Q3 2024 Bridgewater Bancshares Inc Earnings Call

Operator: Good morning and welcome to the Bridgewater Bancshares 2024 Dirt Quarter Earnings Call.

Good morning, and welcome to the Bridgewater Bancshares 2024 third quarter earnings call.

Operator: My name is Wyatt, and I will be your conference operator today. All participants have been placed in listen-only mode.

Speaker Change: My name is why it and I'll be your conference operator today.

All participants have been placed in listen only mode.

Operator: After Bridgewater's opening remarks, there will be a question-and-answer session. To ask a question, please press star, then one on your touch-tone phone. If you're using a speaker phone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then two.

Speaker Change: After Bridgewater is opening remarks, there'll be a question and answer session to ask a question. Please press Star then one on your Touchtone phone.

Speaker Change: If youre using a speakerphone please pick up your handset before pressing the keys.

Speaker Change: To withdraw your question. Please press Star then two please.

Operator: Please note that today's call is being recorded.

Speaker Change: Please note that today's call is being recorded.

Justin Horstman: At this time, I would like to introduce Justin Horstman, Vice President of Industrial Relations, to begin the conference call. Please go ahead.

Justin Horstman: Thank you, Wyatt, and good morning, everyone.

Justin Horstman: Joining me on today is call our Jerry Bach, Chairman and Chief Executive Officer, Joe Chybowski, President and Chief Financial Officer, Nick Place, Chief Banking Officer, and Jeff Shellberg, Chief Credit Officer. In just a few moments, we will provide an overview of our 2024 third quarter financial results. We will be referencing a slide presentation that is available on the Investor Relations section of Bridgewater's website, investors.bridgewaterbank.com. Following our opening remarks, we will open the call for questions. During today's presentation, we may make projections or other forward-looking statements regarding future events or the future financial performance of the company.

Justin Horstman: We caution that such statements are a prediction and that actual results may differ materially. Please see the forward-looking statement disclosure in our slide presentation and our 2024 third quarter earnings release for more information about risks and uncertainties, which may affect us. The information we will provide today is added up and for the quarter-ended September 30th, 2020. Or 2024, and we undertake no duty to update the information. We may also disclose non-GAAP financial measures during this call. We believe certain non-GAAP financial measures, in addition to the related GAAP measures, provide meaningful information to investors to help them understand the company's operating performance and trends, and to facilitate comparisons with the performance of our peers.

Justin Horstman: We caution that these disclosures should not be viewed as a substitute for operating results determined in accordance with GAAP. Please see our slide presentation in 2024 third quarter earnings release for reconciliation of non-GAAP disclosures to the comparable GAAP measures.

Gerald Baack: I would now like to turn the call over to Bridgewater's Chairman and CEO, Carrie Bach. Thank you, Justin, and thank you to everyone for joining us this morning. We're pleased to report a solid quarter with earnings of 27 cents per share. Highlights included a second consecutive quarter of net interest income growth, ongoing net interest margin stability, strong core deposit growth, strong overall asset quality, and our previously announced acquisition of First Minute Market City back. Net interest margin health steady at 2.24% for the third straight quarter, with a Fed's rate cut in September and potential for more later this year and into 2025, were poised to start seeing margin expansion given our liability sensitive balance sheet.

Gerald Baack: Strong core deposit growth helped enhance our overall deposit mix during the quarter, as we were able to push out some broker and time deposits. We've really been pleased with the quarter post momentum we've seen going back to March of last year. On the asset side, elevated loan payoffs and competition in the market cause loan balances to decline. But higher yields and earning asset growth through cash and securities ultimately resulted in increased net interest income and total revenue growth. As the quality continues to be one of our strengths, we didn't see an uptick in that charge-offs and non-performing loans in the third quarter, both due to one central business district office loan that we had mentioned over the last few quarters.

Gerald Baack: Jeff will provide more color on this in a few minutes, but overall, we feel good about our portfolio, especially given the improving multifamily trends in the Twin Cities, such as declining vacancy rates.

Gerald Baack: Turning to slide four, as you know, back in August, we announced the acquisition of First Minister of Taka City Bank. This is a deal that we believe checks a lot of boxes strategically as we look at M&A. First Minister of Taka City Bank brings a low-cost granular core deposit base. Their loan to deposit ratio will provide additional liquidity and balance cheap optionality. The transaction will also reduce our CRE concentration while adding a new income stream through the investment advisory platform. In addition, this is a small in-market transaction with low integration risk. Since the announcement, we've had really good conversations with all of the team members of the First Minister of Taka City Bank.

Gerald Baack: Everyone is really excited about the benefits of the combination for all parties involved. We have received all required regulatory approvals and expect acquisition to close during the fourth quarter of this year. We also have integration teams in place that are collaborating regularly to actively prepare to bring the base together. When you consider Bridgewater for recent funding trends, including strong core deposit growth, and combine it with the deposit base and liquidity that First Minister of Taka City Bank brings, we feel really good about our outlook as we look to 2025.

Gerald Baack: Turning to slide five, one of the parts of the Bridgewater story I'm most proud of has been our ability to consistently grow tangible book value, which was up another 3% in the third quarter, but 31st consecutive quarter of growth. We expect this streak to come to an end in the fourth quarter as we complete the acquisition. A generating consistent tangible book value growth will remain a focus for us as we move into 2025.

Gerald Baack: Before I turn it over to Joe, I wanted to highlight a few recent enhancements. We have made to our leadership structure. Earlier this month, Nick Place, our former Chief Learning Officer, moved into the role of Chief Banking Officer where he will oversee lending, deposits, and all things revenue. In addition, Lisa Salazar has moved from her previous role of Chief Deposit Officer to Chief Operating Officer, where she will oversee operations, technology, and initiatives related to the organizational efficiency and client experience. We believe that these changes will propel us forward with an increased level of agility and focus.

Joseph Chybowski: With that, I'll turn it over to Joe. Thank you, Jerry. Turning to slide six, net interest margins has helped steady at 224 throughout 2024. A couple of this with annualized average earning asset growth of 4.3%, and we saw a nice increase in net interest income in the third quarter. This came despite elevated loan payoffs and lower loan balances as we grew securities and kept more cash on the balance sheet. Both that neutral to a creative earning asset yield. The elevated payoffs also had a favorable impact on the margin in the form of accelerating previously deferred loan fees, which increased 9% quarter-over-quarter.

Joseph Chybowski: Diving a little deeper on slide 7, loan yields continue to reprise higher, up 7 basis points to 557. While we expect this to continue, even in a potential raised down environment, the pace of the increase may vary based on the loan yields coming on and off the balance sheet in a given quarter. During the third quarter, the weighted average yield on new loan originations was in the mid-7% range, while loans paying off were in the low to mid-sixes. Our security yield also moved to over 5%, while average balances reached 700 million. The asset yields picked up; the pace of rising funding costs slowed, up just five basis points compared to double-digit increases each of the past several quarters.

Speaker Change: Environment the pace of the increase may vary based on the loan yields coming on and off the balance sheet in a given quarter.

Speaker Change: During the third quarter, the weighted average yield on new loan originations was in the mid 7% range, while loans paying off we're in the low to mid sixes.

Speaker Change: Our securities yield also move to over 5%, while average balances reached $700 million.

Speaker Change: As asset yields picked up the pace of rising funding cost slowed up just five basis points compared to double digit increases each of the past several quarters.

Joseph Chybowski: We are already seeing the impact of a Fed September rate cut, as deposit costs have started to decline. We have 1.4 billion of adjustable rate funding tied to short-term rates, including over 1 billion of deposits, which we reprise lower late in the third quarter. We will continue to reprise other deposits lower as we move forward, but we will be thoughtful given competition. In addition, our deposit mix has improved with court deposit growth and reduced brokerage and time deposits. And don't forget about First Minister Taka City's bank's low-cost deposit base. All these factors should help alleviate the pressure on deposit costs starting in the fourth quarter and certainly into 2025.

Speaker Change: We are already seeing the impact of the fed September rate cut as deposit costs have started to decline.

Speaker Change: We have $1 4 billion of adjustable rate funding tied to short term rates, including over $1 billion of deposits, which we reprice lower late in the third quarter.

Speaker Change: We will continue to reprice other deposits lower as we move forward, but we will be thoughtful given competition in.

Speaker Change: In addition, our deposit mix has improved with core deposit growth and reduced brokered time deposits.

Speaker Change: And don't forget about first minnetonka cities Banks' low cost deposit base.

Speaker Change: All of these factors should help alleviate the pressure on deposit costs, starting in the fourth quarter and certainly into 2025.

Joseph Chybowski: We are now in a position where we should start to see modest margin expansion beginning in the fourth quarter, with the magnitude dependent on the pace of additional rate cuts over the remainder of the period. And a more normalized upward sloping yield curve. Turning to slide 8, you can see that the margin stability has translated into two consecutive quarters of revenue growth and rising profitability, including an increase in pre-provisioning that revenue. On slide 9, our ability to manage expenses while making investments in the business continues to be a real strength of the organization. Expenses in 2024 have been very well controlled and have tracked in line with what we expected.

Speaker Change: We are now in a position where we should start to see modest margin expansion beginning in the fourth quarter with the magnitude dependent on the pace of additional rate cuts over the remainder of the year and a more normalized upward sloping yield curve.

Speaker Change: Turning to slide eight you can see that the margin stability has translated into two consecutive quarters of revenue growth and rising profitability, including an increase in pre provision net revenue.

On slide nine our ability to manage expenses, while making investments in the business continues to be a real strength of the organization.

Speaker Change: Expenses in 2024 have been very well controlled and attract in line with what we expected.

Joseph Chybowski: After a decrease in expenses in the first quarter, which is typically our low point, we saw expenses ramp up in the second and third quarters, similar to last year. Looking ahead to the fourth quarter, we would expect expenses to continue to move modestly higher, excluding merger-related expenses and any potential stub period expenses from First Minister Taka City Bank. Overall, we still expect expenses to generally track in line with asset growth over time. While asset growth has been a bit more muted than expected in 2024, we are continuing to invest in the business and our people.

Speaker Change: After a decrease in expenses in the first quarter, which is typically our low point, we saw expenses ramp up in the second and third quarters similar to last year.

Speaker Change: Looking ahead to the fourth quarter, we would expect expenses to continue to move modestly higher excluding merger related expenses and any potential stub period expenses from first Minnetonka Citibank.

Speaker Change: Overall, we still expect expenses to generally track in line with asset growth over time.

Speaker Change: While asset growth has been a bit more muted than expected in 2024, we are continuing to invest in the business and our people.

Nicholas Place: With that, I'll turn it over to Nick. Thanks, Joe. Turning to slide 10, the highlight of the third quarter for us was the improved deposit mix, including 93 million of core deposit growth, or 14.4% annualized, in another quarter of non-exersparing deposit growth. Looking at the chart in the bottom left, core deposit balance has steadily trended higher since the first quarter of 2023, including 6.9% annualized growth year to date in 2024. This chart highlights the non-linear nature of our core deposit growth that we always talk about. We will have some quarters with bigger inflows or outflows, but the momentum is there as we continue to see growth over time.

Speaker Change: With that I'll turn it over to Nick.

Nick: Thanks, Joe turning to slide 10, the highlight of the third quarter for US was the improved deposit mix, including $93 million of core deposit growth or 14, 4% annualized and another quarter of noninterest bearing deposit growth.

Nick: Looking at the chart in the bottom left core deposit balances has steadily trended higher since the first quarter of 2023, including six 9% annualized growth year to date in 2024.

Nicholas Place: Given this core deposit growth and the elevated loan payoffs we have seen recently, we were able to call some higher-cost broker deposits and let some time deposits run off. In total, broker in time deposits declined by 158 million in the third quarter. Because we reduced our exposure to some of these higher cost deposits, total deposits declined for the quarter, but the overall mix improved. As Joe mentioned, we would expect these deposit mix changes, along with the 1.4 billion of funding we have tied to short-term rates, to help lower our deposit costs going forward.

Nicholas Place: Turning to slide 11, loan balances were down 115 million in the third quarter due to elevated loan payoffs. We mentioned on last quarter's call that we were seeing increased payoffs carry over from the second quarter into early July. This continued throughout the third quarter, resulting in 163 million of payoffs, up over 100 million from the first quarter. On a year-to-day basis, payoffs were up 42% compared to 2023. We are likely in a catch-up period as payoffs were well below average throughout much of 2023 and early 2024. While loan balances declined in the quarter, we were able to lower our loan deposit ratio to 98.3% from 99.8% last quarter.

Nicholas Place: Slide 12 provides more detail on payoff and origination activity. While the increased payoffs impacted our overall loan growth, they show there is continued liquidity in our lending spaces as clients are able to refinance or sell their properties. We can redeploy this liquidity into higher yielding loans and generate additional loan fees, which support an interest income. New originations declined as the higher interest rate environment early in the quarter and the challenge equity market continued to cause borrowers to delay projects, while other deals just didn't pencil out. Competition has also increased, especially from agencies, that resulted in tighter pricing than we were willing to offer.

Nicholas Place: However, loan demand remains strong, and we continue to get in front of good deals. Borrowers have shown a renewed interest in starting projects following the Fed cut in September. Our current loan pipeline is the strongest it has been all year. We started seeing the pipeline build off low levels late in 2023 and early 2024 and then dipped in the second quarter, likely affecting originations in the third quarter. But the pipeline has rebounded nicely as we head into the fourth quarter. Keep in mind that it does take time for loans in the pipeline to translate into loan growth on the balance sheet.

Nicholas Place: In addition, we have been actively generating new loan commitments, some of which won't fund right away, but will provide balance sheet growth in future quarters. Looking ahead to the fourth quarter, loan paths are likely to remain elevated. As a result, we expect loan balances to remain relatively flat, excluding the acquisition. Overall, we are focused on generating profitable growth with strong borrowers while adhering to our conservative credit culture. We aren't going to compromise on pricing or structure or expand our credit box just to drive near-term loan growth. If loan growth is a bit slower, we are happy to optimize our funding mix and build the liquidity that we can deploy into the right deals at the right.

Nicholas Place: We can also supplement loan growth with other earning assets such as securities and yields around 5%. In addition, we are pairing to on-board First Minute Taka City Bancs loan portfolio and deposit base, which will provide growth and liquidity, positioning us well heading into 2025.

Nicholas Place: Slide 13 highlights the repricing of our loan portfolio, which we expect to benefit in a rates down environment. This is driven by our large fixed rate portfolio, which makes up nearly 70% of total loans and a relatively small variable rate portfolio. We have 620 million of fixed and adjustable rate loans maturing or repricing over the next 12 months at yields below their new originations where new originations are going on the books. This means we should see our portfolio loan yields continue to reprise higher as we redeploy funds from maturing loans into new originations. While our variable report will reprise lower if we see future rate cuts, we have been diligent in increasing loan floors, with nearly 80% now being above 5%.

Nicholas Place: This provides loan yield support, and interest rates continue to decline.

Nicholas Place: Because of our ability to continue repricing loans higher in a lower rate environment, loan growth isn't the only level we have to pull to support net interest income growth on the alternative over to Jeff.

Jeffrey Shellberg: Slide 14 highlights our multi-family and office exposure are $1.4 billion multi-family exposure that has experienced just $62,000 in net charge-off since inception really highlights the strength of this asset class and our expertise in the market. We have continued to see positive trends in the Twin Cities as economic and interest rate environments have improved. After peaking in early 2024, CoStar data shows multi-family vacancy rates in the Twin Cities have steadily declined throughout the year due to robust demand and slow down in construction. In addition, a strong labor market and near nation-leading affordability fueled the strongest absorption level on record during the second quarter.

Jeffrey Shellberg: The Twin Cities continues to rank among the top markets in the country in multi-family absorption levels compared to existing inventory.

Jeffrey Shellberg: These trends point forward to a favorable outlook for future occupancy levels and rent growth. We recently finalized our 2023 covenant testing across our multi-family and non-owner-occupied CRE portfolios, and we're pleased to see that the results remain consistent with what we experienced last year. We have action plans in place for issues identified, including principal curtailments, pledges of additional collateral, and other risk mitigants. We continue to closely monitor the portfolio and believe the lower interest rate environment votes well for credit quality moving forward, and we remain bullish on multi family in the Twin Cities over the long term.

Jeffrey Shellberg: Looking at our non-owner occupied CRE office portfolio, our exposure remains quite limited at just over 5% of total loans. This includes just four loans located in central business districts totaling $34 million. One of these loans is on our watch list, and another was moved to non-accrual during the third quarter, both related to potential roll over risk. Regarding the loan moved to non-accrual, the borrower entered into a purchase agreement to sell the property, resulting in a $935,000 charge-off. We feel this is an appropriate course of action given the central business district office environment and to avoid future risk in the event maturing leases are not extended.

Jeffrey Shellberg: The sale is currently scheduled to close in the fourth quarter. This is the same substandard loan that we have mentioned in prior quarters. The two other central business district office loans continue to perform well given their specific property characteristics. We feel good about the office portfolio as a whole, given the lower average loan amount, diversified client by the base, and primarily Midwestern suburban office exposure.

Nick: We scheduled to close in the fourth quarter. This is the same substandard loans that we have mentioned in prior quarters.

Nick: The two other central business District office loans continued to perform well given their specific property characteristics.

Nick: We feel good about the office portfolio as a whole given the lower average loan amount diversified client base and primarily Midwestern suburban office exposure.

Jeffrey Shellberg: Turning this like the team, we have demonstrated a strong credit culture with a long track record of superb asset quality, and that has continued throughout 2024. That said, we may experience an occasional one-off credit issue like the one central business district office only mentioned. Despite this loan, our credit metrics remain very strong. With annualized year-to-date net charge-offs of just 0.03% and non-performing assets of just 0.19%. In addition, we have virtually no loans over 30 days past due. We also remain well reserved at 1.38% gross loans, which is well in excess of peer levels. In fact, the central business district office loan charge-off was reserved for and did not impact earnings, as we had no provision for the quarter.

Nick: Turning to slide 15, we have demonstrated a strong credit culture with a long track record of superb asset quality and that has continued throughout 2020 for that.

Nick: That said, we may we may experience, an occasional one off credit issue like the one central business District office only mentioned.

Nick: Despite this loan our credit metrics remained very strong with annualized year to date net charge offs of just zero point, <unk>, 3% and nonperforming assets of just 0.19%.

Nick: In addition, we have virtually no loans over 30 days past due.

Nick: We also remained well reserved a 138% gross loans, which is well in excess of peer levels. In fact, the central business District office loan charge off was reserved for and did not impact earnings since we have no provision for the quarter.

Jeffrey Shellberg: Looking ahead, we do expect a Cecil double pound provision of approximately $1 million in the first minute on the Citibank acquisition closes.

Nick: Looking ahead, we do expect a seasonal double count provision of approximately $1 million in the first Minnetonka Citibank acquisition closes.

Jeffrey Shellberg: On slide 16, you can see a summary of our Watson substandard loans, both of which remain steady and at very low levels. We feel good about the risk profile of the portfolio and believe it is well positioned moving forward.

Nick: On Slide 16, you can see a summary of our watch and substandard loans, both of which remained steady and at very low levels. We.

Nick: We feel good about the risk profile by all of the portfolio and believe it is well positioned moving forward.

Joseph Chybowski: I'll now turn it back over to Joe. Thanks, Jeff. Slide 17 highlights our strong capital ratios, which have continued to build, including CET-1, which increased from 941 to 979. Given the announced acquisition, we did not repurchase any shares during the third quarter. We still have 15.3 million remaining under our current authorization. We will continue to evaluate future repurchases based on a variety of factors, including capital levels, growth opportunities, and other uses of capital. Share repurchases are just one of our capital priorities. Our primary capital priority remains organic growth. Beyond that, we continue to review and monitor potential M&A opportunities.

Nick: I'll now turn it back over to Joel.

Joel: Thanks, Jeff Slide 17 highlights our strong capital ratios, which have continued to build including CET, one which increased from 941% to 979 given.

Joel: Given the announced acquisition, we did not repurchase any shares during the third quarter, we still have $15 $3 million remaining under our current authorization.

Joel: We will continue to evaluate future repurchases based on a variety of factors, including capital levels growth opportunities and other uses of capital share.

Joel: Share repurchases are just one of our capital priorities. Our primary capital priority remains organic growth beyond that we continue to review and monitor potential M&A opportunities.

Joseph Chybowski: Turning to slide 18, I'll recap our near-term expectations. We expect loan growth in the fourth quarter to be primarily driven by the first Minutaka Citibank acquisition, with organic loan growth remaining relatively flat due to continued payoff headwinds as we focus on profitable growth. We feel really good about the stability in the margin in 2024. With the 50 basis point cut in September and additional rate cuts on the table, we expect to see modest margin expansion. Begin in the fourth quarter and continue into 2025, given our liability sensitive balance sheet. Keep in mind that the first Minutaka Citibank deal should also be a creative to the margin, but we won't see the full impact of that until the first quarter.

Joel: Turning to slide 18, I'll recap, our near term expectations.

Joel: We expect loan growth in the fourth quarter to be primarily driven by the first minnetonka Citibank acquisition with organic loan growth remaining relatively flat due to continued payoff headwinds as we focus on profitable growth.

Joel: We feel really good about the stability in the margin in 2024.

With a 50 basis point cut in September and additional rate cuts on the table, we expect to see modest margin expansion begin in the fourth quarter and continue into 2025, given our liability sensitive balance sheet.

Joel: Keep in mind that the first Minnetonka Citibank deal should also be accretive to the margin, but we won't see the full impact of that until the first quarter.

Joseph Chybowski: Overall, the magnitude of margin expansion will depend on the pace of future rate cuts and the slope of the curve moving forward. While the margin expansion is great, our real focus is on driving net interest income growth. We believe we can continue to do this given the margin expansion and earning asset growth, even if organic loan growth is more muted in the near term. We have been pleased with the increase in our capital ratios over the past year. We don't expect a meaningful impact to our overall capital dollars as a result of the first Minnetonka City Bank deal, but we would expect a modest decline in capital ratios given the larger balance sheet.

Joel: Overall, the magnitude of margin expansion will depend on the pace of future rate cuts and slope of the curve moving forward.

Joel: While the margin expansion is great. Our real focus is on driving net interest income growth. We believe we can continue to do this given the margin expansion in earning asset growth, even if organic loan growth is more muted in the near term.

Joel: We have been pleased with the increase in our capital ratios over the past year, we don't expect a meaningful impact to our overall capital dollars as a result of the first Minnetonka Citi Bank deal, but we would expect a modest decline in capital ratios given the larger balance sheet.

Gerald Baack: I'll now turn it back to Jerry.

Speaker Change: I'll now turn it back to Jerry.

Gerald Baack: Thanks, Gerald. Finish off on slide 19.

Jerry: Thanks, Joe finish up on slide 19, I'll provide a quick update on our 2024 strategic priorities.

Gerald Baack: I'll provide a quick update on our 2024 strategic priorities. First, as we looked to optimize our balance sheet for longer-term growth, we have generated strong core deposit growth of 6.9% annualized year-to-date. Second, we announced our first M&A deal since 2016, which will help us continue to gain market share in the Twin Cities. Third, we have continued to invest in the business, including the launch of our new CRM tool, which is creating efficiencies in how we engage with our clients. Finally, our credit teams are working hard to monitor our loan portfolios, especially CRM multifamily. This has been evident through our continued strong asset quality.

Jerry: First as we look to optimize our balance sheet for longer term growth. We have generated strong core deposit growth of six 9% annualized year to date.

Jerry: Second we announced our first M&A deal since 2016, which will help us continue to gain market share in the twin cities.

Jerry: Third we have continued to invest in the business, including the launch of our new CRM tool, which is creating efficiencies in how we engage with our clients.

Jerry: Finally, our credit teams are working hard to monitor our loan portfolios, especially CRE and multifamily. This has been evidenced through our continued strong asset quality.

Operator: With that, we will open it up for questions. We'll now begin the question and answer session. As a reminder, to ask a question, please press star, then one on your touchstone phone. For using a speaker phone, please pick up your handset before pressing the keys. To a jogger question, please press star, then two.

Jerry: With that we will open it up for questions.

Speaker Change: We will now begin the question and answer session. As a reminder to ask a question. Please press Star then one on your Touchtone phone.

Speaker Change: If youre using a speakerphone please pick up your handset before pressing the keys.

Speaker Change: To withdraw your question. Please press Star then two.

Operator: At this time, we'll pause momentarily to assemble our roster.

Speaker Change: At this time, we will pause momentarily to assemble our roster.

Jeffrey Rulis: And our first question comes from Jeff Ruley's with DA Davidson. Please go ahead.

Speaker Change: And our first question comes from Jeffrey <unk> with D. A Davidson. Please go ahead.

Jeffrey Rulis: Thanks.

Jeffrey: Thanks, Good morning.

Nicholas Place: Good morning. Question on the payoffs. I'm trying to get a little more detail. If a lot of that or some of it is encouraged on your side for credit purposes, or is it largely customer-driven?

Jeffrey <unk>: Question on the on the payoffs.

Jeffrey <unk>: Trying to get a little more detail.

Speaker Change: Part of that or some of it is is encouraged on on your side for credit purposes or is it largely custer customer driven.

Nicholas Place: Hey, Jeff, this is Nick. I face a mix of both. There's certainly some payoffs that we saw in the quarter that we were not sad to see go, but some of them is just the life cycle of that transaction and payoffs that we would have expected to see throughout 2023 or 2024, which didn't make sense at the time, given the rain environment or the equity markets. You know, the borrower was able to pivot a bit, and equity markets changed, and it just made sense for the asset to move. So some more transactions we'd have in the books for quite some time; some were relatively new vintage deals.

Nick: Hey, Jeff it's Nick.

Nick: I'd say, it's a mix of both I mean, there's certainly some.

Nick: Payoffs that we saw in the quarter that we were.

Nick: Not sad to see go but.

Nick: Some of them is just the lifecycle of that transaction.

Nick: Payoffs that we would've expected to see.

Nick: Throughout 2023, or 2024, which didn't make sense at the time, given the rate environment or the equity markets.

Nick: You know that the borrower.

Nick: <unk>.

Nick: Was able to pivot a bit and equity market has changed and it just made sense for the asset so.

Nick: Somewhere transactions, we would have on our books for quite some time somewhere relatively new vintage deals. So there isn't a theme to it necessarily other than I think it's it's a pickup of <unk>.

Nicholas Place: So there isn't a theme to it necessarily other than I think it's a pickup of payoffs that we would have probably been more evenly spread out over the last 18 months.

Nick: Pay offs that we would've probably been more evenly spread out over the last 18 months.

Nicholas Place: Nick, that was sort of my next question on it. There is not a vintage or particular time frame that is driving. sort of a higher bump. And maybe a second related to that is, do you think this is the high water mark from, from kind of what you've, what you've seen or what you've, what you've got upcoming?

Nick: Nick that was sort of my next question on it is it is there is not a.

Nick: Vintage a particular timeframe that.

Nick: Is driving.

Nick: It's sort of a higher bump and maybe a second related to that is do you think this is.

Nick: The high watermark from from kind of what you're what you've seen or what you're what you've got upcoming.

Nicholas Place: Yeah, I don't think there's a theme of the path structure from the vintage perspective. I think it's really a mixed bag. Some of which is stuff that was originated in 21 and 22 that maybe had variable rates and floated up. And those clients obviously had been more incentivized to refinance or sell the assets than others. You know, predicting payoffs is hard. I think, you know, we expect to continue to see payoffs at a relatively higher level than what we'd experienced over the last, you know, 12 to 18 months here in Q4. As you know, I don't think we fully caught up on all the payoffs, but in credit margins on transactions have tightened a bit.

Nick: Yeah, I don't think there's a theme to the payout structure from a vintage perspective, I think it's really a mixed bag some of which is stuff that was originated in 'twenty, one and 'twenty. Two that you know maybe had variable rates and floated up in there.

Nick: Those those clients are obviously had been more incentivized to to refinance or sell the asset than others.

Nick: You know predicting payoffs as hard I think.

Nick: We expect to continue to see.

Nick: Pay offs.

Nick: Relatively higher level than what we had experienced over the last.

Nick: 12 to 18 months hearing in Q4.

Nick: As you know I don't think we fully caught up on all the payoffs, but and credit.

Nick: Margins on transactions have tightened a bit it feels like.

Nicholas Place: It feels like, you know, some of the liquidity concerns in last year and the banking environment have largely subsided, and players that were on the sidelines are back. So it does feel like borrowers have some more options, which overall I think it's just good for the ecosystem. So, you know, I would expect payoffs.

Nick:

Nick: Some of the liquidity concerns them last year in the banking environment have largely subsided and players that were on the sidelines are back. So it does feel like borrowers have some more options, which overall I think it's just good for the ecosystem.

Nick: So I would expect payoffs.

Nicholas Place: You know, we're going to we've always bought the payoff battle, and I think as we continue to build our own pipeline, which has really increased a lot here. You know, that allows us to sort of weather that storm, which again is good to see that there's liquidity out there.

Nick: We've always thought the payoff battle and I think as we continue to build our loan pipeline.

Nick: Which has really increased a lot here.

Nick: That allows us to to sort of weather that storm, which again is good to see that there is liquidity out there.

Joseph Chybowski: Next next hop and over to the large inside of things just was what was the timing of some of that broker or time deposit runoff and any kind of idea on sort of the average rate of those rolling off relative to cost of funds in the mid trees. Yeah, Jeff, this is Joe. So the brokers that we had called were really the kind of mid August to early September. I just think given the strong quarter, positive growth. You know, we've always talked about the optionality that we have in that broker portfolio, especially when they're at higher rates.

Nick: Thanks, Nick.

Speaker Change: Hopping over to the margin side of things just.

Speaker Change: Was it what was the timing of some of that broker or time deposit.

Speaker Change: Run off and any kind of idea on sort of the average rate of those rolling off relative to cost of funds in the mid threes.

Speaker Change: Yeah.

Joe: Yeah, Jeff This is Joe so the.

Joe: The brokerage that we had called where really the kind of mid August to early September.

Joe: I just think given the strong core deposit growth, we've always talked about the optionality that we have in that broker portfolio, especially when they are at higher rates.

Joseph Chybowski: So, yeah, that was kind of a mid quarter. Really, when we saw kind of a pullback and rates kind of coming out of July economic numbers. You know, we felt strong about the quarter positive growth that had translated. And so that gave us the option to call those broker deposits and also let, you know, some retail time deposits roll off on a cost basis. Yeah, those were all, you know, kind of north of 5%. Even mid five, five and a half percent. So it was definitely, you know, margin beneficial to, you know, recycle that with quarter positive growth.

Joe: So, yes that was kind of a mid quarter.

Joe: Really when we saw kind of a pullback in rates kind of coming out of July economic numbers.

Joe: We felt strong about the core deposit growth that translated and so that gave us the option to call those brokered deposits and also let some retail time deposits roll off on a cost basis. Yeah. Those were all you know.

Joe: Kind of north of 5%, even mid 555%. So it was definitely margin beneficial.

Joe: To recycle that with core deposit growth and that's certainly something that we continue to have.

Joseph Chybowski: And that's certainly something that we continue to have. We highlight the broker to these that are certainly callable still on the balance sheet today. And that's a structure that, you know, we've always kind of utilized for times like this where, you know, we feel really good about the deposit momentum and in the optionality we have.

Joe: We highlight.

Joe: The brokerage Cds that are certainly callable still on the balance sheet today.

Joe: And that's a structure that we've always kind of utilized for times like this where we.

Joe: We feel really good about the deposit momentum and the Optionality we have.

Operator: Got it in one last one.

Speaker Change: Got it and one last one if I could.

Joseph Chybowski: If I could, you know, you have long held the expenses tracking asset growth. And I guess you're to date to be asset growth has been a little lighter. Trying to track the tail of that as we go into 25. I know sort of excluding the acquisition a little bit more on the legacy or core. It sounds like growth is maybe parking up or the pipelines are better trying to get a sense for if there's on expense growth if that. More closely matches the slowdown in growth, and I guess is that relates in the end of 25.

Speaker Change: You have long held the expenses tracking asset growth and I guess year to date.

Speaker Change: Asset growth has been a little lighter.

Speaker Change: Trying to track the tail of that as we go into 'twenty, five and no sort of excluding.

Speaker Change: The acquisition, a little bit more on the legacy or core.

Speaker Change: It sounds like growth is may be perking up where the pipelines are better trying to get a sense for if there is.

Speaker Change: On expense growth if that.

Speaker Change: More closely matches.

Speaker Change: The slowdown in growth.

Speaker Change: And I guess as that relates to embed into 'twenty five.

Speaker Change: Okay.

Joseph Chybowski: Yeah, no, it's a good question. I think the way that we look at it just with the legacy, Bridgewater, we still see that relationship holding up in 25. So, if it should be in line with the asset growth, we expect to continue to invest in the business and grow expenses at a similar pace. I think if you get to the end of 2024, obviously we'll have a fully merged balance sheet. If you look at the high level kind of asset growth in the mid single digits, expenses will again be in mid single digits. So, I think, you know, even with the small deal into your point, you know, expenses are maybe a little ahead of asset growth pace.

Yeah, no. It's a good question I think with the way that we look at it just with the legacy Bridgewater.

Speaker Change: We still see that relationship holding up in <unk>.

Speaker Change: 25 so.

Speaker Change: It should be in line with with asset growth, we expense to we expect to continue to invest in the business and grow expenses at a similar pace.

Speaker Change: I think if you get to the end of 2024.

Speaker Change: We'll have a fully merged.

Speaker Change: Balance sheet if.

Speaker Change: If you look at the high level kind of asset growth in the mid single digits. You know expenses will will again be in mid single digits. So I think.

Speaker Change: Even with a small deal and.

Speaker Change: And to your point, you know expenses, there maybe a little ahead of <unk>.

Speaker Change: Asset growth pace, we still as you look at 'twenty four as a whole you know that relationship will continue to be maintained so that's how we think about it going forward as well.

Joseph Chybowski: We still, as you look at 24 as a whole, you know, that relationship will continue to be maintained. So, that's how we think about it going forward as well.

Operator: Thanks, Joe. Yeah.

Speaker Change: Thanks, Joe.

Speaker Change: Yep.

Brandon Nosal: And our next question comes from Brandon Nosell with HODD Group.

Speaker Change: And our next question comes from Brendan Nosal with Hardie Group. Please go ahead.

Brandon Nosal: Please go ahead. Thank you. Good morning, guys. Hope you're doing well.

Brendan Nosal: Hey, good morning, guys hope you're doing well.

Brandon Nosal: Morning, thanks. Jeff, I think you probably tackled all the questions I would have asked on the office credit.

Speaker Change: Good morning, Brian.

Brendan Nosal: Jeff I think you've probably tackled all the question I would have asked on the August credit So I guess I'll move elsewhere.

Brandon Nosal: So, I guess I'll move elsewhere. Kind of thinking about, you know, long growth for next year. I don't want to get too far ahead of myself here. We're just given the cross currents of wanting to align with core funding and the payoffs that you're kind of battling through, casual with, you know, better pipelines that you're starting to see. I'm just kind of curious any early thoughts on kind of the pace of the longer if you're thinking about the next year.

Brendan Nosal: Kind of thinking about loan growth for next year I don't want to get too far ahead of myself here.

Brendan Nosal: But just given the cross current of wanting to align with core funding and the payoffs that you are kind of battling through casually with better pipelines that youre starting to see just kind of curious any early thoughts on kind of the pace of loan growth you're thinking about for next year.

Nicholas Place: Hey, Brandon, this is Nick.

Brendan Nosal: Hey, Brian This is Nick.

Nicholas Place: Yeah, I mean, we're certainly seeing our pipeline build here, which, you know, we're pleased to see. I think it's a testament to the market and our clients and our staff. You know, as we think about the rest of 2024, I think we've got to that, that, you know, we're expecting low balances to remain relatively flat. But as we've always said, you know, our pipelines building now, you know, doesn't always translate into, into sort of immediate growth. So there's always been a bit of a lag there. You know, thinking into 2025, I mean, we continue to feel like that sort of mid-single digits number is a very attainable number for us.

Nick: Yeah, I mean, we're certainly seeing our or our pipeline build here, which.

Nick: We're pleased to see I think it's testament to the market and our AR and.

Nick: And our clients and our staff as.

Nick: As we think about the.

The rest of 2024, I think we've guided that that we're expecting loan balances to remain relatively flat.

But as we've always said our pipelines building now and it doesn't always translate into it and it sort of immediate growth. So there's there's always been a bit of a lag there.

Nick: Thinking into 2025, I mean, we continue to feel like.

Nick: That sort of mid single digits number is a very attainable number for us.

Nicholas Place: And it really allows us to, you know, continue the momentum that we've had on, you know, really improving the balance of our loans into positive mixes and how we think about growth on a go forward basis. Continue to, you know, change the mix on the positive side, you know, that mid single digit growth rate feels like the right sort of target for us. Now there's going to be quarters where we'll, you know, may be below or exceed that. But over the course of the year, that's really how we're thinking about it.

Nick: And really allows us to continue the momentum that we've had on.

Nick: Really improving the balance of our our loans and deposit mix is and how we think about growth on a go forward basis and continuing to.

Nick: Change the mix on the deposit side.

Nick: That mid single digit growth rate feels like the right sort of target for us now theres going to be quarters, where we may be below or exceed that but over the course of the year, that's really how we're thinking about it.

Brandon Nosal: Okay, great.

Speaker Change: Okay, Great. That's helpful. Thank you.

Brandon Nosal: That's helpful. Next.

Brandon Nosal: Thank you.

Brandon Nosal: Evening on to deposit pricing. I'm just going to curious how responsive pricing was in your own book, as well as the market more broadly to that initial 50 basis points of cuts that we got. And then if you happen to have a what we're spot deposit costs at 9.8.

Speaker Change: Maybe moving on to deposit pricing.

Speaker Change: Just kind of curious how responsive pricing was in your own book as well as the market more broadly to that initial 50 basis points of cuts that we got and then if you happen to have what we're spot deposit cost at.

Speaker Change: Thanks.

Joseph Chybowski: Hey Brendan, this is Jill. Yeah, I think, you know, as we've said, we spent a lot of time over the last couple of quarters, you know, really posturing for kind of this easy cycle. And so a lot of that, you know, was conversations with clients too, educating them. You know, a lot of them got to see the benefit on the way up. And certainly, you know, now as we see rates pull back. So there was, you know, there's an education piece, certainly, and we talked to a lot of our bankers and just really armed them with talking points.

Speaker Change: Hey, Brian This is Joe Yeah.

Joe: Yes, I think you know we as we've said I mean, we spent a lot of time over the last couple of quarters really posturing for.

Speaker Change: Kind of a seething cycle and so a lot of that.

Joe: With conversations with clients to educating them.

Speaker Change: A lot of them got to see the benefit on the way up.

And certainly you know now is as we see rates pull back so.

Speaker Change: So there is you know there's an education piece certainly I mean, we talked a lot of our bankers and just really armed them with talking points.

Joseph Chybowski: I think, obviously, it was very well telegraphed that it was coming. I think some of us were surprised, maybe that it was 50 basis points, but, you know, we saw, you know, eight days of that, certainly in the third quarter. And to this point, you know, I think it's been relatively well received. I mean, I think we've just, it was just a lot of proactive movement there. And then we continue to do that.

Speaker Change: Obviously, it was very well telegraphed that it was coming I think some of US were surprised maybe that it was 50 basis points, but.

Speaker Change: You know we saw you know eight days of that certainly in the third quarter.

Speaker Change: And to this point you know I think it's been relatively well received I mean I think we've.

Speaker Change: It was just a lot of proactive movement, there and then we continue to do that.

Joseph Chybowski: You know, you saw, it's uptick from a billion dollars in Q2, it's an hour, a billion four, you know, moving clients into, you know, those, those Fed funds linked to short term rates accounts. So, you know, I think it's the, again, it's a really proactive piece to it. I think the other piece too is just, you know, we're trying to be cognizant, obviously, of the growth, and certainly the market. So, you know, while there's, you know, while those are explicitly linked, I think, obviously, you know, we certainly have growth plans, and so we want to be mindful, you know, of that on a go-forward basis, and the market itself still continues to be competitive from a deposit price and standpoint on the spot rates as of 3Q.

Speaker Change: You saw us uptick from $1 billion in Q2 to now $1 billion for.

Speaker Change: Moving clients into those so.

Speaker Change: So as fed funds linked to short term rates accounts so.

Speaker Change: It's the again, it's it's a really proactive piece to it I.

Speaker Change: I think the other piece too is just we're trying to be cognizant, obviously of the growth and certainly the market.

Speaker Change: So while there is.

Speaker Change:

Speaker Change: While those are explicitly linked I think obviously you know we certainly have growth plans and so we want to be mindful of that on a go forward basis and the market itself still continues to be competitive.

Speaker Change: From a deposit pricing standpoint.

Speaker Change: On the spot rates as of <unk>.

Joseph Chybowski: Yeah, it's in the low 340s relative to the 358, I think, for the quarter. So, come down.

Speaker Change: Yes, it's in the low three <unk> relative to the $3 50, and I think for the quarter. So it's come down.

Operator: All right, that's super helpful.

Speaker Change: Alright, that's super helpful.

Joseph Chybowski: I'm just going to speak in one last modeling question here. Just given the outlook for flat end of period low growth, fair to say that average loans outside of the deal would perhaps take down a little bit just to align those numbers that fair. Outside of the transaction, yeah, I'd expect our loan balances, absent person and tax City Bank, to be relatively flat on the quarter. Yep, yep.

Brendan Nosal: Sneak in one last modeling question here, just given the outlook for flat end of period loan growth. It's fair to say that average loans outside of the deal with perhaps ticked down a little bit just to align those numbers is that fair.

Speaker Change: Outside of the transaction, Yeah, I'd expect our loan balances absent first been toxicity bank to be relatively flat on the quarter.

Speaker Change: Yeah, Yeah, Okay. Thank you for taking the questions.

Operator: Okay, thank you for taking the questions.

Nathan Race: Again, if you have a question, please press star, then one. Our next question comes from Nathan with Piper Sandler. Please go ahead.

Speaker Change: Again, if you have a question. Please press Star then one our next question comes from Nathan race with Piper Sandler. Please go ahead.

Nathan Race: Hi guys, good morning.

Nathan Race: Hey, guys. Good morning, Thanks for taking the questions.

Nathan Race: Thanks for taking the questions.

Nathan Race: I apologize, I have a little late, but just in terms of the margin outlook for the fourth quarter, the guidance for moderate expansion does that contemplate just the slightly higher margin profile at the acquisition and the just the opportunity to kind of do the optionality that their balance sheet provides for us, similar to this last quarter where there's long growth. The pace has slowed and such that we've been able to somewhat deliver the balance sheet and push out higher cost funding. I think the deal obviously gives us that flexibility too.

Nathan Race: I apologize I hopped on a little late but just in terms of the margin outlook for the fourth quarter. The guidance for moderate expansion does that contemplate just the slightly higher margin profile at the acquisition and then just the opportunity to kind of delever the balance sheet.

Nathan Race: Hey, Nate this is Joe I mean, I think that's part of it just the optionality that their balance sheet provides for us.

To kind of this last quarter, where you.

Nathan Race: There's there's loan growth.

Nathan Race: You know the pace has slowed and such that we've been able to somewhat de lever the balance sheet.

Nathan Race: Push out higher cost funding I think the deal obviously it gives us that flexibility to I think just from a margin standpoint, the modest outlook is more kind of to my comments earlier that.

Joseph Chybowski: I think just from the margin standpoint, the modest outlook is more kind of my comment earlier that we always said kind of the magnitude and the speed of cuts, you know, the faster that happens. You know, the quicker we can pass that on, I think a slower kind of easing cycle makes it harder to do that, and so I think that's more the modest kind of outlook is just, you know, Fed funds futures have been very volatile, as you know, and so I think we want to be mindful of, you know, while we have deposits that are certainly linked to Fed funds, it really depends on the path of really Fed funds cuts.

Nathan Race: We've always said kind of the magnitude and the speed of cuts.

Nathan Race: The faster that happens.

Nathan Race: The quicker we can pass that on.

Nathan Race: I think a slower kind of easing cycle makes it harder.

Nathan Race: To do that and so I think that's that's more of a modest kind of outlook is just you know.

Nathan Race: Fed funds futures have been very volatile.

Nathan Race: As you know and so I think we want to be mindful of.

Nathan Race: While we have deposits that are certainly linked to fed funds. It really depends on the path of a really fed funds cuts and so I think we want to be mindful of.

Joseph Chybowski: And so I think we want to be mindful of, you know, really trying to grow certainly even after the deal and deposit competition still is, you know, it's still as strong here in the Twin Cities. You know, that some banks that haven't lowered rates at all. So I think that's, that's more the modest guide itself.

Nathan Race: We're really trying to grow certainly even after the deal.

And deposit competition still is.

Nathan Race: It's still strong here in the twin cities you know we've had some banks that havent lowered rates at all so I think that's that's more of the the modest guide itself.

Joseph Chybowski: Okay, great. And then just think about payoffs, curious if you guys have kind of the way average rate on payoffs that came off in the quarter relative to kind of the yield on new production and just based on kind of what you see in terms of yield on the current low pipeline.

Speaker Change: Okay, Great and then just thinking about pay offs curious if you guys have kind of the weighted average rate on pay offs that came off in the quarter relative to kind of the yield on new production and just based on kind of what you see in terms of yields on the current loan pipeline.

Joseph Chybowski: Yeah, I can touch on the first part, and I'll let Nick talk in a second, the first part. So it's low to mid sixes were payoffs, and then originations were coming on in the low to mid sevens. That was for few three. I think as we look at new transactions today, they're probably coming a little bit from what we saw in Q3 on an average basis.

Speaker Change: Yeah, I can touch on the first part and I'll, let Nick talk and the second the first part so it's low to mid sixes, where payoffs and then originations were coming on in the low to mid sevens that was for.

Speaker Change: For Q3, I think as we look at.

Speaker Change: No new transactions today, it probably did come in a little bit from what we saw in Q3 on an average basis, there's certainly more competition in the market.

Joseph Chybowski: There's certainly more competition in the market, as some of the liquidity pressures I mentioned before seem to be so. You know, I think as we think about a blended average going forward, it's probably around seven percent. Okay, great.

Speaker Change: As some of the liquidity pressure as I mentioned before seeing two of these so you know I think as we think about a blended average going forward, it's probably right around 7%.

Speaker Change: Okay, Great and then it was.

Gerald Baack: And then it was, you know, great to see the regulatory approval for the acquisition come through in relatively quick order. And, you know, I imagine that reflects well just in terms of your relationship with regulators as it relates to, you know, your commercial state concentration and the like.

Speaker Change: Great to see the.

Speaker Change: Regulatory approval for the acquisition come through in relatively quick order and.

Speaker Change: I imagine that reflects well just in terms of your relationship with regulators as it relates to your commercial real.

Speaker Change: State concentration and the like so would just be curious to hear any feedback you're hearing from regulators on that front and just kind of overall comfort levels. Because I believe you guys. Just recently went through a regulatory exam more recently, so just any additional insights on that front I think would be helpful.

Gerald Baack: So we just be curious to hear any feedback you're from regulators on that front and just kind of overall comfort levels, because I believe you guys just recently went through a regulatory exam more recently. So just any additional insights on that front, I think would be helpful. Yeah, I made it jury. Yeah, it's really kind of not any different than what was said in the past. We have a joint exam every 12 months at the end of summer with the Commerce Department and the FDXU. And that's why this is the last exam we have went, as well as any half.

Gerry: Yes, Matt its Gerry.

Gerry: Yeah, it's really kind of it's not any different than what was said in the past we have a.

A joint exam every 12 months at the end of summer with the Commerce Department in Afghanistan.

Gerry: Just wanted to visit last exam, we had windows as well as any house. So we're pleased with that and it's a it's more of the same it would been.

Gerald Baack: So we're pleased with that, and it's more of the same, and we've been managing commercial estate concentration since the very beginning. So I do feel they feel comfortable with their underwriting and how we manage our risk and our overall enterprise risk management system here. So it's no issues.

Gerry: Managing commercial real estate.

Gerry: Concentration since the very beginning so I do feel they feel comfortable with our underwriting and how we manage our risk and.

Gerry: Our overall enterprise risk management system here, so no issues.

Nathan Race: Okay, great. And then maybe just last one, I imagine, you guys may be on the sidelines.

Speaker Change: Okay great.

Speaker Change: And then maybe just last one I imagine you guys maybe on the sidelines I'm a share repurchase standpoint, just as you rebuild CET one post the acquisition closing in the fourth quarter.

Joseph Chybowski: I'm a Sherry purchase standpoint, just as you rebuild CT one, post the acquisition closing in the fourth quarter. So you get that back up to 9% is that kind of still a right way to think about kind of the Sherry first step type depending on how the stock trades going forward. Yeah, I think it's like we say it's a confluence of things, and we certainly outline our priorities. And I think your point exactly, I mean, first quarter, I think we felt like we were building capital well. We hit our targets from a CET1 standpoint, and we had took opportunities to buy back some stock. Obviously, Q2 and Q3 with a deal, and certainly going forward, we're certainly going to be more cognizant of that and really building back to and maintaining a CET1 north of 9%.

Speaker Change: Get that back up to 9% is that kind of still the right way to think about kind of the share repurchase appetite depending on how the stock trades going forward.

Speaker Change: Yeah, I think it's like we say its a confluence of things and certainly outline our priorities.

Speaker Change: And I think to your point exactly I mean.

Speaker Change: First quarter.

Speaker Change: You know I think we felt like we were building capital well, we hit our targets from a C. T. One standpoint, and we had to take opportunities to buy back some stock, obviously Q2 and Q3 with the deal and certainly going forward were certainly give you more cognizant.

Speaker Change: Of that and just really building back too.

Speaker Change: Maintaining a C T. One north of 9% so yeah, it's it's constantly evaluating and and shifting.

Joseph Chybowski: So yeah, it's constantly evaluating and shifting and balancing those priorities. Okay, great.

Speaker Change: And balancing those priorities.

Speaker Change: Okay, Great and then again I apologize if you touched on earlier, but just Q describe the size of the office theory alone there was a.

Jeffrey Shellberg: And then again, I apologize if you touched on earlier, just to describe the size of the office serial loan that was problematic in the quarter. Yeah, I mentioned, you know, we have, our sponsor has the property under contract. There's a significant amount of non-refundable earnings, money that was provided as part of the purchase agreement, so we have a high level of confidence that it's going to close. There may be some small pull-up; the actual chart drop amount in the fourth quarter, but we don't expect that it will have any impact on earnings. Okay, got it.

Speaker Change: Problematic in the quarter.

Yeah I mentioned.

Speaker Change: We have.

Speaker Change: Or has the property under contract.

Speaker Change: There's a significant amount of.

<unk> earnings money that was provided as part of the purchase agreement. So we have a high level of confidence that it's going to close there.

Speaker Change: There may be some small true up of the actual charge off amount in the fourth quarter, but we don't expect that it will have any impact on earnings.

Speaker Change: Okay got it and I apologize actually one last one Joe can you remind us just on the margin benefits.

Joseph Chybowski: And apologies, actually one last one. Joe, do you remind us just on the margin of benefit from each 25 basis point Fed rate cut under a static balance sheets and area? Yeah, I think like we've always said, I think it's staying away from, you know, those types of guides and more just around, you know, we're certainly well positioned, should rates continue to get cut from here, especially continuing movement towards explicitly Fed funds linked deposit accounts. So I think I would say more the general comment that the magnitude and the speed of cuts, you know, will allow us to pass on more than a more slow gradual cycle.

Speaker Change: Benefits from each 25 basis point fed rate cut.

Speaker Change: Understood if balance sheet scenario.

Speaker Change: Yeah, I think like we've always said I think it's staying away from.

Speaker Change: Those types of guides and more just around we're certainly well positioned.

Speaker Change: Should rates continue to get cut from here, especially continued movement towards.

Explicitly fed funds linked deposit accounts, so I think I.

Speaker Change: I would say more of the general comment that the magnitude and the speed of cuts.

Speaker Change: It will allow us to pass on more than a more slow gradual cycle.

Joseph Chybowski: At the end of the day, you know, we are focused on net interest income growth, and we certainly feel like a stable to growing balance sheet with a, you know, stable to modestly expanding, and we'll certainly do that.

Speaker Change: At the end of the day, we are focused on net interest income growth.

Speaker Change: And we certainly feel like a stable to growing balance sheet with a C.

Stable to modestly expanding NIM will certainly do that.

Operator: Okay, great.

Speaker Change: Okay, Great I appreciate all the color thanks, guys.

Operator: I appreciate your look all there.

Gerald Baack: Thanks, guys.

Speaker Change: Okay.

Operator: It includes our question and answer session.

Speaker Change: This concludes our question and answer session I will now turn the call back over to Jerry back for any closing remarks.

Gerald Baack: I will turn the call back over to Jerry back for any closing remarks. Thanks everyone for joining the call today. You know, we continue to be very encouraged by our core deposit growth, or margin stabilization, and just the overall outlook in the Twin Cities. And obviously, we're very excited about the closing with First Minute Talk of City Bank later this quarter. We've really excited about bringing that team on, and we're continuing to be very impressed with our team here and how we feel about the future.

Jerry back: Thanks, everyone for joining the call today.

Speaker Change: We continue to be very encouraged by our core deposit growth.

Speaker Change: Margin stabilization and just the overall outlook in the twin cities and obviously, we're very excited about the closing with first Minnetonka Citibank later this quarter we've.

Speaker Change: Really excited about bringing that team on and were continue to be very impressed with our team here and how we feel about the future. So I have a great day everybody.

Gerald Baack: So have a great day, everybody.

Operator: The conference is now concluded. Thank you for attending today's presentation.

Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Operator: You may now disconnect it.