Q1 2025 Bankwell Financial Group Inc Earnings Call
Okay.
Operator: Ladies and gentlemen, thank you for standing by and welcome to the Bankwell Financial Group first quarter 2025 earnings call. All lines have been placed on mute to prevent any background noise.
Speaker Change: Ladies and gentlemen, thank you for standing by and welcome to the banquet Natural group first quarter 2025 earnings call. 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 that time press star followed by the number one on your telephone keypad.
Operator: After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during that time, press star followed by the number one on your telephone keypad. If you'd like to withdraw your question, press star followed by the number one.
Speaker Change: If you would like to withdraw your question Press Star followed by the number one.
Courtney Sacchetti: I will now hand today's call over to Courtney Sacchetti, Chief Financial Officer. You may begin. Thank you.
Kt: I will now hand todays call over to you Accordingly, Kt Chief Financial Officer, you may begin.
Speaker Change: Thank you good morning, everyone welcome to bank, both first quarter 'twenty 25 earnings conference call.
Courtney Sacchetti: Good morning, everyone. Welcome to Bankwell's first quarter 2025 earnings conference call. To access the call over the internet and review the presentation materials that we will reference on the call, please visit our website at investor.mybankwell.com and go to the events and presentations tab for supporting materials. Our first quarter earnings release is also available on our website.
Speaker Change: I suppose the call over the Internet and review the presentation materials that we will reference on the call. Please visit our website at Investor <unk> My back well Dot com and go to the events and presentation tab for supporting materials. Our first quarter earnings release is also available on our website.
Courtney Sacchetti: Our remarks today may contain forward-looking statements and may refer to non-GAAP financial measures. All participants should refer to our SEC filings, including those found on Forms 8K, 10Q, and 10K, for a complete discussion of forward-looking statements and any factors that could cause actual results to differ from those stated.
Speaker Change: Our remarks today may contain forward looking statements and may refer to non-GAAP financial measures.
Speaker Change: All participants should refer to our SEC filings, including those found on forms 8-K, 10-Q, and 10-K for a complete discussion of forward looking statements and any factors that could cause actual results to differ from those statements.
Christopher Gruseke: Thank you, and now I will turn the call over to Chris Grusecke, Bankwell's Chief Executive Officer. Thanks, Courtney. Welcome and thanks to everyone for joining Bankwell's first quarter earnings call. This morning, I'm joined by Courtney Sacchetti, our Chief Financial Officer, and Matt McNeill, our President and Chief Banking Officer. We appreciate your interest in our performance and this opportunity to discuss our results with you. On today's call, we'll provide updates about our financial and operating performance for the first quarter. Our financial results for the quarter include GAAP fully diluted earnings per share of 87 cents, which were up 135% relative to the fourth quarter and 81% versus the first quarter of 2024.
Speaker Change: And now I will turn the call over to Christopher Sucky Backfill Chief Executive Officer.
Speaker Change: Thanks, Courtney welcome and thanks to everyone for joining <unk> first quarter earnings call. This morning, I'm joined by Courtney Kelly, Our Chief Financial Officer, and Matt Mcniel, Our President and Chief Banking Officer.
Speaker Change: We appreciate your interest in our performance in this opportunity to discuss our results with you on today's call. We will provide updates about our financial and operating performance for the first quarter.
Speaker Change: Our financial results for the quarter include GAAP fully diluted earnings per share of <unk> 87.
Speaker Change: You were up 135% relative to the fourth quarter and 81% versus the first quarter of 2024.
Christopher Gruseke: Earnings benefited from a lower, more normalized provision expense, an expanding net interest margin, an increased contribution from SBA gain on sale, and some modest share buyback activity. We were pleased with the progress made this quarter on several strategic initiatives, which we've been discussing with shareholders since the third quarter of 24. In late January, we successfully disposed of two previously identified non-performing credits, an $8.3 million OREO asset, which was sold at book value, and a $27.1 million multifamily loan, which was sold at par. Collectively, these dispositions drove non-performing assets as a percentage of total assets 105 basis points lower sequentially, finishing the quarter at 83 basis points.
Speaker Change: Earnings benefited from a lower more normalized provision expense and expanding net interest margin and increased contribution from SBA gain on sale at some modest share buyback activity.
Speaker Change: We're pleased with the progress made this quarter on several strategic initiatives, which we have been discussing with shareholders since the third quarter of 2004.
Speaker Change: In late January we successfully disposed of two previously identified nonperforming credits and $8 3 million Oreo asset, which was sold at book value and a $27 1 million dollar multifamily loan which was sold at par.
Speaker Change: Collectively these dispositions drove nonperforming assets as a percentage of total assets 105 basis points lower sequentially, finishing the quarter at 83 basis points further details regarding NPA as can be found on slide 11 of our investor presentation.
Christopher Gruseke: Further details regarding NPAs can be found on slide 11 of our investor presentation. Regarding loan growth, elevated payoff activity of $200 million offset strong origination activity of $130 million funded during the first quarter, resulting in a modest reduction in net balances versus year-end 24. SBA originations grew during the first quarter to $10 million, and gain on sale margins were just over 10%. We remain optimistic about SBA gain on sale activity accelerating throughout 2025. Commercial loan pipelines, including SBA activity, continue to be active, and despite a slower first quarter, we still expect low single-digit loan growth for the full year.
Speaker Change: Regarding loan growth elevated payoff activity of $200 million offset strong origination activity of $130 million funded during the first quarter, resulting in a modest reduction in net balances versus year end 'twenty four.
Speaker Change: SBA originations grew during the first quarter to $10 million and gain on sale margins were just over 10%. We remain optimistic about SBA gain on sale activity accelerating throughout 2025 commercial loan pipelines, including SBA activity continue to be active.
Speaker Change: And despite the slower first quarter, we still expect low single digit loan growth for the full year.
Christopher Gruseke: On the liability side of the balance sheet, we have another positive quarter of paying down brokered deposits, which declined $81 million relative to the fourth quarter, while core deposits grew $43 million, including $28 million of growth in non-interest bearing deposits. Over the last 12 months, we've now reduced broker deposits by $207 million, while growing core deposits by $244 million. Our balance sheet remains liability sensitive with additional margin expansion expected in 2025 as maturing term deposits reprice to lower current rates.
Speaker Change: On the liability side of the balance sheet, we had another positive quarter of paying down broker deposits, which declined $81 million relative to the fourth quarter, while core deposits grew $43 million, including $28 million of growth in non interest bearing deposits.
Speaker Change: Over the last 12 months, we've now reduced brokered deposits by $207 million, while growing core deposits by $244 million.
Speaker Change: Our balance sheet remains liability sensitive with additional margin expansion expected in 2025 is maturing term deposits repriced lower current rates.
Courtney Sacchetti: Now to discuss our financial results in greater detail, I'll turn it back to Courtney. Thank you, Chris. Our first quarter pre-provision net revenue of $9.4 million are $1.22 per share, increased 11% relative to the fourth quarter, with the PPNR return on average assets increasing to 118 basis points versus 105 basis points in the fourth quarter. Reported net interest margin for the quarter of 281 basis points represents a 21 basis point increase relative to the length quarter, which includes a one-time net nine basis point benefit resulting from the collection of accrued interest on a disposition of one of our large non-performing loans, which was partially offset by accelerated fees on calls brokered CD.
Speaker Change: Now to discuss our financial results in greater detail ill turn it back to Courtney.
Courtney Kelly: Thank you, Chris our first quarter pre provision net revenue of $9 4 million or.
Courtney Kelly: $1 22 per share increased 11% relative to the fourth quarter with the Pea PNR return on average assets, increasing to 118 basis points versus 105 basis points in the fourth quarter.
Courtney Kelly: Reported net interest margin for the quarter of 281 basis points represents a 21 basis point increase relative to the linked quarter.
Courtney Kelly: A onetime net nine basis point benefit, resulting from the collection of accrued interest on the disposition of one of our large nonperforming loans, which was partially offset by accelerated fees uncalled brokered CD.
Courtney Sacchetti: Core net interest margin expansion of 12 basis points primarily benefited from a continued decrease in our total cost of funds, which fell another 12 basis points versus the linked quarter to 3.60%. That linked quarter reduction follows a nine basis point reduction in the fourth quarter. As we know in the earnings release, our March 2025 cost of funds was $3.52, reflecting incremental benefit from recent cost reductions on market rates upon. We expect impact from these updates to carry into the second quarter. On slide 8, we continue to highlight our term deposit maturity schedule, which shows $1.2 billion of time deposits maturing in the next 12 months, $719 million of retail CDs repricing at an average of 22 basis points lower, and $495 million of broker CDs repricing at an average of 53 basis points lower, both based on current rates.
Courtney Kelly: Core net interest margin expansion of 12 basis points, primarily benefited from a continued decrease in our total cost of funds, which fell another 12 basis points versus the linked quarter to 3.60%.
Courtney Kelly: That linked quarter reduction follows the nine basis point reduction in the fourth quarter.
Courtney Kelly: As we note in the earnings release, our March 2025 cost of funds was $3 52.
Courtney Kelly: The incremental benefit from recent cost reductions on market rate deposits.
Courtney Kelly: We expect the impact from these updates to carry into the second quarter.
Courtney Kelly: On slide eight we continue to highlight our term deposit maturities schedule, which shows $1 $2 billion of time deposits maturing in the next 12 months $719 million of retail Cds repricing at an average of 22 basis points lower $495 million of brokered Cd's repricing at an average of 53 basis points lower.
Courtney Kelly: Based on current rates.
Courtney Sacchetti: Also, we anticipate more than half a billion dollars in loans to reprice or mature over the same time period, which could further benefit margin by an additional 15 to 20 basis points on an annualized basis. Considering the various inputs to margin, we expect continued expansion over the balance of 2025 and can reaffirm our net interest income guidance for full year 2025 of $93 to $95 million.
Courtney Kelly: Also we anticipate more than half a billion dollars in loans to reprice or mature over the same time period, which could further benefit margin by an additional 15 to 20 basis points on an annualized basis.
Courtney Kelly: Considering the various inputs to margin we expect continued expansion over the balance of 2025 and can reaffirm our net interest income guidance for full year 2025 of $93 million to $95 million.
Courtney Sacchetti: This guidance assumes no further action by the Fed for the balance of this. Non-interest income of $1.5 million increased 56% versus the length quarter, largely driven by $424,000 of SBA gain on sale income. As Chris stated earlier, we expect SBA volume to continue to build in 2025 with a full year estimate of approximately $50 million of origination. The linked quarter increase in total non-interest expense to $14.1 million was primarily driven by higher salaries and benefits, partially attributable to timing events related to incentive in both periods, as well as increased headcount. Additionally, we saw an increase in initiative-related costs in professional service fees.
Courtney Kelly: This guidance assumes no further action by the fed for the balance of this year non.
Courtney Kelly: Noninterest income of $1 5 million increased 56% versus the linked quarter largely driven by 424000 of SBA gain on sale income as Chris stated earlier, we expect SBA volume to continue to build in 2025 with a full year estimate of approximately $50 million of origination.
Courtney Kelly: The linked quarter increase in total noninterest expense of $14 1 million was primarily driven by higher salaries and benefits partially attributable to timing events related to incentive in both periods as well as increased head count.
Speaker Change: Additionally, we saw an increase in initiative related costs and professional service fees. These increases are partly offset by a reduction to Oreo expense incurred at the end of 2024.
Courtney Sacchetti: These increases are partly offset by a reduction to OREO expenses.
Courtney Sacchetti: occurred at the end of 2024. Our efficiency ratio for the quarter was 59.9%, an increase over the prior quarter. As our net interest margin continues to expand in non-interest income growth, we anticipate this ratio to improve. We reiterate our full year 2025 guidance for both non-interest income and non-interest expense of $7 to $8 million and $56 to $57 million respectively. The first quarter's provision expense was $463,000, compared to $4.5 million in the prior quarter. First quarter credit trends were benign.
Speaker Change: Our efficiency ratio for the quarter was 59, 9% an increase over the prior quarter.
Speaker Change: Our net interest margin continues to expand and noninterest income growth, we anticipate this ratio to improve.
Speaker Change: We reiterate our full year 2025 guidance for both noninterest income and noninterest expense of $7 million to $8 million.
Speaker Change: $56 million to $57 million respectively.
The first quarter's provision expense was $463000 compared to $4 $5 million in the prior quarter.
Speaker Change: First quarter credit trends are benign.
Courtney Sacchetti: Finally, a few thoughts on our financial condition. Our balance sheet remains well-capitalized and liquid, with total assets of $3.2 billion, down slightly versus the last quarter. We repurchased 29,924 shares at a weighted average price of $30.46 per share during the quarter ended March 31st, and have 220,000 shares remaining on our authorization.
Speaker Change: Finally, a few thoughts on our financial condition, our balance sheet remains well capitalized and liquid with total assets of $3 $2 billion down slightly versus the linked quarter.
Speaker Change: We repurchased 29924 shares at a weighted average price of $30.46 per share during the quarter ended March 31, and have 220000 shares remaining on our authorization.
Christopher Gruseke: I'd like to now turn it back over to Chris for his closing remarks. Thanks, Courtney. Before we conclude today's call, I'd like to comment on our continued ability to attract talented professionals to our organization. In April, we added two deposit teams in the New York metro area. These teams, with seven FTEs, have already begun the process of onboarding new customers. With continued disruption in the market for experienced talent, we'll continue to selectively add professionals who can help us achieve our strategic goals. We believe that our strong balance sheet, an experienced and nimble management team, and our customer-first business model make Bankwell an attractive platform for additional deposit teams. During the first quarter, we also hired a new Chief Technology Officer, Brian Merritt.
Chris: I'd like to now turn it back over to Chris for closing remarks.
Chris: Thanks Courtney.
Chris: Before we conclude today's call I'd like to comment on our continued ability to attract talented professionals to our organization in April we added two deposit teams in the New York Metro area.
Chris: These teams with seven Ftes has already begun the process of Onboarding, new customers with continued disruption in the market for experienced talent will continue to selectively add professionals, who can help us achieve our strategic goals, we believe that our strong balance sheet and experienced and nimble management team and our customer first business.
Chris: Model make bank will an attractive platform for additional deposit teams.
Chris: During the first quarter, we also hired a new Chief Technology Officer, Brian Meredith.
Christopher Gruseke: Brian's considerable experience in banking technology, product development, and system architecture will enable us to lean into the rapidly evolving technology landscape.
Brian has considerable experience in banking technology product development and system architecture will enable us to lean into the rapidly evolving technology landscape.
Christopher Gruseke: As we conclude, I want to thank the entire Bankwell team. Their excellent effort and dedication have been instrumental to the evolution of this company.
Chris: As we conclude I want to thank the entire <unk> team excellent effort and dedication has been instrumental to the evolution of this company.
Operator: This concludes our prepared remarks, Operator.
Speaker Change: This concludes our prepared remarks, operator would you. Please begin the question and answer session.
Operator: Will you please begin the question and answer session? At this time, if you would like to ask a question, press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, press star followed by the number 1. We'll pause for just a moment to compile the Q&A rop.
Chris: Okay.
At this time, if you'd like to ask a question press star followed by the number one on your telephone keypad.
Chris: If you would like to withdraw your question Press Star followed by the number one.
Chris: Well pause for just a moment to compile the Q&A roster.
Speaker Change: Your first question is from the line of Chris O'connell with K B W.
Chris O'connell: Your first question is from the line of Chris O'Connell with KBW. Hey, good morning. Good morning, Chris.
Chris O'connell: Hey, good morning.
Speaker Change: Good morning, Chris.
Speaker Change: Yeah.
Matthew McNeill: I was just hoping to start off on the new teams. And maybe, you know, whether, you know, there'll be more, you know, deposit or loan focused, or some, you know, mix of both. And then just maybe, you know, growth contribution, you know, thoughts around growth, growth contribution over time, or how big their, you know, prior books were. Sure.
Speaker Change: I was just hoping to start off on the new teams.
Speaker Change: And maybe whether there'll be more deposit or loan focused.
Speaker Change: Or some mix of both.
Speaker Change: And then just maybe.
Speaker Change: Gross contribution Pedro talks around growth growth contribution over time.
Speaker Change: How big their prior bookstore.
Matt Mcniel: Sure Hey, Chris its Matt.
Matthew McNeill: Hey, Chris, it's Matt. I think that, you know, we're in the first couple of weeks of them joining the bank. The focus is definitely on deposits. Certainly, there'll be some loans mixed in, more deposits than loans. You know, the books of business were quite large for both teams, you know, both books of business over $100 million, lots of non-interest bearing, you know, we're hopeful that those will translate into a lot of migration to Bankwell, but as I said, you know, we're in the early days of them onboarding with the bank, so, you know, more to come.
Speaker Change: Think that.
Matt Mcniel: We're in the first couple of weeks of them joining the bank.
Speaker Change: The focus is definitely on deposits.
Matt Mcniel: Certainly there'll be some loans mixed in.
Matt Mcniel: More deposits than loans.
Matt Mcniel: Yeah.
Matt Mcniel: The books of business were quite large for both teams.
Matt Mcniel: Both both books of business over a $100 million lots of noninterest bearing we're hopeful that those will translate into a lot of migration to bank well, but as I said, we're in the early days of them Onboarding with the bank so more to come.
Speaker Change: Got it thanks Pat.
Matthew McNeill: Got it.
Chris O'connell: Thanks, Pat. And then just hoping, you know, I apologize if I missed, you know, any items in the prepared remarks, signed on a little late, but, you know, I was just hoping to get an update on the loan pipeline, you know, what you guys are seeing from here. I think last quarter, you know, the 2025 growth was Travelling Cousins, Bank Wealth Resources Parent Animation love- and the So somewhere in the remarks, Chris, I definitely had mentioned we still think we'll get low single digits and it's a matter of timing. Do you want to answer maybe the pipeline?
Speaker Change: And then just hoping I apologize if I missed any items in the prepared remarks.
Speaker Change: Signed on a little late but I was just hoping to get an update on the loan pipeline.
Speaker Change: What you guys are seeing from here.
Speaker Change: I think last quarter.
Speaker Change: The 2025 growth is.
Speaker Change: 3% to 5%.
Speaker Change: It was a slower start to the year.
Speaker Change: You didn't do that at all.
Speaker Change: And yes, any update on the growth outlook.
Speaker Change: So.
Speaker Change: Somewhere in the remarks, Chris.
Speaker Change: Chris I definitely had mentioned.
Speaker Change: We still think we will get low single digits, and it's a matter of timing.
Speaker Change: Yeah.
Speaker Change: Okay do you want to ask.
Speaker Change: The pipeline okay sorry.
Matthew McNeill: Okay, sorry. Yeah, I'll just add, Chris, that there were some lumpy payoffs in the first quarter that weren't originally budgeted, so, you know, there was no way to scramble and, you know, increase the pipeline to make up for those. We don't anticipate that that's going to be the case going forward. And the pipeline is robust, and, you know, we had plenty of closings and fundings in the first quarter, just the amount of unanticipated payoffs were so much higher than our fundings.
Chris O'connell: Yes ill just add Chris that.
Chris O'connell: There were some lumpy payoffs in the first quarter that were that Werent. Originally budgeted. So there was no way to to scramble and.
Chris O'connell: Increase the pipeline to make up for those we don't anticipate that thats going to be the case going forward and the pipeline is robust and we had we had plenty of closings and fundings in the in the first quarter just the amount of unanticipated payoffs were were so much higher than our than our fundings.
Chris O'connell: Yeah.
Chris O'connell: Okay great.
Matthew McNeill: Great. And where's the pipeline yield at? It's holding strong. It's in that, you know, high sixes, low sevens, depending on the asset. And Matt, I'll just add to that our 1Q25 vintage is the yield average was 817. Great, yeah. Yeah, very great. And just on, you know, because I know that there is a non accrual interest, you know, recovery. the loans this quarter. Do you have like an exit loan portfolio yield or March? I don't know when the recovery, I guess when the recovery's revealed. Either a March yield or an exit yield on just or Core loan yield for the quarter?
Chris O'connell: Great and.
Chris O'connell: Whereas the where's the pipeline yield that.
Chris O'connell: It's all it's holding strong.
Chris O'connell: High sixes low sevens, depending on the asset.
Matt Mcniel: And Matt I'll, just add to that or are <unk> 25 mm vintage is the yield the average was 817.
Chris O'connell: Great Yeah very great.
Chris O'connell: And just.
Chris O'connell: Because I know that there is the non accrual interest recovery.
Chris O'connell: Within the loans this quarter do you have like an exit.
Chris O'connell: Our loan portfolio yield or March I don't know when the recovery I guess, let me recoveries with you guys, but.
Chris O'connell: Either a large shareholder and exit yield on just core loan yield for the quarter.
Chris O'connell: So Chris that would be about 60 40.
Courtney Sacchetti: So Chris, that would be about $640. I know it's $654 in our release, so excluding that, it would be $640, which is about a 10-bit expansion over the fourth quarter.
Chris O'connell: I know it sounds like this before and I really so excluding that it would be $6 40, which is about 10 that expansion over the fourth quarter.
Speaker Change: Great. Thanks.
Matthew McNeill: Great, thanks. And then just, you know, continuing on the margin, I. I guess I was a little surprised, you know, while the margin, you know, expansion was great, that given the amount of CDs that were maturing in the first quarter, that the interest bearing costs, you know, didn't come down a bit more. Just, you know, any thoughts around that? Or I don't know if the CDs were maturing late in the quarter, if it was timing. Yeah, I guess anything on just, you know, the progress on the interest-bearing cost. I'd say a little bit of timing.
Speaker Change: And then just continuing on the margin.
Speaker Change: Sure.
Speaker Change: I guess I was a little surprised while the margin expansion is great.
Speaker Change: That given the amount of Cds that were maturing in the first quarter.
Speaker Change: On the interest bearing costs didn't come down a bit more.
Speaker Change: Just.
Speaker Change: Any thoughts around that or I don't know if the Cds maturing late in the quarter if it was timing.
Speaker Change:
Speaker Change: I guess anything on just the progress on the interest bearing costs.
Speaker Change: I'd say, a little bit of timing I will note that we did have some we called the last of our.
Matthew McNeill: I will note that we did have some, we called the last of our callable brokered CDs in the first quarter and had to accelerate fees, you know, pull them forward when we when we called those. So that was a little bit of a one-time drag. It was a two BIP impact on NIM, about a two BIP impact on our cost of deposits. You know, we were able to reprice our time. Oh gosh, everything that was maturing in the first quarter, you know, our CD balances remained relatively flat quarter over quarter and 90, 95 basis points lower than what it was coming off at.
Speaker Change: Callable brokered Cds in the first quarter and had to accelerate.
Speaker Change: You know pull them forward.
Speaker Change: So that was a little bit of a.
Speaker Change: Onetime drag it wasn't too bad impact on NIM.
Speaker Change: About <unk> <unk>.
Speaker Change: The impact on our cost of deposits.
Speaker Change: We were able to reprice our time.
Speaker Change: Gosh everything that was maturing in the first quarter in our CD balances remained relatively flat quarter over quarter.
Speaker Change: <unk> 99.
Speaker Change: The 95 basis points lower than what it was coming off at so we felt we felt pretty good about that I think maybe just a little bit of timing and a little bit of a onetime expense.
Matthew McNeill: So, you know, we felt, we felt pretty good about that. So I think maybe just a little bit of timing and a little bit of one, one time expense. Okay, got it. Chris, I'd add to that, that in terms of, you know, what the numbers will be, when we talked about net interest income, we were factoring zero Fed cuts into that guidance.
Speaker Change: Okay got it.
Chris O'connell: Chris I would add to that that in terms of what the numbers will be.
Speaker Change: When we talked about net interest income.
Chris O'connell: We were we're factoring zero.
Speaker Change: Fed cuts into that guidance.
Matthew McNeill: Okay, great. Super helpful. Did you guys have, did you guys give us a spot margin for margin? or do you have I did not give a spot margin for March. We did give the spot deposit cost of $3.52. Okay, got it. And just what, you know, the NII guide unchanged, you know, I don't think it was, you know, quite official guidance, but, you know, the full year NIM kind of hanging around in that 290 to 3% range, you know, still feels good absent any rate cuts? Yes. Great. And on the on the fee income side, you know, great start on, you know, the SBA, you know, gain on sale and originations there.
Speaker Change: Okay, Great Super helpful.
Speaker Change:
Speaker Change: And.
Speaker Change: Did you guys have did you guys give us.
Speaker Change: Spot margin for Mark here.
Speaker Change: Or do you have it.
Speaker Change: I did not give a spot margin for March we did get the <unk>.
Speaker Change: Scott.
Speaker Change: Deposit cost of funds.
Speaker Change: 350, Tim.
Speaker Change: Okay got it.
Speaker Change: And just.
Speaker Change: AI guide unchanged.
Speaker Change: I don't think it was quite official guidance, but.
Speaker Change: The full year NIM kind of hanging around in that $2, 90% to 3% range still feels good absent any rate cuts.
Speaker Change: Yes.
Speaker Change: Great.
Speaker Change: And on the on the fee income side.
Speaker Change: Great start on the SBA.
Speaker Change: Gain on sale and originations there.
Matthew McNeill: How's the pipeline, you know, have you guys started better than you expected? How do you see, you know, the cadence, you know, moving on throughout the year? Yeah, originations were better than we had predicted. You know, we had kind of backed into a number. It builds over time. We expect our best quarter to be in the fourth quarter. We still expect fourth quarter originations to be the strongest quarter as we're continuing to build in the SBA division itself. We've only added one BDO so far. The plan is to add two before the end of the year.
Speaker Change: How is the pipeline have have you guys started better than you expected how do you see.
Speaker Change:
Speaker Change: The cadence.
Speaker Change: Moving on throughout the year.
Speaker Change: Originations were better than we had.
Speaker Change: Predicted.
Speaker Change: Backed into a number and.
Speaker Change: It builds over time, we expect our best quarter to be in the fourth quarter.
Speaker Change: We still expect the fourth quarter originations to be the strongest quarter as we're continuing to to build.
Speaker Change: In the SBA Division itself, we've only added one video so far.
Speaker Change: Our plan is to add two before the end of the year and yes, we expect the originations to continue to build.
Matthew McNeill: We expect the originations to continue to build. And just, you know, given, you know, the strong start, is there, you know, do you put a decent probability on the chance that you can, you know, eke out, you know, fees that are end up, you know, above the $7 to $8 million range in kind of an upside scenario? I think the other side of that probability is there are a lot of changes happening at the SBA right now. You know, there's been a couple of rule changes just since the start of the year. So we're looking at that with, you know, we're tempering our expectations on some sort of material outperformance just because there seem to be changes that are undergoing at the SBA and we're not sure how that's going to affect us in the future.
Speaker Change: Got it.
Speaker Change: And just given the strong start is there.
Speaker Change: Do you put a <unk>.
Speaker Change: Decent probability on the chance that you can eat.
Speaker Change: Peak out.
Speaker Change: Fees that are end up above.
Speaker Change: Above to $7 million to $8 million range.
Speaker Change: Of an upside scenario.
Speaker Change: I think the other side of that probability is or a lot of changes happening in that the SBA right now.
Speaker Change: There's been a couple of rule changes just since the start of the year. So we're we're we're looking at that with we're tempering our expectations on some sort of material outperformance just because there.
Speaker Change: There seem to be.
Speaker Change: Changes that are that are undergoing at the SBA and then we're not sure how that's going to affect us.
Speaker Change: In the future right now the changes that have been implemented and announced are not going to hamper our growth in the SBA, but just thinking about what may.
Matthew McNeill: Right now, the changes that have been implemented and announced are not going to hamper our growth in the SBA, but just thinking about what may come as, you know, things changing, evolving rapidly at the SBA. It's not so much that things are changing rapidly in the SBA, In general, our changing and with any kind of policy, so it's... We're not going to stand here and predict what can happen in Washington for the next six months given the last four weeks. Yeah. Understood. So, and then on the expense side, you know, I get the guidance on change.
Speaker Change: It may come as things are.
Speaker Change: <unk> all been rapidly at ESPN.
Speaker Change: Well, we would add to that portfolio.
Speaker Change: This is not so much the things are changing rapidly in the SBA.
Speaker Change: <unk> in general are changing.
Speaker Change: With any kind of policy.
Speaker Change: Yes.
Speaker Change: We're not going to stand here and predict what can happen in Washington for the next six months given the less.
Speaker Change: Four weeks.
Speaker Change: Yeah.
Speaker Change: Understood.
Speaker Change: So and then on the expense side.
Speaker Change: <unk> unchanged over the course of the year do you think that the professional fees that have come up over the past couple of quarters that eventually shifts into the compensation line.
Matthew McNeill: I mean, over the course of the year, do you think that the professional fees that have come up over the past, you know, couple of quarters, that that eventually, you know, shifts into, you know, the compensation line or elsewhere, you know, within the expense base? Or is that kind of, is this, you know, more or less kind of, you know, where you guys think you'll be for the next few quarters? So, you know, I do think, you know, we did reference on the call if you heard that, you know, it's related to our initiative. So in our professional services line, we've got legal expense, you know, non-deal related legal expense, consulting costs, recruiting costs.
Speaker Change: Or elsewhere within the expense base.
Speaker Change: Or is that kind of is this more or less kind of where you guys think you'll be for for the next few quarters.
Speaker Change:
Speaker Change: I do think we did reference on the coffee heard that it's related to our initiatives selling our professional services line. We've got legal expense non deal related legal expenses consulting cost.
Speaker Change: Recruiting costs. So yes, some of the cost of a one time investment that will shift into.
Matthew McNeill: So, yes, some of those costs are one-time investments that will shift into, you know, the employee expense line, be it through recruiting, you know, key talent or, you know, implementing new technology that may be software related or other expense related items. But yes, we don't anticipate it to continue to remain. on an elevated level, but again, there will be potential lumpiness as we explore, you know, different initiatives. But we are re-referring to the $57 million number.
Speaker Change: The employee expense line be it through recruiting key talent or implementing new technology that may be software related or either expense related items, but yes, we don't anticipate it to continue to remain.
Speaker Change: An elevated level, but again, there will be potential lumpiness as we explore different initiatives.
Speaker Change: But what we are referring to $57 million number yes, yes.
Matthew McNeill: Yeah. Great. You know, obviously, you know, Great job in the credit this quarter, you know, with the, you know, loan and Oreo sales and getting everything off the books and keeping charge off super low. You know, now that you guys have, you know, offloaded a good portion, you know, of the MPAs that you had on, you know, how do you feel about, you know, the remaining, you know, two loans, you know, that you highlight making up kind of the majority of the remainder here? Any updates on either of those? No, no material updates. The retail property that's highlighted there will probably have an update on our next call.
Speaker Change: Great.
Speaker Change: And.
Speaker Change: Yes, obviously.
Speaker Change: Great job on the credit this quarter.
Speaker Change: Loan and Oreo sales.
Speaker Change: Everything off the books.
Speaker Change: And keep in charge offs to go low.
Speaker Change: Now that you guys.
Speaker Change: Offloaded a good portion of the.
Speaker Change: NPA is that you had on how do you feel about that.
Speaker Change: The remaining.
Speaker Change: The two loans that you highlight.
Speaker Change: You have kind of the majority of the remainder here.
Speaker Change: Any updates on either of those.
Speaker Change: No no no material updates.
Speaker Change: The retail property, that's highlighted there will probably have an update.
Speaker Change: On our next call.
Matthew McNeill: That one should undergo some sort of, you know, either a re-tenanting or refinance at some point in the next 90 days, so we should have an update then. And then the office building in New Jersey, you know, we did take a, you know, we wrote down about two-thirds of the loan already. It's in receivership. We're now in control of the cash flows as a bank group, and litigation against the guarantor is proceeding. But no real material update, just marching forward with a little bit more control over the cash flow, which is good for us, and we'll see how things progress in the next couple of quarters.
Speaker Change: That one should undergo some sort of.
Speaker Change: Either a re tenant in or refinance at some point in the next 90 days, we should have an update then and then the the office building in New Jersey.
Speaker Change: We did take them.
Speaker Change: We broke down about.
Speaker Change: Two thirds of the loan.
Speaker Change: Already it is in receivership.
We're now in control of the cash flows as a bank group.
Speaker Change: And the litigation against the guarantor is proceeding.
Speaker Change: No real material update just marching forward with a little bit more control over the cash flow, which is just good for us.
Speaker Change: We'll see how things progress in the next couple of quarters.
Speaker Change: Yeah.
Matthew McNeill: and Chris. And then in those 88 basis points of MPAs, there's about 17 basis points, correct me if that's not right, Courtney, of fully guaranteed portions of SBA loans. Yes, it's 83 of ours is the total and 17 is guaranteed. Perfect. And I saw, you know, that there, you know, a little bit of movement, I guess, in the risk ratings this quarter, you know, some saying they're coming down, you know, a little bit of uptick in special mention, I guess, you know, migration between the two, or any other movement. Yeah, go ahead. We're cracking up a little bit.
Speaker Change: Chris Chris and then in those 88 basis points of MTS, There's about 17 basis points correct me, if that's not right Courtney.
Speaker Change: Fully guaranteed portions of SBA loans.
Courtney Kelly: Yes, 83 is the total in 2017 as guaranteed thank you 83.
Speaker Change: Perfect.
Speaker Change:
Speaker Change: And I saw that there.
Speaker Change: A little bit of a move.
Speaker Change: And the risk ratings this quarter.
Speaker Change: So things are coming down a little bit of uptick in special mention.
Speaker Change: I guess.
Speaker Change: Migration between the two.
Speaker Change: Or any color around that.
Speaker Change: Yes.
Speaker Change: Yes go ahead of a cracking up a little bit I think Chris you were asking about the increase in special mentioned basically.
Matthew McNeill: I think, Chris, you were asking about the increase in special mention, basically. Yeah, any of the net migration risk ratings would be great. Yeah, so the risk rating migration primarily happened from past credit to special mention. We did put a footnote there. We're confident in these loans. These are primarily healthcare loans that did not hit their pro formas and they're backed by ultra high net worth sponsors with plenty of liquidity. They're also performing loans, they're current, and we feel good that they'll return to a past status over the next couple of quarters. Got it, um...
Speaker Change: Yes.
Speaker Change: Net migration risk ratings would be great.
Speaker Change: Yes.
Speaker Change: The risk rating.
Speaker Change: Migration, primarily happens from past credits to special mention.
Speaker Change: We did put a footnote there we're confident in these loans these are primarily healthcare loans.
Speaker Change: It did not hit their pro forma is and they're backed by ultra high net worth sponsors with plenty of liquidity. There are also performing loans.
Speaker Change: They are current and we feel good that they'll return to.
Speaker Change: Past status over the next couple of quarters.
Speaker Change: Got it.
Speaker Change: <unk>.
Speaker Change: Yes.
Matthew McNeill: And then, you know, lastly, how are you guys thinking about, you know, the share repurchases came in, you know, a little better than what I was expecting this quarter, do you expect to keep kind of plugging along on the plan here? through, you know, especially kind of given, you know, what the market's done. Yeah, given where we are, you know, as I've said in the past, it's more an art form than it is a science. Obviously, at these levels, frankly, we'd like to buy back more, right? But the fact of the matter is, we also need to build consolidated CET1.
Speaker Change: And then.
Speaker Change: I see.
Speaker Change: How are you guys thinking about it.
Speaker Change: Share repurchases came in a little better than what I was expecting this quarter do you expect to keep kind of plugging along on the plan here.
Speaker Change: Through especially kind of given what the market's done.
Speaker Change: Yes, given where we are as I've said in the past this morning art form.
Speaker Change: Then it is.
Speaker Change: Science, obviously at these levels.
Speaker Change: Frankly, we'd like to buy back more right, but the fact the matter is we also need to build the consolidated CET one.
Matthew McNeill: So, you know, we'll participate as we're able to, but we are seeking to grow consolidated CET1 to 11% or north over a couple of years. So we have to balance that at the same time. Got it.
Speaker Change: So yes, we will.
Speaker Change: Participate as we are able to but we see.
Speaker Change: Seeking to grow consolidated CET one.
Speaker Change: It's 11% or north over a couple of years. So we have to balance that at the same time.
Speaker Change: Yeah.
Speaker Change: Got it thanks, Chris.
Chris O'connell: Thanks, Chris. Um Okay, great. That's all I have. Appreciate the time.
Speaker Change: Yeah.
Speaker Change: Okay, Great. That's all I have I appreciate the time, thanks for taking my questions.
Operator: Thanks for taking my question. Great. Thanks so much, Chris. Thanks, Chris. As a reminder to ask a question, press star 1 on your telephone keypad. At this time there are no further audio questions.
Courtney Kelly: Great. Thanks, so much Chris.
Speaker Change: Thanks, Chris.
Speaker Change: As a reminder to ask a question press star one on your telephone keypad.
Speaker Change: At this time there are no further audio questions I would now hand, the call back over to your presenters for closing remarks.
Christopher Gruseke: I will now hand the call back over to presenters for closing remarks. Okay, thanks so much for participating in the call today. We executed according to what we said we would do in the last couple of quarters. Things look cleaner and more straightforward on the credit side. The two assets we've been talking about have been removed. The SBA business is up and running. Margin continues to expand. are confident in the path going forward. Thanks for taking the time to listen today.
Speaker Change: Okay. Thanks, so much for participating on the call today.
Speaker Change: We executed according to what we said we would do in the last couple of quarters.
Speaker Change: Things look cleaner.
Speaker Change: Cleaner and more straightforward on the credit side.
Speaker Change: Two assets, we've been talking about have been removed the SMB. The SBA business I'm, sorry is up and running margin continues to expand so we.
Speaker Change: We are confident in the path going forward. Thanks for taking the time to listen today.