Q2 2025 Business First Bancshares Inc Earnings Call
Unknown Executive: Hello and welcome to the Business Frst Ben Shares Q2 2025 Earnings Conference Call. Please note that this call is being recorded.
Thank you for standing by.
Hello, and welcome to the business first been shares Q2 2025 earnings conference call.
Matthew Sealy: I would now like to turn the call over to Matt Sealy, Senior Vice President, Director of Corporate Strategy and FP&A. Please go ahead. Thank you. Good morning, and thank you all for joining.
Please note that this call is being recorded.
I would now like to turn the call over to Matt cely, senior vice president director of corporate strategy and FTA, please go ahead, sir.
Matthew Sealy: Earlier today, we issued our second quarter 2025 earnings press release, a copy of which is available on our website, along with the slide presentation that we will reference during today's call. Please refer to slide three of our presentation, which includes our safe harbor statements regarding forward-looking statements and the use of non-GAF financial measures. For those of you joining by phone, please note the slide presentation is available on our website at www.b1bank.com. Please also note our Safe Harbor Statements are available on page 7 of our earnings press release that was filed at the SEC today. All comments made during today's call are subject to those Safe Harbor Statements in our slide presentation and earnings release.
Thank you. Uh, good morning, and thank you all for joining earlier today. We issued our second quarter 2025 earnings press release a copy of, which is available on our website, along with the slide presentation that we will reference during today's call.
Please refer to slide 3 of our presentation, which includes our Safe Harbor statements for going regarding regarding forward-looking statements and the use of non-gaap financial measures. For those of you joining my phone, please note. The slide presentation is available on our website at www.b1bank.com.
Please also note our Safe Harbor. Statements are available on page 7 of our earnings press release that was filed at the SEC today.
Matthew Sealy: I'm joined this morning by Business Frst Bank Share's Chairman and CEO, Jude Melville, Chief Financial Officer, Greg Robertson, Chief Banking Officer, Bill Jordan, and President of B1 Bank, Jerry Baskicu. After the presentation, we'll be happy to address any questions you may have.
All comments made during today's call are subject to those Safe. Harbor statements in our slide presentation and earnings release.
Jude Melville: And with that, I'll turn it over to you, Jude. Okay, thanks, Matt. Good morning. And thanks, as always, to everyone for prioritizing this call. I know you have plenty to do on a Monday morning, and we appreciate you participating with us.
Officer Greg Robertson Chief banking Officer Phil Jordan, and president of B1 Bank Jerry Vasquez. After the presentation, we'll be happy to address any questions you may have. And with that, I'll turn it over to you, Jude.
Jude Melville: I'd like to start by explaining that we chose a later than normal release date out of an abundance of caution given the core system conversion we conducted over the past few weeks, wanting to err on the side of giving our team ample time to close out the quarter. We were successful and going forward, I expect we will revert to our normal release date and time.
Okay. Thanks Matt. Uh, good morning and thanks as always to everyone for prioritizing this call. I know you have plenty to do on a Monday morning and we appreciate your participating with us.
Like to start by explaining that we chose a later than normal. Release date out of an abundance of caution given the core system conversion. We conducted over the past few weeks, I wanted to err on the side of giving our team ample time to close out the quarter.
We were successful and going forward. I expect we will revert to our normal release date and time.
Jude Melville: Four things I'd like to highlight before I turn it over to Greg to offer a more detailed analysis of our performance. First, the quarter was successful financially. We again posted 1% ROAA earnings, maintained our net interest margin, we increased our capital levels, as well as increasing our tangible book value by almost 15% annualized. These have been our primary goals over the past few quarters and we're pleased to accomplish them despite an extra busy quarter. We also originated funds at a healthy pace, even while continuing to decrease our C&D concentration levels, as well as improving the makeup of our funding base, growing non-interest bearing accounts quarter over quarter.
4 things. I'd like to highlight before I turn it over to Greg to offer a more detailed analysis of our performance.
First the quarter was successful financially. We again posted 1% roaa earnings but maintained our net. Interest margin. We increased our Capital levels as well as increasing our tangible Book value, by almost 15% and you lost.
These have been our primary goals over the past few quarters and we're pleased to accomplish them despite an extra busy quarter.
We also originated the phones at a healthy Pace even while continuing to decrease our CND concentration levels, as well as improving the makeup of our funding base growing. Non-interest bearing accounts for the over quarter.
Jude Melville: Second, the quarter was successful operation. We embarked two years ago on a project to upgrade our core processing system to IPS, the FIS large bank platform, and after thousands of man hours of preparation and then an action packed Memorial Day weekend, executed successfully, positioning ourselves for more efficient processing for the foreseeable future. We're excited about this partnership and believe it will lead to a more efficient organic and inorganic operational effectiveness.
Second, the quarter was successful operationally.
We embarked 2 years ago on a project to upgrade our core processing system, to IPS the FIS large Bank platform. And after thousands of man hours of preparation, and then an action-packed Memorial Day. Weekend executed successfully positioning ourselves for more efficient processing for the foreseeable future.
Jude Melville: We also continue to work on our cultivating our branch footprint teaming with a local community bank in the sale of one of our legacy branches. We're proud to again deliver on a win-win proposition for the local market and our local employees, leaving them in secure hands while we position our broader footprint for future operational savings, approaching $750,000 a year. These operational decisions require significant work to execute by large numbers of our teammates and I'm proud of the way they've done so.
We're excited about this partnership and believe it will lead to more efficient organic and inorganic operational effectiveness.
We also continue to work on our um cultivating our Branch footprint teeming with a local Community Bank in the sale of 1 of our Legacy branches.
We're proud to again deliver on a win-win proposition, for the local market and our local Employees leaving them in Secure hands. While we position our broader footprint for future, operational savings approaching 750,000 dollars a year.
These operational decisions, require significant work to execute by large numbers of our teammates.
I'm proud of the way that they've done. So
Jude Melville: Third, we announced a partnership with Progressive Bank, a $750 million community bank in the North Louisiana area of our footprint. We've known the team at Progressive for many years, and it felt for some time that they would make good partners. I'm very proud that they chose to join with us on this next stage of our journey. They have excellent asset quality, strong long-term client relationships, and a team that will fit in day one within the B1 culture.
Third. We announced the partnership with Progressive Bank of 750 million Community Bank in the north Louisiana area of our footprint.
We've known the team at Progressive for many years and it fell for some time that they would make good partners. I'm very proud that they chose to join with us on this next stage of our journey.
Jude Melville: Between continued integration of the Oakwood, excuse me, Oakwood Bank footprint with conversion scheduled for late in the third quarter and incorporation of Progressive with a projected close of the first of the new year, we enter 2026 projecting meaningful upside earnings accretion added by our fruitful M&A activity.
They have excellent asset quality, strong long-term client relationships and a team that will fit in day 1 within the B1 culture.
Between continued integration of the Oakwood. Excuse me, Oakwood. Banquet print with conversion scheduled for late in the third quarter uh and incorporation of progressive with a projected, close of the first of the new year, we enter 2026, projecting meaningful upside earnings secretion uh, added by our fruitful m&a activity.
Jude Melville: Fourth, though, our asset quality metrics trended negatively during the quarter. That's partly a function of successful work navigating through the process on a handful of relationships that have been previously identified. We've not been identifying new relationships through which we have to work, experiencing a decline in our watch list over the past two quarters. We believe we are adequately reserved against the non-performing relationships, and all borrowers continue to work with us towards resolution. And while we don't expect we won't suffer any losses over the remainder of the year, as we bring the subject credits to their conclusion, the quarter, as with most all our recent quarters, exhibited exemplary net charge offsets at 0.01%.
For Thor asset quality metrics trended, negatively or in the quarter. And that's partly a function of successful work navigating through the process on a handful of relationships that have been previously identified.
We've not been identified new relationships through which we have to work experiencing a decline in our watch list over the past 2 quarters.
Jude Melville: We are preparing to enter 2026 with as strong of a balance sheet, as positive of a go-forward P&L opportunity, as diversified a geographic footprint, and as much operational capacity as I can remember during my time as CEO, and I'm excited to see our team continue to perform.
We believe, We Are adequately reserved against the non-performing relationships and all borrowers continue to work with us towards resolution. And while we don't expect, we won't suffer any losses over the remainder of the year, as we bring the subject credits to their conclusion, the quarter as, with most all our recent quarters, exhibited exemplary, net charge offs at 0.01%.
Jude Melville: With that, I'll turn it over to Greg. Thanks again.
We are preparing to enter 2026 with a strong of a balance sheet as positive. I go forward. Pnl opportunity as Diversified a geographic footprint and as much operational capacity as I can remember during my time as CEO, and I'm excited to see our team continued to perform.
With that, I'll turn it over to Greg. Thanks again.
Gregory Robertson: Thank you, Jude.
Gregory Robertson: And good morning, everyone. As always, I'll spend a few minutes reviewing our results and we'll discuss our updated outlook before we open up for q&a. Second quarter gap net income and EPS available to common shareholders was $20.8 million and 70 cents and included a $3.36 million gain on a sale of a branch, which we closed April 4. Gap results also included a $570,000 acquisition related expense and a million dollar core conversion. Excluding these non-core items, non-GAAP, core net income and EPS available to common shareholders was 19.5 million and 66 cents per share. From our perspective, second quarter results marked another solid quarter with consistent profitability, generating a one-on-one core ROAA.
Thank you, Jude. And good morning everyone. As always I'll spend a few minutes reviewing our results and we'll discuss our updated outlook before we open up for Q&A.
Second quarter, gaap, net income and EPS available to Common shareholders was 20.8 million and 70 cents, and included, a 3.36 million gain on a, on a sale of a branch, which we closed April 4th Gap results. Also included a 570,000 acquisition related expense in a million dollar core conversion expense
Including these non-core items, non-gaap core, net income and EPS available to Common shareholders was 19.5 million and 666 cents per share.
From our perspective, second quarter results, marked another solid quarter and consistent problem with consistent profitability. Generating a 101 core Roa
Gregory Robertson: From a corporate perspective, we were active during the quarter with successful core conversion, which occurred over Memorial Day weekend. We also sold one location in South Louisiana in early April, as Jude mentioned, and finally announced the acquisition of North Louisiana-based Progressive The actual merger announcement occurred earlier this month, however, we were obviously busy in the months leading up to the announcement. Starting with the balance sheet, total loans held for investment increased 4.5% annualized on a linked quarter basis, up $66.7 million from Q1. Scheduled and non-scheduled paydowns and payoffs flowed somewhat during the second quarter. totaling $365 million while new loan production was $432 million during the quarter.
Perspective, we were active during the quarter with successful core conversion, which occurred over Memorial Day weekend. We also sold 1 1 location in south Louisiana in early April as you mentioned. And finally announced the acquisition of North Louisiana Pace Progressive Bank. The actual merger announcement occurred earlier this month. However, we are obviously busy in the months leading up to the announcement
Starting with the balance sheet total loans held for investment. Increased 4.5% annualized on the link quarter basis of 66.7 million from q1.
Scheduled a non-scheduled. Pay pay pay downs and payouts flow somewhat during the second quarter.
Gregory Robertson: Loan growth was driven primarily by C&I and CRE, which increased $98.8 million and $61.6 million from the late quarter. This growth was partially offset by decreases in construction and residential of $33.4 million and $54.5 million respectively. Based on unpaid principal balances, Texas-based loans remain relatively flat at approximately 40% of the overall loan portfolio as of June 30. Total deposits decreased $38.5 million, mostly due to a net decrease in interest-bearing deposits of $140.9 million on a linked quarter basis. The net decline was primarily driven by withdrawals from financial institution accounts and the branch sale earlier in the quarter that we mentioned.
Totaling 365 million while new Loan Production was 432 million during the quarter. Loan growth was driven primarily by cni and C which increased 98.8 million and 61.66 million from the link quarter.
This growth was partially offset by decreases in construction and residential of 33.4 million and 544.5 million in respectively.
Based on unpaid principal balances texted based loans. Remain relatively flat at approximately. 40% of the overall loan portfolio. It has of June 30th.
Gregory Robertson: The decline in our interest bearing deposits during the quarter. was somewhat strategic in nature as the weighted average cost of these outflows averaged 4.45 percent and was replaced with more efficient source of brokered CDs and deposits. Excluding the $50.7 million in deposits transferred from the branch sale during the quarter, net deposit growth would have been $12.1 million for the length quarter. I think it's worth noting this includes bringing onto the balance sheet and replacing over $100 million in high-cost deposit balances with the Oakwood acquisition that we previously mentioned as our strategy. That interest bearing deposits increased, non-interest bearing deposits, excuse me, increased 102 million or 7.8% on a linked quarter basis, driven by a smart, a short-term inflow of approximately 60 million, which subsequently was withdrawn after the quarter ended.
Total deposits, decreased 38.5 million mostly due to a net decrease in interest bearing deposits of 140.9 million on a link quarter basis. The net decline was primarily driven by withdrawals from financial institution accounts and the branch sale earlier in the quarter that we mentioned
The decline in our interest bearing deposits, during the quarter.
Was somewhat strategic in nature. As the weighted average cost of these outflows average 4.45%, and was replaced with more efficient source of brokerage deposit, CDs and deposits.
Excluding the the 50.7% during the quarter. Net deposit growth would have been 12.1 million for the link quarter. I think it's worth noting this includes bringing onto the balance sheet and replacing over a 100 million. In high cost deposit, balances with the Oakwood acquisition that we previously mentioned as our strategy.
That interest bearing deposits increased non-interest bearing deposits. Excuse me, increased 102 million or 7.8% on a link quarter basis driven by a smart, a short-term
Gregory Robertson: Lastly, on the funding side of the balance sheet, bank borrowings increased $179 million from the prior quarter, or approximately 41%. The large increase was due primarily to an increase in short-term FHLB advances, which was utilized at quarter end to facilitate the transition of our correspondent banking relationship, which was aligned with our core conversion. Moving on to the margin, our GAAP reported second quarter net interest margin remained unchanged in the late quarter at 3.68%, while the non-GAAP core net interest margin excluding purchases counting accretion also remained unchanged from the prior quarter at 3.64%. Interest earning asset growth during the second quarter was all set by excess funding utilized during the quarter conversion and incremental funding to replace the deposits transferred in the branch sale.
Inflow of approximately 60 million, which subsequently withdrawn after the quarter end.
Lastly, on the funding side of the balance sheet Bank borrowings increased 170 m. 9 million from the prior quarter or approximately 41% the large increase was due primarily to an increase in short-term fhlb inventions which was utilized at quarter in to facilitate the transition of
Correspondent banking relationship was, which was aligned with our core conversion.
Moving on to the margin our Gap reported second quarter. Net interest margin remained unchanged and the link quarter at 3.68% while the non-gaap coordinate interest margin. Excluding purchases counting accretion also remained unchanged for the prior quarter at 3.64%.
Gregory Robertson: The lower cost deposits divested from our branch sale equated to approximately two basis points drag in the second quarter margin. Additionally, the excess liquidity carried during the second quarter, accounting for about three bets, dragged on the margin. We expect going forward to continue to maintain somewhat elevated liquidity levels, at least in the near term, assuming no rate cuts over the next two quarters. We would expect deposit costs to remain relatively flat in the near term, but we will be affected by our ability to retain and attract lower costs. non-interest bearing deposit account. We are pleased with our ability to manage our deposit rates total interest bearing deposit costs declined four basis points from the link quarter highlighted by to a 26 basis point quarter over quarter reduction and overall cost of money market deposit.
Interest earning asset growth. During the second quarter was all set by excess funding utilized during the core conversion and incremental funding to replace the deposits transferred in the branch sale.
The lower cost deposits the vested from our Branch sale, equated to a to approximately 2 basis points, drag in the second quarter margin
Additionally, the excess liquidity carried during the second quarter accounting for about 3 bits drag on the market.
We expect going forward to continue to maintain someone elevated. Liquidity levels, at least in the near term assuming no rate Cuts over the next 2 quarters. We would expect deposit costs to remain relatively flat in the near term but we will be affected by our ability to retain and attract lower cost.
Non-interest bearing deposit accounts.
Gregory Robertson: And a 17 basis point reduction in overall cost of time deposits. Notably, the weighted average total cost of deposits for the first quarter was 2.64%, down six basis points from the lead quarter, while June weighted average cost of Total Deposits was 2.62%. While further improvements in funding costs are subject to the Fed's interest rate decisions, we remain encouraged by this trajectory.
We are pleased with our ability to manage our deposit rates. Total interest bearing deposit cost declined for basis points from the link quarter highlighted by 2, a 26 basis. Point quarter over quarter reduction and overall cost of money market deposits.
And a 17 basis point reduction, and overall cost of time, deposits notably, the weighted average total cost of deposits. For the, for the first quarter was 2.64% down 6 basis points from The League Quarter while June weighted average cost.
Up. Total deposits was 2.62%.
Gregory Robertson: I'd like to make note of a few takeaways to slide on page 22 in our investment presentation. We continue to see 45 through 55% of overall deposit betas as achievable regarding any future rate cuts. I would also like to point out our overall core CD balance retention rate was up 96% during June. This impressive statistics reflects on our team's continued focus on maintaining and retaining core deposit relationships. As you would see on page 23, we have approximately $2.8 billion in floating rate loans, approximately at 7.56% weighted average rate, but also have approximately $611 million fixed rate loans maturing over the next 12 months at a weighted average of 6.18%, which we would expect to reprice in the mid-7 Last thing I would add is our expectations for loan discount accretion to average approximately $750,000 to $800,000 per quarter going forward.
To slide on page 22 in our vest investment presentation. We continue to see 45.
Through 55% of overall deposit based as achievable regarding any future rate Cuts, I would also like to point out our overall core CD balance retention rate was up was 96% during June. This impressive statistics reflects on our teams continued, focus on maintaining and retaining core deposit relationships.
As you would see on page 23, we have approximately 2.8 billion in floating rate loans. Approx approximately eighty 7.56% weighted average rate but also have a approximately 611 million fixed rate loans. Maturing over the next 12 months at a weighted average of 6.18%, which we would expect to re price in the mid 7 range.
Last thing I would add is our expectation for loan discount accretion to average approximately 750 to 800,000 per quarter going forward.
Gregory Robertson: Moving on to the income statement, gap non-interest expense was $51.2 million and included $570,000 of acquisition related expense and $1 million conversion related expense. Corridon Interest Expense for the quarter of $49.6 million was relatively unchanged from the link quarter. We do expect a modest increase in Q3 in the core expense base, primarily due to the timing of various investments hitting in Q3 and Q4. However, we should start seeing partial quarter impact of the Oakwood cost savings after the conversion in the fourth quarter. Second quarter gap and core non-interest income was $14.4 million and $11.1 million respectively.
Moving on to the income statement Gap, not interest, expense was 51.2 million and included 570,000 of
Pass related expense in a million conversion related expense?
Record on interest expense for the quarter of 49.6 million was relatively unchanged. Link quote from the link quarter, we do expect a modest increase in Q3 and the core expense base, primarily due to the timing of of various Investments hitting in Q3 and Q4, however, we should start seeing partial quarter impact of of the Oakwood cost savings after the conversion in the fourth quarter.
Gregory Robertson: Gap results did include the $3.36 million gain on the branch sale that we mentioned previously and $47,000 loss on the sale of securities. Non-interest income results for the second quarter were relatively in line with our expectations. However, I would like to mention our SBIC pass-through income of a negative $246,000 during the quarter was approximately $500,000 lower than what we expected. This particular component of fee income can be difficult to predict, however, we would expect some normalization going forward. Over the long run, we continue to expect an upward trend in our core non-interest income, although the trajectory may be bumpy, as we've mentioned, from quarter to quarter.
Second quarter Gap and core. Non-interest income was 14.4 million and 11.1 million respectively, Gap. Results did include the 3 Point.
36 million gain on brand, the branch sale that we mentioned previously and 47,000 loss on the sale of Securities. Not interesting, come results for the quarter. Second quarter were relatively in line with our expectations. However, I would like to mention our sbic pass through income of a negative -246,000 during the quarter was approximately $500,000 lower than what we'd expected.
Gregory Robertson: Lastly, I'd like to provide some context to the credit migration during the second quarter. Q2 NPLs increased 0.28% from 0.69% in Q1 to 0.97% in Q2. This is the increase driven by negative migration of three separate loan relationships representing total outstanding principal balances of $23.7 million. Annualized net charge-offs decreased from 0.2% to 0.02%. from 0.07% in Q1 to 0.05% in Q2. Of the three previously mentioned credits We are 34% reserved on one credit, 14% reserved on the other, and adequately reserved on the final third credit. We expect to find resolution on these credits during the 3rd and 4th quarter of the year with the reserve on the one that has 34%.
This, this particular component of the income can be difficult to predict. However, we would expect some normalization going forward over the long run. We continue to expect an upward Trend in our core non-interest income. Although, the trajectory may be bumpy as we mentioned per quarter to quarter,
Lastly, I'd like to provide some context to the credit migration during the second quarter Q2 MPL is increased.
28%, from from 69% in q1 to 0.97% in Q2.
for this, in the increase driven by negative, migration of 3, separate loan relationship representing total outstanding, principal balances of 23.7 million,
Annualized net charge offs decreased from 0.2%.
From 0.07% in q1, to 0.05% in Q2 of the 3, previous mentioned credits.
Gregory Robertson: possibly settled in in the next.
We are 34% reserved on 1 Credit 14% reserved on the other and adequately reserved on the on the final third credit, we expect to find resolution on these credits during the third and fourth quarter of the year. With the reserve on the the 1 that has 34%
Jude Melville: That concludes my prepared remarks. I'll hand the call back over to you, Jude, for anything you'd like to add before opening up for Q&A. I don't have anything to add yet.
Possibly settled in in next year.
That concludes my prepared remarks, I'll hand hand the call back over to YouTube for anything, you'd like to add before opening up for Q&A.
Unknown Executive: Why don't we jump into questions? Thanks. Thank you.
Good. Thanks Craig. Uh, I don't I don't have anything to add. Yeah. Why don't we jump into questions? Thanks.
Unknown Executive: If you'd like to ask a question, please press star and the number one on your telephone keypad. Again, that is star and the number one on your telephone keypad.
Thank you.
If you'd like to ask a question, please press star and the number 1 on your telephone keypad. Again, that is star and the number 1 on your telephone keypad.
Freddy Strickland: Our first question comes from the line of Freddy Strickland from HvD Group. The lines open. Hey, hey, good morning, guys.
Our first question comes from the line of Freddy Strickland from have the group.
The lines open. Hey, hey. Good morning, guys.
Gregory Robertson: I wanted to drill down on the excess liquidity piece related to the core conversion. I guess the first way I read that was that maybe that go away. But Greg, it sounds like in your prepared comments, you're going to hang on to that excess liquidity for a little bit longer. Yeah, good question. What we were using liquidity for in the core conversion is we were transferring from a correspondent bank that we've used for a while to a direct to Fed relationship. So during that process, we're clearing two different places. So we needed the additional liquidity.
Just wanted to drill down on the the excess liquidity piece related to the core conversion that I guess the the first way I read that was that maybe that go away but uh, Greg, it sounds like in your prepared comments. You're going to hang on to that excess liquidity for a little bit longer.
Gregory Robertson: I think we'll continue to carry some of that liquidity as we go forward until we get past the core conversion with the Oakwood franchise, because we're helping them manage their balance sheet in real time too. So having that additional liquidity, which we kind of had all year long, it's partly been for the conversion specifically in the second quarter, but also now we're looking at Oakwood's conversion until we get beyond that. And just handling everything on one balance sheet, so to speak, we feel that's the right thing to do. Got it. That's, that's helpful.
The additional liquidity, I think we're continued to carry some of that liquidity as we go forward. Um, until we get past the, uh, core conversion with the Oakwood franchise because we're we're hoping them manage their balance sheet in real time too. So having that additional liquidity which we kind of had all year. Long is partly been for the conversion specifically in the second quarter. But also now we're looking at oakwood's conversion until we get beyond that and they're just handling everything on 1 balance sheet. So to speak we we feel that's the right thing to do.
Gregory Robertson: And just so I understand the credit moves this quarter. This, this was simply migration from substandard to non accrual. And you mostly reserved for this is what it sounds like, given some of your prepared comments. Yeah, the one credit was on there last quarter. I think we moved it to non-accrual last quarter. We have, like we mentioned, about a 35% reserve on that credit. It's a C&I relationship where we're continuing to evaluate the collateral on that. So that's kind of a moving through the process of our trying to get to resolution with that. The BARS has been cooperative on that one.
Got it that's that's helpful. And just so I understand the credit moves, this quarter. Um this this was simply like migration from substandard to non acrl and you mostly reserved for this is what it sounds like uh giving some of your prepared comments.
Yeah. The the 1 Credit was um, on their last quarter. I think we moved it to non-accrual last quarter. We have a um like we had mentioned about a 35% reserve on that credit. Uh, it's a cni relationship where we're continuing to evaluate the the uh, the collateral on that. So that's kind of a moving uh, moving through the process of our trying to get the resolution with that the bars.
Gregory Robertson: The other two more recent moves is one of them is a commercial real estate piece. The other was the owner-occupied piece. The commercial real estate piece, we put up a million six reserve on it as we move through resolution for that one. And then the owner-occupied piece, we're very close to resolution on that one. So I think those are moving at different paces, but we think we're For what the information we have right now, we think for the for the risk we have, we kind of reserve where we think is appropriate and we'll continue to move toward resolution.
Is being cooperative on that 1. The other 2 3, more recent moves. Uh is a 1 of them is a commercial real estate fees. The other was the owner occupied piece, the commercial real estate piece we, uh, we put up a million 6 reserve on it. Uh, as we move to resolution for that 1 and then, uh, the owner occupied piece. We're we're, uh, we're very close to resolution on that 1 so I think we'll just those are moving at different Paces, but we, we think we're
Gregory Robertson: And I just emphasize that none of those are surprises. We just kind of working its way through the system over the course of the year. Working towards resolution together as opposed to there being any standoff and so as a bank that's what you hope for when you have an issue pop up that you can work with your borrower to get to a good resolution and I don't feel like those things are happening.
What the information we have right now, we think for the for the risk we have we we kind of Reserve where we think's appropriate and we'll continue to move toward resolution and I just emphasize that, you know, none of those are surprises. We just kind of working its way through the system over the course of the year.
with each step you you label it, something different and um, but then necessarily a chance to see on your line risk
Parameters. Um, so go
Good about the progress. Um, on working our way through that. And and as Greg said, we we're um we're benefiting from uh, from Good clients, uh, communication and
um,
working towards resolution together as opposed to um um they're banging any
Um standoff and so as a as a bank, that's the that's what you hope for. When you have an issue pop up, that you can work with your borrower to get to a good resolution and
We feel like those things are happening.
Gregory Robertson: One follow up on that, I mean, all else equal, given you feel like you're close to getting resolution on these, I mean, can we see NPAs probably drop some in the back half of the year, all else equal? Well, I think, I think if, you know, those 3 credits are, you know, 50% of NPLs, so I think, you know, as they start resolving or we get to resolution, I think the number will start dropping, you know, the, the, the most immediate resolution is the smaller 1. Um, it's about 4.5Million of the 23.7Million. And that that 1, and then, um, as we work through the other 2, and I think you'll see.
And 1 1 follow up on that. I mean all else equal given you feel like you're close to getting resolution on these. I mean could we see uh npas probably drop some uh in the back half of the Year all those people.
Gregory Robertson: Those those numbers drop pretty significantly. And that that would be back to, you know, where we've operated over the last eight quarters, let's just say.
1 thing, I think if you know, those 3 credits are, you know, 50% of npls. So I think, you know, this as they start resolving or or we get to resolution. I think the number will start dropping. You know, the the the most immediate resolution is the smaller 1. Um, it's about 4.5 million of the 23.7 million and that that 1's eminent. And then um, as we work through the other 2, uh and and I think you'll see
Those those numbers drop pretty significantly. And that that would be um back to you know where we've operated over the last 8 quarters. Let's just say
Gregory Robertson: I don't know that that's a third quarter thing. I mean, hopefully that direction moves correctly, but, you know, it's kind of a through the rest of the year forecast. These things take a while, even if you're working together. All right.
Got it. I don't know. Those are taking my questions.
I don't know that. That's a third quarter thing. That's I mean hopefully that direction moves correctly but um, you know, it's kind of a through the rest of the year.
Forecast, these things take a while even if you're working together.
All right, thanks ready.
Michael Rose: Our next question comes from the line of Michael Rose from Raymond James. The line's open. Hey, good morning, guys. Thanks for taking my questions. I just wanted to start on the good morning.
You.
Got the question comes from the line of Michael Rose from Raymond James.
The Lawns open.
Gregory Robertson: I just wanted to start on the expense outlook. It looks like you were basically flattish quarter on quarter on an operating basis. Obviously, you have the systems conversion with Oakwood here coming up, cost savings, realizations. So just trying to get a sense for that $49.6 million this quarter. How should we think about the next quarter to from a there's lots of moving pieces and you guys have been pretty busy behind the scenes with the FIS conversion and soon to be the Oakwood conversion. Thanks. I think we managed good from an expense standpoint, managed to a good spot in the second quarter with a lot of activity going on.
Gregory Robertson: I think in the third quarter, some of our expected investments, you'll probably see that shift up into the low $50 million range. And I do want to remind in the fourth quarter, we're set to close or convert the Oakwood franchise on September 20th to the weekend of September 27th. So that effectively, the way we usually schedule those is we'll only pick up a couple of months of the impact of any kind of cost saves in the fourth quarter. So I would think for the remainder of Q3 specifically to be in the low $50 million range is what we expect for the run rate.
I think, uh we we we manage good from an expense standpoint uh, managed to a good spot in the second quarter with a lot of activity going on. I think in the third quarter, um, some of our expected Investments, you'll probably see that, uh, shift up into the low 50 million dollar range. Um, and I do want to remind in the fourth quarter, you know, we're we're set to close or convert the Oakwood franchise on September 26th into September 27th so that effectively, uh, the way we, we usually schedule. Those is we'll only pick up a couple of months of the impact of any kind of cost saves in the fourth quarter. So I would think for the remainder of for Q3 specifically to be in the low 50 million dollar range is what we we expect to for the Run rate.
Gregory Robertson: All right. And then it sounds like a little bit higher in the fourth quarter. All right. Appreciate it.
Gregory Robertson: And then maybe just going to the margin, certainly understand the excess liquidity and the other impacts. But is it fair that we should, I know you're going to hold some of the excess liquidity. So as we're thinking about the core margin, would it have a little bit of upward trajectory from here? I know there's some puts and takes, just obviously with, I think when yields were down, you have Q on Q, but you did have some deposit costs come down as well. So just trying to get a kind of a starting point for the margin and how the asset sensitivity could change with the progress deals we think about next year.
All right and then it sounds like a little bit higher in the in the fourth quarter. Um all right, appreciate it and then maybe just um go into the to the margin certainly understand the the excess liquidity and
um you know the other impacts but is it fair that we should? Um, I know you're going to hold some of the excess liquidity so as we're thinking about the core margin,
Um, would it have a little bit of upward trajectory from here? I know there's some puts and takes just obviously with um, you know, I think loan yields were down, you know, q and Q. But you did have some, you know, deposit costs come down uh, as well. So just trying to get a, a kind of a starting point for for the margin and um how the assets sensitivity could change with uh,
You know, with the with the progress deals, we think about next year.
Gregory Robertson: Yeah, I think the way we think about margin from here on out is really for the balance of the remainder of the year. So we think we can improve margin. Let's just say in the 4 to 6 basis points range from here on out for the rest of the year. Now, I think it's probably going to trend to maybe be flatter in Q3 and up in Q4. But the timing of that is going to be a little bit tricky based on how we handle the excess liquidity and the deals on the fixed rate maturities that are coming due and the timing of which some of those price up.
Gregory Robertson: So, we think that we'll have margin improvement for the rest of the year. The timing of that may be a little tricky as we move forward. Okay, great.
Yeah, I think the way we think about margin from here on out is is really for the balance of the remainder of the year. So we think we can improve margins as just say in the in the forward of 6 basis. Points range from here on out for the rest of the year. Now I think it's probably going to Trend to maybe be flatter and Q3 and up and Q4. But but the timing of that is going to be a little bit tricky, based on, you know, how we handle the excess liquidity. And, and um, you know, the the deals on the fixed rate, um, maturities that are coming due in the timing of which, some of those, uh, price of. So we think that we'll have margin Improvement for the rest of the year. The timing of that may be a little tricky as we move forward.
Gregory Robertson: Maybe just one last one, if I could. The loan growth was about 4%, four and a half percent annualized. This quarter, I know you previously talked about kind of low single digits, obviously, the industry, we're seeing better pull through rates and a little bit more optimism.
Okay, great. Maybe just 1 last 1. If I could, um, the loan growth was about 4% 4 and a half percent annualized.
Jude Melville: Can you just talk about kind of the puts and takes to that prior outlook? I mean, it seems like it should be at least modestly improved, just given the backdrop that we're seeing, but would just love to hear from your perspective, how we should think about growth, you know, in the near term. Thanks. Yeah, I think we think that the mid single digit growth for the rest of the year is is we're having starting to have as you mentioned, we're starting to have more requests the pipeline is building. But I think from our standpoint, the tangible value growth and the capital accretion that we've been experiencing with our financial performance, we're going to maintain some discipline as we go forward, and, and kind of stick to that plan.
Um, this quarter, I know you'd previously talked about kind of low, single digits, obviously, the industry we're seeing better, pull through rates and a little bit more optimism. Um, can you just talk about kind of the puts and takes to that, that prior Outlook? I mean, it seems like it should be at least modestly. Improved just given, you know, the backdrop that we're seeing but would would just love to hear from your perspective, how we should think about growth um you know, in the near term. Thanks.
yeah, I think we think that the mid single digit growth for the rest of the year is, is, uh, we're we're having starting to have as, as you mentioned, we're starting to have
more requests the pipeline is building, but I think from our standpoint,
the tangible value growth and the capital accretion that we've been experiencing.
Jude Melville: I think everything is we've made great strides on decreasing some of our concentration risk. and so we want to continue to be diversified and that typically means. I'm trying to focus more on CNI growth, which an owner occupied kind of stuff, which tended to be a little harder to get and a little smaller for a bank like ours.
With our financial performance. We're going to maintain some discipline as we go forward and uh and kind of stick to that plan. Um, I think the other thing is uh We've made great strides. So um decreasing some of our concentration risk.
and so, we want to continue to be a diversified and and that typically means
um, trying to focus more on cni growth, which, um,
Michael Rose: So, I think. I think the range that we've articulated previously kind of admit. Single digits, four to six, you know, maybe we end up near the high end of that range versus the low end, but I don't think it's a fundamental seat shift and where we end up growth wise, partly because it's not just about growth, as Greg said, it's about other things too, margins and Global Value Capital Appreciation Concentration risk and so we want to make sure that we're participating in the growth but we want to do so in a way that leads to the the best kind incremental outcome for our shareholders And we think that means balanced so so I would say the range is still accurate We just think we'll be at the higher end of the range as opposed to the lower end which is a positive thing makes sense.
And owner occupied kind of stuff, which tended to be a little harder to get and, and a little smaller for a bank, like, like ours. So, um, I think
I think the range that we've talked articulated previously, kind of that mid.
Mid single digits, 4 to 6, you know, maybe we end up near the high end of, that range versus the low end, but I don't think it's a fundamental C shift and, and, um, and where we end up growth wise partly, because it's not just about growth. As Greg said, it's about other things, too margins. And
Uh, attainable goal value, can't capital appreciation, uh, concentration risk. And so we want to make sure that we're participating in the growth, but we want to do. So in a way that leads to the the best kind of incremental outcome for, for our shareholders. And we think that means balance. So, so I would say the range is still accurate, we just think we'll be at the higher end of the range as opposed to the lower end, which is a positive thing.
Michael Rose: Thanks for taking all my questions.
Michael Rose: I'll step back. Thank you.
Makes sense. Uh, thanks for taking all my questions. I'll step back.
Unknown Executive: Thanks, Mark. Thank you.
Thank you. Thanks. Mike.
Matt Olney: Our next question comes from the line of Matt Olney from Stevens lines open. Hey, thanks. Good morning, everybody. I want to go back to the discussion around the loan yields, and you've made a lot of progress there over the last several quarters, but that momentum slowed this quarter. Just looking for any more color on what drove the softness in 2Q, and then as you look forward, any more commentary about expectations as far as repricing some of these fixed rate loans we've talked about over the last few quarters. Yeah, I think what we saw the balance or the average weighted rate we as we stated in the 360 range, I think the spot rate at the end of June was more around 340 coming up excuse me 740 I we still are pricing deals in the in the mid to low sevens.
Thank you.
Our next question comes from the line of Matt only from Stevens.
Hey thanks. Good morning, everybody. Um, want to go back to the discussion around the loan yields and you made a lot of progress there over the last several quarters. But that momentum slowed. This quarter just looking for any more color on, um, kind of what, what drove, uh, what drove the softness in in 2q. And then, as you look forward, any more commentary about, uh, expectations as far as repricing, some of these, uh, fixed rate loans, we've talked about over the last few quarters.
Yeah, I think what we saw the the balance or the average weighted rate we as we stated in in the 3604 I mean excuse me 740. Um,
Gregory Robertson: And we think that that's, you know, Obviously, you'd like to get as much yield as you could. But I think, you know, competition is driving some of that. And we want to be, you know, in the mix from a competitive standpoint. And so far, the deals that we're seeing price are still, they're still holding up in the in the mid to low sevens, almost the deals we're looking at. And there's a few that we've passed on because of pricing, but we feel like this time, that's kind of where we want to be.
I I we still are pricing deals in the in the mid to low 7s, and we think that that's, you know,
Obviously you'd like to get as much yield as you could but I think you know competition uh is is driving some of that. And and we want to be, you know, in the mix from a competitive standpoint and so far the deals that we're seeing price are still they're still holding up in the in the mid to low 7s. Uh, almost the deals we're looking at and they're, they're a few that we, we passed on because of pricing. But, uh, we feel like at this time, that's kind of where we want to be.
Gregory Robertson: And Matt, one thing that I'd add to is this isn't readily available from the press release, but the breakdown within the loan portfolio quarter over quarter, we had deferred loan fees and our business manager factor in life product that we offer those fees that that segment was was lower to the tune of about a million quarter over quarter. And so that, you know, that just all rolls up in the aggregate loan interest income. And so that's a little flavor for where some of that drag might be coming from. But by product type CNI and CRE, those individual loan item categories were still up quarter over quarter.
Matt 1 thing that I'd add too is this isn't readily available uh from the press release but the breakdown within the loan portfolio, a quarter of a quarter we had uh deferred loan fees and um
Our business manager, factoring light product, that we offer, those fees, that that segment was, uh, was lower to the tune of about a million quarter over quarter. And so that, you know, that just all rolls up in the aggregate, uh, loan interest income. And so that a little flavor for where some of that drag might be coming from, but my product type cni, and CRA those individual loan item. Uh, categories were still a quarter of a quarter.
Unknown Executive: Okay.
Gregory Robertson: Thanks for that, Greg and Matt. And then on the, Greg, you mentioned, I think, prepared remarks, the FHLB borrowings moved higher in the second quarter and remained elevated at quarter end. Will those also remain elevated in the near term, similar to your commentary about just overall liquidity in the next quarter or two, or have those already came down? So we used some of that with the liquidity bill that I mentioned, and I think the reality is that we're going to continue to evaluate the best avenues of funding, both in the near and the long term.
Okay. Okay. Okay. Thanks for that uh, Greg and Matt um
And then on the Greg, you mentioned, I think prepared remarks, the fhlb borrowings moved higher in the in the second quarter and remained elevated at quarter end. Will those also remain elevated in the near term? Similar to your commentary about? Um just overall liquidity next quarter or 2 or have those already came down.
Gregory Robertson: And at this point, that point, the thing that made the most sense was the using utilization of that FHLP availability. That was all on the short end.
So we we use some of that as from the, uh, with the liquidity bill that I mentioned. I think the the reality is that we're going to continue to evaluate uh the best Avenues to of funding uh, both in the near in the long term. And at this point that point the the the thing that made the most sense was the uh
Gregory Robertson: I'll provide a little context to funding, and we talked about it on these calls or in meetings since the announcement of the Oakwood acquisition, that we were going to manage their balance sheet kind of in a systematic fashion of looking at higher price funding and moving that using our balance sheet or using other sources of funding to reposition that. And since 1231 of this year, we've been able to manage down or move away about 140 million of deposits that had a weighted average of about 5% or a little higher than that. So we're using different funding sources to systematically kind of manage through that, and I would expect us to continue to do that for the back half of the year as well.
Using utilization of that package. Oh, availability. That was all on the short end. Um, you know, I live provide a little context to funding and we we talked about it on these calls or were in meetings, um, over since the announcement of the Oakwood acquisition that we were going to manage their balance sheet. Kind of in the systematic fashion of of looking at higher price funding and moving moving that, um, using our balance sheet, or using other sources of funding to, to reposition that
Gregory Robertson: So to answer your question directly, it could move up and down, I think, you know, from a quarter over quarter, in a point in time, it may move, it may not move at all, from an optic standpoint, but that doesn't mean we're not moving it up and down every quarter, to take advantage of some pricing opportunities. Okay, that's great context, Greg. Thanks for that.
And over since 1231 of this year, we've we've been able to to manage down or move away about 140 million of of deposits that had a weighted average of about 5% or a little higher than that. So, um, we're using different funding sources to to systematically kind of manage through that, and I would expect us to continue to, to do that for the, for the back after the year, as well.
So to answer your question directly it could move up and down. I think, you know, from a quarter over quarter in a point in time. It may move, it may not move at all, from an optic standpoint but that doesn't mean we're not moving it up and down inter quarter uh to take advantage of some pricing opportunities.
Gregory Robertson: And then my last question, just going back to the core conversion you guys did recently, at the bank, just any early feedback on that newer platform, and just remind us how much of that switch is a more of a near term cost savings for the bank versus just a longer term savings, more efficient, more efficiency around future growth. Thanks. Yeah, I think it's probably a little too early to have much of a judgment in terms of people's feelings about the, the new system, you know, I think just takes a little while to get used to it.
Okay, that's great context, Greg. Thanks for that.
Um and then my last question just going back to the core conversion. You guys did recently uh at the bank, just any early feedback on that newer platform and just remind us how much of that
switch is a more of a near-term cost savings uh for the bank versus just a longer term savings, more efficient, more efficient to see around future growth. Thanks
yeah, I I think it's probably a little too early to have much of a judgement in terms of people's feelings about the
Gregory Robertson: And we had a very successful execution in terms of getting it done the weekend of, and there was a lot of preparation for that, obviously. And and now we're in the, let's get used to it phase, you know, which clearly change management takes a little while. And so it's too early to offer any. Big picture summation known experience, but I think all the reasons that we chose to move to that system still hold true. And I think we'll end up being very excited about it. One of the things that one of the reasons that we was that we feel like it better prepared us to.
Get used to it and we had a very successful execution in terms of getting it done so that the weekend of and there was a lot of preparation for that obviously. And and now we're in the let's get used to it based um you know which uh clearly change management takes a little while and and uh so it's too early to
Gregory Robertson: to take advantage of efficient growth in the future, and still have every reason to think that's true. We don't know that we'll see a lot of savings immediately, partly because we're making, it's allowing us to make some other investments in technology. You know that we've talked quite a bit about preparing to be 10 billion and making sure that we have the right systems to be able to report and to manage. And so the aggregate package is going to end up being similar in cost to costs we already have, but our capability, not only on the core, but on other technological systems should be increased.
To to offer any um, big picture summation on experience. But I think all the reasons that we chose to move to that system. Um, still hold true and I think we'll end up in very excited about it. 1 of the things that 1 of the reasons that we moved was that we feel like a better prepared us to
Jude Melville: But, you know, that, of course, is our decisions that will be out over the next couple of years. I do think that one of the advantages to the system is that Not only should it make organic growth more efficient, but it also allows us to contemplate M&A activity with a little more aggression, which You know, not that we haven't had aggression before given our track record, but but, you know, the confidence that we can that we can. and others. I think it's important to get on a calendar to be able to convert new partners is important and also the fact that we can, with assurance, offer them a good core partnership.
To um take advantage of efficient growth in the future and and uh, still have every reason to think that's true. We don't know that we'll see a lot of savings immediately partly because we're making it, it's allowing us to make some other investments in technology. You know, that we've talked quite a bit about preparing to be 10 billion and making sure that we have the right systems to be able to uh report and to manage. And uh so the the ivory package is going to end up being similar in cost to cost we already have, but our capability, not only on the core but on other technological systems should be increased. But, you know, that, of course, is is our decisions that will be out over the next couple years. Um, I do think that
wanted advantages to the system is that not only should it make
Organic growth more efficient. But it also allows us to um uh contemplate m&a activity uh with a little more aggression which
You know, not that we haven't had aggression before given our track record. But, uh, but you know, the confidence that we can, um, that we can.
Get on a calendar to be able to, to, uh, convert new partners is is uh, important. And and, you know, also the fact that we can uh, with insurance, um, offer them a good,
Jude Melville: As bankers think about partnering with other bankers, they think about their systems and the system, I think, will get more confidence than the one that we had before. So a lot of reasons to embark upon it, even absent a day one financial gain. We do think that over time there'll be a lot of financial benefits to being on the system. You know, again, it'll take a few months of change management to to get used to it. And that's not a bad thing.
Core partnership. Um, you know, as as Bankers think about partnering with other Bankers, they think about their systems and uh, the system I think will get more confidence than the 1 that we have before. So it's a lot of a lot of reasons to to um, to Embark upon it even absent. In the day 1 Financial game, we do think that over time there'll be a lot of financial benefits to
to uh, to being on the system and
Unknown Executive: It's just that's just part of it and look forward to in 2026. cycling through and I think all of our employees and our clients will be appreciative of the change at that point.
You know, again, it'll take a few months to change management to uh, to get used to it and um, but that's not a bad thing. That's just that's just part of it. And uh look forward to in 2026. Um um,
Um, cycling through, and I think all of our employees and our clients will be appreciative of the change at that point.
Unknown Executive: Okay.
Christopher Marinac: Thank you, Jude. Thanks for all the commentary.
Christopher Marinac: I'll step back. Thank you.
Okay, thank you, Jude. Thanks for all the commentary. I'll step back.
Christopher Marinac: Our next question comes from the line of Christopher Marinac from J. Montgomery Scott. The line is open. Hey, thanks. Good morning.
Thank you.
Our next question comes from the line of Christopher Marinette from Jenna Montgomery Scott.
The lines open.
Jude Melville: I wanted to drill down on Smith Shellnut and just get a sense from you kind of like, you know, where do you think you are in the evolution of the business? I know it's made a lot of progress. It's got five, six, you know, billion of AUM and just curious kind of where you think they are in terms of how much more that can go in the next 12 to 24 months. Yeah, good. Thanks, Chris. Appreciate that.
Hey thanks. Good morning. Um, wanted to drill down on Smith's shown up and just get a sense from you kind of like you know, where do you think you are in the evolution of the business? I know it's made a lot of progress, It's Got 5 6, you know, billion of AUM, and just curious kind of where you think they are in terms of how much more that can go in the next 12 to 24 months.
Jude Melville: And, you know, that is a part of our business that doesn't get quite as much attention and partly because it hasn't been around as long. But but it's part that we're very excited about not just Smith-Shelton at Wilson taken in isolation, but we're very excited about the correspondent banking function in general, and that's one of a handful of products that we're offering and to our client base, which is probably 120 banks who are doing business with us in some form or fashion today. I think when we bought SSW and began that process, they had about 40 banks, maybe 45.
Yeah, uh good, thanks, Chris, appreciate that. And uh you know, that is a part of our business that doesn't get quite as much attention and and uh, partly because it hasn't been around as long. But uh, but it's part that we're very excited about not just
Smith show and that Wilson taken in isolation, but um we're very excited about the correspondent banking function in general and that's 1 of a handful of products that that we're offering and and uh to our
Client base, which is, you know probably 120 banks are doing business with us in some form or fashion today. Um,
Jude Melville: So we've been able to grow those relationships and I don't see any reason that we won't be able to continue to grow that. I will say that I think growth can mean different things and doesn't just mean AUM. Although we have been happy to over double the AUM, SSW has over doubled their AUM since joining up with us and we expect that we'll be able to continue to grow that number. But we're also focused on things that aren't AUM related, such as providing swaps for our client banks, which is beginning to generate some fee income.
I think when we bought ssw and began that process, uh, they had about 40 Banks, maybe 45. So we've been able to grow that those relationships and
I don't see any reason that we won't be able to continue to grow that. I will say that I think growth can mean different things and uh doesn't just mean a, although
Jude Melville: and SBA work, which again, doesn't increase your AUM, but it does increase your fee income. And I want to continue to, we believe we'll continue to have opportunities to grow that part of the business.
We have been happy over double de um ssw is over doubled, their a um, since joining up with us and we expect that we'll be able to continue to to to grow that number. But we're also uh focused on things that aren't AUM related such as um, providing swaps for for our client Banks, which is beginning to generate some fee income and
And, uh, SBA work, uh, which again, doesn't increase your AUM. But it does increase your fee income and
I want to continue to uh we we believe will continue to have opportunities to to grow that part of the business side. We, uh,
Jude Melville: You know, we've made some significant changes in personnel. So, the 1st time this year, we have a senior executive whose full time job is to is to coordinate the multiple parts of our correspondent banking network. And I think we're feeling really good about the progress that he's making. You know, part of it is we've had a number of products that have run independently and they haven't really coordinated a lot in terms of their sales efforts. And so we're in the process of making sure that we have a unified sales effort and all that to say, I think, as Greg says, every quarter.
For the first time this year, we have a senior executive who's full-time job is to is to coordinate, um, the the multiple parts of our correspondent banking Network. And I think we're feeling really good about the progress that he's making, you know, part of it is, uh, we've had a number of products that have run independently and they haven't really coordinated a lot in terms of their sales efforts. And so we're in the process of, uh, making sure that we have a unified Salesforce and
Jude Melville: And as I say, when I talk about it, I think it's going to be continue to be a little rocky in terms of the of the magnitude each quarter.
um, all all that to say, I think as Greg says every quarter, um, and as I say, when I talk about it, I think it's going to be continued to be a little rocky in terms of the
Jude Melville: But if you look at it over time, I think we expect to continue to grow that income and the next 12, 24 months, I'll be surprised if we don't double its impact by the end of that time period. I think that there's a lot of potential there and a lot of momentum building internally that doesn't quite show up in numbers, particularly a little bit mass this time. Because if you just think about our fee income in general, because of that, but the actual underlying growth and fee income relative to the correspondent banking function is is moving in the right direction and we feel excited about it.
Of the um the magnitude of each quarter. But if you look at it over time, I think we expect to um to continue to grow. Um that income. And the next 1224 uh month months. I'll be surprised if we don't double its impact by the end of that time period. Um we think that there's a lot of potential there and
Um, a lot of momentum building internally, that doesn't quite show up in the numbers, particularly a little bit of mess this time because it would, if you just think about our fee income in general, um, because of that, SBA spic.
Um drag but the the actual underlying growth and fee income relative to the correspondent banking function is is uh moving in the right direction and we feel excited about it.
Unknown Executive: Great, thank you for all that background. I appreciate it.
Unknown Executive: And then just a quick capital question as it relates to kind of progressive and kind of the data you shared a few days ago.
Gregory Robertson: So as we think about that, you know, 10, 10.2%, you know, excluding marks after progressive, is there a North Star on capital ratios that you look for as you think about organic growth plus any other external opportunities that come down? Yeah, we we think that by the end of this year, before we close the acquisition, TCE will be close to 850 total risk base, close to 1330, 1340 range. We think the, and those two ratios kind of North Star for us would be on a risk based scenario somewhere in the 1375 area. We think approaching 14 would probably give us enough capital to be opportunistic and ready to deploy the capital the right way if the opportunity presents itself.
Great, thank you for all that background. I appreciate it, man. Just a quick Capital question as it relates to kind of, um, Progressive and kind of the the the the data you shared a few days ago. Um, so as we think about that, you know, 10 10.2%, you know excluding marks. Um after Progressive is there a North star on Capital ratios that you look for as you think about organic growth, plus any other external opportunities that um come down the road.
yeah, we we think that, um, by the end of this year, before we closed the acquisition, TC will be
Close to 850 total, risk space, close to 133 1330, 1340 range. Um, we think the in those 2 ratios kind of the North Star for us would be on a risk base. Uh,
Gregory Robertson: I think on the TCE front, you know, that's in the nine range, low nine range, somewhere in that ballpark. That's probably what we talk about being our normal over time or what we aspire to be. Yeah, I would just say, you know, I certainly think that's the direction we want to move in over time. But, you know, we've also been operating at a level lower than that and still being able to take advantage of opportunities over the past couple of years in particular. So, we certainly think there's an optimal level, but we also think there's a practical level and you kind of have to balance those two.
Scenario somewhere in the 1375 area, uh, we think, uh, approaching 14 would probably give us enough Capital to be uh opportunistic, uh and and and ready to to deploy the capital, the right way. If the opportunity presents itself, I think uh on the the TC front, you know, that's in the 9.
Range low 9 range somewhere in that ballpark. Um,
Probably what we talked about, uh, being our normal over time, what we aspire to be.
Gregory Robertson: And so we don't feel like we have to put things on hold necessarily to get to nine as long as we're doing the right things to increase incremental levels of income at the right pace, which over time ultimately generate a higher capital ratio and higher tangible book value ratio.
Gregory Robertson: So, nine, I like that number for kind of an aspirational goal, as Greg said, but I also don't think that we need to not take advantage of opportunities along the way as we've done a good job of over the past two three years when when those levels have been were considerably lower it's really Pleased with the movement of things, and that's partly some of these investments paying off.
Yeah, I would just say you know I certainly think that's the direction we want to move in over time. But you know, we've also been operating at a level lower than that and still being able to take advantage of opportunities over the past couple years in particular. So, uh, we certainly think there's an optimal level, um, but we also think there's a, um, a practical level and you kind of have to balance those 2. And and so we don't feel like we have to put things on hold necessarily to get to to 9 as long as we're doing the right things to increase uh incremental levels of income at the right pace which over time, ultimately generate a higher Capital ratio and higher potential, both value ratio so 9, you know, I like that number for, uh, kind of an aspirational goal is, as Greg said, but, um, I also don't think that we, we, um,
Need to not take advantage of opportunities along the way as we've done a good job of over the past 2, 3 years when when those levels have been were considerably lower.
It's really.
Pleased with the uh, the movement that opens and and, and that's partly some of these Investments panel.
Unknown Executive: Great.
Unknown Executive: Thank you so much. Thank you, Greg, as well.
Unknown Executive: I appreciate it.
Great to thank you so much. Thank you Greg as well. I appreciate it.
Thanks Chris.
Unknown Executive: Thank you.
Manuel Navas: Our next question comes from the line of Manuel Navas from D.A. Davidson. lines open. Hey, good morning. A lot of my questions have been asked and answered, but I just wanted to get a little more specific on the low growth. Is that mid single digit guide just the back half of the year? Or is that four to 6% for the whole year? And talk about It seems like your demand is higher, but can you just talk about sentiment and the borrow base as well? Yeah, well, I think I'll ask your first question. So we think that for the, for the whole year, it's probably going to be in the low four, four and a half range, just based on the, we, the production in the first quarter, the slow start of the year dragging us down.
Thank you.
Our next question comes from the line of man. Novice from da Davidson.
Lines open.
Hey, good morning. Uh a lot of my questions have been asked and answered but I just wanted to get a little more specific on the low growth is that mid single digit guy, just the back half of the year or is that 4 to 6% for the whole year. Um, and and talk about um,
It seems like your demand is higher, but can you just talk about the sentiment and the borrower base as well?
Manuel Navas: But we, we think going forward from here, like you mentioned, it could be in the four to six, looks like maybe trending toward a higher part of that range on a run rate and annualized per quarter.
Their production in the first quarter of the Year dragging us down. But we we think
Going forward from here, like you mentioned, it could be in the 4 to 6.
Uh looks like maybe trending toward the higher part of that range on a run rate and analyze per quarter. Yep.
Manuel Navas: That's really helpful. Is that your appetite or are you sensing an improved sentiment? Can you talk about that for a moment as well? I think it's a little bit of both. I mean, we, we're in a little different position than we were a year ago in terms of our capital levels and kind of what we were talking about earlier. We want to continue to increase those levels, but we also feel like there's room to take advantage of opportunities. And so we want to be sure that we're selective when we do it, but we want to be sure we take advantage of opportunities and then particularly the downward transition that we made in our construction concentration levels over the past couple of years.
That's really helpful. It is that your appetite or is it? Do you sense seeing an improved sentiment? Can you can you talk about that for a moment as well?
Manuel Navas: So, I've really.
I think it's a little bit of both. I mean, we uh, you know, we're in a little different position than we were a year ago in terms of our Capital levels and kind of what we were talking about earlier. We want to continue to increase those levels but we also, um, feel like there's room to take advantage of opportunities and, uh, so we want to be sure that we're selective when we do it, but we want to be sure, we take advantage of opportunities. And that particularly the, um, downward transition that we made in our construction concentration levels, um, over the past couple years. So have really, um,
Manuel Navas: Impacted our our loan growth over time and so but then also they've put us in a better spot now so we can do some more construction again being selective and not getting back in a position where we feel like we have too much exposure but we can kind of incrementally add pick and choose where we add some exposure there which we might not have had and I might not have felt as much flexibility to do so a year ago so a little bit our own I do think that This anecdotally, you definitely. I'm feeling like there's a little more activity out there in general.
Um, impacted our our loan growth, um, over time. And so, but then also, they've put us in a better spot now so we can do some more construction. Um, again being selective and not getting back in a position where we feel like we have too much exposure, but we can kind of incrementally, add pick and choose where we add some exposure there, which we might not have had not might not have felt
As much flexibility to do. So, a year ago, so a little bit, our own. Um, I do think that
this anecdotally, you you definitely, um,
Manuel Navas: I think the year's been somewhat muted by just uncertainty around what's going to happen with terrorists, what's going to happen with with terrorists, what's going to happen with the world. The Big Beautiful Bill, you know, things of that nature, but I think I think we're starting to either get some clarity on that or people are just starting to say, hey, we got to keep moving on with our lives and taking care of business as much as they have done over the past five, six years, despite numerous uncertainties. And at some point, particularly the small businesses that we deal with, they just have to keep on keeping on.
Feeling like there's a little more activity out there in general. I think, I think the year has been somewhat muted by just uncertainty around, what's going to happen with terrorists? What's going to happen with?
Manuel Navas: And so I think you're seeing a little bit of that little resolution of. Hey, whatever the external circumstances are, we're going to continue to do our thing internally. And I think you're feeling a little bit of positive momentum across our markets as we as we round up the year and move into 2026. So, I don't anybody at the table have any different opinion or that. Unknown Speaker.
U, the big beautiful bill, you know, things of that nature, but I think I think we're starting to either get some clarity on that or people are just starting to say. Hey, we got to keep moving on with our lives and and taking care of business as much as they have done over the past 5, 6 years despite numerous uncertainties. And at some point he is particularly the small businesses that we deal with. Um they just have to keep on keeping on and so I think you're seeing a little bit of that, a little resolution of uh hey what whatever the external circumstances are, we're going to continue to to do our thing internally. And I think you're feeling a little bit of positive momentum across our markets. Um,
As we as we round up the year and move into 2026 so I don't know. Does anybody at the table have any different opinion or is that
Gregory Robertson: Thank you. I think you're also starting to see other banks be a little more aggressive and that's one reason for the or competition on the loan yield side is that they're feeling that need to an opportunity to get out there and do some things. And, you know, we've tried to be fairly consistent in how we operated the past couple of years and not get too hot, not get too light, just kind of kind of down the middle of the road. And I think there's some other banks that maybe shut down a little more, but then are now starting back up and, you know, they're obviously seeing some of that same positive sentiment that we're seeing.
Productive to agree with that hardly.
I think you're also starting to see other Banks be a little more aggressive and that's 1 reason for the
Or competition on the long yield side is that they're feeling that need to an opportunity to get out there and and do some things. And, um, you know, we've tried to be fairly consistent in how we operated the past couple years and not,
Manuel Navas: And. It's exciting. We want to, we're here to do business. So yeah, excited about the industry being in that same mindset. I appreciate that commentary.
Get too hot and not get too light, just kind of, kind of down the middle of the road. And, um, I think there's some other banks that, um, maybe shut down a little more, but then are now starting back up and, uh, you know, they're obviously seeing some of that same positive sentiment that we're seeing and, um,
It's exciting. We we want to we're here to do business. So excited about the industry being in that same mindset.
Gregory Robertson: I just wanted to switch to Phoebe for a moment. I definitely heard the confidence in the Sean Wilson team. The swing factor this quarter was that was that pass-through loss.
Gregory Robertson: What other lines do you have like kind of more near-term confidence that can kind of just build across the back half of the year? getting more looking at the fee income line specifically. Yeah, our two, two ones that have really taken hold lately have been or beginning to take hold are the SBA loan service providing, you know, we do that through Waterstone out of Houston. And I think we're, we're definitely seeing they've, I believe, added four bank clients over the past quarter in addition to seeing our internal participation and SBA origination growing. Again, not a, not a huge needle mover yet, but I think moving in the right direction to be so in the future.
I appreciate that commentary it. I just want to switch to fees for a moment. Um, I definitely heard the uh, confidence in the uh, special Shana Wilson team. Um, the swing Factor this quarter was was that was that pass through loss. What other lines do you have like, kind of more near-term confidence that that can kind of just build across the back after a year. Um, getting getting more looking at the fee income, uh, lines specifically
Yeah. Or, or 2 2 ones that are really taking hold. By the way, I've been, uh, or beginning to take hold or the
Um, the SBA loan service providing, um, you know, we do that through, uh, Waterstone out of Houston and I think we're, we're definitely seeing that. They've, I believe added for Bank clients over the past quarter, um, in addition to seeing our internal,
Gregory Robertson: And so I'm excited about that. And I don't, regardless of the political wins, I think there's, I think if you were to try to list the governmental programs that have the most bipartisan support, I think SBA has to be up there near the top of the list. So we, we feel like that opportunity will only grow over time and, and we're excited about that. We're also seeing quite a bit of momentum in the derivatives business that we have serving our clients and other bank clients by offering interest rate swaps as a way to tailor the pricing on their, on their loans.
Participation in SBA um origination um uh growing. Um again not a, not a huge needle mover yet but I think moving in the right direction to to be so in the future. And so I'm excited about that. And I don't regardless of the
political winds, I think there's um,
uh, I think if you were to
Try to list the governmental programs that have the most bipartisan support.
And uh derivatives business that we have um serving our clients and other bank clients by offering uh interest rate swaps.
Gregory Robertson: And, you know, we're starting to see more and more wins come through the, through the Celebration Channel. I don't know what the right word is for it, but as we talk about what we're doing, I'm seeing a greater pace of swap victories. And I think that says our bankers become more comfortable with it. They can help our clients be more comfortable with it and, and make sure that we're offering it when it makes sense. But we haven't, we've only just now begun offering that to other banks. We've been, what we like to do is for a lot of these non, non-interest, or excuse me, fee income sources of income, the goal really is to provide it to our own clients.
Um, as a way to tailor the pricing on their on their loans and, uh, you know, we're starting to see more and more wins come through the, through the celebration Channel. I don't know what the right word is for it, but as we talk about what we're doing, um, I'm seeing a greater pace of, um, of swap victories and I think that says our Bankers become
Gregory Robertson: make sure that we're comfortable doing so, and then offer it to other bank clients. And each of our partnerships we've begun, whether that be SSW, or be Large Stone, or now the derivatives business, we've begun by partnering with folks that could serve our own clients. And then we branch out and try to offer that to community bank clients. And so we've only just begun doing that with the derivatives business. And so we look forward to some opportunities, particularly again in 26, 27, picking up there. But the pace at which I'm hearing of victories is increasing and gives us confidence that those will be a couple areas that we can count on being additive to our earnings over the next couple years.
More comfortable with it. Uh, they can help our clients be more comfortable with it and, and make sure that we're offering it when it makes sense. And, but we haven't. We've only just now begun offering that to other Banks. We've been, but we like to do is for a lot of these non non-interest, or excuse me, be income, um, sources of income. Uh, uh, the goal really is to provide it to our own clients.
uh, make sure that we're comfortable doing so and then offer it to other bank clients and and um, each of our Partnerships we've begun whether that be ssw or if you are St or any other driven business, we've begun by
Um, partnering with folks that could serve our own clients and then we Branch out and try to offer that to our Community Bank clients. And so, we've only just begun doing that with the derivatives business. And so we, we look forward to some opportunities, particularly again, in 2627, uh, picking up there. But the, um, the pace at which I'm hearing of Victories is increasing. And and, um, I guess gives us confidence that those will be a couple areas that we
Gregory Robertson: Greg, do you want to mention anything else? No, I think you touched on Waterstone in the beginning. I think from our February 1 acquisition last year, we've increased the number of banks that they do business with, and that because they work on pre-qualification, underwriting, packaging, post-closing servicing, all the way to if you have a problem loan, they help to dialogue with the SBA. That is a valuable tool for these banks that they're doing business with, and that is approaching doubling since we've taken over. So I think that we're excited about that with a very robust pipeline for the backup in 25 for them.
Gregory Robertson: I'm very comfortable with that and excited about it. And I think over time, we'll look to add some of these product capabilities. You know there are correspondent banks that do a really good job for these banks, but there aren't a lot of correspondent banks that offer some of these slightly more complicated, sophisticated products. And we believe that's a role that we can serve. So we'll continue, particularly with some of the governmental lending stuff, are areas that we want to look for further opportunity.
Uh count on uh, being additive to earnings. So everything's a couple years. Greg, you want to mention anything else. Sir? No. I I think you you touched on Waterstone in the beginning. I think our from our February 1st, acquisition last year, uh, we've increased the number of banks that they do business with and that that, uh, because they are they work on pre-qualification under writing packaging. Um, post-closing servicing all the way to if you have a problem 1, uh, they help uh, to dialogue with the SBA. Um, that is a valuable tool for these banks that they're doing business with and that is, that is approaching doubling since we've taken over. So I think that we're excited about that with a with a very robust pipeline for the back app in 25 for them. So,
Very comfortable with that and excited about it.
And I think over time, we'll look to add some of these product capabilities.
Uh, you know, there are correspondent banks that do a really good job for, um, for the peace Banks, but there aren't a lot of correspondent banks that offer some of these uh, slightly more complicated sophisticated products. And, uh, we believe that's a role that we can serve. So,
Continue, particularly that some of the governmental ending stuff is um, uh, our areas that we want to. Um, look for further opportunity in
Unknown Executive: I appreciated the commentary. Thank Thank you. Thanks, Manuel. Thank you.
I appreciated the commentary. Thank you.
Thank you. Thanks very well.
Unknown Executive: There are no further questions.
Jude Melville: I'll now turn the call back over to Jude for closing remarks. Okay, good. Well, again, appreciate everybody joining us today and seem like a pretty positive earning season for us as a bank and then for the community banking industry as a whole. So, I didn't see that positivity and hope to continue building on it. You know, banking is. There's a lot about just consistent incremental improvement, grinding it out quarter to quarter, and then being prepared for opportunity. And I think we've done a good job of that, particularly over the past couple of years, incremental improvement.
Thank you, there are no further questions. I'll now turn the call back over to a judge for closing remarks.
Okay, good. Well, again, appreciate everybody joining us today and uh
seem like a
pretty positive earnings seasons for earning season for us as a bank. And then for the community, making industry as a whole. So excited to see that that positivity and hope to continue building on it. You know, banking is
Jude Melville: And then when an opportunity for Oakwood partnership or for a progressive partnership comes up, we're prepared to take it on from a capital standpoint and from from an institutional knowledge standpoint. And now from a technological standpoint, and we'll continue to to to make those investments and be focused on the little things, which add up to big things over time. So appreciate your support.
Unknown Executive: And we will talk to you all again in about 3 months. Take care.
Uh, uh, is a lot about just consistent and incremental Improvement, grinding it out, quarter to quarter and then being prepared for opportunity. And, um, I think we're we've done a good job of that particularly over the past couple years, um, incremental Improvement, and then when an opportunity for an Oakwood partnership or for, uh, for a progressive partnership comes out, we're prepared to take it on from a capital standpoint and from a, from an Institutional knowledge standpoint and now from a technological standpoint and we'll continue to to, uh, to make those Investments, and, and be focused on the little things which add up to big things over time. Um, so appreciate your support and, um,
Okay, we'll uh talk to you all again in about 3 months.
Take care.
Unknown Executive: The meeting has now concluded. Thank you all for joining. You may now disconnect.
The meeting has now concluded. Thank you, all for joining, give me now disconnect.
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