Q1 2025 First Foundation Inc Earnings Call
Speaker Change: [music].
Operator: Greetings and welcome to First Foundation's first quarter 2025 earnings conference call. Today's call is being recorded.
Greetings and welcome to first Foundation's first quarter 'twenty 25 earnings Conference call. Today's call is being recorded speaking today will be saw must be shafer first Foundation's Chief Executive Officer, and Jamie Britain first Foundation's Chief Financial Officer.
Operator: Speaking today will be Thomas C. Shafer, First Foundation's Chief Executive Officer, and Jamie Britton, First Foundation's Chief Financial Officer. Before I hand the call over to Mr. Shafer, please note that management will make certain predictive statements during today's call. that reflect their current views and expectations about the company's performance and financial results. These forward-looking statements are made subject to the Safe Harbor Statement included in today's earnings release. In addition, some of the discussion may include non-GAAP financial measures.
Before I hand, the call over to Mr. Schafer. Please note that management will make certain predictive statements during today's call.
Speaker Change: That reflect their current views and expectations about the company's performance and financial results.
Speaker Change: These forward looking statements are made subject to the safe Harbor statement included in today's earnings release.
Speaker Change: In addition, some of the discussion may include non-GAAP financial measures.
Operator: For a more complete discussion of the risks and uncertainties that could cause actual results to differ materially from any forward-looking statements and reconciliations of non-GAAP financial measures, please see the company's filing through the Securities and Exchange Commission.
Speaker Change: For a more complete discussion of the risks and uncertainties that could cause actual results to differ materially from any forward looking statements and because tiliaceous of non-GAAP financial measures. Please see the company's filings with the Securities and Exchange Commission and now I would like to turn the call over to C. O. So.
Thomas Shafer: And now, I would like to turn the call over to CEO Thomas C. Shafer. Thank you. Welcome and thank you for joining First Foundation's First Quarter Earnings Call. On today's call, we'll provide updates about our financial and operating performance for the first quarter, in addition to discussing the strides we are taking towards our strategic initiative. The first quarter was my first full quarter as CEO, and I continue to be pleased with our productivity as we made continued progress on several capabilities in the various internal review processes that we began discussing last quarter. Starting with our financial results, net income of $6.9 million, or $0.08 per share, our First Foundation's return to profitability after posting a net loss of $14.1 million in the fourth quarter and a loss in the third quarter driven by our having moved $1.9 billion of multifamily loans to held for sale.
Speaker Change: It must be shafer.
Speaker Change: Thank you.
Speaker Change: Welcome and thank you for joining first Foundation's first quarter earnings call on today's call, we'll provide updates about our financial and operating performance for the first quarter. In addition to discussing the strides we are taking towards our strategic initiatives.
Speaker Change: First quarter was my first full quarter as CEO and I continue to be pleased with our productivity as we made continued progress on several capabilities and the various internal review processes that we began discussing last quarter.
Speaker Change: Starting with our financial results net income of $6 9 million or <unk> <unk> per share Mark first foundation's returned to profitability after posting a net loss of $14 1 million in the fourth quarter and it was in the third quarter driven by our having moved $1 9 billion of multifamily loans to held for sale improved results were due.
Thomas Shafer: Improved results were driven by another nine basis points of net interest margin expansion to 1.67%, a significant linked quarter reduction in our provision expense, favorable net valuation marks on our held for sale loan portfolio, and a $5 million reduction in our non-interest expense compared to the fourth quarter. We funded $180 million of new loan balances in the quarter, priced at an average yield of 7.09%, of which approximately 78% for C&I loans. Loans held for investment decreased in the first quarter primarily due to $354 million of payoffs, while loans held for sale were essentially unchanged at $1.3 billion with no loan sales taking place during the period.
Speaker Change: Driven by another nine basis points.
Speaker Change: Net interest margin expansion to 167% significant linked quarter.
Speaker Change: Reduction in our provision expense favorable net valuation marks on our held for sale loan portfolio and a $5 million reduction in our noninterest expense compared to the fourth quarter.
Speaker Change: We funded 180 million of new loan balances in the quarter priced at an average yield of seven 9% of which approximately 78% for C&I loans.
Speaker Change: Loans held for investment decreased in the first quarter, primarily due to $354 million of payoffs while loans held for sale were essentially unchanged at $1 3 billion with no loan shows taking place during the quarter.
Thomas Shafer: Our strategic focus on reducing our commercial real estate concentration and selectively exiting lower yielding multifamily loans remains unchanged. In the fourth quarter, we completed a $489 million sale of multifamily loans at competitive pricing, and we are confident we will make additional progress during the second quarter. Our pipeline for loan sales and securitizations remains active, and we plan to continue reducing our loans held for sale over the balance of 2025. We have recaptured a portion of the original mark taken in the third quarter of 2024. And we remain focused on securing favorable execution going forward, which would benefit capital and profitability while the dispositioning of the loans will allow us to continue reducing our reliance on wholesale.
Speaker Change: Our strategic focus on reducing our commercial real estate concentration and selectively exiting lower yielding multifamily loans remains unchanged.
Speaker Change: In the fourth quarter, we completed a $489 million sale of multifamily loans and competitive pricing and we are confident we will make additional progress during the second quarter.
Speaker Change: Our pipeline for loan sales and Securitizations remains active and we plan to continue reducing our loans held for sale over the balance of 2025, we have recaptured a portion of the original mark taken in the third quarter of 2024, and we remained focused on securing favorable execution going forward, which should benefit capital and profitability.
Speaker Change: This positioning of the loans will allow us to continue reducing our reliance on wholesale funding.
Thomas Shafer: On credit, our ACL position increased another five basis points during the first quarter to 46 basis points, or 2.9 million to 35.2 million. that charge-offs moderated compared to the link quarter and we're only one base. Most of the quarterly ACL bill was the result of higher reserves for the Equipment Finance Lease Portfolio, increased model calculated loss factors in the Commercial Loan Portfolio, and an increase in the level of criticized assets due to continued stress testing for higher interest rates and higher expenses potentially impacting CRE capital. Despite the building ACL, we are optimistic about the credit portfolio's performance.
Speaker Change: On credit our ACL position increased another five basis points during the first quarter to 46 basis points or $2 9 million to $35 2 million.
Speaker Change: Net charge offs moderated compared to the linked quarter and were only one basis point most of the quarterly ACL build was the result of higher reserves for the equipment finance lease portfolio increased model calculated loss factors in the commercial loan portfolio and an increase in the level of criticized assets due to continued stress testing for higher <unk>.
Speaker Change: Crist rates and higher expenses potentially impacting CRE cash flows. Despite the building ACO. We are optimistic about the credit portfolio's performance asset migration trends during the quarter were positive with past due and non accrual loans falling 22% to $54 8 million.
Thomas Shafer: Asset migration trends during the quarter were positive, with past due and non-accrual loans falling 22% to $54.8 million. On our call in January, I mentioned our team was already reviewing our CECL methodology to ensure we have standards in place to match our size and complexity, and I feel we are already making good progress on this initiative. We will adjust our methodology where we believe it is appropriate to do so, but all else being equal. As we have discussed before, we expect our efforts to reduce multifamily loans and replace them with higher yielding C&I loans to result in an increasing ACL balance over time.
Speaker Change: On our call in January I mentioned, our team was already reviewing our seasonal methodology to ensure we have standards in place to match, our size and complexity and I feel we are already making good progress on this initiative.
Speaker Change: We'll adjust our methodology, where we believe it is appropriate to do so but all else being equal.
Speaker Change: As we have discussed before we expect our efforts to reduce multifamily loans and replace them with higher yielding C&I loans to result in an increasing ACL balance overtime.
Thomas Shafer: While the first three points of our five-point strategic plan focusing largely on remixing our loan portfolio, improving our interest rate risk management, and reviewing our seasonal methodology, we also continue to work hard at growing our non-interest income, not only through First Foundation advisors and private banking, but also by taking a more holistic approach to how we service our commercial and consumer customers. Assets under management ended the quarter at $5.1 billion, compared to $5.4 billion at the end of the year. And trust assets under advisement closed at $1.2 billion, compared to $1.1 billion in the prior quarter.
Speaker Change: While the first three points of our five point strategic plan focusing on.
Speaker Change: Largely on Remixing, our loan portfolio, improving our interest rate risk management and reviewing our seasonal methodology. We also continue to work hard at growing our non interest income not only through first foundation advisors and private banking, but also by taking a more holistic approach to how we service our commercial and consumer customers.
Speaker Change: Assets under management ended the quarter at $5 1 billion compared to $5 4 billion at the end of the year and trust assets under advisement closed at $1 2 billion compared to $1 1 billion in the prior quarter as we think about first foundation's future and our value proposition to our clients. We believe a reenergized focus on private banking.
Thomas Shafer: As we think about First Foundation's future and our value proposition to our clients, we believe a re-energized focus on private banking in our demographically attractive markets will build significant long-term value for our firm, our shareholders, and bring added support to our wealth management. Our first, our efforts to further invest in client relationships also showed tangible progress during the first quarter with regard to our deposit. While overall deposits declined modestly to $9.6 billion, this was largely due to a $400 million decrease in high-cost brokered deposits so these deposits matured without replacement, partly offset by a $71 million increase in combined retail, specialty, and digital banking deposit balance.
Speaker Change: Our demographically attractive markets will build significant long term value for our firm our shareholders and bring added support to our wealth management clients.
Speaker Change: Our first.
Speaker Change: Our efforts to further invest in client relationships also showed tangible progress during the first quarter with regard to our deposit mix. While overall deposits declined modestly to $9 6 billion. This was largely due to a $400 million decrease in high cost brokered deposits. These deposits matured without replacement.
Speaker Change: We offset by $71 million increase in combined retail specialty in digital banking deposit balances are.
Thomas Shafer: Our total cost of deposits declined to 3.04% compared to 3.19% in the prior quarter, while our loan-to-deposit ratio continues to be steady at approximately 94%.
Speaker Change: Our total cost of deposits declined to three <unk>.
Speaker Change: 4% compared to $3, one 9% in the prior quarter, while our loan to deposit ratio continues to be steady at approximately 94%.
Thomas Shafer: Lastly, I also wanted to highlight that we remain strongly capitalized following the common equity raise completed in July of last year, even after some of the moving parts on our balance sheet over the past few quarters, with our common equity tier one ratio at 10.6%, and our tier one leverage ratio at 8.1%.
Speaker Change: Lastly, I also wanted to highlight that we remain strongly capitalized following the common equity raise completed in July of last year, even after some of the moving parts in our balance sheet over the past few quarters with our common equity tier one ratio at 10, 6% and our tier one leverage ratio at eight 1%.
James Britton: I'll now turn it over to Jamie for a more thorough review of our financial performance and to discuss our intermediate term financial outlook. Thank you, Tom. And good morning.
Speaker Change: I'll now turn it over to Jamie for a more thorough review of our financial performance and to discuss our intermediate term financial outlook Jamie.
Jamie: Thank you Tom and good morning, My remarks today will be broken primarily into two parts first I'll go into further detail on the first quarter's financials and second I'll provide updated commentary about our forward outlook and how some of our important strategic initiatives can benefit our financial performance, we remain steadfast in our goal to significantly improve our sustainable profitability.
James Britton: My remarks today will be broken primarily into two parts. First, I'll go into further detail on the first quarter's financials. And second, I'll provide updated commentary about our forward outlook and how some of our implied strategic initiatives can benefit our financial performance. We remain steadfast in our goal to significantly improve our sustainable profitability over the intermediate term. Starting on slide four of our investor presentation, our first quarter pre-provisioned net revenue of $9.7 million, or 11 cents per share, increased relative to a pre-provisioned net revenue loss of $2.3 million in the fourth quarter. which was impacted in part by the unusual items that we discussed in January.
Speaker Change: <unk> over the intermediate term.
Speaker Change: Starting on slide four of our Investor presentation, our first quarter pre provision net revenue of $9 $7 million or <unk> 11 per share increase relative to our pre provision net revenue loss of $2 3 million.
Speaker Change: In the fourth quarter.
Speaker Change: Which was impacted in part by the unusual items that we discussed in January.
James Britton: Our PPNR return on average assets increased to 31 basis points, and as Tom mentioned, we returned profitability in the first quarter, even after adjusting for the benefit of $4.7 million in securities. Reported net interest margin for the first quarter of 167 basis points represented a nine basis point increase relative to the linked quarter and was largely driven by a 15 basis point improvement in our total cost of deposits which decreased to 3.04%. Yield on total earning assets decreased five basis points to 463, driven mainly by a 17 basis point reduction in the yield on securities available for sale, and a two basis point reduction in total loan yields, which were relatively stable quarter over quarter.
Speaker Change: Our people and our return on average assets increased to 31 basis points and as Tom mentioned, we returned profitability in the first quarter, even after adjusting for the benefit of $4 7 million.
Speaker Change: And securities gains.
Speaker Change: Reported net interest margin for the first quarter of 167 basis points represented a nine basis point increase relative to the linked quarter and was largely largely driven by a 15 basis point improvement in our total cost of deposits, which decreased to three 4%.
Speaker Change: Yield on total earning assets decreased five basis points to 463, driven mainly by a 17 basis point reduction in the yield on securities available for sale and a two basis point reduction in total loan yields which were relatively stable quarter over quarter.
James Britton: As noted on slide five, we continue to see steady quarter over quarter improvement in our balance sheet contribution or net interest income excluding customer service costs. This continues to be an important metric for us as we transition the balance. On slide seven of our investor presentation, we once again provided visibility to the repricing opportunity in our Health for Investment multi-family loan portfolio, and we have supplemented it this quarter with information on recent borrower behavior. As noted on the bottom of the slide, based on our portfolio's weighted average spread, were the portfolio to reprice the floating rates today, yields would improve by over 290 basis points.
Speaker Change: As noted on slide five we continue to see steady quarter over quarter improvement in our balance sheet contribution our net interest income excluding customer service costs.
Speaker Change: This continues to be an important metric for us as we transition the balance sheet.
Speaker Change: On slide seven of our Investor presentation, we once again provided visibility to the repricing opportunities in our held for investment in multifamily loan portfolio and we have supplemented it this quarter with information on recent borrowing behaviors.
Speaker Change: As noted on the bottom of the slide based on our portfolio's weighted average spread for the portfolio to reprice to floating rates today yields would improve by over 290 basis points.
James Britton: We have $456 million in multifamily loans with a weighted average yield of 3.45% that will reprice to floating, refinance with us, or pay off at par in 2026, and another $906 million in multifamily loans with a weighted average yield of 4.18% facing the same decision in 2027. Loan repricing volumes are lower in 2025, but looking ahead to the volume of repricing we see on the horizon, when coupled with CD maturity set to occur, we are optimistic about the opportunity and flexibility this provides. On slide eight, we noted the maturity schedule and rates for our remaining broker CDs, which when coupled with reductions in both the health for sale and health for investment multifamily portfolios will reduce drag on the margin.
Speaker Change: We have $456 million of multifamily loans with a weighted average yield of three 5% that will reprice to floating refinance with us or payoff at par in 2026, and another $906 million of multifamily loans with a weighted average yield of four 8% facing the same decision in 2027.
Speaker Change: Loan repricing volumes are lower in 2025, but looking ahead to the volume of repricing, we see on the horizon when coupled with CD maturities that do occur we are optimistic about the opportunity and flexibility. This provides.
Speaker Change: On slide eight we noted the maturity schedule and rates for our remaining brokered Cds, which when coupled with reductions in both the held for sale and held for investment and multifamily portfolios will reduce drag on the margin to the extent any balances are needed for a short period to support the balance sheet transition the deposit repricing alone would also be.
James Britton: To the extent any balances are needed for a short period to support the balance sheet transition, the deposit repricing alone would also benefit the broker. However, as we proceed through the year and make progress on exiting the Loans Helped for Sale portfolio, we do expect to be able to allow the brokered CD portfolio to mature without replacing. Total non-interest income during the quarter was $19.6 million, including a $4.7 million gain on the sale of securities resulting from repositioning the available-for-sale portfolio and a $2.8 million net gain on a favorable change in the held-for-sale portfolio's valuation allowance and the swap we executed earlier in the quarter to hedge the valuation allowance's sensitivity to market rates.
Speaker Change: Thats a margin.
Speaker Change: However, as we proceed through the year and make progress on exiting the loans held for sale portfolio. We do expect to be able to allow the broker CD portfolio to mature without replacement.
Speaker Change: Total noninterest income during the quarter was $19 6 million, including a $4 $7 million gain on the sale of securities, resulting from repositioning the available for sale portfolio and a $2 8 million net gain on a favorable change in the held for sale portfolios valuation allowance and the swap we execute.
Speaker Change: Earlier in the quarter to hedge the valuation allowances sensitivity to market rates.
James Britton: Adjusting for these two items, non-interest income was stable compared to the fourth quarter. Wealth and trust-related fees were $8.9 million, compared to $9.3 million. Performance losses and terminations impacted the quarter, but we remain optimistic about our wealth and trust pipelines. And as Todd noted, you see the potential for improved client engagement and greater earnings contribution in the future. Moving to non-interest expense, outside of customer service costs, remaining categories totaled $46.7 million for the first quarter, a 5% reduction relative to the fourth quarter of 2024's $49.2 million. The largest contributor to the sequential decline was a reduction in occupancy and equipment costs of $2 million, driven largely by the fourth quarter's $1.1 million software development cost write-off.
Speaker Change: Adjusting for these two items noninterest noninterest income was stable compared to the fourth quarter wealth and trust related fees were $8 9 million compared to $9 3 million performance losses, and terminations impacted the quarter, but we remain optimistic about our wealth and trust pipelines and as Tom noted you see the.
Speaker Change: For improved and client engagement and greater earnings contribution in the future.
Speaker Change: Moving to noninterest expense outside of customer service costs remaining categories totaled $46 7 million for the first quarter, a 5% reduction relative to the fourth quarter of 2024 to $49 2 million.
Speaker Change: The largest contributor to the sequential decline was a reduction in occupancy and equipment costs of $2 million driven largely by the fourth quarter's $1 1 million software development cost write off.
James Britton: Compensation and benefits expense of 25.1 million dollars moderated slightly compared to the fourth quarter, but was up 29% compared to the year ago. As we started 2025, we saw the normal impacts from seasonal items, such as payroll taxes and annual salary adjustments, but I would also note the year-over-year change reflects investments we are making to bring in talent and retain the institutional knowledge needed to organize around our strategic initiatives and strengthen the company going forward. We are remaining diligent around expense growth, but we would expect compensation and benefits to reset to these levels near term as we continue investing in transitioning the organization to our new business mix.
Speaker Change: Compensation and benefits expense of $25 $1 million moderated slightly compared to the fourth quarter, but was up 29% compared to the year ago quarter.
Speaker Change: As we started 2025, we saw the normal impacts from seasonal items, such as payroll taxes and annual salary adjustments, but I would also note the year over year change reflects investments, we are making to bring in talent and retain the institutional knowledge needed to organize around our strategic initiatives and strengthen the company going forward.
Speaker Change: We're remaining diligent around expense growth, but we would expect compensation and benefits to reset to these levels near term as we continue investing in transitioning the organization to our new business mix.
James Britton: Customer service costs totaled $15.1 million for the quarter, compared to $17.8 million in the prior quarter and $10.7 million in the year-ago quarter. The decrease in customer service costs from the prior quarter was due to both a decrease in rates and a decrease in average balance. The Decrease in Rates reflects the full quarter benefit of the declines in the Fed Funds Target Rate in the fourth quarter, and as we have noted, it is normal to see some modest seasonal outflow during the first quarter. Provision for credit losses was significantly lower this quarter, declining to $3.4 million from the $20.6 million we reported in the fourth.
Speaker Change: Customer service costs totaled $15 1 million for the quarter compared to $17 8 million in the prior quarter and $10 7 million in the year ago quarter. The decrease in customer service costs from the prior quarter was due to both a decrease in rates and a decrease in average balances.
Speaker Change: The decrease in rates reflects the full quarter benefit of the declines in the fed funds target rate in the fourth quarter and as we've noted it is normal to see some modest seasonal outflow during the first quarter.
Speaker Change: Provision for credit losses was significantly lower this quarter declining to $3 4 million from the $20 6 million, we reported in the fourth as Tom mentioned, our ACL increased five basis points to 46 basis points.
James Britton: As Tom mentioned, our ACL increased five basis points to 46 basis points. and we remain focused on reviewing our CECL methodology. and prepared to make adjustments as necessary to maintain confidence in our processes and controls going forward. Switching to First Foundation's financial condition, our balance sheet remains well capitalized with a 10.6% consolidated common equity Tier 1 ratio and an 8.1% Tier 1 leverage ratio. We also are operating with ample liquidity with nearly $3.7 billion of borrowing capacity and cash balances, which compares favorably to our uninsured and uncollateralized deposits of $1.7 billion. Coverage Ratio of Over 2X.
Speaker Change: And we remain focused on reviewing our seasonal methodology.
Speaker Change: And prepared to make adjustments as necessary to maintain confidence in our processes and controls going forward.
Speaker Change: Switching the first foundations financial condition, our balance sheet remains well capitalized with a 10, 6% consolidated common equity tier one ratio and an eight 1% tier one leverage ratio.
Speaker Change: We also are operating with ample liquidity with nearly $3 $7 billion of borrowing capacity in cash balances, which compares favorably to our uninsured and uncollateralized deposits of $1 7 billion of.
Speaker Change: The coverage ratio of over two acts.
James Britton: Tangible book value as adjusted for the conversion of our remaining preferred shares to common grew to $9.42 per share from $9.36 per share in the prior quarter.
Speaker Change: Tangible book value as adjusted for the conversion of our remaining preferred shares to common grew to $9 42 per share from $9 36 per share in the prior quarter.
James Britton: Slide 17 provides more detail.
Speaker Change: Slide 17 provides more detail.
James Britton: Before I call back to Tom, I also wanted to provide some thoughts about First Foundation's intermediate financial outlook, particularly given all the strategic updates we've discussed the past two quarters. Overall, we are optimistic about the financial future of First Foundation over the next 12 to 36 months. From a balance sheet perspective, we expect to see a modest reduction in total assets over the intermediate term as we work to reduce our loans held for sale to zero from $1.3 billion today, bringing down our CRE concentration and reducing our broker deposit mix towards a more normalized level.
Speaker Change: Before handing the call back to Tom I also wanted to provide some thoughts about first foundation to intermediate financial outlook, particularly given all the strategic updates we've discussed the past few quarters.
Speaker Change: Overall, we are optimistic about the financial future of first foundation over the next 12 months to 36 months from.
Speaker Change: From a balance sheet perspective, we expect to see a modest reduction in total assets over the intermediate term as we work to reduce our loans held for sale to zero from $1 3 billion today, bringing down our CRE concentration and reducing our broker deposit mix towards a more normalized level.
James Britton: We anticipate continued margin expansion, although we've emphasized that the opportunities to reprice our loan portfolio will take time. More specifically, we expect an exit run rate for net interest margin in the fourth quarter of 2025 between 1.8 and 1.9 percent, with further improvement to 2.1 to 2.2 percent by the end of 2026. to the extent the Fed reduces rates more than we are anticipating, that could accelerate some of our expected margin improvement with deposits possibly repricing faster than we are currently modeling. And lastly, we expect to see positive growth trends in our core fee income, while also remaining focused on limiting incremental expense growth from here to focused investments directly benefiting our transition.
Speaker Change: We anticipate continued margin expansion, although we would emphasize that the opportunities to reprice, our loan portfolio will take time.
Speaker Change: More specifically, we expect an exit run rate for net interest margin in the fourth quarter of 2025 between one eight and one 9% with further improvement in two 1% to two 2% by the end of 2020 to the extent the fed reduces rates more than we are anticipating that could accelerate some of our expected margin improvement with the pause.
Speaker Change: Possibly repricing faster than we're currently modeling.
Speaker Change: And lastly, we expect to see positive growth trends in our core fee income. While also remaining focused on limiting incremental expense growth from here to focused investments directly benefiting our transition.
Thomas Shafer: And with that, I'll now turn it back over to Tom for his closing remarks. Thanks, Jamie. I'm pleased with the progress we made during the first quarter. As we look ahead, we continue to remain optimistic that our performance can significantly improve in a variety of economic scenarios. We are well capitalized, have plenty of liquidity, strong credit quality and have multiple levers to materially improve profitability over the next two to three years. We are laser focused on unlocking the embedded value in the First Foundation franchise by executing on our relationship focused initiatives in Florida and California.
Tom: And with that I'll now turn it back over to Tom for his closing remarks.
Tom: Thanks, Jami I am pleased with the progress we made during the first quarter as.
Speaker Change: As we look ahead, we continue to remain optimistic that our performance can significantly improve.
Speaker Change: Variety of economic scenarios, we are well capitalized plenty of liquidity and strong credit quality and have multiple levers to materially improve profitability over the next two to three years, we're laser focused on unlocking the embedded value in the first foundation franchise by executing on our relationship focused initiatives in Florida, and California. This concludes our <unk>.
Thomas Shafer: This concludes our prepared remarks.
Operator: Operator, would you please begin the question and answer session?
Speaker Change: Remarks, operator would you. Please begin the question and answer session. Thank you.
Speaker Change: Yes.
Operator: Operator, could we begin to take questions, please? Yes, thank you. We will now begin the question and answer session.
Speaker Change: Operator can we begin to take questions. Please.
Speaker Change: Yes. Thank you we will now begin the question and answer session. If you have dialed in and we would like to ask a question. Please press star one on your telephone keypad to raise your hand and join the queue. If you will.
Operator: If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again.
Speaker Change: That can withdraw your question simply press Star one again.
Operator: If you are called upon to ask your question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question.
Speaker Change: You are called upon to ask a question in our listening via loudspeakers Dubai. Please pickup your handset and ensure that your phone is not on mute when asking your question.
David Feaster: And your first question comes from the line of David Feaster with Raymond James. Please go ahead. Hey guys, good morning. This is Liam on for David. Hey, Liam. Good morning. Morning. So just wanted to ask, you know, C&I loan fundings have really helped lead the way.
Speaker Change: And your first question comes from the line of David Feaster with Raymond James. Please go ahead.
Speaker Change: Hey, guys. Good morning. This is Lee I'm on for David.
Speaker Change: Hey, good morning, good morning.
Speaker Change: So just wanted to ask.
Speaker Change: C&I loan fundings have really helped lead the way.
Thomas Shafer: How have utilization rates trended thus far in 2025? And have you seen any broader uncertainty having an impact on those utilization levels? Yeah, I think that, you know, the conversation around utilization and and hesitancy is out there, the, you know, feedback from clients and, and our commercial team is that there is, there is some hesitancy, as it's, it's a good word with the economic backdrop that we have today, for capital expenditures. We have seen actually some clients accelerate inventory purchases with the uncertainty of the trade conversations.
Speaker Change: The utilization rate has trended thus far in 2025 and have you seen any broader uncertainty having an impact on those utilization levels.
Speaker Change: Yes, I think that.
Speaker Change: Conversation around utilization.
Speaker Change: Hesitancy is out there.
Speaker Change: Feedback from clients.
Speaker Change: And our commercial team is that there is there is some hesitancy as it is a good word with the economic backdrop that we have today for capital expenditures.
Speaker Change: We have seen actually some clients accelerated inventory purchases with the uncertainty of the trade conversations. So it's it's a mix, it's a little bit of a mixed story.
Thomas Shafer: So it's, it's a mixed, it's a little bit of a mixed bag. I appreciate the color there.
Speaker Change: I appreciate the color there.
Thomas Shafer: Then on the expense side, you talked about your efforts to build out the franchise and hire some new teams. I noticed FTEs increased by about 2% sequentially. Did you invest in any particular markets in OneCue? And what level of production do you anticipate from those individuals in 2025? Yeah, so we've added a couple people in the Florida market. And we, you know, we're optimistic about that area in the economy, specifically in the commercial side.
Speaker Change: And then on the expense side, you talked about your efforts to build out the franchise and hire some new teams I know.
Speaker Change: Ftes increased by about 2% sequentially.
Speaker Change: Did you invest in any particular markets in <unk> and what level of production do you anticipate from those individuals in 2025.
Speaker Change: Yes, so we've added people in the Florida market.
Speaker Change: And.
Speaker Change: We're optimistic about that area and the economy, specifically in the commercial side and.
Thomas Shafer: And, you know, it's, I would say in 2025, modest, you know, individual performance based upon, you know, joining the organization first year, but, but, you know, additive, you know, most of the production will come out of California at this point, and we're focused obviously on Southern California and in the Florida markets on the commercial. Thank you. I appreciate that.
Speaker Change: I would say in 2025 modest.
Speaker Change: Individual performance based upon.
Speaker Change: Joining the organization first year, but but.
Speaker Change: No.
Speaker Change: <unk>.
Speaker Change: Most of the production will come out of California at this point and we're focused obviously on southern California and in the Florida markets on the commercial side.
Speaker Change: Thank you I appreciate that and then last one for me.
Thomas Shafer: The last one for me. You know that AUM declined in this quarter. Is that more due to the fluctuations in customer account balances? And how is new customer acquisition in the advisory business broadly? We're very optimistic about the pipeline, Liam. We did have some, excuse me, some terminations, which is normal. through the quarter. We had a little bit of turnover from some lower-performing teammates, but we're very optimistic about the pipeline going forward. We expect a little bit of volatility as we move forward from the market, but I think, like everyone, are holding pat for now before jumping to any conclusions about where that could go.
Speaker Change: Did that AUM declined in this quarter is that more due to fluctuations in customer account balances and how is new customer acquisition and the advisory business broadly.
Speaker Change: But we're very optimistic about the pipeline we did have some excuse me some terminations which is normal.
Speaker Change: Through it through the quarter.
Speaker Change: We had a little bit of turnover.
Speaker Change: From some lower performing.
Speaker Change: Teammates.
Speaker Change: But we're very optimistic about.
Speaker Change: The pipeline going forward.
Speaker Change: We expect a little bit of volatility as we move forward from the market.
Speaker Change: But we I think like everyone are holding Pat for now before.
Speaker Change: And jumping to two.
Speaker Change: Any conclusions about where that could go very optimistic about the business, though but the market fluctuations added impact on on that.
Thomas Shafer: I'm very optimistic about the business, though, but the market fluctuations had an impact. Appreciate the color there. Thank you so much. I'll step back.
Speaker Change: I appreciate the color there. Thank you so much I'll step back.
Speaker Change: You bet.
Gary Tenner: Your next question comes from Gary Tenner with D.A. Davidson. Please go ahead. Thanks. Good morning. I wanted to ask a question regarding the NIM kind of outlook on slide 10. I guess two questions. One, what rate environment does that assume in terms of the Fed? It may just be the forward curve, but you could tell us otherwise. And then other than the held for sale dispositions impacting the size of the balance sheet, just any other context you could put around the balance sheet size or mix relative to your outlook there?
Speaker Change: Your next question comes from Gary Tenner with D. A Davidson. Please go ahead.
Gary Tenner: Hi, Thanks, Good morning, I wanted to ask a question regarding the NIM kind of outlook on slide 10, I guess two questions. One what rate environment does that assume in terms of the fed it may just be the forward curve, but you could tell us otherwise and then.
Speaker Change: Other than the.
Speaker Change: Held for sale just dispositions impacting the size of the balance sheet just any other context, you can put around the balance sheet size or mix relative to your outlook there.
James Britton: Hey, good morning, Gary. Thanks for the for the question. I think we're remaining fairly conservative on the rate outlook. You know, from what we've been monitoring over the last several, several weeks, the outlook bounces from three to four rate cuts in 25. I think I even saw five at one point pop in there. We're, we're assuming only two rate cuts in 25. and I think we've got in there a total of six over the remaining horizon through the end of 2027. As you know, that can, that can change at a moment's notice. But we're, I'd say we're Slightly conservative to in line with the curve longer term, but a bit more conservative short term.
Gary Tenner: Hey, good morning, Gary Thanks for the question I think we are remaining fairly conservative on the rate outlook.
Gary Tenner: From what we've been monitoring over the last several several weeks.
Gary Tenner: The outlook balances from three to four rate cuts in 25, I think I, even saw five at one point pop in there where we're assuming only two rate cuts in 'twenty five and I think we've got in there a total of six over the over the remaining horizon through the end of 2000.
Gary Tenner: 97%.
Gary Tenner: As you know that can.
Gary Tenner: That can change at a moment's notice but I.
Gary Tenner: I'd say were.
Gary Tenner: Slightly conservative to inline with with the curve longer term, but.
Gary Tenner: Bit more conservative short term.
James Britton: In terms of the balance sheet mix, we do have the dispositions as you mentioned, and as Tom mentioned in his prepared remarks, we expect to move through the process of getting those balances off the balance sheets this year in 2025. We'll continue to support the earning asset base as necessary to be able to fund investments that we need. And we think that that there could be opportunities to grow commercial, to grow consumer as we bring in new teammates, for instance, in Florida. But primarily, in 2025, there's really just the organic transformation of the balance sheet with the dispositions driving the NIM improvement from here.
Gary Tenner: In terms of the balance sheet mix, we do have the dispositions as you mentioned and as Tom mentioned in.
Gary Tenner: In his prepared remarks, we expect to.
Gary Tenner: Move through the process of getting those balances off the balance sheet this year and 2025.
Gary Tenner: Well, we will continue to support.
Gary Tenner: The earning asset base as necessary to be able to fund investments that we need and we think that.
Gary Tenner: That there could be opportunities to to grow commercial too.
Gary Tenner: To grow consumer.
Gary Tenner: As we as we bring in new teammates for instance in Florida.
Gary Tenner: But primarily in 2025 there is there is really just the organic trends.
Gary Tenner: The transformation of the balance sheet.
Gary Tenner: With with the dispositions driving the NIM improvement from here.
James Britton: Okay, great. Thank you.
Gary Tenner: Okay, great. Thank you and then second question in terms just in terms of expense I'm sorry.
James Britton: And then second question, just in terms of expense, oh, sorry, we've Unknown Attendee Okay. On the expense side, in terms of the efforts to remediate some of the internal control issues that you've highlighted in the K, any expense impact this quarter or projected going forward? I think you'll see some professional service expenses from time to time, nothing I'd say significant, but you will see pockets of some professional service expenses as we bring in some expertise to help us accelerate through the transition.
Gary Tenner: No.
Gary Tenner: Go ahead okay.
Gary Tenner: On the expense side in terms of the efforts to remediate some of the internal control issues that you've highlighted in the K any any expense impact this quarter or.
Gary Tenner: <unk> going forward.
Gary Tenner: I think youll see some professional service expenses from time to time.
Gary Tenner: Nothing.
Gary Tenner: I would say.
Speaker Change: Significant but you will see pockets of some professional service expenses as we.
Speaker Change: As we bring in some expertise to help us accelerate through the transition and I think we made it clear that we see a lot of opportunity in the franchise.
James Britton: I think we made it clear that we see a lot of opportunity in the franchise, we want to try to get to the point where our internal controls are in our processes and our capabilities are consistent with our size and complexity, and we want to do that as fast as possible so that we can really shift all efforts towards growing the business. So we will bring in some expertise as necessary to accelerate that. As I mentioned, we're also investing in some teammates that will help us drive that transition and better manage the bank going forward, but in the expense line, you will see some blip from professional services here and there just to help us work through that.
Speaker Change: Wanted to try to get to the point, where our internal controls are.
Speaker Change: Our and our processes and our capabilities are consistent with our size and complexity, we want to do that as fast as possible. So that we can.
Speaker Change: Really shift all efforts towards growing the business.
Speaker Change: So we will bring in some expertise as necessary to accelerate that.
Speaker Change: As I mentioned, we're also investing in some teammates that will help us.
Speaker Change: Drive that transition in and better manage the bank going forward, but.
Speaker Change: But in the in the expense line.
Speaker Change: We'll see some some blood from professional services here and there.
Speaker Change: To help us work through that.
James Britton: Got it. Thank you. You bet.
Speaker Change: Got it thank you.
Speaker Change: You bet.
Andrew Terrell: Your next question comes from Andrew Terrell with Stevens Inc. Please go ahead. Hey, good morning.
Speaker Change: Your next question comes from Andrew <unk> with Stephens, Inc. Please go ahead.
Jackson Lorraine: Hey, Good morning. This is Jackson Lorraine on for Andrew Terrell.
James Britton: This is Jackson Laurent on for Andrew Terrell. Good morning. If I could just start off on expenses, you guys are I appreciate the color on the comp line item with the with the elevation over the last two quarters. And you touched about normalization going forward. And I was just wondering if you could kind of quantify the seasonal impact you guys saw in one cue on that line item, and then would appreciate any additional color on how you expect that to trend throughout the year with the investments you guys are making currently. Thank you. Oh, sure.
Speaker Change: Good morning, Hey, Jackson.
Speaker Change: If I could just start off on expenses.
Speaker Change: You guys I appreciate the color on the comp line item.
Speaker Change: With.
Speaker Change: With the elevation over the last two quarters and you touched about normalization going forward and I was just wondering if you could kind of quantify the seasonal impact you guys saw on <unk> on that line item and then I would appreciate any additional color on how you expect that to trend throughout the year with the investments you guys are making currently.
Speaker Change: Sure Great question.
James Britton: Great question. You know, I think some of the changes or some of the actions that we took in the fourth quarter, for instance, you know, I think the important decision to fund the non-executive annual bonus pool, very important decision for us, but that did have some tail in the first quarter as it led to additional payroll taxes, additional 401k match expense, et cetera. I think all in from the seasonal items, it was about a million and a half, I'd say is a good number for that. And as you know, that starts to trend down almost immediately as you proceed into the second and then through the rest of the year.
Speaker Change: I think some of the changes or some of the actions that we took in the fourth quarter for instance.
Speaker Change: I think the important decision to to fund the nonexecutive annual bonus pool.
Speaker Change: Very important decision for us, but that did have some tail in the first quarter as they are it led to additional payroll taxes additional 401k.
Match expense et cetera.
Speaker Change: I think all in from the seasonal items there was about one.
1 million and a half, let's say of the good a good number for that and as you know that that starts to trend down almost immediately as you proceed into the second and then through the rest of the year.
James Britton: As the other items, some of the things that we've invested in to bring in new teammates, to bring in expertise and retain the institutional knowledge necessary to drive the transition, those are not one-time events, meaning they only impact one quarter, but they are limited in their impact on the financials. They just take a little longer to chew through. As we do work those down and those normalize back to really just sort of base numbers, we will at the same time be investing in growth and making sure that we're continuing to bring in new bankers in our markets in California and Florida.
Speaker Change: Yes.
Speaker Change: The other items.
Speaker Change: The things that we've invested in to bring in new teammates.
Speaker Change: To bring in expertise and retain the institutional knowledge necessary to.
Speaker Change: The transition those are.
Speaker Change: They are not one time events, meaning they only impact one quarter, but they are.
Speaker Change: They are limited in.
Speaker Change: <unk>.
Speaker Change: And their impact on the on the financials. They just take a little longer to chew through as we as we do work those down and those.
Speaker Change: Those normalized back to really just our base numbers, we will at the same time being investing in growth and making sure that we're continuing to bring in new bankers and.
Speaker Change: Our markets in California, and Florida, we're making sure that we bring in folks that can help us build out.
James Britton: So we're making sure that we bring in folks that can help us build out a private banking capability to partner with our wealth and trust businesses to drive more contribution there. So we are obviously focused on profitability, so we'll remain diligent with our expense growth. But at the same time, we do want to make sure that we're making the investments necessary to drive longer-term value and get the organization or unlock the potential that we know is here.
Speaker Change: Private banking capability to partner with our wealth and trust businesses to.
Speaker Change: To drive more contribution there. So we are we are.
Speaker Change: Obviously focused on profitability. So we'll remain diligent with our expense growth, but at the same time, we do want to make sure that we're making the investments necessary to drive longer term value in and.
Speaker Change: Get the organization are unlocked.
Speaker Change: The potential that we that we noticed here.
James Britton: Great. That's very helpful. Thank you.
Speaker Change: Great. That's very helpful. Thank you.
James Britton: And then if I could just switch over to the margin and kind of the puts and takes of the 180 to 190 4Q25 exit NIM. That deck on slide 10 or that deck on page 10 is very helpful. And you guys obviously have the brokered CD benefit as well as the natural multifamily repricing that becomes more material in 2026. And kind of the last factor that you guys put down was the commercial growth. And it looked like new funding yields came down pretty hard quarter over quarter. So I was just wondering what you guys are seeing from a competition standpoint for new CNI loans and if you guys are seeing any pricing pressure from competitors right now.
Speaker Change: And then if I could just switch over to the margin and kind of the puts and takes of the 180 to 190 <unk> 25.
Speaker Change: NIM.
Speaker Change: Bad debt.
Speaker Change: Slide 10 is our that deck on page 10 is very helpful.
Speaker Change: And you guys, obviously have the brokerage CD benefit as well as the natural multifamily repricing that becomes.
Speaker Change: All our material in 2026 and kind of the last factor that you guys put downwards.
Speaker Change: The commercial growth and it looks like new funding yields came down pretty hard quarter on quarter over quarter. So I was just wondering what you guys are seeing from a.
Speaker Change: Competition standpoint for new C&I loans, and if you guys are seeing any pricing pressure from competitors right now.
Thomas Shafer: I'd say that the, you know, with the... You know, with the, I'd say, not slowing, but you know, people are being careful out there. So there is competition for transactions. We're seeing it in in all of our markets right now. But it with $180 million of fundings, it's, it's, you know, we're building, we're building our pipelines there. And it's probably more deal centric than larger trends.
Speaker Change: I would say that the.
Speaker Change: With.
Speaker Change: With the.
Speaker Change: I'd say.
Speaker Change: Slowing but people are being careful out there. So there is competition for transactions, we're seeing it in all of our markets right now but.
Speaker Change: With the $180 million of fundings.
Speaker Change: We're building we're building.
Speaker Change: Our pipelines there.
Speaker Change: It's probably more deal centric than larger trends.
Unknown Attendee: Unknown Attendee Understood. Great, thank you.
And if I understood.
Speaker Change: Great. Thank you.
Unknown Attendee: And then just lastly, on credit, very impressive credit quarter, non accruals came down pretty nicely.
And then just lastly on credit very impressive credit quarter.
Speaker Change: Non accruals came down pretty nicely.
Thomas Shafer: With what has happened over the last month and a half in the uncertainty in the market currently, and just the conversations that you've been having with your borrowers, is there any credit bucket that you guys are keeping a closer eye on going forward? I think, you know, Jay, as, you know, there's questions about the economy, I think you've got to be very careful and thoughtful about the credit portfolios, you know, and noted my comments were, you know, the stress testing of kind of the fixed rate portfolio and making sure that we're being thoughtful about, you know, repricing impact and what we're going to keep on our balance sheet.
Speaker Change: With what has happened over the last month and a half and then certainty in the market currently.
Speaker Change: Just the conversations that you've been having with your borrowers is there any credit bucket that you guys are keeping a closer eye on going forward.
Speaker Change: I think she is.
Speaker Change: Is there is questions about the economy I think you've got to be very careful and thoughtful about the credit portfolios.
Speaker Change: Noted my comments were the stress testing.
Speaker Change: Kind of the fixed rate portfolio to make sure that were being.
Speaker Change: Thoughtful about.
Speaker Change: Repricing impact and what we're going to keep on our balance sheet.
Speaker Change: <unk>.
Thomas Shafer: The CRE portfolio continues to perform extraordinarily well, but, you know, we're being thoughtful about stress testing in the kind of the next environment for these assets. I think we all need to just keep an eye on the larger economy and where that goes at this point. But I'd say the performance of our portfolios has been very strong and we continue to believe that we've got a strong credit portfolio. Understood.
Speaker Change: The CRE portfolio continues to perform extraordinarily well.
Speaker Change: But we're being we're being thoughtful stress testing and the kind of the next environment for these for these assets.
Speaker Change: I think we all need to just keep an eye on the larger economy and and.
Speaker Change: And where that goes at this point, but I'd say the performance of our portfolios has been very strong and we continue to believe that we've got a strong credit portfolio.
Speaker Change: Understood. That's all I had thank you for taking the questions.
Unknown Attendee: That's all I had. Thank you for taking the questions.
Speaker Change: Yes.
Adam Butler: The next question comes from Adam Butler with Piper Center. Please go ahead. Hey everybody, this is Adam on for Matthew Clark. Thanks for taking the questions. Just first on the expense side of things, I noticed in the segmented expenses that wealth management I know that the FTE count also came up, so I was just curious. with wealth management-related revenue kind of stable, why that went up, and if the FTE hires maybe was the reason behind that.
Speaker Change: The next question comes from Adam Butler with Piper Sandler. Please go ahead.
Adam Butler: Hey, everybody. This is Adam on for Matthew Clark.
Speaker Change: Thanks for taking my questions.
Speaker Change: Just first on the expense side of things I noticed in the segmented expenses that.
Speaker Change: Wealth management.
Speaker Change: Related expenses stepped up I think around $2 5 million I know that the FTE count also came up so I was just curious.
Speaker Change: With revenue with wealth management related revenue kind of stable why that went up in the FTE hires maybe was the reason behind that.
James Britton: Good morning, Adam. Some of that was just the seasonal items, and then we did... We did have some. annual compensation expense related there as well. I would expect that to Part of it will continue for the next several quarters as as that expense accrues over time, but a portion of it was one-time, let's say a meaningful portion of it was one-time expense that should normalize going forward. Okay, that's helpful.
Speaker Change: Some of that good morning, and some of that was just the seasonal items.
Speaker Change: And then we did.
Speaker Change: We did have some.
Speaker Change: Annual compensation expense related there as well I would expect that.
Speaker Change: That too.
Speaker Change: Part of it will continue for the next several quarters as.
Speaker Change: As.
Speaker Change: Is that expense accrues over time, but a portion of it.
Speaker Change: But a portion of it was onetime let's say a meaningful portion of it was onetime.
Speaker Change: One time expense that should normalize going forward.
Speaker Change: Okay. That's helpful and then.
James Britton: And then I guess just overall, like, maybe like a run rate guide, including customer service costs, how you're thinking about that overall run rate for expenses going forward. And given probably the conservative outlook of two cuts. that you have in the NIM guide. Yeah, if you don't mind, I'd like to break those apart. I mean, in addition to the NIM guidance, which does not, by the way, include the customer service cost component, the customer service costs will come down along with market rates. So we've, as I mentioned, assumed two cuts, so we would expect that to come down.
Speaker Change: I guess just overall.
Speaker Change: Maybe like a run rate guide, including customer service costs, how youre thinking about that overall run rate for expenses going forward.
Speaker Change: And given probably the conservative outlook of two cuts.
Speaker Change: That you have in the NIM guide.
Speaker Change: Yes.
Speaker Change: Don't mind I'd like to break those apart.
Speaker Change: In addition to the to the NIM guidance, which does not by the way include the customer service cost component.
Speaker Change: The customer service costs will come down.
Speaker Change: Long with market rates. So as I mentioned is in <unk>. So we would expect that to come down.
James Britton: Ending the quarter, we had, you know, call it $1.3 billion. We got that broken out on slide. Sorry, Adam. That's available on Unknown Speaker On slide. So we had a little over a billion in MSR deposits, and there's another, call it 250, 300 million or so in other customer service cost-related deposits. But the Fed rate cuts will almost immediately reduce customer service costs with those clients. I'd say in addition to that, as we continue to see, as we continue to make progress on reducing our CRE concentration, for instance, selling or securitizing the health for sale portfolio, in addition to focusing on broker deposits, we're also focused on reducing reliance on concentrated high-cost deposits, and some of that will, some of that focus and those will lead to reduced balances in the customer service cost portfolio.
Speaker Change: Ending the quarter, we had call it $1 three.
If we got that broken out on slide.
Adam Butler: Sorry, Adam.
Speaker Change: That's available on.
Adam Butler: On slide.
Adam Butler: Slide eight.
Adam Butler: So we had a little over $1 billion and MSR deposits and theirs.
Adam Butler: Another call it $250 $300 million or so and other customer service costs related deposits, but the the fed rate cuts will.
Adam Butler: Almost immediately reduce customer service cost with those clients I would say in addition to that as we continue to see.
Adam Butler: As we continue to make progress on reducing our CRE concentration for instance, selling or securitizing. The held for sale portfolio. In addition to focusing on broker deposits were also focused on reducing reliance on concentrated.
Adam Butler: High cost deposits and some of <unk>.
Adam Butler: Some of that will some of that focus and those efforts will really roll.
Adam Butler: Lead to reduce balances in the customer service cost portfolio.
James Britton: more generally. So customer service costs will come down because of both of those levers. In the rest of the expense base, as I mentioned before, there may be pockets of expense that we'll see on the professional service line as we work to transition some of the more complex processes and capabilities and get those up and running more quickly. But overall, I would expect the expense level to remain, outside of customer service costs, to remain relatively stable to slightly declining over time. But there could be, you know, again, just pockets of investment that we'll see in order to accelerate and facilitate the transition.
Adam Butler: More generally so so customer service costs will come down because of both of those levers in the rest of the expense base.
Adam Butler: Yes, as I mentioned before.
Adam Butler: There may be <unk>.
Adam Butler: Market of expense that we will see on the professional service line as we work to transition some of the more.
Adam Butler: Complex processes and capabilities and get those up and running more quickly.
Adam Butler: But overall I would expect the expense level to remain outside of customer service cost to remain.
Adam Butler: Relatively stable to slightly declining over time.
Adam Butler: But there could be.
Adam Butler: Again, just pockets of of investment.
Adam Butler: We will see in order to to accelerating.
Adam Butler: And facilitate the transition.
James Britton: Okay. I appreciate the color there. That commentary helps with regard to how you guys are thinking about customer service costs going forward and related balances.
Speaker Change: Okay I appreciate the color there.
Adam Butler: That commentary helps with regard to.
Adam Butler: How you guys are thinking about the customer service costs going forward and related balances and then I guess just leaning back over to the NIM I. Appreciate all the color that you guys provided on slide seven eight and 10 and the related.
Adam Butler: And then I guess just leaning back over to the NIM, I appreciate all the color that you guys provided on slides seven, eight, and ten, and your related forward rate outlook. But I was just curious to help with you guys have a spot rate on deposits at the end of the quarter and maybe the average NIM in March? I do have the rate for March monthly average on total deposit or total interest bearing deposits was at 381. which was down from just over 390 monthly average in December, and I believe we are at Call it 435 monthly average in August before the Fed loosening cycle began.
Adam Butler: <unk>.
Adam Butler: Rate outlook, but I was just curious to help with modeling you guys have the spot rate on deposits at the end of the quarter.
Adam Butler: Maybe the average NIM in March.
Adam Butler: I do have.
Adam Butler: The rate for for March monthly average on total deposits. Our total interest bearing deposits was at 381.
Adam Butler: Which.
Adam Butler: Which was down from just over 390 monthly average in December and I believe we are at.
Adam Butler: Call It $4 35 monthly average in August before.
Adam Butler: For the fed.
Adam Butler: Loosening cycle begin.
James Britton: Okay, helpful, helpful.
Adam Butler: Okay helpful helpful and then.
James Britton: And then just one more for me on the loan balance side of things. I know that you guys are in the process of replacing lower yielding multifamily with higher yielding C&I production. I was just curious how you guys are thinking about overall loan balances going forward, maybe three years. And I know it's hard to predict. How C&I production will come in just given the uncertain macroeconomic conditions, but just some help on how you're thinking about overall loan balances going forward. Well, we're certainly want to drive the mix. Taking the the help for sale portfolio aside.
Adam Butler: Just one more for me.
Speaker Change: On the loan balance side of things I know that you guys are in the process of replacing lower yielding multifamily with higher yielding C&I.
Chen: <unk> Chen.
Adam Butler: I was just curious how you guys are thinking about.
Adam Butler: Overall loan balances going forward, maybe through year end I know, it's hard to predict.
Adam Butler: How C&I production will come in just given the uncertain.
Adam Butler: Macroeconomic conditions, but just.
Adam Butler: Just some help on how you're thinking about overall loan balances going forward.
Adam Butler: While we certainly want to drive the mix.
Adam Butler: Taking the held for sale portfolio aside.
James Britton: I would expect us to see modest growth over time. We'll continue to focus on levers we can pull to reduce the CRE concentration. So the existing multi-family book, even outside of help for sale, we would expect to see some contraction there over the coming years. The municipal portfolio, we're not in the process of seeking new opportunities there, so I would expect some, albeit slow, some amortization on that book, which is between $900 and $1 billion. I'd expect to see continued reduction in the equipment finance portfolio, which is just over $100 million. That'll continue to come down over time since we've, for all intents and purposes, exited that business.
Adam Butler: I would expect us to see modest growth over time, we will continue to.
Adam Butler: We'll continue to focus on levers, we can pull to reduce CRE. The CRE concentration so the existing multifamily book even outside of held for sale, we would expect to see some contraction there over the coming years.
Adam Butler: The.
Adam Butler: The municipal portfolio.
Adam Butler: We're not in.
Adam Butler: And in the process of seeking new opportunities there so I would expect some.
Adam Butler: Albeit slow some amortization on that book, which is.
Adam Butler: Between 900, and a $1 billion.
Adam Butler: The $1 I would expect to see continued reduction in the equipment finance portfolio.
Adam Butler: Which is just just over $100 million that'll continue to come down over time.
Adam Butler: Since we have for all intents and purposes exited.
Adam Butler: Exited that business.
Unknown Attendee: And then as we as we invest in new CNI bankers as we as we start to Unknown Attendee, Robert Terrell, James Britton, First Foundation Inc. Unknown Attendee, Robert Terrell, James Britton, First Foundation Inc, Unknown Attendee, Robert Okay, yeah, no, I appreciate the various dynamics that are going on there and thanks for the help there. Those were all my questions. Appreciate it. Okay, thank you.
And then as we as we invest in a new C&I bankers as we as we start.
Adam Butler: To organize around our new our private banking initiative there'll be some opportunities there.
Adam Butler: I expect to see some growth in the other portfolios.
Adam Butler: But.
Adam Butler: As you as you think about that transition I think we're adding density to the to the loan portfolio overtime and stronger stronger yielding.
Adam Butler: Stronger yielding portfolios.
Adam Butler: But because of the transition out of CRE and some of our legacy.
Adam Butler: Legacy assets.
Adam Butler: The growth in the loan portfolio will be relatively modest over the next two and a half years.
Adam Butler: Okay, Yes.
Adam Butler: I appreciate the various dynamics that are going on there. Thanks, thanks for the help there.
Adam Butler: We are all my questions.
Adam Butler: I appreciate it.
Adam Butler: Okay. Thank you.
Operator: There are no more questions.
Tom: There are no more questions I will now turn the conference back over to Tom for closing remarks.
Thomas Shafer: I will now turn the conference back over to Tom for closing remarks. Thanks for joining us today. Hopefully, this has been helpful. We had a very positive shift in earnings during the first quarter. I think the investment and initiatives that we're making are beginning to show light. And as we reposition the balance sheet, trending out of some of the historical portfolios that are not productive for us today, continue to focus on improving our margin, focused on expense management and profitability. So thanks for your time and questions.
Adam Butler: Okay.
Adam Butler: Thanks for joining us today.
Adam Butler: Hopefully this has been helpful. We had a very positive.
Adam Butler: Shift in earnings during the first quarter I think the investment and the initiatives that we're making are are beginning to show light.
Adam Butler: And as we reposition the balance sheet.
Adam Butler: Trending out of some of the historical portfolios that have.
Adam Butler: Sure.
Adam Butler: Not productive for us today.
Turning to focus on improving our margin focused on expense management profitability. So thanks for your thanks for your time and questions today.
Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining.
Adam Butler: Ladies and gentlemen that concludes today's call. Thank you all for joining you may now disconnect.
Operator: You may now disconnect.
Adam Butler: Yes.
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Adam Butler: [music].