim Reske: The other $50 million that remains outstanding is a 15-year instrument, and so remains eligible for 100% Tier 2 capital treatment for another four years at a fixed rate of 5.5%. The $50 million that we redeemed was floating at a rate of about 7.5%, and we called it using excess cash on hand, so calling it on June 1st gave us one month of benefit in our net interest margin for the quarter. This was the perfect quarter to redeem the sub debt since capital ratios grew strongly due to capital generation combined with limited balance sheet growth. On its own, the sub debt redemption would have resulted in a 44 basis point reduction in the total risk-based capital ratio, but that ratio only went down by 8 basis points as quarter.

Speaker Change: The other $50 million that remains outstanding is a 15-year instrument and so remains eligible for 100% Tier 2 capital treatment for another four years at a fixed rate of 5.5%.

Speaker Change: The $50 million that we redeemed was floating at a rate of about 7.5%.

Speaker Change: and we called it using excess cash on hand. So calling it on June 1st gave us one month of benefit in our net interest margin for the quarter.

Speaker Change: This was the perfect quarter to redeem the sub-debt since capital ratios grew strongly due to capital generation combined with limited balance sheet growth. On its own, the sub-debt redemption would have resulted in a 44 basis point reduction in the total risk-based capital ratio, but that ratio only went down by 8 basis points this quarter.

James R. Reske: On its own, the sub-debt redemption would have resulted in a 44 basis point reduction in the total risk-based capital ratio, but that ratio only went down by 8 basis points this quarter. And, in fact, the tangible common equity ratio actually improved from 8.4% to 8.7% during the quarter, as did the CET1 ratio from 11.4% to 11.7%. The sub-debt redemption contributed to the NIM improvement for one month in the second quarter, and going forward, it should contribute about two basis points of NIM, in part because we used cash to pay it off and shrunk the balance sheet by $50. The redemption should also add about $1 million of net interest income on an annual basis. Second,

Jim Reske: In fact, the tangible common equity ratio actually improved from 8.4% to 8.7% of the quarter, as did the CET1 ratio from 11.4% to 11.7%. The sub debt redemption contributed to the minimum improvement for one month in the second quarter, and going forward, it should contribute about two basis points of NIM, in part because we use cash to pay it off and shrunk the balance sheet by $50 million. The redemption should also add about $1 million of net interest income on an annual basis.

Speaker Change: And in fact, the tangible common equity ratio actually improved from 8.4% to 8.7% of the quarter, as did the CET-1 ratio from 11.4% to 11.7%.

Speaker Change: The sub-debt redemption contributed to the NIM improvement for one month in the second quarter and going forward it should contribute about two basis points of NIM.

Speaker Change: in part because we used cash to pay it off and shrunk the balance sheet by $50 million.

Speaker Change: The redemption should also add about $1 million of net interest income on an annual basis.

Jim Reske: Second, we had two offsetting non-core items in the quarter. We, along with approximately 98% of banks holding Visa shares, accepted Visa's offer to sell half our holdings in action, which we previewed three displays as well. As a result, we recognized approximately $5.6 million of gain on the stock in the second quarter. Offsetting that was a sale at the very end of the quarter of $75 million in underwater securities at a $5.5 million loss. As a result, these two non-core items offset each other in terms of their effect on second quarter earnings, leading GAAP and core EPS exactly the same for the quarter of $3.5 million.

James R. Reske: We had two offsetting non-core items in the quarter. We, along with approximately 98% of banks holding Visa shares, accepted Visa's offer to sell half our holdings, an action which we previously took as well. As a result, we recognized approximately $5.6 million of gain on the stock in the second quarter. However, offsetting that was a sale at the very end of the quarter of $75 million in underwater securities at a $5.5 million loss. As a result, these two non-core items offset each other in terms of their effect on second quarter earnings, leaving GAAP and core EPS exactly the same for the quarter at $35.

Speaker Change: Second

Speaker Change: We had two offsetting non-core items in the quarter. We, along with approximately 98% of banks holding Visa shares, accepted Visa's offer to sell half our holdings, an action which we previously disclosed as well. As a result, we recognized approximately $5.6 million of gain on the stock in the second quarter.

Speaker Change: Offsetting that was a sale at the very end of the quarter of $75 million in underwater securities at a $5.5 million loss.

Speaker Change: As a result, these two non-core items offset each other in terms of their effect on second quarter earnings, leaving GAAP and Core EPS exactly the same for the quarter at 36 cents.

Jim Reske: But the net effect going forward is selling low-yielding securities and, in their place, repurchasing securities of current market rates should provide a two-basis-point tailwind to them, along with approximately 2.25 million, and improve net interest income per year.

James R. Reske: But the net effect going forward is selling low-yielding securities and, in their place, repurchasing securities at current market rates should provide a two basis point tailwind to them, along with approximately 2.25 million in improved net interest income per year. Now on to our core operating, Notwithstanding provision expense and the non-core items mentioned above, our pre-tax, pre-provision net revenue improved by $3.6 million over the last quarter as NIM expanded and fee income improved.

Speaker Change: But the net effect going forward of selling low-yielding securities and in their place repurchasing securities at current market rates should provide a two basis point tailwind to NIM along with approximately $2.25 million in improved net interest income per year.

Jim Reske: Now onto our core operating results. Notwithstanding provision expense and the non-core items mentioned above, our pre-tax pre-pervision net revenue improved by $3.6 million of our last quarter as an expanded and fee income improved. After four quarters of an in compression, the margin finally expanded this quarter by five basis points to 3.57%. Yields unearning assets improved by 12 basis points, while the cost of funds only went up by seven basis points. The cost of deposits went up by 10 basis points, but the impact of the total cost of funds was needed by the sub debt redemption.

Speaker Change: Now, on to our core operating results.

Speaker Change: Notwithstanding provision expense and the non-core items mentioned above, our pre-tax pre-provision net revenue improved by $3.6 million over the last quarter as a NIM expanded and fee income improved.

James R. Reske: After four quarters of an incompression, the margin finally expanded this quarter by five basis points to 3.5. Yields on earning assets improved by 12 basis points while the cost of funds only went up by 7 basis points. The cost of deposits went up by 10 basis points, but the impact of the total cost of funds was muted by the sub-debt redemption. The NIM also benefited by about two basis points from the recognition into net interest income of deferred interest on one loan that had previously been based on non-accruals.

Speaker Change: After four quarters of an in compression, the margin finally expanded this quarter by five basis points to 3.57%.

Speaker Change: Yields on earning assets improved by 12 basis points, while the cost of funds only went up by 7 basis points.

Speaker Change: The cost of deposits went up by 10 basis points, but the impact of the total cost of funds was muted by the sub-debt redemption.

Jim Reske: The NIM also benefited by about two basis points from the recognition of interest income of deferred interest on one loan that had previously been in place on non-accrual status. Purchase accounting accretion contributed eight basis points to the NIMDIS quarter, and we still expect that to fade out by about one basis point per quarter.

Speaker Change: The NIM also benefited by about two basis points from the recognition into net interest income of deferred interest on one loan that had previously been based on non-accrual status.

James R. Reske: Purchase Accounting Accretion contributed 8 basis points to the Nimbus Quarter, and we still expect that to fade out by about 1 basis point per quarter. The other big story with regard to the Nimbus Corridor was a fairly dramatic slowdown in the deposit, quote-unquote, rotation that we've seen in the past year. While there's no standard industry definition for that term, we use it to mean declines and balances in the traditionally low-cost deposit categories of non-interest bearing, now, and savings accounts and growth in the balances of the higher-cost categories of money market and time deposits.

Speaker Change: Purchase accounting accretion contributed eight basis points to the Nimbus Quarter, and we still expect that to fade out by about one basis point per quarter.

Jim Reske: The other big story with regard to the NIMDIS quarter was a fairly dramatic slowdown in the deposit, quote unquote, rotation that we've seen in the past year. While there's no standard industry definition for that term, we use it to mean declines and balances in the traditionally low-cost deposit categories of non-interest-bearing, now and savings accounts, and growth in the balances of the higher-cost categories of money market and time deposits. In the first quarter of 2024, for example, we experienced a decline of approximately 233 million in the less expensive categories, and an increase of 283 million in the more expensive categories.

Speaker Change: The other big story with regard to the Nimbus Corridor was a fairly dramatic slowdown in the deposit quote-unquote rotation that we've seen in the past year.

Speaker Change: While there's no standard industry definition for that term, we use it to mean declines and balances in the traditionally low-cost deposit categories of non-interest bearing, now and savings accounts, and growth in the balances of the higher-cost categories of money market and time deposits.

James R. Reske: In the first quarter of 2024, for example, we experienced a decline of approximately $233 million in the less expensive categories and an increase of $283 million in the more expensive categories. That was the first quarter of 2024. That's been the pattern for the last six quarters.

Speaker Change: In the first quarter of 2024, for example, we experienced a decline of approximately $233 million in the less expensive categories and an increase of $283 million in the more expensive categories. That was the first quarter of 2024.

Jim Reske: That was the first quarter of 2024. That's been the pattern for the last six quarters. The deposit rotation began in earnest in the first quarter of 2023, and has been running at roughly 200 to 250 million in each of the last three quarters. In the second quarter, just then did, however, the less expensive categories, rather than decreasing, actually increase by 27 million, while the more expensive categories only increased by 173 million. Perhaps more importantly, the deposit growth that we had in the first quarter came at an incremental cost of about 4.5 percent, and in the second quarter, the incremental cost on new deposit funds filled a 3.4 percent.

James R. Reske: Deposit rotation began in earnest in the first quarter of 2023 and has been running at roughly $200 to $250 million in each of the last three quarters. In the second quarter just ended, however, the less expensive categories, rather than decreasing, actually increased by $27 million. Meanwhile, the more expensive categories only increased by 173. Perhaps more importantly,

Speaker Change: That's been the pattern for the last six quarters. Deposit rotation began in earnest in the first quarter of 2023 and has been running at roughly $200 to $250 million in each of the last three quarters.

Speaker Change: In the second quarter just ended, however, the less expensive categories, rather than decreasing, actually increased by $27 million, while the more expensive categories only increased by $173 million.

James R. Reske: The deposit growth that we had in the first quarter came at an incremental cost of about 4.5 percent. And in the second quarter, the incremental cost on new deposit funds fell to 3.4 percent. That, combined with the rotation slowdown, are noteworthy shifts and give us increased confidence in our NIM forecast going forward. As a result of these dynamics, we would expect NIMS stability or even slight improvement from current levels for the remainder of 2024, give or take five basis points as usual, but with a bias towards the higher end of that range, even with two to three cut rates.

Speaker Change: Perhaps more importantly, the deposit growth that we had in the first quarter came at an incremental cost of about 4.5%, and in the second quarter, the incremental cost on new deposit funds fell to 3.4%.

Jim Reske: That, combined with the rotation slowdown, are no worthy shifts and give us increased confidence in our NIM forecast going forward. As a result of these dynamics, we would expect NIM stability or even slight improvement from current levels. The remainder of 2024, give or take five basis points as usual, but with a bias towards the higher end of that range, even with two to three cut rate cuts. Over the long haul, we are at the sensitive, but in the near term, even with rate cuts, our low portfolio yields will continue to drift upwards for a while before they start to fall.

Speaker Change: That, combined with the rotation slowdown, are noteworthy shifts and give us increased confidence in our NIM forecasts going forward.

Speaker Change: As a result of these dynamics, we would expect NIMS stability or even slight improvement from current levels, the remainder of 2024, give or take five basis points as usual, but with a bias towards the higher end of that range, even with two to three cut rate cuts.

James R. Reske: Over the long haul, we are asset sensitive, but in the near term, even with rate cuts, our loan portfolio yields will continue to drift upwards for a while before they start to fall. Most importantly, the notion that we've turned a corner to a falling rate environment should further reduce pressure on funding rates over the medium term, which has been the hardest part. When we forecast using anywhere from zero to four rate cuts for the remainder of 2024 and 2025, we get the same pattern for NIM and net interest income.

Speaker Change: Over the long haul, we are asset sensitive, but in the near term, even with rate cuts, our loan portfolio yields will continue to drift upwards for a while before they start to fall.

Jim Reske: Most importantly, the notion that we've turned the corner to a falling rate environment should further reduce pressure on funding rates over the medium term, which has been the hardest part to predict. When we forecast using anywhere from zero to four rate cuts for the remainder of 2024 and 2025, we get the same pattern for NIM and that interest in Closed that he increases for the remainder of 2024, flat through the first quarter of 2025 as lower rates start to have their effect, and that a meaningful lift starting in the second quarter of next year as the macro swap start to mature.

Speaker Change: Most importantly, the notion that we've turned the corner to a falling rate environment should further reduce pressure on funding rates over the medium term, which has been the hardest part to predict.

Speaker Change: When we forecast using anywhere from zero to four rate cuts for the remainder of 2024 and 2025, we get the same pattern for NIM and net interest income.

James R. Reske: Slow, steady increases for the remainder of 2024, flat through the first quarter of 2025 as lower rates start to have their effect, and then a meaningful lift starting in the second quarter of next year as the macro swaps start to mature. In all of these scenarios, the quarter just ended appears to be the low point in terms of both NIM and net interest income, at least through 2025, though, to be clear, our forecast has certainly been wrong in the past.

Speaker Change: Slow, steady increases for the remainder of 2024, flat through the first quarter of 2025 as lower rates start to have their effect, and then a meaningful lift starting in the second quarter of next year as the macro swaps start to mature.

Jim Reske: In all of these scenarios, the quarter just ended appears to be the low point in terms of both an M and net interest income at least through 2025, though to be clear, our forecast has certainly been wrong in the past. Higher for longer is certainly better for us, but even in an aggregate aggressive rate cut scenario, where there are four cuts this year, and the Fed funds rate ends 2025 at about 3%, our NIM and NII are both still higher than where they are now over the next six quarters, even assuming only modest long growth.

Speaker Change: In all of these scenarios, the quarter just ended appears to be the low point in terms of both NIM and net interest income at least through 2025. Though, to be clear, our forecast has certainly been wrong in the past.

James R. Reske: Higher for longer is certainly better for us, but even in an aggregate, aggressive rate cut scenario where there are four cuts this year and the Fed funds rate ends 2025 at about 3%, our NIM and NII are both still higher than where they are now over the next six quarters, even assuming only modest loan growth.

Speaker Change: Higher for longer is certainly better for us, but even in an aggregate, aggressive rate cut scenario, where there are four cuts this year, and the Fed funds rate ends 2025 at about 3%,

Speaker Change: Our NIM and NII are both still higher than where they are now over the next six quarters, even assuming only modest loan growth.

Jim Reske: In terms of capital management, tangible book value per share increased by 30 cents or 13% annualized from the previous quarter to $9.56, due to about $24 million in retained earnings combined with a $5.7 million reduction in AOCI, which ended the quarter at $113.4 million or 11.6% of tangible common equity. We repurchased just under 23,000 shares this quarter at prices below $12.50 and have 17.1 million of authorization remaining in our current buyback program. Given the recent run-up in our stock price, the earnback on buybacks becomes longer than we'd like. But if we continue to experience modest balance growth, combined with consistent capital generation and reductions in AOCI, and especially now that the sub debt redemption is behind us, we may repurchase shares anyway simply to avoid becoming under leveraged.

James R. Reske: In terms of capital management, tangible book value per share increased by 30 cents or 13% annualized from the previous quarter to $9.56 due to about $24 million in retained earnings combined with a $5.7 million reduction in AOCI, which ended the quarter at $113.4 million or 11.6% of tangible common equity. We repurchased just under 23,000 shares this quarter at prices below $12.50, and we have $17.1 million of authorization remaining in our current buyback program.

Speaker Change: In terms of capital management, tangible book value per share increased by 30 cents or 13 percent annualized from the previous quarter to $9.56 due to about $24 million in retained earnings combined with a $5.7 million reduction in AOCI, which ended the quarter at $113.4 million or 11.6 percent of tangible common equity.

Speaker Change: We repurchased just under 23,000 shares this quarter at prices below $12.50 and have $17.1 million of authorization remaining in our current buyback program.

James R. Reske: Given the recent run-up in our stock price, the earn-back on buybacks will be longer than we'd like. But if we continue to experience modest balance sheet growth combined with consistent capital generation and reductions in AOCI, and especially now that the sub-debt redemption is behind us, we may repurchase shares anyway simply to avoid becoming under-leveraged. And with that, we'll take any questions.

Speaker Change: Given the recent run-up in our stock price,

Speaker Change: The earn back on buybacks becomes longer than we'd like, but if we continue to experience modest balance sheet growth combined with consistent capital generation and reductions in AOCI, and especially now that the sub-debt redemption is behind us, we may repurchase shares anyway simply to avoid becoming under leveraged.

Operator: And with that, we'll take any questions you may have. At this time, I'd like to remind everyone that in order to ask a question, press star, followed by the number one on your telephone keypad. Again, that is star one for any questions.

Regina: At this time, I'd like to remind everyone, in order to ask a question, press star followed by the number one on your telephone keypad. Again, that is star one for any questions. Our first question will come from the line of Daniel Tamayo with Raymond James. Please go ahead.

Speaker Change: And with that, we'll take any questions you may have.

Speaker Change: At this time, I'd like to remind everyone, in order to ask a question, press star followed by the number one on your telephone keypad. Again, that is star one for any questions. Our first question will come from the line of Daniel Tamayo with Raymond James. Please go ahead. Thank you. Thank you.

Daniel Tamayo: Our first question will come from the line of Daniel Tamiya with Raymond James. Please go ahead. Thank you.

Daniel Tamayo: Thank you. Good afternoon, everybody. Jim, I appreciate all the detail on the loans and the securities and the margin in general. You know, I guess first, normally one of the last things we address, but just curious, you mentioned you would buy back stock even if it's kind of rather expensive to do so, relative to the current levels, but just curious how M&A fits into the picture, if you guys are still interested in that, especially as your multiples have gone up, and how dry powder perhaps influences the amount of buybacks you would be willing to do as well.

Daniel Tamayo: Good afternoon, everybody. Jim, I appreciate all the detail on the loans and the securities and the margin in general.

Daniel Tamayo: I appreciate all the detail on the loans and the securities and the margin in general. I guess first,

Mike Price: I guess first, normally one of the last things we addressed, but just curious, you mentioned you would buy back stock, even if it's rather expensive to do so, relative to the current levels. But, you know, just curious how M&A fits into the picture if you guys are still interested in that, especially as your multiples have gone up, and how dry powder perhaps influences the amount of buybacks you would be willing to do as well. You know, I'll answer that from its just a technical perspective because our priorities are like a lot of other banks that they haven't changed, and they might want to come at more on M&A appetite, but we prefer always, like most banks, to use capital generation support organic growth.

Daniel Tamayo: And normally one of the last things we address but just curious, you know, you mentioned you would you would buy back stock if

Speaker Change: even if it's kind of rather expensive to do so relative to current levels.

Speaker Change: So, you know, just curious how M&A fits into the picture, if you guys are still interested in that, especially as your multiples have gone up and, you know, how dry powder perhaps influences the amount of buybacks you would be willing to do as well.

James R. Reske: I'll answer that from a technical perspective because our priorities are like a lot of other banks where they haven't changed, and they might want to come at it more on M&A appetite. But we prefer always, like most banks, to use capital generation to support organic growth. And then we have a smooth, we have a dividend. We just want smooth and steady increases in the regular dividend. We have no appetite for special dividends.

Speaker Change: Well, you know, I'll answer that from just a technical perspective because our priorities are like a lot of other banks, they haven't changed and they might want to come at more on M&A appetite, but we prefer always, like most banks, to use capital generation to support organic growth.

Mike Price: And then we have a smooth, we have a dividend, we just want smooth and steady increases in the regular dividend, we have no appetite for special dividends, and then we would love to do a creative M&A, both as not presenting itself, they will buy back the stock to maintain the leverage that we want. I mean, if a tangible common ratio starts creeping up to 9 percent, the bank just gets to be under leverage.

Speaker Change: And then we have a dividend. We just want smooth and steady increases in the regular dividend. We have no appetite for special dividends.

Mike Price: And then we would love to do a creative M&A, but if that's not presenting itself, then we'll buy back the stock to maintain the leverage that we want. I mean, if a tangible common ratio starts creeping up to nine and 10%, the bank just gets to be under leveraged. And so even if you're buying back stock at one and three quarters times book value, you have to do something to get capital where you want it to be. But that's because order priority hasn't really changed that much. It's pretty, I think it's pretty typical. I don't know, Mike, if you want to talk about just the M&A appetite in general, just the M&A appetite.

Speaker Change: and then we would love to do a creative M&A, but if that's not presenting itself, then we'll buy back the stock to maintain the leverage that we want. I mean, if a tangible common ratio starts creeping up to nine and 10%, the bank just gets to be under leveraged.

Mike Price: Research. And so, even if you're buying back stock at 103.4 times book, you have to do something to get capital where you want it to be. But that that order priority hasn't really changed that much. It's pretty; I think it's really typical.

Speaker Change: And so even if you're buying back stock at one and three quarters times book, you have to do something to get capital where you want it to be. So that order of priority hasn't really changed that much. I think it's pretty typical. I don't know, Mike, if you want to talk about just M&A appetite in general.

Mike Price: I don't know if Mike, if you want to talk about just an appetite in general. I mean, we're interested, obviously, in all of you know and continuous opportunities that are both strategic and financial. We also have to see a clear path that executed deal with low risk. That's been another hurdle; if it doesn't look like that's there. And it's been good for a company. Everyone has expanded our geography, brought us into new markets. I think with our regional business model over the last five or six years, we're getting more effective at delivering in geographies that aren't in our backyard and cross-selling other products and services and gathering deposits.

Mike Price: Just, I mean, we're interested, obviously, as all of you know, in contiguous opportunities that are both strategic and financial. We also have to see a clear path to execute a deal with low risk. That's been another hurdle, if it doesn't look like that's there.

Mike: We're interested, obviously, as all of you know, in contiguous opportunities that are both strategic and financial. We also have to see a clear path to execute a deal with low risk.

Mike Price: And they've been good for our company. Every one has expanded our geography and brought us into new markets. I think with our regional business model over the last five or six years, we're getting more effective at delivering in geographies that aren't in our backyard and cross-selling other products and services and gathering deposits. So we're extremely interested. The other thing is that it has to be at the right price. You know, we've finished second or third, and we just won't go to the nth degree to do a deal where it really pushes it out and ceases to make good financial sense and work for us in the next year or two. You've heard that from me before, Daniel, so I apologize.

Mike: That's been another hurdle, if it doesn't look like that's there.

Mike: and they've been good for our company. Every one has expanded our geography, brought us into new markets.

Mike: I think with our regional business model over the last...

Mike: Five or six years we're getting more effective at delivering in geographies that aren't in our backyard and cross-selling

Mike Price: So, we're extremely interested. The other thing is it has to be at the right price. We've finished second or third, and we just won't go to the end three to do a deal where it really pushes out and ceases to make good financial sense and work for us in the next year or two. You've heard that from me before, Daniel, so I apologize, but I think we've also now are probably up to 70 deals that we've looked at, and we've done six. So our batting average is lower than most. So I hope that's helpful. I do think we're going to have more opportunities.

Mike: Other products and services and gathering deposits. So we're extremely interested. The other thing is, is it has to be at the right price.

Mike: We've finished second or third and we just won't go to the M3 to do a deal where it really pushes out and ceases to make good financial sense.

Mike: and work for us in the next year or two. You've heard that from me before, Daniel, so I apologize. But I think we've also now are probably up to 70 deals that we've looked at and we've done six. So our batting average is lower than most.

Mike Price: But I think we're now probably up to 70 deals that we've looked at, and we've done six. So our batting average is lower than most. So I hope that's helpful. I do think we're gonna have more opportunities. It seems like there's more chatter than there's been for several years.

Mike: I hope that's helpful. I do think we're going to have more opportunities. It seems like there's more chatter than there's been for several years, and hopefully they're right for us.

Mike Price: It seems like there's more chatter than there's been for several years, and hopefully they're right for us.

Daniel Tamayo: No, that is helpful. I appreciate all that color, Mike.

Daniel Tamayo: No, that is helpful. I appreciate all that color, Mike.

Mike Price: Yeah, I guess. The only thing I would add is we've done smaller deals. I mean, we tend to groove in that smaller category where we think there's less risk, and we tend to be able to make it happen seamlessly. Yeah, no, I understand.

Thomas Michael Price: Yeah, I guess I would add that we've done smaller deals. I mean, we tend to groove in that smaller category where we think there's less risk, and we tend to be able to make it happen seamlessly. Yeah, no, I understand, understood, and then maybe just to follow up, kind of unrelated to the organic side of loan growth, you talked about building back up to the mid-single-digit growth by the fourth quarter and C&I and CRE pipelines improving.

Daniel Tamayo: No, that is helpful. I appreciate all that color, Mike.

Speaker Change: The only other thing I would add is we've done smaller deals. I mean, we tend to groove in that smaller category where we think there's less risk and we tend to be able to make it happen seamlessly.

Daniel Tamayo: And then maybe just a follow-up on related on the organic side on loan growth.

Mike: Yeah, no, I understood.

Speaker Change: And then maybe just to follow up, kind of unrelated, on the organic side on loan growth, you know, you talked about building back up to the mid-single-digit

Daniel Tamayo: You know, you talked about building back up to the mid single-digit growth by the fourth quarter and CNI and CRE pipelines improving.

Mike Price: Maybe you could just talk about, you know, your appetite for continued equipment finance build-out as that happens or how you think about that, and then just curious how you're balancing the risk-reward in equipment finance. I think you talked about growth in SBA in the quarter as well as we started to see some other banks talk about some credit concerns in those areas. I think with equipment finance, we've our volume has been lighter this year than we thought it would be. I think we've grown just about 45 million dollars. I think our, so we had budgeted more.

Thomas Michael Price: Maybe you could just talk about, you know, your appetite for continued equipment finance build-out as that happens or how you're thinking about that. And then just curious how you're, how you're balancing the risk reward and equipment finance. And I think you talked about growth in SBA in the quarter as well as we started to see some, some other banks talk about some, some credit concerns in those areas.

Mike: growth by the fourth quarter and C&I and CRE pipelines improving.

Speaker Change: Maybe you could just talk about...

Speaker Change: You know your appetite for continued equipment finance build out as that happens or how you think about that and then just curious how you're how you're balancing the the risk reward and equipment finance and I think you talked about growth and SBA in the quarter as well as

Speaker Change: We started to see some some other banks talk about some some credit concerns in those areas.

Thomas Michael Price: I think with equipment finance, our volume has been lighter this year than we thought it would be. I think we've grown just about $45 million. I think we had budgeted more. We saw that the growth rate has slowed because there's less demand for equipment. CapEx for trucking, and construction equipment.

Speaker Change: I think with equipment finance, our volume has been lighter this year than we thought it would be. I think we've grown just about $45 million. I think we had budgeted more. We saw that the growth rate has slowed because there's less demand for equipment.

Mike Price: We saw that the growth rate is slowed because there's less demand for cat backs for trucking construction equipment. We've had lower approval rates for submitted applications just because, on the margin, we're not stretching our risk appetite, but we don't really apologize for that. I'm looking at the PNL that Jim does on equipment finance, and we're profitable, and it's not perhaps where we had hoped to be after two years, but it's a nice business for us with good returns. And we've been able to keep our annualized chargeoffs at a budgeted amount. We kind of signed up for at about 55 to 65 basis points.

Thomas Michael Price: We've had lower approval rates for submitted applications just because, on the margin, we're not stretching our risk appetite. But we don't really apologize for that. I'm looking at the P&L that Jim does on equipment finance, and we're profitable. And it's not perhaps where we had hoped to be after two years, but it's a nice business for us with good returns. And we've been able to keep our, We kind of signed up for at about 55 to 65 basis points. So we're actually pleased with the business. It's well run. It's staying within our risk appetite. And there'll be a time when that will grow a little quicker, but probably not right now.

Speaker Change: CapEx for trucking, construction equipment. We've had lower approval rates for submitted applications just because

Speaker Change: on the margin. We're not stretching our risk appetite, but we don't really apologize for that. I'm looking at the P&L that Jim does on equipment finance.

James R. Reske: And we're profitable. And it's not perhaps where we had hoped to be after two years, but it's a nice business for us with good returns, and we've been able to keep our annualized charge-offs at a budgeted amount, which

Speaker Change: We kind of signed up for at about, you know, 55 to 65 basis points.

Mike Price: So we're actually pleased with the business; it's well run, it's staying within our risk appetite, and there'll be a time where that will grow a little quicker, but probably not right now. And just like with all of our consumer categories that Jane and the team have run so well, we're just not going to compromise volume for risk and price. We just are not; we haven't pushed that envelope. We didn't do it on the consumer side, and we haven't done it on the commercial side.

Speaker Change: So we're actually pleased with the business. It's well run.

Speaker Change: It's staying within our risk appetite, and there'll be a time where that will grow a little quicker, but probably not right now. And just like with all of our consumer...

Thomas Michael Price: And just like with all of our consumer categories that Jane and the team have run so well, we're just not going to compromise volume for risk and price. We just aren't. We haven't pushed that envelope. We didn't do it on the consumer side. We haven't done it on the commercial side. So I hope that's helpful with equipment finance.

Speaker Change: categories that Jane and the team have run so well, we're just not going to compromise volume for risk and price.

Speaker Change: We just are not we haven't pushed that envelope. We didn't do it on the consumer side and We haven't done it on the commercial side

Mike Price: So I hope that's helpful with equipment finance and the other businesses.

Thomas Michael Price: And the other businesses. I just like the way we're teed up on the consumer side. I think if rates drop a bit, those businesses could become more attractive to us pretty quickly within a quarter or two, particularly in direct auto. And we've maintained a lot of pricing discipline, even as we've moved our average costs up from the, or not cost, but yield from the fives to almost seven, over 7%. So the team has done a nice job there.

Speaker Change: So, I hope that's helpful with...

Mike Price: I just like the way we're teed up on the consumer side. I think if rates drop a bit, those businesses could become more attractive to us pretty quickly within a quarter or two, particularly in direct auto. And we've maintained a lot of pricing discipline, even as we've moved our average cost up, you know, from the, or not cost, but yield from the fives to almost seven, over seven percent. So the team has done a nice job there, and that we could drop a half a point and get a lot more volume. We just haven't done that.

Speaker Change: with Equipment Finance. And the other businesses, I just like the way we're teed up on the consumer side. I think if rates drop a bit.

Speaker Change: Those businesses could become more attractive to us pretty quickly, within a quarter or two, particularly in direct auto, and we've maintained a lot of pricing discipline, even as we've moved our average costs up.

Speaker Change: You know, from the, or not cost, but yield from the fives to almost seven.

Thomas Michael Price: And we could drop a half a point and get a lot more volume. We just haven't done that. And again, that's our good people under Jane's leadership. And on the commercial side, I just think. You know, just after First Republic and everything, we just kind of hit the pause on commercial real estate. And we're seeing good deals come back and opportunities; we have a great stable of developers in the Midwest and Pennsylvania.

Speaker Change: over 7%.

Speaker Change: So the team has done a nice job there, and we could drop a half a point and get a lot more volume, we just haven't done that.

Mike Price: And again, that's our good people under Jane's leadership.

Mike Price: And on the commercial side, I just think, you know, just after First Republic and everything, we just kind of hit the pause and commercial real estate, and we're seeing good deals come back and opportunities. We have a great stable of developers in the Midwest and Pennsylvania. In our C and I under Mike McEwen's leadership, I just feel really good about pipelines and talent. And you know, we're already pretty good there. We're probably about 60, 65 percentile, but I just think that's where we've got to get a lot better in terms of the concentration in our portfolio and all the value that gets bought through family owned business depository.

Speaker Change: And again, that's our good people under Jane's leadership. And on the commercial side, I just think...

Speaker Change: You know, just after First Republic and everything, we just kind of hit the pause on commercial real estate.

Speaker Change: We're seeing good deals come back and opportunities. We have a great stable of developers in the Midwest and Pennsylvania. In our C&I under Mike McEwen's leadership, I just feel really good about pipelines and talent.

Thomas Michael Price: In our C&I, under Mike McEwen's leadership, I just feel really good about pipelines and talent. And, you know, we're already pretty good there. We're probably about 60, 65 percentile. But I just think that's where we've got to get a lot better in terms of the concentration in our portfolio and all the value that gets bought through family-owned businesses, the depository, all that good stuff, and cross-selling wealth management and pushing that through the regional model. I just think that's how we go from being a pretty good company to maybe a much, much bigger company.

Speaker Change: And, you know, we're already pretty good there. We're probably about 60, 65th percentile, but I just think that's where we've got to get a lot better in terms of the concentration in our portfolio and all the value that gets bought through family-owned business, depository.

Mike Price: All that good stuff and cross selling wealth management and pushing that through the regional model.

Speaker Change: All that good stuff and cross-selling, wealth management, and pushing that through the regional model. I just think that's how we go from being a pretty good company to maybe a much, much better company over the next five or ten years.

Mike Price: I just think that's how we go from being a pretty good company to maybe a much, much better company over the next five or 10 years.

Daniel Tamayo: Terrific. Very helpful, Mike. Thanks for all the color.

Daniel Tamayo: Terrific. Very helpful, Mike. Thanks for all the color.

Carl Shepherd: Our next question comes from the line of Carl Shepherd with RBC. Please go ahead.

Speaker Change: Terrific. Very helpful, Mike. Thanks for all the color.

Karl Robert Shepard: Our next question comes from the line of Karl Shepard with RBC. Please go ahead.

Speaker Change: Our next question comes from the line of Karl Shepard with RBC. Please go ahead.

Carl Shepherd: Hey, good afternoon everybody. Mike, I wanted to follow up on long growth real quick. It sounds like you're just confident in getting back to a single digit by the end of the year. Is that a year over your pace? Or do you want us to think about that more like an annualized kind of pace for 4Q?

Thomas Michael Price: Hey, good afternoon, everybody. Mike, I wanted to follow up on loan growth real quick. It sounds like you're confident in getting back to mid-single digit by the end of the year. Is that a year-over-year pace, or do you want us to think about that more like an annualized kind of pace for 4Q?

Speaker Change: Hey, good afternoon, everybody.

Karl Robert Shepard: Mike, I wanted to follow up on loan growth real quick. It sounds like you're confident in getting back to mid-single-digit by the end of the year. Is that a year-over-year pace, or do you want us to think about that more like an annualized kind of pace for 4Q?

Thomas Michael Price: It's just Daniel. I've set the bar low.

Carl Shepherd: It's just annualized. I'll set the bar low. And then I wanted to follow up on long growth a little bit more to you mentioned the impact consumer long growth, accelerating here and loaded your rate cut. Is that expectation from better consumer demand or is it your ability to price of your funding position and purse? I think we could maybe almost do it without consumer, but I'm counting on it. And then maybe that gets us to the higher end of the range is the way we're thinking about it. We just have really good people leading those consumer businesses and mortgage are underwriting.

Thomas Michael Price: and then I wanted to follow up on loan growth a little bit more too. You mentioned the impact of consumer loan growth accelerating here and alluded to a rate cut. Is that expectation based on better consumer demand, or is it your ability to price if you're in a better funding position?

Speaker Change: It's just Daniel, guys.

Speaker Change: And then I wanted to follow up on loan growth a little bit more, too. You mentioned the impact of consumer loan growth accelerating here.

Speaker Change: uploaded your rate cut. Is that expectation from better consumer demand or is it your ability to price if your funding position improves?

Thomas Michael Price: I think we could maybe almost do it without consumers, but I'm counting on it, and then maybe that gets us to the higher end of the range. That's the way we're thinking about it. We just have really good people leading those consumer businesses in mortgage or underwriting, and it's just been kind of on the hot idle, and I think it won't be hard there to kind of strike the iron and just do a solid job. And so, for better or worse, that's how we're thinking about it. Okay.

Speaker Change: I think we could maybe almost do it without consumer, but I'm counting on it, and then maybe that gets us to the higher end of the range is the way we're thinking about it. We just have really good people leading those consumer businesses.

Carl Shepherd: And it's just been kind of on hot idle, and I think it won't be hard there to kind of strike the iron and just. to do a solid job, and so that's for better or worse, that's how we're thinking about it.

Speaker Change: and Mortgage are underwriting and it's just been kind of on hot idle and I think it won't be hard there to kind of strike the iron and just.

Speaker Change: do a solid job. And so that for better or worse, that's how we're thinking about it.

Carl Shepherd: Okay.

Carl Shepherd: And then, Twitter or the positive, we talked a lot about deposit costs, and I know a lighting, loan growth, and the positive growth has been a priority for you guys.

Karl Robert Shepard: And then switch over to deposits. We've talked a lot about deposit costs, and I know aligning loan growth and deposit growth has been a priority for you guys. Can you just talk about your confidence in growing deposits?

Speaker Change: Okay.

Speaker Change: And then switching over to deposits, we've talked a lot about deposit costs, and I know aligning loan growth and deposit growth has been a priority for you guys. Can you just talk about your confidence in growing deposits?

Jane Grebenc: Can you just talk about your confidence in growing deposits?

Jane Grebenc: Jane, why don't you come up on that? You're sure you're... Sure, sure, glad to. So we're always confident that we can grow deposits. You know, it's a little trickier to grow the low-cost deposits, and we're starting to turn that corner. We are not raising CD rates. We've started to tamp those back a little bit. And you know, one of the reasons that we are as focused as we are on the low categories that we are is we are really demanding the full relationship on our credit, on our in-market extensions of credit. So I think we'll do just fine, but low-cost deposits are always going to be a knife fight.

Karl Robert Shepard: Hey, Jane, why don't you come on that? You're sure you're sure. Sure.

Jane: Hey Jane, why don't you pick up on that? Sure, glad to. So we're always confident that we can grow deposits. You know it's a little trickier to grow the low-cost deposits.

Jane Grebenc: Sure, glad to. So we're always confident that we can grow deposits. You know, it's a little trickier to grow the low-cost deposit, but we're starting to turn that corner. We are not raising CD rates. We've started to tamp those back a little bit. And, you know, one of the reasons that we are as focused as we are on the loan categories that we are is that we are really demanding the full relationship on our credit, on our in-market extensions of credit. So I think we'll do just fine. But, low-cost deposits are always going to be a knife fight for us and for everybody else.

Speaker Change: We're starting to turn that corner. We are not...

Speaker Change: Raising CD Rights. We've started to tamp those back a little bit and

Speaker Change: You know, one of the reasons that we are as focused as we are on the loan categories that we are is we are really demanding the full relationship on our credit.

Speaker Change: on our in-market extensions of credit. So I think we'll do just fine, but low-cost deposits are always going to be a knife fight for us and for everybody else.

Mike Price: For us and for everybody else. Okay. We look...

Thomas Michael Price: Yeah, we look I would just add to James' comments. I mean, we look at all of this regionally, just not by product category. And I'm just looking at growth year over year. And I mean, it's transcripts provided by Transcription Outsourcing, LLC. It's just an area of emphasis that's come from Jane for years.

Mike Price: I would just add to Jane's comments. I mean, we look at all of this regionally, just not by product category, and I'm just looking at growth year over year. And I mean, it's pretty good in almost every market. And our lowest market is two, and our highest is over 10%. I mean, it's just an area of emphasis that's come from Jane for years. All right.

Speaker Change: I would just add to Jane's comments. I mean, we look at all of this regionally, just not by product category. And I'm just looking at growth year over year.

Speaker Change: Pretty good in almost every market and in our lowest market is two and our highest is over ten percent. I mean it's it's just an area of emphasis that's come from Jane for years.

Karl Robert Shepard: All right, well, good quarter, and thanks for all the help.

Carl Shepherd: Well, good quarter, and thanks for all the help. Thank you.

Manuel Navas: Our next question comes from the line of Manuel Navas with DA Davidson. Please go ahead.

Manuel Antonio Navas: Our next question comes from the line of Manuel Navas with D.A. Davidson. Please go ahead.

Speaker Change: All right, well, good quarter, and thanks for all the help.

Speaker Change: Thank you.

Speaker Change: Our next question comes from the line of Manuel Navas with DA Davidson. Please go ahead.

Manuel Navas: Hey, with the lower kind of marginal deposit costs, are we getting... It's still above where you're pricing the book right now, but how close do you think we're getting to like peak deposit costs? And how quickly could they shift in rate cuts? That's a great question.

Manuel Antonio Navas: Hey, with the lower kind of marginal deposit costs, are we getting? It's still above where you're pricing the book right now. But how close do you think we're getting to like peak deposits, and how quickly could they shift in rate cuts?

Manuel Antonio Navas: Hey, with the lower kind of marginal deposit costs, are we getting, it's still above where you're pricing the book right now, but how close do you think we're getting to like peak deposit costs?

James R. Reske: That's a great question. I'll turn it over to you.

Speaker Change: and how quickly could they shift in rate cuts.

Jim Reske: I'll turn it over to you. Yeah, really insightful. You know, I've used for the loans and deposits, Manuel. He's this motorboat analogy. I hope I was hoping it would catch on like wildfire in the industry. That doesn't seem to have done so. You cut the throttle and you keep your thing forward. And you see that alone, all the projections on a loan bloke are the same thing in the deposits book. So I wouldn't call them features yet. I think that you know, I was very encouraged to see the rate of increase on the asset side beat the rate of increase on the deposit side, but the rate of increase on the deposit side's not going to reverse.

James R. Reske: Yeah, really insightful. You know, I've used this motorboat analogy in the loans and deposits manual. I was hoping it would catch on like wildfire in the industry, and it doesn't seem to have done so.

Speaker Change: That's a great question and I'll turn it over to you. Yeah, really insightful. You know, I've used for the loans and deposits manual, I've used this motorboat analogy. I was hoping it would catch on like wildfire in the industry, it doesn't seem to have done so. But you cut the throttle and you keep drifting forward. And we see that in a loan, all the projections on a loan book are the same thing in the deposit book. So I wouldn't call the peaches yet.

James R. Reske: But you cut the throttle, and you keep your thing going forward. And we see that in a loan, all the projections on a loan book are the same thing in the deposit book. So I wouldn't call the peaches yet.

James R. Reske: I think that, you know, I'm very encouraged to see the rate of increase on the asset side beat the rate of increase on the deposit side. But the rate of increase on the deposit side is not going to reverse. This is not the high point, I don't think; it'll still be separate.

Speaker Change: I think that I was very encouraged to see the rate of increase on the asset side beat the rate of increase on the deposit side, but the rate of increase on the deposit side is not going to reverse.

Jim Reske: This is not the high point. I don't think it'll get a stoker upward.

Speaker Change: This is not the high point. I don't think it is. We'll go separate.

James R. Reske: And what are the new loans coming on at? Just the low yield improvement was nice, but I know some of it was with an interest rate recovery. Just kind of what's the new loans coming on at and how is that expected to proceed going forward?

Jim Reske: And what are... I appreciate that. What are the... Where are new loans coming on at? The only improvement was nice, but I know some of it was with an interest rate recovery. Just kind of what are new loans coming at? And how is that expected to proceed going forward? Yeah, I'll give you a total and a little bit of color. The new loans coming on are a little over 8% in the aggregate. 8.11, actually, for the quarter was new originations. So just for originations, there's one up as well, so they met. But I mean, just for originations, over 850 million dollars of new loan originations.

Speaker Change: And what are, I appreciate that, what are the, what are new loans coming on at?

Speaker Change: Just the low yield improvement was nice, but I know some of it was an interest rate recovery. Just kind of what's, what are new loans coming at and how is that expected to proceed going forward?

James R. Reske: Yeah, I'll give you the total in a little bit of color. The new loans coming on are a little over 8% in the aggregate. It's 8.11 actually for the quarter with new originations. So just for originations, there's one up as well, so they met, but I mean, just for originations, over $850 million in new loan originations. About 630 of that was variable, and that came out at eight and a quarter. So customers are choosing, that's why 75% of the originations are variable. Customers are choosing.

James R. Reske: Yeah, it

Speaker Change: Yeah, I'll give you the total in a little bit of color. The new loans coming out are a little over 8% in the aggregate.

Speaker Change: 18.11 actually for the quarter was new originations. So just for originations, there's one off as well, so they met, but I mean, just for originations, over $850 million of new loan originations.

Jim Reske: about 630 of that was variable, that came out of eight and a quarter, so customers are choosing the 75% of the originations are variable, customers are choosing, they're choosing to go variable, as much as we would like in the space fixed and go along in the following environment, they make choices to, and they want a variable rate loan, so three quarters of the new product was variable, that's eight and a quarter, but the fixed up was 775, so the variable, this quarter, the new weight on that, and I just gave eight, a quarter was about, almost exactly the same rate as the rate at which variable was running off, so nice new loans, the same equation yields as they run off and variable, but the new fixed coming out of 775 was 250 basis points more than what ran off, that's part of that story that gives us confidence that even if rates are cut, you've got to, you've got to go through a number of cuts before the new fixed comes on at lower rates than the fixed that runs off, that will cause a couple of drift even the fixed rate portfolio, even with rate cut, that's not really, I appreciate that commentary, what rate scenario are you using in the, in the swap, in the swap discussion of 10 basis points, is that like, September or December, at a couple, the first half of next year, how many cuts roughly?

Speaker Change: About 630 of that was variable. That came out of eight and a quarter.

James R. Reske: They're choosing to go variable as much as we would like them to stay fixed and go long in a falling rate environment. They make choices, too, and they want a variable rate loan. So three quarters of the new production is variable. That's eight and a quarter.

Speaker Change: So customers are choosing, that's what 75% of the originations are variable, customers are choosing. They're choosing to go variable as much as we would like them to stay fixed and go long and I'm calling rate environment, they make choices too, and they want a variable rate loan, so three quarters of the new production is variable, that's eight and a quarter, but the fixed up was $7.75.

James R. Reske: But the fixed up was 775. So the variable this quarter, the new rate on that, I just gave you the quarter, was about almost exactly the same rate as the rate at which the variable was running off. So nice new loans, but the same replacement yields as the runoff and variable, but the new fixed coming out at 775 was 250 basis points more than what we had. That's part of that story that gives us confidence that even if rates are cut, you've got to go through a number of cuts before the new fix comes on at lower rates than the fix that runs off. That's the motor, though. That will cause an upward drift even in the fixed rate portfolio, even with rates.

Speaker Change: So, the variable this quarter, the new rate on that that I just gave you in the quarter was about almost exactly the same rate as the rate at which the variable was running off. So, nice new loans, but same replacement yields as the runoff and variable, but the new fixed coming out of 775 was 250 basis points more than what ran off.

Speaker Change: That's part of that story that gives us confidence that even if rates are cut, you've got to go through a number of cuts before the new fixed comes on at lower rates than the fixed that runs off. That's the motorboat. That will cause an upward drift even in the fixed rate portfolio, even with rate cuts.

James R. Reske: I appreciate that commentary. What rate scenario are you using in the swap? In the SWOT discussion of 10 basis points, is that like... September, December, and a couple, the first half of next year, like how many cuts roughly? So, I'm glad you mentioned it.

Speaker Change: That's all I'm thinking about.

Speaker Change: I appreciate that commentary. What rate scenario are you using in the swap?

Speaker Change: in the SWOT discussion of 10 basis points, is that like...

Speaker Change: September , December and a couple the first half of next year like how many cuts roughly? I'm glad you mentioned it so in the on the PowerPoint supplement that we put on the investor relations portion of our website on page 14 we get two scenarios

James R. Reske: So, on the PowerPoint supplement that we put on the investor relations portion of our website, on page 14, we get two scenarios. One is flat, rates unchanged, Fed Funds at 550, just unchanged. That's in the, if you go to that page later, it's in the bottom right corner.

Jim Reske: So, I'm glad you mentioned it. So, on the PowerPoint supplement that we put on the investor relations portion of our website, on page 14, we give two scenarios. One is flat, rates unchanged; that's on the 550, just unchanged. That's in the, if you go to that page later, it's in the bottom right corner, but that shows 11 basis points of cumulative NIM benefits by the end of 2025, an unchanged rate scenario. Then we put something we call baseline, that's baseline scenario, that's 10 basis points of NIM improvement, and that's our standard forecast where we have, we put a 40% weight on NUDY's baseline scenario, then a 30% weight on upside scenario, a 30% weight on the downside. We've been doing that consistently for our forecasting, and also for our season model, for ever since we adopted season, but that's the scenario that it's still increased by 10 basis points, cumulative rate on NIM.

James R. Reske: But that shows 11 basis points of cumulative NIM benefit by the end of 2025, an unchanged rate scenario. Then something we call baseline, that's a baseline scenario, that's 10 basis points of NIM improvement. And that's our standard forecast where we have put a 40% weight on Moody's baseline scenario, then a 30% weight on an upside scenario, and a 30% weight on a downside. We've been doing that consistently for our forecasting and also for our CSUN model ever since we adopted it. But that's a scenario that's still in place after 10 days.

Speaker Change: One is flat, rates unchanged, Fed Funds at 550, just unchanged, that's in the, if you go to that page later, it's in the bottom right corner, but that shows 11 basis points of cumulative NIM benefit by the end of 2025, an unchanged rate scenario.

Speaker Change: Then, something we call baseline, that's a baseline scenario, that's 10 basis points of NIM improvement, and that's our standard forecast where we have...

Speaker Change: We put a 40% weight on Moody's baseline scenario, then a 30% weight on an upside scenario, and a 30% weight on a downside. We've been doing that consistently for our forecasting and also for our CESA model ever since we adopted CESA.

James R. Reske: Key to the Place and them. Okay. I appreciate that commentary. I just wanted to understand.

Speaker Change: But that's the scenario. It's still increased by 10 basis points.

Manuel Navas: Okay, I appreciate that commentary. I just want to understand if I'm getting that into my forecast and such.

Speaker Change: [inaudible]

Kelly Ann Motta: Yeah, getting that into my forecast and such. Okay, I appreciate it. I'll step back.

Speaker Change: Okay. I appreciate that commentary. I just want to understand if I'm fitting that into my forecast and such. Okay. I appreciate it. I'll step back into the queue.

Operator: Okay, I appreciate it. I'll step back into the queue. Okay, thank you.

Kelly Motta: Our next question, caption of line of Kelly Mata with KBW, please go ahead. Hi, thanks so much for the question. Most of mine have been asked and answered at this point, but I was hoping to get a bit more color on the migration related to the Centric portfolio. I know you mentioned that when you did that acquisition, you expected some hiccups there and had put on an appropriate credit mark accordingly. Just wondering if, from a high level, you could provide how that portfolio is performing relative to your expectations at the time you inked that deal, and if there's any other sort of migration down the line that you would expect to come from that or what we saw this quarter is likely the bulk of that.

Kelly Ann Motta: Our next question comes from the line of Kelly Motta with KBW. Please go ahead.

Speaker Change: Thank you.

Speaker Change: Our next question comes from the line of Kelly Motta with KBW. Please go ahead.

Kelly Ann Motta: Hi, thanks so much for the question. Most of mine have been asked and answered at this point, but I was hoping to get a bit more color on the migration related to the Centric portfolio. I know you mentioned that when you did that acquisition, you expected some hiccups there and had put on an appropriate credit mark accordingly. Just wondering, from a high level, how that portfolio is performing relative to your expectations at the time you inked that deal and if there's any other sort of migration down the line that you would expect to come from that, or what we saw this quarter is likely the bulk of that.

Kelly Ann Motta: Hi, thanks so much for the question. Most of mine have been asked and answered at this point, but I was hoping to get a bit more color on the migration related to

Speaker Change: The Centric Portfolio. I know you mentioned that when you did that acquisition, you expected some hiccups there.

Speaker Change: and had put on an appropriate credit mark accordingly. Just wondering if from a high level, if you could provide how that portfolio is performing relative to.

Speaker Change: Ryan Thomas, James Reske

Thomas Michael Price: This is Mike, and thanks for the question. I'll turn it over.

Mike Price: Yes, this is Mike, and thanks for the question. I'll turn over, it's Brian Karrip, or Chief Cutoff, sort of a minute, but we put like a 3-2-3 or 3-2-7 mark, which was in the 30 millions, and I think we're about 8 million short of that at this point. So we still have a little bit of room that was pretty heavy-handed. We also adjusted the price, and as we think about that right now, it's about half of the NPLs, and it's about half of most of our categories that are challenged. Brian and the team, we do a pretty expensive line sheet review, and we just finished it, probably 30 plus hours and 3,000 notes here in the last month.

Speaker Change: This is Mike, and thanks for the question. I'll turn over.

Brian G. Karrip: This is Brian Karrip, our Chief Credit Officer, in a minute. But we put a 323 or 327 mark, which was in the $30 million, and I think we're about $8 million short of that at this. So we still have a little bit of room. It was pretty heavy-handed. We also adjusted the price. And as we think about that right now, it's about half of the NPL, and it's about half of most of our categories that are challenged, and Brian and the team, we did a pretty extensive line sheet review, and we just finished it, probably 30 plus hours and 3,000 notes here in the last month. And we, so that's intensive. It's every credit over a million. And that group in the capital region performed very well. We just didn't see that many directed downgrades.

Brian G. Karrip: It's Brian Karrip, our Chief Credit Officer in a minute, but we put like a 3-2-3 or 3-2-7 mark, which was in the $30 million, and I think we're about $8 million short of that at this point.

Brian G. Karrip: So we still have a little bit of room. It was pretty heavy-handed. We also adjusted the price. And as we think about that right now, it's about half of the NPLs.

Brian G. Karrip: And it's about half of most of our categories that are challenged.

Brian G. Karrip: And Brian and the team, we do a pretty extensive...

Brian Carrick: Line Sheet Review, and we just finished it, probably 30 plus hours and 3,000 notes here in the last month.

Brian Karrip: So that's intensive; it's every credit over a million, and that group in the capital region performed very well.

Speaker Change: and we so that's intensive it's every credit over a million and that group in the capital region performed very well we just didn't see that many directed downgrades

Brian Karrip: We just couldn't see that many directed downgrades, and with Brian, I'll let you pick it up from there. Yeah, thank you for your question, Kelly. So 51% of our special mention and 55% of our substandard credits are related to loans that were originated from Centric Bank, but we believe that we've largely identified our problems at the acquired bank, and we're comfortable that we'll return to our historically strong credit metrics over the next several quarters. So we're committed to that, and we're working towards it. Got it, that's really helpful.

Thomas Michael Price: And with Brian, I'll let you pick it up from there. Yeah, thank you for your question, Kelly.

Brian G. Karrip: Thank you for your question, Kelly. So 51% of our special mention and 55% of our substandard credits are related to loans that were originated from Centric Bank. But we believe that we've largely identified our problems at the acquired bank and we're comfortable that we'll return to our historically strong credit metrics over the next several quarters. So we're committed to that, and we're working towards it.

Kelly Ann Motta: Got it. That's really helpful.

Speaker Change: and with Brian , I'll let you pick it up from there. Yeah, thank you for your question, Kelly. So 51% of our special mention and 55% of our substandard credits are related to loans that were originated from Centric Bank.

Brian Carrick: But we believe that we've largely identified our problems at the Acquired Bank and we're comfortable that we'll return to our historically strong credit metrics over the next several quarters. So we're committed to that and we're working towards it.

Kelly Ann Motta: And then the next question for me is on expenses. You know, you've had a pretty strong quarter, and loan growth is expected to pick up in the latter part of the year. Just wondering, as you look ahead with, you know, the investments you're making internally into the franchise, as well as your outlook for loans to pick up, what we should be thinking about the trajectory of expenses over the latter part of this year?

Kelly Motta: And then next question for me is on expenses. You know, you've had a pretty strong quarter, and loan growth is expected to pick up in the latter part of the year.

Speaker Change: Got it. That's really helpful. And then next question for me is on expenses.

Speaker Change: had a pretty strong quarter and loan growth is expected to pick up in the latter part of the year.

Jim Reske: Just wondering as you look ahead with, you know, the investments you're making internally into the franchise, as well as your outlook for loan to pick up, wondering how we should be thinking about the trajectory of expenses over the latter part of this year. Yeah, I think that's Jim. You know, when I looked at the expense assessments, I didn't look at yours in particular, but it's been expense assessments for NIE going forward for the third and fourth quarter this year. They looked about right, but didn't really feel a need to give corrective disclosure, but the consensus has us at around 67 to 68 million in the eight per quarter in a second half.

Speaker Change: Just wondering as you look ahead with

Speaker Change: You know, the investments you're making internally into the franchise, as well as your outlook for.

Speaker Change: loans to pick up. Wondering how we should be thinking about the trajectory of expenses over the latter part of this year.

James R. Reske: Yeah, hey Kelly, it's Jim. Yeah, when I looked at the consensus estimates, I didn't look at yours in particular, but a consensus estimate for NIE going forward for the third and fourth quarters this year, they looked about right. I didn't really feel a need to give corrective disclosure, but the consensus is for around $67 to $68 million per quarter in the second half, and that seems about right. We obviously could go on and on about our expense culture and how important that is to us, and we actually think we're doing quite well there, but the consensus looks like it's dialed in. I caught it. Thank you.

Speaker Change: Hey Kelly, it's Jim. Yeah, when I looked at the consensus estimates, I didn't look at yours in particular, but a consensus estimate for NIE going forward for the third and fourth quarter this year, they looked about right. I didn't really feel a need to give corrective disclosure, but the consensus has us.

Kelly Motta: And that, that seems about right. We obviously could go on and on about our expense culture and how much we do, how important that is to us, and we actually were doing quite well there, but the consensus looks like it's styled in, so we're okay with that. Got it. Thank you. I'll step back. Thank you.

Speaker Change: at around $67 to $68 million per quarter in the second half, and that seems about right. We obviously could go on and on about our expense culture and how important that is to us, and we actually think we're doing quite well there.

Kelly Ann Motta: Got it. Thank you. I'll step back.

Speaker Change: The consensus looks like it's dialed in, so we're okay with that.

Matthew Breeze: Our next question comes from the line of Matthew Breeze with Stevens. Please go ahead.

Speaker Change: Got it. Thank you. I'll step back.

Matthew M. Breese: Our next question comes from the line of Matthew Breese with Stevens. Please go ahead. Thank you.

Speaker Change: Thank you.

Matthew M. Breese: Hey, good afternoon, everybody. Thomas.

Speaker Change: Our next question comes from the line of Matthew Breese with Stevens. Please go ahead.

Matthew Breeze: Hey, good afternoon, everybody. Jim, I was really hoping to give you some great detail on the menu. I wanted to parse it out just a little bit more. You know, maybe just to set the stage, it sounds like your floating rate book is yielding eight in a quarter, and in the sixth rate book, if I have it right, is in kind of the low five, five in a quarter? Is that right? Well, the numbers I was giving a minute ago were just for new originations in the quarter, not the whole book. Right, but you said 775 is for the new fixed rate stuff, which is 250 bits better than what's running off.

Matthew M. Breese: Jim, I was really hoping to, you gave some great detail on the MIM. I wanted to parse it out just a little bit more, you know, maybe just to set the stage. It sounds like your floating rate book is yielding eight and a quarter, and the fixed rate book, if I have it right, is in kind of the low fives, five and a quarter. Is that right?

Matthew M. Breese: Good afternoon, everybody.

Matthew M. Breese: Good afternoon.

Matthew M. Breese: Jim, I was really hoping to, you gave some great detail on the MIM, I wanted to parse it out just a little bit more. You know, maybe just to set the stage, it sounds like your floating rate book is yielding eight and a quarter, and the fixed rate book, if I have it right, is in kind of the low fives, five and a quarter, is that right?

James R. Reske: Well, the numbers I was giving a minute ago were just for new originations in the quarter, not the whole book.

James R. Reske: Well, the numbers I was giving a minute ago were just for new originations in the quarter, not the whole book.

James R. Reske: Right, but you said $775 is for the new fixed rates, which is 250 bps better than what's running off. So I assume the runoff was around $500. Yeah, yeah.

Speaker Change: Right, but you said $7.75 is for the new fixed rates up, which is 250 bps better than what's running off. So I assume the runoff was around $5.25.

Matthew Breeze: So I assume the runoff was around five in the quarter. Yeah, yeah, the runoff is. And the actual portfolio yield is in between there somewhere. Okay. And what is the duration on that book? How much kind of rolls off every quarter on the fixed rate stuff? Yeah, the fixed rate stuff, the duration, you know, I don't have the actual duration on the fixed rate stuff.

James R. Reske: Yeah, yeah, the runoff is, so that's, and the actual portfolio yield is somewhere in between there.

Speaker Change: Yeah, yeah, the runoff is. And the actual portfolio yield is in between there somewhere.

James R. Reske: And what is the duration of that book? How much kind of rolls off every quarter on the Fixed Grid stuff?

Speaker Change: Okay. And what is the duration on that book? How much kind of rolls off every quarter?

James R. Reske: Yeah, the fixed rate stuff, the duration, you know, I don't have the actual duration on the fixed rate stuff. I'm going to have to get that for you. The duration on the entire loan portfolio is 2.85 years, but that includes both fixed and variable. I'll give you a little color that I do have.

Speaker Change: on the fixed rate stuff.

Matthew Breeze: I'm gonna have to get that for you. The duration on the entire loan portfolio is 2.85 years, but that includes the fixed and variable. I'll give you a little color that I do have. So you may probably recall our investor that we break out in the pie chart, the different slices of the portfolio. We try to say that half has fixed and half has variable. And we say that, for a risk management perspective, it gives people an understanding that we try to build a diversified loan portfolio. But in the variable portion of that, the part that really reprices right away with rate cuts is only about 33% of the total portfolio.

James R. Reske: So you may probably recall our investor stack where we break out an applied chart showing the different slices of the portfolio. We try to say that half is fixed and half is variable. And we say that from a risk management perspective to get people to understand that we try to build a diversified loan portfolio.

Speaker Change: I'll give you a little color that I do have. So you may probably recall our investor deck when we break out the pie chart, the different slices of the portfolio. We try to say that half is fixed and half is variable.

Speaker Change: And we say that from a risk management perspective to give people an understanding that we try to build a diversified loan portfolio, but in the variable portion of that, the part that really reprices right away with...

James R. Reske: But in the variable portion of that, the part that really reprices right away with rate cuts is only about 33% of the total portfolio. And about 5%, 5 points of that 33 are, have been fixed with macro swaps. That's really only about 27%. That portfolio right now has a weighted average rate of 7.92%. So that's the piece that will reprice dollars.

Matthew Breeze: And about 5% 5 points of that 33 have been fixed in the macro slots. That's really about 27% that that portfolio right now has the way to average rate of 7.92%. So that's the piece that will reprice now. So it's not a 30% of the portfolio, but really after the macro slots, it's until the macro slots fade off or roll off. It's 27% of the total portfolio. And there's another slice that's to get to your half of the portfolio variable, about 18% of the portfolio. And those are variable, but they don't reprice immediately; they reprice over time.

Speaker Change: Rate cuts is only about 33% of the total portfolio, and about 5%, 5 points of that 33 have been fixed with macro swaps. That's really only about 27%. That portfolio right now has a weighted average rate of 7.92%.

James R. Reske: 32% of the portfolio, but really, after the macro swaps, it's, until the macro swaps fade off or roll off, it's 27% of the total portfolio. Then there's another slice, that's to get to your half of the portfolio that's volatile, about 18% of the portfolio. And those are volatile, but they just don't reprice immediately; they reprice over time.

Speaker Change: So that's the piece that will reprice dollars.

Speaker Change: 32% of the portfolio, but really after the macro swaps, it's, until the macro swaps pay off, or roll off, it's 27% of the total portfolio.

Speaker Change: Then there's another slice, that's to get to your half of the portfolio variable, about 18% of the portfolio. And those are variable, but they just don't reprice immediately, they reprice over time.

Matthew Breeze: These are when a commercial loan is originated as a reprice state that's 5 years hence or a 5.1 arm and a mortgage or something like that. That portfolio, that's why you say the rate of about 5.65%. The weighted average term on those is about four years. The weighted average time to the next repricing date for those is only about 20 months. But this goes into our forecasting because that little slice, we say that half the portfolio is there about 6%. It gives the impression that fully after portfolio price downward and a rate cut. That's not true.

James R. Reske: These are when a commercial loan is originated, has a reprice date that's five years hence, or a 5-1 arm in a mortgage loan or something like that. That portfolio, that slice has a weight rate of about 5.65%. The weighted average term on those is about four years. The weighted average time to the next repricing date for those is only about 20 months. But this goes into our forecasting because that little slice, we say that half the portfolio is variable and half fixed, it gives the impression that fully half the portfolio will price downward at a rate cut. That's not true.

Speaker Change: These are when a commercial loan is originated as a repriced state that's five years hence or a 5-1 arm in a mortgage loan or something like that.

Speaker Change: That portfolio, that slice has a weight rate of about 5.65 percent. The weighted average term on those is about four years. The weighted average time to the next repricing date for those is only about 20 months.

Speaker Change: But this goes into our forecasting because that little slice, we say that half the portfolio has to be fixed and it gives the impression that fully half the portfolio will price downward at a rate cut. That's not true.

Matthew Breeze: This little price of 18% is yielding 5.65%. When those loans come to repricing date, they could be loans that originated three years ago in a low rate environment and are repricing even though the rates are lower than they are today. They can still be repricing up for especially that overall portfolio is only 5.65%. So I don't have an answer to your question directly or the duration of to get back to that, but hopefully that gives you a little color on the 60 variable portfolios. No, it helps, and I think it helps build the point you made at the beginning, which is that it takes a lot of cuts before the margin starts to feel some pain because the back book still has so much room to reprise higher.

James R. Reske: This little slice of 18% is yielding 5.65%. When those loans come to the repricing date... They could be loans that originated three years ago in a low-rate environment and are repricing. Even though rates are lower than they are today, they can still be repricing upwards, especially if that overall portfolio yields only 5.65. So I know that doesn't answer your question directly, there's a duration I'll have to get back to on that, but hopefully that gives you a little color on the fixed and variable portfolio.

Speaker Change: This little slice of 18% is yielding 5.65%. When those loans come to repricing date, they could be loans that originated three years ago in a low-rate environment and are repricing. Even though rates are lower than they are today, they can still be repricing upwards, especially if that overall portfolio yields only 5.65%.

Speaker Change: So I know that doesn't answer your question directly, the duration I'll have to get back to on that, but hopefully that gives you a little color on the fixed and variable portfolios.

Matthew M. Breese: No, it helps. And I think it helps build the point you made at the beginning, which is that it takes a lot of cuts before the margins start to feel some pain because the back book still has so much room to reprice higher. That's right, and so I was curious when you made your remark that the baseline net improvement is about 10 bps. Is that through the end of this year? Is that through the end of 2025?

Speaker Change: No, it helps and I think it helps build the point you made at the beginning, which is that it takes a lot of cuts.

Speaker Change: That's where the margins start to feel some pain because the back book still has so much room to be priced higher.

Matthew Breeze: That's right. And so I was curious when you made your remark that the baseline that includes that 10 bips. Is that the end of this year, or is that through the end of 2025? It goes, it depends on the rate scenario. So if we have a rate scenario that seems kind of moderate rate scenario that is just run using Moody's based on forecast and Moody's baseline right now has three cuts by the end of this year, even though the whole world thinks there's going to be two. and the Moody Space Line has seven cuts in total by the end of 2025.

Speaker Change: That's right. That's right. And so I was curious, when you made your remark that the baseline net improvement is about 10 bps, is that through the end of this year, or is that through the end of 2025?

James R. Reske: It depends on the rate scenario. So if we have a rate scenario that seems kind of moderate, a rate scenario that... is just run using Moody's baseline forecast, and Moody's baseline right now has three cuts by the end of this year even though the whole world thinks there's going to be two, and Ramuti's baseline has seven cuts in total by the end of 2025. So that gets the, in this moody baseline, gets the Fed Funds rate to about 3.75 by the end of 2025. And in that rate scenario, the NIM goes up. R&M.

Speaker Change: It depends on the rate scenario. So if we have a rate scenario that seems kind of moderate, a rate scenario that is just run using Moody's baseline forecast. And Moody's baseline right now has three cuts by the end of this year, even though the whole world thinks there's going to be two.

Speaker Change: And the Moody's baseline has seven cuts in total by the end of 2025.

Matthew Breeze: So that gets the, in this Moody Space Line, gets the Fed Fund's rate to about 3.75 by the end of 2025. And in that rate scenario, the NIMM goes up. Our NIMM, again with a caveat to forecast, can't be wrong. They often are, but goes, NIMM goes up at the end of this year and then goes up another, I don't know how to say this, but it really goes up strongly next year because you had that cumulative effect as the burn off of the macro slots. Right. I ended the range I gave you or my prepared remarks by the end of this year.

Speaker Change: So that gets the, in this Moody's baseline, gets the Fed Funds rate to about 3.75 by the end of 2025. And in that rate scenario, the NIMS...

James R. Reske: Again, with a caveat, the forecast can't be wrong. They often are, but it goes up at the end of this year and then goes up another... I don't know how to say this, but it really goes up strongly next year because you get that cumulative effect of the burn off of the macro slot. Right. I ended the range I gave you in my prepared remarks by the end of this year.

Speaker Change: goes up, RNIM, again with a caveat the forecast can't be wrong, they often are, but it goes up at the end of this year and then goes up another

Speaker Change: I don't know how to say this, but it really goes up strongly next year because you get that cumulative effect of the burn off of the macro swaps.

James R. Reske: And then in this forecast, it's like another 10 basis points next year with the macro swaps coming off in a cumulative effect. So it, every forecast is wrong the day it's printed, right? The future always unravels and rolls out differently than you think, but... Transcribed by https://otter.ai. That's what the Moody's Baseline forecast...

Speaker Change: Ryan Thomas, James Reske

Matthew Breeze: And then in this forecast, it's like another 10 basis points next year with the macro slots coming off and the cumulative effect. So it, every forecast is wrong the day is printed, right? And the future always unravels, and it rolls out differently than you think, but that's what the Moody Space Line forecast would show. Okay. So in NIMM ending 2025 in kind of that 3.75 to 3.80 range. That's right. Under that forecast. And to what extent do the securities help? Like that was my other question: is how much insecurity is requesting what is rolling off at and what is putting these securities on?

Speaker Change: [inaudible]

Matthew M. Breese: Okay, so a NIM ending in 2025 and kind of 375 to 380. That's right.

Speaker Change: That's what the Moody's Baseline Forecast would show.

Speaker Change: Okay, so a NIM ending 2025 and kind of the 375 to 380 range.

James R. Reske: Under that forecast, and to what extent do securities help? Like, that was my other question: how much in securities repricing? What is it rolling off at? And what are you putting new securities on?

Speaker Change: That's right. Under that forecast. And to what extent do securities help? Like, that was my other question is, how much in securities are you pricing? What is it rolling off at? And what are you putting new securities on?

James R. Reske: The ones they're rolling off are in the low twos; the ones that are coming off are in the mid-fives. All those securities we purchased are very plain vanilla. We're trying to buy more Ginnie Mae's because they have a 0% risk weight, and I would yield to see that on the mid-fives. We actually bought on this quarter, I think, $160,000,000, $170,000,000, including the $75,000,000 that's the loss rate we bid. Transcripts provided by Transcription Outsourcing, LLC.

Matthew Breeze: Once they're rolling off or the low two, the ones that are coming off are in NIMM 5. So all those securities we purchased are very plain vanilla. We're trying to buy more JDMays because they have a 0% risk rate. So I was yielded for staying out on NIMM 5s. We actually bought this quarter, I think 160, 170 million, including 75 million that's lost rate we did. But they're coming out of the 5.5% rate. We think that security for folio is light. Kind of low, but our forecast doesn't have an aggressive build in the security for folio.

Speaker Change: The ones they're rolling off are the low twos, the ones that are coming off are in the mid-fives. All those securities we purchased are very plain vanilla. We're trying to buy more Ginnie Mae's because they have a 0% risk weight.

Speaker Change: I would yield for seeing that on the mid-fives. We actually bought on this quarter, I think, $160,000, $170,000,000, and that includes the $75,000,000 loss rate we did.

Speaker Change: But they're coming out at the 5.5% rate. We think that security portfolio is light. It's kind of low, but our forecasts don't have an aggressive build in the security portfolio.

Matthew Breeze: I'm sorry if I miss it.

James R. Reske: I'm sorry if I missed it, but what was the duration of the securities book?

Matthew Breeze: What was the duration security spot? The duration total is I think 4.7. It went down from 4.8 left quarter by one tick just because the oh no, I got the backwards. It was 4.7. It went up to 4.8 from by one tick because we lose security as you just bought that 75 million. Of course, it's probably longer durations. But everything we buy is usually in the 4 to 5 year duration. Okay.

Speaker Change #102: We just want to thank all of you for watching.

James R. Reske: The duration total is, I think, 4.7. It went down from 4.8 last quarter by one tick just because the... oh no, I got that backwards. It was 4.7. It went up to 4.8 by one tick because the new securities you just bought, that $75 million, were slightly longer durations. But everything we buy is usually in the four to five years.

Speaker Change: I'm sorry if I missed it, what was the duration of the securities book?

Speaker Change: duration total is I think 4.7 it went down from 4.8 last quarter by one tick just because the oh no I got that backwards

Speaker Change: It was 4.7, it went up to 4.8 by Wednesday because the new securities we just bought at $75 million were slightly longer durations. But everything we buy is usually in the 4 to 5 year duration.

Matthew Breeze: I'm sorry to be long-winded, but I've seen said a question for your CD book. What's rolling off and what are your CDs rolling on it at starting to see a lower, you know, roll on versus roll off at annual point? Do you see that? I'm sorry if I'm answering questions of the securities book. I'm sorry if I miss I had asked about the securities. Now I'm asking about the CDs. Okay. The CDs, so we're still offering competitive market-based specials. In fact, we've in the first quarter, we were pricing CDs, really like in a 90%ile competitively, very competitive with peer banks.

James R. Reske: I'm sorry to be longwinded, but I have the same set of questions for your CD. What's rolling off, and what are your CDs rolling on at? We're starting to see a lower, you know, roll-on versus roll-off at any point. Do you see that?

Speaker Change: Okay. I'm sorry to be long-winded, but I have the same set of questions for your CD book.

James R. Reske: I'm sorry, I was answering questions about the securities book. I'm sorry if I misheard. No, no, I asked about the securities. Now I'm asking about the CDs.

Speaker Change: What's rolling off and what are new cities rolling on it at? Are we starting to see a lower, you know, roll-on versus roll-off? At what point do you see that?

Speaker Change #100: I'm sorry, I'm answering questions on the securities book, I'm sorry if I misheard. No, no, I asked about the securities, now I'm asking about the CDs. Okay, but the CDs, so we're still offering competitive market rate specials, in fact we've...

James R. Reske: Okay, but the CDs, so we're still offering competitive market race specials. In fact, we've been, in the first quarter, we were pricing CBs really competitively in the 90th percentile, very competitive with Peterbank. We dialed that back a little bit in the second quarter because we had such a successful first quarter in growth. But we're staying very competitive here right now.

Speaker Change #101: In the first quarter, we were pricing CBS really like in the 90th percentile competitively, very competitive with peer banks.

Matthew Breeze: We've now that back a little bit in the second quarter because we have such a successful quarter in growth. So we're staying very competitive here right now. What we've done is short in the term a little bit. So instead of seven months, we're doing five months. And so what we're trying to do is give us a chance to repress those CDs if, you know, rates fall. So I think the rate, especially we have right now, is 5.2% for five months. And it's been quite successful. The other part of this dynamic that you should understand is that a lot of the stuff we've been doing since rates have come up have been seven, eleven months special short term CD specials that they're, and so we're seeing those for sure.

Speaker Change: We dialed that back a little bit in the second quarter, because we had such a successful first quarter in growth, but we're staying very competitive here right now. What we've done is shorten the term a little bit, so instead of seven months, we're doing five months.

James R. Reske: What we've done is shorten the term a little bit, so instead of seven months, we're doing five months. And so what we're trying to do is give ourselves a chance to reprice those PDs if rates fall. So I think the rate, especially we have right now, is 5.2% for five months, and it's been quite successful. The other part of this dynamic that you should understand is that a lot of the stuff we've been doing since rates have come up has been. 7-11 month specials, short-term CD specials, but they're maturing. And so we're seeing those mature.

Speaker Change: And so what we're trying to do is give ourselves a chance to reprice those PDs.

Speaker Change: If

Speaker Change: You know, rates fall. So I think the rate special we have right now is 5.2% for five months. And it's been it's been quite successful. The other part of this dynamic that you should understand is that a lot of the stuff we've been doing since rates have come up have been

Speaker Change: 11-month special, short-term C.D. specials, but they're maturing now.

James R. Reske: We're seeing about an 80% retention rate on the CDs that come due, and some of those will be rates that are lower than the nominal rate. And a lot of times, a customer will come in and say, yeah, I don't want that RAC rate. We're not migrating people down to the RAC rate at five basis points. But, I mean, if it's an RAC rate that's lower than their current rate, most will come in and say they want the current rate.

Matthew Breeze: We're seeing about an 80% retention rate on the CDs that come due, and some of those will be rates that are lower than the nominal rate. There's a lot of, a lot of times the customer can say, "Yeah, I don't want that rack rate." We're not, we're not migrating people down a rack rate of five basis points, but I mean, if it's a rack rate that's lower than a current rate, most will come in and say they want the current rate. But it's, but the retention's been really strong in the CD book. So hope that it's a little bit of color that helps you.

Speaker Change: And so we're seeing those mature. We're seeing about an 80% retention rate on the CDs that come due.

Speaker Change: And some of those will be rates that are lower than the nominal rate and a lot of times a customer will come in and say, yeah, I don't want that RAC rate. We're not migrating people down to RAC rate at five basis points, but I mean, if it's a RAC rate that's lower than their current rate, most will come in and say they want the current rate.

James R. Reske: But the retention has been really strong in this, so I hope that it's a little bit of color that helps. Very helpful. Just last one on the income. Particularly mortgage banking is a bit stronger this quarter, maybe just in common with an overall level of the fee income and mortgage banking in particular. Jane any

Speaker Change: But the retention has been really strong in the CD book.

Matthew Breeze: Very helpful.

Jane Grebenc: Just last one on the income, particularly mortgage banking was a bit stronger this morning. Maybe just some cotton over a level of the income and mortgage in particular. Yeah. Jane, any thoughts on mortgage? The game has done a good job. It's not fast, but we're also making some more money this year. And we thank the opportunity to talk about it to sell virtually all of the production. So we are preserving the balance sheet a bit. And we're probably selling between 80% and everything we're booking, and that's really how everything that we're originating, and that's really helping the.

Speaker Change: So I hope that's a little bit of color that helps you.

Speaker Change #103: Very helpful. Just last one on the income.

Speaker Change #103: Particularly mortgage banking is a bit stronger this quarter, maybe just in common to an overall level of the fee income and mortgage in particular.

James R. Reske: Jim, any thoughts on the mortgage? The team has done a good job, but we're also making some more money this year.

Speaker Change #103: Jim, any thoughts on mortgage?

Speaker Change #103: The team has done a good job, but we're also making some more money this year.

Jane Grebenc: Thanks for the opportunity to talk about it, sell virtually all of the production. So we are preserving the balance sheet a bit. And we're probably selling between 80% of everything we're booking. And that's really everything that we're originating. And that's really helping the...

Speaker Change #103: And we.

James R. Reske: Thanks for the opportunity to talk about it.

Speaker Change #104: sell virtually all of the production. So we are preserving the balance sheet a bit. And we're probably selling between 80% of everything we're booking. And that's really everything that we're originating. And that's really helping the

Jane Grebenc: Jane, we lost a bit, but we've got most of that. We're selling most of the originations, boosting the fee income side of it, but it's well run. And I add that actually mortgage originations went up quarter over quarter. So, despite the rate environment, we might think they actually went up. And the amount that we sold of originations is Jane was saying before we lost her was 92% in the first quarter, 92% of the second quarter. So it's going just like a joint recording deployment. Okay. So I also think on the income because wealth was really strong this quarter.

Jane Grebenc: Hey, Jane, we lost you a bit, but we got most of that. We're selling most of the origination, sprucing up the fee income side of it, but it's well run.

Speaker Change #104: Hey, Jane, we lost you a bit, but we got most of that. We're selling most of the origination, sprucing the...

James R. Reske: Can I add that, actually, mortgage originations went up quarter over quarter? So despite the rate environment we might think they actually went up, and the amount that we sold originations, as Jane was saying before we lost her, was 92% in the first quarter and 92% in the second quarter. So it's going just like we're going according to plan. Yeah. Okay.

Speaker Change #105: the fee income side of it but it's it's well run. Can I add that actually mortgage originations went up quarter over quarter so despite the rate environment we might think they actually went up and the amount that we sold originations as Jane was saying before we lost her was

Jane: 92% of the first quarter, 92% of the second quarter, so it's going just like we were.

James R. Reske: Oh, they got fee income because wealth was really strong this quarter. Really good sales of Fixed annuities in our wealth position, so customers who really want to lock in long-term fixed rates are able to do that in a fixed annuity, and That's a good source of fee income for us.

Jane: [inaudible]

Jane Grebenc: Really good sales of fixed annuities in our wealth efficient. So customers who really want to lock in long term fixed rates are able to do that and a fixed annuity, and that's a good source of income from. Yeah. So I'll just add one more as SBA is, although our fee income is down a bit. We're keeping a little bit more on the balance sheet this year, about 38 million more, with a little higher yield. And we'd like that business. Our production will be up year over year, and gain on sale is weighted average premiums are in the high eight.

James R. Reske: I'll just add one more, SBA. Although our fee income is down a bit, we're keeping a little bit more on the balance sheet this year, about $38 million more with a little higher yield, and we like that business. Our production will be up year over year, and the gain on sale is weighted average premiums in the high eights, so, and we have a good team there as well, so hopefully that can continue to grow and be a tailwind to our fee income.

Jane: Yeah, and it's just...

Speaker Change #106: I'll just add one more as SBA is although our fee income is down a bit we're keeping a little bit more on the balance sheet this year about 38 million more with a little higher yield and we'd like that business

Speaker Change #107: Our production will be up year over year and gain on sale is weighted average premiums are in the high eight. So we have a good team there as well. So hopefully that can continue to grow and be a tailwind to our fee income.

Jim Reske: So we have a good team there as well. So hopefully that can continue to grow and be a tailwind to our fee income. Okay. So we have 25 million less Durban X quarter. Is it safe to say it's a 22 23 million dollar run rate in here. Yeah. I think that sounds right. Hang on a sec. Because I again looked at the consensus estimates for our fee income. It looked like they really had baked in the Durban impact. We were talking about 3.5 million quarter. So that's something about right. Yeah. The consensus is 22.2 and 22.3 for the next two quarters, net to that rate.

Matthew M. Breese: Okay, so we have 25 million less DERPA next quarter. Is it safe to say it's a 22, 23 million dollar run rate from here?

Speaker Change #108: Okay, so we have $25 million in West Durban next quarter. Is it safe to say it's a $22-$23 million run rate from here?

James R. Reske: I think that sounds right. Hang on a sec.

Speaker Change #109: I think that sounds right, hang on a sec, because again, I looked at the consensus estimates for our fee income, it looked like they really had baked in the derivative impact that we're talking about, about $3.5 million a quarter, so that sounds about right.

James R. Reske: Because I again looked at the consensus estimates for our fee income. It looked like they really had baked in the derivative impact that we were talking about, about $3.5 million a quarter. So that sounds about right. Yeah, the consensus is 22.2 and 22.3 for the next two quarters.

Speaker Change #110: Yeah, the consensus is 22.2 and 22.3 for the next two quarters, and that's about right.

Matthew Breeze: I appreciate picking on my question. So I apologize for being long-winded again. Thank you.

Matthew M. Breese: I appreciate you taking all my questions. I apologize for being long winded again. Thank you.

Frank Schiraldi: Other questions? Again, for any questions, press star one, and your next question will come from the line of Frank Sheraldi with Piper Samar. Please go ahead.

Speaker Change #110: I appreciate taking all my questions. I apologize for being long-winded again. Thank you.

Frank Joseph Schiraldi: Again, for any questions, press star one, and your next question will come from the line of Frank Schiraldi with Piper Sandler. Please go ahead.

Speaker Change #111: Other questions?

Speaker Change #112: Again for any questions press star 1 and your next question will come from the line of Frank Schiraldi with Piper Sandler. Please go ahead.

Frank Schiraldi: Hi, guys. Just a few I had remaining where the sub debt that you retired or redeemed sounds like, given capital levels, no need to replace that with additional debt. Just curious if that's the case and what else you might have coming up that may be repricing that would either be retired or refied in this market.

Frank Joseph Schiraldi: Hey, guys. Just a few I had remaining were the subdebt that you retired or redeemed. Sounds like given capital levels, you'd need to replace that with additional debt. Just curious if that's the case, and what else you might have coming up that may be repricing that would either be retired or re-fied in this market. Yeah, no, thanks very much.

Frank Joseph Schiraldi: Hey guys, just a few I had remaining where the sub-debt that you retired or redeemed sounds like given capital levels you'd...

Frank Joseph Schiraldi: Unknown Speaker No need to replace that with additional debt. Just curious if that's the case and what else you might have coming up that may be repricing that would either...

Frank Joseph Schiraldi: be retired or re-fied in this market.

James R. Reske: Yeah, no, thanks very much, Frank, and I appreciate that because we actually spent a lot of time with bankers looking at replacement options, starting over, well over a year ago, to look at what was available in the market to replace that capital instrument in case we needed it. That's why we're so pleased that Capital Generation, especially if we're just capital generation from a dollar perspective and a ratio perspective, is strong enough that we didn't have to replace it at all. I think that a couple quarters ago, the message was that the window for sub-debt ratios was really closed.

Jim Reske: Yeah, thanks very much, Frank, and appreciate that because we actually spend a lot of time with bankers looking at a place in options starting over well over a year ago. So looking well as available in the market to replace that capital instrument in case we needed a capital, that's why we're so pleased that capital generation, especially when we're just capital generation from a dollar second and a ratio perspective strong enough to begin that replace at all. I think that a couple quarters ago the message was the window for sub debt ratios is really closed, and then what we saw is was starting to open but still would have been possible but more expensive than what we just got rid of.

Speaker Change #114: Yeah, no, thanks very much, Frank, and appreciate that because we actually spent a lot of time with bankers looking at replacement options starting over, well over a year ago, to look at what was available in the market to replace that capital instrument in case we needed a capital. That's why we're so pleased that Capital Generation

Speaker Change #114: Yeah, especially if we're just having a generation from a dollar perspective and a ratio perspective strong enough to begin to have to replace it all. I think that a couple quarters ago the message was the window for sub-debt ratios is really closed.

James R. Reske: And then what we saw was starting to open, but it would still have been possible, but more expensive than what we just got rid of. So, what we just got rid of was 7.5%. We were probably hearing indicative price talk of 8.5% to 9% for new sub-debt issuance. So we were just so glad that we didn't have to do that.

Speaker Change #114: And then what we saw was it was starting to open, but still would have been possible, but more expensive than what we just got rid of. So what we just got rid of was 7.5%. We were probably hearing indicative price talk of 8.5% to 9% for new sub-debt issuance.

Jim Reske: So what we just got rid of was seven and a half percent; we were probably hearing indicative price talk of eight and a half to nine for new sub debt issuance, and so we were just so glad that we didn't have to do that. That's a sub debt, and there are other options we would have looked at, like preferred, because of the tier one treatment. But if the end of the day, we're just really glad we could just let it go and pay it off and not have to do any new places. The only other thing we have I guess there's there's the other piece of the sub debt that I mentioned but we got four years to go at five and a half percent so when rates fell to zero that seemed like a bad deal now it seems like a good deal.

James R. Reske: That's the sub-debt, and there were other options we would have looked at, like preferred because of the tier one treatment, but at the end of the day, we're just really glad we could just let it go and pay it off and not have to do anything to replace it. The only other thing we have, I guess there's the other piece of the subject that I mentioned, but we have four years to go at five and a half percent.

Speaker Change #114: And so we were just so glad that we didn't have to do that. That's the sub-debt and there were other options we would have looked at like preferred because of the tier one treatment, but at the end of the day, we're just really glad we could just let it go and pay it off and not have to do anything to replace it.

James R. Reske: So when rates fell to zero, that seemed like a bad deal. Now it seems like a good deal. So we've got that. That's four years to go on full-time treatment, so we'll hang on to that. It's not callable anyway for four years, and then we'll re-examine the call at that point.

Speaker Change #114: The only other thing we have, I guess there's the other piece of the subject that I mentioned, but we've got four years to go at 5.5%, so when rates fell to zero, that seemed like a bad deal. Now it seems like a good deal.

Jim Reske: So we got that that's four years to go a full treatment, so we'll hang out of that. It's not callable anyway for four years, and then we'll be examined the call at that time. And then we still have a trust referred outstanding about $70 million dollars in the holding company, and that we swapped end to fixed rates. At the splitting, we swapped in the fixed rates. I don't have that off the top; I had a thickness, but I think it's swapped into the forms, so it's pretty good money. And it's still we're grandfathered in, so that's a tier one instrument.

Speaker Change #114: So we've got that. That's four years to go before it's retrieved, so we'll hang on to that. It's not callable anyway for four years.

James R. Reske: And then we still have Trust Referred outstanding, about $70 million as a holding company. And we swapped that for fixed rates. It was floating; we swapped into fixed rates. I don't have that off the top of my head. I think it's swapped into the fours. So it's pretty good money, and we're still grandfathered in, so that's a tier one instrument. The only thing that would make us call that because we're grandfathered in is if we grew over $15 billion in total assets through acquisition. From a regulatory perspective, that's when you lose the grandfather Tier 1 treatment. So if that day ever comes, that would trigger a desire to refinance that.

Speaker Change #114: And then we'll re-examine the call at that time.

Speaker Change #114: And we still have Trust Referred outstanding, about $70 million in the holding company.

Speaker Change #114: And that we swapped that into fixed rates. It was floating. We swapped into fixed rates. I don't have that off the top of my head. I think it's swapped into the forms. So it's pretty.

Jim Reske: The only thing that would make us call that because we're grandfathered in is if we drew over $15 billion dollars in total assets through acquisition because, or regard to our perspective, that's when you lose the grandfather tier one treatment. So if that day ever comes, that would trigger a desire to refinance that, but not right now.

Speaker Change #114: Good money, and it's still, we're a grandfathered in, so that's a Tier 1 instrument. The only thing that would make us call that, because we're grandfathered in, is if we grew over $15 billion in total assets through acquisition.

Speaker Change #114: From a regulatory perspective, that's when you lose the grandfather Tier 1 treatment. So if that day ever comes, that would trigger a desire to refinance that, but not right now.

Frank Schiraldi: Okay, and then just I know acquisition math and provisioning can be a little different, but just what I'm thinking about the Centric deal, which obviously closed I think last year, and you mentioned the NPAs that came over in the migration in the quarter. I think the majority was from the Centric deal. The provisioning that was associated with the migration, so I would have thought that because centric was marked already, you know, no need for additional provisioning. Is that can you just walk me through that? Was that more so on the other piece that was originated in house? And I guess just anything kind of bulky that significant on one significant loan where we could end up seeing, you know, outsized charge offs down the road.

Frank Joseph Schiraldi: and then It's just, I know acquisition math and provisioning can be a little different, but just what I'm thinking about the centric deal, which obviously closed last year, and you mentioned the NPAs that came over in the migration in the quarter. I think the majority were from the centric deal. The provisioning that was associated with the migration, so I would have thought that because centric was marked already, there would be no need for additional provisioning. Can you just walk me through that? Was that more so on the other piece that was originated in-house, and I guess just anything kind of bulky and significant on one significant loan where we could end up seeing outsized.

Speaker Change #114: Okay, and then...

Speaker Change #115: Just, I know acquisition

Speaker Change #116: Math and provisioning can be a little different, but just what I'm thinking about the centric deal, which obviously closed, I think, last year. And you mentioned the NPAs that came over in the migration in the quarter.

Speaker Change #117: I think the majority was from the Centric deal. The provisioning that was associated with the migration, so I would have thought that because Centric was marked already, you know, no need for additional provisioning.

Speaker Change #119: Is that, can you just walk me through that? Was that more so on the other piece that was originated in-house? And I guess just anything kind of bulky that significant on one significant loan where we could end up seeing, you know, outsized.

James R. Reske: Yeah, so Frank, I'll start with just a little bit from a maybe more technical accounting perspective of what the marks were, origination, and then ultimately final marks, and then I'll turn it to Brian for the extra color you were asking for. So the marks, like Mike mentioned earlier, were around 3.2 to 3.3% at the time of the deal was closed. Under the accounting rules, we were able to take some more, and once we owned it, up until June 30th of last year, write some of the marks that we saw back to goodwill, and so the total credit mark ended up being 3.76% on that deal.

Jim Reske: Yeah so Frank I'll start a little bit with just a little bit from the maybe more technical accounting perspective what what the marks were which nation and then ultimately final marks and then I'll turn it to Brian for the extra color you were asking for so the marks I like mentioned earlier were around the 3.2 to 3.3 percent at the time of the deal was closed under the counting rules we were able to take some more and once we owned it up until June 30th of last year take some of the marks that we saw back to Goodwill and so the total credit mark ended up being 3.76 percent on that deal was Mike said that was priced at the deal so I would thought that was marked appropriately and priced appropriately but on that credit mark that had to be in 36 37 million dollar credit mark 27 million dollars was for PCB and about 9.6 million dollars was for PCB and it was for PCB and it was for PCB and it was for PCB and it was for PCB and it was for PCB and it was for PCB and it was for PCB and it was for PCB and it was for PCB and it was for PCB and it was for PCB and it was for PCB and it was for PCB and it was for PCB and it was for PCB and it was for PCB and it was for PCB and it was for PCB and it was for PCB and it was for PCB and it was for PCB and it was for PCB and it was for PCB and it was for PCB and it was for PCB and it was for PCB and it was for PCB and it was for PCB and it was for PCB and it was for PCB and it was for PCB and it was for PCB and it was for PCB and it was for PCB and it was for PCB and it was for PCB and it was for PCB and it was for PCB and it was for PCB and it was for PCB and it was for PCB and it was for PCB and it was for PCB and of 2020.

Speaker Change #117: Charge Offs Down the Road.

Speaker Change #118: Yes, so Frank, I'll start a little bit with just a little bit from the maybe more technical accounting perspective of what the marks were, which nation, and then ultimately

Speaker Change #118: final marks and then I'll turn it to Brian for the extra color you're asking for. So the marks like Mike mentioned earlier

Brian Carrick: We're around the 3.2 to 3.3% at the time of the deal was closed. Under the accounting rules, we were able to take some more, once we owned it, up until June 30th of last year, take some of the marks that we saw back.

Brian Carrick: to Goodwill. And so the total credit mark ended up being 3.76% on that deal. As Mike said, that was priced into the deal. So we thought that was marked appropriately and priced appropriately. But on that credit mark, that ends up being $36, $37 million credit mark.

James R. Reske: As Mike said, that was priced into the deal, so we thought that was marked appropriately and priced appropriately. But of that credit mark, that ends up being $36, $37 million. $27 million was for PCD, and about $9.6 million was non-PCD.

Mike: $27 million was for PCD and about $9.6 million was non-PCD.

Brian Karrip: So that $27 million was in reserve. On top of that, there was a $1 reserve of about $10 million. Now, so earlier the comparative march we're saying we added about $11 million, the $14 million this quarter to specific reserves for Centric. Those aren't related to the time of acquisition. We've owned it now for a while. So those are this for whatever happens that we're fully up to the expense. And for the $11 million of new specific reserves that we put on this quarter related to centric originated loans or not from acquisition. That's from our under our period of ownership.

James R. Reske: So that $27 million went into the reserve. On top of that, there was a day one reserve of about $10 million. Now, so when we earlier in the prepared remarks were saying we added about $11 million to the $14 million this quarter to specific reserves for Centric, those aren't related to the time of acquisition. We've owned it now for a while.

Speaker Change #121: So that $27 million went into the Reserve. On top of that, there was a Day 1 Reserve of about $10 million.

Brian G. Karrip: So those are just for whatever happens to that portfolio since then. So the $11 million of new specific reserves that we put on this quarter related to Centric-originated loans were not from acquisition. That's from our, during our period of ownership. So that's additional reserves on top of what I just described as the money. And then for additional color on, maybe the, yeah, yeah, go ahead, right? Yeah.

Speaker Change #120: Now, so when we earlier in the prepared remarks were saying we added about $11 million to the $14 million this quarter to specific reserves for Centric, those aren't related to the time of acquisition. We've owned it now for a while. So those are just for whatever happens to that portfolio since then. So the $11 million of new specific reserves that we put on this quarter.

Speaker Change #120: Related to Centric Originated Loans, or not from acquisition, that's under our period of ownership. So that's additional reserves on top of what I just described as the marks.

Brian Karrip: Let the additional reserves on top of what I just described as the marks.

Brian G. Karrip: So, Frank, we did put on $5.8 million in an increase in specific reserves this quarter. That was largely due to a $1.9 million credit that we needed to add $4.8 million of specifics. So you'll see our specific reserves did increase. Correspondingly, our reserves went up to 137 basis points from 132 basis points and were well-reserved.

Frank Schiraldi: And then for additional color on maybe to. Yes, yeah, go ahead. Yeah, so Frank, we could put on $5.8 million in increase in specific reserves this quarter. That was largely due to $19 million credit that we needed to add $4.8 million of specific support. So you'll see our specific reserves did increase; correspondingly, our reserves went up to 137 points from 130 to 132 basis points, and were well reserved. Okay, so that was one centric loan then that caused the bulk of the additional reserves in the corner. That's exactly right. Okay.

Frank Joseph Schiraldi: So Frank, we did put on $5.8 million in increase in specific reserves this quarter that was largely due to $1.9 million credit that we needed to add $4.8 million of specifics for.

Speaker Change #120: So you'll see our specific reserves did increase.

Speaker Change #120: Correspondingly, our reserves went up to 137 basis points from 132 basis points and were well-reserved.

Frank Joseph Schiraldi: Okay, so that was one centered loan that caused the bulk of the additional reserves in the quarter.

Speaker Change #122: Okay, so that was one centric loan then that caused the bulk of the additional reserves in the quarter. That's exactly right.

Brian G. Karrip: That's exactly right.

Frank Joseph Schiraldi: Okay. And then just lastly, on NIM, I just want to make sure I understand, if I'm looking at page 14 of the presentation, so the cumulative NIM impact scenarios you give at the bottom there, the two scenarios, that's just the swap terminations, correct? Not your expectation of NIM in total over the next, you know, several quarters, you'd have that exact number.

Frank Schiraldi: And then just lastly on the NIMM. I just want to make sure I understand if I'm looking at page 14 of the presentation. So the cumulative NIMM impact scenarios you give at the bottom there are the two scenarios. That's just the swap terminations, correct? Not your expectation of NIMM in total over the next, you know, several quarters. You have that exactly right. That's the contribution of not any projection of the rest of it. Right.

Speaker Change #122: Okay.

Speaker Change #127: And then just lastly, on the NIMH.

Speaker Change #123: I just want to make sure I understand. If I'm looking at page 14 of the presentation, so the cumulative NIM impact scenarios you give at the bottom there, the two scenarios, that's just the swap.

Speaker Change #123: [inaudible]

Frank Joseph Schiraldi: Right. Okay. And then, if you could just remind me, sorry if I missed it, but obviously, recognizing, given your commentary that you think you're at

Frank Schiraldi: Okay, and then, and if you could just remind, sorry if I missed it, but obviously recognizing, given your commentary, that you think you're at trough on NIMM anyway, regardless of the near term rate picture in the name should move higher. What does a 25 basis point cut to Fed funds? What is the projection? What does that do to the the NIMM on an annualized basis, all else equal? All else, people normally our answer has always been about five basis points. It's probably depends on the season. Maybe it's free to five basis points, but it's just not working that way right now.

Speaker Change #123: The rest is an M.

Speaker Change #123: Right. Okay. And then, and if you could just remind, sorry if I missed it, but obviously,

Speaker Change #124: Recognizing, given your commentary, that you...

Speaker Change #125: I think you're at trough on NIM anyway, regardless of the near-term rate picture and the NIM should move higher. What does a 25 basis point cut?

Speaker Change #126: to Fed funds. What is the projection? What does that do to the NIM on an annualized basis, all else equal? All else equal, normally our answer has always been about five basis points. Probably, it depends on the season, maybe it's three to five basis points, but it's just not...

James R. Reske: All else equal, normally, our answer has always been about five basis points. Probably, it depends on the season, maybe it's three to five basis points, but it's just not... It's not working that way right now.

James R. Reske: So when I look at, for example, those forecasts that I was talking about earlier, like with a Moody's baseline forecast. You know, the Fed funds are being cut down to 4.75 by the end of this year. But our loan yield still goes up. So our MIM keeps drifting up. That's the motorboat effect.

Jim Reske: So when I look at, for example, those forecasts that I was talking about earlier with a Loody's baseline forecast. You know the Fed funds being cut down a 4.75 by the end of this year are loan yields who goes up. So our NIMK is drifting up; that's the motorboat back, so it's not. If all else was equal and we've been in this rate right before long time and everything is stabilized. It isn't have positive replacement; you'll still going on, and then you had a cut. Maybe you'd see that five basis points per quarter. And maybe you could say it's still five basis points per cut, but not per quarter.

Speaker Change #126: It's not working that way right now. So when I look at, for example, those forecasts that I was talking about earlier with a Moody's baseline forecast

Speaker Change #126: You know, the Fed funds are being cut down to 4.75 by the end of this year. Our loan yield still goes up.

James R. Reske: So it's not, if all else was equal and we'd been in this rate environment for a long time and everything was stabilized, it didn't have positive replacement yields still going on, and then you had a cut, maybe you'd see that five basis points per quarter. And maybe you could say it's still five basis points per cut, but not per quarter. That's over the long haul. It's just not modeling out that way right now, so it's hard to even describe it that way.

Speaker Change #126: So our MIM keeps drifting up, that's the motorboat effect. So it's not, if all else was equal and we've been in this rate environment for a long time and everything is stabilized, if you didn't have positive replacement yields still going on, and then you had a cut, maybe you'd see that side basis points per quarter.

Jim Reske: That's over the whole long haul.

Speaker Change #126: And maybe you could say, it's still five basis points per cut, but not per quarter, that's over the long haul. It's just not modeling out that way right now. So it's hard to even describe it that way. That's been our rule of thumb for a while. We said that for, I mean, years ago.

Jim Reske: It's just not modeling out that way right now, so it's hard to even describe it that way. That's been a rule of thumb for why we said that for years ago. But where we're just position right now that drifts up. We're still the six loans; we're still pre-pricing upwards. We still have a little bit of deposit before we're able to bring those down. And then the macro spots coming off is just so many dynamics.

James R. Reske: That's been our rule of thumb for a while. We said that for, I mean, years ago. But where we're just positioned right now, that drifts up, where the fixed loans are still pre-pricing upwards. We still have a little drift up in deposit rates before we're able to bring those down, and then the macro swaps come off.

Speaker Change #126: But where we're just positioned right now, that drifts up.

Speaker Change #126: We're still, the fixed loans are still pre-pricing upwards, we still have a little drift up in the deposit rate before we're able to bring those down, and then the macro swap's coming off. There's just so many dynamics.

Jim Reske: I think if you say, I hate to use that rule of thumb. Okay. No, I appreciate. I mean, I assume that all of us equal the higher for longer. Like you said, it's better. So there is some negative impact. You know, even if the name is going to go higher, either way, there's still some; it'll move even higher in a higher-for-longer environment. So yeah, I just, I guess that three to five, maybe longer term, could still be sort of a good rule of thumb; it just doesn't seem like in the near term you would see that.

Speaker Change #126: That's the only thing I can say.

James R. Reske: Okay, no, I appreciate, I mean, I assume that all is equal to higher for longer, like you said, is better. So there is some negative impact, you know, even if the NIMS is going to go higher either way, there's still some, it'll go even higher.

Speaker Change #126: I hate to use that rule of thumb.

Speaker Change #128: Okay. No, I appreciate it. I mean, I assume that all of us equal to hire for longer, like you said, is better. So there is some...

Speaker Change #128: negative impact, you know, even if the NIMS is gonna go higher either way, there's still some, it'll move even higher in a higher for longer environment. So, yeah, I just, I guess that three to five, maybe longer term could still be.

Jim Reske: Yeah, no, you're exactly right. You're exactly right.

Frank Joseph Schiraldi: Yeah, no, you're exactly right. You're exactly right.

Speaker Change #128: Sort of a good rule of thumb, just doesn't seem like in the near term you would see that.

James R. Reske: And we are, we still are, you know, we're, we're praying for a flat rate environment because we do it much better. There are other effects. I think a little bit more rates do help, this came up earlier in the call, spur a little consumer demand, they help some of our clients with credit qualities, but there are other benefits from a couple cuts and burst the bubble on deposit rate demand. So there are some benefits to right. Higher for longer, definitely. Gotcha, okay?

Jim Reske: And we are would still are, you know, we're praying for a flat rate environment, so because we do much better. There are other effects to you. I think a little bit lower rates do help. This came up early in the call, spur a little consumer demand. They help some of our clients with credit qualities. There are other benefits from a couple cuts, and first the bubble on deposit rate demand. So there's some benefits to. Right.

Speaker Change #129: Yeah, no, you're exactly right. You're exactly right. And we are would still are, you know, we're, we're praying for a flat rate environment. So because we do much better. There are other effects to you, I think a little a little bit lower rates do help this came up earlier in the call, spur a little consumer demand, they help some of our clients with credit quality. So there are other benefits.

Speaker Change #129: from a couple cuts and burst the bubble on deposit rates and man. So there's some benefits to it. Right. The higher for longer is definitely better.

Frank Joseph Schiraldi: Gotcha. Okay. I appreciate all the color. Thanks.

Operator: We have no further questions at this time.

Speaker Change #130: Gotcha. Okay. I appreciate all the color. Thanks. You bet.

Thomas Michael Price: We have no further questions at this time. I'll hand the call back to Mike Price for any closing remarks.

Mike Price: I'll hand the call back to Mike Price for any closing remarks. Just as always, appreciate your interest in our company and look forward to being with a number of you over the course of the next corner. Thank you very much.

Speaker Change #130: We have no further questions at this time. I'll hand the call back to Mike Price for any closing remarks.

Thomas Michael Price: Just as always, I appreciate your interest in our company and look forward to being with a number of you over the course of the next quarter. Thank you very much.

Speaker Change #131: Just as always appreciate your interest in our company and look forward to being with a number of you over the course of the next quarter. Thank you very much.

Unknown Executive: That will conclude our call today. Thank you all for joining me. You may now disconnect.

Operator: That will conclude our call today. Thank you all for joining. You may now disconnect. Yeah.