Q3 2024 RBB Bancorp Earnings Call
Unknown Executive: Good day, and welcome to the RBB Bancorp Q3 2024 earnings call. At this time, all participants are in a listen-only mode.
Good day and welcome to the RBC Bancorp Q3, 'twenty 'twenty four earnings call. At this time all perpetual notes are on a listen only mode. After management's prepared remarks, there will be a question and answer session I would now like to turn the call over to back over to the floor is yours.
Unknown Executive: After management's prepared remarks, there will be a question-and-answer session.
Rebecca Rdow: I would now like to turn the call over to Rebecca Rdow; the floor is yours.
Rebecca Rdow: Thank you, Kelly.
Speaker Change: Thank you Kelly.
Rebecca Rdow: Good day, everyone, and thank you for joining us to discuss RBB Bank for the third quarter of 2024. With me today, our Chief Executive Officer, David Morris, President, Johnny Lee, Chief Financial Officer, Lynn Hopkins, Chief Credit Officer, Jeffrey Yeh, Chief Operations Officer, Gary Fan, and Chief Risk Officer, Vincent Lewis.
Kelly: Good day, everyone and thank you for joining us to discuss our BB bank bonds.
Kelly: For the third quarter of 2024.
Speaker Change: With me today.
Speaker Change: Our Chief Executive Officer, David Morris.
Speaker Change: And Johnny Lee Chief Financial Officer Lynn Hopkins.
Speaker Change: Chief Credit Officer, Jeffrey a chief operations Officer, Gary fan and Chief Risk Officer Vincent.
Rebecca Rdow: David and I will briefly summarize the result, which can be found in that earnings press release and investor presentation that are available on our investor relations website, and then we'll open up the call to your question. I would ask that everyone please refer to the disclaimer regarding forward-looking statements and investor presentation and the company's SEC filing.
Speaker Change: David and I will briefly summarize our results, which can be found in the earnings press release and Investor presentation are available on our Investor Relations website.
Speaker Change: And then we'll open up the call to your questions.
Speaker Change: I would ask that everyone. Please refrigerant claimer regarding forward looking statements in our investor presentation, and the company's SEC filings.
David Morris: Now I'd like to turn the call over to our Chief Executive Officer, David Morris. David?
Now I'd like to turn the call over to <unk>, Chief Executive Officer, David Moore, David.
David Morris: Thank you, Rebecca.
David Moore: Thank you Rebecca good day, everyone and thank you for joining us today.
David Morris: Good day, everyone, and thank you for joining us today. We report it, third quarter net income of $7 million, or $39 cents per share, with results, including a pre-tax $2.8 million recovery on a fully charged off loan, and a $3.3 million credit provision. Net interest margins increased by one basis point, which was less than we expected, but we remain optimistic that it will have the opportunity to expand over the next few quarters, with the expected decline in short-term market interest rates. We began to see some of the deposits funded loan growth we referenced last quarter.
David Moore: We reported third quarter net income of $7 million.
David Moore: Or <unk> 39 per share.
David Moore: Salt, including a pretax $2 8 million recovery on a fully charged off loans and a $3 $3 million credit provision.
David Moore: Net interest margin increased by one basis point.
David Moore: Which was less than we expected.
David Moore: We remain optimistic that it will have the opportunity to expand over the next few quarters with the expected decline in short term market interest rates.
David Moore: We began to see some of the deposits funded loan growth, we referenced last quarter.
David Morris: Loans increased by $44 million in the third quarter, supported by $175 million of loan production at a weighted average rate of 7.26%.
David Moore: Loans increased by $44 million in the third quarter supported by $175 million.
David Moore: <unk>.
Loan production.
David Moore: Weighted average rate of 7.26%.
David Morris: Johnny will talk more about our expectations for loan growth over the next few quarters. Deposit increased by $69 million from the last quarter, with non-interest bearing deposits remaining stable. We continue to focus on attracting and retaining core deposits to fund our loan growth. We did increase wholesale deposits in the third quarter as they were less expensive than retail deposits, but at 4.8% of total deposits, we are significantly less reliant on them than a year ago when they were at 13.9% of total deposits.
Speaker Change: Johnny will talk more about our expectations for loan growth over the next few quarters.
Speaker Change: Deposits increased by $69 million.
Speaker Change: From the last quarter with noninterest bearing deposits remaining stable.
We continue to focus on attracting and retaining core deposits to fund our loan growth.
We did increase wholesale deposits in the third quarter as they were less expensive than retail deposits.
Speaker Change: But at four 8% of total deposits, we have significantly less reliant on them than a year ago. When they were at 13, 9% of total deposits.
David Morris: Non-performing loans increased in the third quarter, and Johnny will share more information about that, but we continue to work through these loans and believe we will be able to resolve the majority of them by mid next year.
Speaker Change: Nonperforming loans increased in the third quarter and Johnny will share more information about that but we continue to work through these loans and believe we will be able to resolve the majority of them by mid next year.
David Morris: We were pleased to announce the resolution and termination of our consent order in August. Our directors and staff worked very hard to address our regulatory concerns and to strengthen our compliance programs. With this hard work behind us, we believe we have the opportunity to focus on growth and other value-creating opportunities for the bank.
We were pleased to announce the resolution of the termination of our consent order in August our directors. Our staff worked very hard to address our regulatory concerns and to strengthen our compliance programs.
Speaker Change: With this hard work behind US we believe we have the opportunity to focus on growth.
Speaker Change: Other value creating opportunities for the bank.
Johnny Lee: With that, I handed over to Johnny. Thank you, David. As David mentioned, long school at a 5.8% and on last rate, any third quarter. Supporting this growth was a very robust $175 million loan production, which comes after strong second quarter loan production of $117 million. Net loan growth has been tempered by payoffs and pay downs due primarily to borrowers like a further needs for the loans or their desire to wait until rates come down further before refinancing. Payoffs also included loans were higher potential credit risks that RBB wanted to exit, and loans that were refinanced by other banks that offer aggressive rates and credit terms that we were not willing to match.
Speaker Change: With that I hand, it over to Johnny.
Johnny Lee: Thank you David.
Johnny Lee: David mentioned loans grew at a five 8% annualized rate in the third quarter.
Johnny Lee: Supporting this growth was a very robust $175 million, our loan production, which comes after a strong second quarter loan production of $117 million.
Johnny Lee: Net loan growth has been tempered by payoffs and pay downs due primarily to borrowers like a further needs for your lungs.
Johnny Lee: Their desire to wait until rates come down further before refinancing.
Payoffs also included loans were higher potential credit risks.
Johnny Lee: <unk> wanted to exit and loans that were refinanced by other banks that offer aggressive rates and credit terms that we are not willing to match.
Johnny Lee: Absent a change in this dynamic, we expect our loan balances to continue to grow at a moderate pace, which will gradually accelerate as we continue to hire more seasoned commercial lenders. We intend to continue growing loans in a prudent manner by focusing on credit quality and relationships that were generally reasonable and sustainable returns for RBB.
Johnny Lee: Absent a change in this dynamic dynamic we expect our loan balances continued to grow at a moderate pace, which will gradually accelerate as we continue to hire more seasoned commercial lenders.
Johnny Lee: We intend to continue growing loans in a prudent matter by focusing on credit quality and relationships that will generate reasonable and sustainable returns for our bebe.
Johnny Lee: Starting on slide 9 of the investor presentation, we provide some additional details on credit. Non-performing loans totaled $60.7 million or 1.52% of total assets at the end of the third quarter. The $6.1 million increase on the second quarter was mainly due to two loans. Totaled $13.3 million, then migrated to non-cruel status. Offset by a $6.1 million in full payoffs and $1.2 million in partial charges. 99% of our loan performing loans are in our operating markets, so we feel comfortable that we have a good handle on them and can work effectively to resolve them.
Johnny Lee: Starting on slide nine of the Investor presentation, we provide some additional details on credit.
Nonperforming loans totaled $60 $70 million or $1, 52% of total assets at the end of the third quarter.
Johnny Lee: The $6 $1 million increase from the second quarter was mainly due to two logs.
Johnny Lee: Totaling $13 $3 million that migrated to non accrual status.
Johnny Lee: Offset by a $6 $1 million in full payoffs and $1 $2 million in partial charge offs.
Johnny Lee: 99% of our non performing loans are in our operating markets. So we feel comfortable that we have good handle on them and can work effectively to resolve them. However, it will take a little time.
Johnny Lee: However, it will take a little time. Slide 10 has details about our 9 NPLs that are greater than $1 million. The two new non-performing loans are a $10 million C&D loan and a $3.3 million C&D loan. The C&D loan is on a completed mixed-use commercial property that has a pending certificate of occupancy and remains well secured. The C&D loan is well-clarized based on a recent appraisal. However, there's an environmental issue, and the power has stopped making payments as an action plan for remediation efforts is put in place.
Johnny Lee: Slide 10 has details about our nine M. P. I will start a greater than $1 million.
Johnny Lee: The two new nonperforming loans are at $10 million, CND long and a $3 $3 million CRE, though.
Johnny Lee: The C&I loan is on a completely mixed use commercial property you don't have the opinion certificate of occupancy and.
Johnny Lee: It remains well secured.
Johnny Lee: You see already as long as well collateralized space on a recent appraisal. However, there is an environmental issue any power has stopped making payments as an action plan for remediation efforts is put in place.
Johnny Lee: With respect to the increase in special mention and substandard loans, we are closely monitoring our borrowers' performance, including the status of unpaid property taxes, to ensure we are capturing and measuring the risk in our loan portfolio. This includes reporting, special asset meetings, external credit review, active engagement with our borrowers. Our special mention loans increase $58 million in total sum, $77.5 million at end of the third quarter. The increase was primarily due to a $43.6 million C&D loan for a completed hotel construction project and five CRE loans that totaled $25.2 million. All of these loans are current, but they have unpaid property taxes, which triggered the downgrades.
Johnny Lee: With respect to increase in special mention and substandard loans, we are closely monitoring our past performance.
Johnny Lee: Including the status of unpaid property taxes to ensure we are capturing and measuring the risk in our loan portfolio.
Johnny Lee: This includes reporting special asset meetings.
Journal Credit review active engagement with our borrowers.
Johnny Lee: Our special mentioned loans increased $58 million and totaled $77 $5 million at the end of the third quarter.
Johnny Lee: The increase was primarily due to a $43 $6 million C&D loan for a completed hotel construction project in.
<unk> loans that totaled $25 2 million.
Johnny Lee: All of these loans are current but they have unpaid property taxes, which triggered to downgrades.
Johnny Lee: We are working with bars to resolve their delinquent property taxes. In addition, an $11.7 million C&D loan migrated to Substandard. It is on a completed apartment project that is in process of stabilization and transition to bridge financing. However, the process has taken longer than anticipated, and there are also delinquent property taxes. Nonetheless, this loan remains current on its payments. Substandard loans totaled $79.8 million at the end of the third quarter. The $16.8 million increase from the second quarter was primarily due to downgrades of three loans, totaling $25 million. In $11.7 million C&D loan with payments current and as previously described, the $10 million C&D loan and $3.3 million C&D loan which migrated to non-cores status.
Johnny Lee: We are working with borrowers to resolve their delinquent property taxes.
Johnny Lee: In addition, $11 7 million C&D don't migrate to substandard.
Johnny Lee: It is on a completed apartment project ideas and processes stabilization and transitioning to bridge financing.
Johnny Lee: However, the process has taken longer than anticipated and there are also a delinquent property taxes.
Johnny Lee: Nonetheless, this loan remains current on its payments.
Johnny Lee: Substandard loans totaled $79 $8 million at the end of third quarter.
Johnny Lee: The $16 $8 million increase from the second quarter was primarily due to downgrades of three loans totaling $25 million.
Johnny Lee: And $11 seven C&D long with payments current.
Johnny Lee: And as previously described the $10 million C&I loan and $3 3 million to our CRE loan, which migrated to non accrual status.
Johnny Lee: This increase was offset by loan pay off of $6.7 million. Charge also $1.2 million in upgrades and pay downs totaling $884,000.
Johnny Lee: This increase was offset by loan payoffs of $6 $7 million charge offs of $1 $2 million in upgrades and pay downs totaling $884000.
Lynn Hopkins: With that, I will hand it over to Lynn, who can go into some more financial details about the course. Thanks, Johnny. Please feel free to refer to the investor presentation we have provided as I continue to share comments on the company's third quarter of 2024 financial performance. Slide three of our investor presentation has a summary of our third quarter results. As David mentioned, net income was $7 million, or $0.39 per deleted share, which matches the last quarter of ZPS. The one basis point increase in net interest margins at $268 was less than we had expected, but the loan production combined with stabilizing spending costs should support continued expansion over the next few quarters.
Speaker Change: With that I'll hand, it over to Alain who can go into some more financial details about the quarter.
Alain: Thanks, Tony.
Alain: Please feel free to refer to the Investor presentation. We have provided as I continue to share comments on the company's third quarter of 2024 financial performance.
Alain: Slide three of our Investor presentation has a summary of our third quarter results.
Speaker Change: As David mentioned net income was <unk> 7 million or <unk> 39 per diluted share, which matches last quarter's EPS.
Speaker Change: The one basis point increase in net interest margin to 268 was less than we had expected, but the loan production combined with stabilizing funding costs should support continued expansion over the next few quarters.
Lynn Hopkins: Interest income increased $1.5 million, with growth in loan interest income making up for decline in interest earned on securities. Non-interest income increased by $2.3 million to $5.7 million due mostly to a $2.8 million recovery on a fully charged-off loan from an acquired bank. Non-interest expenses increased by $297,000 to $17.4 million due to higher salaries and other expenses, which were partially offset by lower insurance, regulatory, and legal expenses. Slide five and six have additional details about our loan portfolio and yields. Commercial real estate loans are the percentage of total loans expanded modestly to 41%. Will see in D loans decreased to 6%.
Interest income increased $1 5 million with growth in loan interest income, making up for a decline in interest earned on securities.
Noninterest income increased by $2 3 million to $5 7 million due mostly to a $2 8 million dollar recovery on a fully charged off loan from an acquired bank.
Speaker Change: Noninterest expenses increased by $297000 to $17 4 million due to higher salaries and other expenses, which were partially offset by lower insurance regulatory and legal expenses.
Speaker Change: Slide five and six have additional details about our loan portfolio and yields.
Speaker Change: Commercial real estate loans as a percentage of total loans expanded modestly to 41% <unk> decreased 6%.
Lynn Hopkins: Slide seven has detailed about our $1.5 billion residential mortgage portfolio, which consists of well secured non-QM mortgages primarily in New York and California, with average LTV of 56%. Calling up on giant comments about credit by 12 walks through our allowance for credit losses, which increased 2.1 million in the third quarter. The increase was due to a $3.3 million provision for credit losses, including higher specific reserves of 2.5 million, offset by a net charge of 1.2 million. The Civic Reverse increased based on the decrease in the fair value collateral for two properties related to one relationship.
Speaker Change: Slide seven has details about our $1 5 billion residential mortgage portfolio, which consists of well secured non QM mortgages, primarily in New York, and California with average LTV of 56%.
Speaker Change: Following up on John's comments about the credit slide 12 walks through our allowance for credit losses, which increased $2 1 million in the third quarter.
Speaker Change: The increase was due to a $3 3 million provision for credit losses, including higher specific reserves of $2 5 million offset by net charge offs of $1 2 million.
Speaker Change: Specific reserves increased based on the decrease in the fair value of collateral for two properties related to one relationship.
Lynn Hopkins: The chargeoffs were primarily related to a C&D loan and a CERI loan, which were written down to their estimated fair value and included in our largest non-performing loan table on page 10 of the investor debt. The CERI loan had a carrying balance of 1.2 million at the end of the third quarter and has since been paid off with no further loans. The ratio out of our allowance for credit losses or ACL, the total loans increased to 1.41 percent, inclusive of the specific reserves. All the coverage ratio of our ACL to non-performing assets decreased to 72 percent from 76 percent.
Speaker Change: The charge offs were primarily related to a <unk> and a CRE loan what's your written down to their estimated fair value and included in our largest nonperforming loan table on page 10 of the investor deck.
Speaker Change: The CRE loan had a carrying balance of $1 2 million at the end of the third quarter and has since been paid off with no further loss in early October.
Speaker Change: The ratio of our allowance for credit losses, or ACL to total loans increased to 141% inclusive of the specific reserves on the coverage ratio of our ACL to nonperforming assets decreased to 72% from 76%.
Lynn Hopkins: The decrease was due in part to an increase in individually evaluated loans, which did not require an additional allowance for loan losses, offset in part by higher specific reserves. 5.13 has detailed about our deposit franchise. Total deposits increased from the second quarter to 3.1 billion, with growth in all deposit types, while non-interesting deposits remain stable. Our average all-in cost the deposits increased by four basis points from the second quarter to 3.63 percent in the third quarter, including an estimated quarter end spot rate of 3.53 percent. Pangeable book value for share increased to 2464 due to earnings, the creative share repurchases, and a recovery of AOCI offset by dividends of about $3 million.
Speaker Change: This decrease was due in part to an increase in individually evaluated loans, which did not require an additional allowance for loan losses.
Speaker Change: Offset in part by higher specific reserves.
Speaker Change: Slide 13 has detailed about our deposit franchise total deposits increased in the second quarter to $3 1 billion with growth in all deposit types, while noninterest bearing deposits remained stable.
Speaker Change: Our average all in cost of deposits increased by four basis points from the second quarter to 363% in the third quarter, including an estimated quarter end spot rate of 353%.
Speaker Change: Tangible book value per share increased to 2064 due to earnings and accretive share repurchases and a recovery of LCI offset by dividends of about $3 million.
Lynn Hopkins: We repurchased about 508,000 shares at an average price per share of 2153 in the third quarter, which completed the program authorized in February of this year. Our capital levels remain strong, with all capital ratios above regulatory well-capitalized levels.
Speaker Change: We repurchased about 508000 shares at an average price per share of $21 53 in the third quarter, which completed the program authorized in February of this year.
Speaker Change: Our capital levels remained strong with all capital ratios above regulatory well capitalized levels.
Unknown Executive: With that, we are happy to take your questions.
Speaker Change: With that we're happy to take your questions. Operator, if you could please open up the call.
Unknown Executive: Operator, if you could please open up the call.
Unknown Executive: Certainly. The floor is now open for questions. If you have any questions or comments, please press star one on your phone at this time. We ask that while posing your question, you please pick up your handset if listening on a speaker phone to provide optimum sound quality. Please hold a moment while we pose for questions.
Speaker Change: Certainly the floor is now open for questions. If you have any questions or comments. Please press star one on your phone at this time, we ask that while posing your question you. Please pickup your handset of listing on the speaker phone to provide optimum sound quality. Please hold them on that while we poll for questions.
Brendan Nosal: Your first question is coming from Brendan Nozall with HubD Group. Please pose your question. Your line is live.
Speaker Change: Your first question is coming from Brendan Nosal with Hep D Group. Please pose your question your line is live.
Brendan Nosal: Thanks, Good morning, So, let's hope you're doing well.
Speaker Change: Thanks, Brendan Brennan.
Brendan Nosal: Just wanted to start off on the margin here a little bit of accretion.
We lost you.
Speaker Change: If we lose the whole line.
Speaker Change: Okay.
Speaker Change: We didn't hear that can you say that over again please.
Brendan Nosal: Can you say that over again, please? Yeah, am I coming through now?
Speaker Change: Yes, not coming through now.
Brendan Nosal: Yes. Okay, sorry about that.
Speaker Change: Yes.
Speaker Change: Okay, sorry about that.
Brendan Nosal: I just want to dig into the margin a little bit more, given your comments for some expansion over the next few quarters.
I just wanted to dig into the margin a little bit more.
Speaker Change: Given your comments for some expansion over the next few quarters, just kind of curious.
Brendan Nosal: Just going to curious, what sort of magnitude are you thinking as we kind of move into 2025 on those dynamics?
Speaker Change: What sort of magnitude are you thinking as we kind of move into 2025 on those dynamics.
Johnny Lee: Sure, I can make a couple additional comments about our NIMS. So we are still positioned as a liability-sensitive bank. I think that our spot rate at the end of the quarter being at three deposit rates, being at 353 as an indication that our cost of deposits are going to trend downward. I think the key drivers for any NIMS expansion relates to the repricing of our CD portfolio; the majority of it reprices over the next 12 months, and over the next quarter, $800 million has the opportunity to reprice, and it has an average rate of just under five percent.
Speaker Change: Sure I can make a couple of additional comments about our NIM. So we.
Speaker Change: We are we are still positioned as a liability sensitive bank.
Speaker Change: I think that our spot rate at the end of the quarter being at three deposit rates being at $3 53, as an indication that our cost of deposits are going to trend downwards.
I think key drivers for any NIM expansion relates to the repricing of our CD portfolio.
Speaker Change: The majority of that re prices over the next 12 months and over the next quarter $800 million has the opportunity to reprice and it has an average rate of just under 5%.
Johnny Lee: I think on the earning asset side, we've indicated that our loan production is coming in higher than our overall average loan rates. Plus, we have a large portion of our loan portfolio that's six, or variable or hybrids that are sitting on their floors or not eligible to repriciate, and that's 60 percent, or about two-thirds of the portfolio.
Speaker Change: I think on the earning asset side, we've indicated that our loan production is coming in higher than our overall average loan rates.
Speaker Change: Plus we have a large portion of our loan portfolio that fixed.
Speaker Change: Or variable or hybrid that are sitting on their floors are not eligible to reprice yet in that.
Speaker Change: 60% or about two thirds of the portfolio.
Johnny Lee: So we're in a declining rate environment. I think, as far as expansion, I don't know if I can comment exactly the magnitudes, but I think the deposit spot cost is probably a good indication of the minimum amount, and then I think we would be cautiously optimistic there would be room for more.
So we're in a declining rate environment I think as far as expansion I don't know if I can comment exactly the magnitude.
Speaker Change:
Speaker Change: But I think that deposit spot cost is probably a good indication of the minimum amount and then I think we would be cautiously optimistic there would be room for more.
Speaker Change: Yes.
Brendan Nosal: Okay, that's a helpful color. Thank you.
Speaker Change: Okay.
Speaker Change: That's helpful color. Thank you.
Brendan Nosal: Maybe pivoting to gain on sale of loans, just kind of curious if you've seen any signs of life in the secondary market for that paper that would allow originations and production to increase and flow through feed income.
Maybe pivoting to.
Speaker Change: Gain on sale of loans.
Speaker Change: Just kind of curious if you've seen any signs of life in the secondary market for that for that paper that would allow.
Speaker Change: Originations in production to increase in flow through fee income.
Johnny Lee: Sure, so us, Sergeant, Johnny, can ask an additional color. So I think the SBA premiums have been relatively consistent in the third quarter compared to the second quarter. Garbolling was a little bit lower, and he can comment on the premiums, and then our mortgage banking product. Those have been, I think, relatively thin margins, and the competition's been there as well.
Sure So I'll start and John can add some additional color. So I think the.
Speaker Change: The SBA premiums have been relatively consistent in the third quarter compared to the second quarter, our volume was a little bit lower.
Speaker Change: And he can comment on the premiums and then mortgage banking product.
Speaker Change: Those have been I think relatively thin margins and the competitions.
Speaker Change: Been there as well so I think.
Johnny Lee: So I think, Johnny, if you want to add color on the... Yeah, Juan has been studying, again, selling gross premiums for an average in about 8 to 9 percent on average. So obviously that's a segment where we continuously want to drive more businesses and not pipeline. Actually, still looking around the hell at this stage. I think on the mortgage side they've been 101, maybe 102.
Speaker Change: And John if you want to add color on that.
Speaker Change: <unk> can answer the gross premiums been averaging about 8% to 9% on average. So obviously, that's a segment, where we had contingency you want to drive more.
Businesses in our pipeline actually still looking royalty here with you at this stage.
John: I think on the mortgage side, they've been 101, maybe one or two.
Speaker Change: Okay.
Speaker Change: Okay.
Brendan Nosal: Okay, fantastic.
Speaker Change: Okay fantastic. Thank you for taking the questions.
Brendan Nosal: Thank you for taking the questions.
Matt Clark: Your next question is coming from Matt Clark. He's made with Piper Sandler, please pose your question. Your line is live.
Speaker Change: Your next question is coming from Matt Clark.
Speaker Change: Excuse me with Piper Sandler. Please pose your question your line is live.
Matt Clark: Okay, Matt. You want to have one? How you doing?
Matt Clark: Hey, Matt Hey, good morning, everyone, how you doing.
Matt Clark:
Matt Clark: Yeah, a few from me, maybe just rounding out the margin conversation. Do you have the average margin in the month of September?
Matt Clark: Yeah, a few from me, maybe just rounding out the margin conversation do you have the average margin in the month of September Lynn.
Lynn Hopkins: I thought you might ask that question, so we would estimate our margin was moving up during the quarter and ending the last month. I would say that because we placed some loans on a non-accrual, and that occurred in September, kind of normalizing for that. We were probably close to a 275. Okay, got it.
Speaker Change: Thought you might ask that.
Speaker Change: Question. So we would estimate our margin was moving up.
Speaker Change: And.
Speaker Change: During the quarter.
Speaker Change: And in the last last month, I would say that because we placed some loans on nonaccrual and that occurred in.
Speaker Change: In September kind of normalizing.
Speaker Change: For that we were.
Speaker Change: We're probably closer to a $2 75.
Speaker Change: Okay got it.
Lynn Hopkins: And then the, you mentioned you have 800 million CDs coming off just under 5%, what are your new offer rates or would you expect that to renew into? So I think with the Fed having moved rates down, we look at the 12-month CD, both in the wholesale market and the retail market. I would say the offer rates have been between 50 and 70 basis points lower than the average that we see coming off. Okay.
Speaker Change: And then the.
Speaker Change: Hmm.
You mentioned you have 800 million of Cds coming off just under 5% what are your what are your new offer rates or would you expect that to renew into.
Speaker Change: So I think with the fed having moved rates down when you look at the 12 month CD.
Speaker Change: So from a wholesale market in the retail market I would say.
Speaker Change: The offer rates have been between 50 and 70 basis points lower.
Speaker Change: Then the average that we see coming off.
Speaker Change: Okay.
Lynn Hopkins: And then what's your expectation for your deposit data through this easing cycle? So far, we've had the opportunity to move down the full 50 basis points that the short-term Fed funds rate has come down, but it takes some time to come through the full deposit, the cost of our funds. So right now, I think it's pretty high data relative to new deposit products. Okay.
Speaker Change: And then what's your expectation for your deposit beta.
Speaker Change: Through this easing cycle.
Speaker Change: So far as well.
Speaker Change: We've had the opportunity to move down the 450 basis points.
But the short term fed funds rate has come down but it takes some time to come through the full deposit.
Speaker Change: Cost of our funds.
So right now I think it's pretty high beta relative to new deposit products.
Speaker Change: Okay. Okay.
Lynn Hopkins: And then the security yields came down, I think 43 bips to 413, and I think the balances are down 19 or 20 million. I guess what went on there? Yeah, so during the quarter, we had some commercial paper that we allowed for it to mature. We invested some of it in longer duration securities and then, of course, in over the loan portfolio, and then a little piece left in cash. So mostly commercial paper that was rolling over, and with rates coming down, those returns also came down. So we were pivoting to other opportunities. Okay.
Speaker Change: And then the securities yields came down I think 43 bps to 413, and I think the balances are down 19% to $20 million I guess what went on there.
Speaker Change: Yeah. So during the quarter, we have some commercial paper that we allowed for it to mature we ended that said some of it and a longer duration.
Speaker Change: <unk>.
Speaker Change: Securities and then of course in the loan portfolio and then a little piece left in cash so mostly commercial paper that was rolling over and with rates coming down.
Speaker Change: Those returns also came down so we were pivoting to other opportunities.
Okay, and then lastly.
Lynn Hopkins: And then lastly, on the buyback, you just completed. Any expectation to re-up the buyback? I think we're looking at it after taking down about 20 million dollars this year so far. So we'll, we're seriously looking at it.
Speaker Change: On the buyback can you just completed.
Speaker Change: The expectation to re up the buyback.
Speaker Change: I think we're looking at it.
Speaker Change: After taking down about $20 million.
This year, so far so we'll.
We're seriously looking at it.
Lynn Hopkins: Fair enough. Thank you.
Speaker Change: Fair enough. Thank you.
Kelly Motta: Your next question is coming from Kelly Months with KBW. Please pose your question in line as well.
Speaker Change: Your next question is coming from Kelly Motta Keefe VW. Please pose your question your line is live.
Kelly Motta: Hey Kelly, how are you? Good morning. Thanks. I am good. Thanks, Spencer. Just a couple of items there. I noticed your insurance and reg assessments was down quite a bit. I'm wondering if that is a good, I think it was about 650,000 bucks. If that's a good run rate or any, any drivers of that, I'm not sure if that has to do with the resolution of the regulatory order you had in your quarter.
Speaker Change: Hey, Kelly.
Kelly Motta: Morning, Thanks, I am good thanks for the question.
Speaker Change: I guess maybe.
Speaker Change: Starting with expenses just a couple of items there.
Kelly Motta: Noticed your insurance and <unk> was down quite a bit I'm wondering if that is a good.
Kelly Motta: I think it was about 650000 box it that's a good run rate or any any <unk>.
Kelly Motta: Drivers at that I'm not sure if that has to do with <unk>.
Kelly Motta: The resolution of the regulatory order you had at your quarter.
Lynn Hopkins: Sure, Kelly, thanks for the question. I think for that particular line item, we've reached the place where that might be a good indication of our near-term run rate. Got it, helpful. And then the salaries and benefits ticked up. I know you had some greater production. I'm wondering if you could provide any color as to what drove that, if you've been adding new producers and any thoughts on how that could trend here in the next couple of quarters, as you balance profitability and supporting the growth you see. Sure, so I think the higher salary and benefits is reflective of the higher loan production.
Speaker Change: Sure Kelly Thanks for the question.
For that particular line item, we've reached a place where that might be a good indication of our near term run rate.
Speaker Change: Got it helpful and then the salaries and benefits ticked up I know you had some greater production wondering.
Speaker Change: I'm wondering if you.
Speaker Change: If you could provide any color as to.
Speaker Change: What drove that.
Speaker Change: You've been adding new producers and any thoughts on how that could trend here within the next couple of quarters is the balance.
Speaker Change: Profitability in supporting the growth you see.
Speaker Change: Sure.
Speaker Change: I think the higher salary and benefits is reflective of the higher loan production and it was mostly associated with incentives as we come down to the last part of the year.
Lynn Hopkins: It was mostly associated with incentives as we come down to the last part of the year. I think without commenting necessarily on that single line item, I think overall expenses have been trending between 17 million and 17 and a half million. So I expect kind of going forward given ongoing investment in ourselves, including higher production. Maybe we would trend at the higher end of the range, but I expect our overhead range to stay there. Got it, that's really helpful.
Speaker Change: I think without commenting necessarily on that single line item you think overall expenses have been trending between 17 million and $17 5 million.
Speaker Change: I expect kind of going forward.
Speaker Change: Given ongoing investment in ourselves, including higher production.
Speaker Change: Maybe we would trend at the higher end of the range.
Speaker Change: And I expect our overhead range to say stay there.
Speaker Change: Got it that's that's really helpful.
Kelly Motta: All right, I was hoping I'd appreciate the color and the call about the credit migration you've had. The release says you're looking; you expect resolution of some of this migration to occur, kind of by mid-next year. Can you expand on what you're doing there? MPAs are a little bit higher. They're about 2% of low scenario, just kind of what you're working on there, expectations for turn-offs, and what does kind of a more normalized range of credit looks like for you.
Speaker Change: Yes.
Speaker Change: Alright.
Speaker Change: I'm just hoping I appreciate the color on the call about the credit migration you Todd.
Speaker Change: The release says Youre looking you expect.
Speaker Change: Resolution of some of this migration to occur kind of by mid next year can you expand on what you're doing there.
Speaker Change: <unk> are a little bit higher there are about 2% scenario just kind of what.
What what youre working on their expectations for charge offs and what what does kind of on a more normalized range of credit look like for you.
Johnny Lee: Hi, Kelly, this is Johnny. So right now, after we're working on the nine MPAs that exceed one million, and we are expecting roughly 70% of it to hopefully come up within the next year. There are, we have pretty good visibility on the path; we know how those will be coming down, that we will get their trustee sales or, you know, best investors are prepared to take out or refinance these credits. Also, I would add to Johnny's comment, you had said, you know any expectations of additional charge-offs. I think the visibility on these, this one that he was commenting on, currently we're not seeing charge-offs there, but it will take some time.
Hi, Kelly this is Johnny.
So right now obviously, we're working on.
Speaker Change: The non mpls at exceeding $1 million.
Speaker Change: We are expecting.
Speaker Change: Roughly 70% of it too.
Speaker Change: Two hopefully come off within mid year next year are there all we have pretty good visibility on the pathway to how those will.
Speaker Change: It will be coming down through trustee sales.
Speaker Change: As investors are prepared to take out or refinance these credits.
Speaker Change: Oh, sorry, okay.
Speaker Change: Kathy Kelly I would add too.
Speaker Change: Johnny's commented you had said you know any expectations of additional charge offs I think visibility.
Speaker Change: On these this ones that he was commenting on.
Speaker Change: Currently where we're not seeing charge offs there.
Speaker Change: But it will take some time.
Kelly Motta: Got it. That's helpful.
Got it.
Speaker Change: Got it that's that's helpful.
Johnny Lee: And then it was nice to see some loan production pick-up; your commentary said moderate amount of growth ahead and accelerating, kind of thereafter. Where are you still seeing good opportunities, and how are you guys thinking about, you know, the what's in the pipeline and kind of the outlook for growth as you manage that versus maybe sounds like still working off some weaker borrowers out of the day. Well, obviously the weaker boroughs with Kelly, I'm sorry, that Johnny, yeah, obviously the weaker boroughs, you know, we certainly in the opportunity we have, we want to kind of match them out.
Speaker Change: And then.
Speaker Change: It was nice to see some some loan production picked up.
Speaker Change: Our commentary said.
Speaker Change: A moderate amount of <unk> ahead and accelerating.
Speaker Change: Kind of thereafter, where what where are you still seeing good opportunities in.
Speaker Change: How are you guys thinking about.
Speaker Change: The.
What's in the pipeline and kind of the outlook for growth, taking manage that versus maybe it sounds like still working off some.
Weaker borrowers out of the bank.
Speaker Change: Well after the weaker borrowers with Kelly I'm sorry, Jonathan.
Jonathan: Yes, it's obviously a weaker borrowers.
Speaker Change: We saw the opportunity we have we want to kind of imagine mill.
Johnny Lee: But as far as the new production is concerned, our pipeline has always been very healthy. Since I was at the beginning of this year, obviously we kind of, you know, picking our battles and where, where, where we should be, you know, fighting, because of the, the certain areas of the market segment of the market is still very, very competitive. So we're, we're sticking to our credit quality, you know, first, and making sure all this new process of looking at me to our credit standards, underwriting standards, also the rate, the pricing. Obviously, if you look at few three out, world has been predominantly from the CREMFR space on the commercial side. Obviously, we have some non-QN products that we were able to successfully fund doing Q3.
Speaker Change: New production is concerned our pipeline always been very healthy since I was up again this year.
Speaker Change: Obviously, we kind of picking our battles.
Speaker Change: Sure.
Speaker Change: Fighting.
Speaker Change: Because of the certain areas or segments of the market is still very competitive so we're sticking to our credit quality.
Speaker Change: First making sure all of this new process looking at meet our credit standards underwriting standards also you're right. The pricing obviously as you look at Q3, our growth has been predominantly from the CRE Mfr space on the commercial side, obviously, we have some non QM products that we already have quite successfully.
During Q3.
Johnny Lee: We do see a lot of the SBA side picking up. We do have a relatively healthy pipeline there. CNI trade finance typically, I mean, we see good traction there by those, you know, typically take a little bit more time, but there's a healthy pipeline behind that as well. So I went just to do it in the last comment. Kelly, you know, for the fourth quarter, our annualized growth rate was about six percent. Overall, supported by the $175 million of new production. So I think our comment about modest growth and kind of opportunities that we're seeing in our marketplace, I think it follows that trend.
Speaker Change: We do see I do see a lot of the SBA side picking up we do have.
Speaker Change: Relatively healthy pipeline there.
Speaker Change: C&I trade finance typically what we see.
Speaker Change: Good traction there, but those.
Speaker Change: Typically take a little bit more time, but there is a healthy.
Speaker Change: Healthy pipeline behind that as well.
Kelly Motta: So I Wonder Sidney Nebraska comments Kelly.
Kelly Motta: For the fourth quarter, our annualized growth rate was about 6% overall supported by the $175 million of new production.
Kelly Motta: So I think our comment about modest growth in kind of opportunities that we're seeing in our marketplace.
Kelly Motta: I think.
Kelly Motta: Followed that trend.
Johnny Lee: I think our general view.
Kelly Motta: Yes.
Kelly Motta: I think our general view.
Yes.
Kelly Motta: All right. Thanks so much for the questions. I'll step back. Thank you, Kelly.
Speaker Change: Got it thanks, so much for the questions I'll step back thanks.
Speaker Change: Thanks, Kevin.
Andrew Terrell: Your next question is coming from Andrew Terrell with Stevens. Please pose your question. Your line is left.
Speaker Change: Your next question is coming from Andrew <unk> with Stephens. Please pose your question your line is live.
Andrew Terrell: Hey, good morning. Hey, good.
Speaker Change: Hey, good morning.
Speaker Change: Hey, good.
Andrew Terrell: Hey, I just wanted to follow up on some of the margin discussion briefly, and specifically Lynn, going back to your comment around kind of the actions you've taken post the Fed. I think you mentioned, you know, seeing kind of 100% beta or 50 basis points off. Maybe some of the interest-bearing deposits. Can you just maybe expand upon that a little bit further? I'm just trying to compare that versus the 353 spot rate disclosure on the total deposits. It seems like if, you know, most of the interest bearing went down, I guess outside of CDs, went down by 50 basis points, you know, following immediately following the Fed.
Speaker Change: Hey, I just wanted to follow up on some of the margin discussion.
Andrew: Briefly in specifically linde going back to your comment around kind of the actions you've taken post the fed I think you mentioned.
Andrew: So you kind of a 100% beta or 50 basis points off maybe.
Maybe some of the interest bearing deposits can you just maybe expand upon that a little bit further I'm, just trying to compare that versus the $3 53.
Andrew: Spot rate disclosure on the total deposits. It seems like most of the interest bearing went down I guess outside of Cds.
Andrew: Went down by 50 basis points. Following immediately following the fed it feels like that the spot rate number should be lower so I'm just trying to compare some of that commentary. So if you could elaborate further I think it would be helpful.
Andrew Terrell: It feels like that spot rate number should be lower. So I'm just trying to compare some of that commentary. So, if you could elaborate further, I think it'd be helpful.
Lynn Hopkins: Sure. I mean, so the Fed moved in September, and we took our measurement on September 30th. So remember 60% of our funding base is CDs. So we do have to wait for the CDs to mature before we can reprise them. So our current offering rates plus the opportunities as they come off are now 50 to 70 basis points lower than the rate that's there at September 30th. So, while we already saw ten basis points in the spot rate at the end of the quarter, I think there's opportunities for larger change in the fourth quarter. Does that help?
Sure I mean, so the fed move in September and then we took our measurement on September 30th So remember 60% of our funding base is Cds. So we do have to wait for the Cds to mature before we can reprice them. So our current offering raised.
Andrew: The opportunities as they come off.
Andrew: Our now 50 to 70 basis points lower than the rate that they're at September <unk>.
Andrew: So while we already saw 10 basis points in the spot rate at the end of the quarter.
Andrew: There's opportunity for larger change in the fourth quarter.
Speaker Change: Does that help.
Lynn Hopkins: Yeah, we wouldn't have been reflected as of September 30th. And then the non-maturity deposit, it's about 20% of our funding base. Those came down modestly, but probably not. 100% data; I think the series is our biggest opportunity. Yeah, okay, so I should think about maybe the spa rate is inclusive of the actions you took on like the non-maturity deposit side and then, you know, you'll get a more material impact from the time deposit repricing the actions you took there in the fourth quarter. Yes, and as rates continue to come down, or if we expect them to, you know, we have a CD ladder that matures over the next 12 months. So while I called out the fourth quarter, there's an equal amount maturing kind of in the first and second quarters.
Speaker Change: Okay. So maybe reflective yeah, we wouldnt have seen it reflected as of September 30th and then the non maturity.
Speaker Change: Deposits, it's about 20% of our funding base.
Speaker Change: Those came down modestly, but probably not at 100%.
Speaker Change: Data I think the Cds as our biggest opportunity.
Speaker Change: Yeah, Okay. So I should think about maybe the spa rate is inclusive of the actions you took on like the the non maturity deposit side and then you'll get a more material impact from the time deposit repricing. The actions you took there in the fourth quarter.
Speaker Change: Yes, and as rates continue to come down.
Speaker Change: We expect them to.
Speaker Change: We have a CD ladder that matures over the next 12 months, so I called out the fourth quarter.
Speaker Change: There is an equal amount maturing kind of in the first and second quarters.
Lynn Hopkins: Next year, and I would just say in the first quarter next year, the average rate coming off is still in the high fours, so that has a big opportunity to move as well.
Speaker Change: Next year and I would just say in the first quarter next year.
Speaker Change: The average rate coming off is still in the high fours. So that is a big opportunity to move as well.
Lynn Hopkins: Yeah, yeah, for sure, okay, and then can you just remind us post the I know there was some action taken with the commercial paper in the securities portfolio this quarter. Can you remind us, you know, at period and just what was the mix of the securities book that was floating rate in nature? For the securities book, the amount that's floating rate, I will have to come back to you there. I only had my loan portfolio teed up, so the commercial paper that came off was about $40 million. $201 second. Yeah, yeah, no worries, no worries.
Speaker Change: Yeah, Yeah for sure Okay.
Speaker Change: And then.
Speaker Change: Can you just remind us post the I know there were some actions taken with the commercial paper in the securities portfolio. This quarter can you remind us.
At period end.
Speaker Change: What what was the mix of the Securities book that was floating rate in nature.
Speaker Change: Yeah.
For the Securities book, the amount that's floating rate I will have to come back to you. There I only had my loan portfolio teed up.
So the commercial paper that came off was about $40 million.
Speaker Change: Dollars.
Hold on one second.
Speaker Change: Okay.
Yeah, Yeah, no worries numbers.
Lynn Hopkins: Have I just asked one more, you know, just some of the commentary on the margin and the positive progression from here? I'm curious if that contemplates any rate cuts during the fourth quarter. And I get that the balance sheet is liability sensitive, and it does feel like, you know, the timing of rate cuts or how quickly rate cuts occur will matter, just given that the CD heavy nature of the deposit base. And I'm just curious, you know, if we were to get to incremental 25 base point rate cuts during the fourth quarter, just from a timing standpoint, because the margin, you know, be stable, even like down a little bit.
Speaker Change: And if I could just ask one more just some of the commentary around the margin and got a positive progression from here I'm curious if that contemplates.
Speaker Change: Any rate cuts during the fourth quarter and I get that the balance sheet is liability sensitive, but it does feel like the timing of rate cuts or how quickly right.
Speaker Change: Kerbal matter, just given the CD heavy nature of the.
The deposit base and I'm just curious if we were to get to incremental 25 basis point rate cuts during the fourth quarter just from a timing standpoint.
Speaker Change: Margin be stable, even leg down a little bit.
Lynn Hopkins: Obviously, understanding that gives you kind of more of a benefit into 2025.
Speaker Change: Obviously understanding that give you more of a benefit into 2025.
Lynn Hopkins: Sure, so let me make two comments there. One is you're getting at the magnitude by how much our net interest margin should have the opportunity to expand because we're liability sensitive, and I think that we will be able to take advantage of it because we have a good CD ladder. I think my second comment is we have noticed that the... that the wholesale market understands the interest rate environment and where rates are headed. And we've been able to, I think, opportunistically use the wholesale funds to lower overall cost of funds. And I think that's probably an opportunity that's there.
Speaker Change: Sure. So let me make two comments there. One is you are getting at the magnitude by how much our net interest margin should have the opportunity to expand because we're liability sensitive and.
Speaker Change: I think that we will be able to take advantage of it because we have a good CD ladder.
Speaker Change: I think my second comment is we have noticed that the.
That the wholesale market understand the interest rate environment, and where rates are headed and we have been able to I think.
Speaker Change: Opportunistically.
Speaker Change: Use the wholesale funds.
Speaker Change: Two lower overall cost of funds and I think thats, probably an opportunity. That's there again doing it in a modest amount our reliance on wholesale funds is significantly lower than last year.
Lynn Hopkins: Again, doing a modest amount of reliance on wholesale funds is significantly lower than last year. So I think those are the two places. So, despite when the Fed is moving rate, I think everyone can see where they're moving to. We're trying to take advantage of that and lower it as much as possible. Yeah, okay. That makes sense, and I appreciate it. Thank you all for taking the questions.
So.
Speaker Change: Those are the two places so despite when the fed is moving rates I think everyone can see where they're moving to.
Speaker Change: We're trying to take advantage of that and lowered as much as possible.
Speaker Change: Yes, okay.
Speaker Change: It makes sense and I appreciate it. Thank you all for taking the questions.
Unknown Executive: Thank you. Once again, if you do have any questions or comments, please press star one on your phone at this time. Please hold a moment while we pull for any additional questions.
Thank you.
Speaker Change: Once again, if you do have any questions or comments. Please press star one on your phone at this time, please hold a moment, while we poll for any additional questions.
Matt Clark: You have a follow-up question coming from Matt Clark with Piper Sandler. Please pose your question. Your line is live.
You have a follow up question coming from Matt Clark with Piper Sandler. Please pose your question your line of sight.
Matt Clark: Hey, thanks. I think you have some debt come and do in the first quarter, interquarter. Can you just update us on the amount and your plans to refinance that?
Matt Clark: Hey, thanks.
Matt Clark: I think you have some debt coming due in the first quarter.
Matt Clark: Intra quarter or can you just update us on the amount and your plans to.
Refinance that.
Yeah.
Lynn Hopkins: Sure. Thanks, Matthew. I can start. So we have 150, we have 150 million of FHLB advances priced around 120 that are coming due in March of next year. I think for plans to re-price, given we're in a declining rate environment, we should be able to take advantage of that. However, at the same time, we did put on a 50 million dollar putable advance at the end of September; we were able to price that around 340, 345. And it has a final for four years is the structure. There is a one-time call. And again, we would look to something like that to help, I think, refinance the 150 million dollars.
Speaker Change: Sure. Thanks, Matthew I can start so we have 150 <unk>, we have $150 million of FHL. The advances price to around 120 that are coming due in March of next year.
Speaker Change: I think for plans to reprice, given we're in a declining rate environment.
Speaker Change: Should be able to take advantage of that however at the same time, we did put on.
Speaker Change: $50 million critical advanced at the end of September we were able to price that around.
Speaker Change: $343 45.
And it has a final.
Speaker Change: For four years as the structure.
Speaker Change: There is a onetime call.
Speaker Change: And.
Speaker Change: Again, we would look to something like that to help I think refi.
Speaker Change: Refinance the $150 million.
Lynn Hopkins: Plus, we'll be looking at our own loan growth and opportunities to grow deposits. So, as of now, I think we're feeling pretty comfortable with the maturity of the 150 million dollar advance. Obviously, 120 is a very attractive rate, so we'll work hard to get more cost-effective funding.
Plus we'll be looking at our own loan growth opportunities too.
Speaker Change: Grow deposits. So as of now I think we're feeling pretty comfortable with the maturity of the $150 million.
Speaker Change: Advance, obviously $1 20 is a very attractive rate. So we'll work hard to.
Speaker Change: To get more cost effective funding.
Speaker Change: Great. Thank you.
Speaker Change: Okay.
David Morris: That does conclude our Q&A session.
Speaker Change: That does conclude our Q&A session. At this time I would now like to turn the floor back over to David Morris for any closing remarks.
David Morris: At this time, I would now like to turn the floor back over to David Morris for any closing remarks. Once again, thank you for joining us today. We look forward to speaking to many of you in the coming days and weeks. Have a great day. Thank you again. Bye-bye. Thank you, everyone.
Once again, thank you for joining us today.
David Morris: Forward speaking to many of you in the coming days and weeks.
Speaker Change: Great day.
Thank you again bye bye.
Thank you everyone. This does conclude today's conference call. You may disconnect. Your phone lines at this time and have a wonderful day. Thank you for your participation.
Unknown Executive: This does conclude today's conference call. You may disconnect your phone lines up this time and have a wonderful day. Thank you for your participation.