Q1 2025 Community Financial System Inc Earnings Call
Good day and welcome to the community Financial System, Inc. First quarter 2025 earnings Conference calls.
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Dimitar: I would now like to turn the conference over to Dimitar could I, even off President and CEO. Please go ahead.
Speaker Change: Thank you Sundar good morning, everyone and thank you for joining our first quarter earnings call.
Speaker Change: I would like to start this call by acknowledging Joseph terrorist his upcoming retirement retirements in July.
Speaker Change: Joe joined Us through the acquisition of Wilbur and cumulatively has been with our company for 30 years.
Speaker Change: Quite the accomplishment and we're very grateful for his contributions.
Speaker Change: Jos integrity humility had been a pillar for us over that period.
Speaker Change: So I want to thank you personally for being a great partner for me in the past four years.
Speaker Change: I'm also very happy that our company's performance that allows people to have rewarding and predictive careers and retired earlier than most.
Joe: Joe Congratulations.
I would also like to welcome Orion losses, our new Chief Financial Officer.
Mariah: Mariah joins us with a very dynamic background in finance and it.
Joe: Strong mine for driving business performance.
Joe: Equally as importantly, she fully embodies our values of humility and integrity teamwork and excellence.
Joe: You're welcome.
Joe: And we want the business.
Joe: We had a productive quarter results were consistent with last quarter, even with a shorter calendar seasonal slowdowns lower asset values and creeping uncertainty.
Joe: Operating return on assets was 128% and operating PNR per share was up 18, 6% on a year over year basis.
Joe: Looking at each one of the business units in more depth.
Joe: Our banking business is benefiting from continued repricing of assets while funding costs are also moving lower leading to margin expansion.
Joe: Deposits benefited from seasonal municipal flows while loans were essentially flat as growth in commercial and mortgage was more than offset by weakness in auto lending, which was mostly seasonal and pricing driven.
Joe: We continue to focus on appropriate risk reward in terms of both credit quality and rate and so assume increased aggressiveness by competitors on both fronts.
Joe: With that said pipelines in commercial and mortgage while a bit lower than last year are still solid and we believe that mid single digit growth for those portfolios is still on track for this year. It may just be at the lower end of the range depending on overall economic activity.
Joe: Indirect auto lending remains more of a wildcard given aggressive competition and impact of tariffs.
Joe: Our employee benefit services business also had a solid quarter and business momentum is strong.
Current asset values, we will likely have an impact in 2025, but we're also working hard on the underlying unit growth.
Joe: Our insurance services business had an excellent quarter with expenses flat and revenues up meaningfully leading to sizable margin expansion.
Joe: Some of the revenue growth was due to timing of contingency payments, but we still remain on track to deliver meaningful operating leverage through the rest of the year as well.
Joe: In fact insurance was the main driver of strong performance in this quarter for the overall company.
Joe: Our wealth management services business the results in line with last quarter and up meaningfully year over year.
Joe: Similarly, our employee benefits business, we may experience revenue headwinds the rest of the year tied to asset values.
Joe: In summary, I feel good about the ability of our diversified company to grow revenues, regardless of the economic and market gyrations.
Joe: If you look at last year for example, our market sensitive businesses employee benefit services and wealth management services drove the majority of the all Rolling program for the company.
Joe: This year, so far it's looking like the banking insurance would take it up or down.
Joe: That is how our company is designed and it is times like these when we shine I.
Joe: I also feel great about our continued ability to attract talent and we had one of our best quarters in talent acquisition across all units banking benefits insurance and wealth.
Joe: I'll also note that the current economic uncertainties as high as it's been in many years and is the time to be extra prudent and make sure. We're truly getting paid for taking on risks while strengthening reserves.
Joe: Our business is diversified and highly profitable our balance sheet is excellent and we're ready to capitalize on the right opportunities.
I will now pass it on to my right to deliver the detailed financial highlights right.
Joe: Thank you Jennifer and good morning, everyone.
Speaker Change: The mature noted the company's first quarter performance with solid GAAP earnings per share 93 sites were up 17 cents or 22%.
Speaker Change: First quarter of the prior year and down one thing or 1% or linked to fourth quarter results.
Speaker Change: Operating earnings per share and operating pretax pre provision net revenue per share were also up significantly year over year, all remaining relatively consistent with last quarter.
Speaker Change: The company recorded operating earnings per share <unk> 98.
Speaker Change: First partner as compared to 82 cents, one year prior and $1 in the linked fourth quarter.
Speaker Change: First quarter operating <unk> per share of $1 40 was up 22 cents or 18, 6% from one year prior and was consistent on a linked quarter basis strong revenue growth and improvements in core operating performance of all four businesses underpin these year over year improvement.
Speaker Change: The company recorded total operating revenues of 196 million in the first quarter.
Speaker Change: This was up $18 7 million or 10, 6% from one year prior and was consistent with the record results established in the linked fourth quarter.
Speaker Change: This quarter established new quarterly highs for net interest income and insurance services revenues and Dimitar also highlighted.
Speaker Change: The company's net interest income was $122 million in the first quarter.
Speaker Change: This represents a point 2 million increase over the linked fourth quarter result, and at $13 2 million or 12% improvement over the first quarter of 2024 and marks the fourth consecutive quarter of net interest income expansion.
Speaker Change: Lower funding costs helped drive increases in both net interest income and net interest margin in the corner.
Speaker Change: During the quarter the company's cost of deposits was 1.17% a decrease of six basis points from the prior two quarters and drove a decrease of five basis points and the total cost of funds from 138% in the linked fourth quarter to 133% in the first quarter.
Speaker Change: The companys fully tax equivalent net interest margin increased four basis points from 320% in the linked fourth quarter to $3 two 4% in the first quarter.
Speaker Change: The company has increased its net interest income for 18 consecutive years and the outlook remains positive for continued net interest income expansion in 2025.
Speaker Change: Operating noninterest revenues were up in all four businesses compared to the prior year's first quarter and represented 38, 7% of total operating revenues.
Speaker Change: Banking related operating noninterest revenues were up <unk> 9 million or four 7% over the same quarter of the prior year driven by increases in mortgage banking revenues.
Speaker Change: Employee benefit services revenues were up point 9 million or two 9% over the prior year's fourth quarter reflective of an increase in the total participants on our administration and growth in asset based fees.
Speaker Change: Insurance services revenues were up $3 1 million or 27, 8% over the prior year's first quarter, driven by contingent commissions and recent acquisitions well wealth management services were up <unk> 7 million or seven 1% reflective of more favorable market conditions and growth in investment advisory accounts.
Speaker Change: On a linked quarter basis operating noninterest revenues were down <unk> 3 million or 4% due in part to two fewer days in the current quarter.
Speaker Change: The company recorded a $6 7 million provision for credit losses during the first quarter reflective of an increase for a specific reserve on one non owner occupied CRE loans placed on non accrual during the fourth quarter of 2023.
Speaker Change: This compares to $6 1 million in the prior year's first quarter and $6 2 million in the linked fourth quarter.
Speaker Change: During the first quarter the company recorded $125 3 million in total noninterest expenses.
Speaker Change: This compares to $118 1 million of total noninterest expenses in the prior year's first quarter.
Speaker Change: The $7 2 million or six 1% increase between the periods was primarily driven by increases in salaries and employee benefits, including the impact of annual merit based salary increases data processing and communication and occupancy and equipment expenses the.
Speaker Change: The increase also included approximately <unk> 9 million associated with the banks de Novo branch expansion.
Speaker Change: <unk> de Novo related expenses are expected to be incurred and incurred in the remaining three quarters of 2025.
Speaker Change: The effective tax rate for the first quarter of 2025 was 22, 8% down slightly from 22, 9% in the first quarter of 2024.
Speaker Change: Ending loans decreased $11 2, million% to 0.1% during the first quarter driven by a net decrease in the consumer indirect lending portfolio, which was partially offset by growth in the business lending and consumer mortgage portfolio.
Speaker Change: Although this result, and the Companys Street, a 40 consecutive quarters of loan growth. The company continues to invest in its organic loan growth capabilities and expect continued expansion into the under capped markets within our northeast footprint.
Speaker Change: Ending loans were up $537 6 million or five 4% from one year prior primarily due to growth in the business lending and consumer mortgage portfolio.
Speaker Change: The company's ending total deposits increased 453.
Speaker Change: $3 million or three 4% during the first quarter and $540 million or 4% from one of your prior driven by an increase in municipal deposits.
Speaker Change: Public funds deposits increased to 234 1 billion at the end of the first quarter up $408 5 million from one year prior and up $354 8 million from the end of the linked fourth quarter.
Speaker Change: Non interest bearing and lower rate checking and savings accounts continue to represent almost two thirds of the total deposits reflective of the core characteristics of the Companys deposit base.
Speaker Change: The company did not hold any brokered or wholesale deposits on our balance sheet during the quarter.
Speaker Change: The company's liquidity position remains strong.
Speaker Change: Readily available sources of liquidity, including unrestricted cash and cash equivalents Unpledged investment securities funding availability at the Federal Reserve bank discount window and unused borrowing capacity at the federal home loan Bank of New York totaled $5 9 billion at the end of the first quarter.
Speaker Change: These sources of immediately available liquidity represent over 250% of the company's estimated uninsured deposits net of collateralized and intercompany deposits.
Speaker Change: The company's loan to deposit ratio at the end of the first quarter was 75%, providing future opportunity to migrate lower yielding investment securities into higher yielding loans.
Speaker Change: All of the companies and the banks regulatory capital ratios continue to significantly exceed well capitalized standards more specifically at the end of the first quarter at the company's tier one leverage ratio was 929%, which substantially exceeded the regulatory well capitalized standard of 5%.
Speaker Change: Nonperforming loans totaled $75 million or 72 basis points of total loans outstanding.
Speaker Change: This represents a $1 6 million or two basis point increase from the end of the linked fourth quarter.
Speaker Change: Comparatively nonperforming loans were $49 5 million or 50 basis points of total loans outstanding one year prior.
Speaker Change: Loans 30 to 89 days delinquent were also up on a linked quarter basis from $55 9 million or 54 basis points of total loans at the end of the fourth quarter to $59 2 million or 57 basis points of total loans at the end of the first quarter.
Speaker Change: The company recorded net charge offs of $3 2 million or 13 basis points of average loans annualized during the first quarter.
Speaker Change: This is up slightly from $2 8 million or 12 basis points in the same quarter of the prior year.
Speaker Change: The company's allowance for credit losses was $82 8 million or <unk> 79 basis points of total loans outstanding at the end of the first quarter up $3 7 million during the quarter and up $12 7 million from one year prior.
Speaker Change: The allowance for credit losses at the end of the first quarter represented over seven times, the company's trailing 12 month net charge offs.
Speaker Change: Looking forward, we believe the company's diversified revenue profile strong liquidity regulatory capital reserves stable core deposit base and historically good asset quality provide a solid foundation for continued earnings growth and the remaining three quarters of 2025.
Speaker Change: Yeah.
Speaker Change: That concludes my prepared earnings comments I would like to take the opportunity now to introduce myself and thank Joe for his guidance through the transition period. Joe you are exceptional at what you do and you will be missed.
Speaker Change: I would also like to thank Tim <unk> and the entire management team for their support over the last few weeks.
Speaker Change: An honor to join such a talented team and I'm genuinely excited to help grow this portfolio.
Speaker Change: It's been it's been a whirlwind 30 days and while I still have a lot to learn I can tell you the future of this company is very bright.
Speaker Change: And with that the MSR, Joe and I will now take questions cigar I will now hand, it back to you to open the line.
Speaker Change: Thank you.
Speaker Change: We will now begin the question and answer session.
Speaker Change: To ask a question. Please press Star then one on your telephone keypad.
Speaker Change: If youre using a speakerphone please pick up your handset before pressing the keys.
Speaker Change: If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
Speaker Change: At this time, we will pause momentarily to assemble our roster.
Speaker Change: Okay.
Frank: Our first question comes from Frank.
Speaker Change: <unk> from Piper Sandler. Please go ahead.
Speaker Change: Good morning.
Speaker Change: Congrats on the new position Morocco.
Speaker Change: Okay.
Speaker Change: I wanted to start Dimitar, you mentioned I think you mentioned pipelines little bit lighter maybe from the year ago period, I Wonder if you could drill down into that a little bit.
Speaker Change: Turns of how significant the drop off.
Speaker Change: It is on the commercial side and in terms of pipelines and then also if you wouldn't mind.
Speaker Change: If you can provide any detail around the blended new.
Speaker Change: Origination yields are coming on currently.
Frank: Thank you Frank.
Speaker Change: I would kind of.
Speaker Change: Probably put it in a couple of buckets on the commercial side pipelines are not that dramatically different from last year. It might be a couple of percentage points lower to differences, we're probably seeing a little bit more on the payoffs.
Speaker Change: And then last year, so I think thats going to have some impact in the aggregate terms and I think we also.
Speaker Change: Have a little bit more uncertainty as to when some of the pipeline gets pulled through.
Speaker Change: Just given everything that's happening with our clients in the microenvironment.
Speaker Change: On the residential side pipelines are probably about 10% lower than last year is still pretty good.
Speaker Change: Just getting into the busy season, so we're really going to have a much better sense of where things are hearing towards.
Speaker Change: May and June so.
Speaker Change: Again, Thats also been a little bit impact that I think predominantly by availability in our markets as opposed to demand demand is there just availability of housing units is not quite.
Speaker Change: Where it needs to be so.
Speaker Change: That's kind of what we're seeing and I think we touched on the indirect side.
Speaker Change: And in the prepared remarks, we still feel pretty pretty good about our ability to grow that portfolio, but as we've said before we don't change our credit box and depth world. So for us some years could be a lot more growth some years could be a lot less growth from years with might even shrink. So we'll see what kind of we'll take what they give us and our box.
Speaker Change: As it relates to loan originations in the first quarter they were right around 7%.
Speaker Change: A little bit slower I think we're going to continue to see some of that pressure towards the year. So that's not unexpected given what's happened with rates and competitive dynamics.
Speaker Change: Great. Okay. I appreciate the color and then as my follow up just so just wondered if you could provide any more color update on de Novo expansion.
Speaker Change: Timing for branches to come on line.
Speaker Change: You could maybe just just further quantify mariah how that would and.
Speaker Change: Impact or could impact the expense base through the year here.
Speaker Change: Yes ill take that Frank so we.
Speaker Change: Last year, we opened the first one which was in Syracuse, We just opened the second one which was Buffalo.
Speaker Change: The next one is going to be Syracuse again, and then with starts in Albany, and then we kind of go around the footprint include.
Speaker Change: Including all the other places Rochester.
Speaker Change: So thats on track, we continue to expect that we're going to be opening virtually all of them may be say for one or two by the end of the year.
Speaker Change: We have discussed we're also going to be consolidating a very similar number of locations through the year.
Speaker Change: And the impact of all of those initiatives will come out kind of on a clean run rate basis in Q4.
Speaker Change: We've talked about the cost before you're probably going to expect to see a little bit more marketing.
Speaker Change: And kind of start up cost if you want to put it that way in Q3 in particular.
Speaker Change: To the tune of three to 4 million Bucks in there.
Speaker Change: At quarter.
Speaker Change: Outside of that nothing has really changed in terms of our expectations are in terms of how.
Speaker Change: We're meeting our milestones.
Speaker Change: Okay Alright.
Speaker Change: Appreciate the color. Thanks.
Speaker Change: Sure Okay.
Speaker Change: Thank you.
Speaker Change: Your next question comes from Stephen Moss from Raymond James. Please go ahead.
Speaker Change: Okay.
Speaker Change: Miranda.
Speaker Change: Good morning, Steve maybe just.
Speaker Change: Good morning, maybe just.
Speaker Change: Starting are following upon loans, you're just curious like how much tighter as loan pricing these days for auto.
Speaker Change: But just kind of how youre thinking about that market.
Speaker Change: Going forward.
Speaker Change: In terms of balances and stuff.
Speaker Change: Sure so on the auto side.
Speaker Change: Where pricing is today is pretty similar to the portfolio rates that we have so we're kind of churning the portfolio at similar rates are now going to see a tremendous amount of pickup there.
Speaker Change: Probably shrunk by 50 basis points plus in this quarter.
Speaker Change: We've seen a lot of <unk>.
Speaker Change: Competitors that were a little bit more.
Speaker Change: Clients over the past couple of years is going to get back and even go deeper on credits as well.
Speaker Change: Again for US we don't really do that so it's really just a matter of.
Speaker Change: Our credit box and some changes on pricing.
Speaker Change: So we've adjusted our pricing there were clearly seeing some more momentum.
Speaker Change: Some of it is seasonal as well, especially in the western part of our footprint.
Speaker Change: Where we've seen most of the challenges in that portfolio.
Speaker Change: More broadly on pricing for.
Speaker Change: Aggregates business I will tell you that.
Speaker Change: We have a lot of competitors that.
Speaker Change: We're constricted over the past couple of years large and small and they kind of.
Speaker Change: A little bit woke up, especially post the election and decided that it's time to grow and make up ground. So we have seen some.
Speaker Change: Frankly astounding rates on the commercial side, starting with a five.
Speaker Change: That's not the kind of business that we are going to do today.
Speaker Change: So we're probably going to continue to see some pressure on that side as well.
Speaker Change: Okay great.
Speaker Change: Great I appreciate that color there and then in terms of the.
The non performing loan here that you guys disclosed last quarter and put specific reserve on this quarter, just kind of curious about the timing around resolution.
Speaker Change: Got it.
Speaker Change: How that may play out.
Speaker Change: Yes, Hi, Steve It's Joe.
Speaker Change: We put the credit on non accrual back in the fourth quarter of 'twenty three.
We are basically.
Speaker Change: Thanks, I think it's today, we're looking at a potential foreclosure sale on the property.
Speaker Change: So we got an updated appraisal right at the end of the first quarter and hence the additional reserves of about an additional 3.8 or $3 9 million over and above what the reserves were prior I will just note that the.
Speaker Change: That we apply a very conservative valuation.
Speaker Change: In terms of we not only do we take the appraised value, but we apply additional discounts to that.
Speaker Change: To be conservative and so ultimately we hope that the.
Speaker Change: That we can resolve the ultimate sale of the properties at a little better than call. It. The current reserve amounts, but with that said given that the property is expected to be.
Speaker Change: If we're closed in the second quarter, we would expect to take the majority of the charge offs in the quarter and then hopefully recover that over time through the sale of the properties.
Speaker Change: All in there's about 18 properties in the business Park and so we're still trying to collectively with the other participants figure out what the strategy is for ultimately.
Realizing the value of those properties, so I would expect that.
Speaker Change: Alright resolution or sale of those properties will take we'll certainly take some time.
Speaker Change: Okay, Great I appreciate that color there and then in terms of the employee benefit services business here.
Speaker Change: Goodbye I hear you on the on.
Speaker Change: The near term headwinds, but markets have kind of come back a bit.
Speaker Change: Just kind of curious if you could kind of handicap some of the near term revenue.
Speaker Change: Puts and takes.
Speaker Change: Yes, it's a little bit hard to be honest with you, Steve I think where we're running right now, it's probably lower single digits to mid single digits in that business, probably closer to the lower would you have really good momentum in terms of plant that plant acquisitions.
Speaker Change: <unk>.
Speaker Change: Units that are coming onto the platform.
Speaker Change: Platform frankly.
Speaker Change: Plans and conversion this year are higher as high as they've ever been so we know we're going to get a decent amount of unit growth.
Speaker Change: Again, it's very hard to predict.
Speaker Change: And it's really depends on which they have demand to you the price of these assets.
Speaker Change: We've seen a lot of volatility so.
Speaker Change: For all we know we might be up 10% next week and we might be down 10%. So it's really hard to.
Speaker Change: Pinpoint where things are going to settle.
Speaker Change: Okay, Great and I guess, just one last one for me here.
Speaker Change: On the municipal deposit.
Speaker Change: Side, where you had deposit growth there this quarter you highlighted expansion there just kind of curious.
Speaker Change: How you are looking to grow that business and kind of.
Speaker Change: Yes.
Speaker Change: Rate sensitive, we should think about it being in the future.
Speaker Change: Okay.
Speaker Change: Yes, it's a business for us that's now pushing about $2 billion in outstandings on the deposit side.
Speaker Change: It is a business that we've had a very long history and deep.
Speaker Change: These are not firms that really are.
Speaker Change: Money, if you will.
Speaker Change: Municipalities and government entities that have multiple multiple accounts with us. So it's not just the money market toward a CD that theyre looking to just park money in.
Speaker Change: We've just done a better job over the past couple of years of being even more focused on the business line.
Speaker Change: Making the calls and having the presence in the markets.
Speaker Change: So to us if you look at the blended rate.
Speaker Change: Great.
Speaker Change: Portfolio, it's in the low twos today.
Speaker Change: It's a very productive funding source.
Speaker Change: And.
Speaker Change: Well, that's kind of our business it's not.
Speaker Change: It's just natural seasonal flows and just on the ground blocking and tackling for relationship as opposed to.
Speaker Change: Bidding on.
Speaker Change: Some large count as Cds that we don't do any other business with.
Speaker Change: Got it I appreciate all the color here today, Thank you very much.
Speaker Change: Welcome.
Speaker Change: Thank you.
Speaker Change: Your next question comes from Matthew Breese from Stephens, Inc. Please go ahead.
Matthew Breese: Hey, good morning.
Speaker Change: Hey, Matt.
Speaker Change: Just wanted to get some some cents per NII over the course of the year, you had mentioned payoffs and competition.
Speaker Change: Maybe the first one is just what our expected cash flows over the next nine to 12 months from the securities and loan portfolio and one of the roll off yields there.
Speaker Change: Yeah.
Speaker Change: Matt This is Joe I'll I'll take that one so with respect to the to the loan portfolio. What I can tell you is that on a trailing 12 month basis. So kind of looking backwards, we had call. It between one five and $1 $8 billion of roll off.
Speaker Change: So thats.
Speaker Change: Dependent on prepayments and prepayment speeds and alike, and I think that's a fair expectation kind of looking forward.
Speaker Change: And the current book yield is about it's just north of 550, and the new volume rate is around 7%. So that's kind of how the back book is pricing on the securities portfolio.
Speaker Change: We have pretty minimal runoff in for the remainder of 2025, so less than $100 million.
Speaker Change: Which is coming off a little north of two around to call. It.
Speaker Change: And.
Speaker Change: So we're not going to see much opportunity there from a repricing standpoint at least for the remainder of 2025.
Speaker Change: However, when we hit late 'twenty six 'twenty 728, and 29, we've got about $2 billion rolling off and kind of.
Speaker Change: The 2% range. So from my perspective, it's kind of built a bridge.
Speaker Change: To kind of work the loan yields for the balance of this year and into next year and then we start getting to some securities cash flows in 'twenty, six 'twenty 722009, which.
Matt: You can pick your redeployment right there Matt.
Speaker Change: But if it's coming off of two I would expect that the.
Speaker Change: The redeployment, whether it's in loans or even re upping on some securities would probably be a net higher book yield.
Speaker Change: So.
Speaker Change: We'll.
Speaker Change: Try to maximize effectively the or the <unk>.
Speaker Change: Rollover this year and then on the loan book in terms of just improving the yield and then get to those securities cash flows in those in those periods.
Speaker Change: Very helpful. So I mean, I'll, let say it sounds like earning asset yields are going up into the right for a while.
Speaker Change: Is it also safe to assume that it's going to be difficult to squeeze the deposit costs much lower.
Speaker Change: Any opportunities there.
Speaker Change: Yes, I think that's a fair.
Speaker Change: Sort of path.
Speaker Change: We might get a little bit better.
Speaker Change: Positive pricing over time, but given where we're starting from kind of at that at 130 ish range. It could be hard to say, which can be more difficult for us and it will be for some other of our peers to bring down the cost of funds to significantly. So I think we're going to get most of our net interest margin and net interest income left really on the asset side.
Speaker Change: Is that re prices over the.
Speaker Change: Remainder of 'twenty five into the.
Speaker Change: The next four years or so.
Speaker Change: Got it Okay, and then didn't or just in terms of your your comments on competitive conditions and uncertainty and things kind of slowing down from a pipeline perspective.
Speaker Change: Does that change your.
Speaker Change: If it continues does that change your thinking around bank M&A at all might you reengage.
Speaker Change: And in places you might not otherwise with a forward pipeline.
Speaker Change: Yeah.
Speaker Change: I think as an aggregate comment Matt.
Speaker Change: We.
Speaker Change: Don't really change our strategy is depending on the environment. So in other words M&A is an important piece of what we do.
Speaker Change: So we're always looking for quality adds to our company when I say quality that is the first and foremost cleaning factor.
Speaker Change: Numbers are basically irrelevant deferred going to dilute the quality of our balance sheet or our business by a meaningful amount. So.
Speaker Change: I think thats first and foremost hurdle.
Speaker Change:
Speaker Change: I will say, it's also probably a little bit harder today to price somebody's assets.
Speaker Change: Given that nobody knows what's going to happen with their clients.
Speaker Change: On the commercial side in particular.
Speaker Change: So maybe that's.
Speaker Change: Small of a headwind so it probably just need to factor in a little bit more cushion on that side, but really theres a quality franchise again towards quality balance sheet liquidity low concentrations in markets, we care about.
Speaker Change: Always open for business.
Speaker Change: Okay understood and just last one expenses came in a touch lower than I was thinking.
Speaker Change: Maybe some thoughts on the outlook for the remainder of 'twenty five.
Speaker Change: Yes.
Speaker Change: So I think Matt do you want to take that Bryan go ahead.
Bryan: Okay. Okay.
Bryan: With respect to the kind of the core I'll call. It increase in operating expenses, it's kind of mid single digits for us we'd like it to be kind of in that 3% or 4% range on a normal run rate basis, we are continuing to invest in the franchise, which includes you know some of the marketing expenses around de Novo.
Bryan: Which probably puts us more in the kind of the mid single digit range.
Bryan: Going forward, but you know as we've kind of proven I think over the last couple of years you know, we our opex was a little bit up over where it was traditionally but its also beginning to pay off pretty significantly on the revenue side of the business and so I think we're going to continue to.
Bryan: Kind of incur operating expenses kind of in that mid single digit range of increases year over year.
Bryan: The intent there is obviously to continue to grow the company across all lines of business.
Bryan: Great I'll leave it there. Thank you for taking my questions.
Bryan: Hello.
Bryan: Thank you.
Bryan: Again.
Speaker Change: If you wish to register for a question. Please press Star then one.
Speaker Change: Our next question comes from Chris O'connell from <unk>. Please go ahead.
Speaker Change: Hey morning, Jim Tar go Tomorrow.
Speaker Change: Good morning was hoping to start off and some of the fee businesses.
Speaker Change: In particular.
Speaker Change: I guess if we.
Speaker Change: You know if the market stays where it is here.
On the wealth side I know, there's a little bit of seasonality into Q2, typically just how you see that progressing throughout the year and then given the strong start to the insurance business.
Speaker Change: Does that kind of change your outlook here for for the revenue growth for 2025, there as well.
Chris: I think Chris.
Chris: Chris on our.
Chris: Last call, we spoke about mid single digit growth in the fee income businesses I don't think we're changing that today that is our expectation.
Chris: Fully expect that all of the businesses are going to grow this year over last year, regardless of the market environment.
Chris: It may just be a little bit different in the aggregate. So to your point insurance is off to a good start that is in that 27% growth is not going to be the rate for the year.
Chris: It's going to moderate down so, but it's going to be probably hired us mid single digits, so that Michael.
Chris: The aggregate up a little bit while some of the market sensitive businesses, maybe a little bit closer to.
Chris: Low single to lower middle mid digit rate, so, we'll see where it shakes out I think in the aggregate when you look at that $200 million plus in revenue switching thats growing still in the mid single digits for this year.
Chris: Okay got it so despite.
Chris: The market conditions in the first quarter you still think you know mid single digit aggregate for those businesses is kind of the right place.
Chris: Assuming where we stay today I think we're going to get there.
Chris: Okay, Great that's helpful.
Chris: And then on the on the margin that you know I thought the deposit cost control.
Chris: Control here this quarter. It was really strong and you know with the asset yields.
Chris: <unk> to reprice up.
Speaker Change: Any any change in the overall.
Speaker Change: <unk> outlook of three to five basis points, a quarter give or take you know absent further rate cuts.
Speaker Change: No no we see that.
Speaker Change: Anywhere from two to seven basis points.
Speaker Change: But you're in the right range as we look at the.
Speaker Change: The portfolio and continue to.
Speaker Change: Just operate and take the health of the businesses, which are very strong.
Speaker Change: I believe that that will continue.
Speaker Change: Okay great.
Speaker Change: Just wanted to circle back on the expense discussion.
Speaker Change: You know if you know as far as the cadence throughout the year to get to the mid single digit.
Speaker Change:
Speaker Change: It is it more that you know from the first quarter, which I think came in.
Speaker Change: So pretty solid.
Speaker Change: The fourth quarter that we'll see you know the balloon up with the de Novo costs into Q3, Q, and then kind of and for Q4 Q closer to the mid single digits.
Speaker Change: I think thats about right, Chris that's how I would think about it you're going to have we're going to be above the three most likely in the.
Speaker Change: Third quarter and kind of moderate back down in the fourth quarter.
Speaker Change: Okay great.
Speaker Change: And as far as as we roll into next year as you know.
Speaker Change: <unk>.
Speaker Change: Any additional kind of related to novo costs.
Speaker Change: Pretty much fully baked into 2025.
Speaker Change: Or is there a little bit that'll trail into 2026 years.
Speaker Change: I think to be negligible for 2026, I think we should exit 2024 at $125 four quarter of 2025 with a pretty decent run rate.
Reconfigured branch network.
Speaker Change: Okay got it.
Speaker Change: That's all I had thank you.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Manuel Novice from D. A Davidson. Please go ahead.
Speaker Change: Yeah.
Manuel Novice: Hey, good morning, you're talking about the credit box I think more in the context of auto.
Manuel Novice: Are you actively seeing loans not kind of your credit box or are you just anticipating that that could be the case going forward just trying to.
Manuel Novice: I think through what your customer base.
Manuel Novice: Yeah.
Manuel Novice: I think what we're seeing is just people being more aggressive on both rate and credit. So some of the things that we sold this quarter.
Manuel Novice: Kind of impact that some of our numbers were even assets that for us are criticized being refi Ed away.
Manuel Novice: Bye.
Manuel Novice: Larger and smaller competitors, so people willing to take on a little bit more risk to try to make up for multiple years of not being present, that's okay with us with that maybe some other criticized assets, we want to share as well so.
Manuel Novice: That's kind of what I mean, our credit box really hasnt changed if we feel great about the particular credit we're going to lean into it as much as we can and if there is other things that don't fit our box they don't fit our box, we don't need to stretch.
Manuel Novice: Okay.
Manuel Novice: I appreciate that.
Manuel Novice: Bigger picture.
Speaker Change: How much of the kind of uncertainty that you're discussing.
Manuel Novice: It could be tied to the rig.
General concerns on the chip Chip fact.
Manuel Novice: Just there's been some pushback for the administration just wondering what is your perspective on that.
Manuel Novice: Okay.
Manuel Novice: I think very little.
Manuel Novice: We we don't really believe that much of the chip backed activity has really come to our markets yet.
Manuel Novice: So I think very little.
Manuel Novice: Really more about.
Manuel Novice: People literally not knowing what their cost of goodness right, where most of our clients a lot of them.
Manuel Novice: Imports something of something.
Manuel Novice: And they don't exactly know what is going to cost when you don't know what your goods cost you kind of have trouble pricing your product on the other end. So people are working through inventories.
Manuel Novice: Doing the best they can trying to plan ahead, it's hard to lock in pricing for those that imports a lot of their goods.
Manuel Novice: So I think there is some of that.
Manuel Novice: On the building side Thats also not clear what some of those projects Thats really going to cost you are going to start seeing some cost overruns were starting to see some of that.
Manuel Novice: We have clients that also rely on.
Manuel Novice: Foreign labor.
Manuel Novice: So theyre seeing some impact off of that where folks that were temporarily unable to work for them or not able to work in a more so there's a whole bunch of upon the occurrence, which is why when we say uncertainty.
Manuel Novice: The pipeline is pretty good the dialogue is pretty good.
Manuel Novice: We have to be a little bit extra cautious and our clients are a little bit extra cautious as it relates to major capex.
Manuel Novice: I appreciate the commentary thank you.
Manuel Novice: Okay.
Manuel Novice: Thank you.
Speaker Change: This concludes our question and answer session I would now like to turn the conference back over to <unk> for closing remarks.
Speaker Change: Thank you Sundar and thank you everybody for joining our call and we look forward to speaking with you in July.
Speaker Change: Thank you.
Speaker Change: <unk> has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.
Speaker Change: Yes.
Speaker Change: Yeah.
Speaker Change: [music].