Q1 2025 Bank of Marin Bancorp Earnings Call
Operator: Good morning, and thank you for joining Bank of Marin Bancorp's earnings call for the first quarter ended March 31, 2025.
Good morning, and thank you for joining bank of Marin Bancorp's earnings call for the first quarter ended March 31st 2025, and Crazy Myer Corporate Secretary Rebecca Bryan Dan.
Krissy Meyer: I am Krissy Meyer, Corporate Secretary for Bank of Marin Bancorp. During the presentation, all participants will be in a listen-only mode.
During the presentation, all participants will be in a listen only mode.
Operator: After the call, we will conduct a question-and-answer session.
After the call we will conduct a question and answer session.
Krissy Meyer: Joining us on the call today are Bank of Marin President and CEO Tim Myers and Chief Financial Officer Dave Bonaccorso. Our earnings news release and supplementary presentation, which were issued this morning, can be found in the investor relations section of our website at bankofmarin.com, where this call is also being webcast. Closed captioning is available during the live webcast as well as on the webcast replay.
Tim Myers: Joining us on the call today are bank of Marin, President and CEO, Tim Myers, Chief Financial Officer, Dave but of course that one hour.
Tim Myers: Our earnings news release, and supplementary presentation, which were issued this morning can be found in the Investor Relations section of our website at bank of Marine Dot Com.
Tim Myers: This call is also being webcast.
Tim Myers: Closed captioning is available during the live webcast as well as on the webcast replay.
Krissy Meyer: Before we get started, I want to note that we will be discussing some non-GAAP financial measures. Please refer to the Reconciliation Table in our Earnings News Release for both GAAP and non-GAAP measures.
Tim Myers: Before we get started I want to note that we will be discussing some non-GAAP financial measures.
Tim Myers: Please refer to the reconciliation table in our earnings news release for both GAAP and non-GAAP measures. Additionally.
Krissy Meyer: Additionally, the discussion on the call is based on information we know as of Friday, April 25, 2025, and may contain forward-looking statements that involve risks and uncertainty. Actual results may differ materially from those set forth in such statements. For a discussion on these risks and uncertainties, please review the forward-looking statements disclosure in our earnings news release, as well as our SEC filings.
Tim Myers: Additionally, the discussion on the call is based on information, we know as of Friday April 25th 2025, and May contain forward looking statements that involve risks and uncertainties.
Tim Myers: Actual results may differ materially from those set forth in such statements.
Tim Myers: For a discussion on these risks and uncertainties. Please review the forward looking statements disclosure in our earnings news release as well as our SEC filings.
Krissy Meyer: Following our prepared remarks, Tim, Dave, and our Chief Credit Officer, Misako Stewart, will be available to answer your questions. And now, I'd like to turn the call over to Tim Myers.
Speaker Change: Following our prepared remarks, 10-K, and our Chief Credit Officer, Masako, Stuart will be available to answer your questions.
Ken Meyers: And now I'd like to turn the call over to Ken Meyers.
Tim Myers: Thank you, Krissy.
Speaker Change: Thank you Christie.
Tim Myers: Good morning, everyone, and welcome to our quarterly earnings call. We delivered a solid first quarter, driven primarily by positive trends in our net interest margin and deposit growth, while we continue to effectively manage our expenses at an appropriate normalized run rate. Our improved financial performance and continued benefits from prudent balance sheet management fueled a 36 basis point increase in Q1 year-over-year net interest margin and a 67% improvement in Q1 year-over-year earnings per share growth, which drove tangible book value per share growth in the first quarter. On a broad basis, we continue to have stable asset quality within our loan portfolio with a slight decline in non-accrual loans and an increase in classified loans.
Ken Meyers: Morning, everyone and welcome to our quarterly earnings call.
Ken Meyers: We delivered a solid first quarter, driven primarily by positive trends in our net interest margin and deposit growth. While we continue to effectively manage our expenses at an appropriate normalized run rate.
Ken Meyers: Our improved financial performance and continued benefits from prudent balance sheet management fueled a 36 basis point increase in Q1 year over year net interest margin and a 67% improvement in Q1 year over year earnings per share growth, which drove tangible book value per share growth in the first quarter.
Ken Meyers: On a broad basis, we continue to have stable asset quality within our loan portfolio with a slight decline in nonaccrual loans and an increase in classified loans.
Tim Myers: which was largely driven by two relationships downgraded due to unique issues with each borrower. The decline in non-accrual loans was the result of the proactive sale of an acquired loan due to the rapidly deteriorating financial condition of the borrower and declining collateral value. The loan was placed on non-accrual on Q4 2023 and the sale resulted in a modest charge-off, more than half of which was reserved for in Q4 of 2023. While there is broad macroeconomic concern regarding the impact of economic, fiscal, and trade policies, to date we have not heard of anything within our portfolio that indicates a meaningful amount of increased risk.
Ken Meyers: Which was largely driven by two relationships downgraded due to unique issues with each borrower.
Ken Meyers: The decline in non accrual loans was the result of the proactive sale of an acquired loan due to the rapidly deteriorating financial condition of the borrower and declining collateral values.
Ken Meyers: The loan was placed on non accrual in Q4 2023, and the sale resulted in a modest charge offs more than half of which was reserved for in Q4 of 2023.
Ken Meyers: While there is broad macroeconomic concern regarding the impact of economics, ESCO and trade policies.
Ken Meyers: To date, we have not heard of anything within our portfolio indicates a meaningful amount of increased risk.
Tim Myers: Our banking team, reinforced with two new client-facing bankers in the first quarter, is doing a more consistent job of developing attractive lending opportunities and generating improved loan production while still retaining our disciplined pricing and holding firm on structure and underwriting criteria. While overall loan demand remains fairly consistent due to the efforts of our banking team, we are seeing a larger volume of opportunities within our market. During the quarter, total loan originations were $63 million, including $48 million in new funding. Commercial loan originations were $49 million, with $43 million in fundings, which is a five-fold increase from our level of commercial loan originations in the first quarter of last year.
Ken Meyers: Our banking team reinforced with two new client facing bankers in the first quarter.
Ken Meyers: Doing a more consistent job of developing attractive lending opportunities and generating improved loan production, while still retaining our disciplined pricing and holding firm on structure and underwriting criteria.
Ken Meyers: While overall loan demand remains fairly consistent due to the efforts of our banking team.
Ken Meyers: We are seeing a larger volume of opportunities within our markets.
Ken Meyers: During the quarter total loan originations were $63 million, including 48 million in new fundings.
Ken Meyers: Commercial loan originations were $49 million with $43 million in fundings, which has a fivefold increase from our level of commercial loan originations in the first quarter of last year.
Tim Myers: Our originations were a well-diversified mix of both commercial and commercial real estate loans across geographic markets, industries, and property types. While we had a solid level of loan production in the first quarter, that production was exceeded by payoffs, paydowns, and reduced construction line utilization, which Dave will discuss in greater detail. Our total deposits grew in the first quarter, including an increase in non-interest bearing deposits that kept our overall mix of deposits relatively consistent. with non-interest bearing deposits comprising 43% of total deposits. The deposit growth was due to a combination of deposit inflows from both new relationships added during the first quarter, as well as inflows from existing clients.
Ken Meyers: Our originations were a well diversified mix of both commercial and commercial real estate loans across geographic markets industries and property types.
Ken Meyers: Well, we had a solid level of loan production in the first quarter production was exceeded by payoffs paydowns and reduced construction line utilization, which Dave will discuss in greater detail.
Ken Meyers: Our total deposits grew in the first quarter, including an increase in noninterest bearing deposits that kept our overall mix of deposits relatively consistent.
Ken Meyers: With noninterest bearing deposits comprising 43% of total deposits.
Ken Meyers: The deposit growth was due to a combination of deposit inflows from both new relationships added during the first quarter.
Ken Meyers: As well as inflows from existing clients.
Tim Myers: The growth represents a combination of expanded balances from commercial, small business, and consumer clients. While we see some banks looking to win business with assertive deposit pricing, we are not seeing any material losses due to risk. Our customers continue to bank with us for our service levels, accessibility, and commitment to our communities, and not entirely based on rates. As a result, in early January, we made meaningful deposit rate reductions in response to the December Fed Funds rate cut. which helped drive further expansion in our net interest margin in the first quarter. The deposit cost reductions have continued into April as we are now able to make smaller rate adjustments outside of the Fed funds rate adjustment cycle.
Ken Meyers: The growth represents a combination of extended expanded balances from commercial small business and consumer clients.
Ken Meyers: While we see some banks looking to win business with assertive deposit pricing, we are not seeing any material losses due to rate.
Ken Meyers: Our customers continue to bank with us for our service levels accessibility and commitment to our communities and not entirely based on rate.
Ken Meyers: As a result in early January we made meaningful deposit rate reductions in response to the December fed funds rate cut.
Ken Meyers: Which helped drive further expansion in our net interest margin in the first quarter.
Ken Meyers: The deposit cost reductions have continued into April as we are now able to make smaller rate adjustments outside of the fed funds rate adjustment cycle.
Tim Myers: Given our improved financial performance and prudent balance sheet management, our capital ratios remain very strong, with a total risk-based capital ratio of 16.69% and a TCE ratio of 9.82%.
Ken Meyers: Given our improved financial performance and prudent balance sheet management, our capital ratios remained very strong with a total risk based capital ratio of $16, six 9% and a TCE ratio of 918%.
Dave Bonaccorso: With that, I'll turn the call over to Dave Bonaccorso to discuss our financial results in more detail. Thanks, Tim.
Speaker Change: With that I'll turn the call over to Dave <unk> to discuss our financial results in more detail.
Dave Bonaccorso: Good morning, everyone. We generated $4.9 million in net income for the first quarter, or $0.30 per share, both of which are 67% higher than the first quarter of last year as we continue to benefit from the balance sheet repositioning and expense reduction actions we took during 2024. Our net interest income was down slightly from the prior quarter to $25 million primarily due to a lower balance of average earning assets partially offset by a six basis point increase in our net interest margin. The expansion on our net interest margin was attributable to a seven-basis point decrease in our cost of deposits, while our average yield on interest-earning assets was unchanged from the prior quarter despite an approximately 30-basis point decline in the average Fed funds rate during the quarter.
Dave: Thanks, Tim Good morning, everyone.
Dave: We generated $4 $9 million net income for the first quarter or <unk> 30 per share both of which are 67% higher than the first quarter of last year as we continue to benefit from the balance sheet repositioning and expense reduction actions, we took during 2024.
Dave: Our net interest income was down slightly from the prior quarter to $25 million, primarily due to a lower balance of average earning assets, partially offset by a six basis point increase in our net interest margin.
Dave: The expansion on our net interest margin was attributable to a seven basis point decrease in our cost of deposits, while our average yield on interest earning assets was unchanged from the prior quarter. Despite an approximately 30 basis point decline in the average fed funds rate during the quarter.
Dave Bonaccorso: Our average yield on loans was unchanged from the prior quarter, as higher rates on new loan production were offset by the payoff of some higher yielding loans, mostly in our construction portfolio. Due to our deposit growth, we had elevated levels of cash balances during the first quarter. In late March and continuing into April, we accelerated our redeployment of this excess liquidity into new loan fundings and securities purchases.
Dave: Our average yield on loans was unchanged from the prior quarter as higher rates on new loan production were offset by the payoff of some higher yielding loans, mostly in our construction portfolio.
Dave: Due to our deposit growth, we had elevated levels of cash balances during the first quarter.
Dave: In late March and continuing into April we accelerated our redeployment of this excess liquidity into new loan fundings and securities purchases.
Dave Bonaccorso: which we expect to positively impact our net interest margin in the second quarter. Our non-interest expense increased by $2.9 million from the prior quarter, due primarily to seasonally higher expenses as accruals for salaries and employee benefits reset in Q1, as well as relatively low salaries and employee benefits expense in Q4 2024 due to adjustments in incentive bonus and profit-sharing accruals. Additionally, in order to better serve the timing needs of our non-profit community, we moved up the timing of our charitable contribution cycle. Last year, nearly 90% of our charitable contributions occurred during Q2, whereas this year, the vast majority of our contributions were pulled forward into Q1, with 403,000 of contributions made in the quarter.
Dave: Which we expect to positively impact our net interest margin in the second quarter.
Dave: Our non interest expense increased by $2 $9 million from the prior quarter due primarily to seasonally higher expenses as accruals for salaries and employee benefits reset in Q1, as well as relatively low salaries and employee benefits expense in Q4, 2024 due to adjustments in incentive bonus and profit sharing accruals.
Dave: Additionally, in order to better serve the timing needs of our nonprofit community.
Moved up the timing of our charitable contribution cycle.
Dave: Last year, nearly 90% of our charitable contributions occurred during Q2, whereas this year. The vast majority of our contributions were pulled forward into Q1 with 403000 of contributions made in the quarter.
Dave Bonaccorso: We expect approximately $60,000 in contributions in Q2, followed by $20,000 each in Q3 and Q4. The $403,000 of contributions expensed in Q1 2025 compares to $30,000 in Q4 2024 and $12,000 in Q1 2024. Those differentials are worth approximately one and three quarters cents per share after tax. Excluding salaries and related benefits and charitable contributions, our Q1 2025 non-interest expense declined almost 1% compared to Q4 2024 and almost 3% compared to Q1 2024. Moving to non-interest income, we had an increase of more than $100,000 from our prior quarter, primarily due to higher earnings on BOLI. Most other areas of non-interest income were relatively consistent with the prior quarter.
Dave: We expect approximately $60000 in contributions in Q2, followed by $20000 each in Q3 and Q4.
Dave: The 403000 of contribution expense in Q1 2025 compares to 30000 in Q4 of 2024 and 12000 in Q1 2024.
Dave: Those differentials are worth approximately one and three quarter cents per share after tax.
Dave: Excluding salaries and related benefits and charitable contributions our Q1 2025 noninterest expense declined almost 1% compared to Q4, 2024, and almost 3% compared to the Q1 2024.
Dave: Moving to noninterest income, we had an increase of more than $100000 from our prior quarter, primarily due to higher earnings on Bali.
Dave: Most other areas of noninterest income were relatively consistent with the prior quarter.
Dave Bonaccorso: Our total deposits were $3.3 billion at March 31st, which was an increase of $82 million from the prior quarter, $26 million of which came in non-interest bearing deposits. As Tim mentioned, this wasn't attributable to inflows from existing clients, as well as the addition of new client relationships. Our average cost of deposits declined seven basis points in the first quarter as we had passed through rate cuts to our deposit customers without seeing any material rate related outflows. And during April, we have continued to see a decline in our cost of deposits.
Dave: Our total deposits were $3 3 billion at March 31, which was an increase of $82 million from the prior quarter 26 million of which came in noninterest bearing deposits.
Dave: As Tim mentioned this wasn't attributable to inflows from existing clients as well as the addition of new client relationships.
Dave: Our average cost of deposits declined seven basis points in the first quarter as we had pass through rate cuts to our deposit customers without seeing any material rate related outflows.
Dave: And during April we have continued to see a decline in our cost of deposits.
Dave Bonaccorso: Disciplined credit management remains a hallmark of Bank of Marin as well. Due to the stability in our loan portfolio, our provision for credit losses was just $75,000 during the first quarter. The allowance for credit losses declined slightly to 1.44% of total loans from the prior quarter, which was largely driven by the payoff of construction loans that require a higher level of provision. Loan balances of $2.07 billion at the end of the first quarter were down $10 million from the prior quarter.
Dave: Disciplined credit management remains a hallmark of bank of Marin as well due.
Dave: Due to the stability in our loan portfolio, our provision for credit losses, which is $75000 during the first quarter.
Dave: The allowance for credit losses declined slightly to 144% of total loans from the prior quarter, which was largely driven by the payoff of construction loans that require a higher level of provision.
Dave: Loan balances of 2.07 billion at the end of the first quarter were down $10 million from the prior quarter.
Dave Bonaccorso: While we had strong new loan production, this was offset by loan payoffs for a variety of reasons, including decreased line utilization on construction loans, paydowns on tenant in common and purchased real estate mortgage loans, and the proactive sale of an acquired loan that had been on non-accrual.
Dave: While we had strong new loan production. This was offset by loan payoffs for a variety of reasons, including decreased line utilization on construction loans pay downs on tenant in common and purchase real estate mortgage loans and the proactive sale of an acquired loan that had been on non accrual.
Dave Bonaccorso: Given the continued strength of our capital ratios, our board of directors declared a cash dividend of 25 cents per share on April 24th, the 80th consecutive dividend paid by the company.
Dave: Given the continued strength of our capital ratios our board of directors declared a cash dividend of 25 cents per share on April 24, the 18th consecutive dividend paid by the company.
Tim Myers: With that, I'll turn it back over to you, Tim, to share some final comments.
Dave: With that I'll turn it back over to you tend to share some final comments.
Tim Myers: Thank you, Dave. In closing, we believe we are very well positioned to continue generating solid financial performance in 2025, as we expect to continue to see positive longer-term trends in our net interest margin and revenue. While there is more economic uncertainty now than at the beginning of the year, our expectations for a higher level of loan growth this year continue to be based more on the additions to our banking team we have made and the higher level of productivity that we are now seeing rather than any expectations that we would see a meaningful increase in market wide loan demand.
Dave: Thank you Derek in closing, we believe we are very well positioned to continue generating solid financial performance in 2025.
Dave: We expect to continue to see positive longer term trends in our net interest margin and revenue.
Dave: While there is more economic uncertainty now than at the beginning of the year.
Dave: Our expectations for a higher level of loan growth. This year continue to be based more on the additions to our banking team, we have made and the higher level of productivity that we are now seeing rather than any expectations that we would see a meaningful increase in market wide loan demand.
Tim Myers: As such, we continue to expect to see improving loan growth this year, and our loan pipeline continues to be very healthy.
Dave: As such we continue to expect to see improving loan growth this year and our loan pipeline continues to be very healthy.
Tim Myers: While we always tightly manage expenses, we will also continue to take advantage of opportunities to add banking talent that we believe will help support the continued profitable growth of our franchise while also investing in innovation and technology you to further enhance our level of efficiencies and the quality of service we provide to our customers. With the strength of our balance sheet, we believe we are very well positioned to increase our market share, add attractive new client relationships, generate profitable growth, and further enhance the value of our franchise in 2025 and the coming year.
Dave: Well, we always tightly manage expenses. We will also continue to take advantage of opportunities to add banking talent that we believe will help support the continued profitable growth of our franchise, while also investing in innovation and technology.
Dave: To further enhance our level of efficiencies.
Dave: Quality of service, we provide to our customers.
Dave: With the strength of our balance sheet, we believe we're very well positioned to increase our market share at attractive new client relationships generate profitable growth and further enhance the value of our franchise in 2025 in the coming years.
Tim Myers: And while we did not repurchase any shares during the first quarter, with our high level of capital, we can continue to evaluate repurchases as we look at the best uses for our capital at any particular time, and make the decisions that we believe are in the best long-term interest of our shareholders.
Dave: And while we did not repurchase any shares during the first quarter with a high level of capital. We can continue to evaluate repurchases as we look at the best uses for our capital at any particular time.
Dave: Make the decisions that we believe are in the best long term interest of our shareholders.
Tim Myers: With that, I want to thank everyone on today's call for your interest and your support.
Dave: With that I want to thank everyone on today's call for your interest and your support we will now open the call to your questions.
Operator: We will now open the call to your questions. If you would like to ask a question, please click on the raise hand button at the bottom of your screen. Once prompted, please unmute your line and ask your question.
Dave: If you would like to ask a question. Please click on the raise hand button at the bottom of your screen.
Dave: Once prompted please on mute your line and ask your question.
Operator: We will now pause a moment to assemble the queue. Thank you.
Dave: We'll now pause a moment to assemble the queue.
Dave: Okay.
Dave: Okay.
Andrew Terrell: Our first question will come from Andrew Terrell at Stevens. You may now unmute your audio and ask your question. Hey, good morning. Good morning, Andrew.
Speaker Change: Thank you our first question will come from Andrew Corral.
Dave: Stevens.
Dave: You May now on me here, Oh, Dear and.
Speaker Change: Ask your question.
Speaker Change: Hey, good morning.
Speaker Change: Good morning, Andrew.
Tim Myers: um maybe we'll just start at the end there um Tim I mean you've got pretty impressive capital the stock trades at 90% of tangible um you know growth is still a little bit slow just talk us through you know um expectations around the buyback moving forward you know any other capital actions we should be contemplating maybe just big picture on capital to start Sure, so we just went through our exam with our regulators. We'll be meeting with them soon to talk about, you know, our capital plan, dividend requests, all that. So we continue to contemplate it.
Speaker Change: Maybe we'll just start at the end there.
Speaker Change: <unk> got pretty impressive capital the stock trades at 90% of tangible.
Speaker Change: Growth is still a little bit slow just talk us through you know.
Speaker Change: Expectations around the buyback moving forward.
Other capital actions, we should be contemplating maybe just big picture on capital to start.
Speaker Change: Sure. So we just went through our <unk>.
Speaker Change: Exam with our regulators will.
Speaker Change: We'll be meeting with them soon to talk about.
Speaker Change: Our capital plan and dividend requests and all that so we continue to contemplate it we saw the authorization in place from the board and we agree that buying back below tangible books, a wise thing to do.
Tim Myers: We still have the authorization in place from the board, and we agree that buying back below tangible books is a wise thing to do. We were just on the sidelines, if you will, pending the outcome of the exam and discussions about some of the other strategic options. As you know, there are some available. And so that's where we're at right now. Understood. Okay. And then could you maybe provide a little bit more color on that?
Speaker Change: We were just on.
Speaker Change: On the sidelines, if you will pending the outcome of the exam and discussions about some of the other strategic options.
Speaker Change: Options as you've noted there are some are available.
Speaker Change: And so that's where we're at right now.
Speaker Change: Understood Okay.
Speaker Change: And then could you maybe provide a little bit more color on that I think it was three commercial loans that moved into classified and obviously not.
Tim Myers: I think it was three commercial loans that moved into classified, obviously not a massive dollar amount, but just want to understand, you know, what those three credits were, any commonalities between them, and just kind of expectations, working forward with this. Yeah, so the vast majority of that was really within two credits. One is a contractor and the other is a real estate multifamily, so no relation between the two. Performance issues unique to each of them, operational on the contractor's side and a shift in strategy on the multifamily from short-term furnished rentals to longer term, and so both are expected to be profitable or both expect to be profitable this year.
Speaker Change: <unk> dollar amount, but just wanted to understand.
Speaker Change: But those three credits were any any commonalities between them.
Speaker Change: And just kind of expectations.
Speaker Change: Looking forward with us.
Speaker Change: Yes, so the vast majority of that was really within two credits one as a contractor.
Speaker Change: And the other is real estate.
Speaker Change: Multifamily so no relation between the two performance issues unique to each of them operational on the contractor side and a shift in strategy on me.
Speaker Change: Multifamily from short term.
Speaker Change: Furnished rentals to longer term and so both are expected to be profitable are both expected to be profitable this year.
Tim Myers: Don't currently expect any further deterioration, but we felt it prudent to put those in that bucket for the time being.
Speaker Change: We currently expect any further deterioration, but we felt it prudent to put those in that bucket for the time being.
Operator: Got it. Okay.
Speaker Change: Got it okay.
Dave Bonaccorso: And then, Dave, if I could ask around, just the expense expectations, is the right way to think about the expense space in the coming quarters, just, you know, normalizing the charitable contributions down to that, I think it was 60, 60k next quarter, any other puts and takes we should we should be thinking about for expenses in the coming quarter? Sure, sure. So.
Speaker Change: Then David if I could ask around.
Speaker Change: Just the expense expectations is the right way to think about the expense space in the coming quarters just normalizing the.
Speaker Change: The charitable contributions down to that I think it was 16 60 gain next quarter or any other puts and takes we should we should be thinking about for expenses in the coming quarters.
Sure sure so.
Dave Bonaccorso: At a high level, going back to 2021, our compound annual growth rate of expenses has been about 4%. That's arguably a reasonable place to start any modeling on an annual basis. In 2024, we were up almost 3%. That was in a year in which we didn't meet some important internal goals. So that caused incentive comp to be lower than it would have been otherwise.
Speaker Change: At a high level going back to 2021, our compound annual growth rate of expenses, it's been about 4%.
Speaker Change: A reasonable place to start any modeling on annual basis.
Speaker Change: 'twenty 'twenty four we were up almost 3% that was in a year in which we didn't meet some important internal goals, so that cause incentive comp to be lower than it would've been otherwise. So that's kind of the yogurt arching framework and then.
Dave Bonaccorso: So that's kind of the overarching framework. And then this quarter, or in Q1, I should say, we pulled forward contributions that were normally in Q2. We expect for the remainder of the year, as we laid out and released another 100,000 or so in contributions expense. And then things that are unique to Q1, like payroll taxes and insurance adjustments and 401k matching being on the high side, those will start to drift lower. And then I'd say some project-related expenses that really kick off. probably more in Q2 we'll start hitting. So those are the various puts and takes there.
Speaker Change: This quarter, we are in Q1, I should say, we pulled forward contributions that were normally in Q2.
Speaker Change: We expect for the remainder of the year as as we laid out in our release, another 100000, or so and contributions expense and then things like things that are unique to Q1 like payroll taxes and insurance adjustments and four one K matching being on the high side and those will those will start to drift lower and.
Speaker Change: And then I'd.
Speaker Change: I'd say, some some project related expenses that really kickoff.
Speaker Change: Probably more in Q2, we'll start hitting so those are the various puts and takes there.
Operator: But again, I would kind of steer you back to what we've done the last couple of years on an annual basis, and then you can adjust from there. Perfect. Okay. Well, thank you very much for taking the question.
Speaker Change: But again I would kind of steer you back to what we've done the last couple of years on an annual basis, and then you can adjust from there.
Speaker Change: Perfect Okay.
Speaker Change: Thank you very much taking my questions.
Speaker Change: Thanks, Andrew.
Woody Lay: Our next question comes from Woody Lay at KBW. Please go ahead. Hey, good morning guys. Hi Woody.
Speaker Change: Our next question comes from Woody lay at the K B W.
Speaker Change: Please go ahead.
Woody: Hey, good morning, guys.
Speaker Change: Hi, Woody.
Woody Lay: Wanted to start on deposit growth. It was pretty impressive to see in the quarter, but was there any seasonality impact in there? Do you think all of this growth is pretty sticky? And if it is sticky, what do you attribute the growth to? Is it some new hires that are making progress or just thoughts there? So, you know, it's kind of the flip side of the coin. We've had a couple of the other quarters, Woody, where we do get some big seasonal inflows, if not seasonal, episodic with our customers. We did have another thousand plus accounts open up.
Speaker Change: Wanted to start on deposit growth it was pretty.
Speaker Change: The impressive to see in the quarter, but was there any seasonality impact in there do you think all of this growth is pretty sticky and if it is sticky.
Speaker Change: What do you attribute the growth.
Speaker Change: Some new hires that are making progress or just thoughts there.
Speaker Change: Okay.
Speaker Change: So.
Speaker Change: What's kind of the flip side of the coin we've had a couple of the other quarters, where do you where we do get some big seasonal inflows if not seasonal episodic with our customers. We then have another 1000 plus accounts open up that total dollar amounts.
Woody Lay: That total dollar amounts, you know, you know, maybe a third of the total. So we get the inflows, outflows. We expect tax outflows in this month. So it's really hard to say the exact where that'll land, but yeah, you know, agreed. I think we continue to do the right things. The C&I effort, you know, if you take in the commitments, the unused commitments, C&I was 20% of our loan originations. That's second quarter in a row, I think, where we've been up there. And certainly that brings some deposits. But it's a combination of all the above.
Speaker Change: Maybe a third of the total so we get the.
Speaker Change: Inflows outflows, we expect cash outflows in this month, so it's really hard to say the exact where that will land, but yeah I.
I agree and I think we continue to do the right things. There's the CNI effort you know if you.
Speaker Change: Taken the commitments the unused commitments C&I was a 20% of our loan originations at second quarter in a row, I think where we've been up there.
Speaker Change: Certainly that brings in deposits.
Speaker Change: But it's a combination of all of the above and I would hate to speak to my ability to forecast how those fluctuations go because we do have those large TBA customers they have in and outflows.
Woody Lay: And I would hate to speak to my ability to forecast how those fluctuations go, because we do have those large TBA customers that have in and out. Yeah, appreciate the color there.
Speaker Change: Yes, I appreciate the color there and then maybe turning to deposit cost it sounds like you did some heavy lifting.
Woody Lay: And then maybe turning to deposit costs, it sounds like you did some heavy lifting in early January, but do you think there's room to continue to move deposit costs lower here if, you know, if all SQL rates stay the same?
Speaker Change: In early January.
I think there is room to continue to move deposit costs lower here.
Speaker Change: If all else equal rates Davidson.
Tim Myers: I mean, I'll let Dave Bonaccorso answer that. I mean, we think we think we have some flexibility, but obviously, we start testing some limits at some point. But go ahead, Dave.
Dave: And then I'll, let Dave upon of course, the answer that I mean, we think we have some flexibility, but obviously, we start testing some limits at some point, but go ahead, Barry Yeah, obviously, it's easier with the cover of the fed.
Dave Bonaccorso: Yeah, obviously, it's easier with the cover of a FedFunds rate cut. So, you know, and in that regard, we've done better than the ALM modeling assumption that we disclosed, you know, and I think, as you noted, in an earlier report, you put out our beta accelerated in Q1 relative to Q4. So, so positive from that perspective.
Speaker Change: Fed funds rate cut so.
Speaker Change: And in that regard, we've done better than the ALLL modeling assumption that we've disclosed.
Speaker Change: As you noted.
Speaker Change: And earlier important you put out our beta accelerated in Q1 relative to Q4. So that's a positive from that perspective, but on your question about I think what I'm hearing is can you do anything away from fed funds rate cuts and the answer is in April we actually cut.
Dave Bonaccorso: But on your question about I think what I'm hearing is, can you do anything away from FedFunds rate cuts? And the answer is, in April, we actually cut rates on about 260 million in balances by an average of about six basis points. So it's not huge, it ends up working out to about nine tenths of a basis point for interest bearing deposits, about a half basis point for total deposits, you know, fully phased in, but demonstration that we can do it. And, and it's something we'll continue to look at. Got it.
Speaker Change: Our rates on about $260 million of balances by an average of about six basis points. So it's not huge and ends up working out to about nine tenths of a basis point for interest bearing deposits about half basis points of total deposits fully phased in but the demonstration that we can do it and.
Speaker Change: And it's something we'll continue to look at.
Woody Lay: And then maybe last for me just shifting over to loan production, you know, First quarter remained strong, but was offset by some payoffs. I mean, how did production trend towards the end of the month?
Speaker Change: Got it and then maybe last for me just shifting over to loan production.
Speaker Change: First quarter remained strong but was offset by <unk>.
Speaker Change: Some payoffs I mean, how did production trend toward the end of the month and yet just given all the macro uncertainty are you seeing customers.
Tim Myers: And, you know, just given all the macro uncertainty, are you seeing customers opt to delay deals at this point? Yeah, so I'll start at the end there. We're not seeing that. You know, we're not going to pretend that the loan originations, well, let me step back. It was very exciting for the court to have the origination. It's been a long time since we've had a Q1 that equaled our Q4 origination. So we really are seeing the benefit of some of the hires we've made. So. We're not seeing a rising tide of demand. There's no question.
Speaker Change: Up to delay deals at this point.
Speaker Change: Yes, so I'll start at the end, there, where we're not seeing that.
Speaker Change: We're not going to pretend that the loan originations, let me step back it was very exciting for the quarter that'd be origination in a long time to move out of Q1 that equaled our Q4 originations. So we really are seeing the benefit of some of the hires we've made.
Speaker Change: So.
Speaker Change: We're not seeing a rising tide of demand. There's no question, there's a lot of uncertainty out there, but what we're seeing is production from the people, we're hiring with former clients with their pipelines. So our pipelines are about 50% higher than it was a year ago. This time with those originations. So we're seeing a nice trend it appears so.
Tim Myers: There's a lot of uncertainty out there, but what we're seeing is production from the people we're hiring with former clients, with their pipelines. So our pipeline's about 50% higher than it was a year ago this time, with those originations. So we're seeing a nice trend that appears sustainable, but you can never predict the timing. So it's pretty even. Obviously, it always kind of gets back-ended towards a quarter, but what's nice is the pipeline's still high, and we didn't get all that through and then have to start rebuilding. So we're pretty enthusiastic, but again, that's new hire driven.
Speaker Change: Stable, but you can never predict the timing so it was pretty even obviously it always kind of gets back ended towards the quarter. Whats nice is the pipeline is still high and we didn't get all of that.
Speaker Change: Through and then have to start rebuilding so some pretty enthusiastic but again, that's new hire driven we did add another new hire in San Francisco on top of the two we hired early in the quarter.
Tim Myers: We did add another new hire in San Francisco on top of the two we hired early in the quarter in Sacramento and one of our markets here. And so, yeah, we remain optimistic that we're getting the right people and the right shares to continue to smooth out that trend.
Speaker Change: In Sacramento.
And one of our markets here and so yes, we remain optimistic that we're getting the right people in the rideshare is continuing to smooth out that trend.
Tim Myers: You know, on the paydowns, you know, pretty flat to a year ago, down for the quarter. Very little about maybe a couple million dollars was, you know, things that were funded outside of the bank. The biggest chunk continued to be asset sales or cash deleveraging, small amount of workouts, but it was really disparate. In fact, I think the single biggest component within there of type was consumer loans, the residential mortgages we acquire as part of the and some indirect auto loans. So it's not really part of a trend that's affecting our commercial banking activity. It, you know, nonetheless, their paydowns, but they're, you know, we seem to be controlling to the extent we can those we can control.
Speaker Change: On the pay downs.
Speaker Change: Pretty flat to a year ago down for the quarter.
Uh huh.
Speaker Change: Very little of that maybe a couple of million dollars.
Speaker Change: Things that were funded outside of the bank.
Speaker Change: The biggest chunk continued to be asset sales or cash deleveraging.
Speaker Change: Small amount of work out so it was really desperate impact.
Speaker Change: I think the single biggest component within their of tie it was.
Speaker Change: Consumer loans, the residential mortgages, we acquired as part of the securities repositioning TICC loans and some indirect auto loan. So it's not really part of a trend that's affecting our commercial banking activity.
Speaker Change: Nonetheless, they are paydowns, but there we seem to be controlling to the extent we can those we can control.
Operator: And we just keep that origination going and the lateral offset the former here. That's great, Collar.
Speaker Change: And we just keep that origination going in.
Speaker Change: The lateral offset the former here.
Operator: Thanks for taking my questions.
Speaker Change: That's great color thanks for taking my questions.
Operator: My pleasure.
Speaker Change: My pleasure.
Jeffrey Rulis: Our next question comes from Jeffrey A. Rulis at D.A. Davidson. Please go ahead. Hi, good morning. Question on the, I guess on the margin, just kind of following back up, it sounds, you know, if you look at spot rates and the March average, the trend is good there and then kind of got your commentary about continuing to make efforts to lower. I guess as we as we look at the margin, expert. Well, do you have a March average on on the on the new? Yeah, it was 285. and Dave, you know, anything on there's distortions in Q1 with the day counts, you know, the 31, 28, 31.
Jeffrey: Our next question comes from Jeffrey a religious at D. A Davidson.
Speaker Change: Please go ahead.
Jeffrey: Okay.
Jeffrey: Hi, good morning.
Jeffrey: Hi, Jeff.
Speaker Change: Question on the I guess on the margin just kind of following back up it sounds if you look at spot rates in the March average that the trend is good there and then kind of got your commentary about continuing to make efforts to lower I guess as we as we look at the margin.
Speaker Change: Excellent well do you have a march average.
Speaker Change: <unk>.
Speaker Change: On the NIM.
Speaker Change: Yes, it was $2 85.
Speaker Change: Okay.
Speaker Change: Hey, Dave.
Speaker Change: There's distortions in Q1 with the day counts.
Dave Bonaccorso: So so that's that's the that's the March number. But the overall quarter is impacted by the differences in data. And, you know, just in the release, it sounds optimistic of further further improvement on the margin and any anything else to kind of, you know, from a liability sensitivity is there. So, obviously cuts would would likely help, but just. Expectations on the go forward, Marjorie. Yeah, so I think you hit on it. We're slightly more liability sensitive this quarter than last quarter. And maybe an easy way to think about it is we have roughly four times as many floating rate liabilities as we do floating rate assets.
Speaker Change: 31, 28 to 31, so right. So that's the that's.
Speaker Change: That's the March number.
Speaker Change: Okay, but the overall quarter is impacted by the differences in day counts.
Speaker Change: Alright, just in the release it sounds optimistic of further further improvement on the margin and any anything else to kind of.
Speaker Change: From a liability sensitivity is there some obviously cuts would would likely help but just.
Speaker Change: Expectations on the go forward margin.
Speaker Change: Yeah. So I think you hit on it.
Speaker Change: We're slightly more liability sensitive this quarter than last quarter, and maybe an easy way to think about it is we have roughly four times as many floating rate liabilities as we do floating rate assets.
Dave Bonaccorso: And so if you assume the floating rate assets have 100% beta, it just means that our floating rate liabilities need to have a beta above 25% to keep pace. And as I noted, the entirety of our floating rate liabilities are non-maturity deposits, and we had a 40% beta this past quarter. So, you know, we're tracking well there to improve there. And I think when we gathered last time... On our last quarterly call, markets were expecting about 50 basis points and cuts for the year. And at least as of Friday, we were looking at 90.
Speaker Change: So if you assume that floating rate assets of a 100% beta.
Speaker Change: It means that it needs that are floating rate liabilities need to have a beta.
Speaker Change: 25% to keep pace and.
As I noted we are for the entirety of our floating rate liabilities are non maturity deposits and we had a 40% beta.
Speaker Change: This past quarter, so we're tracking well there too.
Speaker Change: To improve there and I think when we gather last time.
Speaker Change: On our last quarterly call markets, we're expecting.
Speaker Change: Now 50 basis points in cuts for the year and at least as of Friday, We were looking at 90. So that's to the positive for us margin margin ones.
Dave Bonaccorso: So that's to the positive for us, margin-wise.
Jeffrey Rulis: Great, thanks, and maybe a couple questions on the expense side, just to follow up first on the charitable contributions.
Speaker Change: Great.
Speaker Change: Maybe.
Speaker Change: Couple of questions on the expense side, just a follow up.
Tim Myers: Is the board engaged or does that need to be approved at that level? Or is that a management call and then overall expenses you talked about managing them, but also. You know, being opportunistic on strategic items. I guess, do you consider any other costs rationalization given the kind of flatline on loans? Is that on the table?
Speaker Change: <unk>.
Speaker Change: The charitable contributions as the the board engaged or does that need to be approved at that level or is that a management call and then.
Speaker Change: Overall expenses you talked about.
Speaker Change: Managing them, but also.
Speaker Change: Being opportunistic on on strategic.
Speaker Change: Items I guess do you consider any other cost rationalization.
Speaker Change: Given the.
Speaker Change: Kind of flatline on loans is that on the table. So two part on the charity and and then the.
Tim Myers: So two part on the charity and then the... looking at any cuts potentially. So the answer to your first question about the board, yes, when we budget, we budget charitable contributions. And we have a long history at the bank of trying to give at least 1% of pre-tax profit to the communities, the communities know that. You know, we are a traditional community bank in the respect that we have branches in our markets or at least a lot of them and behave that way. And so we're very actively engaged. We have a lot of people on boards.
Speaker Change: Looking at any cuts potentially.
Speaker Change: So the answer to your first question about the board, yes, when we budget, we budget charitable contributions and we have a long history of the bank.
Speaker Change: I'm trying to give at least 1% of pre tax profit to the communities the communities know that.
Speaker Change: We are a traditional community bank.
Speaker Change: And the respect that we have branches in our markets.
Speaker Change: Or at least a lot of them.
Speaker Change: And behave that way and so we're very actively engaged with a lot of people on board.
Tim Myers: And so that is a very big part of what we do. In terms of the total contributions, we are down with our, you know, PPNR. And as you mentioned, the asset growth, and so the total contributions are less. The reason it got highlighted this quarter is historically we ran a very, over the last few years I would say, a formal process, like a grant-giving process, and so the money would all leave in relatively a short period of time. Because we're doing it in the second quarter, the feedback we got in the communities was it'd be more impactful, easier for them to budget, et cetera, if we brought it up.
Speaker Change: And so that is a very big part of what we do.
Speaker Change: In terms of the total contributions we are down with our P. PNR.
Speaker Change: And as you mentioned the asset growth and so the total contributions of our labs.
Speaker Change: The reason that got highlighted this quarter is historically, we ran it very well.
Speaker Change: Over the last few years I would say.
Speaker Change: Formal process like a grand giving processes. So the money would I'll leave and relatively a short period of time.
Speaker Change: We're doing that in the second quarter. The feedback we got in the community. It was it would be more impactful easier for them to budget et cetera. If we brought it up so we just accelerated the timing that's the only thing different than what we did other than reduce the total amount.
Tim Myers: So we just accelerated the timing. That's the only thing different than what we did, other than reduce the total amount. But again, yes, it is something the board looks at as part of our overall budgeting process. I hope that answers your question. Yeah, I get the hopeful word that that's okay. I mean, year over year, it's a similar amount of just thinking about just generally the approach. So you touched on it, I guess. The part of, you know, do you look at further expense rationalizations this year, or at this point, that's be something that You've got your budgeted.
Speaker Change: But again, yes. It is something the board looks at it as part of our overall budgeting process. So hope I answered your question.
Speaker Change: Yeah.
Speaker Change: The pull forward that's okay, I mean year over year, it's a similar amount of just thinking about just generally the approach. So you touched on it.
Speaker Change: Yes.
Speaker Change: The part of of do you look at further expense rationalizations this year or at this point that would be something that.
Speaker Change: You've got your budgeted.
Tim Myers: You know, investments in and right now you're you're not looking for any other cuts on the expense. So we did our staffing reductions last year, if you'll recall, and I think we're pretty comfortable with where we're at with being selective in our hiring.
Speaker Change: Investments in right now.
Speaker Change: Youre not looking for any other cuts on the expense side.
Speaker Change: So we did our staffing reductions last year, if you will.
Speaker Change: Recall, and I think we're pretty comfortable with where around being selective in our hiring our expense run rates down.
Dave Bonaccorso: Our expense run rate's down, and Dave can talk about that. And yes, there was some noise in the quarter regarding the personnel-related expenses and the charitable contributions and sponsorships, but our overall run rate continues to trend positively.
Dave: And Dave can talk about that.
Dave: Yes, there was some noise in the quarter regarding the personnel related expenses and the charitable contributions and sponsorships, but our overall run rate continues to trend positively as you want to talk about the run rate yes.
Dave Bonaccorso: So do you wanna talk about the run rate? Yeah, and there was some comments in the prepared remarks around this, but obviously we have noise pretty much every year, Q4 and Q1 related to salaries and related benefits, and then we had the charitable contributions noise this quarter. Yes, sequential quarter basis, we're down almost 1%, setting aside salaries and related benefits and also charitable contributions. And then for that same breakout, we're down almost 3% from a year ago. So I think that's evidence that we're managing it pretty tightly in the areas that are not affected by some of the noise we had this quarter.
Dave: There were some comments in the prepared remarks around this but obviously, we have noise pretty much every year Q4, and Q1 related to salaries and related benefits and then we had the charitable contributions noise. This quarter, so sequential quarter basis were down almost 1%.
Dave: Setting aside salaries and related benefits and also charitable contributions and then put that same breakout were down almost 3% from a year ago. So I think thats evidenced that we are managing it pretty tightly in the areas that are not affected by some of the noise. We had this quarter.
Dave Bonaccorso: One thing I just wanted to add on charitable contributions, we break that out separately in our financials. And that number will be down this year optically, but some of that has been reallocated to community sponsorships, which is rolled into other expense. And so it's a similar level of community commitment that we've had in recent years, just kind of hitting two buckets this year rather than primarily in contributions alone.
Dave: One thing I just wanted to add on charitable contributions we break that out separately in our financials.
Dave: And that number will be down this year.
Dave: <unk>, but some of that has been reallocated to community sponsorships, which is which is world into other expense and so it's.
Dave: It's a similar level of community commitment that we've had in recent years or just kind of hitting two buckets this year rather than primarily.
Operator: Got it, appreciate it, thank you.
Dave: In contributions alone.
Dave: Got it appreciate it thank you.
David Feaster: Our next question comes from David Feaster at Raymond James. Please go ahead. Hey, good morning, everybody.
Operator: Our next question comes from David Feaster at Raymond James.
Speaker Change: Please go ahead.
David Feaster: Hey, good morning, everybody.
David Feaster: Bye, David. Um, you know, we touched a bit on the broader uncertainty, you know, just given the trade wars and all that. And obviously, you've got more tailwinds for originations, just given the new hires that you've alluded to. But I'm just hoping you could touch a bit on the pulse of your clients in this backdrop. Are you hearing any concerns or are you anticipating maybe, you know, slower pull through of the pipelines or maybe more potential fallout or anything? Just kind of willingness to continue to invest, just given the uncertainty. I would say the one segment, by and large, David, we're not hearing a ton, but we're not in a big manufacturing base or other areas that are going to be more immediately, you know, we don't have a lot of ag in our market and do even less of what there is.
Speaker Change: Hi, David.
Speaker Change: Hum.
Speaker Change: You touched a bit on the broader uncertainty just given the trade wars and all that and obviously you've got more tailwind for originations just given the new hires that you you alluded to but I was just hoping you could touch a bit on the pulse of your clients in this backdrop.
Speaker Change: Are you are you hearing any concerns or are you anticipating maybe slower pull through of the pipelines or maybe more potential fallout or anything just kind of curious what youre hearing from from your clients today and their willingness to continue to invest just given the uncertainty.
Speaker Change: I would say the one segment by and large David we're not hearing a time, but we're not in a big manufacturing base or other areas that are going to be more immediately.
Speaker Change: I have a lot of ads in our market and do even less.
Tim Myers: So, you know, we're not impacted by some of the noise you hear out there, and nor are our clients. The one area we are hearing it is with the nonprofits, less around the trade wars than fiscal economic policy or general politics about what kind of funding is going to be available as pass through from federal through state to local. And so I think the biggest fear we have, and we do bank a lot of nonprofits, albeit more on the deposit than the credit side, is fear over funding. Maybe on the other side, I mean, you guys are obviously very conservative and take a very conservative approach, disciplined approach to credit, that's your reputation, and historical asset quality speaks for itself.
Speaker Change: What there is so you know were not impacted by some of the.
Speaker Change: The noise you hear out there.
Speaker Change: Our clients the one area, we are hearing it as with the nonprofit loss around the trade War is then fiscal economic policy or general politics about what kind of funding is going to be available as pass through from federal through state to local and so I think the biggest fear we have when we do bank a lot of nonprofits.
Speaker Change: Albeit more on the deposits on the credit side.
Speaker Change: As fear over funding levels.
Speaker Change: Okay.
Speaker Change: Maybe on the other side I mean, you guys are obviously very conservative and take a very conservative approach disciplined approach to credit that's your reputation.
Tim Myers: But just given the uncertainty in trade wars, have you changed any or adjusted any underwriting criteria or anything like that? Or has your approach to credit management or risk ratings changed at all? Just kind of curious, what's your thinking? No, it hasn't. And I would say this, just like when we talked about commercial real estate in San Francisco, you know, for the last couple of years, we're not a really very policy driven credit underwriter. We're a very traditional underwriter, sources of repayment, risks and mitigants, who the borrower is, the loan purpose. And so we're always going to ask those questions.
Speaker Change: Historical asset quality speaks for itself, but just given the uncertainty in trade wars.
Speaker Change: Have you changed any.
Speaker Change: Our adjusted any underwriting criteria or anything like that or as you approach to credit management of risk ratings changed at all just kind of curious what's your thinking.
Speaker Change: No it hasn't and I would say this just like when we talk about commercial real estate in San Francisco for the last couple of years.
Speaker Change: Not a really very policy driven credit underwriters.
Speaker Change: We're a very traditional underwriter.
Speaker Change: <unk> is a repayment risks in that against who the borrower has the loan purpose and so we're always going to ask those questions. So when you have times of uncertainty again, whether it's <expletive>.
Tim Myers: So when you have times of uncertainty, again, whether it's, you know, a decline in leasing activity in San Francisco, you know, a decline in rental rates or potential revenue streams from a company that might be impacted by tariffs and or trade wars, that's all going to be part of the discussion. But what it doesn't fundamentally change is, you know, how are we going to look at debt service coverage or leverage appetite on CNI borrowers. So it's really more of an approach. And, and that approach is easily adaptable to changes in the market. Does that answer your question?
Speaker Change: Decline in leasing activity in San Francisco, and rental rates or potential revenue streams from a company that might be impacted by tariffs and trade wars, that's all going to be part of the discussion, but what it doesn't fundamentally change is.
Speaker Change: How we're going to look at debt service coverage or leverage appetite on C&I borrowers. So it's really more of an approach and that approach is easily adaptable to changes in the market that answer. Your question, Yes that makes sense and then maybe just last one for me given the strong core deposit growth you've seen the slower.
Tim Myers: Yep. That makes sense. And then, and maybe just, just last one for me, you know, given the strong core deposit growth you've seen, this lower loan growth, you know, we've seen liquidity build a bit this quarter. I know it's not burning a hole in your pocket, but I'm curious, your plans to deploy that, is there any interest in securities purchases or are you rather just wait to support loan growth or even just let it sit in cashier and take the, you know, the interest rates on that? So we accelerated some securities purchases late in Q1, and that's continued into Q2.
Speaker Change: Loan growth, we've seen liquidity build a bit this quarter I know, it's not burning a hole in your pocket, but I am curious your plans to deploy that is there any interest in securities purchases or you'd rather just wait to support loan growth or even just let it sit in cashier and take the the the interest rates on that.
Speaker Change: So are we.
Speaker Change: We accelerated some securities purchases late in Q1, and Thats continued into Q2, but maybe more.
Tim Myers: But maybe more. Big picture, you know, we had, as you noted, strong deposit growth. We had an accelerating loan pipeline as well. And then we also typically have, like many banks, we have tax-related outflows in April. So we were monitoring all those things before pulling the trigger on some securities purchases, which we ultimately did late in March. And then that's also continued. And so. Relative to the yield on cash today, those securities purchases have been 40 to 50 basis points above that. in in March and April to give you a sense. how we're deploying it at higher rates.
Speaker Change: Big Picture, we had as you noted strong deposit growth.
Speaker Change: We had an accelerating loan pipeline as well and then we also typically have like many banks we have.
Speaker Change: Tax related outflows in April so we were we were monitoring all those things before.
Speaker Change: The trigger on some securities purchases, which we ultimately did late in March and then that's also continued in April.
Speaker Change: And so.
Speaker Change: Relative to to the yield on cash today those securities purchases have been 40 to 50 basis points above above that.
Speaker Change: In March and April to give you a sense of.
Operator: That's helpful.
Speaker Change: How we're deploying it at higher rates.
Operator: Thanks, everybody.
Speaker Change: Okay. That's helpful. Thanks, everybody.
Timothy Coffey: Our next question comes from Timothy Coffey at Janney Montgomery Scott.
Speaker Change: Okay.
Speaker Change: Our next question comes from Timothy Coffey of Janney Montgomery Scott.
Operator: Please go ahead. Please unmute yourself using the mute on the bottom tab of the Zoom screen. There we can't hear you.
Speaker Change: Please go ahead.
Speaker Change: Please on mute yourself using the mute button Tabitha Zane screen.
Speaker Change: Okay.
Speaker Change: There we can't hear you.
Adam Butler: We will move on to the next question which is coming from Adam Butler at Piper Sandler.
Speaker Change: We will move on to the next question is coming from Adam Butler at Piper Sandler.
Speaker Change: Okay.
Speaker Change: Yeah.
Adam Butler: Hey everyone, this is Adam, on for Matthew Clark. Morning, Adam. Morning. Just to get a better idea of some of the potential NIM expansion we could be seeing going forward on the asset side, I appreciated the commentary in the release that loans are coming on higher than the portfolio yield and you guys have a decent proportion of loans that are fixed and repricing upward. I'm just curious in a flat rate environment how you see loan yields trending up and if we got 25 bips cut, how you'd expect to see loan yields move as well in a quarter?
Speaker Change: Hey, everyone. This is Adam on for Matthew Clark.
Speaker Change: Good morning, Adam Good morning, just to get a better idea of some of the potential NIM expansion, we could be seen going forward on the asset side I appreciated the commentary in the release that loans are coming on higher than the portfolio yield and you guys have.
Speaker Change: Decent proportion.
Speaker Change: Proportion of loans that are fixed and repricing upward I'm just curious in a flat rate environment, how you see loan yields trending.
Speaker Change: And if we got 25 bps kind of how you would expect to see loan yields moved as well in the quarter I mean.
Dave Bonaccorso: And do you guys have a spot rate on loans in March? Give me a moment on that and come back to you, but let me answer the question that I can give you that that level. But. So the statistic we've tended to share is the year-over-year monthly change in loan yields. So that delta is not much different this quarter compared to last quarter, which is to say in March 2026, we expect the monthly loan yield to be 25 or 30 basis points higher than where it was in March 2025. That's just natural repricing in the loan book for the reasons you've cited.
Speaker Change: When do you guys have the spot rate on loans.
Speaker Change: In March.
Speaker Change: All right.
Speaker Change: Give me a moment on that and come back to you Matt Let me answer the question that I can give you that level.
Speaker Change: But.
Speaker Change: So the statistics, we tended to share as the year over year monthly change in loan yields so.
Speaker Change: That delta is not much different this quarter compared to last quarter, which is to say in March 2026, we expect the monthly loan yield to be 25% to 30 basis points higher than where it was in March 2025, that's just natural repricing in the loan book for the reasons you cited.
Dave Bonaccorso: There's obviously some noise that can impact that on a quarterly basis, and that assumption, of course, includes a flat balance sheet, reinvesting everything back into the same product, and so things like that. Of course, you've got to get the prepayment speeds correct, and positive and negative impacts and non-accruals can affect that as well. So it comes with a fair number of caveats, but that's the... That gives you a flavor for how things can progress over the next year. Only about seven percent of our loans are are floating and freely floating. So the short answer is there's not a huge impact to.
Speaker Change: There's obviously some noise that can impact that on a quarterly basis and that assumption of course includes a flat balance sheet reinvesting everything back into the same product and.
Speaker Change: So things like that of course, you've got to get the prepayment speeds correct in.
Speaker Change: Positive and negative impacts from non accruals can affect that as well. So it comes with a fair number of caveats, but that's the.
Speaker Change: That gives you a flavor for how things could progress over the next year.
Speaker Change: Only about 7% of our loans are floating and freely floating.
Speaker Change: So the short answer is there's not a huge impact too.
Dave Bonaccorso: to NIM from that perspective. I mean, it's noticeable. I think this quarter was worth a couple of basis points. So that gives you a sense of the potential impact. And this quarter, you know, we had a 30 basis point average decline in the Fed funds rate, so that's a little more than your 25 questions, but that's That's a good number to work off of. Okay, that's helpful.
Speaker Change: To NIM from that perspective, it's noticeable I think this quarter. It was worth a couple basis points.
Speaker Change: So that gives you a sense of the potential impact there.
Speaker Change: In the quarter and we had a 30 basis point average decline in the fed funds rate. So.
Speaker Change: That's a little more than 25 question, but that's that.
Speaker Change: Yes.
Speaker Change: That's a good number to work off of.
Tim Myers: And then most of my other questions have been asked and answered, but I guess on the credit side of things, I know that you guys historically have a very low loss rate. This quarter was kind of a one-off situation, but I'm just curious on your go-forward outlook. Are there any loans that, or any credits that you're watching more closely? Do you think? charge-offs. should trend much lower. I'm just curious how you're thinking about. and future charge-offs going forward. So if you put it in different buckets, if you look at some of the CRE loans that we've talked about that are in on non-accrual, we didn't have any change this quarter, no worsening, but no flat in terms of our expectations.
Speaker Change: Okay. That's helpful. And then most of my other questions have been asked and answered, but I guess.
Speaker Change: On the credit side of things I know that you guys historically have.
Speaker Change: Low loss rate.
Speaker Change: This quarter was kind of a one off situation, but I'm just curious on your go forward outlook are there are there any loans that.
Speaker Change: Or any credits that you're watching more closely do you think.
Speaker Change: Charge offs we.
Speaker Change: We should trend much lower I'm, just curious how youre thinking about.
Speaker Change: Future charge offs going forward.
Speaker Change: So if you put it in different buckets, if you will get some of the CRE loans that we've talked about that are in.
Speaker Change: On non accrual, we didnt have any change this quarter no worsening but no.
Tim Myers: So no change there. As I mentioned earlier, the two we downgraded, unrelated and both expect to be profitable this year. If you look at our credit portfolio overall, loans we consider graded. So watch or work.
Speaker Change: Flat in terms of our expectation so no change there.
Speaker Change: As I mentioned earlier, the two we downgraded unrelated in and both expect to be profitable. This year. If you look at our credit portfolio overall.
Speaker Change: Loans, we considered grade so watch or worse.
Tim Myers: That total bucket is the lowest it's been since the third quarter of 2023. So we're always going to have things move in and out when two loans that size move into substandard. It's reportable. You're going to see those numbers, but we really aren't seeing any deterioration in the overall portfolio. And, and and actually behind all this noise, continue to have quite a few upgrades.
Speaker Change: That total bucket is the lowest it's been since the third quarter of 2023. So we're always going to have things move in and out when two loans outside move into substandard, that's reportable youre going to see those numbers, but.
Speaker Change: We really arent seeing any deterioration.
Speaker Change: The overall portfolio and.
Speaker Change: And actually behind all of this noise continue to have quite a few upgrades. So.
Operator: So I would leave it there. Very helpful.
Speaker Change: I think it was that.
Speaker Change: I would leave it there.
Dave Bonaccorso: Those were all my questions. Thanks for the time. And I'll just say the March monthly loan yield, very close to the quarterly average. The number I have may not have all the tax adjustments, I'm reluctant to give you a specific number, but it's pretty much right on top of where we were for the loans, where we were for the quarter. Excuse me. Okay.
Speaker Change: Very helpful. Those are those are all my questions. Thanks for the time.
Speaker Change: Okay.
Speaker Change: Just say.
Speaker Change: The March monthly loan yield very close to the quarterly average the number I have may not have all the tax adjustments I'm reluctant to give you a specific number but it's pretty much right on top of where we work and the loans that were in the quarter excuse me.
Operator: Thank you.
Speaker Change: Okay. Thank you.
Operator: And that's a monthly rate, that wouldn't include the impact of funding that happens late in March.
Speaker Change: Definitely that's a monthly rate that would not include the impact of of fundings that happened late in March.
Operator: So it's not a spot rate.
Speaker Change: So it's not a spot rate.
Timothy Coffey: Our next question comes from Timothy Coffey at Janney Montgomery Scott. Please go ahead. Morning, gentlemen. Thanks for the opportunity to ask a question. Hello, Mr. Coffey. How are you doing? I'm good. I apologize for the last bit on the Q&A. Somebody hit the fire alarm from my office.
Timothy Coffey: Our next question comes from Timothy KFC.
Speaker Change: Janney Montgomery Scott please.
Speaker Change: Go ahead.
Speaker Change: Good morning, gentlemen, thanks for the opportunity to ask equivalent Mr coffee.
Speaker Change: Alright.
Speaker Change: Oh, good I apologize the last it on the Q&A.
Speaker Change: He hit the fire alarm my office, though.
Tim Myers: Tim, I heard you earlier talking about the lack of exposure to ag and that's mostly true, right? But you do have exposure to wine industry, maybe wine adjacent business. Are you, can you tell kind of what you're hearing from those clients and any concerns you might have about that industry? Yeah, sure. I'll defer on the wine specifically to Misako. Tim, she's also an expert as a credit administrator in that area. So. So, yeah, we do have wine clients in the portfolio, but it's really I want to say about three percent or less of our total in terms of exposure.
Speaker Change: Oh, sorry.
Speaker Change: So Tim I heard you earlier talking about.
Speaker Change: The lack of exposure to AG.
Speaker Change: Most of this right, but you do have exposure to one industry, maybe why in adjacent businesses.
Speaker Change: Are you can.
Speaker Change: Can you tell us kind of what youre hearing from those clients and any concerns you might have about that industry.
Speaker Change: Yes, sure I'll defer on the wind specifically the Masako, Tim shoes also an expert as the credit necessary in that area. So so yeah, we do have Blaine clients in our portfolio, but it's really I wanted to say about 3% or less of our total in terms of exposure.
Misako Stewart: And while, you know, we do have loans to some of their vineyards and tasting room manufacturing facilities, we really underwrite to the cash flow of the winery business. And so we're not you know, we're not underwriting to harvest and we don't have crop lines and we don't lend to growers directly. Having said that, you know, as I'm sure you've seen and read, you know, that industry is facing some challenges. And so we are staying really close to our borrowers. Majority of it is secured, you know, with with low loan to values and. Yeah, and we don't have, in terms of any exposure to exporters, you know, I think the majority of our wineries, if any, have very little kind of export markets that they sell to.
Speaker Change: And while we do have loans to some when you're.
Speaker Change: And dad tasting room manufacturing facilities, we really underwrite.
Speaker Change: The cash flow of the wiring business and so we're not you know we're not underwriting to.
Speaker Change: And we don't have crop lines in and we don't lend to them.
Speaker Change: Growers directly.
Speaker Change: Having said that as I'm sure you've seen in bad you know that industry is facing some challenges and so we are staying really close to our borrowers.
Speaker Change: Majority of it is secured.
Speaker Change: Low loan to values.
Speaker Change: And.
Yeah, and we don't have in terms of.
Speaker Change: Any exposure to X quarters I think.
Speaker Change: Majority of our winery and he has very little kind of export market.
Misako Stewart: So we continue to stay very close to those clients, stay on top of what's going on, and for the most part, we are not seeing major issues in that portfolio.
Speaker Change: So we continue to stay very close to those clients and stand top of what's going on in and out for the most part we're not seeing a major issues in that portfolio.
Tim Myers: Okay, great. Thank you. That's a fantastic color. Appreciate that.
Speaker Change: Okay, Great that's fantastic color I appreciate that.
Tim Myers: And Tim, in terms of business development, it seems like maybe a couple quarters ago, we started to see some meaningful Computers. Reporter Yeah, I do think that's an overall trend. I do think it's somewhat episodic. I think there were some people and this is just my color. And so it was answering your question. to the best of my ability. I think there was some outflow early on where you had people just say, I don't want to be part of, you know, a much larger organization coming out of, you know, someone wanted to fail. Then you had a group that said, well, let's just see what this is going to be like.
Speaker Change: Tim.
Speaker Change: Terms of business development. It seems like maybe a couple of quarters ago, we started to see some meaningful outflows of clients away from the acquired banks and 23 to some of the more local banks like yourselves.
Speaker Change: I mean, given the commentary you made about a third of the new deposits coming from the clients.
Speaker Change: That trend continuing where we're starting to see clients move out of the bigger institutions into the small service oriented institutions.
Speaker Change: Yeah, I do think Thats, an overall trend I do think it's somewhat episodic I think there was some people and this is just my color and so.
Speaker Change: I was answering your question.
Speaker Change: It's the best of my ability I think there was some outflow early on where you have people just say I don't want to be part of a much larger organization coming out of some of the ones that failed and then you had a group that say well, let's just see what this is going to be light.
Tim Myers: And maybe in that is the inertia group, nothing changes. And then after they have that experience at a, you know, money center institution, maybe that's not the care and the level of attention that I grew accustomed to, but if they're dealing with the same people, you know, good bankers can, can help smooth that over for their clients. So then you had people start to leave and then you kind of have this. And I think that's where we're at is the people we've continued to bring over, although it's been, you know, more one-offs than maybe some of our peers that took big teams. Now we're seeing the benefit of them talking to those clients and saying, I have a lovely home for you, as you said, a smaller community oriented institution.
Speaker Change: And maybe in that is the inertia group nothing changes.
Speaker Change: And then after they have that experience.
Speaker Change: Money center institutions, maybe thats not the.
Speaker Change: The care and the level of attention that I grew accustomed to but if they're dealing with the same people.
Speaker Change: Good bankers can can help smooth that over for their clients. So then you have people start to leave and then you kind of have this and I think that's where we're at is the people who have continued to bring overall, though it's Ben.
Speaker Change: More one offs than maybe some of our peers. It's a great team now we're seeing the benefit of been talking to those clients and saying I have a lovely home for you as you said a smaller community oriented institutions. So there's no question, that's playing into the demand, but it's really hard to predict.
Tim Myers: So there's no question that's playing into the demand, but it's really hard to predict. kind of the cyclicality, if you will, of that. Does that answer your question? Yeah, it does. It absolutely does. I appreciate that.
Speaker Change: Kind of the cyclicality, if you will of that does that answer your question.
Speaker Change: Yes. It does absolutely does I appreciate that and then a final question for Dave.
Dave Bonaccorso: And then a final question for Dave. As we start looking at the investment portfolio, and as for percentage of average assets, clearly it's come down year over year, right? But is it getting to, I think it's about a third now of average assets. Is that the right level, you think, for the current environment? Or do you think you can even get smaller and perhaps build up some more cash? We'd still like the portfolio to be lower, with the idea of course, trying to allocate more of that part of the balance sheet to loans. So that's the that's the name of the game.
Speaker Change: As we started looking at the investment portfolio.
Speaker Change: And as a percentage of average assets clearly it has come down year over year right.
Speaker Change: But is it getting to I think it's about a third now of average assets is that the right level do you think the current environment or do you think you could even get smaller and perhaps build up some more cash.
Speaker Change: We still like the portfolio it would be lower.
Speaker Change: With the idea of course trying to allocate more of that.
Speaker Change: Part of the balance sheet the loans. So that's the that's the name of the game.
Dave Bonaccorso: But if you're asking about the trade-off between cash and securities, you know, setting aside any loan growth, I think we have the right amount of both these days. So I don't see any need to stockpile cash. I think we're. Pretty on top of looking ahead with forecasting tools, where we think we're going to be, where the needs are, when the growth is going to come in loans and deposits from a seasonal perspective, and trying to match cash to that, and having any excess go into securities at some premium yield-wise relative to what we're making in cash.
Speaker Change: But but.
Speaker Change: If youre asking about the tradeoff between cash and securities setting aside any loan growth.
Speaker Change: I think we have I think we have the right amount of both these days so I don't see any need to stockpile cash I think we are.
Speaker Change: Pretty on top of.
Speaker Change: Looking ahead with forecasting tools, where we think we're going to what do you think we're going to be where the needs are when the growth is going to come in.
Speaker Change: In loans and deposits from a seasonal perspective, and trying to match cash to that and having any excess go into securities at some premium yield wise relative to what we're making the cash that answer your question.
Dave Bonaccorso: Does that answer your question? It does. It sounds like you've got the right amount of liquidity for what you see in front. Absolutely. We have we have lots of Cash flow coming off the securities portfolio. I think the remainder of the year, we have $150 million. You know, that rolls off at three and a half percent. So this thing in cash today, you're picking up 90 basis points there. And we have, I think, a little over $200 million coming next year. So the securities portfolio can definitely fund the loan growth we're expecting. And again, any excesses will be dropped back into securities.
Speaker Change: It does it does it sounds like you've got the right amount of liquidity for what you see in front of you.
Speaker Change: Absolutely we have we have lots of them.
Speaker Change: Cash flow coming off the securities portfolio I think the remainder of the year, we have $150 million, even that rolls off at three 5%. So.
Speaker Change: <unk> cash today, you're picking up 90 basis points, there and we have I think a little over $200 million coming next year. So.
Speaker Change: Securities portfolio can definitely fund the loan growth, we're expecting and again any excesses will be.
Operator: Okay, great. Well, I appreciate it. Those are my questions. Thank you. Thanks, Jim.
Speaker Change: Drop back into securities.
Speaker Change: Okay, great well I appreciate it those are my questions. Thank you.
Operator: We have no further questions at this time.
Speaker Change: Thanks, Tim.
Tim Myers: I will now hand it back to Tim Myers for closing remarks. Thank you again, everybody, for the questions, for listening in.
Speaker Change: We have no further questions at this time I will now hand, it back to Tim Myers for closing remarks.
Tim Myers: Thank you again, everybody for the questions for listening in and as always if you need further information, Dave and I are both available to look forward to talking to you next quarter.
Tim Myers: And as always, if you need further information, Dave and I are both available to you. Look forward to talking to you next quarter.