Beacon Financial (NYSE:BBT) Q1 2026 Earnings Call

0:00 Thank you for standing by. My name is Tina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Beacon Financial Corporation First Quarter twenty twenty six Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. It is now my pleasure to turn the call over to Dario Hernandez, Corporate Counsel. You may begin. Thank you, Tina, and good afternoon, everyone. Yesterday, we issued our earnings release and presentation, which is available on the Investor Relations page of our website, beaconfinancialcorporation.com, and has been filed with the SEC.

0:48 This afternoon's call will be hosted by Paul Perrault and Karl Carlson. During the question and answer session, they will also be joined by Mark Micklejohn, the Chief Credit Officer. This call may contain forward looking statements with respect to the financial condition, results of operations and business of Beacon Financial Corporation. Please refer to Page two of our earnings presentation for our forward looking statement disclosure. Also, refer to our other filings with the Securities and Exchange Commission, which contain risk factors that could cause actual results to differ materially from these forward looking statements. Any references made during this presentation to non GAAP measures are only made to assist you in understanding Beacon Financial's results and performance trends and should not be relied on as financial measures of actual results or future predictions.

1:39 For a comparison and reconciliation to GAAP earnings, please see our earnings release. At this time, I'm pleased to introduce Beacon Financial's President and Chief Executive Officer, Paul Perrault. Thanks, Terriel, and good afternoon, everyone, and thank you for joining us for our first quarter earnings call. I'm pleased to share that we achieved a major milestone in our integration process in the first quarter with the successful completion of a core systems conversion in mid February. I would like to recognize the hard work and dedication of our teams in executing on this very critical step and just as importantly, their efforts to achieve strong client retention throughout that process. That outcome reflects months of preparation, disciplined execution and a continued focus on serving clients during a period of significant change.

2:31 From a financial perspective, I am very disappointed with our first quarter results. Loan growth and the margin fell far short of our expectations and reflects some near term pressures, uncertainty in the economic environment and the tail end of merger activity. GAAP earnings for the first quarter were $0.55 per share and operating earnings were $0.70 per share excluding merger related charges. While operating results were below both of our prior quarter and our expectations, the core returns remained good with operating ROA just over 1% and operating return on tangible common equity of 11.25%. As we discussed coming out of the fourth quarter, the operating environment during the first quarter remained quite challenging.

3:23 Balance sheet contraction, margin pressure from declining rates and lower fee income all weighed on our results. Importantly, several of these headwinds are not structural in nature. They were influenced by seasonal dynamics, timing and the uncertainty created in economic environment from persistent inflation, extremely thin pricing, global events and the prospect of rent control legislation in our major markets. Collectively, these headwinds impacted loan volumes. While the pipelines remain strong, clients are cautious yet optimistic as the economic environment remains quite fluid. On the positive side, we continue to make progress on the strategic priorities we laid out at the time of the merger.

4:11 Expense discipline remains strong. Core funding costs improved sequentially. Capital levels are robust with CET1 at 11% and tangible common equity at just over 9%. And while credit metrics moved modestly higher during the quarter, they remain manageable and well reserved reflecting proactive credit management in a still uncertain environment. Now that the systems conversion is behind us and merger charges are largely complete, our focus shifts squarely to execution, stabilizing the balance sheet, restoring growth momentum and fully capturing the revenue and efficiency benefits we outlined when we announced the merger. We believe the pieces are now in place to close the gap between current performance and our planned runway as we move through the remainder of the year.

5:04 Before I turn it over to Carl, I'll note that our Board approved a quarterly dividend of $0.03 $2.02 $5 per share consistent with our commitment to returning capital to stockholders. In addition, the Board authorized a $50,000,000 stock repurchase program subject to regulatory approval, reflecting our confidence in the franchise, our capital strength and long term value creation opportunity that we see ahead. I will now turn it over to Carl to walk us through the financial results in some more detail. Carl? Thank you, Paul. I'll begin with a high level summary of the quarter and then walk through the income statement, balance sheet and credit trends in more detail. First quarter operating results declined sequentially, driven primarily by balance sheet contraction, modest net interest margin pressure tied to the rate environment and lower non interest income.

5:57 GAAP earnings totaled $46,200,000 or $0.55 per share. Operating earnings were $58,400,000 or $0.70 per share, which excludes $13,000,000 of one time pretax merger related charges. Operating return metrics remained healthy. Operating ROA was 1.01% and operating return on tangible common equity was 11.24 percent, reflecting continued expense discipline and solid core profitability even with lower revenues. Turning to the income statement in more detail. Net interest income was $190,800,000 down $8,900,000 or 4% from the fourth quarter. This decline was driven by lower average earning assets and a modest reduction in asset yields as rates moved lower in late twenty twenty five.

6:49 The net interest margin declined by four basis points to 3.78%. Importantly, funding costs improved sequentially. Interest bearing deposit costs declined 17 basis points, and we expect continued improvement as pricing actions taken continue to flow through. As balance sheet growth resumes, we believe this positions the margin more favorably looking ahead. Non interest income totaled $23,900,000 down $2,000,000 or 8% from the prior quarter. The decline was primarily driven by lower deposit fees and reduced gains on loan sales as SBA activity moderated from a very strong fourth quarter. These declines were partially offset by higher mark to market income on derivatives, tax credit investment income and relatively stable wealth management fees.

7:39 On the expense side, operating costs remained well controlled. Total non interest expense was essentially flat compared to the fourth quarter, became nearly $1,000,000 below budget. This performance reflects disciplined cost management and continued execution against merger synergies, offset modestly by seasonal increases in occupancy costs and a true up in FDIC insurance. Excluding merger charges, the operating efficiency ratio for the quarter was 59.5%, underscoring the underlying expense discipline in the business. Now turning to the balance sheet. Total assets declined $992,000,000 to $22,200,000,000 driven primarily by lower cash balances associated with point in time payroll fulfillment deposits. Loans declined approximately 1%, reflecting continued runoff in the commercial real estate and consumer portfolios, partially offset by growth in core commercial lending.

8:35 Loan originations and draws were $734,000,000 with a weighted average coupon of six twenty eight basis points. 67% of originations were floating rate. Deposits declined 6% driven largely by payroll deposits and brokered balances. Excluding payroll and brokered deposits, core customer deposits declined approximately 2%, reflecting typical seasonal outflows related to tax payments and commercial activity. Turning to credit. Credit metrics deteriorated modestly during the quarter. Non performing loans increased to 83 basis points of total loans, driven primarily by migration of Boston office exposure and several rent controlled multifamily properties in New York City.

9:23 Net charge offs totaled $13,600,000 or 30 basis points annualized, reflecting resolutions on a small number of larger credits. The allowance for loan losses closed the quarter at $244,000,000 representing 1.36% of loans. Given portfolio composition and current risk trends, we believe reserve coverage remains appropriate. Provision expense declined modestly from the prior quarter and we continue to expect provisioning to be less than net charge offs as we work through existing criticized credits. Capital generation remains a clear strength. CET1 ended the quarter at 11%, tangible common equity 9.1% and tangible book value increased zero one six dollars to $23.48 per share.

10:14 Importantly, with the core systems conversions completed in early February, we have now recognized the final significant merger charges. Total merger costs were in line with expectations and management is confident the announced cost synergies of the merger have been realized. Looking ahead, we anticipate improving earnings momentum now that the merger costs and system conversions are completed and announced expense synergies have been realized. We expect loan growth to remain soft in the second quarter then strengthen throughout the remainder of the year. We expect the margin to stabilize around three eighty basis points and gradually improve. While near term macro and rate uncertainties remain, we believe the franchise is well positioned to improve performance and close the gap to our targeted run rate over the coming quarters.

11:00 That concludes my prepared remarks. Back to you Paul. Thank you, Carl. We will now be joined by Mark McEljohn and Michael McFurdy and we'll open it up for questions. And our first question comes from the line of Justin Crowley with Piper Sandler. Please go ahead. Hey, good afternoon everyone. Hi Justin. Just wanted to start out on the margin, in the outlook there. Can you just, Carl, maybe provide a little more detail on the reset on accretion expectations? Just what changed from the original assumptions that went into that and what got you from $15,000,000 down to that $12,000,000 number just on a go forward basis?

11:51 Sure. Thanks for the question. And so when we first estimated the purchase accounting, we tried to take out the impact of prepayments and things of that nature. And we're estimating it around $15,000,000 A lot of the schedules suggested that. We've got these all set up in our systems to track as loans pay down, and it's coming in a little bit lower. And we're not seeing any kind of prepayment activity at this point that's meaningful to the amounts. And so we're it's coming for this quarter, came in at $12,100,000 I believe it was over $13,000,000 last quarter. And so I'm feeling more confident that the $12,000,000 range is something now that the system conversions have been taking place. We're all in the we had two general ledger conversions and all the systems conversions onto a new system. I feel more confident that this will be the number going forward.

12:54 Okay, understood. And just I guess some of the moving pieces there. If I look at the average balance sheet and just loan yields that they did for the quarter, 596 was down over 30 basis points and you pointed it out, but without a huge, huge swing in accretion income, and I know we had lower rates filtering through, but it seemed like a big move. I was just curious, if there's anything else underneath the surface there, that just drove that yield down for the quarter? So as you mentioned, the purchase accounting did come down in the quarter from 13,800,000 to 12,200,000 And so that's about that was $1,600,000 of the impact, which was about seven basis points. On the other side, it's just the movements last quarter or the fourth quarter in rates 75 basis points basically moved by the Fed.

13:48 We saw that throughout the quarter really impact Q1 as you see the full impact in the quarter. And you still have some loans that are reprice every three months and things of that nature coming in and repricing down as well. So I'd say we're not particularly surprised by where the yields came in when you exclude the purchase accounting impact. What didn't help us here is we expect a little bit more loan growth and at more current yields. And so we're originating loans in the 6.20s right now. And so that you're not getting that lift from new originations as much.

14:37 Okay. And then just one other one sticking with the margin. Could you just flesh out a little more just your thoughts on deposit costs from here? We've heard from a lot of your competitors that we're at a point where there could now perhaps be some upward pressure on funding just given competition and with rate cuts off the table for the time being. It sounds like you instead there's some more room to go lower there. So just was wondering what factored into that and just what repricing may be left, on the book? Sure. So again, we're going into a systems conversion. And we're probably lagging our deposit costs on moving down our non maturity deposit costs a bit. So I think we'll see the benefits of that more so in the second quarter and into the third quarter.

15:29 And so that's where we are on that. We probably could have done a little bit more, but we're going into assistance conversion. It didn't make a lot of sense to be moving rates at that point. And so on the non maturity deposits, we see opportunity there. The CD book is roughly $1.4 $1,500,000,000 that we'll be repricing. I don't see tremendous opportunity there. I think things that are rolling off, the rates that they're rolling off, they're kind of there'll be some opportunity, ten, twenty, maybe even 30 basis points there. But the competition is pretty tough. So we've got to be competitive in the market. And on the rest of the funding book, the Federal Home Loan Bank advances and brokered deposits, we're basically at market at this point, not a benefit lot on that side. Things are kind of rolling into current at rates that are our current rates now.

16:25 The margin gain is going to be with better loan production in that environment. That's the better lever that I can see as I look a few months down the road. Okay, great. I will leave it there. I appreciate it. Yes. Okay. Your next question comes from the line of David Bishop with Hub Group. Please go ahead. Yes, good afternoon. Hi, David. Quick question, Paul, Karl, in terms of the investor theory, I appreciate the slide at the back there. Looks like a slug of that is coming up for maturing or repricing. Just curious in terms of the risk you point out there, is that more of a debt service coverage risk or refinance risk or both? I'm just curious where you I see maybe some didn't catch the preface, David. I didn't I couldn't clearly hear what the preface was. What is it that you're asking about?

17:19 On the investors CRE portfolio that's coming up for maturity here in the next couple of quarters, I think in the slide deck you mentioned some risk factors there. Just curious if that's more pertinent in terms of debt service coverage risk, refinance risk or a combination of both where you see the risk in that book? Thanks. Mark will answer that. Yes. So I'll take that. We have the maturity and refinance. There's a fair amount coming up over the next four quarters. As we look forward through it, I was taking a look at it the other day and there's one substandard loan in that portfolio. It's one that is a property that's being redeveloped. We expect that to work itself out and there are two smaller criticized loans.

18:11 The rest of that is a pass book. So I think we feel pretty good both with maturity and repricing, as we move through those maturities, whether they're hard maturities or pricing maturities. Got it. And then I noticed just the linked quarter trends, the loans ninety day past due seem to decline the same amount. Non accruals went up. Was it the right way to read into it that they just sort of migrated to non accrual from past due? Yes, think that's fair to say. Got it. Then just one follow-up in terms of Paul, the Board approval for the buyback there. Any color or indication when you might be getting regulatory approval? I don't know if there's any sort of a timeframe you feel comfortable. Well, there is a little timeframe. I never try to predict exactly what the Federal Reserve is going to do, but we expect it to happen reasonably quickly within the month.

19:18 Got it. Thank you. I'm sorry. Your next question comes from the line of Karl Shepherd with RBC Capital Markets. Please go ahead. Hey, good afternoon guys. Hi Karl. Just maybe to get ahead of ourselves a little bit on the regulatory approval of the buyback, but maybe just high level thoughts. How do you want us to think about what could go into your decision making process, if you want to go ahead and use it? Know you have the CRE issue or concentration, but you also have lots of capital. Maybe can you frame up a little bit? We're actually pretty far ahead on the real estate piece for the leverage of concentration.

20:10 So we've created an opportunity to do these kinds of things with that. Go ahead, Karl. Any other factors? No. I think we still remain committed to hit that 300%. The Board is certainly behind that and wants us to hit that and stay on target. But as capital continues to grow and the size of the balance sheet, I think we're in good shape to be able to continue to move forward with at least this initial authorization. Okay. So let me just try it one more time I guess. If you feel like you're on pace to get under the 300,000,000 by the end of twenty twenty seven, you're comfortable using a little bit of buyback. Is that a fair way to think about it?

20:58 Yes. Particularly when you couple it with the current shrinking of the balance sheet with originations being off way off from what we're used to and payoffs being still coming in. So when you look at the current environment, the idea of a buyback seems to fit in very nicely. Great. I appreciate that. I know it's a topic for investors. Then I guess on a follow-up question here for you guys. Both of you used the term close the gap. I was wondering if you can help us understand what gives you the confidence that some of the macro or environmental headwinds you guys saw this quarter are starting to fade and then what as you get one quarter past the conversion, what kind of tailwinds do you see at the core then from not having to spend the time and energy and focus on getting that right?

21:52 Well, I expect people to move from making sure we have customer retention and problem solving. You always have those things associated with a massive conversion like this. And we're at the point now where I think of it as, like you built a new home where you move in as a punch list of things that need to get done and that's kind of where we are. So I'm expecting that our bankers and support personnel will now continue to shift toward loan production and fee income production, which will sort of get us on the right track to where we had hoped we would be. Carl, do want to add anything? No, think and just the uncertainty in the market. So we feel good about our loan pipelines. We feel good about what's going on out there.

22:41 But we know they could be better. And there's just a lot of uncertainty in the market when late February, and then we've got the geopolitical things that are going on. But then also with we've seen interest rates increase, particularly the yield curve statement, which sets people back even if it's momentarily. And we also have the multifamily proposals for rent control in the Boston market, which has a lot of folks putting things on a wait and see mode. And in Rhode Island. And Rhode Island was passed in Providence. So there's a number of things that we think will get resolved sooner rather than later or hope to get resolved sooner rather than later that takes some of that uncertainty off the table and move things forward.

23:34 Okay. Thank you both. Okay, Carl. Your next question comes from the line of Steve Moss with Raymond James. Please go ahead. Good afternoon. Hey, Paul. Carl, maybe just starting for you on, I'll just circling back to the margin here. In terms of just thinking about the day count here, you do have, it looks like five, six basis points drag or increased potential the upcoming quarter on the margin. Just curious like maybe if you could be a little bit over the three number for the second quarter here? Anything is possible. Further to the third, so that way. So what yes, the counts always come into play here in a number of as far as I'm less concerned about the margin number and more concerned with the actual net interest income that we earn.

24:34 And just to give you a little sense around that, payroll deposits are something that drags us on the margin. So we have average payroll deposits and that are substantial. And in the first quarter, they were about $1,200,000,000 in average balances. Now they're highly volatile during the week. And so depending on what day of the week we close on for the quarter, that's kind of the ending balance of those balances. But that's $1,200,000,000 and usually the first quarter and trust me, I'm just learning all this. Usually the first quarter is the highest quarter for average balances. And that's because of taxes and other things that go through that.

25:20 And that's just follow and it's a little bit more than it was $200,000,000 more than the fourth quarter. And we expect that to drop. So the average balance in Q2 will be lower. And it will be lower still, I think, in Q3 and then bounce back in Q4. So but that's those balances, we have a very, very little spread on, right? That's mostly a fee income business. And the margins around that may be around 35, 40 basis points. And so that's something that we want to keep in mind that as those balances move, it could move the margin overall. So as Karl is learning about the payroll business, it's not because he's not doing his job, it's because it was a legacy Berkshire business that they have been in for some time.

26:15 But it is quite volatile. I look at it daily and it goes I think the lowest I've seen is about $600,000,000 in deposits to a little over $2,000,000,000 in deposits. So we don't employ it as we do our other sources of funding. But on the loan side, we do have a lot of so on the commercial side, you look at the CRE loans and the C and I loans, those are actual basis loans and the others are $3.60. And so we'll get a pickup. There's an extra day next quarter that we get. I'll let you guys figure out how you want to calculate the margin. I see it get calculated in lots of different ways.

27:04 100% on that. Okay. That's fair enough. And then I guess, the second thing here for me, just in terms of credit and the provision and charge off guidance. So provision to exceed charge off, kind of how are you thinking about the level of charge offs for the remainder of the year? So I think we're expecting that I think we provided some guidance on the provision. I think those are good numbers, probably trending a little bit towards the high end of that guidance. On charge offs, I expect to be I expect to exceed the provision. And that's as a result of the aggressive reserving that we have in place and the credit marks that we have in place.

27:54 As an example, we have about $80,000,000 on our substandard portfolio. And net of substandard, we're at about 91 basis points coverage. So I think what we'll be doing is those charge offs will effectively be funded out of that reserve. And so I expect provision will run lower than charge offs. Okay. So pretty substantial charge offs then as the year goes on? Yes. That's hard to say. It depends on how we resolve some of these loans. I'll say there'll be in excess of provision. Okay. Fair enough. And then just sticking with credit for a moment here in terms of the office loan that went to non accrual here in the multifamily, maybe just kind of color around the LTVs and kind of debt service coverage ratios for those properties and timing on resolution.

28:52 Yes. So I'll start with the larger loan, which is the office property. That is a Downtown Boston property. It's a larger loan. We have a participant in that deal. Our share of that deal is around $17,000,000 and change. There's about 50% occupancy, about a 0.7 debt service coverage. On that particular loan, we are working with the sponsor on a potential sale of that property. And between specific reserves and then customer reserves that we hold against the loan, we've got about 40% coverage on that loan. So I think we feel pretty good. Even though it's a somewhat new nonaccrual, I think we feel like we're in a pretty good place from a reserving perspective, and we'll be able to work with the borrower through that.

29:43 As far as the rent control, I just want to make a comment on New York rent control. I think this came up last quarter, but we only have seven rent control properties in New York. It's a total of $18,000,000 So that represents the entire portfolio. This was two particular loans. They are related to each other. They total $9,000,000 I don't have the statistics on those loans, loan to value debt service coverage. But again, I will say that we're about 40% coverage on a reserve basis, and we're potentially looking at selling either the notes or the loans near term. Okay, great. Appreciate that color there. Maybe just on the loan growth outlook for the second quarter and the pipeline here, kind of maybe wrestling a little bit with the flattish comment for the upcoming quarter.

30:42 Is it just maybe more CRE runoff at the end the day than you guys expected that kind of drives that versus the pipeline or are they sort of both equally driving maybe? It might be equal, but it's the distraction and it's the internal focus that everybody's had now for a number of months coupled with more prepayments than we expected coupled with customers and prospects aren't moving as quickly as we might have thought on purchases or activity that would cause loan drawdowns, if you will. And to get that cranking again, it's going to take a little while, but we're on it. I think it will happen. How quickly and how deeply, I would be speculating, but we're all knowing what we need to do to get there.

31:37 Okay, great. That's everything for me at the moment. Appreciate all the color. Thanks. That's fine. Our next question comes from the line of Laurie Hunsicker with Seaport Research. Please go ahead. Yes. Hi. Good afternoon. Hi, Laurie. Just wanted to stay with credit here. So just and I really appreciate the details on on slide 16. The 192,000,000 criticized office, how much of that is coming due this year and next year? You know, are there any lumps, any colors you can give us? Obviously, you you referenced, some maturing. I just didn't know the amount. Yeah. So that was, the answer would be the same. I'll go cover it again for you, Laurie, but the answer would be the the same as the previous.

32:31 Over next I have the next four quarters in front of me. And in terms of criticized and classified, the total is about $55,000,000 $20,000,000 of that is substandard. Again, I mentioned earlier, that's a property that is being redeveloped for a major retail tenant. That's a relatively new event, a new happening. So I think that's going to help us with some sort of a favorable resolution there. The other two loans are both special mention, and they have very strong sponsors. I don't expect any issues with those. One is $18,000,000 maturing in the third quarter and the other is $17,000,000 maturing in the first quarter of 27,000,000 And that represents the total of criticized or classified loans in office. Okay. And I'm sorry, just to clarify, the $18,000,000 and the $17,000,000 those are office?

33:29 Correct. Okay. Okay. Great. And how much of how much office charge offs were there this quarter? So it was I think it's in the deck, but there was a single charge off for just under $7,000,000 and that represented the resolution of a downtown office property that we've had in non accrual for some time. We took the charge off in the first quarter. That loan will actually resolve in the second quarter. The deal has been inked. We're just waiting for it to close. But we went ahead and took the charge on that. Okay. And I'm so sorry. What is the total balance of that loan?

34:15 23,000,000. 23,000,000. Okay. So great. So all of your CRE charge offs this quarter were office. Okay. And then It single was loan, Laurie, just to just to be clear. Was one single loan. One single loan. Right. Yeah. Okay. Great. And then your your C and I charge off is 6,600,000. I'm thinking most of that is is that the discontinued specialty vehicles or the Eastern Funding? Or can you help us think about what that is and what the non performers are on those Sure. Two Yes. So that was split pretty evenly between SBA and Eastern Funding. In the case of Eastern Funding, it was a charge down of a loan that's been a long term workout.

35:03 And in the case of the SBA, it was just an SBA charge off. In terms of the non performing balances, vehicle was at 3,900,000 macro lease is at $5,500,000 that's down pretty significantly from prior quarter. We did have a we had a resolution of an $11,000,000 loan. It was that Orangetheory franchise that we had talked about last quarter, I believe. So that was resolved itself and I expect we'll be back accruing within the current quarter. And I'm sorry. It is accruing already. It'll be upgraded within the current quarter.

35:49 And then you didn't ask, but Firestone is is a little under a million dollars. Oh, that's great. Okay. That's great. Okay. Great. And then just one last question for me. I guess, Karl, is to you. So your final onetime charges of $13,000,000 a little bit higher than the $10,000,000 you had expected. Can you just help us think about what were the differences there? Thanks so much. Sure. So on the compensation side, those numbers came in a little bit higher. Accounting and tax came in a little bit higher. And some of the contract terminations came in a little higher than I expected for the month for the quarter. But overall, we came in on top of what we originally announced of $93,000,000 That was our original estimate when we announced transaction. We came on basically right on top of that number in different buckets than we thought, but the IT folks did a great job of negotiating and executing on a lot of the contracts and the conversion costs, which helped pay for some of the things that went over. But at the end of the day, it came in right on top of the original $93,000,000 And merger charges are over now. They're done.

37:11 Basically, everybody knows that. We did a great job of getting around that and controlling that cost. And now if anything sneaks through, it's not going be a merger charge. It'll just go in the operating run rate. Perfect. Thanks so much. Okay, Laurie. Next question comes from the line of David Conrad with KBW. Please go ahead. Yes. Hey, good afternoon. I just want to circle back on the NIM a little bit because it's pretty important with what the stock is doing today. I just want to clarify the kind of language of the $580,000,000 stabilized NIM or the $380,000,000 sorry. Are you thinking about that for the second quarter and then build from there? Is $380,000,000 kind of the full 26,000,000 average NIM in your thoughts?

38:04 I really like the $5.80 you threw out there. Sorry about that. So we feel pretty good about the $3.80 for Q2 feel that we'll be building on that. Again, lot of this has to do with it's dependent on loan growth. That really drives a lot of this. I think the second quarter will be more about the funding side as well as loan growth. But I expect that we'll get the funding where it needs to be. The funding rate the rate's down to where they're supposed to be on some of our deposit products. Now, of course, everything changes in the market, but we've got a little bit of a steeper yield curve, so I feel good about how things look going forward.

38:51 Now if rates drop 25 basis points, just throw that out there, even though there's no expectation of this right now, if rates happen to drop 25 basis points, that would cost us about six point six million six point eight million dollars a year in net interest income. That's a parallel move. But and I don't think anybody's expecting rates to go up, but we'll see what happens. A lot of our loan originations are in the five year neighborhood and those generations should be helpful as we go forward into the second and third quarter. And so commercial yields, the commercial loan book at around $6.20 that's probably pretty good for now. So that'll just benefit from the mix as it grows.

39:44 And then I guess the key is to grow the commercial real estate at $574,000,000 to get that up to the $620,000,000 range. Yes. But I would add that we're still on track to target getting to 300% leverage of commercial real estate to capital. We're probably ahead of the original schedule. And so we've turned the real estate lenders back on because we can easily absorb decent production and still make the targets to get to the 300% in plenty of time. So that's all good news on loan production. Then no, just wanted to add a little bit of color on the loan origination side of things. So we had as far as the loans that were originated this quarter, the CRE loans, the WACC on those loans were at $6.30.

40:43 C and I loans were at $6.34. And the consumer loans were coming at $60.03. Just the spot weighted average coupon on those books at commercial real estate at the end of the quarter were 5.57% for CRE, C and I at 6.75% and consumer loans at 5.01 So we're originating at higher coupons than what's on the book. Now those coupons don't include I don't think they include purchase accounting at all. So you just keep that in mind. That's just the rate on the loan. Right. Okay. And then last one, just building off of that on the bond book.

41:32 You actually do some lift there. What is new money going in on the bond portfolio? Yes. That's going in at around 4.29%. I think we purchased about $130,000,000 during the quarter. Duration are in about 3.5%, 3.8 on that book. Got it. Okay. Thank you. That's all I had. Appreciate it. Okay. And our final question comes from the line of Daniel Cardenas with Brink Capital Research. Please go ahead. Hey, good afternoon guys. Just a couple of follow-up questions on the office, the Boston office went on NPAs this quarter. Was that a a class a property or a class b?

42:27 It's a b. Okay. And and so the occupancy rate that you gave out, that 50%, is that kind of indicative of the overall marketplace? No. No, I don't think so. I think it's there's certainly pressure and occupancy is down. I 20 I think five was going to say 75% occupancy is about 25%. The Central Business District has to be the number. So that's low. Now how much of that is being unused but still under good lease? You can speculate on what that may or may not be. But I think we read about some green shoots in leasing that have been happening, not the least of which is JPMorgan moving into the big new building over the South Station area, quite a few floors.

43:27 So they'll introduce some competition maybe. Got it. And so how does the rest of your portfolio look? I'm sure you've taken a deep dive. I mean, are there any concerns in that Boston office portfolio? Well, we have taken a deep dive. We have about $1,000,000,000 in office and only about $200,000,000 is in Downtown Boston. We've talked about two problem loans on the call already, one that we took the charge off on and then the new non accrual. Those actually are the two largest non accruals in our book. Beyond that, the portfolio is criticized, but we have good reserves.

44:19 And we look very closely at all those loans and we reassess the reserves all the time. Okay. Perfect. And then last question for me as I think about operating expenses for you guys. What so what we Daniel, I think we lost you, but you're asking about operating expenses. I've been getting this question all the time. So I'm going to guess what you're asking. We're certainly on target, if not better than what we originally anticipated and targeted for an operating cost.

45:04 And we've laid that out in the deck. So we feel good about where we are right now going forward. Are you there, Daniel? Is anybody there? We have lost Daniel. As long as we didn't lose you. With no further questions in queue, I will hand the call back over to CEO, Paul Terrell for closing remarks. Thanks, Tina, and thank all of you for joining us today, and we look forward to talking with you next quarter. Have a good day. Thank you again for joining us today. This does conclude today's conference call. You may now disconnect.