Q1 2025 Orrstown Financial Services Inc Earnings Call
Bye.
Investor presentation.
The appropriate reconciliations to GAAP are included in the appendices.
Speaker Change: Joining me on the call. This morning, <unk> Senior Executive Vice President and Chief Operating Officer, Adam Metz, as well as executive Vice President and Chief Financial Officer, Neal <unk>, Our Chief Risk Officer, Bob Karate, and our Chief Credit Officer, David Schakowsky will also participate on the call today.
Speaker Change: Before we discuss the financial results for the quarter I wanted to bring everyone up to speed on some of the important events that took place at a worst town during the first quarter.
Speaker Change: We put the finishing touches on our core conversion with the integration behind US. We are excited about returning our focus to growing the company enhancing shareholder value and built.
Speaker Change: The Premier community Bank franchise in our Pennsylvania, and Maryland markets.
Speaker Change: Second we continued to invest in the future of the larger organization by making several additions and changes to our leadership team.
Speaker Change: In January we added Chris or embedding Cologuard to our executive team as Chief Information Officer, and Chief Operations Officer, Respectfully together, Chris and Dan have over 40 years of banking experience their combined experience will play a vital role in scaling our technological and operational capabilities and shaping.
Speaker Change: Our future success.
Speaker Change: In February we added Barb robes to our board of directors, Barbara 40 years of banking experience expertise and wealth management and human capital management and extensive knowledge of our markets makes her a valuable resource for both our board and management team.
Speaker Change: Also in February we announced that Adam Metz has been promoted to senior executive Vice President.
Speaker Change: And Chief operating officer of the company with the intent for him to succeed me as President and Chief Executive Officer of the company and bank. Upon my retirement in May of 2026.
Adam Metz: I would like to now turn the call over to Adam for a discussion on market trends Adam.
Adam: Thank you Tom and good morning, everyone.
Adam: Before we discuss our quarterly results. It is important to discuss the changing economic environment and the steps we've taken to position the bank to be successful in any scenario.
Adam: Shortly before our year end earnings announcement, the presidential administration came to power and immediately began to take aggressive action to change the economy through the creation of <unk>. The threat implementation and then partial delay of tariffs and other measures.
Adam: These actions introduced market volatility and uncertainty into the national economy.
Adam: Thankfully, we had previously began to take steps designed to protect credit quality and position the bank for success in any economic scenario. These steps included proactively managing our CRE portfolio to reduce concentration and we've been very successful in that initiative that we started almost a.
Adam: A year ago.
Speaker Change: Stress tested the C&I portfolio for the potential impact of tariffs and Bob and then Dave can speak more about that later.
Speaker Change: Reviewed our TM platform for clients, sending foreign wires and proactively discussing strategies with them.
Speaker Change: And we reevaluated lending relationships above $2 million, one by one and adjusted risk ratings appropriately targeting some of them with exit plans.
Speaker Change: While these steps resulted in higher than expected loan payoffs during the first quarter. We are confident that we have that positioned us well for future loan growth with that said, we are not immune to the changing economic environment and it is possible that borrowers may take a wait and see approach on expansion plans and capital needs.
Speaker Change: Despite the economic uncertainty, we are seeing positive momentum in our loan pipelines up over 40% since year end.
Speaker Change: Over the past year, our teams have been laser focused on executing a successful merger and integration with that milestone now behind us we have devoted our full resources and times towards our clients working closely with them as trusted hands on financial advisors, the strength of our pipelines.
Speaker Change: <unk> that renewed energy.
Speaker Change: As for tariffs we are active.
Speaker Change: Daily conversations with our clients, helping them navigate the evolving landscape and plan accordingly.
Speaker Change: Tariffs have introduced an added layer of uncertainty our loan portfolio has been thoroughly stress tested it and remains sound.
Speaker Change: Importantly, the underlying economic conditions across the communities, we serve continued to demonstrate resilience.
Speaker Change: Overall, we believe that the work we have done since the merger to protect credit quality enhanced liquidity and build capital has presented us with significant strategic flexibility going forward Tom.
Speaker Change: Tom and Neil will be talking more about these opportunities in a moment I would now like to turn the call back over to Tom Quinn for an overview of our quarterly results Tom.
Speaker Change: Adam our financial highlights for the quarter are summarized on slide slide three of our deck.
Speaker Change: While operating results continued to be impacted by merger related expenses core earnings were solid.
Speaker Change: Excluding certain merger and other nonrecurring charges return on average assets was 145% and return on average equity was 14, 97% for the three months ended March 31, 2025, compared to $1, one, 9% and $13 seven 9% respectively for the three months ended.
Speaker Change: December 31 2024.
Speaker Change: We do not believe that merger related expenses will be significant going forward and expect operating results to normalize.
Speaker Change: Beginning in the second quarter.
Speaker Change: We also expect approximately $1 million, a first quarter noninterest expenses to be out of our expense run rate by the end of the second quarter.
We have been focused on completing a system conversion and reinvesting in technology in available strong talent in anticipation of future growth.
Speaker Change: But as adjusted ROE indicates we are we have restarted our earnings engine and expect strong results going forward.
Speaker Change: Net interest margin remained strong NIM was 4% for the first quarter of 2025 compared to 405 in the fourth quarter of 2024, we believe that we are managing funding costs well.
Speaker Change: Running cost do continue to decline the cost of deposits declined 15 basis points from the fourth quarter of 24 to the first quarter of 'twenty five our strong liquidity positions us well to fund asset growth and maintain NIM going forward.
Speaker Change: Loans did decreased one 4% quarter to quarter, primarily due to conscientious decisions to manage risk.
Adam Metz: As Adam discussed much of the payoff activity was due to strategic actions to reduce risk in our portfolio. We continue to expect loan growth in the mid single digits. Our teams exceptionally talented the pipeline is very strong and lending opportunities are still active and we remain confident in our ability.
Speaker Change: To grow loans, the right way.
Speaker Change: But we are not immune to changing economic environment.
Speaker Change: Ours do not like uncertainty and it is possible that they may take a wait and see approach.
Speaker Change: While credit quality remained sound net charge offs were nominal.
Speaker Change: First quarter fourth quarter charge off activity was isolated and not indicative of a trend of a broader concerns within the portfolio.
Speaker Change: <unk> had loans and non accrual loans decreased quarter to quarter.
Speaker Change: Non accrual loans to total loans decreased from $5 nine March 31, 25 compared to <unk> six one.
Speaker Change: At December 31, 2024.
Speaker Change: We continue to build capital capital ratios increased across the board quarter to quarter, we remain well capitalized by all measures. We believe that the work we have done since the merger to protect credit quality enhanced liquidity and build capital has presented us with significant strategic flexibility going forward.
Speaker Change: Sure.
Speaker Change: Our capacity to accelerate commercial lending for strong credits considering buybacks as we believe our stock is undervalued.
Speaker Change: Contemplating redemption of sub debt.
Speaker Change: To take advantage of other strategic opportunities.
Speaker Change: We remain optimistic about the future both in the short term and the long term and now I'll turn it over to Nick declining our CFO, who will discuss the first quarter results in more detail Neil Thanks, Tom and good morning, everyone. A significant amount of our focus for the last few quarters has been on the balance sheet. So I'm going to start there and covered loans on slide four.
Speaker Change: Total loans are at $3 9 billion with an average yield of six 6% loans have declined to $55 million from December 31, 20 for $50 million of that was commercial loans.
Speaker Change: While on prior quarters loan sales were completed to remove some rest or the balance sheet payoffs or what drove the reduction in the first quarter of 'twenty five.
Speaker Change: Payoff activity and normal amortization outpaced a $116 million of commercial loan production.
Speaker Change: Most of the payoffs were for loans, which didn't fit the long term credit profile of the bank.
Speaker Change: CRE loans within these payoffs that didn't fully aligned based on credit risk this along with prior quarter action significantly reduced our CRE concentration.
Speaker Change: We're now well positioned to deploy capital on excess liquidity towards prudent loan production.
Speaker Change: Moving to slide five you can see that deposits have remained stable around $4 6 billion.
Speaker Change: Since the merger and the.
Speaker Change: Cost was at $2 one 4% the sales team that's about an excellent job retaining the acquired deposits from that from the <unk> acquisition.
Speaker Change: For the first quarter of 2025 deposits grew by about $11 million one of the bigger challenges for us in really every other bank out there in this rate cycle has been retaining a replacing promotional deposits as they mature while we saw a decrease of $48 million in Cds and $37 million in money markets in the first quarter. We also experienced strong growth of about $95 million in demand.
Speaker Change: Balances at.
Speaker Change: At March 31, 25% noninterest bearing deposits represented 20% of total deposits. So we continue to see some some improvement there.
Speaker Change: With the shift from higher yielding promotional deposits, we believe there'll be further reductions in funding costs to benefit the margin.
Speaker Change: The 84% loan to deposit ratio provides us with sufficient liquidity to fund our growing pipeline without placing a heavy reliance on alternative funding resources.
Speaker Change: Another opportunity for allocating our liquidity investment portfolio you can see on slide six that our investment book is now at $856 million.
Speaker Change: Purchased about $40 million of securities in the first quarter and will continue to evaluate opportunities going forward to allocate our liquidity into higher yielding assets.
Speaker Change: The current market volatility does create opportunities to enhance the portfolio, which continues to generate a very strong average yield at $4 six 5%. The duration remains relatively short at four three years and net unrealized losses of just three 3%.
Speaker Change: The book balance at March 31, 25.
Speaker Change: This takes us to our net interest income net interest margin slide on slide seven.
Speaker Change: Our margin remains very strong.
Speaker Change: Percent even.
Speaker Change: This includes about 51 basis points of net purchase accounting accretion impact in the first quarter. It was about 52 basis points in the fourth quarter I remain cautious in predicting the trajectory of the margin given pricing competition for both loans and deposits and the overall economic uncertainty, but there is upside potential based on where our depart.
Speaker Change: But rates are positioned as I pointed out previously as the fed funds rate has declined our loan yields have declined faster than our deposit costs. That's been a function of both the competitive environment and our client retention efforts coming out of the merger and the system conversion.
Speaker Change: This is evident in the graph on the top right on this slide showing the change in interest bearing deposit costs as compared to fed funds over the past year you can see that the cost is elevated in <unk> 24 from some higher cost acquired deposits, but it has come down since that point with flat rates at this point in time, there is opportunity here to improve margin.
Speaker Change: If we can maintain good yields on new loans, we do continue to remain asset sensitive.
Speaker Change: On slide eight fee income was up about 400000 from the prior quarter. This was mainly driven by wealth management, which.
Speaker Change: Which generated some additional income in the first quarter I anticipate wealth management income to drop some in the second quarter, given where the stock market has been and there continues to be.
Speaker Change: Uncertainty there.
Speaker Change: Service charges are up as I mentioned in the prior quarter, we paused some fees for a few months post conversion most.
Speaker Change: Most of those fees were reactivated in the first quarter with some residual carrying into the second quarter.
Speaker Change: Mortgage banking income decreased by about 300000 due to a decrease in the mortgage servicing rights valuation this was driven by market rates.
Speaker Change: One other item of note.
Speaker Change: Commercial lending team had another strong quarter originating swaps for clients. This doesn't always pop out in the numbers because of volume and balanced based but the team remains very focused on driving more fee income.
Speaker Change: Fee income in general remains a focal point for us for the first quarter. It was 19% of total revenues, but our goal remains to be to exceed 20%.
Speaker Change: Moving to expenses on slide nine as previously indicated we have taken the necessary steps to achieve our announced cost savings from the merger for the go forward run rate from June 32025.
Speaker Change: With less noise is expected in the second quarter. This will become more evident and I expect the efficiency ratio to drop further as a result.
Speaker Change: Merger related expenses were $1 6 million in the first quarter. This is expected to be the final quarter with significant costs associated with the merger.
Speaker Change: There are also additional expenses that have been incurred associated with providing additional support as we work through the system conversions. These costs are expected to decline in the second quarter. However, as we have stated in the past we will continue to take advantage of opportunities to invest in talent to build the infrastructure necessary to reach the next few stages of our growth trajectory.
Speaker Change: We've done some of that already as Tom referenced earlier and expect that further investments will be made to improve our operational efficiency. Also is all is if the opportunity arises we'll evaluate either individual or team revenue producers. If we believe they align with our strategic vision and can be accretive.
Speaker Change: Our credit quality is covered on slide 10.
As a result of the reduction in loan balances of negative provision was required during the quarter. This again is indicative of our conscious steps that we have taken to reduce risk in our loan portfolio classified loans declined by 14% and non accruals were down as well.
Speaker Change: Our allowance coverage ratio was one to two 3% at March 31, 2025, which remains near the top of our peer group and we believe adequately addresses the risk of loss in the loan portfolio.
Speaker Change: Slide 11 highlights our key performance metrics there are substantial increases in adjusted EPS to $1 per share and adjusted ROA and ROE as mentioned by Tom from the prior quarter.
Speaker Change: We have the opportunity to continue to improve from there. In addition from a capital standpoint, TCE is nearing 8%.
Speaker Change: If you recall when the merger closed in July we acknowledged that our capital ratios were below peer levels due to the purchase accounting marks as shown on slide 12 through a combination of the <unk>.
Speaker Change: Higher post merger earnings and various actions taken with the balance sheet. The regulatory capital ratios are approaching pre merger levels. We believe we're in a strong position for continued growth and at the same time expect to continue to build these ratios at a good pace on.
Adam Metz: I'll now turn the call back over to Adam to discuss our strategic focus going forward on slide 13.
Adam Metz: Thanks Neil.
Adam Metz: I'll just go through these you can see them listed on this deck, but number one here is a recruit talent throughout our footprint.
Speaker Change: I would say that as we promote or hire people and our management position, we always challenge them that they have to be able to recruit talent and Tom talked a little bit about those key hires on the executive level.
Speaker Change: But there has also been additional bodies added from the sales team additional RMS some credit enhancement data people and operational enhancements and we'll continue to look at that.
Speaker Change: Second one here is maximize automation.
Speaker Change: The platforms, we picked through the merger was geared towards this and we feel very optimistic about our ability to further automate and drive efficiencies through those platforms.
Speaker Change: Number three here return focus on loan and deposit growth as I said earlier, our pipelines are up over 40% since year end.
Speaker Change: We remain focused on that.
Speaker Change: Deploy excess liquidity to drive prudent growth at 84% loan to deposit ratio, we feel very good about the position we're at.
Speaker Change: Number five evaluate expansion and acquisition opportunities that will be both organically and potentially acquisitions, we've had a number of opportunities.
Speaker Change: We will continue to look at those in conjunction with our organic growth, but we'll be smart about those and prudent as we've proven in the past.
Speaker Change: Number six here continue to build capital.
Speaker Change: Neil just said we're ahead of where we initially planned and so we feel really good about the position, we're at and and the last point here is everyone. Here in this company is aligned to maximizing shareholder value. It is a part of our mission statement and we'll continue to focus on that.
Speaker Change: At this time, we would like to open the call to questions before we get started Julian will briefly review the instructions with you.
Julian: Thank you as a reminder to ask a question. Please press star followed by the number one on your telephone keypad.
In the interest of time, we ask that you. Please limit yourself to one question and one follow up and for any additional questions. Please rejoin the queue.
Speaker Change: Our first question will come from David long from Raymond James. Please go ahead. Your line is open.
Speaker Change: Good morning, everyone.
Speaker Change: Good morning, good morning.
Speaker Change: As a growth oriented bank.
Speaker Change: I just wanted to.
Speaker Change: Here from you guys, maybe what you guys are hearing from your commercial customers and a little bit more detail and.
Speaker Change: Theres, obviously, some headwinds out there more business it seemed to be sitting on their hands.
Speaker Change: And then how does that play into your outlook for mid single digit loan growth this year.
Speaker Change: Yes, we're having.
Speaker Change: Daily conversations with our clients and as I said the pipeline has grown significantly in the last three months so.
Speaker Change: We feel good about where we're at but yes, certainly there is.
Speaker Change: Some uncertainty out there, but right now our our economy continues to be pretty sound and the markets that we cover and we feel good about where we're positioned but to your point, we're having those daily conversations and.
Speaker Change: Some of the news yesterday was positive so we feel good about where we're at.
Speaker Change: Got it. Thank you and then just the second thing I wanted to ask about was on the credit side non accrual balances classified balances decline you also had some CRE runoff, but on the flip side. The economic outlook has worsened and using C sold there are certain inputs that I would.
And in your models are worse off now than they were so how do you balance these conflicting inputs and deciding what the right level of reserve is here at the end of the quarter.
Bob: Yes. This is this is Bob karate I can take that and turn it over to Neil.
Speaker Change: So so essentially we.
Speaker Change: We have qualitative factors that provide.
Speaker Change: Provide us with the opportunity to look at the current environment.
Speaker Change: And to make changes.
Speaker Change: One way or the other and we did in fact do that.
Speaker Change: With respect to.
Speaker Change: Some of the items that we're seeing and that did cause us to actually.
Speaker Change: Increase.
Speaker Change: The amount of the reserve with respect to the actual calculation.
Yes, we have.
Speaker Change: In prior quarters, we have look closely at the economic environment, and certainly made some adjustments within our model.
Speaker Change: And the qualitative side to account for.
Speaker Change: Potential future losses, so we look at it both that are grabbing a pretty granular level.
Speaker Change: By segment, and then also kind of higher level looking at our overall coverage.
Speaker Change: Kind of looking at it at both levels, we feel very good about where we're at but we do and building analysis. This quarter, we thought we'd do sufficient actions in prior quarter from a qualitative perspective.
Speaker Change: Address that risk youre, referring to obviously there has been new.
Speaker Change: Factors that have been introduced but we did take a close look at that.
Speaker Change: So comfortable with where we're at.
Tom Quinn: This is Tom I would add that.
Tom Quinn: As of the end of the year.
Speaker Change: Folks in risk management, and credit went back and looked at all loans above $2 million and looked at the impact.
Tom Quinn: Makes you making sure that.
Tom Quinn: Or would they be impacted if tariffs.
Tom Quinn: It came about they went back and looked at the cash management and the companies that were moving money.
Tom Quinn: Two two countries that might actually have significantly higher tariffs and others.
Tom Quinn: In that went back and looked at the underlying.
Tom Quinn: The strength of the credit and so I think ultimately that the organization feels.
Tom Quinn: As comfortable as you can.
Tom Quinn: Immune to the economic.
Tom Quinn: Challenges, but feel as comfortable as we can with the work that we've done and understanding our portfolio. We've looked at any companies that have had.
Tom Quinn: That have had government contracts.
Tom Quinn: We don't have many so.
Tom Quinn: So the impact from Doe.
Tom Quinn: Is minimal and.
Tom Quinn: And we've looked at folks were located in Central Pennsylvania, and Maryland, a lot of our companies do business with companies locally we do have some debt.
Tom Quinn: On the international stage, and we've evaluated that so I think the team feels comfortable with where we're at by the actions that we took December January February.
Tom Quinn: To position us well to.
Tom Quinn: And as we recognized.
Tom Quinn: Credits that we felt needed to move along.
Speaker Change: We did that and I credit, Dave and Bob for for taking that aggressive stance.
Speaker Change: Excellent that's great additional color really appreciate it and thanks for taking my question.
Speaker Change: Our next question comes from David Bishop from Husky Group. Please go ahead. Your line is open.
John: Hey, guys. Good morning. This is John on for Dave.
John: Hello, Brian.
John: So first off congrats on the quarter, just kind of one nitpicky, one I noticed there was a bit of reshuffling within certain deposit buckets on the average balance sheet this quarter.
John: Apologies if I missed it in the press release, but.
John: Can you shed a bit of light on what was going on there.
John: As possible.
John: Yes, some of that we shifted some balances due to as you know we're going through the system conversion.
John: And two in November we identified some some misclassification.
John: <unk> adjusts.
John: Adjustments that were made accordingly.
John: So it's just a function of as we.
John: Move forward and got a better understanding of the data that came over we had to make some adjustments.
John: Got it okay. That's helpful.
John: And then maybe just double back on the loan pipeline are there any specific segments that are that are showing strength versus others. How should we be thinking about that moving forward.
John: I think it's sort of.
John: Well diverse pipeline I do as we said earlier, we were very proactive in addressing our CRE concentration of ahead of the merger and we've dropped that significantly. So we are taking a measured.
John: Probes to commercial real estate, so that is part of the pipeline.
John: But also a diverse group of C&I solar opportunities et cetera.
John: Yes.
John: Not want to minimize that we've talked about this a lot as a team but the impact of.
John: The merger behind Us.
John: Go back to those of you follow us.
John: We literally have.
John: We changed systems, everyone in the company needs to be trained.
John: On some part of technology and it took them away from maybe some of the time in the field and so now that with that clearly behind them.
Adam Metz: See the impact of what we feel is a very strong sales team across the board in Adams really done a nice job of leading them.
John: Forward, So I think youll see us get back to a more normalized.
John: Loan volume.
Speaker Change: Great. Thanks for taking my questions.
Speaker Change: Our next question comes from Tim Switzer from <unk>. Please go ahead. Your line is open.
Tim Switzer: Hey, good morning, guys. Thanks for having me on.
Speaker Change: Good morning.
Speaker Change: Can you discuss a little bit about the NII and NIM trajectory from here.
Speaker Change: Assuming no rate cuts going forward and the impact of rate cuts and also Neil is that $6 9 million of purchase accounting accretion is that what we should project going forward is that a little bit elevated.
Speaker Change: It's probably a little bit elevated.
Speaker Change: Again as you know there could be acceleration at any point in time based on payoff activity.
Speaker Change: Generally expected around $6 million.
Speaker Change: $6 million range, but again.
Speaker Change: Kind of go about that based on some acceleration.
Speaker Change: Excuse me.
Speaker Change: From a core NIM perspective, I'm expecting is still be around $3 50 range, where we're at we do have as I indicated in my comments I do feel we've got an opportunity here I continue we've talked to is on path to continue to be a little bit hesitant because of the competitive environment.
Speaker Change: And everything else, but we do.
Speaker Change: Have the opportunity to.
Speaker Change: We've held deposit costs, a little higher.
Speaker Change: Yeah.
Speaker Change: That has worked for us, but we do have the opportunity to look closer at funding costs and see what opportunity. We have there. So I think there is the chance that we can.
Speaker Change: Rates are flat.
Speaker Change: So we can continue to look at deposit costs.
Speaker Change: And like I indicated we are looking to reinvest we started reinvesting.
Speaker Change: Some of the partners, we've got significant excess cash right now so just reallocating some of those western investments or loans.
Speaker Change: US some opportunity to expand the NIM, but again the market environment makes it difficult to.
Speaker Change: Clearly project, where we think it's going to fall, but theres definitely some.
Speaker Change: Some opportunity for improvement there and we'll keep pushing on that you should as far as NII overall, we should expect.
Speaker Change: We reinvested.
Speaker Change: We've purchased some investments throughout the first quarter there were some late in the first quarter.
Speaker Change: Youll see more of a full period impact of that.
Speaker Change: We start.
Adam Metz: Like Adam advocated the loan pipelines are pretty strong here, so as we kind of move that stuff.
Adam Metz: At a fed funds for 3% of whatever earning there.
Higher yielding loans that should benefit us.
Adam Metz: Okay, Great that's really helpful and can.
Adam Metz: Can you provide some details on maybe the expense outlook are there any more expense saves out there for you to obtain.
Adam Metz: Following the integration of the merger.
Adam Metz: Would just love to hear some color there.
Adam Metz: Yes, we're continuing to look at efficiencies and I think there's always opportunities as we as we.
Adam Metz: We implement new processes.
Adam Metz: All of that so.
Adam Metz: I do believe.
Adam Metz: Setting the merger cost side, and we have one time kind of cleanup for restructuring expenses for a couple of the branch.
Adam Metz: <unk> of 100000, if you exclude those we do even though thats coming quarter, there is about $1 million.
Opportunities are expected reductions.
Adam Metz: Certain categories were elevated Florida.
Adam Metz: Different reasons, one of the big one is the kind of ongoing we've had a lot of consultant usage and other things.
Adam Metz: Keep us move.
Adam Metz: Moving forward as we work through the conversion. So some of that is going to a lot of that will wane in this quarter.
Adam Metz: Mostly be eliminated towards the app, So I do see about another mill.
Adam Metz: Savings and run rate.
So we should be able to get to that 35 536 four.
Adam Metz: Run rate going forward with further.
Adam Metz: The other opportunity.
Adam Metz: It's going to be again as I indicated my comments, it's going to be a little hard to measure because there are.
Adam Metz: Kind of investments there that are building.
Adam Metz: As well to support us in the long term.
Speaker Change: Okay. So 35% 36 million does that include the investments you guys are planning to make and I know that can change depending on the environment for now, but it could again.
Adam Metz: We're not afraid to.
Adam Metz: To add.
Adam Metz: Strong talent, if it makes sense for the organization.
Adam Metz: I'm not going to.
Adam Metz: Fully commit to that but yes that is the expectation.
Adam Metz: It does assume certain investments that we already know us.
Adam Metz: Yes, it makes sense. Thank you.
Adam Metz: Yes.
Speaker Change: Our next question comes from Gregory isn't gone from Piper Sandler. Please go ahead. Your line is open.
Adam Metz: Hey, guys good morning.
Speaker Change: Good morning, Greg.
Speaker Change: Hi, curious of what your credit concentration level was at quarter end and if there's a percentage of our goal you have in mind of where you wanted to get to.
Speaker Change: Yes, yes.
Speaker Change: As David Kathy So are our ratio of total CRE to risk based capital was 302 at quarter end.
Speaker Change: We have established several years ago and internal tolerance limit of <unk>.
Speaker Change: 350%, So we think where we're at today with the.
Speaker Change: Our proactive measures, we've taken to get that concentration down to where it is now we have we have a little bit of.
Speaker Change: Runway there to accommodate.
Speaker Change: CRE, if the right opportunities present themselves.
Speaker Change: Hey, Greg I would just add that we do.
Speaker Change: Obviously, we focus on that number but.
Speaker Change: Regardless of what that number is we want all of US do we have the credit.
Speaker Change: <unk>.
Speaker Change: In mind at all times, so that is the key focus in making sure that we're we're doing the right thing and as we've talked about before we're in a different CRE for us is a little different than the exposure to some of the larger banks have.
We do pay close attention to that and one of them.
Speaker Change: But again, if it makes sense from a credit risk standpoint, where we're not going to pull back from them.
Speaker Change: Okay Awesome, and then secondly, it looks like cash balances built a decent amount.
Speaker Change: The quarter could you share more color on that and maybe what we should expect going forward.
I'm, sorry, I missed what cash balance our cash yes.
Speaker Change: Yes, that's a function of obviously the loan balances came down so we had a fair amount of payoffs during the quarter.
Speaker Change: We are.
Speaker Change: As indicated we have already started kind of reallocating those funds so as well.
Speaker Change: Whether it's through.
Speaker Change: Some of the investment purchases that we already did or whether it's.
Speaker Change: Ideally, it's going to fund future loan growth again, the pipeline is strong so.
Speaker Change: We do expect to utilize some of that cash.
Speaker Change: Going forward the team from a.
Speaker Change: We are very very good position from a deposit standpoint at 84% and the team is going to continue to push to drive deposits, but we.
Speaker Change: We feel very good from a cash position.
Speaker Change: I think it helps us to my comment earlier helps us from a <unk>.
Speaker Change: Margin perspective, as well, having that cash on the balance sheet versus.
Speaker Change: Go outside the us.
Speaker Change: Other alternative sources.
Speaker Change: Awesome. Thanks, guys.
Speaker Change: Our last question will come from Dan Cardenas from Janney Montgomery Scott. Please go ahead. Your line is open.
Dan Cardenas: Hey, good morning, guys.
Speaker Change: So just quickly Neil can you tell us how much cash flows generated I'll finish off of your securities portfolio on a quarterly basis.
Speaker Change: Are those proceeds is going to be used primarily for quarter, Vienna, Cologne growth or are they going to go back into the securities portfolio.
Speaker Change: So we've typically taken the approach.
Speaker Change: We changed our view a little bit.
Speaker Change: I have typically taken the approach of kind of maintaining a flat investment portfolio.
Speaker Change: I have.
Speaker Change: And I saw our treasurer have changed our approach.
Speaker Change: Sorry.
Speaker Change: Yes.
Speaker Change: So basically the new approach is.
Speaker Change: As we always have we take advantage of market opportunities. Obviously, there's been a lot of volatility with what market rates now so we.
Speaker Change: Kind of as I indicated before if there is opportunity.
Speaker Change: AD purchase curious to add both.
Speaker Change: Limit or credit risk because we don't want to do a lot to include a lot of credit risk in the investment portfolio, but if it enables us to generate some more margin it'll do it we've been focused recently on <unk>.
Speaker Change: Non agency <unk>.
Speaker Change: Yes.
Speaker Change: And theres been some opportunities again with the market fluctuation. So we do it as an opportunity because of.
Speaker Change: Kind.
Speaker Change: Kind of the run off in the <unk>.
Speaker Change: The payoffs that we had experienced in our loan portfolio. We are looking for other avenues.
Speaker Change: To offset that for now.
Speaker Change: But to your initial question is about $15 million.
Speaker Change: The quarter.
Speaker Change: I am sorry, $50 million a month.
Speaker Change: Our investment portfolio runoff.
Speaker Change: But we are again looking I'm not opposed to continuing to build the investment portfolio, which is quite change in kind of the approach previously.
Speaker Change: Okay excellent and then maybe just some color on the M&A front.
Yes.
Speaker Change: Discussions picked up here recently, and then geographically what direction would you guys like to head towards.
Speaker Change: Yes, we really don't spend a lot of time talking publicly about M&A, what I will say to you is that since.
Speaker Change: Since the merger, we've had no shortage of folks coming and visiting us and presenting opportunities to us I think we would always be.
Speaker Change: We always be disciplined.
Speaker Change: We are.
Speaker Change: Really tried to make sure that if we were going to look at something seriously it had tremendous value to our shareholders there had to be a reasonable payback period.
Speaker Change: And we either want to acquire talent or acquire.
Speaker Change: Is this line that we may not have.
Speaker Change: I have been fully entrenched and that's pretty much how we we do it I don't think with the way the market is today anything is imminent.
Speaker Change: What we always try to do is.
Speaker Change: Identify opportunities that might fit the <unk>.
Speaker Change: And the culture very importantly, the culture, because we have a high performing organization and and we want to make sure that that.
Speaker Change: Yes.
Speaker Change: That has always been.
Speaker Change: And a piece that the board plays a obviously a critical role in so we do strategic planning identify some potential opportunities to partner.
Speaker Change: But we've been around 106 years in May and we've done three acquisitions so well.
Speaker Change: Most recent transaction was very beneficial to both companies.
Speaker Change: We'll be very judicious as we move forward.
Speaker Change: Great. Thanks, Paul.
Speaker Change: We have no further questions I'd like to turn the call back over to Tom Klein for closing remarks.
Speaker Change: Thank you operator, and I want to thank everybody for participating today and as always if there's any clarity on any of the items discussed in the quarterly earnings.
Speaker Change: The call today, please feel free to contact us.
Speaker Change: I want to thank you for joining I know you're all busy.
Speaker Change: Wish you a wonderful day. Thank you very much bye now.
Speaker Change: This concludes today's conference call. Thank you for your participation you may now disconnect.
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: [music].