Q2 2024 Evans Bancorp Inc Earnings Call
Speaker Change: Unknown Attendee, Deborah Pawlowski, Evans Banc, Lee Wortham, Michelle Baumgarden, Lee Wortham, Lynn Banc, John Connerton, Lee Wortham, Unknown Attendee, Deborah Pawlowski, Evans Banc, Lee Wortham, Unknown Attendee, Deborah Pawlowski, Evans Banc, Lee Wortham, Lynn Banc, Lynn Banc,
Speaker Change: [inaudible]
Speaker Change: Ladies and gentlemen, greetings and welcome to the advance Bancorp second quarter 'twenty 'twenty full earnings conference call.
Operator: Ladies and gentlemen, greetings and welcome to the Evans Bancorp second quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star and zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Craig Moholic, Investor Relations for Evans.
Speaker Change: At this time all participants are in a listen only mode.
Speaker Change: A brief question and answer session will follow the formal presentation.
Speaker Change: If anyone should require operator assistance during the conference. Please press star and Sito on your telephone keypad.
Speaker Change: As a reminder, this conference is being recorded.
Speaker Change: It is now my pleasure to introduce your host Greg Mahalik invest.
Greg Mahalik: Investor Relations events.
Speaker Change: Please go ahead.
Greg Mahalik: Thank you and good afternoon, everyone. We certainly appreciate you taking the time today to join us as well as your interest in Evans Bancorp.
Craig Moholic: Thank you and good afternoon, everyone. We certainly appreciate you taking the time today to join us as well as your interest in Evans Bancorp. On the call, I have with me David Nasca, our President and CEO, and John Connerton, our Chief Financial Officer. David and John are going to review our results for the second quarter of 2024 and provide an update on the company's strategic progress and outlook. After that, we'll open the call for questions. You should have a copy of the financial results that were released today after markets closed. If not, you can access them on our website at evansbank.com.
Speaker Change: On the call I have with me, David Nasca, President and CEO, and John <unk>, Our Chief Financial Officer, Dave.
Speaker Change: Dave and John are going to review our results for the second quarter of 2024, and provide an uplift and update on the company's strategic progress and outlook.
Speaker Change: After that we'll open the call for questions.
Speaker Change: Should have a copy of the financial results that were released today after market close if not you can access that matter website Kevin's bank dotcom.
Craig Moholic: As you are aware, we may make some forward-looking statements during the formal discussion, as well as during the Q&A. These statements apply to future events that are subject to risks and uncertainties, as well as other factors that could cause actual results to differ from what is stated on today's call. These risks and uncertainties and other factors are provided in the earnings release, as well as in other documents filed by the company with the Securities and Exchange Commission; please find those documents on our website or at scc.gov. So with that, I will turn it over to David.
Speaker Change: As you are aware, we may make some forward looking statements during the formal discussion as well as during the Q&A. These statements apply to future events and are subject to risks and uncertainties as well as other factors that could cause actual results to differ from what is stated on today's call.
Speaker Change: These risks and uncertainties and other factors are provided in the earnings release as well as with other documents filed by the company with the Securities and Exchange Commission. Please.
Speaker Change: You can find those documents on our website or at SEC Gov.
Speaker Change: That let me turn it over to David to begin David. Thank you Craig Good afternoon, everyone.
David John Nasca: David. Thank you, Craig. Good afternoon, everyone. We appreciate you joining us today. I'll start with a review of the highlights from the recent quarter, and we'll then hand it off to John to discuss our results in detail. Despite a dynamic interest rate environment, we delivered strong performance, continuing to push forward to return to historic levels of profitability as the balance sheet grows out of lower yielding rates on investments and loans originated in the recent period.
David John Nasca: We appreciate you joining us today.
David John Nasca: I'll start with a review of the highlights from the recent quarter and well then hand, it off to John to discuss our results in detail.
Despite a dynamic interest rate environment, we delivered strong performance continuing to push forward to returning to historic levels of profitability as the balance sheet grows out of lower yielding rates on investments and loans originated in the recent period, we achieved growth in our core banking operations and saw a notable increase.
David John Nasca: We achieved growth in our core banking operations and saw notable increases in our lending portfolio. This growth, combined with a stable deposit base and balance sheet optimization efforts in the first quarter, resulted in a net interest margin that exceeded expectations. Additionally, disciplined expense management contributed to the 26% increase in net income on a sequential basis.
David John Nasca: Pieces in our lending portfolio.
David John Nasca: This growth combined with our stable deposit base and balance sheet optimization efforts in the first quarter resulted in a net interest margin that exceeded expectations.
David John Nasca: Additionally, disciplined expense management contributed to the 26% increase in net income on a sequential basis.
David John Nasca: I'd like to highlight a few key achievements this quarter. Our consumer business banking and commercial teams drove strong loan production as they continued to build a diverse pipeline of high-quality loans, even in a difficult rate environment. In particular, commercial loan production has trended favorably for the first half of the year, producing $44 million in originations, predominantly in commercial and industrial loans.
Speaker Change: I'd like to highlight a few key achievements this quarter, our consumer business banking and commercial teams drove strong loan production as they continue to build a diverse pipeline of high quality loans, even in a difficult rate environment in particular commercial loan production has trended favorably for the first half of the year.
David John Nasca: Producing 44 million in originations predominantly in commercial and industrial loans.
David John Nasca: And with a $137 million pipeline in place, we anticipate mid-single-digit growth for the full year. Our success in this area can be attributed to consistent customer service, an enhanced cash management focus, new products, and targeted marketing efforts. Investments in our teams have also contributed, with the additional hires of two CNI relationship managers in Rochester, fully staffing our commercial relationship group there. Our deposit gathering efforts have been solid over the first half of the year, with gains in both retail and commercial businesses.
David John Nasca: And with $137 million pipeline in place, we anticipate mid single digit growth for the full year.
David John Nasca: Our success in this area can be attributed to consistent customer service enhanced cash management focused new products and targeted marketing efforts.
David John Nasca: Investments in our teams have also contributed with the additional hires of two C&I relationship managers in Rochester fully staffing our commercial relationship group there.
David John Nasca: Our deposit gathering efforts have been solid over the first half of the year with gains in both retail and commercial businesses.
David John Nasca: This success is a direct result of a comprehensive approach to our customers and a commitment to providing innovative banking solutions that meet the evolving needs of our existing clients and target a new generation of customers. Leveraging technology and process improvements to drive operational efficiencies and reduce costs across the organization remains a top priority. These efforts have driven gains in client engagement and operational efficiencies. As an example, during the first half of the year, we successfully launched electronic signature pads in all our branches, providing a fully electronic account opening experience.
David John Nasca: This success is a direct result of a comprehensive approach to our customers and our commitment to providing innovative banking solutions that meet the evolving needs of our existing clients and target a new generation of customers.
David John Nasca: Leveraging technology and process improvements to drive operational efficiencies and reduce costs across the organization remains a top priority.
David John Nasca: These efforts have driven gains in client engagement and operational efficiencies.
David John Nasca: As an example during the first half of the year, we successfully launched electronic signature pads and all of our branches, providing a fully electronic account opening experience.
David John Nasca: This initiative aimed at a better customer experience has improved data integrity and account opening speed, reduced paper consumption, and increased overall efficiency. Our commitment to community banking remains steadfast. We've deepened relationships within the communities we serve through initiatives that support local businesses, philanthropic actions, and targeted programs and partnerships. These efforts foster local development and economic growth. Notably, this year, we committed to the Regional Revitalization Partnership, or RRP, a $300 million multi-year collaborative between New York State, local municipalities, and private philanthropic and business partners.
David John Nasca: This initiative aimed at a better customer experience has improved data integrity and account opening speed reduce paper consumption and increased overall efficiency.
David John Nasca: Our commitment to community banking remained steadfast we've deepened relationships within the communities, we serve through initiatives that support local businesses.
David John Nasca: Anthropic actions and targeted programs and partnerships. These efforts foster local development and economic growth.
David John Nasca: Notably this year, we committed to the regional revitalization partnership.
David John Nasca: ERP, a $300 million multiyear collaborative between New York State local municipalities and private philanthropic and business partners.
David John Nasca: The RRP aims to revitalize economically distressed neighborhoods in Rochester, Buffalo, and Niagara Falls by driving economic development through private and public partnerships and philanthropy. This initiative, called East Side Avenues, is a recommitment to an expanded effort begun several years ago in a number of under-invested areas in East Buffalo, which the bank previously supported. Looking ahead, we remain cautiously optimistic about the remainder of the year. We do not see credit issues percolating in the portfolio, and growth prospects appear positive.
David John Nasca: <unk> aims to revitalize economically distressed neighborhoods in Rochester, Buffalo, Niagara Falls by driving economic development through private and public partnerships and philanthropy.
David John Nasca: This initiative called the site avenues is a recommitment to an expanded effort began several years ago in a number of underinvested areas East Buffalo, which the bank previously supported.
Speaker Change: Looking ahead, we remain cautiously optimistic about the remainder of the year, we do not see credit issues percolating in the portfolio and growth prospects appear positive while recognizing the challenges posted are posed by the current economic environment. We are confident in our ability to deliver performed.
David John Nasca: While recognizing the challenges posted or posed by the current economic environment, we are confident in our ability to deliver performance against these headwinds. Our focus will be on executing our strategic priorities, which include customer acquisition and relationship management to drive loan and deposit growth. Equally important is improving the client experience, optimizing operational efficiency, and diligently managing expenses. By prioritizing these areas, we aim to ensure sustainable returns and deliver long-term value for our shareholders, clients, and communities. With that, I'll turn it over to John to run through our specific results in greater detail, and then we will be happy to take any questions. John? Thank you, David, and good luck!
David John Nasca: Against these headwinds.
David John Nasca: Our focus will be on executing our strategic priorities, which include customer acquisition and relationship management to drive loan and deposit growth.
David John Nasca: Equally important is improving the client experience optimizing operational efficiency and diligently managing expenses.
David John Nasca: Prioritizing these areas, we aimed to ensure sustainable returns and deliver long term value for our shareholders clients and communities.
David John Nasca: With that I'll turn it over to John to run through our specific results in greater detail and then we will be happy to take any questions John Thank.
John B. Connerton: Thank you, David, and good afternoon, everyone. As a reminder, the 2023 comparative period includes business activity relating to the Evans Agency for T. We completed the sale of that business to Arthur J. Gallagher and Company on November 30, 2023. For the recent quarter, we delivered earnings of $2.9 million, or $0.53 per diluted share, which on a sequential basis was up 26% from $0.42 per share. This growth was largely driven by higher net interest income and lower non-interest expenses.
John: Thank you David and good afternoon, everyone.
John: As a reminder, the 2023 comparative periods include business activity relating to the Evans agency for <unk>, we completed the sale of that business to Arthur J Gallagher <unk> company on November 32023.
John: For the recent quarter, we delivered earnings of $2 9 million or 50 53 per diluted share.
On a sequential basis was up 26% from 42.
John: <unk> per share.
John: This growth was largely driven by higher net interest income and lower noninterest expenses.
John: When compared with last year's second quarter earnings of $4 9 million. The primary drivers of the year over year change with lower net interest income and the impact of the T cell.
John B. Connerton: When compared with last year's second quarter earnings of $4.9 million, the primary drivers of the year-over-year change were lower net interest income and the impact of the T-cell. Net interest income of $14.3 million was an increase of $0.4 million from the linked first quarter due to higher average loans and our actions to strengthen the balance sheet at the end of the first quarter. Year over year, the change in net interest income reflected higher interest expense given competitive pressure on deposit pricing, which accelerated for most of 2023.
John: Net interest income of $14 3 million was an increase of <unk> $4 million from the linked first quarter due to higher average loans.
John: And our actions to strengthen the balance sheet at the end of the first quarter.
John: Year over year the change in net interest income reflected higher interest expense given competitive pressure on deposit pricing, which accelerated for most of 2023.
John: Second quarter net interest margin came in at $2, 71% down eight basis points from the linked quarter.
John B. Connerton: Second quarter net interest margin came in at 2.71%, down eight basis points from the linked quarter. While there was some margin contraction, it was favorable to our expectations as we benefited from a strategic focus on optimizing assets. I will talk about our NIM expectations at the end of my remarks.
John: There was some margin contraction it was favorable to our expectations as we benefited from our strategic focus on optimizing asset mix I will talk to our NIM expectations at the end of my remarks.
John: The 297000 provision for credit losses in the recent quarter was due to growth as well as slower prepayment rates, partially offset by improving economic factors.
John B. Connerton: The $297,000 provision for credit losses in the recent quarter was due to growth as well as slower prepayment rates, partially offset by improving economic values. Total non-interest income was up $134,000 from the sequential quarter, driven by higher loan production and resulting fees, as well as improved performance in our wealth management service. That fee income is currently embedded in the insurance service and fee revenue line item. The sale of tea is reflected in the year-over-year decrease in that line item as well.
John: Total noninterest income was up 134000 from the sequential quarter, driven by higher loan production and resulting fees as well as improved performance in our wealth management services that.
John: That fee income is currently embedded in the insurance service and fee revenue line.
The sale of <unk> is reflected in the year over year decrease in that line item as well.
John: The decrease in noninterest expenses from the first quarter of 2024 was largely due to lower salaries and employee benefits, which were down 6%.
John B. Connerton: The decrease in non-interest expenses from the first quarter of 2024 was largely due to lower salaries and employee benefits, which were down 6%. While we have been managing expenses well, the linked quarter did reflect higher seasonal costs, which included the annual resets on FICO and unemployment insurance and the annual payment into our HSAs. Once again, the sale of tea was the driver of the year-over-year change, as non-interest expenses decreased $1.6 million.
John: While we have been managing expenses well the linked quarter did reflect higher seasonal costs, which included the annual resets on FICO and unemployment insurance and the annual payment into our HSA accounts.
John: Once again the sale of <unk> was the driver of the year over year change as noninterest expenses decreased $1 $6 million.
John: Our expectation for the bank only 2024 year expense, excluding tier 2023 expenses, a decrease between 1% and 2%.
John B. Connerton: Our expectation for the bank's only 2024 year expense, excluding T's 2023 expenses, is a decrease between 1% and 2%. Total deposits were flat at the end of the link quarter, though on a year-to-date basis they increased to $173 million for 10%. As we previously disclosed, we strategically strengthened our balance sheet during the first quarter, adding $55 million of broker deposits at favorable rates, also reflected in the increase for seasonal inflows of municipal deposits.
Speaker Change: Total deposits were flat with the end of the linked quarter. So on a year to date basis increased $173 million or 10%.
Speaker Change: As we previously disclosed we strategically strengthen our balance sheet during the first quarter, adding $55 million of broker deposits at favorable rates.
Speaker Change: Also reflected in the increase were seasonal inflows of municipal deposits.
John B. Connerton: From a product perspective, we saw increases across each major deposit category with support from both retail and commercial deposits. Total loans were up 2.5% in the quarter, as net commercial originations were $85.3 million compared with $36.3 million of net originations in the first quarter. We continue to be selective in underwriting decisions but are finding high-quality borrowers with opportunities in both CRE and C&I. The mix of growth was weighted towards C&I in the quarter, and we are seeing some increases in line usage following a number of quarters of muted performance.
Speaker Change: From a product perspective, we saw increases across each major deposit gathering category with support from both retail and commercial deposits.
Speaker Change: Total loans were up two 5% in the quarter as net commercial originations were $85 3 million compared with $36 3 million of net originations in the first quarter.
Speaker Change: We continue to be selective and underwriting decisions, but are finding high quality borrowers with opportunities in both Cree in C&I.
Speaker Change: The mix of growth was weighted towards C&I in the quarter and we are seeing some increases in line usage found a number of quarters of muted performance.
John B. Connerton: Total loans were up $94 million for 6% year-over-year, with Cree being up $60 million and C&I up $28. As David indicated, the current pipeline is strong and stands at 137 million at quarter end. We expect our current liquidity position to be the foundation that supports expected commercial loan growth of mid-single digits in 2024. We continue to maintain a disciplined approach to credit risk management. While we did see a sequential decline in non-performing loans, this was due to a classification change for one loan that was moved to ORE. On the plus side, this was a sound property, and we have a signed purchase agreement in place with a high quality bar with no losses expected once the deal closes. Criticized loans were $68 million at quarter end, compared with $70 million at the end of the first quarter.
Speaker Change: Total loans were up $94 million or 6% year over year with pre being up $60 million in C&I up $28 million.
Speaker Change: As David indicated the current pipeline is strong and stands at 137 million at quarter end.
David John Nasca: We expect our current liquidity position to be the foundation that supports expected commercial loan growth of mid single digits in 2024.
Speaker Change: We continue to maintain a disciplined approach to credit risk management, while we did see a sequential decline in nonperforming loans. This was due to a classification change for one loan that was moved to.
Speaker Change: Oh, sorry.
Speaker Change: On the plus side. This was a sound property and we have a signed purchase agreement in place with a high quality bar with no loss is expected once the deal closes.
Speaker Change: Criticized loans were $68 million at quarter end compared with $70 million at the end of the first quarter.
John B. Connerton: We have been successful in managing our deposit pricing strategy to include balancing liquidity with profitability and are confident in our ability to continue to navigate the evolving market dynamics. While the cost of funding continues to rise, we see that the rate of increase decelerating rapidly in some instances, with competition lowering rates, which provides a stabilizing NIM outlet. For the third quarter, we expect modest increases in cost as clients continue to move balances from transactional accounts to interest-bearing accounts, and the CD portfolio continues to reprice.
Speaker Change: We have been successful in managing our deposit pricing strategy to include balancing liquidity with profitability and are confident in our ability to continue to navigate the evolving market dynamics, while the cost of funding continues to rise we see that the rate of increase decelerating rapidly in some instances competition lowering rates, which provides a.
Speaker Change: <unk> NIM outlook.
Speaker Change: For the third quarter, we expect modest increases in cost as clients continue to move balances from transactional accounts interest bearing accounts and the CD portfolio continues to reprice.
Speaker Change: Given those impacts we anticipate our NIM to come down a few basis points to approximately 268% in the third quarter of 2024.
John B. Connerton: Given those impacts, we anticipate our NIM to come down a few basis points to approximately 2.68% in the third quarter of 2024. As funding costs continue to stabilize, we anticipate the third quarter to be the low point in this cycle and see the margins start to improve slowly in the fourth quarter and next year. With that, Operator, we would now like to open the line for questions. Thank you.
Speaker Change: As funding costs continue to stabilize we anticipate third quarter to be the low point in this cycle and see the margins start to improve slowly in the fourth quarter and next year.
Speaker Change: With that operator, we would now like to open the line for questions.
Speaker Change: Okay.
Speaker Change: Thank you.
Operator: Ladies and gentlemen, we will now be conducting a question and answer session. If you would like to ask a question, please press star and 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. Ladies and gentlemen, we will wait for a moment while we poll for questions. Our first question is from the line of Christopher O'Connell with KBW. Please go ahead.
Speaker Change: Ladies and gentlemen, we will now be conducting a question and answer session.
Speaker Change: If you would like to ask a question. Please press star and one on your telephone keypad.
Speaker Change: Confirmation tone will indicate your line is in the question queue.
Speaker Change: All participants using speaker equipment, it may be necessary to pick up your handset before pressing the stock east.
Speaker Change: Ladies and gentlemen, we will wait for a moment, while we poll for questions.
Speaker Change: Our first question is from the line of Christopher O'connell, Let Gabe VW. Please go ahead.
Speaker Change: Hey, good afternoon.
Speaker Change: Good afternoon, good afternoon, Chris.
David John Nasca: Good afternoon, Chris.
Christopher O'Connell: So, great loan growth this quarter, a nice rebound and on track for mid-single digit growth. Can you go through the origination yields that you're seeing nowadays in the commercial book?
So.
Speaker Change: Great loan growth this quarter.
Speaker Change: And nice rebound and on track for the mid single digit growth.
Speaker Change: Can you.
Speaker Change: Go through the origination yields that youre seeing nowadays in the commercial book.
Speaker Change: Yeah I think.
David John Nasca: Yeah, I think, depending on the type, you know, lines are going for prime, Prime plus, and then a longer term, longer term, commercial, and commercial real estate are going, you know, somewhere in the seven and a half percent and above.
Speaker Change: Our kind of our offering rates depending on the type.
Speaker Change: Lines are going for prime Prime plus.
Speaker Change: And then a longer term longer term commercial and commercial real estate are going somewhere in the seven 5% and above.
Got it.
John B. Connerton: And as far as, you know, the overall portfolio, just remind us how much of it is repricing with short-term rates? And then how much of the portfolio is set to, you know, reprice or mature in the back half of the year?
Speaker Change: As far as the.
Speaker Change: The overall portfolio can you just remind us how much of it is.
Speaker Change: Is repricing with short term rates are and then how much of the portfolio is set to reprice or mature in the back half of the year.
Speaker Change: So the variable rate portfolio is around $300 million.
John B. Connerton: So the variable rate portfolio is around $300 million. And as far as Chris, I'd have to get that number for the final six months to see what the maturities or what the repricing would be.
Speaker Change: And as far as I'd have to I'd have to get that number for us.
Speaker Change: Final six months of what the maturities are what the re pricing.
Speaker Change: So I'd have to get back down.
Speaker Change: Got it no problem.
John B. Connerton: And then, you know, on the muni seasonality, it seemed to hold up a little bit better into this quarter. How are you thinking about the seasonality in the final two quarters of the year?
And then you know on the Muni seasonality it seemed to hold up a little bit better.
Speaker Change: You know into this quarter.
Speaker Change: How are you thinking about the seasonality in the in the final two quarters of the year.
Speaker Change: Yes, I think were higher or higher because we've garnered some new customers, but the seasonality just as far as.
John B. Connerton: Yeah, I think we're higher. We're higher because we've garnered some new customers. But the seasonality, just as far as, you know, from a graphical perspective, we don't expect any difference in that there's, you know, our low point will be September before it goes up again, and then it'll be, again, the very lowest point in the year is December. So we expect traditional seasonality, but maybe at a slightly elevated level.
Speaker Change: From a practical perspective, we don't expect any difference in that.
Speaker Change: Our low point will be September.
Speaker Change: Before and again it goes up and then it will be again, a low point very lowest point in the year as December so I would expect traditional seasonality, but maybe at a slightly elevated level yeah. They will spend in this they'll spend into September and then in October the bills go out and you start repopulating the balances.
John B. Connerton: Yeah, they'll spend it; they'll spend it in September. And then in October, the bills go out, and you start repopulating the balance.
Speaker Change: <unk>.
Speaker Change: Okay great.
Speaker Change: And then on the CD or on the on the deposit side.
John B. Connerton: And then on the CD or on the deposit side, you know, the CD costs seem like they're starting to come up, you know, towards market rate levels. I mean, what what are you guys generally offering on the CD book currently? And have you tested the waters at all on bringing that down from the highs?
Speaker Change: You know the CD costs. It seems like you are starting to come up you know towards.
Speaker Change: Market rent levels I mean, what what are you guys.
Speaker Change: Generally offering you know on the CD book currently and have you tested the waters at all on kind of bringing that down from from the highs.
Speaker Change: Yeah I think.
John B. Connerton: We have I think, you know, probably last quarter we were, and the market was five and above. We're still getting some outside competition that's doing that in some avenues, but we ourselves are at around four and a half percent. It seems to be competitive, and we're holding that liquidity with
Speaker Change: Probably.
Speaker Change: Last quarter, we were in.
Speaker Change: And the market was five and above.
Speaker Change: Are still getting some outside competition thats doing that and some.
Some avenues, but were.
Speaker Change: Ourselves we're at around four 5%.
Speaker Change: It seems to be competitive and we're holding that liquidity.
Speaker Change: <unk>.
Speaker Change: Got it so it is most of them like the remaining pricing I guess on the funding side just from the lingering commercial customers.
John B. Connerton: Got it. So is most of the remaining pricing, I guess on the funding side, just, you know, from, you know, the lingering commercial customers, kind of more one-off rates than the broader book?
Speaker Change: Kind of more one off rates than the broader book.
John B. Connerton: Yeah, and I think we've, you know, we've seen that plateau out, but we, you know, there will be some impact from what kind of repriced we get in the second quarter. And then there still is a little bit of that happening in the third quarter, obviously not anticipating any particular movement, which might, you know, certainly improve that because we won't, you know, that'll probably move the competition. Yeah, but our expectations don't we don't consider any Fed movement.
Speaker Change: Yeah, and I think we've.
Speaker Change: We've seen that plateau out.
Speaker Change: There will be there will be some impact from what kind of reprice in the second quarter and then there is still a little bit of that happening.
Mike: In the third quarter, obviously, not anticipating any fed movement, which Mike.
Mike: Certainly improve that.
Mike: Because we want.
Mike: That'll probably than the competition.
Mike: Yeah, but our expectations don't we don't consider any five movement.
John B. Connerton: That's, you know, our MIM expectations are just our current trends in our pricing and what we're seeing our customers do in their behavior. And to your point, their behavior is, we're seeing less repricing of our current savings and transactional accounts are now accounts than we have in the past. So that's why we're indicating that it's going to be this kind of a low point in the third quarter.
Speaker Change: Our NIM expectations are just our current trends in our in our pricing and what we are seeing our customers during their behavior and to your point.
Speaker Change: Their behaviors, we're seeing less repricing of our current savings in transactional accounts.
Speaker Change: Our now accounts than we haven't in the past. So that's why we're indicating that it's going to be this kind of a low point in the third quarter on top of which we've had growth across all segments. So there has been commercial checking various retail checking we're seeing not just CD growth here.
John B. Connerton: On top of that, we've had growth across all segments. So there has been commercial checking, there's been retail checking. We're not just seeing CD growth here.
Speaker Change: Great and you know as you guys are looking at in towards the back half of the year and we potentially get closer to some fed funds cuts. How are you thinking about how the NIM will react.
John B. Connerton: Great. And, you know, as you guys are looking towards, you know, the back half of the year, and we potentially get closer to some Fed funds cuts, how are you thinking about how the NIM will react, you know, either to a single 25 basis point Fed funds cut or, just in general, the cadence on on a down cycle and rates there?
Speaker Change: You know either to a single 25 basis point fed funds cut or just in general.
Speaker Change: The cadence on.
Speaker Change: You know in a downcycle in rates there.
John B. Connerton: Just the math on our balance sheet, Chris, should be that 25 basis points should be down. But how the market reacts and the pressure it puts on the local market pricing is probably a bigger bigger unknown. So if that is more of a positive and we get some traction on the ability to price down some of our CD pricing and some of our savings, that would be helpful, but just our expectation that even 25 basis points should be more neutral than positive.
Speaker Change: Just the math on our balance sheet as it should be at 25 basis points should be down how the market reacts in the in.
Speaker Change: And the pressure.
Speaker Change: And the pressure directionally it puts on the local market pricing is probably a bigger bigger unknown.
Speaker Change: So if that is more of a positive.
Speaker Change: And we get some traction.
Speaker Change: <unk> ability to price down some of our CD pricing and some of our savings that would be helpful. But just our expectation, even 25 basis points should be more neutral than positive or negative.
Speaker Change: Got it and that's the short end right not not the non apparel, yes, yes, yes, yes. The short end and you also have to.
John B. Connerton: Got it. And that's the short end, right? Not not the parallel. Yes, yes, the short end.
John B. Connerton: And you also have, you know, two fairly large competitors here with the two regional banks that control the market. So, as John said, the vagaries of how they price are going to impact what we do, but generally, they'll hopefully be a little conservative when rates go down, but it's not going to have a monumental impact. And then, you know, the fees have come in a little stronger the past couple quarters, you know, specifically on the other fee line. Is that anything MSR-related or anything in there that has been holding that up? Or is that a pretty good run rate to go forward?
Speaker Change: Two fairly large competitors here with the.
Speaker Change: The two regional banks that are.
Speaker Change: Control of the market so.
John: And as John said.
John: The vagaries of how they price are going to impact what we do but generally they will hopefully be a little conservative if rates go down, but it's not going to have a monumental impact.
John: Great.
Speaker Change: And then the fees are coming in a little stronger the past couple of quarters, you know I think specifically on a on the other fee line.
Speaker Change: Is that an anything MSR related or anything in there that has.
Speaker Change: It has been holding that up or is that a pretty good run rate to go forward with.
John B. Connerton: You know, other things can be a little clunky. It's probably slightly elevated, but not by a significant amount. You know, there's a lot of, there's a lot of difference. It's a true other. There are a lot of things that can pop up and move it around. Loan fees are in there. But, you know, it's probably slightly elevated, but not by a significant amount.
Speaker Change: Although it can be a little clunky.
Speaker Change: It's probably a slightly elevated but not by a significant amount.
Speaker Change: There's a lot of there's a lot of different it's a true other there is a lot of things that can pop up and move it around loan fees are in there.
Speaker Change: But.
Speaker Change: It's probably slightly elevated but not significant.
Speaker Change: Great.
Unknown Attendee: Unknown Attendee Great. And then on the expense side, I mean, you know, a very good quarter and, you know, a great job bringing everything down this quarter. Based on the guide, is it right to read that a little bit more investment in the back half of the year and any color on kind of, you know, what you guys have planned, either on the technology side or for personnel in terms of, you know, investments going forward? Unknown Attendee I
Speaker Change:
Speaker Change: And then on the expense side I mean, you know very good quarter and great job, bringing everything down this quarter.
Speaker Change: Based on the guide is it right to read that a little bit more investments in the back half of the year and just any color on kind of you know what you guys had planned either on the technology side or for personnel in terms of.
Speaker Change: Best friends going forward.
Speaker Change: Okay.
Unknown Attendee: I think about a couple things. I think we have made investments, obviously, in people. I think in the back half of the year, we looked to maintain our staffing levels, you know, there's still some change going on. But I don't think there's a lot more investment in lending teams, as I mentioned, in terms of technology. We've been investing all along to try to get efficiencies. But that should eventually be to our benefit in terms of expenses, not to our detriment. And we have made, you know, the heavy investments here; we're trying to reap some of the benefits of the efficiencies here going into the back half of the year and into next year.
Speaker Change: Thank you a couple of things I think we have made investments obviously.
Speaker Change: And people.
Speaker Change: I think the back half of the year, we look to.
Speaker Change: Maintaining our staffing theres still some change going on but I don't think there is a lot more investments in lending teams as I mentioned in terms of technology, we've been investing all along to try to get efficiencies, but that should eventually be to our benefit in terms of.
Speaker Change: Expenses, not our detriment and we've made heavy investments here, we're trying to reap some of the benefits of.
Speaker Change: The efficiencies here going into the back half of the year and into next year.
Speaker Change: Great.
Speaker Change: And then you know.
John B. Connerton: And then, you know, on the credit side, any additional color that you can provide on the Oreo that is set to sell and set to sell, you know, and no loss, but just, you know, what type of loan or, you know, anything about the situation or what happened there?
Speaker Change: On the credit side any.
Speaker Change: Yeah.
Speaker Change: Any additional color that you can provide on the Oreo that is set to sell insert itself.
Speaker Change: And no loss.
Speaker Change: But just you know what type of loan or any.
Speaker Change: Thinking about the situation or what happened there.
John B. Connerton: Yeah, I mean, it's one of the larger loans that have been in non-performing for a period of time. It's one of, really, a good property that just never got, the operators needed to get changed out. It was a hotel. And we got some really good operators going in there with some good backing and some good wherewithal. So, the property itself is turned around and is starting to perform. So the new owners are excited to be in there, and we're excited to have them.
Speaker Change: Yes. It is.
Speaker Change: It's one of the larger loans that had been in nonperforming for a period of time, it's one of them.
Speaker Change: So really a good property.
Speaker Change: That just never got the operators needed to get changed out it was a hotel.
Speaker Change: And we got.
Speaker Change: Some really good operators going in there with some good backing.
Speaker Change: Thanks, and good morning.
With al.
Speaker Change: So and and the property itself.
Speaker Change: Turned around and started to perform so the new owners are excited to be in there and we're excited to have them.
Speaker Change: Got it and so did that whole six nine balance come out of Npls This quarter.
John B. Connerton: Got it. And so did that whole 6.9 balance come out of NPLs this quarter?
John B. Connerton: It did! It did! So you don't see a direct reduction in it because when our queue comes out, we do have a couple of 90 days and still with brewing that are just having delays and are getting too close. And so, no, I wouldn't, I would suggest that it's not an increase in MPLs, but it's, you know, by classification, those 90 plus and occurring go into that. Otherwise, we'd be flat.
Speaker Change: It did it did so you don't see a direct reduction in it because youll.
Speaker Change: You'll see when our Q comes out we do have a couple of 90 days and still with that.
Speaker Change: Bad debt.
Speaker Change: Better yes.
Speaker Change: Having.
Speaker Change: Having delays.
Speaker Change: And getting to close.
Speaker Change: So.
Speaker Change: No I wouldn't.
Speaker Change: I would suggest that it's not an increase in npls, but by.
Speaker Change: By classification, those 90, plus and occurring going into that number.
Speaker Change: Otherwise we'd be flat.
Speaker Change: Yep and any anything else that you're seeing.
John B. Connerton: Yeah, and anything else that you're seeing of concern at all within, you know, from the credit perspective on the book into the back half of the year here?
Speaker Change: You know a concern at all within you know from the credit perspective on the on the book into the back half of the year here.
John B. Connerton: Nothing that we're seeing. We're, you know, we're being diligent and looking at all of our credits that are coming up to refinance. We're looking out ahead, seeing what those businesses look like at the newer rates. And we've run those numbers, and we haven't really seen any deterioration in those debt service coverages at new rates, nor have we really seen any delinquencies that have increased. It's pretty much, you know, working on the stuff that we do have in our NPLs, such as the ORE that we're talking about, and getting those to perform better. Otherwise... We haven't seen any negative trends.
Speaker Change: Nothing that we're seeing where we're being diligent in looking at.
Speaker Change: All of our credits that are coming off to refinance we're looking out ahead.
Speaker Change: Seeing what those what those businesses look like at the newer rates.
Speaker Change: We run those numbers and we haven't really seen.
Speaker Change: Any deterioration in those debt service coverages at new rates, and we haven't really seen any any.
Speaker Change: Any delinquencies have increased.
Speaker Change: It's pretty much working on the stuff that we do have in our npls such as the <unk> that we're talking about and getting those to better performing otherwise.
Speaker Change: We haven't seen any negative trends.
Speaker Change: Got it helpful.
Speaker Change: And then.
Speaker Change: That's for me is just a what's a good go forward tax rate.
Unknown Attendee: [inaudible] Thoughts for me are just, what's a good go forward tax rate?
Unknown Attendee: 22 is a 22 and a half is a good good number to go for a tax Unknown AttendeeGreat.
Speaker Change: 'twenty two is 'twenty, two and a half.
Speaker Change: Our tax rate.
Christopher O'Connell: Great. Appreciate the time. Nice quarter. Thanks for taking my questions. Thanks, Chris.
Speaker Change: Great.
Speaker Change: I appreciate the time nice quarter, thanks for taking my questions.
Chris: Thanks, Chris.
Speaker Change: Thank you.
Speaker Change: Ladies and gentlemen, a reminder, if you wish to ask a question. Please press star and one.
David John Nasca: Ladies and gentlemen, a reminder, if you wish to ask a question, please press star and one. As there are no further questions, I now hand the conference over to David Nasca for closing comments. David?
Speaker Change: As there are no further questions I now hand, the conference over to David Nasca for closing comments David.
David John Nasca: Thank you and thank you all for participating in the teleconference today. We certainly appreciate your continued interest and support. Please feel free to reach out to us at any time. We look forward to talking with all of you again when we report our third quarter 2024 results. Hope you have a great day and thanks again for your interest.
David John Nasca: Thank you and thank you all for participating in the teleconference. Today. We certainly appreciate your continued interest and support please feel free to reach out to us at any time.
Operator: Thank you. The conference call with Evans Bancorp has now concluded. Thank you for your participation. You may now disconnect your lines.
Speaker Change: We look forward to talking with all of you again, when we report our third quarter 2024 results Hope you have a great day and thanks again for your interest.
Speaker Change: Thank you the conference of Advanced Bancorp has now concluded. Thank you for your participation you may now disconnect your lines.
Speaker Change: Okay.
Speaker Change: Hum.
Speaker Change: Hmm.
Speaker Change: Yeah.
Speaker Change: Yes.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Okay.