Q1 2025 S&T Bancorp Inc Earnings Call
Unknown Executive: Welcome to the S&T Bancorp first quarter 2025 conference call.
Welcome to the F N T Bancorp first quarter 'twenty 'twenty five conference call.
Unknown Executive: After the management's remarks, there will be a question and answer session.
After the management's remarks, there'll be a question and answer session.
Mark Kochvar: Now, I would like to turn the call over to Chief Financial Officer Mark Kochvar. Please go ahead. Thank you and good afternoon, everybody. Thanks for participating in today's earnings call.
Speaker Change: Now I would like to turn the call over to Chief Financial Officer, Mark Coutu Bar. Please go ahead.
Speaker Change: Thank you and good afternoon, everybody. Thanks for participating in todays earnings call.
Mark Kochvar: Before beginning the presentation, I want to take time to refer you to our statement about forward-looking statements and risk factors. This statement provides the cautionary language required by the Securities and Exchange Commission for forward-looking statements that may be included in this presentation.
Speaker Change: We're beginning the presentation I want to take time to refer you to our statement about forward looking statements and risk factors. This statement provides the cautionary language required by the Securities Exchange Commission for forward looking statements that may be included in this presentation.
Mark Kochvar: A copy of the first quarter 2025 earnings release, as well as this earnings supplement slide deck can be obtained by clicking on the materials button in the lower right section of your screen. This will open up a panel on the right where you can download these items. You can also obtain a copy of these materials by visiting our investor relations website at stbancorp.com.
Speaker Change: Copy of the first quarter of 2025 earnings release as well as this earnings supplement slide deck can be obtained by clicking on the materials button in the lower right section of your screen. This will open up the panel on the right where you can download. These items you can also obtain a copy of these materials by visiting our Investor Relations website at Ft Bancorp Dot com.
Mark Kochvar: With me today are Christopher McComish, S&T's CEO, and David Antolik, S&T's president.
Speaker Change: With me today are Chris <unk>, <unk>, CEO, and David Antolik S&P's President.
Christopher McComish: I'd now like to turn the program over to Chris. Chris? Great, Mark. Thank you.
Speaker Change: I would now like to turn the program over to Chris Chris Great. Thank you and I'm going to begin my comments on page three of Mark appreciate kicking us off and I wanted to welcome everybody to the call are.
Christopher McComish: And I'm going to begin my comments on page three. Mark, appreciate kicking us off.
Christopher McComish: And I want to welcome everybody to the call. I certainly appreciate our analysts being with us, and we look forward to your questions. I also want to thank our employees and shareholders and others listening on the call. To our leadership team and employees, thank you for all you do. As we discussed before, these results are yours, and you should be very proud.
Christopher McComish: Before we discuss the numbers, I do want to touch on a couple of highlights that make Q1 so energizing and important for us. A few weeks ago, we wrapped up our third annual road trip with our executive team, met in small groups with all 1,275 of our employees in sessions focused on our shared future. From Central Ohio to Eastern Pennsylvania, the energy commitment and engagement of our employees showed and proved that S&T's people-forward purpose really set the tone for all that we're doing in 2025. And we believe this engagement is a direct connection to the results that we're going to discuss with you today.
Speaker Change: Before we discuss the numbers I do want to touch on a couple of highlights that made Q1, so energizing and important for us a few weeks ago.
Speaker Change: We wrapped up our third annual road trip with our executive team that in small groups with all 275 of our employees and sessions focused on our shared future from central Ohio, Eastern Pennsylvania, The energy commitment and engagement of our employees show for US which showed improved S&P's people.
Speaker Change: <unk> purpose really set the tone for all that we're doing in 2025 and we believe this engagement is a direct connection to the results that we're going to discuss with you today. It further reinforces our commitment to our performance drivers of focusing on our talent and engagement.
Christopher McComish: It further reinforces our commitment to our performance drivers of focusing on our talent and engagement, building and enhancing our deposit franchise, maintaining top quartile for profitability, and a focus on top-tier asset quality. Additionally, in the quarter, we received external recognition from organizations like Forbes, S&P, and USA Today for strong financial performance and superior employee engagement. Obviously, that makes us very proud. All of this, combined with the strong results we will discuss for Q1, gives our leadership team great confidence in our ability to move S&T forward in spite of some of the market uncertainty we are currently seeing.
Speaker Change: Building and enhancing our deposit franchise, maintaining top quartile for profitability and our focus on top tier asset quality.
Speaker Change: Additionally, in the quarter, we received external recognition for mortgage organizations like Forbes F&B in USA today for strong financial performance and superior employee engagement.
Speaker Change: That makes us very proud.
Speaker Change: All of this combined with the strong results, we will discuss for Q1. It gives our leadership team great confidence in our ability to move <unk> forward in spite of some of the market uncertainty. We are currently seeing.
Christopher McComish: As I turn to the quarter on page three, it was strong across the board. EPS of 87 cents and net income of $33 million were both ahead of Q4'24 and Q1'20'24 in meaningfully above consensus estimates. Our return metrics were also strong while balance sheet growth was solid both on the loan and customer deposit front. Customer deposit growth was over 7% annualized, the seventh straight quarter of customer deposit growth. We also saw a NIM expansion of four basis points as funding costs decreased and the positioning of our balance sheet to a more neutral stance delivered results.
Speaker Change: As I turn to the quarter on page three it was strong across the board EPS of <unk> 87, and net income of $33 million for Gulf ahead of Q4 dollars 24, and Q1 2024 and meaningfully above consensus estimates.
Speaker Change: Our return metrics were also strong our balance sheet growth was solid bolt on the loan and customer deposit fronts custom.
Speaker Change: Customer deposit growth was over 7% annualized the seventh straight quarter of customer deposit growth.
Speaker Change: We also saw a NIM expansion of four basis points as funding costs decreased in the positioning of our balance sheet to a more neutral stance delivered results.
Christopher McComish: We had another strong asset quality quarter, which allowed us to put additional dollars towards our bond portfolio restructure program.
Speaker Change: We had another strong asset quality quarter, which allowed us to put additional dollars towards our bond portfolio restructure program Mark will provide more color on this later.
Christopher McComish: Mark will provide more color on this later. Turning to our balance sheet, customer deposit growth, as I said, was very strong. Wholesale borrowings and deposits were reduced, and loan growth led by commercial banking was solid.
Speaker Change: Turning to our balance sheet customer deposit growth as I said was very strong wholesale borrowings and deposits were reduced in loan growth led by commercial banking was solid I'm.
David Antolik: I'm going to turn it over to Dave Antolik, our president, and I don't want to steal his thunder, but he's going to discuss further our balance sheet activities, customer activities, and the external environment, as well as asset quality.
Speaker Change: I'm going to turn it over to Dave Antolik, our president I don't want to steal his thunder Thunder, but he's going to discuss further our balance sheet activities customer activities and the external environment as well as asset quality. Thank you, Chris and good morning, everyone or good afternoon, everyone. If I can direct your attention to page four youll see that pause.
David Antolik: Thank you, Chris, and good morning, everyone, or good afternoon, everyone. If I could direct your attention to page four, you'll see the positive growth trend that Chris just talked about. Customer deposit growth of $135 million, or 7.23% annualized, which, as Chris mentioned, was the seventh consecutive quarter of customer deposit growth. You also see the total loan growth of $93 million, or 4.89% annualized, which is consistent with our previous guidance. Focusing for a moment on deposits, the majority of our growth came from our consumer activities, which is driven by our bankers using a proprietary customer relationship sales process that we introduced in early 2024 that has matured to the point where it's having meaningful impact on our results.
Speaker Change: <unk> growth trends that Chris just talked about a customer deposit growth of $135 million or seven 3%.
Speaker Change: Hi, Chris.
Speaker Change: Mentioned was the seventh consecutive quarter of customer deposit growth you all sit associated total loan growth of $93 million or $4, 89% annualized which is consistent with our previous guidance.
Speaker Change: We're seeing on for a moment on deposits. The majority of our growth came from our consumer activities, which is driven by our bankers using our proprietary customer relationship sales process that we introduced in earlier in early 2024 that is mature to the point, where its having meaningful impact on our results. We also continued to lever.
David Antolik: We also continue to leverage our deposit exception pricing platform, which aligns frontline staff and our treasury function in a customer and deposit cost-friendly way. From a product perspective, the overwhelming majority of our deposit growth was in money market and included a mix of consumer, private banking, and municipal customer activities. We also saw a shift from CD and checking balances into the money market this quarter. Digging into loan activity, we saw consumer loan growth of $12 million, which was driven by residential mortgage and home equity. As anticipated, our residential pipeline has tapered over the past few quarters and is now stabilized.
Speaker Change: Our deposit exception pricing platform, which aligns frontline staff in our treasury function and a customer and deposit cost friendly way.
Speaker Change: From a product perspective, the overwhelming majority of our deposit growth was in money market and included a mix of consumer private banking a municipal customer activities and we also saw a shift from CD and checking balances into the money market this quarter digging.
Speaker Change: Digging into the loan activity, we saw consumer loan growth of $12 million, which was driven by residential mortgage and home equity as anticipated our residential pipeline is tapered over the past few quarters and is now stabilized. Meanwhile, our home equity pipeline has grown since year end and as mentioned last quarter, we expect balanced growth.
David Antolik: Meanwhile, our home equity pipeline has grown since year end, and as mentioned, last quarter we expect balanced growth between these two categories for the remainder of the year. Turning to our commercial activities, total loan growth of over $81 million was driven by increases in our commercial real estate and commercial construction segments of $74 million and $27 million, respectively. Underlying categories of growth include flex mixed-use, multifamily, and retail space. C&I balance has declined by $20 million during the quarter, reflecting reduced automobile floor plan borrowings and reductions in our owner-occupied real estate category. Overall, pipelines are up nearly 40% since year-end, primarily in our commercial and consumer segments.
Speaker Change: Between these two categories for the remainder of the year.
Speaker Change: Turning to our commercial activities total loan growth of over $81 million was driven by increases in our commercial real estate and commercial construction segments of $74 million and $27 million, respectively underlying categories of growth include flex flex mixed use multifamily and retail space.
Speaker Change: C&I balances declined by $20 million during the quarter, reflecting reduced automobile floorplan borrowings and reductions in our owner occupied real estate category overall pipelines are up nearly 40% since year end, primarily in our commercial and consumer segments. We are closely monitoring.
David Antolik: We are closely monitoring macroeconomic impacts on our pull-through rates and continue to feel confident in our short-term mid-single-digit loan growth guidance, increasing the high mid-single-digit growth in the back half of 2025.
Speaker Change: Macroeconomic impacts on our pull through rates and continue to feel confident in our short term mid single digit loan growth guidance, increasing the high mid single digit growth in the back half of 2025, it's important to note that much of the second half growth is expected to be driven by newly hired bankers as they build.
David Antolik: It's important to note that much of the second half growth is expected to be driven by newly hired bankers as they build their pipelines in the first half of 2025.
Speaker Change: Their pipelines in the first half of the year.
David Antolik: Turning to asset quality on page 5, we continue to see improvement in Q1. Our allowance for credit loss has declined by approximately $2.5 million and ended the quarter at 1.26% of total loan. This was primarily the result of the release of a specific reserve related to one workout credit. In addition, criticized and classified loans remain stable for the quarter.
Speaker Change: Turning to asset quality on page five we continued to see improvement in Q1, our allowance for credit losses declined by approximately $2 $5 million and ended the quarter at 126% of total loans. This was primarily the result of the release of a specific reserve related to one workout credit and additions.
Speaker Change: Criticized and classified loans remained stable for the quarter.
David Antolik: We see loan growth and economic uncertainty as the primary factors impacting our provision expense in coming quarters.
Speaker Change: We see loan growth and economic uncertainty is the primary factors impacting our provision expense in coming quarters. Finally, I would like to take a moment to discuss our portfolio management and monitoring activities as they relate to macroeconomic and more particularly international trade factors.
David Antolik: Finally, I'd like to take a moment to discuss our portfolio management and monitoring activities as they relate to macroeconomic and more particularly international trade factors. First, from an information gathering and data analysis perspective, our C&I portfolio includes a group of loans that require, at a minimum, monthly reporting of all accounts receivable and accounts payable. This group represents approximately $750 million of exposure and a loan balance of $490 million, or 28% of our total C&I commitments and 32% of C&I balances. From this information, we've been able to extract international exposure to better understand our credit risk and inform customer conversations about their plans moving forward.
Speaker Change: First from an information gathering and data analysis perspective, our C&I portfolio includes a group of loans that required at a minimum monthly reporting of all accounts receivable and accounts payable. This group represents approximately $750 million of exposure.
Speaker Change: Our loan balances of $490 million or 28% of our total C&I commitments and 32% of C&I balances from this information we've been able to extract international exposure to better understand our credit risk and inform our customer conversations about their plans moving forward.
David Antolik: Second, and in a more general sense, we've added additional underwriting focus on foreign trade exposure and potential impacts to our commercial loan portfolio, including impacts on construction costs, construction contingencies, inventory levels, and raw material sourcing, just to name a few. At its core, our approach to managing credit risk relies upon a combination of data collection and a deep understanding by our bankers and credit teams of each individual customer's circumstances.
Speaker Change: Second and in a more general sense, we've added additional underwriting focus on foreign trade exposure and potential and potential impacts to our commercial loan portfolio.
Speaker Change: <unk> impacts on construction cost construction contingencies inventory levels and raw material sourcing just to name a few and score our approach to managing credit risk relies upon a combination of data collection and a deep understanding by our bankers and credit teams of each individual customers.
Mark Kochvar: I'll now turn it over to Mark for the commentary. Great, thanks Dave. The first quarter net interest margin rate increased four basis points to 3.81% with flat net interest income despite two fewer days in the quarter. The earning asset yield decline of 8 basis points was more than offset by a decline in the cost of funds of 12 basis points.
Speaker Change: Circumstance I will now turn it over to Mark for the commentary.
Mark: Great. Thanks, Dave.
Speaker Change: First quarter net interest margin rate increased four basis points to 381% with flat net interest income despite two fewer days in the quarter the.
Speaker Change: Earning asset yields decline of eight basis points was more than offset by a decline in the cost of funds at 12 basis points.
Mark Kochvar: Our balance sheet interest rate risk position is close to neutral, and we believe that we can maintain a relatively stable margin over the next several quarters, even as Fed gets more aggressive on rate cuts. Support for the Net Interest Margin Stability comes from favorable fixed and armed loan and securities repricing opportunities, our $450 million ReceiptX swap ladder that is starting to roll off. A short-duration $1.8 billion CDE portfolio, and our ability to implement non-monetary rate cuts and manage deposit exceptions if needed. A more stable net interest margin combined with our growth outlook should translate into net income improvement going forward.
Speaker Change: Our balance sheet interest rate risk position is close to neutral and we believe that we can maintain a relatively stable margin over the next several quarters, even if that gets more aggressive on rate cuts.
<unk> for the net interest margin stability comes from favorable fixed and arm loans and securities repricing opportunities are $450 million receipts ex swap ladder that is starting to roll off.
Speaker Change: A short duration $1 $8 billion CD portfolio, and our ability to implement now metairie rate cuts demand deposit exceptions if needed.
Speaker Change: A more stable net interest margin combined with our growth outlook should translate into net interest income improvement going forward.
Mark Kochvar: Next, non-interest income declined in the first quarter by $0.7 million, primarily due to seasonally lower customer activity in debit and NSF.
Speaker Change: Next noninterest income declined in the first quarter by $2 7 million, primarily due to seasonally lower customer activity in debit and NSF.
Mark Kochvar: We have been able to take advantage of strong earnings and asset quality improvements over the last four quarters with a series of bond restructurings that cumulatively now total $193.6 million and will increase 2025 net interest income by about $5 million. Our core non-interest income run rate x security losses is flat year over year at about $12.7-$12.8 Our expectations for fees going forward remains at approximately $13-14 million. Non-district expenses were down slightly in the first quarter compared to fourth quarter. Salaries and benefits are the main driver due to lower medical, which is typical in the first quarter.
Speaker Change: <unk> been able to take advantage of strong earnings and asset quality improvements over the last four quarters with a series of bond restructurings that cumulatively now totals $193 6 million and will increase 2025 net interest income by about $5 million. Our core noninterest income run rate ex security losses is flat year over year at about <unk>.
Speaker Change: 12, seven and $12 $8 million or expectations for fees going forward remains at approximately $13 million to $14 million a quarter.
Speaker Change: <unk> expenses were down slightly in the first quarter compared to fourth quarter salaries and benefits are the main driver due to lower medical which is typical in the first quarter, our quarterly variances and other taxes and the other category offset on a related to Pennsylvania shares tax credit programs, we expect quarterly run rate of approximately.
Mark Kochvar: The quarterly variances in other taxes and the other category offset and are related to Pennsylvania's shares tax credit program.
Mark Kochvar: We expect a quarterly run rate of approximately $55.5 million to $57 million for the remainder of the year as we continue to invest in production capacity and the customer experience. Capital, the TCE ratio increased by 34 basis points this quarter with AOTI improvement contributing a little over half of that at 18. our TCE and regulatory capital level positions as well for the environment and will enable us to take advantage of organic or inorganic growth opportunities.
Speaker Change: <unk> 55, and $5 million to $57 million for the remainder of the year as we continue to invest in production capacity and the customer experience.
Speaker Change: Capital the TCE ratio increased by 34 basis points this quarter with a OCI improvement contributing a little over half of that at 18 basis points, our TCE and regulatory capital level positions us well for the environment and will enable us to take advantage of organic or inorganic growth opportunities.
Mark Kochvar: Thanks.
Unknown Executive: At this time, I'd like to turn it back over to the operator to provide instructions for asking questions. And the floor is now open for questions. If you have any questions, please press star 1 on your phone.
Speaker Change: At this time I'd like to turn it back over to the operator to provide instructions for asking questions.
Speaker Change: The floor is now open for questions. If you have any questions. Please press star one on your song and your asset while asking a question. Please pick up your following and turn off the speaker fallen for enhanced audio quality. Please hold while we poll for questions.
Unknown Executive: And we ask that while asking your question, please pick up your phone and turn off speakerphone for enhanced audio quality. Please hold while we poll for questions.
Tyler Cacciatore: And our first question comes from the line of Tyler Cacciatore with Stevens. Please go ahead.
Speaker Change: And our first question comes from the line of Tyler <unk> with Stephens. Please go ahead.
Tyler Cacciatore: Good afternoon, this is Tyler Aron from Mabrese. Thank you very much.
Speaker Change: Good afternoon. This is Tyler on for Matt Bruce.
Speaker Change: Okay.
Christopher McComish: I just wanted to start on your thoughts on deals in this environment and the timing on crossing $10 billion without a deal. You're talking about M&A. Yes. Okay. Just wanted to make sure.
Speaker Change: Just wanted to start on your thoughts on deals in this environment and the timing on crossing $10 billion without.
Speaker Change: On the deal.
Speaker Change: Youre talking about M&A.
Speaker Change: Yes, Okay, just wanted to make sure.
Christopher McComish: The deal has a lot of meaning behind it. You know, I think our response would be in line with what you're seeing publicly in the market as a whole. There still remains many conversations in the marketplace, but stock prices being what they are, valuations look different. We continue to have conversations and are actively engaged with planning for the future, be it focused on both inorganic as well as organic growth. You know, crossing over $10 billion, we would anticipate, as Dave talked about, given our loan pipelines and our activity levels and growth in kind of that high-mid single-digit range, that would put us sometime in the second half of the year crossing over $10 billion.
Speaker Change: <unk> has a lot of.
Speaker Change: A lot of meaning behind it.
Speaker Change: I think our response would be in line with what you are with what Youre seeing publicly in the market as a whole there still remains many conversations in the marketplace.
Speaker Change: Right.
Speaker Change: Stock prices.
Speaker Change: They are.
Speaker Change: <unk> looked different we continue to have conversations that are <unk>.
<unk> engaged with planning for the future.
Speaker Change: Focused on both inorganic as well as.
Speaker Change: Organic growth.
Speaker Change: Crossing over $10 billion, we would anticipate.
Speaker Change: Dave talked about given our loan pipelines and our activity levels.
Speaker Change: Growth in kind of that high.
Speaker Change: A high mid single digit range that would put us sometime in the second half of the year.
Christopher McComish: As we've talked about on this call before, we're fully prepared for it. I've done a ton of work internally to make sure that any additional requirements from a regulatory standpoint happen. We will be prepared. Okay, great.
Speaker Change: Crossing over $10 billion as we've talked about on this call before we're fully prepared for it have done a ton of work internally to make sure that any additional requirements from a regulatory standpoint happened, we will we'll be prepared.
Christopher McComish: And then if I could ask one more, I was wondering what you guys were seeing in terms of spreads on C&I and CRE and how competitive it how competitive it is right there. Spreads in the CNI space haven't expanded or necessarily contracted in Q1, and what we've seen is kind of hesitancy, and that's referred to in my commentary, the lack of growth in CNI is just folks waiting for more certainty in the economic outlook. You know, these conversations that we're having with customers about, particularly around raw material sourcing, inventory sourcing, and finished goods, you know, that may be drop shipped to customers, et cetera, understanding what that looks like.
Speaker Change: Okay great.
Speaker Change: And then if I could ask one more I was wondering what you guys were seeing in terms of spreads on C&I and CRE and how competitive it how competitive it is right there.
Speaker Change:
Speaker Change: Yes spreads in the C&I space haven't expanded or necessarily contracted in Q1, and what we've seen is kind of hesitancy and thats referred to.
Speaker Change: And my commentary in the lack of growth in C&I is just folks waiting for more certainty in the economic outlook.
Speaker Change: These conversations that we're having with customers about particularly around raw material sourcing inventory inventory sourcing and finished goods, maybe drop ship to customers et cetera, understanding what that looks like that a lot of folks kind of trying to better understand.
Christopher McComish: We've got a lot of folks kind of trying to better understand, you know, without guessing necessarily, but position themselves to take advantage of certain trade situations, you know, tariffs particularly, by reducing inventory or, you know, depending on how they feel about the direction of tariffs. moving inventory in different directions between different countries. So there's just a lot of uncertainty that's driven you know, the kind of the lack of growth in the C&I space in Q1.
Speaker Change: I'm guessing necessarily but positioning themselves to take advantage of certain trade situations tariffs, particularly by reducing inventory or depending on how they feel about the direction of tariffs.
Speaker Change: Moving inventory in different directions between different countries.
Speaker Change: A lot of uncertainty that's driven.
Speaker Change: <unk>.
Speaker Change: That kind of the lack of growth in the C&I space in Q1.
Christopher McComish: On the CRE side, we have seen some of the more regional banks, some of the larger banks get a little more aggressive in terms of their participation in commercial real estate. That's where we've seen some pressure on spreads in QE. Okay, great. That was helpful.
Speaker Change: On the on the CRE side, we have seen some of the more regional banks from the larger banks get a little more aggressive in terms of their participation in commercial real estate, that's where we've seen some pressure on spreads in Q1.
Speaker Change: Okay, Great that was helpful that'll be all for me thanks for taking my questions. Thank.
Tyler Cacciatore: That'll be all for me. Thanks for taking my question. Thank you. Thanks, Tyler.
Speaker Change: Thank you thanks Tyler.
Daniel Tamayo: And your next question comes from the line of Daniel Tamayo with Raymond James. Please go ahead.
Speaker Change: And your next question comes from the line of Daniel Tamayo with Raymond James. Please go ahead.
Daniel Tamayo: Hey guys, good afternoon. So I jumped on a few minutes late.
Daniel Tamayo: Hey, guys good afternoon.
Speaker Change: Hi.
Speaker Change: Yes.
Speaker Change: So I jumped on a few minutes late so I apologize if you guys covered this already but just curious.
Daniel Tamayo: I apologize if you guys covered this already, but just curious, kind of, if you've been able to wrap your hands around the impact of tariffs on your borrower base from a credit perspective, if there's anywhere that you're looking at as potentially most at risk or kind of zeroing in on focusing on over the next few quarters, and then kind of more broadly, you know, credit trends have been improving over the last few quarters. We've seen that in reserves coming down and early stage loans improving. Just curious where you guys think you are in that story.
Speaker Change: Kind of if you've been able to wrap your hands around.
Speaker Change: The impact of.
Speaker Change: Tariffs on your on your borrower base from a credit perspective.
Speaker Change: If theres anywhere that you are looking at is potentially most at risk or kind of zeroing in on focusing on over the next few quarters.
Speaker Change: And then kind of more broadly.
Speaker Change: Credit trends have been improving over the last few quarters, we've seen that in reserves coming down in an early stage loans, improving just just curious where you guys think you are in that story I know in the last quarter. You talked about you thought you were pretty close to to normalizing there, but just curious about updated thoughts.
David Antolik: I know in the last quarter you talked about you thought you were pretty close to normalizing there, but just curious about updated thoughts. Yeah, I think some of that normalization hit this quarter, as I mentioned, C&C, the criticized and classified loans remain stable from from last quarter. In terms of how we're managing risk at the customer level, I mentioned earlier in the call that we have this group of loans, it's about $750 million in exposure, these tend to be our largest loans, and as such have more significant reporting requirements. On a monthly basis, at a minimum, we get accounts receivable and accounts payable.
Speaker Change: Yes, I think some of that normalization hit this quarter as I mentioned has seen see the criticized and classified loans remained stable from from last quarter.
Speaker Change: In terms of how we're managing risk at the customer level.
Speaker Change: I mentioned earlier in the call that we have this group of loans, it's about $750 million in exposure. These tend to be our largest loans and as such have.
Speaker Change: More.
Speaker Change: More significant reporting requirements on a monthly basis at a minimum we get accounts receivable and accounts payable from that information, we can extract international exposure that informs conversations that we have with these customers we can break it down by country.
David Antolik: From that information, we can extract international exposure. That informs conversations that we have with these customers. We can break it down by country. So it's really a combination of data gathering and having deep conversations at the customer level. We have seen things like in the floor plan space, we had paydowns in Q1. That was driven by consumer activity in anticipation of prices going up as a result of terrorists impacting the ultimate retail price of cars. So it's really information gathering and reacting as quickly as possible. We feel really good about our ability to management given the risk management, credit risk management practice that we have in place, and the data that we get.
Speaker Change: So it's really a combination of data gathering and having deep conversations at the individual customer level and we have seen things like in the Floorplan space. We had paydowns in Q1, because that was driven by consumer activity in anticipation of prices going up as a result of terrorists and impacting imp.
Speaker Change: Packaging, the ultimate retail price of cars.
Speaker Change: So it's really a information gathering and reacting as quickly as possible, we feel really good about our ability to management given you know the risk management credit risk management practices, we have in place.
Speaker Change: And the data that we gather.
David Antolik: Okay, great. And in terms of reserves, I mean, it's a real I mean, it's I know point in time always, always is appropriate. But given the trend down over the last several quarters, you feel like you're there now, absent any kind of recession, or that could still come down more. There might be a little bit of room, but it would depend, it would be contingent on a little bit better outlook than we have today.
Speaker Change: Okay, great and in terms of our reserves.
Speaker Change: Oh really.
Speaker Change: I know a point in time always.
Speaker Change: As appropriate, but given the trend down over the last several quarters do you feel like you're there now absent any kind of recession or that could still come down more from here.
Speaker Change: There might be a little bit of room, but it would it would be contingent on a little bit better outlook than we have today.
David Antolik: Just a reminder, the decrease in the reserve that we saw quarter over quarter was really related to the release of a specific reserve that we had. Had it not been for that, we would have been up about a million and a half dollars of reserves. We think we're probably closer to the bottom of that given the current environment. as well as our loan growth expectations. Yeah, but I'll keep the rate relatively constant. Got it. Okay.
Speaker Change: The decrease in the reserve that we saw quarter over quarter. It was really related to the.
Speaker Change: The release of a specific reserve that we had had it not been for that we would have been up about 1 million $5 of reserve.
Speaker Change: So we think we're probably closer to the bottom of that given the current environment.
Speaker Change: As well as our loan growth expectation, yes, yeah ex that but keep the rate relatively constant.
Speaker Change: Got it okay.
Mark Kochvar: And then I did catch the commentary on the margin, Mark, but maybe if you have some detail on, you know, loan yields, new loan yields in the first quarter relative to what was coming off. And, you know, any any commentary on on securities cash flows, what the expectations are for investment there, relative to to what you're seeing on the on the funding side, where I expect your you're close to a terminal beta, if not there. Yeah, on the deposit side, we continue to make some changes, but they were mostly done at the close of last year.
Speaker Change: And then I did catch that.
Speaker Change: The commentary on the margin Mark.
Speaker Change: Maybe if you have some some detail on.
Speaker Change:
Speaker Change: Loan yields new loan yields in the first quarter relative to what was coming often.
Speaker Change: Any commentary on securities cash flows what the expectations are for.
Speaker Change: Investment there.
Speaker Change: Relative to what Youre seeing on the on the funding side, where I expect Europe.
Speaker Change: Youre close to a.
Terminal beta if not there.
Yes, so we made on the deposit side, we continue to make some changes, but they were mostly done by the at the close of last year. So we still benefit from those in Q1.
Mark Kochvar: So we still benefited from those in Q1, but haven't made any significant changes. We still benefit from some CD repricing that's still left to go the first half into the summer. On the loan side, we're seeing overall new yields in the 675 range in there, beating the paid level by about 25 basis points. We're still seeing some kind of net, a little bit of net improvement on the loan book. So that's helping to provide some support to the margin. And securities, we typically are seeing anywhere from 50 to 75 million mature every quarter or so, and we're still picking up at least 100, 150 basis points there.
Speaker Change: Isn't made any significant changes, we still benefit from that from CD repricing, that's still left to go.
Speaker Change: The first.
Half into into the summer.
Speaker Change: The loan on loan side, where we're seeing.
Speaker Change: Overall, new yields and the like in the $6 75 range in there.
Speaker Change: Beating the paid level by about 25 basis points, we are still seeing some kind of net a little bit of net improvement on our loan our loan book and so that's helping too.
Speaker Change: Provide some support to the margin and securities. We typically are seeing anywhere from $50 million to $75 million mature every every quarter or so and we're still picking up at least 100 150 basis points. There that will continue for several more quarters. So and then we also have a receipt.
Mark Kochvar: That'll continue for several more quarters. So and then we also have a received swap book where we have about 50 million a quarter coming off, and there the pickup is in the 2% range. So those things will. continue to benefit us, we think, for the remainder of 25.
Speaker Change: The swap book, where we have about $50 million a quarter coming off and there the pickup is in that 2% range. So those things will.
Speaker Change: Continue to benefit us and we think for the remainder of 'twenty five so that help.
Mark Kochvar: So that helps, gives us the confidence that the margin can be relatively stable throughout this year, because we kind of have those. those support areas, even if the Fed were to move down. Is that yeah, I guess that was my next question is just the is that is that kind of the offset because underlying sensitivity, you said you're mostly neutral to rates, but under underlying sensitivity, you're still asset sensitive, right with the with the variable rate loans there. I mean, if this were a, you know, once we get past, I guess, the, the SWOT, the pickup from swaps, if we had a rate cut, you would expect that to be at least somewhat dilutive to the margin.
Speaker Change: <unk> gives us gives us the confidence that the margin can be relatively stable throughout this year, because we have those.
Speaker Change: Those support areas.
Even if the fed were to move down.
Speaker Change: Is is that yes, I guess that was my next question is just.
Speaker Change: Is that is that kind of the offset because underlying sensitivity you said youre, mostly neutral to rates, but understand underlying sensitivity, you're still asset sensitive right with the with the variable rate loans. There I mean, if this were a.
Speaker Change: Once we get past I guess, the the swap and the pickup from swaps.
Speaker Change: A rate cut you would expect that to be at least somewhat dilutive to the margin.
Speaker Change: Yes, we're positioned now.
Fast forward to maybe a year from now once we get through a lot of that repricing, if we don't take any action.
Speaker Change: We'll return to some level.
Speaker Change: Asset sensitivity, but we're monitoring that closely and depending on the environment. There is some things we can do relative like on the swap side to counteract that.
Speaker Change: <unk> continued to have a more neutral.
Speaker Change: IR position. So for now we can a lot of rely on what's already in place on the balance sheet, but will that be more active at that burns off over the course of this year.
Mark Kochvar: So for now, we can rely on what's already in place on the balance sheet, but we'll have to be more active as that burns off over the course of the next couple of days. Got it. And if we don't get the cuts then this year, would you would you expect margin expansion then given the the, you know, kind of the fundamental tailwinds that you've got the rest of the year? Yeah, so to a limited degree, we think there's there might be a few basis points there as well. So That would be probably a positive for us if the Fed were to be on hold the rest of the year.
Speaker Change: Got it.
Speaker Change: If we don't get the card spend this year.
Speaker Change: Would you would you expect margin expansion then given the.
Speaker Change: Kind of the fundamental.
Speaker Change: Tailwind is still that <unk> got the rest of the year.
Speaker Change: Yes, so to limit degree, we think there might be a few basis points there as well so.
Speaker Change: That would be a probably a positive for us if that February or beyond.
Speaker Change: Beyond hold the rest of the year.
Mark Kochvar: Okay. All right.
Speaker Change: Got it okay, alright, thanks for all that color I appreciate it guys.
Tyler Cacciatore: Thanks for all that, Kyle. I appreciate it, guys.
Speaker Change: That in the queue.
Unknown Executive: And once again, if you would like to ask a question, simply press star 1.
Speaker Change: And once again, if you would like to ask a question you Press Star. One. Your next question comes from the line of.
Manuel Navas: Your next question comes from the line of Manuel Navas with D.A. Davidson.
Manuel Novice: Manuel novice with D. A Davidson. Please go ahead.
Sharanjit Cheema: Please go ahead. Hello, this is Sharanjit on for Manuel.
Manuel Novice: Well, I mean listen Shinji on firm Manuel.
David Antolik: Um, you guys talked about pipelines being up 40% from year end and kind of that growth acceleration expectation throughout the year with like the new higher pipelines building in first half so that second hand growth and then what are your hiring expectations for this year compared to maybe 2024 and do you see any additional opportunity to add teams or pick up potential producers from here? Yeah, we're currently in the process of recruiting. C&I bankers particularly, and these would be ads to staff. So last quarter we talked about a 15% increase in calling officers. that we've achieved, and it'll be more onesie-twosie kind of fill-ins this year.
Speaker Change: You guys talked about pipeline. Thanks.
Speaker Change: From year end any time that growth acceleration expectations throughout the year with like the new hire pipelines building.
Speaker Change: The first half so that second half growth and then what are your hiring expectations for this year compared to maybe 2024 and do you see any additional opportunities to add teams or pick up potential producers from here.
Speaker Change: Yes, we are currently in the process of recruiting.
Speaker Change: C&I bankers, particularly.
Speaker Change: And these would be adds to staff so last quarter, we talked about a 15% increase in calling officers.
Speaker Change: I mean is that we've achieved.
Speaker Change: It'll be more onesie twosies kind of fill in this year and that is really what is supporting the pipeline expansion based on the pipelines that we have the addition of these bankers.
David Antolik: And that is really what is supporting the pipeline expansion. Based on the pipelines that we have, the addition of these bankers, again, we're comfortable with the guidance that we've given in the first half of the year and expanding growth in the second half of the year.
Speaker Change: We're comfortable with the guidance that we've given in the first half of the year and expanding growth in the second half of the year all of that being said.
David Antolik: All that being said, until we have a better view on these macroeconomic issues, there may be an impact on the pull-through rates that we're watching from the pipeline that end up becoming customers and those balances being booked onto our balance sheet. So there's a lot of moving factors, but we're certainly focusing in on organic growth by adding to staff, making sure the staff has the appropriate tools that they need in order to support growth. Great.
Speaker Change: So we have a better view on these macroeconomic issues and there may be an impact on the pull through rates that we're watching from the pipeline.
Speaker Change: It ended up becoming customers and those balances being booked onto our balance sheet.
Speaker Change: So there's a lot of moving factors, but we're certainly focusing in on organic growth by adding to staff, making sure. The staff has.
Speaker Change: The appropriate tools that they need in order to support growth.
Sharanjit Cheema: Thank you.
Speaker Change: That's great. Thank you.
Speaker Change: <unk>.
Speaker Change: Yeah.
Unknown Executive: And I'm showing no further questions at this time.
Speaker Change: And Im showing no further questions at this time I would like to turn the call over to the Chief Executive Officer, Chris with clinician for closing remarks, okay. Thanks, everybody for joining US. This afternoon is as I said, we're very proud of the performance across the board in Q1, and we're optimistic for the room.
Christopher McComish: I would like to turn the call over to the Chief Executive Officer, Chris McComish, for closing remarks. Okay. Thanks, everybody, for joining us this afternoon. As I said, we're very proud of the performance across the board in Q1, and we're optimistic for the rest of the year.
Christopher McComish: We certainly appreciate your time and interest in our company, and have a great rest of the day. Thank you.
Speaker Change: Rest of the year, we certainly appreciate your time and interest in our company and have a great rest of the day. Thank you.
Unknown Executive: And this concludes today's conference call. Thank you for joining. You may now disconnect.
Speaker Change: And this concludes today's conference call. Thank you for joining you may now disconnect.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change:
Speaker Change: Yeah.