NASDAQ:NWBI Northwest Bancshares Q2 2024 Earnings Report $11.63 -0.04 (-0.38%) As of 10:39 AM Eastern This is a fair market value price provided by Polygon.io. Learn more. Earnings HistoryForecast Northwest Bancshares EPS ResultsActual EPS$0.27Consensus EPS $0.23Beat/MissBeat by +$0.04One Year Ago EPSN/ANorthwest Bancshares Revenue ResultsActual Revenue$97.99 millionExpected Revenue$133.77 millionBeat/MissMissed by -$35.78 millionYoY Revenue GrowthN/ANorthwest Bancshares Announcement DetailsQuarterQ2 2024Date7/23/2024TimeN/AConference Call DateTuesday, July 23, 2024Conference Call Time9:00AM ETUpcoming EarningsNorthwest Bancshares' Q1 2025 earnings is scheduled for Monday, April 28, 2025, with a conference call scheduled on Tuesday, April 29, 2025 at 9:00 AM ET. Check back for transcripts, audio, and key financial metrics as they become available.Conference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckPress Release (8-K)Quarterly Report (10-Q)Earnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by Northwest Bancshares Q2 2024 Earnings Call TranscriptProvided by QuartrJuly 23, 2024 ShareLink copied to clipboard.There are 10 speakers on the call. Operator00:00:00Good morning. Thank you for standing by and welcome to Northwest Bancshares Second Quarter 20 24 Earnings Call. This call is being recorded and playback will be made available on North West Bancshares Investor Relations website. Now, I would like to introduce Jeffrey Madigan, NorthWest's Head of Investor Relations. Please go ahead. Speaker 100:00:44Good morning, everyone, and thank you, operator. Thank you for joining Northwest Bancshares' 2nd quarter 2024 earnings call. Today with me, I have Louis Torscio, President and CEO of Northwest Bancshares Inc, the holding company for Northwest Bank. Also with me is Douglas Schauffser, Chief Financial Officer and T. K. Speaker 100:01:05Creel, Chief Credit Officer. During this morning's call, we will reference information found in the supplemental earnings release presentation, which can be found on Northwest Bancshares' Investor Relations website. Included in that presentation, you will find our statements on forward looking information and other data, including non GAAP measures. These statements cover our earnings materials plus commentary offered on this morning's call. Please keep in mind that actual results may differ materially from forward looking statements offered today, July 23, 2024. Speaker 100:01:38These forward looking statements will not be updated after today's call. Thank you. And with that, I would like to turn it over to Rui. Speaker 200:01:46Good morning, everyone. Thank you for joining us today to discuss our quarterly results. Before we dive into the numbers, which Doug will cover, I would like to acknowledge the significance of this call. It marks an important milestone in our company's growth and maturity. As the complexity, we recognize the need to enhance our Investor Relations function and provide more comprehensive and regular update to our shareholders and the financial community. Speaker 200:02:15This quarterly call format reflects our commitment to transparency, open communication and best practices in corporate governance. We are eager to share our results with you and provide insights into our strategy, performance and forward outlook. I'm thrilled to highlight the exceptional leadership team we've assembled over the past year Northwest. In June, we welcomed Jurek Bowers as our new Chief Consumer Banking and Strategy Officer, exceeding John Goldie. You're bringing valuable experience from PNC to our organization. Speaker 200:02:49Earlier this year, we also added Doug Schosser as our new CFO, leveraging his expertise from KeyBanc. These additions significantly enhance our strategic development execution capabilities. Looking back, we further strengthened our leadership team with Greg Bechtel, our Chief Risk Officer with experience at Citibank, KeyBanc and Bread Financial and Jay Demarto, Chief Commercial Banking Officer, who brings rich experience from GE Capital, TD Bank and most recently LendingClub. Together with our existing experience and capable leaders, I have confidence that this group of experienced individuals will propel our bank to new heights in the coming years. I'd also like to highlight some key strategic initiatives that are driving our performance and positioning us for long term success. Speaker 200:03:40First, our commercial bank transformation continued to gain momentum. Under J. D. Marteau's leadership, you'll see how we shifted our focus to growing our C and I portfolio. We established new commercial lending verticals, which are showing promising early results. Speaker 200:03:56These verticals include sponsor finance, equipment finance, sports finance, franchise finance and a new SBA lending group. Each unit is outperforming our early expectations and I'm eager to see their continued contribution. Last quarter, we also announced our intention to restructure our securities portfolio. We were successful with this plan and Doug will talk more about the strategy and our results in a few minutes. The results of the restructure enabled Northwest to purchase higher yielding securities as well as significantly reduced our overnight borrowing. Speaker 200:04:30A portion of the benefit showed up in our net interest margin improvement for this quarter. Overall, I'm pleased with our core financial results and I'm confident the positive changes to our security portfolio will enable a strong position for Northwest for the coming quarters and years ahead. I want to thank each and every team member for their talent and dedication to produce these results. I'm proud of your hard work and focus on our customers and our communities. I'm also pleased to notify you that the impact to our bank operations from the CrowdStrike IT issue was minimal. Speaker 200:05:05All of our branches and ATMs were open and running, servicing our customers. Personal and business customers have been able to access online banking, mobile banking, treasury pro and wire funds without incident. Finally, as we have for the past 119 quarters, on behalf of the Board of Directors, I'm pleased to declare a quarterly dividend of $0.20 per share to shareholders of record as of August 2, 2024. Now I'd like to introduce Doug Schosser, Northwest Bank's Chief Financial Officer, as he will take you through our financial results. Doug? Speaker 300:05:45Thank you, Lou, and good morning, everyone. Please look to Page 4 in the earnings presentation I cover the financial results, Northwest posted for the Q2 of 2024. We announced net income for the quarter of $5,000,000 or $0.04 per diluted share. After adjusting for the securities loss and restructuring charges, EPS is $0.27 per share and $0.05 above analyst consensus estimate. We completed our previously announced securities restructure, hitting our targets on the reinvestments, which I will discuss later. Speaker 300:06:16Loan growth is more muted this quarter as we focused on improving our new loan yield rather than seeking loan growth more aggressively. These actions resulted in improving net interest margin, which after bottoming in the Q1 rebounded to 3 20 basis points during the 2nd quarter. Fee income was improved over the Q1 due to strong SBA originations while non interest expenses were maintained at the $90,000,000 level after we adjust for some restructuring costs incurred in the quarter. Credit quality remains very good and overall allowance coverage increased slightly to 1.10 percent of loans. Now I will get into some additional detail. Speaker 300:06:53Turning to Slide 5, you will see the results of the restructuring so far. We sold $314,000,000 15% of our portfolio at a loss of $39,400,000 pre tax with an average yield of 1.79%. We reinvested $258,000,000 of the proceeds with an average yield of 6%. This represents a yield pickup of over 4.20 basis points with an anticipated payback of 3 years or less. The average overall portfolio yield now stands at 2.45% compared to 1.96% at the end of the Q1. Speaker 300:07:28These results met or even exceeded initial expectations. Next, I'll speak to our loan portfolio, which can be found on Page 6. Most notably, you'll see that our commercial and industrial loans grew 3.2% since quarter and 33.4% since the same quarter last year, while residential mortgages declined $143,000,000 or 4.1% since last year. In these earlier points, this demonstrates the results of our commercial banking transformation. While our commercial real estate portfolio grew modestly, less than 1% since last quarter, you can see the change in the loan mix to a more desirable share of C and I compared to CRE. Speaker 300:08:05Embedded within this growth is the discipline to grow profitably, maintaining adequate margins on new loans originated. You'll see in the bottom right chart that our loan yield has grown steadily quarter over quarter for the last 5 quarters and now stands at 5.47%. On the next Page 7, I will cover the profit. Largely due to competitive pricing and continually marketing efforts, deposits grew by 1.6% since the last quarter and 5.8% since the same period last year. While our cost of deposits grew by 15 basis points, that represents the lowest increase in the past 5 quarters. Speaker 300:08:42Most deposit growth was within our consumer time deposit product category with modest growth in both consumer savings and non interest demand accounts. The current cost of deposits stands at 1.76, which is near best in class relative to our peers. On Page 8, I will cover net interest margin, which now stands at 3 20 basis points or a 10 basis point improvement from the 1st quarter and 8 basis points lower than the same quarter last year. Net interest income grew from $104,000,000 at the end of the last quarter to $108,000,000 or approximately 4%. This is the 1st quarter with NIM growth since a year ago and reflects the impact of reduced borrowings, higher loan yields and a slower pace of growth of our cost of funds. Speaker 300:09:28We remain diligent in managing our deposit growth and pricing strategy alongside prudent loan pricing. We ended the quarter with a cost of funds of 2.4%. Non interest income covered on Slide 9 grew 9% or $2,600,000 quarter over quarter, excluding the loss incurred from the securities restructuring. As I mentioned previously, the gain on the sale of SBA loan improved by 67%. We also saw gains year over year in trust fees and consumer deposit service charges. Speaker 300:09:58Slide 10 shows details of our non interest expense. Our efficiency ratio improved to 65.4 percent despite modestly rising expenses. However, if we adjust out one time costs incurred due to termination of John Goldin's contract, expenses were essentially flat for the quarter. We remain focused on expense management. We're making smart decisions to in source work previously produced by more expensive third party professional services firms. Speaker 300:10:24We continue to be focused on finding additional cost reductions without impacting short operating activities or diminishing the service level that customers have come to expect and maintaining a well managed institution. A few comments on credit quality. On Page 11, our allowance to loans coverage increased slightly to 1.10 percent with net charge offs of just 7 basis points for the quarter. As seen on Page 12, overall credit performance remained strong, although we did see a slight increase in non performing assets. However, these increases can result from small changes given the overall low level of classified assets today. Speaker 300:11:00Slide 13 shows our commercial loan concentration. As you can see from the graphs, we have a diverse portfolio backed by strong underwriting, we've been able to avoid many of the CRE specific issues. And we do not have material risk with exposure in large metro office or rent controlled markets. Our healthcare sector, which has seen some challenges recently, is currently beginning to show signs of improvement. Page 14 summarizes the balance sheet changes I just shared with you and also shows our estimated capital that remain very strong. Speaker 300:11:30We expect to report a 13.18 percent CET1 capital ratio and an 11 basis point improvement on our TCE to tangible asset ratio, which will be 8.37%. Finally, I will cover our outlook for the second half of the year. We'll stay focused on responsible and profitable loan growth in the commercial space, specifically CMI lending. We anticipate low single digit loan growth. We expect deposits to remain largely flat and we will manage our deposit costs while balancing client expectations and market pressures. Speaker 300:12:03That combined with disciplined loan pricing will allow for modest expansion of the net interest margin. We expect modest growth of 0% to 2% in non interest income and we remain focused on keeping expenses flat. This will have a positive impact on our efficiency ratio. Both our tax rate and net charge offs are expected to normalize closer to Q1 2024 though. On behalf of the entire leadership team and Board of Directors, thank you for joining us this morning. Speaker 300:12:28At this time, I'll turn the call over to Desiree, our operator, who will provide live question and answers. Thank you. Operator00:12:37Thank you. We will now begin the question and answer session. Your first question comes from the line of Tim Switzer with KBW. Your line is open. Speaker 400:13:24Hey, good morning. Thank you for taking my questions. We really appreciate you guys doing the conference call and the updated presentation and guidance. It's great. Speaker 300:13:34Thank you, Tim. Nice to hear from you this morning. Speaker 400:13:39My first question is on the timing and impact of the securities restructuring. It seems like from the presentation, it maybe had up to a 13 basis point impact on the margin this quarter. Speaker 300:13:55Could you Speaker 400:13:55guys maybe provide some details on the timing of it over the course of the quarter? And then what's the impact we should expect in Q3? Speaker 300:14:06Sure. We started the restructuring in the middle towards the end of the quarter. Most of the sales were late May early June. We finished all of the selling activity towards the end of June. We have a little bit more about $20,000,000 give or take to redeploy into some asset classes that have a little less supply in the market. Speaker 300:14:33So that was the timing. So we will get a full quarter's benefit next year and we would expect that to be incremental 4 to 5 basis points. Speaker 400:14:44An incremental 4 to 5 basis points in Speaker 300:14:46Q3? Correct, on the investment portfolio. Speaker 400:14:51Okay. And that guide Speaker 300:14:549 total basis points for the margin. Speaker 400:15:00Okay. And should we assume some incremental NIM expansion on like a core basis on top of that in Q3 and Q4? Or is that going to be the primary driver? Speaker 300:15:14We continue to focus on our ability to price in this market. So I think there is some opportunity for some additional core margin growth based on how we handle deposit pricing opportunities as well as loan volumes in the quarter. Speaker 400:15:35Okay, great. And then if Speaker 500:15:37I could ask Speaker 400:15:39a follow-up and kind of clarifying exactly what's intended in the guidance. On the non interest income and expense side, you're guiding the low single digit growth off of the adjusted base per quarter. Do we take like the average in the first half of the year and just add low single digit growth on top of that or is it low single digit growth in Q3 relative to Q2 and then low single digit growth in Q4 relative to Q3? Speaker 300:16:08I think it's low single digit growth on the adjusted Q2 numbers. And I wouldn't necessarily say that it's 2% per quarter, it's 2% over the course of the year. Speaker 400:16:20Got you. Okay, that's very clear. I'll get back in the queue. Thank you. Speaker 300:16:26Okay, thank you. Operator00:16:31Your next question comes from the line of Daniel Di Maio with Raymond James. Your line is open. Speaker 600:16:40Hey, good morning guys. This is Tim De Lacy filling in for Danny. I'll echo the comments. Thank you for hosting the call and taking my questions this morning. First off, yes, thank you. Speaker 600:16:51First quarter in a while here where commercial growth was not very strong and you alluded to the comment on Canadian loan yields advantageous for you. Can you talk about if that reflects maybe a change in the competitive dynamics with potential entrants in the markets? And then perhaps a follow-up, can you talk to how current pipelines are comparatively to Speaker 300:17:10the last few quarters in that commercial portfolio? Thanks. Yes. I wouldn't say it's due to higher levels of competition. I think it is due to both credit discipline and pricing discipline as we look at opportunities. Speaker 300:17:26I will say we did have some higher levels of runoff in our portfolio than we were expecting. So that put some downward pressure on the overall balance growth for the quarter. We wouldn't expect that level of payoffs to continue. As for our pipelines, we are seeing pipelines that are similar this quarter to last quarter and we wouldn't expect to have continued reductions in loan balances across the portfolios because again we're expecting that runoff to not be as big of an certain cases, it was corporate transactions and things that just created some earlier than anticipated pay downs. Speaker 600:18:11Great. I appreciate that color there. Then maybe switching over to credit, cost did remain over low for the quarter. I did see the non accruals pick up in the commercial and you did specifically mention that one single credit. Is there any detail that you can provide on that from an industry vertical and then maybe the trends you're seeing overall in that portfolio? Speaker 300:18:32Yes. I mean, I don't think that we're getting into that level of disclosure on this call. I would just say, as we stated in our earlier comments, some of the healthcare portfolio has shown some signs of stress, but we believe that, that is getting better or at least normalizing. And we did guide to a more normalized overall provision level. So I think over the cycle, we would say overall charge off number would be 15 to 20 basis points. Speaker 300:18:57I don't know that we'll get there next quarter, but you should see that credit normalization over time. Speaker 600:19:06Okay, great. That's all that I had today. Thanks for taking my questions. Speaker 300:19:11Okay, you're welcome. Operator00:19:16Next question comes from the line of Frank Schiraldi with Piper Sandler. Your line is open. Speaker 700:19:23Good morning. Speaker 300:19:25Good morning. Speaker 700:19:26Just first on expenses, just want to make sure I heard you correctly. So when we're looking at the guidance, you talked about low single digit growth. So that's low single digit growth in the back half of the year annualized off of normalized 2Q numbers? Is Speaker 100:19:44that Speaker 700:19:45just saying it a different way, is that the right way to think about it? Speaker 300:19:48I think last quarter we talked about a $90,000,000 per quarter expense number. I still think that's fairly good. So depending on how you look at second quarter, again, we're looking forward saying it's going to be around $90,000,000 give or take 2% of that. Again, I don't think it sustained expense growth. We continue to focus on expenses, but there's a lot of uncertainty. Speaker 300:20:13So we continue to look for opportunities to drive overall profitability. But again, on the conservative side, we're at that $90,000,000 plus or minus 2% over the course of the year and the quarter. Got you. Okay. Speaker 700:20:29And then just switching gears as a follow-up, just the macro picture seems to have improved a bit, certainly at least stabilized and bank stocks certainly reacted positively over the last month or so. So just wondering your thoughts if they your appetite has changed at all for M and A, your updated thoughts there on opportunities in the near term? Speaker 200:20:57Hey, Frank, it's Lou. Thanks for the question. Really, I think with the deployment of our capital strategy, it continues to be 1, protect and deliver on the dividend. Secondly, we are focused on organic growth and optimizing and transitioning the firm over time, which is our stated goal. And then certainly, thirdly, acquisitions. Speaker 200:21:27We have a strategy, conversations are picking up whether that means expanding our geography into higher growth markets, whether it's acquiring an institution that brings businesses that we otherwise don't have or whether it's a deposit play or really a combination of all of that. So we are actively having conversations. We're interested in growing organically and inorganically. And then of course, lastly would be any buybacks as a result of our capital position. So, yes, we do see the market clearing. Speaker 200:22:03There are more conversations going on and we are interested, but we're going to be pretty selective. We want to make sure that strategically it propels us to where we want to go. Speaker 700:22:17And then just in terms of geography, would it be if there is some expansion, would you still expect that to be contiguous expansion? And any thoughts on most attractive geographies as you look out at potential for M and A? Speaker 200:22:36Yes. I mean, we certainly would consider end market as well. We think it's a Speaker 100:22:41little bit lower risk. Speaker 200:22:42It's a higher execution, but certainly we'd like to grow as I said in some different markets that provide more opportunity for the Indiana, specifically the Indianapolis area would be a focus. And we are focused primarily I really don't see us going outside of contiguous footprint. So the 4 states we're in, think about the contiguous states around those states. So as you know, we can only evaluate the opportunities that are presented to us. So but we will be fairly selective in deploying capital. Speaker 700:23:32Great. Thanks for the color. Speaker 200:23:35Thank you. Operator00:23:39Next question comes from the line of Daniel Cardenas with Jan. Your line is open. Speaker 400:23:45Hey, good morning guys. Speaker 800:23:50Just some follow-up on the margin. What kind of rate cut assumptions are baked, if any, are baked into your margin guidance? Speaker 300:24:00Yes. Last time we looked at it, we were looking at about 3 cuts over the course of the year for the final year as part of our margin guidance. Again, I think we're pretty well positioned to handle if it comes out to be 2 or something like that. But we definitely were providing guidance given the more current Fed stance. Speaker 800:24:27Okay. And then so for every 25 basis points, what kind of cuts, what kind of impact does that have on the margin? Speaker 300:24:38I might turn that over to Jeff to answer more specifically. Speaker 100:24:41Yes. I think because of where come in, so we're kind of assuming there's September and then late in the year. So certainly the last 2 don't have that much impact. We do think our we'll be able to bring deposit prices down in line with any kind of cuts to kind of help buffer margin and if anything, continue keep increasing margin as our guidance suggests. So really gets to that deposit our ability to break down deposit costs. Speaker 100:25:09And we just think that given the competition or what the competition is facing is margin compression that they'll be eager to bring costs down as well. So we think there Speaker 300:25:19will be some ability to do that. Speaker 800:25:21Okay, great. Thank you. And then what does your CRE ratio concentration ratio look like at quarter Speaker 100:25:32end? Speaker 300:25:36Hold that number just a second. I think that was on the earnings deck on the loan section, which I recall. Page 13. What's the Page 13? That just shows the overall concentration you're looking for a percent of the portfolio for CRE, so it's $3,000,000,000 on the other. Speaker 800:26:11I'm just kind of looking for the regulatory number that everybody is looking at right now. Speaker 300:26:17All right. Yes. Give us one second. We'll pull that for you. We'll come back. Speaker 300:26:29Do you have another question before that one and we can come back and clean that up? Speaker 800:26:34Yes, sure. No problem. And then on the operating expense side, thanks for the color there as well. I know there's been some branch rationalization exercises that you guys have gone through. Is that pretty much done or could we maybe expect to see a few more branch closures here in the second half of the year? Speaker 200:27:00Yes. Hi, this is Lou. We don't anticipate really any further branch closures. I mean, we are looking at a multiyear plan for consumer both investing in the franchise as well as there may be some 2 for ones, some consolidation or and we're looking at really a branch of the future modernization plan, but nothing meaningful. We think we've really exhausted the branch closure piece for the organization. Speaker 300:27:39All right. So then Speaker 800:27:39as I think about expenses then, are technology investments really going to be the biggest growth driver here on a go forward basis? Speaker 300:27:51No. I mean we've got if you look at our commercial strategy, we've been building up multiple verticals as Lou mentioned in his originating comments. So those have not even been online for a full year yet. So we can expect as those verticals mature, we would expect to get more production out of them for full year 2025 as opposed to what they did for a partial year in 2024. And then as we have brought Eurex onto the scene to run consumer, I also think we'll see sort of a different level of execution within our branches, to drive some organic growth that way. Speaker 300:28:29So I think we've got levers for growth right now that we're going to focus on over the course of the next year and we should be able to derive growth just from sort of those types of blocking and tackling activities as well as having full years across these commercial verticals. Speaker 200:28:46I would add also specifically around your expense question. We have invested a lot in our IT stack. We have invested in our risk management and our commercial credit acumen at the organization. So we are building the firm both from a regulatory and from an operating platform to be able to scale the organization and sort of remix the balance sheet as we described and grow organically. So that run rate that you see has a lot of investment already embedded in it. Speaker 800:29:25Okay, great. Thanks. That's all I have for right now. Speaker 300:29:29The CRE concentration is 168%. Operator00:29:36Next question comes from the line of David Maroknik with Stephens. Your line is open. Speaker 500:29:43Hey, good morning. This is David on for Matt Breeze. Speaker 300:29:47Good morning, David. Speaker 500:29:49I was wondering if we could start, if you guys could talk on the loan book just in terms of you guys know what percent of the book is pure floating rate as in will reprice within 3 months? And then just maybe what those are tied to? Speaker 300:30:04Yes, absolutely. On the commercial book, we would have 53% of that would be floating. The overall book, it would be 27% would be floating. Speaker 500:30:22Great. And then is it safe to assume those are tied to prime or sulfur, maybe a 200 or 250 spread? Speaker 300:30:30Yes. I think that's a good assumption. Speaker 500:30:34Great. And then by chance, do you have the yield on maybe the difference of the yield of the floating book and the yield on the fixed rate book? Speaker 300:30:44If we don't, we can get back to you. Yes, we'll have to get back follow-up with that. I mean, we obviously provide that. No worries. And then Speaker 500:30:55I guess just switching over to deposits, sorry if I missed it. You guys talked about maybe your expectations on where you think DDAs will kind of settle out? And maybe in terms are you being more selective now, and kind of looking at running off higher cost deposits, as you guys kind of mentioned looking at funding costs? Speaker 300:31:13Yes. I'm going to come back and answer your earlier question. I think we do have that stick with us. I would tell you, as far as the deposit goes, right, we plan to look at our CD book as it matures and take advantage of keeping the maturities on that short and providing an opportunity for reprice as rates would decline in the market. And I would also say that, we continue to look at our money market book, and that would have a relatively high beta on the way down as would some of our business deposits. Speaker 300:31:47So again, I think where we have the opportunity to price deposits down, we'll take advantage of it. But we're also operating in a competitive market and we want to maintain our overall deposit levels and potentially grow them. So that would be hard today. I think the earlier question you asked is what our floating rate yield was in the aggregate and it's 7.95%. Speaker 500:32:13Great. I appreciate that. And then last would just be if there's any kind of color you can give, maybe thoughts on the provision going forward and will the reserve maybe keep ticking higher if you see any pressure on the C and I space? Speaker 300:32:28Yes. I mean, again, you would expect the provision to go up if our charge offs go up in order to maintain our coverage ratio. So there is the potential for that. And then other than that, it's a diesel situation, right, where it's kind of depend on economic outlook overall. I wouldn't expect our provision is necessarily going to increase because we're putting on riskier credit. Speaker 300:32:52So I think the book we expect to maintain the level of credit risk that we take today, but it's going to be tied to both economic changes as well as sort of what happens on the charge off side. Speaker 500:33:05Got it. I appreciate it. Those are all my questions. Thanks for the time. Speaker 300:33:09Okay. Thank Operator00:33:24And we have another question came in, comes from the line of Manuel Neves with D. A. Davidson. Your line is open. Speaker 100:33:33Hey, good morning. Speaker 300:33:35Hey, so on the loan growth, I appreciate some Speaker 900:33:41of the commentary. Do you have the actual runoff that was this quarter that you had to fight against on the commercial side? It's like a balanced number. Speaker 300:33:53Mean, I would just say it was I don't know that we're going to get into all of those details, but it was not insignificant. Let me give you a general direction. Yes, I mean, it was $400,000,000 to $600,000,000 Okay. And then if Speaker 900:34:17you talked about pipelines being very similar, which are on the commercial side have been strong for a while. What specific lines are doing best? Is there any that you're starting to move away from because you are opening up a number of different business lines? Just wondering if you're at the point you're winnowing any of them or are all still performing excellently and still all ramping up? Speaker 200:34:43Yes, Mel. This is Lou. How are you doing? Speaker 300:34:47Good morning, Lou. Speaker 200:34:48Yes, thanks for the question. So some of them are retrying quite nicely. Some will be more strategic than others. In addition to the verticals that we described, we are heading into strategic planning and we'll revisit we'll be revisiting our lower middle market slash upper end business banking model inside our footprint as well, what that looks like and what our go to market strategy is. So that'll see further development. Speaker 200:35:18Some of those businesses come with fees and deposits are more strategic and some are just asset generation. So as we go through strategic planning, as the market evolves and as we see how those mature, that will dictate our course of action as far as how we optimize. What we're looking to do is optimize performance as well as give ourselves enough latitude and levers to be able to transform the balance sheet as we've described previously. I hope that gives you a little color on that. Speaker 100:35:55No, that I do appreciate that. Speaker 900:35:57And any other lines that you're calling out? Oh, go ahead. I'm sorry. No, I was just going to say, we Speaker 200:36:02are seeing really good success in our sponsored finance group and our SBA group that are contributing. And of course, equipment finance has been around. So it's been gestating for a while. And so we notwithstanding the market for that given where those credits get put and where they lie on the curve is a little bit difficult, but we're seeing success there as well. So we're really happy with Jay's leadership and he's been able to procure a great deal of talent from his former employers across his career to be able to stand those up and they're relatively efficient. Speaker 200:36:45And so we're really pleased with that. Speaker 900:36:50I appreciate the commentary. Do you have any insight on new loan yields in the pipeline on the commercial side? Speaker 300:37:01We've been targeting 7.5 and better. So I would give you generic guidance around that level. Of course, each deal is unique and priced sort of individually. But I think generally, if you think about that being a decent level to count on, obviously higher is more attractive to us, but it's all risk based pricing. All right. Speaker 300:37:26Thank you. Thanks guys. I'll step back into the queue. Speaker 200:37:30Thanks, Sam. Operator00:37:34There are no further questions at this time. Mr. Doug Shosser, I turn the call back over to you. Speaker 100:37:41Okay. We would like to thank all Speaker 300:37:42of you for taking some time to join us this morning. And all of the information that was discussed is available on our Investor Relations website. Thank you. We'll talk again next quarter. Operator00:37:55Ladies and gentlemen, this concludes today's conference call. You may now disconnect.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallNorthwest Bancshares Q2 202400:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsSlide DeckPress Release(8-K)Quarterly report(10-Q) Northwest Bancshares Earnings HeadlinesNorthwest Bancshares (NWBI) Gains Approval for Penns Woods Merger | NWBI Stock NewsApril 23 at 1:47 PM | gurufocus.comNorthwest Bancshares, Inc. Merger with Penns Woods Bancorp, Inc. Receives Regulatory and Shareholder ApprovalApril 23 at 8:35 AM | prnewswire.com[Action Required] Claim Your FREE IRS Loophole GuideThis shouldn't surprise anyone who's been paying attention, but... Pres. Trump may be about to unleash the biggest "dollar reset" since 1971.April 24, 2025 | Colonial Metals (Ad)Despite lower earnings than three years ago, Northwest Bancshares (NASDAQ:NWBI) investors are up 5.7% since thenApril 10, 2025 | finance.yahoo.comSHAREHOLDER ALERT: Purcell & Lefkowitz LLP Announces Shareholder Investigation of Northwest Bancshares, Inc. (NASDAQ: NWBI)April 8, 2025 | prnewswire.comNorthwest Bancshares, Inc. Announces First Quarter 2025 Earnings Call DetailsApril 7, 2025 | investing.comSee More Northwest Bancshares Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like Northwest Bancshares? Sign up for Earnings360's daily newsletter to receive timely earnings updates on Northwest Bancshares and other key companies, straight to your email. Email Address About Northwest BancsharesNorthwest Bancshares (NASDAQ:NWBI) operates as the bank holding company for Northwest Bank, a state-chartered savings bank that provides personal and business banking solutions. The company accepts various deposits, including checking, savings, money market deposit, term certificate, and individual retirement accounts. It also offers loan products comprising one-to-four-family residential real estate loans, shorter term consumer loans, and loans collateralized by multi-family residential and commercial real estate; home equity loans and lines of credit; commercial business and real estate loans; commercial loans; and consumer loans, including automobile loans, sales finance loans, unsecured personal loans, credit card loans, and loans secured by investment accounts, as well as investment management and trust services. The company operates community banking locations in Pennsylvania, Western New York, Eastern Ohio, and Indiana. Northwest Bancshares, Inc. was founded in 1896 and is headquartered in Columbus, Ohio.View Northwest Bancshares ProfileRead more More Earnings Resources from MarketBeat Earnings Tools Today's Earnings Tomorrow's Earnings Next Week's Earnings Upcoming Earnings Calls Earnings Newsletter Earnings Call Transcripts Earnings Beats & Misses Corporate Guidance Earnings Screener Earnings By Country U.S. Earnings Reports Canadian Earnings Reports U.K. Earnings Reports Latest Articles Amazon's Earnings Could Fuel a Rapid Breakout Tesla Earnings Miss, But Musk Refocuses and Bulls ReactQualcomm’s Range Narrows Ahead of Earnings as Bulls Step InWhy It May Be Time to Buy CrowdStrike Stock Heading Into EarningsCan IBM’s Q1 Earnings Spark a Breakout for the Stock?Genuine Parts: Solid Earnings But Economic Uncertainties RemainBreaking Down Taiwan Semiconductor's Earnings and Future Upside Upcoming Earnings AbbVie (4/25/2025)AON (4/25/2025)Colgate-Palmolive (4/25/2025)HCA Healthcare (4/25/2025)NatWest Group (4/25/2025)Cadence Design Systems (4/28/2025)Welltower (4/28/2025)Waste Management (4/28/2025)AstraZeneca (4/29/2025)Booking (4/29/2025) Get 30 Days of MarketBeat All Access for Free Sign up for MarketBeat All Access to gain access to MarketBeat's full suite of research tools. Start Your 30-Day Trial MarketBeat All Access Features Best-in-Class Portfolio Monitoring Get personalized stock ideas. Compare portfolio to indices. Check stock news, ratings, SEC filings, and more. Stock Ideas and Recommendations See daily stock ideas from top analysts. Receive short-term trading ideas from MarketBeat. Identify trending stocks on social media. Advanced Stock Screeners and Research Tools Use our seven stock screeners to find suitable stocks. Stay informed with MarketBeat's real-time news. Export data to Excel for personal analysis. Sign in to your free account to enjoy these benefits In-depth profiles and analysis for 20,000 public companies. Real-time analyst ratings, insider transactions, earnings data, and more. Our daily ratings and market update email newsletter. Sign in to your free account to enjoy all that MarketBeat has to offer. Sign In Create Account Your Email Address: Email Address Required Your Password: Password Required Log In or Sign in with Facebook Sign in with Google Forgot your password? Your Email Address: Please enter your email address. Please enter a valid email address Choose a Password: Please enter your password. Your password must be at least 8 characters long and contain at least 1 number, 1 letter, and 1 special character. Create My Account (Free) or Sign in with Facebook Sign in with Google By creating a free account, you agree to our terms of service. This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.
There are 10 speakers on the call. Operator00:00:00Good morning. Thank you for standing by and welcome to Northwest Bancshares Second Quarter 20 24 Earnings Call. This call is being recorded and playback will be made available on North West Bancshares Investor Relations website. Now, I would like to introduce Jeffrey Madigan, NorthWest's Head of Investor Relations. Please go ahead. Speaker 100:00:44Good morning, everyone, and thank you, operator. Thank you for joining Northwest Bancshares' 2nd quarter 2024 earnings call. Today with me, I have Louis Torscio, President and CEO of Northwest Bancshares Inc, the holding company for Northwest Bank. Also with me is Douglas Schauffser, Chief Financial Officer and T. K. Speaker 100:01:05Creel, Chief Credit Officer. During this morning's call, we will reference information found in the supplemental earnings release presentation, which can be found on Northwest Bancshares' Investor Relations website. Included in that presentation, you will find our statements on forward looking information and other data, including non GAAP measures. These statements cover our earnings materials plus commentary offered on this morning's call. Please keep in mind that actual results may differ materially from forward looking statements offered today, July 23, 2024. Speaker 100:01:38These forward looking statements will not be updated after today's call. Thank you. And with that, I would like to turn it over to Rui. Speaker 200:01:46Good morning, everyone. Thank you for joining us today to discuss our quarterly results. Before we dive into the numbers, which Doug will cover, I would like to acknowledge the significance of this call. It marks an important milestone in our company's growth and maturity. As the complexity, we recognize the need to enhance our Investor Relations function and provide more comprehensive and regular update to our shareholders and the financial community. Speaker 200:02:15This quarterly call format reflects our commitment to transparency, open communication and best practices in corporate governance. We are eager to share our results with you and provide insights into our strategy, performance and forward outlook. I'm thrilled to highlight the exceptional leadership team we've assembled over the past year Northwest. In June, we welcomed Jurek Bowers as our new Chief Consumer Banking and Strategy Officer, exceeding John Goldie. You're bringing valuable experience from PNC to our organization. Speaker 200:02:49Earlier this year, we also added Doug Schosser as our new CFO, leveraging his expertise from KeyBanc. These additions significantly enhance our strategic development execution capabilities. Looking back, we further strengthened our leadership team with Greg Bechtel, our Chief Risk Officer with experience at Citibank, KeyBanc and Bread Financial and Jay Demarto, Chief Commercial Banking Officer, who brings rich experience from GE Capital, TD Bank and most recently LendingClub. Together with our existing experience and capable leaders, I have confidence that this group of experienced individuals will propel our bank to new heights in the coming years. I'd also like to highlight some key strategic initiatives that are driving our performance and positioning us for long term success. Speaker 200:03:40First, our commercial bank transformation continued to gain momentum. Under J. D. Marteau's leadership, you'll see how we shifted our focus to growing our C and I portfolio. We established new commercial lending verticals, which are showing promising early results. Speaker 200:03:56These verticals include sponsor finance, equipment finance, sports finance, franchise finance and a new SBA lending group. Each unit is outperforming our early expectations and I'm eager to see their continued contribution. Last quarter, we also announced our intention to restructure our securities portfolio. We were successful with this plan and Doug will talk more about the strategy and our results in a few minutes. The results of the restructure enabled Northwest to purchase higher yielding securities as well as significantly reduced our overnight borrowing. Speaker 200:04:30A portion of the benefit showed up in our net interest margin improvement for this quarter. Overall, I'm pleased with our core financial results and I'm confident the positive changes to our security portfolio will enable a strong position for Northwest for the coming quarters and years ahead. I want to thank each and every team member for their talent and dedication to produce these results. I'm proud of your hard work and focus on our customers and our communities. I'm also pleased to notify you that the impact to our bank operations from the CrowdStrike IT issue was minimal. Speaker 200:05:05All of our branches and ATMs were open and running, servicing our customers. Personal and business customers have been able to access online banking, mobile banking, treasury pro and wire funds without incident. Finally, as we have for the past 119 quarters, on behalf of the Board of Directors, I'm pleased to declare a quarterly dividend of $0.20 per share to shareholders of record as of August 2, 2024. Now I'd like to introduce Doug Schosser, Northwest Bank's Chief Financial Officer, as he will take you through our financial results. Doug? Speaker 300:05:45Thank you, Lou, and good morning, everyone. Please look to Page 4 in the earnings presentation I cover the financial results, Northwest posted for the Q2 of 2024. We announced net income for the quarter of $5,000,000 or $0.04 per diluted share. After adjusting for the securities loss and restructuring charges, EPS is $0.27 per share and $0.05 above analyst consensus estimate. We completed our previously announced securities restructure, hitting our targets on the reinvestments, which I will discuss later. Speaker 300:06:16Loan growth is more muted this quarter as we focused on improving our new loan yield rather than seeking loan growth more aggressively. These actions resulted in improving net interest margin, which after bottoming in the Q1 rebounded to 3 20 basis points during the 2nd quarter. Fee income was improved over the Q1 due to strong SBA originations while non interest expenses were maintained at the $90,000,000 level after we adjust for some restructuring costs incurred in the quarter. Credit quality remains very good and overall allowance coverage increased slightly to 1.10 percent of loans. Now I will get into some additional detail. Speaker 300:06:53Turning to Slide 5, you will see the results of the restructuring so far. We sold $314,000,000 15% of our portfolio at a loss of $39,400,000 pre tax with an average yield of 1.79%. We reinvested $258,000,000 of the proceeds with an average yield of 6%. This represents a yield pickup of over 4.20 basis points with an anticipated payback of 3 years or less. The average overall portfolio yield now stands at 2.45% compared to 1.96% at the end of the Q1. Speaker 300:07:28These results met or even exceeded initial expectations. Next, I'll speak to our loan portfolio, which can be found on Page 6. Most notably, you'll see that our commercial and industrial loans grew 3.2% since quarter and 33.4% since the same quarter last year, while residential mortgages declined $143,000,000 or 4.1% since last year. In these earlier points, this demonstrates the results of our commercial banking transformation. While our commercial real estate portfolio grew modestly, less than 1% since last quarter, you can see the change in the loan mix to a more desirable share of C and I compared to CRE. Speaker 300:08:05Embedded within this growth is the discipline to grow profitably, maintaining adequate margins on new loans originated. You'll see in the bottom right chart that our loan yield has grown steadily quarter over quarter for the last 5 quarters and now stands at 5.47%. On the next Page 7, I will cover the profit. Largely due to competitive pricing and continually marketing efforts, deposits grew by 1.6% since the last quarter and 5.8% since the same period last year. While our cost of deposits grew by 15 basis points, that represents the lowest increase in the past 5 quarters. Speaker 300:08:42Most deposit growth was within our consumer time deposit product category with modest growth in both consumer savings and non interest demand accounts. The current cost of deposits stands at 1.76, which is near best in class relative to our peers. On Page 8, I will cover net interest margin, which now stands at 3 20 basis points or a 10 basis point improvement from the 1st quarter and 8 basis points lower than the same quarter last year. Net interest income grew from $104,000,000 at the end of the last quarter to $108,000,000 or approximately 4%. This is the 1st quarter with NIM growth since a year ago and reflects the impact of reduced borrowings, higher loan yields and a slower pace of growth of our cost of funds. Speaker 300:09:28We remain diligent in managing our deposit growth and pricing strategy alongside prudent loan pricing. We ended the quarter with a cost of funds of 2.4%. Non interest income covered on Slide 9 grew 9% or $2,600,000 quarter over quarter, excluding the loss incurred from the securities restructuring. As I mentioned previously, the gain on the sale of SBA loan improved by 67%. We also saw gains year over year in trust fees and consumer deposit service charges. Speaker 300:09:58Slide 10 shows details of our non interest expense. Our efficiency ratio improved to 65.4 percent despite modestly rising expenses. However, if we adjust out one time costs incurred due to termination of John Goldin's contract, expenses were essentially flat for the quarter. We remain focused on expense management. We're making smart decisions to in source work previously produced by more expensive third party professional services firms. Speaker 300:10:24We continue to be focused on finding additional cost reductions without impacting short operating activities or diminishing the service level that customers have come to expect and maintaining a well managed institution. A few comments on credit quality. On Page 11, our allowance to loans coverage increased slightly to 1.10 percent with net charge offs of just 7 basis points for the quarter. As seen on Page 12, overall credit performance remained strong, although we did see a slight increase in non performing assets. However, these increases can result from small changes given the overall low level of classified assets today. Speaker 300:11:00Slide 13 shows our commercial loan concentration. As you can see from the graphs, we have a diverse portfolio backed by strong underwriting, we've been able to avoid many of the CRE specific issues. And we do not have material risk with exposure in large metro office or rent controlled markets. Our healthcare sector, which has seen some challenges recently, is currently beginning to show signs of improvement. Page 14 summarizes the balance sheet changes I just shared with you and also shows our estimated capital that remain very strong. Speaker 300:11:30We expect to report a 13.18 percent CET1 capital ratio and an 11 basis point improvement on our TCE to tangible asset ratio, which will be 8.37%. Finally, I will cover our outlook for the second half of the year. We'll stay focused on responsible and profitable loan growth in the commercial space, specifically CMI lending. We anticipate low single digit loan growth. We expect deposits to remain largely flat and we will manage our deposit costs while balancing client expectations and market pressures. Speaker 300:12:03That combined with disciplined loan pricing will allow for modest expansion of the net interest margin. We expect modest growth of 0% to 2% in non interest income and we remain focused on keeping expenses flat. This will have a positive impact on our efficiency ratio. Both our tax rate and net charge offs are expected to normalize closer to Q1 2024 though. On behalf of the entire leadership team and Board of Directors, thank you for joining us this morning. Speaker 300:12:28At this time, I'll turn the call over to Desiree, our operator, who will provide live question and answers. Thank you. Operator00:12:37Thank you. We will now begin the question and answer session. Your first question comes from the line of Tim Switzer with KBW. Your line is open. Speaker 400:13:24Hey, good morning. Thank you for taking my questions. We really appreciate you guys doing the conference call and the updated presentation and guidance. It's great. Speaker 300:13:34Thank you, Tim. Nice to hear from you this morning. Speaker 400:13:39My first question is on the timing and impact of the securities restructuring. It seems like from the presentation, it maybe had up to a 13 basis point impact on the margin this quarter. Speaker 300:13:55Could you Speaker 400:13:55guys maybe provide some details on the timing of it over the course of the quarter? And then what's the impact we should expect in Q3? Speaker 300:14:06Sure. We started the restructuring in the middle towards the end of the quarter. Most of the sales were late May early June. We finished all of the selling activity towards the end of June. We have a little bit more about $20,000,000 give or take to redeploy into some asset classes that have a little less supply in the market. Speaker 300:14:33So that was the timing. So we will get a full quarter's benefit next year and we would expect that to be incremental 4 to 5 basis points. Speaker 400:14:44An incremental 4 to 5 basis points in Speaker 300:14:46Q3? Correct, on the investment portfolio. Speaker 400:14:51Okay. And that guide Speaker 300:14:549 total basis points for the margin. Speaker 400:15:00Okay. And should we assume some incremental NIM expansion on like a core basis on top of that in Q3 and Q4? Or is that going to be the primary driver? Speaker 300:15:14We continue to focus on our ability to price in this market. So I think there is some opportunity for some additional core margin growth based on how we handle deposit pricing opportunities as well as loan volumes in the quarter. Speaker 400:15:35Okay, great. And then if Speaker 500:15:37I could ask Speaker 400:15:39a follow-up and kind of clarifying exactly what's intended in the guidance. On the non interest income and expense side, you're guiding the low single digit growth off of the adjusted base per quarter. Do we take like the average in the first half of the year and just add low single digit growth on top of that or is it low single digit growth in Q3 relative to Q2 and then low single digit growth in Q4 relative to Q3? Speaker 300:16:08I think it's low single digit growth on the adjusted Q2 numbers. And I wouldn't necessarily say that it's 2% per quarter, it's 2% over the course of the year. Speaker 400:16:20Got you. Okay, that's very clear. I'll get back in the queue. Thank you. Speaker 300:16:26Okay, thank you. Operator00:16:31Your next question comes from the line of Daniel Di Maio with Raymond James. Your line is open. Speaker 600:16:40Hey, good morning guys. This is Tim De Lacy filling in for Danny. I'll echo the comments. Thank you for hosting the call and taking my questions this morning. First off, yes, thank you. Speaker 600:16:51First quarter in a while here where commercial growth was not very strong and you alluded to the comment on Canadian loan yields advantageous for you. Can you talk about if that reflects maybe a change in the competitive dynamics with potential entrants in the markets? And then perhaps a follow-up, can you talk to how current pipelines are comparatively to Speaker 300:17:10the last few quarters in that commercial portfolio? Thanks. Yes. I wouldn't say it's due to higher levels of competition. I think it is due to both credit discipline and pricing discipline as we look at opportunities. Speaker 300:17:26I will say we did have some higher levels of runoff in our portfolio than we were expecting. So that put some downward pressure on the overall balance growth for the quarter. We wouldn't expect that level of payoffs to continue. As for our pipelines, we are seeing pipelines that are similar this quarter to last quarter and we wouldn't expect to have continued reductions in loan balances across the portfolios because again we're expecting that runoff to not be as big of an certain cases, it was corporate transactions and things that just created some earlier than anticipated pay downs. Speaker 600:18:11Great. I appreciate that color there. Then maybe switching over to credit, cost did remain over low for the quarter. I did see the non accruals pick up in the commercial and you did specifically mention that one single credit. Is there any detail that you can provide on that from an industry vertical and then maybe the trends you're seeing overall in that portfolio? Speaker 300:18:32Yes. I mean, I don't think that we're getting into that level of disclosure on this call. I would just say, as we stated in our earlier comments, some of the healthcare portfolio has shown some signs of stress, but we believe that, that is getting better or at least normalizing. And we did guide to a more normalized overall provision level. So I think over the cycle, we would say overall charge off number would be 15 to 20 basis points. Speaker 300:18:57I don't know that we'll get there next quarter, but you should see that credit normalization over time. Speaker 600:19:06Okay, great. That's all that I had today. Thanks for taking my questions. Speaker 300:19:11Okay, you're welcome. Operator00:19:16Next question comes from the line of Frank Schiraldi with Piper Sandler. Your line is open. Speaker 700:19:23Good morning. Speaker 300:19:25Good morning. Speaker 700:19:26Just first on expenses, just want to make sure I heard you correctly. So when we're looking at the guidance, you talked about low single digit growth. So that's low single digit growth in the back half of the year annualized off of normalized 2Q numbers? Is Speaker 100:19:44that Speaker 700:19:45just saying it a different way, is that the right way to think about it? Speaker 300:19:48I think last quarter we talked about a $90,000,000 per quarter expense number. I still think that's fairly good. So depending on how you look at second quarter, again, we're looking forward saying it's going to be around $90,000,000 give or take 2% of that. Again, I don't think it sustained expense growth. We continue to focus on expenses, but there's a lot of uncertainty. Speaker 300:20:13So we continue to look for opportunities to drive overall profitability. But again, on the conservative side, we're at that $90,000,000 plus or minus 2% over the course of the year and the quarter. Got you. Okay. Speaker 700:20:29And then just switching gears as a follow-up, just the macro picture seems to have improved a bit, certainly at least stabilized and bank stocks certainly reacted positively over the last month or so. So just wondering your thoughts if they your appetite has changed at all for M and A, your updated thoughts there on opportunities in the near term? Speaker 200:20:57Hey, Frank, it's Lou. Thanks for the question. Really, I think with the deployment of our capital strategy, it continues to be 1, protect and deliver on the dividend. Secondly, we are focused on organic growth and optimizing and transitioning the firm over time, which is our stated goal. And then certainly, thirdly, acquisitions. Speaker 200:21:27We have a strategy, conversations are picking up whether that means expanding our geography into higher growth markets, whether it's acquiring an institution that brings businesses that we otherwise don't have or whether it's a deposit play or really a combination of all of that. So we are actively having conversations. We're interested in growing organically and inorganically. And then of course, lastly would be any buybacks as a result of our capital position. So, yes, we do see the market clearing. Speaker 200:22:03There are more conversations going on and we are interested, but we're going to be pretty selective. We want to make sure that strategically it propels us to where we want to go. Speaker 700:22:17And then just in terms of geography, would it be if there is some expansion, would you still expect that to be contiguous expansion? And any thoughts on most attractive geographies as you look out at potential for M and A? Speaker 200:22:36Yes. I mean, we certainly would consider end market as well. We think it's a Speaker 100:22:41little bit lower risk. Speaker 200:22:42It's a higher execution, but certainly we'd like to grow as I said in some different markets that provide more opportunity for the Indiana, specifically the Indianapolis area would be a focus. And we are focused primarily I really don't see us going outside of contiguous footprint. So the 4 states we're in, think about the contiguous states around those states. So as you know, we can only evaluate the opportunities that are presented to us. So but we will be fairly selective in deploying capital. Speaker 700:23:32Great. Thanks for the color. Speaker 200:23:35Thank you. Operator00:23:39Next question comes from the line of Daniel Cardenas with Jan. Your line is open. Speaker 400:23:45Hey, good morning guys. Speaker 800:23:50Just some follow-up on the margin. What kind of rate cut assumptions are baked, if any, are baked into your margin guidance? Speaker 300:24:00Yes. Last time we looked at it, we were looking at about 3 cuts over the course of the year for the final year as part of our margin guidance. Again, I think we're pretty well positioned to handle if it comes out to be 2 or something like that. But we definitely were providing guidance given the more current Fed stance. Speaker 800:24:27Okay. And then so for every 25 basis points, what kind of cuts, what kind of impact does that have on the margin? Speaker 300:24:38I might turn that over to Jeff to answer more specifically. Speaker 100:24:41Yes. I think because of where come in, so we're kind of assuming there's September and then late in the year. So certainly the last 2 don't have that much impact. We do think our we'll be able to bring deposit prices down in line with any kind of cuts to kind of help buffer margin and if anything, continue keep increasing margin as our guidance suggests. So really gets to that deposit our ability to break down deposit costs. Speaker 100:25:09And we just think that given the competition or what the competition is facing is margin compression that they'll be eager to bring costs down as well. So we think there Speaker 300:25:19will be some ability to do that. Speaker 800:25:21Okay, great. Thank you. And then what does your CRE ratio concentration ratio look like at quarter Speaker 100:25:32end? Speaker 300:25:36Hold that number just a second. I think that was on the earnings deck on the loan section, which I recall. Page 13. What's the Page 13? That just shows the overall concentration you're looking for a percent of the portfolio for CRE, so it's $3,000,000,000 on the other. Speaker 800:26:11I'm just kind of looking for the regulatory number that everybody is looking at right now. Speaker 300:26:17All right. Yes. Give us one second. We'll pull that for you. We'll come back. Speaker 300:26:29Do you have another question before that one and we can come back and clean that up? Speaker 800:26:34Yes, sure. No problem. And then on the operating expense side, thanks for the color there as well. I know there's been some branch rationalization exercises that you guys have gone through. Is that pretty much done or could we maybe expect to see a few more branch closures here in the second half of the year? Speaker 200:27:00Yes. Hi, this is Lou. We don't anticipate really any further branch closures. I mean, we are looking at a multiyear plan for consumer both investing in the franchise as well as there may be some 2 for ones, some consolidation or and we're looking at really a branch of the future modernization plan, but nothing meaningful. We think we've really exhausted the branch closure piece for the organization. Speaker 300:27:39All right. So then Speaker 800:27:39as I think about expenses then, are technology investments really going to be the biggest growth driver here on a go forward basis? Speaker 300:27:51No. I mean we've got if you look at our commercial strategy, we've been building up multiple verticals as Lou mentioned in his originating comments. So those have not even been online for a full year yet. So we can expect as those verticals mature, we would expect to get more production out of them for full year 2025 as opposed to what they did for a partial year in 2024. And then as we have brought Eurex onto the scene to run consumer, I also think we'll see sort of a different level of execution within our branches, to drive some organic growth that way. Speaker 300:28:29So I think we've got levers for growth right now that we're going to focus on over the course of the next year and we should be able to derive growth just from sort of those types of blocking and tackling activities as well as having full years across these commercial verticals. Speaker 200:28:46I would add also specifically around your expense question. We have invested a lot in our IT stack. We have invested in our risk management and our commercial credit acumen at the organization. So we are building the firm both from a regulatory and from an operating platform to be able to scale the organization and sort of remix the balance sheet as we described and grow organically. So that run rate that you see has a lot of investment already embedded in it. Speaker 800:29:25Okay, great. Thanks. That's all I have for right now. Speaker 300:29:29The CRE concentration is 168%. Operator00:29:36Next question comes from the line of David Maroknik with Stephens. Your line is open. Speaker 500:29:43Hey, good morning. This is David on for Matt Breeze. Speaker 300:29:47Good morning, David. Speaker 500:29:49I was wondering if we could start, if you guys could talk on the loan book just in terms of you guys know what percent of the book is pure floating rate as in will reprice within 3 months? And then just maybe what those are tied to? Speaker 300:30:04Yes, absolutely. On the commercial book, we would have 53% of that would be floating. The overall book, it would be 27% would be floating. Speaker 500:30:22Great. And then is it safe to assume those are tied to prime or sulfur, maybe a 200 or 250 spread? Speaker 300:30:30Yes. I think that's a good assumption. Speaker 500:30:34Great. And then by chance, do you have the yield on maybe the difference of the yield of the floating book and the yield on the fixed rate book? Speaker 300:30:44If we don't, we can get back to you. Yes, we'll have to get back follow-up with that. I mean, we obviously provide that. No worries. And then Speaker 500:30:55I guess just switching over to deposits, sorry if I missed it. You guys talked about maybe your expectations on where you think DDAs will kind of settle out? And maybe in terms are you being more selective now, and kind of looking at running off higher cost deposits, as you guys kind of mentioned looking at funding costs? Speaker 300:31:13Yes. I'm going to come back and answer your earlier question. I think we do have that stick with us. I would tell you, as far as the deposit goes, right, we plan to look at our CD book as it matures and take advantage of keeping the maturities on that short and providing an opportunity for reprice as rates would decline in the market. And I would also say that, we continue to look at our money market book, and that would have a relatively high beta on the way down as would some of our business deposits. Speaker 300:31:47So again, I think where we have the opportunity to price deposits down, we'll take advantage of it. But we're also operating in a competitive market and we want to maintain our overall deposit levels and potentially grow them. So that would be hard today. I think the earlier question you asked is what our floating rate yield was in the aggregate and it's 7.95%. Speaker 500:32:13Great. I appreciate that. And then last would just be if there's any kind of color you can give, maybe thoughts on the provision going forward and will the reserve maybe keep ticking higher if you see any pressure on the C and I space? Speaker 300:32:28Yes. I mean, again, you would expect the provision to go up if our charge offs go up in order to maintain our coverage ratio. So there is the potential for that. And then other than that, it's a diesel situation, right, where it's kind of depend on economic outlook overall. I wouldn't expect our provision is necessarily going to increase because we're putting on riskier credit. Speaker 300:32:52So I think the book we expect to maintain the level of credit risk that we take today, but it's going to be tied to both economic changes as well as sort of what happens on the charge off side. Speaker 500:33:05Got it. I appreciate it. Those are all my questions. Thanks for the time. Speaker 300:33:09Okay. Thank Operator00:33:24And we have another question came in, comes from the line of Manuel Neves with D. A. Davidson. Your line is open. Speaker 100:33:33Hey, good morning. Speaker 300:33:35Hey, so on the loan growth, I appreciate some Speaker 900:33:41of the commentary. Do you have the actual runoff that was this quarter that you had to fight against on the commercial side? It's like a balanced number. Speaker 300:33:53Mean, I would just say it was I don't know that we're going to get into all of those details, but it was not insignificant. Let me give you a general direction. Yes, I mean, it was $400,000,000 to $600,000,000 Okay. And then if Speaker 900:34:17you talked about pipelines being very similar, which are on the commercial side have been strong for a while. What specific lines are doing best? Is there any that you're starting to move away from because you are opening up a number of different business lines? Just wondering if you're at the point you're winnowing any of them or are all still performing excellently and still all ramping up? Speaker 200:34:43Yes, Mel. This is Lou. How are you doing? Speaker 300:34:47Good morning, Lou. Speaker 200:34:48Yes, thanks for the question. So some of them are retrying quite nicely. Some will be more strategic than others. In addition to the verticals that we described, we are heading into strategic planning and we'll revisit we'll be revisiting our lower middle market slash upper end business banking model inside our footprint as well, what that looks like and what our go to market strategy is. So that'll see further development. Speaker 200:35:18Some of those businesses come with fees and deposits are more strategic and some are just asset generation. So as we go through strategic planning, as the market evolves and as we see how those mature, that will dictate our course of action as far as how we optimize. What we're looking to do is optimize performance as well as give ourselves enough latitude and levers to be able to transform the balance sheet as we've described previously. I hope that gives you a little color on that. Speaker 100:35:55No, that I do appreciate that. Speaker 900:35:57And any other lines that you're calling out? Oh, go ahead. I'm sorry. No, I was just going to say, we Speaker 200:36:02are seeing really good success in our sponsored finance group and our SBA group that are contributing. And of course, equipment finance has been around. So it's been gestating for a while. And so we notwithstanding the market for that given where those credits get put and where they lie on the curve is a little bit difficult, but we're seeing success there as well. So we're really happy with Jay's leadership and he's been able to procure a great deal of talent from his former employers across his career to be able to stand those up and they're relatively efficient. Speaker 200:36:45And so we're really pleased with that. Speaker 900:36:50I appreciate the commentary. Do you have any insight on new loan yields in the pipeline on the commercial side? Speaker 300:37:01We've been targeting 7.5 and better. So I would give you generic guidance around that level. Of course, each deal is unique and priced sort of individually. But I think generally, if you think about that being a decent level to count on, obviously higher is more attractive to us, but it's all risk based pricing. All right. Speaker 300:37:26Thank you. Thanks guys. I'll step back into the queue. Speaker 200:37:30Thanks, Sam. Operator00:37:34There are no further questions at this time. Mr. Doug Shosser, I turn the call back over to you. Speaker 100:37:41Okay. We would like to thank all Speaker 300:37:42of you for taking some time to join us this morning. And all of the information that was discussed is available on our Investor Relations website. Thank you. We'll talk again next quarter. Operator00:37:55Ladies and gentlemen, this concludes today's conference call. You may now disconnect.Read morePowered by