Financial Institutions, Inc. (NASDAQ:FISI) Q2 2022 Earnings Conference Call July 29, 2022 8:30 AM ET
Company Participants
Shelly Doran – Director of IR
Marty Birmingham – President and CEO
Jack Plants – CFO
Justin Bigham – CBO
Conference Call Participants
Alex Twerdahl – Piper Sandler
Marla Backer – Sidoti
Operator
Hello everyone and welcome to the Financial Institutions, Inc. Second Quarter Earnings Conference Call. My name is Charlie, and I’ll be coordinating the call today. You’ll have the opportunity to ask your question at the end of the presentation. [Operator Instructions]
I’ll now hand over to your host, Shelly Doran, the Director of Investor Relations to begin. Shelly, please go ahead.
Shelly Doran
Thank you for joining us for today’s call. Providing prepared comments will be President and CEO, Marty Birmingham; and CFO, Jack Plants; Chief Community Banking Officer, Justin Bigham; and Director of Financial Planning and Analysis, Mike Grover will join us for Q&A.
Today’s prepared comments and Q&A will include forward-looking statements. Actual results may differ materially from forward-looking statements due to a variety of risks, uncertainties, and other factors. We refer you to yesterday’s earnings release and historical SEC filings available on our Investor Relations website for a Safe Harbor description and a detailed discussion of the risk factors relating to forward-looking statements.
We’ll also discuss certain non-GAAP financial measures intended to supplement and not substitute for comparable GAAP measures. Reconciliations of these measures to GAAP financial measures were provided in the earnings lines filed as an exhibit to Form 8-K. Please note that this call includes information that may only be acted as of today’s date, July 29, 2022.
I’ll now turn the call over to President and CEO, Marty Birmingham.
Marty Birmingham
Thank you, Shelly. Good morning everyone and thank you for joining us today. During the second quarter, our operating performance reflected the hard work of our entire team in yielded very solid results, including net income available to common shareholders of $15.3 million or $0.99 per diluted share.
Results are up from the linked first quarter, but down from the year ago period, when we recorded a sizable benefit for credit losses of $4.6 million, having returned to a more normalized loan loss provisioning environment this year, after two years that were significantly impacted by the pandemic.
We recorded a provision of $563,000 in the most recent quarter, which was positively impacted by $2 million commercial loan recovery. In addition, our second quarter 2022 results were impacted by $1.3 million of non-recurring restructuring charges related to locations that were closed and consolidated as part of our 2020 retail bank network optimization.
We’ve made significant progress on liquidating most of these properties and this chart reflects the fair market value adjustment based on existing purchase offers and current market conditions.
Excluding these non-recurring charges, adjusted pretax pre-provision income was $21.3 million, which was $594,000 higher than the first quarter of 2022 and $361,000, higher than the second quarter of 2021.
The second quarter was a productive one for our company, as we delivered organic loan growth, maintained strong asset quality, and took steps to position our company for continued success in an evolving economy. We are making important progress on our digital transformation, which I’ll touch on in more detail in my concluding remarks.
Total loans were up an annualized 3.3% from March 31st, even if Paycheck Protection Program loans continue to wind down as expected. We also saw about $31 million of indirect loans during that period. We were afforded the opportunity to sell this small pool of indirect loans given the strong demand and growth we’ve experienced in this line of business in recent years.
We will continue to evaluate future opportunities to sell indirect production as we manage our balance sheet and remix the loan composition with growth in auto loan portfolios, namely commercial. Excluding PPP loans and the indirect portfolio of sale, total loans grew more than 9% on an annualized basis.
On the commercial side, excluding the impact of PPP loans, we grew our commercial business portfolio 5.7% [ph], on an annualized basis from March 31st, while commercial mortgage was up 3.7% annualized.
I note that a fair amount of that growth came late in the second quarter. So, we’ll see the full benefit of that loan production and net interest income during the third quarter.
Contributing to these results was strong performance out of the gate from our new Mid-Atlantic team that serves the Baltimore and Washington DC region. Since joining Five Star Bank in February, they have brought out approximately $24 million in outstandings as of June 30th and they bill an apple pipeline to support future growth. Clearly, our community banking approach is resonating with customers in this market and we believe it will continue to be a competitive advantage moving forward.
Looking ahead, we remain focused on partnering with high quality commercial sponsors in our markets. Commercial real estate demand continues unabated even amid the current interest rate environment, as developers in our Upstate New York markets continue to advance projects.
Turning to residential lending, balances were relatively flat from March 31st. first mortgage volumes continue to trend lower, but we have seen increases in home equity volumes. Like much of the nation, residential lending opportunities in our markets have been impacted by higher interest rates, inflationary pressures, low housing stock, and changes in buyer appetite.
As we manage through these challenges, we continue to focus on driving operational efficiencies and recruiting top tier talent to support this key line of business and maximize opportunities for growth moving forward.
Consumer indirect continues to be a core competency and growth engine for our company, up nearly 13% annualized from March 31st even with the sale of a portion of the loans late in the quarter. We continue to benefit from high auto valuations and a robust network of more than 500 franchise new auto dealerships.
We remain focused on rate and our unwavering approach to credit discipline. Our prudent approach to credit transcends all lending categories and resulted in continued strong and stable credit quality metrics, including non-performing loans of $6.5 million or 17 basis points total loans and net recoveries of $1 million or 11 basis points of average loans.
Our allowance for credit losses to total loans measured 113 basis points at quarter end, up three basis points from March 31st.
Our insurance and wealth management businesses achieved solid results in the second quarter and first half of 2022. Jack will provide additional details on their performance during his remarks, but overall, we believe these fee-based businesses remain well-positioned to support revenue growth and profitability.
Volume [ph] retention in our insurance business has been very strong and we believe new business development and cross-sell opportunities of our robust product offering are durable, bolstered by two acquisitions in 2021 that expanded our Upstate New York presence and enhanced the employee benefits business.
On the wealth management side, there’s no doubt that the first half of 2022 has been challenging throughout the industry and we did experience a market-driven decline in assets under management.
Year-to-date, our investment advisory income is up about 5% from the first half of 2021 and our teams at [indiscernible] Capital and H&P Capital are closely engaged with clients to provide steady guidance and counsel amid historic pressures.
It’s now my pleasure to turn the call over to Jack for additional details on our financial results and an update on 2022 guidance. Jack?
Jack Plants
Thank you, Marty. Good morning, everyone. I’ll begin by providing commentary on performance in key areas with comparisons with the first quarter of 2022. Net interest income was $41.6 million, up $2 o million from the linked quarter as a result of a higher average interest earning assets and a higher interest rate environment.
Just over $23 million and approximately $25 million of PPP loans were forgiven in the second and first quarters of 2022 respectively, with a related fee accretion of $756,000 in the second quarter as compared to $971,000 in the first quarter.
Less than $1 million in 2020 vintage loans and $8.7 million of 2021 vintage loans remained on the balance sheet at quarter end. NIM on a fully taxable equivalent basis was 319 basis points for the second quarter of 2022, up eight basis points from the linked quarter and 13 basis points from the second quarter of 2021.
Our margin has improved as a result of the rising interest rate environment along with lower levels of Federal Reserve interest earning cash this year as compared to 2021.
Investment securities were down because of the impact of rising interest rates on the market value of the portfolio and the deployment of portfolio cash flow to fund loan originations during the second quarter.
As a reminder, our investment securities portfolio is primarily comprised of mortgage-backed securities with intermediate durations. These securities provide ongoing cash flow and have historically generated incremental yield over Federal Reserve balances.
Cash flow from the portfolio allows for reinvestment into loans or additional investment securities. Our cost of funds was 28 basis points in the current quarter, up six basis points from the linked quarter. The increase was primarily driven by the impact of higher rates on wholesale borrowings and reciprocal deposits.
Non-interest income of $11.4 million was up modestly from the linked quarters $11.3 million.
Revenue categories with the largest changes quarter-over-quarter were as follows; gains on sale of loans of $828,000 were up significantly from a net loss of $91,000 reported in the linked quarter and included $586,000 associated with the sale of indirect loans that Marty mentioned earlier.
Insurance income was $863,000 lower, primarily as a result of contingent revenue received in the first quarter each year. And income from limited partnerships was $553,000 lower based on performance of underlying investments in the current quarter.
Non-interest expense was $2.8 million higher than the linked quarter, primarily as a result of $1.3 million of restructuring charges, higher equipment costs associated with technology, and the relocation of our regional administrative office in the Buffalo area, along with higher salaries and employee benefits,
Income tax expense was $3.9 million in the quarter, representing an effective tax rate of 19.8% compared to $3.4 million and an effective tax rate of 18.7% in the first quarter of 2022.
Accumulated other comprehensive loss increased by $32.6 million in the quarter, driven by the unrealized loss position of our available for sale securities portfolio. Intermediate maturities of the treasury curve negatively impacted the market valuation of our investment portfolio due to its five-year duration.
We continue to believe these unrealized losses are temporary in nature given the high quality of our agency mortgage-backed securities that are implicitly and explicitly guaranteed by the U.S. government.
The unrealized loss position does not impact our forward earnings metrics as we expect the securities to mature at a terminal value equivalent to par. As the securities roll down the curve, we continue to redeploy cash flow into the loan portfolio for current coupon bonds.
As you’ll see outlined in our investor presentation, the unrealized loss position negatively impacted the year-to-date TCE ratio by 157 basis points and tangible common book value per share by $5.64. We continue to expect these metrics to return to more normalized levels over time, given the high quality of our investment portfolio.
I’ll now take a few minutes to provide our current outlook for 2022 and key areas. We continue to expect mid to high single-digit growth in our total loan portfolio for the full year with commercial and indirect loan categories driving this growth. This guidance assumes the forgiveness or repayment of the majority of the outstanding $9 million of PPP loans during the remainder of 2022.
We continue to plan for low single-digit growth in non-public deposits. We’re focused on attracting new consumer and commercial deposit accounts and expect the positive impact of these new accounts to be partially offset by unexpected decline in the average balance per account.
In the first half of 2022, reciprocal and public deposits have declined due to the current interest rate environment as customers have looked to alternatives like U.S. Treasuries to generate more yield. For the second half of 2022, we are projecting balances to be relatively flat, absent typical seasonality in the public deposit portfolio.
We are increasing the range for full year NIM to 310 to 320 basis points, excluding the impact of PPP activity. The noise in NIM relative to PPP forgiveness will be muted for the remainder of the year, since the majority of PPP has been forgiven or repaid. Although we are continuing to guide on full year NIM excluding PPP.
NIM guidance reflects the increase in the Fed funds rate that occurred earlier this week. In the past, we had guidance on NIM using a spot rate forecast. However, we have recalibrated our forecasts based upon expectations of continued FOMC rate hikes through year end.
We continue to expect a higher investment securities portfolio due to the carryover from March 2021 excess liquidity position as we deploy liquidity from the investment portfolio into loans.
Guidance also reflects increased expectations for deposit betas, given the current rate environment with a range of 0% to 55% for non-maturity deposits.
As a reminder, our NIM fluctuates from quarter-to-quarter due to the seasonality of public deposits and its impact on both our earning asset and funding mix. In quarters where our average public deposit balances are higher due to seasonal inflows to second and fourth quarters, our earning asset yields are lower given the short-term duration of the deposits and limited opportunities to invest the funds.
Our balance sheet sensitivity remains relatively neutral. We saw a modest level of NIM compression in the first quarter as expected with the lower level of PPP revenue. However, the higher rate environment positively impacted loan margins in the second quarter and we expected NIM to expand modestly throughout the remainder of the year if the current rate environment persists.
Approximately 32% of our loan portfolio, excluding PPP is indexed to variable interest rates. We’re lowering our projections for non-interest income to a low single-digit decrease compared to the prior year excluding gains on investment securities and limited partnership income as they are difficult to forecast.
Our current outlook reflects continued pressure on mortgage banking revenue as a result of lower refinance activity and tightening of gain on sale spreads due to the interest rate environment; pressure on wealth management fees, related to a market-driven decrease in value of asset under management; and a reduction in card interchange income as inflation impact consumer spending behaviors.
We’re tightening the full year non-interest expense range to $126 million to $128 million excluding the restructuring charge, which aligns with our original quarterly guidance of $31 million to $32 million annualized.
You can now expect the second half of 2022 to be between $32 million to $33 million per quarter as an expense plan in the first half of the year has been pushed the second half of 2022 coupled with the current wage and inflation pressures.
Our spend in 2022 includes investments in strategic initiatives, including further enhancements to our new customer relationship management solution, digital banking, and Banking-as-a-Service.
We expect these investments to begin producing incremental revenue in 2022. However, full benefits are likely to be realized over the coming years. Our expectations for efficiency ratio remained the same, within a range of 59% to 60% for the year, excluding the impact of the second quarter restructuring charges.
2022 efficiency ratio is impacted by upfront costs associated with our aforementioned investments in strategic initiatives that we expect to recoup in later periods, driving our expectation for improvement in the future efficiency ratio.
We continue to anticipate that the 2022 effective tax rate will fall within a range of 19% to 20%. Guidance includes the impact of the amortization of tax credit investments placed in service in recent years. We continue to evaluate tax credit opportunities and our effective tax rate would be positively impacted by taking advantage of further investments.
We expect quarterly net charge-offs for the second half of 2022 to be within our annual historical range of 35 to 40 basis points. Net charge-off activity has been benign in the first half of the year, including the second quarter commercial recovery. Therefore, we expect our full year net charge-off rate to range from 15 to 20 basis points.
Our overall focus includes executing on strategic initiatives that will improve profitability and operating leverage over time. We believe that achieving results in line with the guidance provided will drive these outcomes.
In June, we announced a new stock repurchase program for up to 5% of outstanding common shares, replacing the previous program completed during the first quarter. We believe a stock buyback program is an important part of our capital markets toolkit. No shares have been purchased to-date under the new program.
That concludes my prepared remarks. I’ll now turn the call back to Marty. Marty?
Marty Birmingham
Thank you, Jack. Our digital transformation continues to build momentum as we deliver meaningful differentiated customer experiences, whether it’s launching our open payments network, building digitally-focused solutions for our consumers and small businesses, or sourcing complimentary FinTech partnerships, we are extending the reach of our banking products and services.
Traditionally, this would have been challenging for a bank of our size. However, ongoing investments in the platform and solid partnerships are delivering benefits across customer acquisition and retention, operational efficiencies, and further revenue opportunities through Banking-as-a-Service or BaaS.
In a complementary way, we are building our digital capabilities on the foundation of a well-established community bank and reaching a broader expanse of consumers and small businesses than ever before. We see disruptive opportunities in digital payments, small businesses, artificial intelligence and machine learning, and digital currency.
During our last quarterly call, I spoke about several efforts and initiatives underway and I’d like to provide a brief update today. CHUCK, our open payments hub went live earlier this month. CHUCK allows customers to send and receive payments of any kind and on any platform. This unique approach helps us to lean into customer preferences and grow digital banking engagement, while honoring and enabling customer choice.
We’re working with partners Numerated, Auto Books, and [indiscernible], among others, to create a digitally-focused solution for small businesses. At Five Star Bank we view small business banking as table stakes. However, we recognize that much like consumers, small businesses are becoming digital-first in their approach to banking. This digital small business hub will strengthen existing relationships and efficiently position us for expansion beyond our current footprint.
As part of our efforts to improve operational efficiency, lower customer friction points and enhance the associate experience, Five Star Bank has been working with Zest AI to provide data-driven credit decisioning using artificial intelligence.
The program is undergoing extensive testing and we anticipate a phased pilot approach to rollout through 2022. Our BaaS pipeline is beginning to translate into success and we anticipate it growing through 2022 into 2023. We have several BaaS partnerships that have entered the onboarding and testing phases and are expected to go live later this year.
Lastly, we continue to collaborate with our regulators on our exciting efforts to offer Bitcoin to consumers in partnership with NYDIG. We don’t anticipate any issues and have been responsive to the information requests to-date. I remain very pleased with the exceptional efforts of our teams to support our customers and communities while building long-term value for shareholders.
And before opening up the line for questions, I would like to take a moment to acknowledge a colleague who will be retiring in September, Shelly Doran who has served as Director of Investor and External Relations for Financial Institutions and Five Star Bank since 2016, has been instrumental in helping to build out our IR program and enhance our company’s reputation among investors, customers, and our communities.
We will miss her positive attitude and exceptional mind and we are grateful for her efforts over the years and wish her well and a much deserved retirement. Assuming Shelly’s role will be Kate [indiscernible]. Kay brings more than 10 years of experience in Investor Relations and Corporate Communications, most recently working at a national consulting agency, where she supported about a dozen financial service client relationships, including banks with assets ranging from $800 million to more than $150 billion and a wealth management firm with more than $16 billion in assets under management. Kate has been working closely with Shelly since joining us in June and we look forward to introducing her to many of you in the coming weeks and months.
Operator, this concludes my prepared remarks and we’re ready to open the call for questions.
Question-and-Answer Session
Operator
Thank you. [Operator Instructions]
Our first question comes from Alex Twerdahl of Piper Sandler. Alex, your line is now open.
Alex Twerdahl
Hey good morning.
Marty Birmingham
Good morning Alex.
Jack Plants
Hey Alex.
Alex Twerdahl
Hey first off, I wanted to ask about the indirect auto sales you did this quarter, I remember it’s a business line that you guys kind of started to get into a decade maybe even a little bit more than that ago. And then the rate — and the whole market changed on you. Is this something that’s now kind of a renewed effort to kind of get into having the gain on sale from indirect loans be a more consistent revenue stream in the future?
Jack Plants
Hey Alex, this is Jack. As you may recall, over the last couple of years, we’ve had a lot of demand and the indirect space, particularly throughout the pandemic and certainly a line item on our balance sheet that’s grown. We’ve used this as an option to execute on some capital market relationships, we have to remix the balance sheet modestly, and take some gains. So, it was opportunistic. But it’s certainly a viable option, should we need to further remix that balance sheet in future periods.
Alex Twerdahl
Okay. And then, I noticed that the ACL ticked a little bit higher this quarter, I was wondering if you could kind of — just kind of give us an update on what you’re seeing in your markets and there’s it’s really drivers of that metric.
Marty Birmingham
So, credit continues to be very stable in our experience across our markets and certainly in our portfolio as we see it. As we’ve shared before, the primary drivers, the national unemployment rate, which seems counterintuitive given all the volatility that seems to be working its way through the economic outlook as we speak. So, we have been thoughtfully thinking about qualitative factors as well. And taking the actions that we did this quarter relative to the provision that we took, and as well we were — our provision was influenced by final resolution of a credit that we had worked out that provided a recovery for us.
Jack Plants
Yes, Alex, this is Jack. I would say that our current coverage ratio of 113 basis points aligns with our pre-pandemic CECL day one level, and so it’s something that we’re certainly comfortable with.
Alex Twerdahl
Great. And I just want to make sure I understand your NIM guide Jack, I think you said 310 to 320, excluding PPP. First half of this year, we’re right around 310, I think — correct me if I’m wrong. So, the — sort of the difference from here — the difference between 310 and 320, is that pretty much dependent on deposits, where if you had a 55% deposit beta that you’d be closer to 310 and a 0% deposit beta closer to 320. Is that the right way to think about it?
Jack Plants
No, we’ve modeled in the forward curve for the rate hike that occurred yesterday. And then for the expectations for future hikes in September, November, and December. We conservatively modeled in 0% to 55% for non-maturity deposits betas, which is a mix of stress betas versus what we traditionally would see from a management standpoint, just given the magnitude of Fed hikes that have occurred this year, and are expected to continue to occur. So, just from a conservative standpoint, we feel there’s opportunity for us to modestly expand to approach that 320 level by year end.
Alex Twerdahl
Okay, so the 0% to 55% deposit beta, that’s the kind of certain deposits are a 55% beta and certain at 0%, is that — I’m a little confused by that comment.
Jack Plants
Yes, that’s correct. So, some of the higher balance money market accounts have more of a 55% beta, whereas demand is zero.
Alex Twerdahl
Again, you’re emphasizing that that is a concern?
Jack Plants
Yes. Correct. And that’s our conservative approach that we’ve established as compared to our–
Alex Twerdahl
Yes, and I know that the, municipal deposits and certain public deposits, maybe are a little bit higher beta right now and trying to see increase in pressure, but in kind of your core deposit, are you seeing much pressure so far, a lot of competitive pressure on deposits in your markets?
Jack Plants
In the core portfolio at this point.
Alex Twerdahl
Great. Thanks for taking my questions.
Marty Birmingham
Thank you, Alex.
Operator
Thank you, Alex. Our next question comes from Marla Backer of Sidoti. Marla, your line is now open.
Marla Backer
Thank you. So, I had a couple of questions. And I was hoping we could get a little bit more color on the Banking-as-a-Service, BaaS initiative in terms of, you talked about a lot of customers — potential customers in testing mode at this point. Have you converted any customers yet to going live or it’s still early days for that?
Marty Birmingham
Generally, it’s still early days, Marlo, and I would say that what we’re doing in Banking-as-a-Service is a natural extension of the experience that we’ve all lived through in the last couple of years. With digital adoption soaring across all customer segments, our own experience of upgrading our own digital platform, working with our LA Labs Consortium, that ultimately has allowed us to produce CHUCK, and go live with CHUCK.
We continue to kind of extend our banking platform into services, in collaborative partnerships with technology companies. And we mentioned the work that we’re doing with Numerated and others, that’s in the small business space. That is an outgrowth of our — work that we did during the pandemic with the PPP program and automating that process.
So, we’re taking a series of incremental steps that, at this point in time, the investments are approximately equal to — the expenses are equal to the revenues. It’s a breakeven as we speak today, but the opportunity we see is being quite enormous in terms of small bets, the array of small bets, if you will, that we are exploring.
Jack Plants
And Marla this is Jack, I would suggest the referring — sorry, Marla, I just want to point you to the investor presentation. We do have some slides in there that outline the phased approach we’re taking where we have a couple that are in integration and onboarding and one that’s in testing and we have a number that are expected to go live later this year.
Marla Backer
Okay, great. Thank you. And, obviously, digital is a big factor here, it’s part of what’s supporting this initiative than others given that we are seeing these changes, and you did close towards — a number of branches in 20 — over the past several quarters. Do you think that that strategy will also continue? Have you identified any further potential branches for either closure or downsizing?
Marty Birmingham
Couple of comments that I would offer is that this is why we have really embraced the opportunity to have — to drive exceptional digital experiences for our customers and while we’re doing that there’s meaningful and substantive opportunity to drive efficiencies into the core banking operation.
And as I said, my comments, it also honors our customers’ ability to be empowered to choose how they want to deal with us. And branches are big — in-person personalized service is a big part of our reason for being. But as you’re pointing out, strategically, that is a challenge that we need to continue to work on and think about in terms of optimization.
Justin is here, you want to comment as our Chief Banking Officer with responsibility for our retail network?
Justin Bigham
Yes, Marla, we don’t have any consolidations planned at this time, but obviously, we have very detailed information about each one of our branches, geography, the markets that they’re in, the customers that they serve, and we do monitor that regularly and should something present itself, we would certainly consider it. But at this time, we don’t have any plans for more consolidations.
Marla Backer
Okay. Thanks. And then one last question or topic. The Mid-Atlantic team, when they came in, on my understanding as they came in with the pipeline of business or conversations they had been having. So, is some of what you’re seeing there — they’re converting some of that pipeline into actual business now, can you give us some sense of how their conversations are going in terms of sourcing new business under their new Five Star or Financial Institutions’ umbrella?
Marty Birmingham
It’s — the team has been very active. They’ve got a very strong following. They’ve been operating in the market for a number of years, and in terms of a number of years together working as a team.
So, Marla in the — they develop a pipeline of approximately $100 million and they closed about $24 million in the second quarter. So, our loan guidance does include the impact of the team that Jack articulated. And I would just say, we are very pleased and excited by the strong start that they have gotten off to here.
Marla Backer
Thank you.
Operator
Thank you for your questions, Marla. [Operator Instructions]
Our next question comes from Damon DelMonte from KBW. Damon, your line is now open.
Unidentified Analyst
Hi, good morning everybody. This is Matt Rank [ph] filling in for Damon. I just had a follow up to the Banking-as-a-Service line of questioning what types of clients? Are these — are the four customers in the pipeline currently? Are they FinTechs? Are they more non-banks on the wealth side? What types of fee-base lines of businesses and they selecting? Is it all that’s listed on the slide? And then maybe you can just get some outlook into 2023 of like, what do you expect these four to bring in in revenues?
Marty Birmingham
Well, as I said, we’re exploring a number of opportunities and each is slightly different. And so I would say that the partnerships and total could drive positive — net positive impact on our fee revenue as well as deposits and interest income for the company.
Jack Plants
Yes, Matt, this is Jack. And I just want to add colors to the impact on 2022. So, these FinTech relationship, pages are modeled to essentially breakeven in the first year for us. So, our guidance indicates that any revenue offsets expense. We do expect them to ramp up in 2023 and 2024 as our relationships grow. So, the larger impact from a P&L standpoint will be seen when we provide guidance on 2023 at the end of this year.
Unidentified Analyst
Okay, and when you say breakeven in the first year, so it was all onboarded by the end of 2023. The outlook for 2023, it doesn’t generate a profit, correct?
Jack Plants
It depends on the stage of the deal and the deal itself, but generally speaking, it depends on the — speed at which they ramp up from a conservative standpoint, they’re breakeven in year one and then with pretty high upward trajectory from a profitability standpoint after that.
Unidentified Analyst
Okay. And do you think that speed will pick up as you guys onboard more people? Or is that just kind of the normal time it takes to complete one of these deals?
Marty Birmingham
Yes, in our experience, we’re going at a natural pace. We want to make sure that we get it right. And as you know, we finalize and push forward, we think the opportunity is very significant.
Unidentified Analyst
Okay, great. That’s all for me. Thank you.
Operator
Thank you for your questions, Damon. [Operator Instructions]
At this time, we currently have no further questions. Therefore, this concludes today’s call. But before that, I’ll hand over to Marty Birmingham for any closing remarks.
Marty Birmingham
Thank you, operator for your help this morning. I want to thank everyone for their participation and we look forward to building on the conversation at the end of the third quarter.
Operator
Ladies and gentlemen, this concludes today’s call. You may now disconnect your lines and have a lovely day.
Be the first to comment