Release Date: January 28, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Earnings and profitability improved due to a larger earning asset base, increased net interest income, and decreased non-interest expense.
- Net interest margin remained relatively steady at 3.36%, supported by decreased funding costs.
- Strong growth in deposits, with balances increasing by about $170 million in the second quarter.
- Tangible book value per share increased by 12% over the last 12 months.
- Asset quality remained strong with a decrease in adversely classified loans and stable delinquent loans.
Negative Points
- Non-performing loan balances increased slightly, indicating potential future credit quality concerns.
- Non-interest income decreased by 4.3% due to reduced gain on sale of loans and lower interchange income.
- Provision for credit losses was $932,000, indicating ongoing credit risk management challenges.
- The effective tax rate increased to 23.7% due to adjustments related to completed merger activity.
- Potential for modest increases in problem loans and net charge-offs due to sustained higher interest rates.
Q & A Highlights
Q: Can you provide insights on deposit competition in your operating markets, particularly between rural and metro areas?
A: Matthew Funke, President, Chief Administrative Officer, Director, noted that there isn't a significant difference between rural and metro markets regarding deposit competition. Overall, there's been a decreased fight for funds compared to the end of 2023, although some outliers still offer high rates, which can drive activity.
Q: Could you elaborate on the decision to purchase securities during the December quarter and the types of securities acquired?
A: Stefan Chkautovich, Chief Financial Officer & Executive Vice President, explained that they took advantage of higher market rates to purchase about $50 million in CDs, funded with brokered CDs. The purchases were a mix of available for sale, variable and fixed rate, mostly CMOs and mortgage-backed securities.
Q: What should we expect regarding expenses over the next few quarters?
A: Matthew Funke mentioned that there are no significant changes expected. Seasonal compensation adjustments will occur in March, and data connectivity costs have been reduced. A new branch is coming, but it will be gradual, with no major impact on expenses.
Q: How do you anticipate loan growth to progress, considering potential agricultural payoffs and the current pipeline?
A: Greg Steffens, Chairman, expects stable to slightly higher loan balances, with growth potentially reaching mid to high single digits by the fiscal year's end, depending on agricultural planting conditions and other factors.
Q: What are your expectations for the net interest margin (NIM) in the coming quarters?
A: Stefan Chkautovich indicated that liquidity is a significant factor affecting NIM. Depending on the outflows of seasonal deposits, there might be pressure on NIM, but as liquidity rightsizes, there could be an improvement.
Q: Given the current CRE concentration, what is your comfort level, and how do you expect it to trend?
A: Greg Steffens stated that their internal limit for CRE concentration is 375%, and they aim to maintain it between 300% and 325%. They are comfortable with the current level and expect it to fluctuate within this range.
Q: Can you provide more details on the construction loan growth and market activity?
A: Greg Steffens mentioned that the growth is due to ongoing projects, with a stable pipeline. The pace of growth may slow as projects complete, but they have seen over $100 million in construction land development growth since June 30th.
Q: How do you view the potential for surpassing mid-single-digit loan growth this fiscal year?
A: Greg Steffens believes it's possible, depending on agricultural planting conditions and other factors. If conditions are favorable, they could achieve mid to higher single-digit growth.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
