Q1 2025 Enterprise Financial Services Corp Earnings Call

Operator: Please wait, the conference will begin shortly. Thank you for standing by.

Please wait the conference will begin shortly.

[music].

Okay.

Okay.

Pam: Thank you for standing by my name is Pam and I will be your conference operator today at this time I would like to welcome everyone to the Enterprise Financial Services Corp, One Keith twenty-five earnings conference call.

Pam: My name is Pam, and I will be your conference operator today.

Pam: At this time, I would like to welcome everyone to the Enterprise Financial Services Corp 1Q25 Earnings Conference Call. All lines have been placed on mute to prevent any background noise.

Pam: All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you'd like to ask a question. During this time simply press star followed by the number one on your telephone keypad.

Pam: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you.

Pam: If you would like to enjoy a question press star one again.

Jim Lally: I would now like to turn the conference over to Jim Lally, President and CEO. You may begin. Well, thank you, Pam. And good morning, everybody.

Pam: Thank you I would now like to turn the conference over to Jim Lally, President and CEO you may begin.

Jim Lally: Well, thank you Pam and good morning, everybody. Thank you all very much for joining us This morning, and welcome to our 2025 first quarter earnings call. Joining me. This morning is Keene Turner <unk>, Chief Financial Officer, and Chief Operating Officer, Scott Goodman, President of Enterprise Bank and Trust and Doug <unk>, Chief Credit Officer of Enterprise Bank and Trust.

Jim Lally: Thank you all very much for joining us this morning and welcome to our 2025 first quarter earnings call. Joining me this morning is Keene Turner, EFSC's Chief Financial Officer and Chief Operating Officer. Scott Goodman, President of Enterprise Bank and Trust, and Doug Bauche, Chief Credit Officer of Enterprise Bank and Trust. Before we begin, I would like to remind everybody on the call that a copy of the release and accompanying presentation can be found on our website. The presentation and earnings release were furnished on SEC Forum 8K yesterday, in addition to two other press releases that we'll be referencing in our remarks this morning.

Pam: Before we begin I would like to remind everybody on the call that a copy of the release and accompanying presentation can be found on our website.

Pam: <unk> earnings release were furnished on SEC form 8-K yesterday. In addition to two other press releases that we will be referencing in our remarks. This morning. Please refer to slide two of the presentation titled forward looking statements and our most recent 10-K and 10-Q for reasons why actual results may vary from any forward looking statements that we make this work.

Jim Lally: Please refer to Slide 2 of the presentation titled Forward-Looking Statements and our most recent 10K and 10Q for reasons why actual results may vary from any forward-looking statements that we make this morning.

Pam: Yeah.

Jim Lally: Our financial scorecard begins on slide three. 2025 is off to an exciting start for our company. In addition to strong financial results for the first quarter, yesterday we announced the acquisition of 12 branches from First Interstate Bank, 10 of which are in our Arizona market, complementing very well the Focus Commercial Bank we have built over the last 15 years. Strong financial performance that we have generated for the past several years continued into the first quarter of 2025. For the quarter, we earned $1.31 per diluted share, which compares favorably to the seasonally strong $1.28 that we earned in the late quarter and the $1.05 that we earned in the first quarter of 2024.

Our financial Scorecard begins on slide three.

Pam: 2025 is off to an exciting start for our company. In addition to strong financial results for the first quarter yesterday, we announced the acquisition of 12 branches from first Interstate Bank 10 of which are in our Arizona market complementing very well focused commercial bank, we have built over the last 15 years.

Pam: The strong financial performance that we have generated for the past several years continued into the first quarter of 2025.

Pam: For the quarter, we earned $1 31 per diluted share, which compares favorably to the seasonally strong $1 28.

Pam: That we earned in the linked quarter and the $1 five that we earned in the first quarter of 2020 for.

Jim Lally: This level of performance produced an adjusted return on assets of 1.29% and a pre-provision ROAA of 1.71%. I would characterize our performance in the quarter as strong and Net interest income and net interest margin both saw expansion in the quarter. NII came in at $1.1 million better than the previous quarter, despite two fewer days in the quarter and represented the fourth consecutive quarter where we saw NII expansion. This reflects both better seasonal performance in our deposit balances and that interest margin expansion resulting from our relationship-oriented deposit base and our team's ability to provide value-added service to our customers that is well worth the extra few basis points when it comes to loan and deposit pricing.

This level of performance produced an adjusted return on assets of one 9% and a pre provision R. O a a 171% I would characterize our performance in the quarter as strong and consistent.

Pam: Net interest income and net interest margin both saw expansion in the quarter NII came in at $1 $1 million better than the previous quarter. Despite two fewer days in the quarter and represent the fourth consecutive quarter, we saw NII expansion.

Pam: This reflects both better seasonal performance in our deposit balances and net interest margin expansion, resulting from our relationship oriented deposit base and our team's ability to provide value added service to our customers is well worth the extra few basis points when it comes to loan and deposit pricing.

Jim Lally: Loan growth in the quarter was 3%, or $78 million, with active production across all of our markets and businesses.

Pam: Loan growth in the quarter was 3% or $78 million with active production across all of our markets and businesses. However, net growth was somewhat muted by two factors. The first was the sale of $30 million of SBA loans and the second was the seasonal decline due to sales and loans and our tax credit business.

Jim Lally: However, net growth is somewhat muted by two factors. First was the sale of $30 million of SBA loans, and the second was the seasonal decline due to sales in loans in our tax credit business that totaled approximately $75 million. Our diversified deposit base remains a differentiator for us. Typically, in the first quarter shows significant outflows due to the heavy concentration of commercial oriented accounts. This year, absent a municipal relationship that we knew was exiting, our deposit flows were stable overall. We worked extremely hard to blunt this trend through growth of our national deposit verticals as well as through market and business diversification within both the commercial bank and our more granular business banking and consumer relations.

Pam: <unk> that totaled approximately $75 million.

Pam: Our diversified deposit base remains a differentiator for us typically in the first quarter showed significant outflows due to the heavy concentration of commercial oriented accounts. This year absent a municipal relationship that we knew was exiting our deposit flows are stable overall.

Pam: We worked extremely hard to blunt this trend through growth of our national deposit verticals as well as through market and business diversification within both the commercial bank and our more granular business banking and consumer relationships. The composition of deposits also remained stable with DDA at 33%.

Jim Lally: The composition of deposits also remains stable with DDA at 33%. These trends aided a continued reduction in the overall cost of deposits. 1.83%, a 17 basis point drop in the quarter.

Pam: These trends aided a continued reduction in the overall cost of deposits to 183%, a 17 basis point drop in the quarter.

Jim Lally: Another strength of our company is our well-positioned balance sheet, which provides for great flexibility with respect to capital planning. Capital levels at quarter end remain stable and strong with our tangible common equity to tangible assets ratio at 9.30%. Despite TCE well above 9%, we still delivered 14% return on tangible common equity for the first quarter. Our strong return profile aided continued expansion in tangible book value per common share to $38.54, an annualized quarterly increase of 14%.

Pam: Another strength of our companies are well positioned balance sheet, which provides for great flexibility with respect to capital planning capital levels at quarter end remained stable and strong with our tangible common equity to tangible assets ratio at 930%.

Pam: Despite TCE well above 9%, we still delivered 14% return on tangible common equity for the first quarter.

Pam: Our strong return profile aided continued expansion and tangible book value per common share to $38 54.

Pam: And annualized quarterly increase of 14%.

Jim Lally: Given the strength of our earnings and our confidence in our continued execution, we increased the dividend by one cent per share for the second quarter of 2025 to 30 cents per share and returned another $11 million to common shareholders in the quarter through share repurchase. Additionally, we were able to utilize our demonstrated experience in M&A by further leveraging our excess capital through the strategic branch acquisition we announced. compliment our organic growth. Yesterday we announced our agreement with First Interstate Bank to acquire 10 branches in Arizona and two in Kansas City. With this purchase comes approximately $740 million of favorably priced, commercially oriented, relationship-based deposits, and approximately $200 million of related commercial loans.

Pam: Given the strength of our earnings and our confidence in our continued execution, we increased the dividend by <unk> <unk> per share for the second quarter of 2025 to <unk> 30 per share and returned another $11 million to common shareholders in the quarter through share repurchases. Additionally, we were able to utilize our demonstrated experience in M&A.

Pam: By further leveraging our excess capital through the strategic branch acquisition, we announced.

Pam: To complement our organic growth yesterday, we announced our agreement with first Interstate bank to acquire 10 branches in Arizona and two in Kansas City.

Pam: With this purchase comes approximately $740 million of favorably priced commercially oriented relationship relationship based deposits and approximately $200 million of related commercial loans. This purchase is highly strategic and supports our growth strategy of expanding our strong positions in attractive markets.

Jim Lally: This purchase is highly strategic and supports our growth strategy of expanding our strong positions in attractive markets. The large majority of these loans and deposits are in Arizona, a market we know well and have had tremendous growth and success in recent years, and it provides us physical presence in the southeast valley of Phoenix. Pinal County, as well as in Tucson. These locations and markets fit extremely well with the position we have built over the last 15 years in Arizona, and we are very excited to further our commitment to this market and to capitalize on a rare opportunity given the complexion of the banking landscape in Arizona.

Pam: The large majority of these loans and deposits are in Arizona, a market, we know well and have had tremendous growth and success in recent years and it provides us physical presence in the southeast Valley of Phoenix.

Pam: P&L County, as well as in Tucson.

Pam: These locations in markets extremely well with the position we have built over the last 15 years in Arizona and we're very excited to further our commitment to this market and to capitalize on a rare opportunity given the complexion of the banking landscape in Arizona.

Jim Lally: This acquisition is a low-risk, shareholder-friendly way to leverage our proven strength in acquiring and integrating organizations. For us, this is a highly strategic fit for both the types of businesses and relationships that we bank and the types of employees who serve them well. This acquisition supports our objectives of growing our balance sheet to deliver top quartile returns and consistently deliver compounding tangible book value. When completed, this opportunity will immediately leverage a modest amount of TCE and capital and will also produce attractive EPS accretion in 2026 and beyond.

Pam: This acquisition is a low risk shareholder friendly way to leverage our proven strength in acquiring and integrating organizations for us. This is a highly strategic fit for both the types of businesses and relationships that we bank and the types of employees, who serve them well. This acquisition supports our objectives of growing our balance sheet to deliver top.

Pam: Quartile returns and consistently deliver compounding tangible book value.

Pam: When completed this opportunity will immediately leverage a modest amount of TCE and capital and will also produce attractive EPS accretion in 2026 and beyond we anticipate closing and converting by early fourth quarter of this year.

Jim Lally: We anticipate closing and converting by the early fourth quarter of this year.

Jim Lally: Before we discuss the performance of our markets and businesses, I would like to address the increase in NPAs in the quarter. This is related to several loans that are linked through a common ownership. linked through common ownership and located in our Southern California market.

Pam: Before we discuss the performance of our markets and businesses I would like to address the increase in NPA in the quarter.

Pam: This is related to several loans that are linked through a common ownership.

Pam: Link through the common ownership and located in our southern California market.

Jim Lally: You need to know that we are well prepared for situations like this one, and I'm confident that this matter will be resolved favorably. Doug and our experienced resolution management team are personally involved in resolving this matter, and I anticipate that we'll receive full repayment of these loans. I remain highly competent in enterprise's risk management process and in the strength of our loans and assets.

Pam: You need to know that we are well prepared for situations like this one and I am confident that this matter will be resolved favorably, Doug and our experienced resolution management team are personally involved in resolving this matter and I'd.

Pam: Anticipate that will receive full repayment of these loans.

Pam: I remain highly confident in enterprise risk management process and in the strength of our loans and assets.

Scott Goodman: Now I'd like to turn the call over to Scott Goodman, who'll provide an update on our performance in our markets and national businesses. Thank you, Jim, and good morning, everyone. Expanding a bit more on Jim's comments regarding loan production. Loan activity was generally healthy with originations for the quarter up nearly 40% from Q1 of the previous year. Loan balances by category are broken out on slide six, showing the net growth for the quarter and for the trailing 12 months. T&I growth for Q1 reflects continued success in attracting new relationships to the bank, as well as ongoing M&A, capital investment, and succession-related financing activity from our existing base of clients.

Speaker Change: Now I'd like to turn the call over to Scott Goodman, who will provide an update on our performance in our markets and national businesses Scott.

Thank you Jim and good morning, everyone.

Speaker Change: Expanding a bit more on Jim's comments regarding loan production loan activity was generally healthy with originations for the quarter up nearly 40% from Q1 of the previous year.

Speaker Change: Loan balances by category are broken out on slide six showing the net growth for the quarter and for the trailing 12 months.

Speaker Change: C&I growth for Q1 reflects continued success in attracting new relationships to the bank as.

Speaker Change: As well as ongoing M&A capital investment.

Speaker Change: <unk> and related financing activity from our existing base of clients.

Scott Goodman: Working capital lines also posted a modest increase in aggregate balances for the quarter. We also continue to originate new investor commercial real estate opportunities, growing by $82 million in Q1. Our emphasis in this category is on leveraging markets with the strongest economic profiles and supporting existing investor relationships that would also feature well-rounded deposit balances and fee income. The specialty lending businesses generally continue to perform well and in line with seasonal expectations. Life insurance premium finance grew by 35 million for the quarter, mainly reflecting advances for premiums on existing policy loans, along with several new This business continues on a steady growth trajectory, up 14% year over year.

Speaker Change: Working capital lines also posted a modest increase in aggregate balances for the quarter.

Speaker Change: We also continued to originate new investor commercial real estate opportunities growing by $82 million in Q1.

Speaker Change: Our emphasis in this category is on leveraging markets with the strongest economic profiles and supporting existing investor relationships that would also seem to hear well rounded deposit balances and fee income.

Speaker Change: The specialty lending businesses generally continue to perform well and in line with seasonal expectations.

Life insurance premium finance grew by $35 million for the quarter, mainly reflecting advances for premiums on existing policy loans, along with several new originations.

Speaker Change: This business continues on a steady growth trajectory up 14% year over year.

Scott Goodman: The SBA business is also performing well with origination tracking on plan and rate induced payoff pressures trending down. Net of the aforementioned SBA loan sale growth was roughly $16 million in the quarter. Loan balances and sponsor finance were level for the quarter as origination of new senior debt by private equity sponsors was offset by paydowns from the sale of portfolio Generally speaking, activity continues in this space, albeit at a slower pace, as private equity weighs the impact of potential tariffs and interest rates on company valuation. Activity in the tax credit business also continues in line with expectations, with Q1 reductions mentioned by Jim, resulting from the impact of the seasonal pay down of project loans with tax credit sale proceeds.

Speaker Change: The SBA business is also performing well with the originations tracking on plan and rate induced payoff pressures trending down.

Speaker Change: Net of the aforementioned SBA loan sale growth was roughly $16 million in the quarter.

Speaker Change: Loan balances in sponsor finance, where level for the quarter as origination of new senior debt by private equity sponsors.

Speaker Change: It was offset by pay downs from the sale of portfolio companies.

Speaker Change: Generally speaking activity continues in this space, albeit at a slower pace as private equity ways, the impact or potential tariffs and interest rates on company valuations.

Speaker Change: Activity in the tax credit business also continues in line with expectations with Q1 reduction mentioned by Jim resulting from the impact of the seasonal pay down of project loans with tax credit sale proceeds.

Scott Goodman: We still expect growth in this business for the full year of 2025. Loans by region are broken out on slide seven with aggregate specialty lending balances reflecting my prior comments. Within the geographic regions, balances were down slightly in the Midwest while posting growth in both western and southwestern regions. Our Midwestern markets of St. Louis and Kansas City experienced steady origination activity, including new CRE loans for existing hospitality, industrial, and multifamily clients. However, fundings were not sufficient to offset several larger paydowns tied to our continued managed rundown of the ag portfolio. Client Asset Sales, and a decision to move on from a larger C&I client whose leverage profile was shifting beyond our risk appetite.

Speaker Change: Still expect growth in this business for the full year of 2025.

Speaker Change: Loans by region are broken out on slide seven with aggregate specialty lending balances, reflecting my prior comments.

Speaker Change: Within the geographic regions balances were down slightly in the Midwest, while posting growth.

Speaker Change: Both western and southwestern regions.

Speaker Change: Our Midwestern markets of St. Louis and Kansas City experienced steady origination activity.

Speaker Change: <unk>, new CRE loans for existing hospitality industrial and multifamily clients. However.

Speaker Change: However, fundings were not sufficient to offset several larger paydowns tied to our continued managed rundown of the AG portfolio.

Speaker Change: Client asset sales.

Speaker Change: And a decision to move on from a larger C&I clients, whose leverage profile was shifting beyond our risk appetite.

Scott Goodman: The Southwest region posted 83 million or 19% annualized loan growth in the quarter, both bolstered by continued fundings on construction projects, as well as new originations on existing relationships in the Arizona market for medical office, self-storage, and automotive services. Our Western market of Southern California also had a strong quarter with 60 million or 13% annualized loan growth. New business included loans to refinance fully occupied medical and mixed use properties in San Diego, as well as a new relationship with a specialty finance company.

Speaker Change: The southwest region posted $83 million or 19% annualized loan growth in the quarter. Both bolstered by continued fundings on construction projects as well as new originations on existing relationships in the Arizona market for medical office self storage and automotive serve.

Speaker Change: Mrs.

Speaker Change: Our western markets of.

Speaker Change: Southern California also had a strong quarter with $60 million or 13% annualized loan growth.

Speaker Change: New business included loans to refinance fully occupied medical and mixed use properties in San Diego.

Speaker Change: As well as a new relationship with a specialty finance company.

Scott Goodman: Moving on to deposits on slides eight and nine. Changes in the quarter within the core geographic portfolio reflect the typical seasonal decline in client balances of $303 million, mainly associated with distributions, bonuses, and tax payments. Material portion of this reduction was upset by continued growth within the national deposit verticals, which grew 134 million, or roughly 16% annualized in Q1. On a year-over-year basis, total client deposits excluding brokered funds are up 7.7%. In general, the larger C&I portfolios within the Midwest and Western markets are most heavily impacted by the seasonal reductions, which typically then rebuild throughout the remainder of the year.

Speaker Change: Moving on to deposits on slide eight and nine.

Speaker Change: Changes in the quarter within the core geographic portfolio reflect the typical seasonal decline in client balances.

Speaker Change: $303 million, mainly associated with distributions bonuses and tax payments.

Speaker Change: A material portion of this reduction was offset by continued growth within the national deposit verticals, which grew $134 million or roughly 16% annualized in Q1.

Speaker Change: On a year over year basis total client deposits, excluding brokered funds are up seven 7%.

Speaker Change: In general the larger C&I portfolios within the Midwest and Western markets are most heavily impacted by the seasonal reductions, which typically then rebuild throughout the remainder of the year.

Scott Goodman: We continue to perform well relative to retention of existing clients, as well as adding new CNI relationships, even as we proactively focus on gaining incremental margin in the pricing of loans and deposits. Our commercial teams are well versed in reinforcing our key value drivers, particularly as we assist clients with strategic capital needs or target disrupted competitors. The National Deposit Verticals profiled on slide. continue to provide differentiated low cost. while also diversifying our overall deposit base and somewhat softening the seasonality of our other channels. HOA had a particularly strong growth quarter associated with onboarding a significant number of new account relationships.

Speaker Change: We continue to perform well relative to retention of existing clients as well as adding new C&I relationships, even as we proactively focus on gaining incremental margin and the pricing of loans and deposits.

Speaker Change: Our commercial teams are well versed in reinforcing our key value drivers, particularly as we assist clients with strategic capital needs or target disrupted competitors.

Speaker Change: The national deposit verticals profiled on slide 10.

Speaker Change: Continuing to provide differentiated low cost funding.

Speaker Change: I'll also diversifying our overall deposit base and somewhat softening the seasonality of our other channels.

Speaker Change: HLA had a particularly strong growth quarter associated with Onboarding, a significant number of new account relationships.

Scott Goodman: Lastly, slide 11 profiles the mix of our core deposit base, which continues to be well-diversified and highly relationship-oriented, with roughly one-third of these accounts being non-interest bearing and 90% of them using some form of treasury management or online banking. They provide strong continuity and a solid base from which to expand other fee-generating revenue.

Speaker Change: Lastly, slide 11 profiles in the mix of our core deposit base, which continues to be well diversified and highly relationship oriented with roughly one third of these accounts being noninterest bearing and 90% of them using some form of treasury management or online banking, they provide strong continuity and a solid base from which to expand other.

Speaker Change: Fee generating revenue streams.

Keene Turner: Now I would like to hand the call over to Keene Turner for his comments. Thanks, Scott. And good morning, everyone. Turning to slide 12, we reported earnings per share of $1.31 in the first quarter on net income of $50 million. That's a three cent increase over the link quarter for which earnings per share was $1.28. On an adjusted basis, earnings per share was relatively stable at $1.31 in the current quarter. Adjusted EPS excludes the impact of core conversion related expenses and gains and losses on the sale of OREO and security. One of the highlights of the quarter was the increase in net interest income.

Speaker Change: Now I would like to hand, the call over to Keene Turner for his comments Keith.

Keith Turner: Thanks, Scott and good morning, everyone turning to slide 12, we reported earnings per share of $1 31 in the first quarter on net income of $50 million, that's a 3% increase over the linked quarter for which earnings per share was $1 28.

Keith Turner: On an adjusted basis earnings per share was relatively stable at $1 31 in the current quarter.

Keith Turner: Adjusted EPS excludes the impact of core conversion related expenses and gains and losses on the sale of Oreo and securities.

One of the highlights of the quarter was the increase in net interest income or.

Keene Turner: our disciplined pricing of loans and deposits, benefit and net interest income, along with growth in average loans and security. These actions more than offset the impact of fewer days in the quarter and the repricing of variable rate loans. Non-interest income was also strong to start the year, although it did decline from the fourth quarter, which is typically the highest quarter of the year. The provision for credit loss has decreased from the link quarter due to lower growth and a net recovery on loans. As Jim noted, while non-performing loans have increased due to the relationships and bankruptcy, we do not reserve for those loans as we fully expect to collect the related balance.

Keith Turner: Our disciplined pricing of loans and deposits benefited net interest income along with growth in average loans and securities.

Keith Turner: These actions more than offset the impact of fewer days in the quarter and the repricing of variable rate loans.

Keith Turner: Noninterest income was also strong to start the year, although it did decline from the fourth quarter, which is typically the highest quarter of the year.

Keith Turner: The provision for credit losses decreased from the linked quarter due to lower growth in a net recovery on loans as Jim noted, while nonperforming loans have increased due to the relationships and bankruptcy. We did not reserve for those loans as we fully expect to collect related balances.

Keene Turner: Non-interest expense was slightly higher in the quarter as a seasonal increase in compensation and benefits was mostly offset with a decrease in conversion costs related to the core system migration in the fourth quarter.

Keith Turner: Noninterest expense was slightly higher in the quarter as the seasonal increase in compensation and benefits was mostly offset with the decrease in conversion costs related to the core system migration in the fourth quarter.

Keene Turner: Turn to slide 13 with more details to follow on 14. To me, the highlight of the first quarter is how well we were able to manage net interest income. First and foremost, we were able to mitigate two fewer days in the quarter. There isn't one single factor that led to this performance. However, we were able to largely replace seasonal deposit outflows to maintain the size of the balance. For the last several quarters, the investment rate for securities has been favorable, and we've been adding to those balances in order to strengthen our earnings profile. Also, from a business perspective, we have had success in repricing loans better than we had anticipated, while also improving the pricing on our deposit balance.

Keith Turner: Turning to slide 13 with more details to follow on 2014.

Keith Turner: To me the highlight of the first quarter is how well we were able to manage net interest income first and foremost we were able to mitigate two fewer days in the quarter. There isn't one single factor that led to this performance. However, we were able to largely replace seasonal deposit outflows to maintain the size of the balance sheet.

Keith Turner: The last several quarters the investment rate for securities has been favorable and we've been adding to the those balances in order to strengthen our earnings profile.

Keith Turner: Also from a business perspective, we have had success in repricing loans better than we had anticipated while also improving the pricing on our deposit balances.

Keene Turner: The origination rate for new loans was 7.12% in the quarter, and we were able to drive deposit rates down another 10 basis points to 1.82% at the end of the first quarter. The combination of those factors has led to better-than-planned net interest margin in this first quarter. Starting off the year with a 4.15% net interest margin has set the stage for slightly stronger net interest income performance for 2025. With that said, we do expect to see modest erosion of margin during this year. With recent variability in interest rates in recent weeks, it's difficult to assume that we would face the same strength in reinvestment rates throughout 2025.

Keith Turner: The origination rate for new loans was 712% in the quarter and we were able to drive deposit rates down another 10 basis points to 182% at the end of the first quarter the.

Keith Turner: The combination of those factors has led to better than planned net interest margin in this first quarter.

Keith Turner: Starting off the year with a 415% net interest margin has that has set the stage for slightly stronger net interest income performance for 2025.

Keith Turner: With that said, we do expect to see modest erosion of margin. During this year with recent variability in interest rates in recent weeks, it's difficult to assume that we would face the same strength and reinvest reinvestment rates throughout 2025.

Keene Turner: However, we will continue our efforts to mitigate expected pressure on net interest margin with continued discipline on pricing performance on both sides of the balance. As for net interest income dollars, day count is now in our favor for the remainder of 2020.

Keith Turner: However, we will continue our efforts to mitigate the expected pressure on net interest margin with continued discipline on pricing performance on both sides of the balance sheet.

Keith Turner: As for net interest income dollars day count is now in our favor for the remainder of 2025.

Keene Turner: Slide 15 reflects our credit trends. We had a net recovery of $1.1 million compared to net charge-offs of $7.1 million in the linked quarter. The provision for credit losses declined to $5.2 million in the period compared to $6.8 million in the linked quarter due to changes in loan growth and the net recovery.

Keith Turner: Slide 15 reflects our credit trends we.

Keith Turner: We had a net recovery of $1 1 million compared to net charge offs of $7 $1 million in the linked quarter.

Keith Turner: The provision for credit losses declined to $5 $2 million in the period compared to $6 $8 million in the linked quarter due to changes in loan growth and the net recovery.

Keene Turner: Non-performing assets were 72 basis points of total assets compared to 30 basis points at the end of the year. The temporary increase in the non-performing asset ratio was primarily related to two relationships with common general partners that went into bankruptcy due to a business dispute. We are well secured with collateral and individual guarantees and fully expect to collect each of the underlying loans, and we expect NPAs to return to normalized level in the next couple of months.

Keith Turner: Nonperforming assets were 72 basis points of total assets compared to 30 basis points at the end of the year. The temporary increase in the nonperforming asset ratio was primarily related to relationships with common general partners that went into bankruptcy due to a business dispute, we're well secured with collateral and individual guarantees and fully expect to collect each of the <unk>.

Keith Turner: You're lying loans and we expect NPA is to return to normalized level in the next couple of quarters.

Keene Turner: Slide 16 presents the allowance for credit losses. The allowance for credit losses represents 1.27% of total loans, or 1.38% when adjusting for government-guaranteed loans. Of note, we moved allowance to total loan coverage up slightly to further reflect potential for erosion of economic conditions.

Keith Turner: Slide 16 presents the allowance for credit losses, the allowance for credit losses represents one 7% of total loans or $1, 38% when adjusting for government guaranteed loans.

Keith Turner: Of note, we moved allowance to total loan coverage up slightly to further reflect potential for erosion of economic conditions.

Keene Turner: On slide 17, first quarter non-interest income of $18 million included a $1.9 million gain on the sale of SBA loans. This helped partially offset the decrease in tax credit income from a seasonally high fourth quarter. Depending on levels of planned growth and activity in the SBA space, we may take the opportunity to sell more SBA loans as the year progresses.

Keith Turner: On slide 17 first quarter noninterest income of $18 million included a $1 $9 million gain on the sale of SBA loans. This helped partially offset the decrease in tax credit income from a seasonally high fourth quarter, depending on levels of planned growth in activity in the SBA space, We may take the opportunity to sell more SBA loans as.

Keith Turner: The year progresses.

Keene Turner: Turning to slide 18, non-interest expense of $99.8 million increased less than $1 million from the fourth quarter. The increase was primarily in compensation and benefits due to seasonal payroll tax impacts and merit increases that went into effect March 1st. These increases were offset by the $1.9 million in core conversion costs in the fourth quarter that did not reoccur. Deposit costs were relatively stable as well, reflecting the strength of the average balances, offsetting improvement in the earnings credit rate.

Keith Turner: Turning to slide 18, noninterest expense of $99 $8 million increased less than $1 million from the fourth quarter. The increase was.

Keith Turner: Was primarily in compensation and benefits due to seasonal payroll tax impacts and merit increases that went into effect March one.

These increases were offset by the $1 $9 million in core conversion costs in the fourth quarter that did not reoccur.

Keith Turner: Deposit costs were relatively stable as well, reflecting the strength of the average balances offsetting improvement in the earnings credit rate.

Keene Turner: efficiency improved to 58.8% compared to 57.1% for the Link Corp. Sorry, efficiency increase, not Our capital metrics are shown on slide 19.

Keith Turner: Core efficiency improved to 58, 8% compared to 57, 1% for the.

Keith Turner: Linked quarter efficiency increase not improved.

Keith Turner: Our capital metrics are shown on slide 19, we are executing our disciplined capital allocation strategy evaluating various opportunities, including share repurchases and M&A with focus on creating shareholder value.

Keene Turner: We are executing our disciplined capital allocation strategy, evaluating various opportunities, including share repurchases and M&A with focus on creating shareholder value. We repurchased 192,000 shares at an average price of $55.28 for approximately $11 million of capital return. We have approximately 1.2 million shares remaining outstanding under our current repurchase plan. Our tangible common equity ratio was 9.3% up from 9.1% in the linked quarter. On a per share basis, tangible book value was up by 14% on an annualized basis to $38.54.

Keith Turner: We repurchased 192000 shares at an average price of $55 28.

Keith Turner: For approximately $11 million of capital return.

We have approximately $1 2 million shares remaining outstanding under our current repurchase plan.

Keith Turner: Our tangible common equity ratio was nine 3% up from nine 1% on a linked quarter on a per share basis tangible book value was up by 14% on an annualized basis to $38 54.

Keene Turner: We also increased our quarterly dividend by one cent to 30 cents per share for the second quarter of 2025. I'll echo Jim's comments. We started the year with a lot of momentum. Our earnings profile is strong, the balance sheet is strong, and we're adding further to our earnings and growth profile with the Strategic Brands Acquisition that Jim outlined. We believe that combined with our differentiated commercial relationship model, we will continue to deliver top-tier financial performance for the foreseeable future.

We also increased our quarterly dividend by <unk> <unk> to <unk> 30 per share for the second quarter of 2025.

Speaker Change: I'll Echo Jim's comments, we started the year with a lot of momentum our earnings profile is strong the balance sheet is strong and we're adding further to our earnings and growth profile with the strategic brands acquisition that Jim outlined.

Speaker Change: We believe that combined with our differentiated commercial relationship model, we will continue to deliver top tier financial performance for the foreseeable future I. Appreciate your attention today and I'll turn it back to Jim before we open the line for Q&A.

Jim Lally: I appreciate your attention today, and I'll turn it back to Jim before we open the line for Q&A.

Jim Lally: Thank you Kean.

Jim Lally: In addition to the announcement regarding our Arizona and Kansas City expansion, yesterday we also announced that Scott Goodman has decided to transition to a part-time non-managerial role as part of our orderly succession planning process and thus will step down from his position as President of Enterprise Bank and Trust later this year. Thankfully, Scott has decided to stay with the company as a strategic advisor to me, while also working with our teams and our most important clients. Subsequently, Doug Bauche will be promoted to the newly created role of Chief Banking Officer, where he will lead all of our commercial, specialty, and business banking business.

Speaker Change: In addition to your announcement regarding our Arizona and Kansas City expansion yesterday, we also announced that Scott Goodman has decided to transition to a part time, none of manager non manager role as part of our orderly succession planning process and thus will step down from his position as president of Enterprise Bank and Trust later this year.

Speaker Change: Thanks, Lee Scott has decided to stay with the company as a strategic advisor to me, while also working with our teams and our most important clients.

Speaker Change: Subsequently <unk> will be promoted to the newly created role of Chief Banking Officer, where he will lead all of our commercial specialty and business banking businesses.

Jim Lally: Kevin Hanley, a 30-year industry veteran, the last seven with Enterprise, will succeed Doug as our company's chief credit officer. These moves will all be effective later this year, and we are well positioned with our succession planning preparation to ensure a smooth transition. I would like to publicly acknowledge and thank Scott for his tremendous contributions that he's made to our company over the last 23 years, the last 12 as president of Enterprise Bank and Trust. We would not be the successful organization that we are without his great leadership and strategic guidance.

Speaker Change: Kevin Handley, a 30 year industry veteran the last seven with enterprise will succeed Doug as our company's Chief Credit Officer.

Speaker Change: These moves will all be effective later this year and we are well positioned with our succession planning preparation to ensure a smooth transition.

Speaker Change: I would like to publicly acknowledge and thank Scott for his tremendous contributions that he's made to our company over the last 23 years. The last 12 as president of Enterprise Bank and Trust.

Speaker Change: Would not be the successful organization that we are without his great leadership and strategic guidance I also like.

Jim Lally: I also would like to congratulate Doug and Kevin on their promotions and look forward to working closely with them in their new roles.

Speaker Change: Congratulate Doug and Kevin on their promotions and look forward to working closely with them in their new roles.

Jim Lally: Lastly, I would like to thank all of our enterprise associates for their hard work and dedication to serving our clients every day.

Speaker Change: Lastly, I would like to thank all of our enterprise associates for their hard work and dedication to serving our clients every day.

Pam: With that, I would now like to open the line for questions. Thank you. We will now begin the question and answer session.

With that I would now like to open the line for questions.

Speaker Change: Thank you we will now begin the question and answer session. If you have a dialogue and I would like to ask go ahead Chen. Please press star one on your telephone keypad to raise your hand and joined the key if you will that can we draw your question simply press Star one again.

Pam: 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 redraw your question, simply press star 1 again. 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: If you are called upon to ask your question and our listening via loud speakers on your device. Please pickup your handset and Im sure that your phone is not on mute when asking your question.

Jeff Rulis: And your first question comes from the line of Jeff Rulis with DA Davidson. Please go ahead. Thanks. Good morning.

Speaker Change: And your first question comes from the line of Jeff <unk> with D. A Davidson.

Speaker Change: Please go ahead. Thanks.

Speaker Change: Thanks, Good morning, good morning, Jeff.

Jim Lally: Any of the terms of the branch deal that you're willing to disclose was this cash, just trying to get a sense for the purchase price? Yeah, Jeff, it's an assumption, right? So, you know, we're bringing on roughly net $450 million of cash that, you know, largely, you know, after the loans, we'll invest in security that, you know, call it a 5% rate. So, you know, all in all, I think we expect the deal pro forma comes on at a similar to slightly improved margin. It'll further, you know, the balance sheet at this have a chance at if we would like to making net interest income more neutral or the balance sheet slightly liability sensitive overall.

Speaker Change: Any any of the.

Speaker Change: Terms of.

Speaker Change: The branch deal that you're willing to disclose this cash just trying to get a sense for that.

Speaker Change: The purchase price.

Speaker Change: Yes, Jeff it's an assumption right. So we're bringing on roughly net $450 million of cash.

Speaker Change: That largely after the loans will we'll invest in security that.

Speaker Change: Call It a 5% rate so all in all I think we expect the deal pro forma comes on at a similar to slightly improved margin. It will further the balance sheet. At this point is pretty neutral when you factor in ECR and tax credit. So it will have a chance that if we would like to making net interest income more neutral or the balance sheet slightly.

Speaker Change: The liability sensitive overall.

Jim Lally: And then, you know, expenses kind of come in from a run rate perspective in the low 50%. So, call that 52 to 54. So, modeled pretty conservatively in terms of what we announced for the accretion. And, you know, you sort of start with mid single digit EPS accretion, and that improves as you assume you lend out some of the securities over time.

Speaker Change: And then expenses kind of come in from a run rate perspective in the low 50%. So call that 52 to 54, so modeled pretty conservatively in terms of what we announced for the accretion and you start to start with mid single digit EPS accretion and that improves as you.

Speaker Change: Assume you you blend out some of the securities over time.

Jim Lally: and maybe just to follow on the expectation for pro forma capital levels post-close and then does that, would that alter I guess in the interim or even after kind of the buyback or other M&A appetite just more on the capital side? Yeah, I would say, Jeff, pro forma capital is, you know, right at our targets, which is good. You know, of note, we did not execute the call on our sub debt, given equity market valuations, we've got a senior piece lined up if we want to replace that. So I think we can continue to be modestly offensive with share purchases in these next couple of quarters here, in addition to the transaction.

Speaker Change: And.

Speaker Change: Maybe just to follow on that.

Speaker Change: Expectations for pro forma capital levels post close and then does that would that alter.

Speaker Change: Interim or even after kind of the buyback or other M&A appetite just more on the capital side.

Speaker Change: Yes, I would say, Jeff pro forma capital is right at our targets, which is good.

Speaker Change: Of note, we did not execute the call on our sub debt given equity market valuations we've got.

Speaker Change: Senior piece lined up if you want to replace that so I think we can continue to be modestly offensive with share repurchases.

Speaker Change: In these next couple of quarters here in addition to the transaction.

Jim Lally: You know, as you know, given the risk weighted asset profile, low risk weighted assets, we've got a lot of leverage ratio to give, and it doesn't materially impact, you know, total capital ratio to risk based ratio. So I feel like there's an opportunity to continue to do a little bit of all of the above. Got it.

Speaker Change: Given the risk weighted asset profile.

Low risk weighted assets, we've got a lot of leverage ratio to give and it doesn't materially impact.

Speaker Change: Total capital ratio at a risk based ratios. So I feel like there's an opportunity to continue to do a little bit of all of the above.

Speaker Change: Got it.

Jim Lally: And one final one, if I could, I believe the Arizona piece of that, what was the old Great Western had some dairy exposure. Any comments on maybe that's run off and it's a pretty diminished amount on a relative sense, but just sector wise, was there any industry exposures from the loans brought over? Again, it's 200 million.

Speaker Change: One final one if I could.

I believe the Arizona piece of that was the old great Western Hudson, Some dairy exposure any comments on maybe thats run off and it's a pretty de minimis amount.

Speaker Change: On a relative sense, but just.

Speaker Change: Sector wise or is there any industry exposures.

Speaker Change: From the lows brought over.

John: Again John.

Jim Lally: Yeah, Jeff, this is Jim. We had the opportunity to really look at what's attractive to us. And so we're not picking up any dairy exposure in this transition. Great. Thank you.

Speaker Change: Jeff. This is Jim we had the opportunity to really look at was attracted to us and so we're not picking up any dairy exposure in this transaction.

John: Okay.

Jeff Rulis: I'll step back.

John: Thank you I'll step back.

Andrew Liesch: Your next question comes from the line of Andrew Liesch with Piper Sandler. Please go ahead. Morning, guys. I'm just kind of sticking with the theme of the of the deal here.

Speaker Change: Your next question comes from the line of Andrew Liesch with Piper Sandler. Please go ahead.

Andrew Liesch: Good morning, guys.

Andrew Liesch: Just kind of take you want the theme of the of the deal here.

Andrew Liesch: I'm just curious if you kind of model out some of the book value dilution that's going to come how quickly you can earn that back. Yeah, Andrew, you know, relative risk reward, it some of it depends on how quickly we lend it out. I think, as I noted, our assumptions are fairly conservative, both in, you know, the amount of employees that that will stay on and, and will grow with us. And then we have also planned some additions to the market in the run rate there. So, you know, let's just say that if, you know, share purchases are, you know, a five year earned back and a full bank M&A is three, it's way closer to the three than the five.

Andrew Liesch: Just curious if you can kind of model out some of the book value dilution that has kind of come how quickly you can earn that back.

Andrew Liesch: Yes, Andrew.

Andrew Liesch: Relative risk reward it some of it depends on how quickly we lend it out I think as I noted our assumptions are fairly conservative both in.

Andrew Liesch: The amount of employees that that will stay on and will grow with us.

Andrew Liesch: And then we are also planning some additions to the market and the run rate there. So.

Andrew Liesch: Let's just say that if.

Andrew Liesch: Share repurchases are a.

Andrew Liesch: Five year earn back in a full bank M&A is three its way closer to the three than the five.

Andrew Liesch: Got it.

Andrew Liesch: Got it okay. That's helpful.

Andrew Liesch: Okay, that's helpful. And then just on organic loan growth, obviously, some portfolios a little bit stronger here in the first quarter, and some optimism for certain types as we move on through the year. But I mean, how are you looking at loan growth for 2025, given that this rate wasn't all that strong in the first quarter overall? Yeah, Andrew, I look at it this way. So we really focus on balance sheet growth, first and foremost. I'm not going to shy away from that single digit growth for that. You know, given some of the uncertainty in the economy and what have you, we certainly have been out talking to our clients, and they're not quite seeing their hands, but they are waiting and seeing what's going on out there.

Andrew Liesch: And then just on organic loan growth.

Andrew Liesch: Obviously, some simpler flows a little bit stronger here in the first quarter and some optimism for <unk>.

Speaker Change: Certain types as we move on through the year, but I mean, how are you looking at loan growth for 2025, given that this rate wasn't all that strong in the first quarter overall, yes, Andrew I'll look at it. This way so we really focus on the balance sheet growth first and foremost I'm not.

Andrew Liesch: Im not going to shy away from that mid single digit.

Andrew Liesch: Growth for that given some of the uncertainty in the economy and what have you.

Andrew Liesch: We certainly have been out talking to our clients and theyre not quite soon in your hands, but they are waiting and seeing what's going on out there. So we had thought maybe we'd see the lift in the second half of the year and that may bleed into 2026, but nonetheless, we're out.

Andrew Liesch: So, you know, we had thought maybe we'd see the lift in the second half of the year, and that may bleed into 2026. But nonetheless, we're out attracting new relationships, growing the balance sheet, doing it the right way. And to the extent that something breaks free and relative to the U.S. trade partners, that then avails us to the appropriate loan growth. Got it.

Andrew Liesch: <unk> new relationships growing the balance sheet doing it the right way and to the extent that something breaks free and relative to the U S. Trade partners has been available as to the appropriate loan growth will season.

Speaker Change: Got it Okay. That's helpful. I appreciate the commentary I'll step back.

Andrew Liesch: Okay, that's helpful. I appreciate the commentary.

Andrew Liesch: I'll step back.

Andrew Liesch: Thank you.

Damon Delmonte: Your next question comes from Damon DelMonte with KBW. Please go ahead. Good morning, guys. Hope everybody's doing well today. Just a question on the margin and the outlook. Keene, I think you noted that the margin is likely to trend lower here in the coming quarters. But can you kind of help us think about NII and the outlook there and your ability to kind of defend current levels, even though the margin will be coming down? Yeah, Damon, I would say the only thing that really changed with margin is my comments around the sub debt that flips the in the quarter and has a pretty double digit or near double digit rate versus we were planning on replacing that with senior.

Speaker Change: Your next question comes from Damon Delmonte with <unk>. Please go ahead.

Speaker Change: Hey, Good morning, guys hope everybody is doing well today.

Speaker Change: Just a question on the margin and the outlook Kian I think you noted that the margins likely to trend lower here in the coming quarters, but can you kind of help us think about.

Speaker Change: NII in the outlook, there and your ability to kind of defend current levels, even though the margin will be coming down.

Speaker Change: Yes, David I would say the only thing that really changed with margin as my comments around the sub debt that flips to variable rate here in the quarter and has a pretty.

Speaker Change: Double double digit or near double digit rate versus we were planning on replacing that with senior and I think that the short term trade for long term capital management opportunity that exists.

Keene Turner: And I think that's a short term trade for long term capital management opportunity that exists. So I'd say that we expect margin to potentially step down maybe five basis points sequentially in the quarter. But all of my margin from here on out in a five quarter look is stable and that's got 75 basis points of Fed funds cuts in it. And absent the transition from 4Q to 1Q26 on day count, net interest income dollars grows quarterly, whether we grow the balance sheet a whole lot or not. So I think we feel pretty good about that.

Speaker Change: So I'd say that we expect margin.

Potentially step down maybe five basis points sequentially in the quarter, but all of my margin.

Speaker Change: From here on out.

Speaker Change: On a five quarter look is stable and Thats got 75 basis points of fed funds cuts in it and absent the transition from <unk> to <unk> 26 on day count net interest income dollars grows quarterly.

Speaker Change: Whether we grow the balance sheet, a whole lot or not so.

Speaker Change: I think we feel pretty good about that and just worth pointing out.

Keene Turner: Just worth pointing out, when we look at it inclusive of non-interest expense, we're pretty neutral to slightly positive. So depends on how some of those balances and complexions move, what part of the curve is moving. But I think we've done a pretty good job of neutralizing out the curve. And I think when you look back 1Q24 versus current quarter, pre-tax, pre-provision revenue contributions fairly stable when you neutralize tax credit. So I think we feel pretty good about that. And obviously the branch transaction, as we noted, gives us a chance to further improve the balance sheet flexibility and net neutrality of it as we move forward.

Speaker Change: When we look at it inclusive of noninterest expense.

Speaker Change: We're we're pretty neutral to slightly positive so it depends on how some of those balances and complexions move how the what part of the curve is moving but I think we've done a pretty good job of neutralizing out the curve and I think when you look back <unk> 24 versus current quarter pre tax pre provision revenue call.

Speaker Change: Tribune is fairly stable when you neutralize tax credit. So I think we feel pretty good about that and obviously the branch transaction as we noted gives us a chance to further improve the balance sheet flexibility and net neutrality of it as we move forward.

Damon Delmonte: Got it.

Damon Delmonte: That's helpful. Thank you.

Speaker Change: That's helpful. Thank you.

Damon Delmonte: And then could you just kind of help us think about like the quarterly cadence for expenses? I know, obviously, the branch transaction comes on in the fourth quarter. But, you know, if you look at the, you know, the level of the first quarter, kind of deposit costs were a little bit higher. And account benefits were higher for the start of the year, but how do we kind of think about that quarterly cadence? Yeah, I think we didn't, we didn't have any rate moves here in the quarter. So the earnings credit rate, you know, improved, but we continue to have good success in that business.

Speaker Change: And then could you just kind of help us think about like the quarterly cadence for expenses I know obviously the branch transaction comes out in the fourth quarter, but.

Speaker Change: If you look at the the level of the first quarter.

Speaker Change: Deposit costs were a little bit higher in comp and benefits were higher for the start of the year, but how do we kind of think about that quarterly cadence.

Speaker Change: Yes, I think we didn't we didn't have any rate moves here in the quarter. So the earnings credit rate improved but we continue to have good success in that business. So that the deposit costs will probably grow in line there and I expect we typically trade merit for seasonal payroll <unk>.

Damon Delmonte: So, you know, that the deposit costs will probably grow in line there. And I expect we typically trade, you know, merit for seasonal payroll, you know, one queue to two queue, you know, maybe maybe inclusive of some some working day stuff. So I don't think I have a really assertive improvement in run rate, but to the extent that we continue to grow the balances in, you know, the deposit verticals, that'll, you know, grow net interest income dollars and, and will largely, you know, offset or slightly improve profitability. So there's really no big moves coming, we will have a, you know, what I'll say is fairly immaterial transaction related expense on legal and, and those types of things in the coming quarters, but we'll, we'll point those out.

Speaker Change: <unk>.

Speaker Change: Maybe maybe inclusive of some some working day stuff. So I don't think I have a really a third of improvement in run rate, but to the extent that we continue to grow the balances in the deposit verticals that'll grow net interest income dollars and will largely offset or slightly improved.

Speaker Change: Profitability so.

Speaker Change: There's really no big move coming we will have a.

Speaker Change: What I'll say is fairly immaterial.

Speaker Change: Transaction related expense on legal and.

Speaker Change: And those types of things in the coming quarters, but we'll point those out those arent.

Damon Delmonte: Those aren't a huge item here with with the type of the transaction. Okay, and then did you say that the, the kind of efficiency ratio of the branch operations that you're taking on are like the 52 to 54% range? So yeah, that we can kind of back into what the expense impact is. That's correct. There's a minimal amount of fees that are that we expect to recur with the branches. So it's largely margin and expenses. So, you know, more, more in line with our traditional, you know, branch only core banking efficiency ratio, and then obviously, the deposit vertical that add to that a little bit.

Speaker Change: Huge item here with the type of the transaction.

Speaker Change: Okay, and then did you say that the.

Speaker Change: The kind of efficiency ratio of the branch operations that you are taking out or in like the 52% to 54% range.

Speaker Change: That we can kind of back into what the expense impact is that correct. The minimal amount of fees that are that we expect over recur with the branches. So it's largely margin an inexpensive so.

Speaker Change: More more in line with our traditional branch only core banking efficiency ratio and then obviously the deposit vertical that add to that a little bit. So yes. So thats 52 to 54, depending on how everything settles out.

David Long: So yeah, so that's, you know, 52 to 54, depending on how everything settles out. got it. Okay, that's all that I had. Thank you very much. Thanks, Damon.

Speaker Change: Got it okay.

Speaker Change: All that I had thank you very much thanks, David.

David Long: Your next question comes from David Long with Raymond James. Please go ahead. Good morning, everyone. Keene, you mentioned that, you know, a little bit of pressure on the NIM here in the second quarter, but then thereafter, even with 75 basis points of rate cuts, did you say NIM is still stable in that environment? Yeah, I would say generally, you know, we've had good success in repricing deposits here. You know, the early beta is fairly in line with what the results were and slightly better than we had modeled. And as the time passes, David, when we get repricing of CDs and things like that, we expect that that'll improve to sort of the maximum beta that we had when rates were rising.

David Long: Your next question comes from David Long with Raymond James. Please go ahead.

David Long: Good morning, everyone.

Speaker Change: <unk> you.

David Long: Mentioned can you mentioned that.

David Long: A little bit of pressure on the NIM here in the second quarter, but then thereafter, even with 75 basis points of rate cuts did you say NIM still stable in that environment.

David Long: Yes, I would say generally.

David Long: We've had good success in repricing deposits here.

David Long: Early.

David Long: Data is fairly in line with what the.

David Long: <unk>, we're in slightly better than we had modeled and as the.

David Long: Time passes David when we get repricing of Cds and things like that that we.

David Long: Expect that that will improve to sort of the maximum beta that we had when rates were rising so those things helped to stabilize margin as do the proactive steps we took on boosting the size of the investment portfolio and getting some durable earnings there. So we feel pretty good about stable.

Keene Turner: So those things help to stabilize margin, as do the proactive steps we took on boosting the size of the investment portfolio and getting some durable earnings there. So we feel pretty good about stable margin.

David Long: And I would say the margin declination that I referred to is self-inflicted, but you know, an opportunity to manage, you know, the share count and equity part of the capital stack here in the coming couple quarters. Got it. Great. No, I appreciate that color. Thank you. And then on the credit side of things, Keene, I think you called these new non-performing loans temporary. What is the timing of the process to exit these credits? Or what's your best guess on how that plays out to exit those without any loss?

David Long: Margin and I would say the margin declination that I referred to as self inflicted but an opportunity to manage the share count and equity part of the capital stack here in the coming couple of quarters.

David Long: Got it great I appreciate that color. Thank you and then on the credit side of things Keith I think you called these not in these new nonperforming loans temporary what is the timing of the process to exit these credits or what's your best guess on how that plays out systems to exit those without any losses.

Douglas Bauche: Yeah, hey, David, it's Doug Bauche. Yeah, I'll comment on that. And listen, I, due to the bankruptcy, I think it's difficult for us to predict the specific timing of the resolution of these particular loans. I think what we can just do is kind of reiterate, right, our position that we're in today relative to loan to values in recourse to the sponsors, and our confidence to be able to collect.

Speaker Change: Yes, Hey, David its step out here I'll comment on that and listen.

Speaker Change: Due to the bankruptcy I think it's difficult for us to predict the specific timing of the resolution of these particular loans I think what we can just do as kind of reiterate right. Our position that we're in today relative to loan to values and recourse to the sponsors and our confidence to be able to collect.

Douglas Bauche: I can tell you, David, I went out, personally visited each and every one of these property. and then we've, of course, engaged independent third-party appraisals that we just got here in March. So, listen, absent a dispute... These properties, these loans would be well-performing. You know, they're occupied, they're well-positioned, they're in a very attractive Laguna Beach market. So this dispute was unforeseen. It's unfortunate. But we'll have to let things play out here in the bankruptcy proceedings. And in due process, due time, I think we're going to have a very favorable outcome.

Speaker Change: I can tell you David I went out personally visited each and every one of these properties.

Speaker Change: And then we've of course engaged independent third party appraisals that we just got here in March so let.

Speaker Change: Absent a dispute.

Speaker Change: Properties these loans would be well performing well.

Speaker Change: They're occupied Theyre well positioned they are in a very attractive Laguna beach market. So this dispute was unforeseen.

Speaker Change: Unfortunate, but we'll have to let things play out here in the bankruptcy proceedings.

Speaker Change: And in due process due time.

Speaker Change: I think we're going to have a very favorable outcome.

Pam: Great. Thanks for taking my questions, guys. Again, if you would like to ask a question, please press star 1 on your telephone keypad.

Speaker Change: Great. Thanks for taking my questions guys.

Speaker Change: Again, if you would like to ask a question. Please press star one on your telephone keypad and our next question comes from Brian Martin with Janney. Please go ahead.

Brian Martin: And our next question comes from Brian Martin with Janie. Please go ahead. Good morning, guys. Keene, it sounds like, just fair to say, given the outlook on margin, just even into next year, if we're kind of thinking about things, where rates are, maybe a couple cuts here, and the margin is still well above 4 in terms of even longer term than kind of the near-term comments you've made. Does that seem fair based on the positioning of the balance sheet and kind of your rate outlook today? That is accurate. Gotcha. Okay, perfect.

Brian Martin: Hey, good morning, guys.

Speaker Change: Good morning, Brian.

Speaker Change: Yes.

Speaker Change: <unk> it sounds like just fair to say given your outlook.

Speaker Change: Outlook on margin just even into next year, if we're kind of thinking about things where rates are and maybe a couple of cuts here in the margin is still well above four in terms of even even longer term than kind of the near term comments. You've made is that that team there based on kind of the positioning of the balance sheet and have your rate outlook today.

Speaker Change: That is accurate.

Keene Turner: And then just in terms of the pro forma capital, I think you said with the transaction, where's your expectation in terms of where the TCE lands in the fourth quarter? I think I don't remember if you said what that was. Yeah, Brian, it's going to be dependent on how much we're after the common stock, but, you know, sort of 8.5% is where we think it's, it leverages TCE roughly 100 basis points. And the other capital ratios are around the same amount, just slightly under. So, you know, we think it's a really nice way to write right size capital and also strategically expand the business and add to EPS, all that stuff.

Speaker Change: Gotcha, Okay, perfect and then just in terms of.

Speaker Change: The pro forma cap I think you said.

Speaker Change: With the transaction.

Speaker Change: What is your expectation in terms of where that where the TCE lands' end.

Speaker Change: In the fourth quarter I think remember if you said that that was.

Speaker Change: Brian I'm going to be dependent on how much we are after the common stock, but sort of eight 5%.

Speaker Change: As where we think it leverages TCE roughly 100 basis points.

Speaker Change: And the other capital ratios are around the same amount just slightly under so we think it's a really nice way to right right size capital and also strategically expand the business and add to EPS all that stuff. So.

Keene Turner: So, and that's, in my opinion, with where we're, we're seeing pricing and opportunities gives us a chance to still manage, you know, some share count. Yeah, okay, gotcha.

Speaker Change: And that's in my opinion with where we're we're seeing pricing and opportunities gives us a chance to still manage.

Speaker Change: Some share count.

Unknown Attendee: And I think you said you also sold some tax credit loans in the quarter. Was that Unknown Speaker Let me explain this to you. In the normal course of business, what happens is significant sales of the credits in the fourth quarter, which then comes in, the cash comes to pay down the loans. And so that's just part of the seasonal flow of the business. Okay, I guess. Okay, so that that's just the normal normal course of business. And given and given the size of the portfolio, and where many of these projects are in process, that will rebuild over the rest of this year, this is a seasonal decline, it will rebuild into Scott mentioned his comments, we'll see growth in that business throughout 2020.

Speaker Change: Yes, Okay got you and I think did you get you said you said you also sold some tax credit loans in the quarter or was that.

No.

Speaker Change: Expenses generally normal course of business what happens there is significant sales of the credits in the fourth quarter, which then comes into cash comes to pay down the loans and Thats just part of the seasonal flow of the business.

Speaker Change: Okay I guess.

Speaker Change: So thats.

Speaker Change: Normal normal course of business it is highly <unk>.

Speaker Change: And given and given the size of the portfolio and where many of these projects in process that will rebuild over the rest of this year. This is a seasonal decline it will be rebuilt and as Scott mentioned in his comments, we will see growth in that business throughout 2025.

Scott Goodman: Scott Goodman, we seem to see a similar pattern next year. Maybe when you execute in the fourth quarter, we'll see a follow through in the first quarter with maybe a little bit of a drift down like we did this quarter. That is exactly right. Gotcha. Okay.

Speaker Change: And then we seem to see a similar pattern next year, maybe when you execute in the fourth quarter, we will see a follow through in the first quarter with maybe a little bit of a drift down like we did this quarter.

Speaker Change: That is exactly right.

Keene Turner: And I think, Keene, I don't know, maybe I'm not sure who said it, but as far as building the reserve this quarter, that's just uncertainty with regard to the tariffs. I mean, it certainly wasn't the credits you talked about this quarter, but just trying to understand what was driving the reserve bill this quarter. thinking about that? Yeah, well, you know, tariffs very clearly happened in the second quarter. So I think there just started to be a lot of turbulence as we looked at the forecast. And, you know, we're always more weighted toward the downside in our qualitative reserves.

Speaker Change: Got you, Okay, and I think Keene I don't know.

Speaker Change: I'm not sure who said it but as far as building the reserve this quarter.

Speaker Change: Just uncertainty with regard to the tariffs.

Speaker Change: Certainly it wasn't the credits you talked about this quarter, but just trying to understand what was driving the reserve build this quarter.

Speaker Change: Thinking about that.

Speaker Change: Well tariffs very clearly happened in the second quarter. So, yes, I think theyre just starting to be a lot of turbulence as we looked at the forecast and we're always more weighted towards the downside.

Speaker Change: In our qualitative reserves and so it just it just felt like.

Keene Turner: And so it just it just felt like, you know, overall, from a trend perspective, that, you know, we didn't want to miss an opportunity here with a strong earnings quarter to, to be a little bit more conservative in the overall reserve level. So it's, you know, we're, we're, you know, we think that's the right position to be in here. And we'll continue to evaluate it, the end of the second quarter, end of the third quarter, and just make sure that, you know, with the balance sheet and the earnings profile, we also are putting putting things away, you know, for reserves if, if the economy looks like it's starting to cloud up a little bit.

Speaker Change: Overall from a trend perspective that we didn't want to Miss an opportunity here with a strong earnings quarter to to be a little bit more conservative in the overall reserve level. So.

Speaker Change: We think that's the right position to be in here and we'll continue to evaluate at the end of the second quarter out of the third quarter and just make sure that.

Speaker Change: But the balance sheet and the earnings profile, we also are putting putting things away.

Speaker Change: For reserves.

Speaker Change: If the economy looks like it's starting to cloud up a little bit.

Keene Turner: Yeah.

Damon Delmonte: Okay. And did you give Keene the expense add from the branch deal? Or do you have a ballpark of what that is? If not, I'll take a look at what your comments were earlier. I didn't. I gave an efficiency ratio. I said it was like 52% to 54% marginal efficiency on the modeled net interest income. And the margin on the assets coming over was roughly in line with expected margin at closing. So as we get closer here, I'll give you sort of line item details. But for right now, I think that should get you pretty close to the mid-single digit 2026 accretion.

Speaker Change: Okay.

Speaker Change: Did you give what the keenly expense adds from the branch deal or do you have it to ballpark of what that is is that we can all take a look at what your comments were earlier.

Speaker Change: I didn't I gave an efficiency ratio that it was like 52% to 54% marginal efficiency on the modeled net interest income and the margin on the assets coming over was.

Speaker Change: Roughly in line with expected margin at closing so.

Speaker Change: As we get closer here I'll give you a line item details, but for right now I think that should get you pretty close to the.

Speaker Change: Mid single digit 2026 accretion and for the year Youll have a little bit of earnings in the fourth quarter from the opportunity, but it and it probably out earns the onetime costs.

Brian Martin: And for the year, you'll have a little bit of earnings in the fourth quarter from the opportunity. And it probably out-earns the one-time cost modestly in 2025. Gotcha, OK, that's helpful. Thanks for the thanks for taking the question. Thanks, Brian.

Speaker Change: Modestly in 2025.

Okay. That's helpful. Thanks for the.

Speaker Change: Thanks for taking my questions.

Brian Martin: Thanks, Brian.

Pam: There are no more questions.

Jim Lally: There are no more questions I will now turn the conference back over to Jim for closing remarks.

Jim Lally: I will now turn the conference back over to Jim for closing remarks. Thank you, Pam. And again, thank you for all for all of you joining the call this morning. Appreciate your interest in our company. And we'll talk to you at the end of the next quarter. Have a great day.

Jim Lally: Thank you Pam and again, thank you for all for all of you joining the call. This morning I. Appreciate your interest in our company and we'll talk to you at the end of the next quarter have a great day.

Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

Jim Lally: Ladies and gentlemen that concludes today's call. Thank you all for joining you may now disconnect.

Operator: Please wait, the conference will begin shortly.

Jim Lally: Please wait the conference will begin shortly.

Jim Lally: Okay.

Jim Lally: Okay.

Jim Lally: Yes.

Jim Lally: Okay.

Jim Lally: Okay.

Jim Lally: Okay.

Jim Lally: Yes.

Jim Lally: Yes.

Jim Lally: Yes.

Jim Lally: Yes.

Jim Lally: [music].

Jim Lally: No.

Jim Lally: <unk>.

Jim Lally: Yes.

Jim Lally: [music].

Jim Lally: Okay.