Q1 2022 Ameris Bancorp Earnings Call
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The ability to stay focused on strategies and execute on the things that we can control and our results this quarter reflective of those high expectations.
The first of those fundamentals was consistent earnings.
With an ROA, we sit in a range between $131 40, and R. O T C well above 15% in this quarter. The adjusted results represent a 131 ROA and a 16.38% return on tangible equity both of those are within the high performing the range. We had targeted the second thing we talked about in terms of.
<unk> is meeting the growth expectations and maintaining a strong pipeline and we're fortunate to be positioned and well positioned in the southeast with talented bankers in all of our markets and this quarter. We continued to deliver on this growth we had strong organic growth in mind, you that's coming off of an incredibly strong fourth quarter.
Last quarter.
Exclusive of P. P. P runoff loans grew over 350 million or eight 9% annualized during the first quarter, it's encouraging that we're seeing such growth opportunities in our markets, especially in south east gets back to business, but we continue to anticipate 2022 loan growth in the upper single digits and we certainly have to look.
Quiddity to fund that growth as expected deposits did decline this quarter due to our cyclical a muni deposits at year end, but we continued to grow and more importantly, low cost deposits this quarter and our noninterest bearing deposits account for now over 40% of total deposits and this low cost deposit mix is certainly going to help.
US better control betas in a rising rate environment, the third fundamental asset sensitivity and its impact on margin and NII, which ultimately affects capital. We continue to have an asset sensitive balance sheet with 30% variable rate loans and an additional 15% of short duration fixed rate loans that the.
Hey, like a variable rate loans, so we're well positioned for rising rate environment. This quarter, our margin actually expanded by 17 basis points in our NII increased by $5 $7 million or just over 3% compared to last quarter and that sensitivity and balance sheet management certainly affects capital we've consistently.
Said, we were focused on tangible book value and we're extremely proud of that once again this quarter as our tangible book value grew when most banks, you're seeing or experiencing dilution due to unrealized losses in the securities portfolio.
Over the past year from March of 'twenty, one to March 22, we increased our tangible book value by over $1 57, or six 2% inclusive of the purchase of Balboa.
We've been good stewards of the capital over last five years and have grown tangible book value by over 10% annualized.
And remember that includes polluting that of those five years or five acquisitions, and we're very cognizant of dilution and earn back periods. Since I mentioned Balboa, Let me jump into the fourth fundamental from last quarter and that was Balboa and the positive impact they would have on our core banking segment. The integration is going extremely well.
And we're more than pleased with the leadership and the results. There net loan growth was 57 million for the quarter or over 33% annualized and their total production was just over 131 million. This growth was funded with existing liquidity. In addition to paying off their remaining high cost borrowings during the quarter credit in that portfolio remains.
And in line with our expectations and while I'm on credit I'll hit a few highlights overall credit quality remains strong our annualized net charge off ratio was nine basis points of total loans, our nonperforming assets as a percent of total assets was 47 basis points, Jon Edwards, our chief credit officers with us today in Israel.
We'll take any questions after our prepared remarks, but I want to conclude by reiterating that we remained focused on our core fundamentals and were disciplined with our actions. We've got strong momentum coming out of the first quarter and we're excited about our future due to solid fundamentals of organic growth balance sheet management in a rising rate environment.
On top of class financial results and of course capital preservation I'll stop there now ill turn it over the call to discuss our financial results great. Thank you Palmer for the first quarter. We're reporting net income of $81 7 million or $1 17 per diluted share on an adjusted basis, we earned 75 million or $1 eight per day.
We did share when you exclude our servicing asset recovery merger and conversion charges and a gain on sale of bank premises.
Our adjusted ROA was 131 and our adjusted return on tangible common equity was 16 three eight.
As Palmer mentioned, we grew tangible book value by 58 cents per share or two 2%. This quarter to end at 26 84, we had a dollar to from retained earnings and that was offset by only 25 cents a N C off and the decline in unrealized gains on the bond portfolio, and then 19 sensor duration from other items, including the stock we bought back.
We've been disciplined with our investment portfolio and because of this strategy, we saw less than 1% dilution in our tangible book value from the Dirty trades and Nancy I and we're now beginning to backfill that bond portfolio with purchases compared to this time last year, our tangible book value is that the dollar 57% or just over 6%.
Our tangible common equity ratio was 832 at the end of the quarter compared to eight is that at the end of the year the approximate $3 billion of excess liquidity that remains on our balance sheet negatively impacted this ratio by 130 basis points.
We exclude this cash in total office, our TCE ratio would've been about 962, which is well above our stated target of 9%, we continue to be well capitalized and we feel comfortable with our capital and dividend levels.
We do have a share repurchase program outstanding until October 31 of this year, we purchased $14 6 million during the first quarter that leaves about $63 million left on the program.
Moving on to net interest income and margin our net interest income for the quarter increased by $5 7 million that was driven by $13 $2 million in the bank segment offset by a $5 3 million decline in P. P. P revenue and a $2 2 million decline in mortgage and warehouse included in the bank segment with the benefit of a full quarter of Balboa.
Our net interest margin increased by 17 basis points from $3 18 to $3 35 during the quarter, our yield on earning assets increased by 17 basis points, while our total funding costs decreased by one we.
At 12 basis points of expansion into the higher loan yields and average balances five basis points due to the reduction of use of some of our excess liquidity one basis point of improvement in our funding costs and that was offset by a one basis point decrease in the yield in the bond portfolio.
As we've stated we have about $3 billion of excess liquidity that remain we anticipate net loan growth. This year in the high single digits at 79%, which is about one one to $1 4 billion of loan growth and that leaves about $1 6 billion of excess cash to prepare for the cyclical deposit run off and to begin purchasing investments in the bond portfolio as well.
It's rising yields are not quite so anemic.
From an a L. M modeling standpoint, we positioned ourselves to be asset sensitive with NII, increasing approximately six 5% in an up 100 environment. We've added quite a bit of interest rate sensitivity information to our presentation on slide 10 that I hope everybody finds useful.
Noninterest income increased $5 1 million for the quarter, we recorded a $9 7 million servicing rights recovery compared to $4 5 million last quarter. So excluding that MSR activity. Our total noninterest income was relatively flat.
Mortgage revenues decreased by $3 1 million in expenses in that division decreased by $3 5 million retail mortgage originations as a percentage of our pre provision pre tax income continue to decline representing a balanced contribution of 12, 3% this quarter.
Production in the retail mortgage group was $1 5 billion. We were pleased to see the purchase business is returning to normal levels and our strong network of relationships has us well positioned for the slowdown in refinance activity. The average gain on sale normalize to $2 94, this quarter and we believe it will continue to run between $2 75, and $3 25 going forward.
Total noninterest expense increased this quarter by $5 5 million.
From $138 4 million last quarter to $143 eight this quarter exclude.
Excluding the loss on bank premises and the merger charges noninterest expense increased $8 4 million for the quarter. However, as we previously guided the first quarter increase was attributable to three things that was $7 1 million of additional expenses for having done the full quarter.
$4 million of cyclical payroll taxes, and 401 came out and then those two things were offset by the mortgage expense reduction of $3 $5 million. So when you look at expenses all other expenses increased less than 1% for the quarter.
Our adjusted efficiency ratio was $56 95, so cyclical expenses affected that by 158 basis points. So we expect our efficiency ratio to return under 55% as these expenses normalize going forward.
And real quickly on the balance sheet, we ended the quarter with total assets of $23 6 billion down slightly from the 23 nine at the end of the year. We were pleased with our organic loan growth of $269 5 million or six 8% annualized for the quarter we've.
We've had the detailed that grows on slide 15 of the Investor presentation, and you can see that excluding the P. P. P runoff net loan growth was $350 7 million or eight 9% annualized for the quarter.
Our total deposits decreased $77 million due to the cyclical public funds that we anticipated running out and we're really pleased with the continued growth in low and no cost deposits. We continue the momentum on noninterest bearing deposits and improved our mix of it they're now 41, 8% of our total deposits.
It certainly helps our deposit betas at an increasing rate scenario.
And with that I'll wrap it up by reiterating how we've maintained and we've remained disciplined and focused on our operating performance. We're really excited about the remainder of 2022 I appreciate everyone's time today and I'm going to turn the call back over to Juan for any questions from the group.
Thank you Juan.
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The first question comes from the line of Brady Gailey from K B W. P.
This Brady your line is now open.
Yeah.
Hey, Thanks, good morning, guys.
Good morning, Brian .
So I just wanted to start with some of the moving pieces up Alto up.
I know they had.
In fact on the expense side and then on the fee income side I think you know fees came a little higher.
You all were thinking or is there any adjustments that should be made to your fees and expenses kind of related to Balboa that we should think about kind of from a forward ongoing run rate point of view.
No Brady and good morning by the way no I think this was a solid a solid quarter.
Have you know a little lag and we had a few acquisition expenses that came in this quarter with no debt.
From the acquisition, but other than that we feel like they have a good run rate.
Yeah.
Okay, Alright, and then it's great to see all you'll be active on the buyback here.
The stock is.
As notably inexpensive here at one and a half times tangible and about eight times earnings, but I think I heard you say you have about $63 million of authorization left.
And you know you can get even more of that if you want I'm sure but.
How do you think about getting more aggressive on the buyback at this Ron just with the stock being.
So cheap.
Sure.
When you look at what the stock did this past quarter. The big decline has been in the last couple of weeks really while we were in blackout that we haven't been active on kind of that the last couple of weeks of March when we went into blackout. So we definitely again, where teams were cognizant of the tangible book value that we could get the win win.
When the prices are this low it's hard to not buy.
Yeah.
And quite frankly, I think that all of our stock back is probably the best one of the best investments, we can make right now.
Yes.
Yep.
And then on the credit quality front.
I know that charge offs were still kind of close to zero, but it appears we're up a little bit I think you called out some ginnie Mae mortgages and maybe some portfolio mortgages that drove that up in the classifieds and criticized.
Some too.
Bigger picture I know a lot of those loans are fairly low risk loans, but.
Is there anything that is worrisome on the credit quality front for you guys at this point.
No we're not seeing anything Brady and of course, everybody is keeping a keen eye to it across the industry, but we're not seeing any cracks anywhere and obviously the Virginia base. That's just a process of working through the process and move in those those loans out but right now we feel pretty much across the board on all our verticals as it pertains to.
Credit.
And congrats on the up tangible book value per share that's a rare to see this quarter. So it's great to see for you guys.
Thanks for the color.
Yeah.
Thank you. Our next question comes from Casey Whitman from people to sunlight police Casey. Your line is now open.
Morning.
Good morning.
Maybe I'm just thinking about.
Wondering if you could say.
And I left from rate hikes.
Could we see more.
But what is wrong.
12% of P P and I over the last two quarters can we assume that trends down from here on ultimately you know what.
Just what are your best guess as to what the range would be for that in like a higher rate environment more normalized gain on sale margin.
Yes.
You went in and out a little bit there, but I think your question was mortgage and the fact that it's been kind of that the retail mortgage is about 12 to 12, 5%. The last two quarters, and where do we kind of see that especially as rates go up so a couple of components to that one.
We have always been more of a purchase shop in a refi shop and so we were up this quarter, but historically, we were more in the 85% to 90% purchase versus refi. So we still have some room to go I do think that we started to see some cyclicality come back into the first quarter, which was a little bit more normal but.
Taking the $1 5 billion of production and you take that even if it comes down just a little bit we still could be looking at $6 billion to $7 billion of pre.
Production for the year, so I feel like that that 12% is probably a good a good spot for us.
Okay. Okay I appreciate it.
Maybe just turning over to the overdraft and I know you guys recently announced some changes to the NSF overdraft policies I think last quarter. You you sort of said, maybe a 25% reduction from some of the moves is that still an appropriate level or has that changed. It is it is say, 25% and I think.
That may have been misconstrued, a little bit so it's 25% of our sort of none of our of our income, but just 25% of the overdraft fees and so last year that was about $16 million and say, 25% of that would be about $4 million and then and I think everybody probably saw the announcement, where we had.
Publicly announced what we were doing so that's $4 million would be a full year and those are really not going into effect until may. So we'll have a portion of that hit in 'twenty. Two and then 23 would be the full $4 million and again, that's going to go up or down based on customer behavior as well, but based on historical behavior, we're expecting that about 4 million.
Of decline on an annual basis.
Okay.
Thank you for that clarification last from me sorry to ask this but the tax rate just a little higher this quarter, where do you think that lands sort of over the next it is interesting I think it comes back in the 23 to 24 2023, and a half probably there was a non discrete item that hit this quarter that should be nonrecurring and part of it with some acquisition.
Cost of last quarter, and some of it coming through this quarter say 'twenty two to 'twenty three 'twenty four close to that 23 and a half.
Okay. Thank you guys good quarter.
Thank you.
Yeah.
Thank you. Our next question comes from the line of Kevin Fitzsimmons from D. A Davidson. Please Kevin your line is now open.
Hey, good morning, everyone.
Good morning.
Just curious if it's come up a couple of times the point about.
The focus on tangible book and that you actually expanded this quarter can you dig in a little deeper into.
How you did that did you was it a matter of holding back on securities purchases when rates were lower and.
We're shifting.
Over to held to maturity just.
Because we just haven't seen a bank.
Pull that off yet.
Tangible book up this quarter. So if you can give a little more detail on what you guys proactively did before.
For that thanks.
Absolutely. Thanks, So we had let our bond portfolio.
A decline as we received pay off in the in this last cycle. We did not go out and buy bonds. We felt like the rates were fairly anemic and I think I. Even guide I think it was the third quarter that I was asked about it on the earnings call and I said that you know, we really didn't want to go out and buy bonds at these anemic rate and that the amount that we would earn in over the.
Before rates when we expected rates to go up would be offset by the by the loss and the unrealized loss and we would lose the capital so any capital that we'd earn by buying these 1% bonds, we would lose as soon as rates went up.
So what we did over the last.
Two years is really kind of looked at our mortgage loans held for sale in conjunction with our available for sale securities and we use that to kind of offset.
The use of some of that cash that we were getting from the bond portfolio and using our mortgage we now expect that to go back to normal levels, we're starting to buy bonds and getting much better rates and not having to go so far out. So we did manage kind of through that bond portfolio. When you look historically, we would've run probably 10%, 9% to 10% of earn.
Assets, and we were down two 3% of earning assets again offsetting that with our mortgage loans held for sale, but we do anticipate buying bonds and getting that back up to a more normal level now that rates are not quite so anemic. There are a couple of follow up comments, Nicole is being modest but she and her team did an excellent job on the discipline I keep.
And discipline.
Because we have received a lot of questions from people launch by enlarge upon being able to stick with those disciplines really paid off for us and then Furthermore, I think what it also exhibits is the fact that we had other places to put the money a lot of people didn't have any opportunities for growth and we did through that held for sale portfolio. So we were happy to be in.
The lever that up as opposed to going out and getting stuck with a bunch of long long term low rate bonds. So.
Kudos to Nicole and her team for sticking with their disciplines.
That's great. Thank you and <unk>.
As far as expansion I'm, assuming like it seems like in recent quarters M&A has been less of a focus and with the stock pulled back.
Assume it's not primary focus today, but with the organic growth with Balboa.
And maybe you can speak to if you.
Anticipate any.
Team lift outs opportunities that might come from in market merger disruption of competitors, just just how you're feeling about that organic versus acquisition equation today. Thanks.
Sure.
As we have consistently said year after year, our primary focus is organic and we've proven that.
We've not done any M&A bank M&A over the last three years. So I think there's clear evidence of that and even without that bank M&A you've seen the power of the organic engine here and that's that's part of the reason we have held off on M&A is to prove to the market in the world ourselves that we've got the ability to operate this company generates some significant growth.
In an organic fashion.
If you look at our lines of business that allows us to do that we've got a great geography. So we don't feel any compulsion to have to move like a lot of banks do into growth markets were already there, but more importantly, which was a good lead into your next question.
We already have a lot of those bankers in place and as you will recall when a lot of people were retrenching, we were making the investment.
In talent. So we've already done a lot of the lift outs two years ago, and we kept telling everybody that you know for us to hit our upper single digit type of loan growth. We already have the people in place it wasn't based off a bit and wish them a lift out and then all of a sudden that lift out takes time to ramp up.
There, we do to that point, we do obviously continue to look for talent on a regular basis and then one of the things we've done a very good job of is calling out our lower performers and replacing those with top performers. So I think when you look at going forward, Yes, we will still continue to.
Attract and hire talent and retain good talent, but at the same time.
Our organic growth initiatives.
Or based on what we've already hired in the past so a lot of what youre seeing today from some of our competitor banks out there we had already made that investment in the <unk>.
A year or two ago, and we're benefiting from the results of that investment.
Okay, great. Thank you.
One last clarification, Nicole when you were talking about 3 billion of excess liquidity and then into loan growth and what was going to be used and what was left can you just repeat those numbers I was I was not keeping up with you. Thanks sure. It was about a one for one for $1 5 billion of loan growth.
And then about $500 million 1 billion in Gabon purchases.
$250 million as public fund cyclicality that we still expect we havent have run out in the first quarter, we expect a little bit more in the second quarter, and then $500 million to $1 billion of potential deposit runoff.
Again with loan growth being 1.4 that would bring the deposit round to five but kind of those ranges.
Got it okay. Thank you very much.
Absolutely. Thank you Kevin.
Thank you. Our next question comes from the line of <unk> from Raymond James. Please state. Your line is now open.
Hi, good morning, everybody.
Good morning.
Just wanted to touch on the organic growth outlook and I was hoping that you could walk through some of the puts and takes on that what what do you expect to be the primary drivers behind that high single digit pace expectations for the contribution from Balboa, and then just any details you might be able to provide on production expectations and payoff and paydown trends that are kind of embed.
And that outlook.
Yeah, I'll start off by kind of breaking it down by each vertical I will tell you on the commercial front.
We remain very bullish when I look at our pipeline. There. It is just as strong as it was over the last quarter and the opportunities are out there for what I call a responsible growth the.
Competition in the pressure across the board when it comes to pricing primarily from some of the larger big banks out there.
Is stronger than it's ever been so I think pricing is certainly a challenge for everyone.
When you're going up against some of the larger banks pay.
Pay offs will still be a headwind, but we still feel like with the production we have in place and the pipeline. We have in place that we'll be able to offset that as it pertains to the commercial area.
Construction loans, we are benefiting from an elongated period, there with the construction development, because it's taking longer to wrap up projects just due to supply chain issues. So all banks are kind of benefiting from that so I think we will continue to have had that lift there.
Mortgage is Nicole touched on we did about it being fab this quarter right now I'll tell you our apps and the and the production. We've got going are very consistent right now.
The biggest challenge there being just supply.
In terms of homes, but once again as we had breached consistently our model is so different and so as long as we get in we will get more than our fair share purchase activity we.
We feel very confident in our ability to maintain the production level, they're kind of at our current run rate.
Balboa is.
A great addition for us because it provides not only diversification and then of course, we remain focused on small business lending, which is what they do but also as we've stressed before the importance of levering the technology. They provided us throughout the entire company. So we're rolling that out as we speak through the retail land through our small business banking initiative and the COO.
But the other benefit of that that business is as it grows we certainly always have as a governor the luxury of being able to package and sell that that paper and retain servicing or release servicing with that and securitize the paper or do some loan sales. So that's a great governor to have its the papers in high demand.
Obviously, but right now it's a small percentage of our balance sheet. So we will continue to benefit from from that addition.
And I think that pretty much covers all the lines of business. So I would tell you in a nutshell, we feel very good about the pipelines as they stand right now our customer sentiment is still very positive the only negative I hear from a lot of the clients that we call on is just maintenance supply chain issues and there's not a panic out there like you.
Hear from a lot of the pundits on TV in terms of the sky falling it's more of they see opportunity and growth at least in the markets. We operate so that's encouraging to hear and to see and our pipelines are reflective of that.
That's helpful. Thank you for that and then maybe just touching on expenses that that table with the breakdown of the increase is extremely helpful. I think if we if we take that it looks like maybe.
Adjusted for seasonal expenses and the negative credit resolution, maybe $140 million is kind of a good base rate, but just obviously with mortgage production is going to impact.
Expenses, but just given the inflationary environment, our strong production trends and continued investments that you all are making I guess, how do you think about the pace of expenses looking forward.
So take mortgage out because obviously mortgage is going to be cyclical depending on what production goes up or down to take kind of the mortgage piece out and look at just everything else kind of the core and we're expecting you to you're exactly right take out some of those cyclical payroll cost I think that what was it a good run rate.
Think that take out with cyclical payroll and 401, K matching and I think we are going to do our best to hold that to very very little increase at flat to slight increase that we really are focused on.
Figuring out how to pay for things through efficiency and through use of technology. So when we do spend money on technology, There's a case as to whether it's growing our revenue or whether it's steadiness in some expense somewhere else.
And then just continuing to look at that.
Okay.
And then maybe shifting gears back to the liquidity I mean, you you you've got a huge advantage here sitting with $3 billion in excess liquidity.
Talked about the point, a large portion of that into the loan growth and then some potential further deposit run off but how do you think about the pace of securities purchases I mean, you've been extremely disciplined my my gut says that you're going to be investing at a pretty measured pace, but just any color on on the pace of purchases, what youre looking to buy and what kind of yields that you are.
Being on new purchases.
Sure so.
We have started and up to 500 million with our first.
Kind of conversation and Alco.
So this is not all on the balance sheet, yet as of March 31st, but but through so far through yesterday.
Yesterday, we purchased a little over $300 million.
We're getting about a 3% yield maybe a little bit better than that and about a four year duration. So we feel we feel really good about that compared to the one 120 that you really could have gotten a year ago. So far what we thought will add about a $1 million $1 4 million of interest income per.
Quarter, that's about a penny a share going forward so.
If we put $500 million and that would make our portfolio, 5% to 6% of our earning asset and if we put a $1 billion and it would be 7% to 8% right I feel like looking at that 500 million to a 1 billion over the next few quarters could be realistic.
Okay, and that's going to add first bucket I'm assuming.
They are where they got it.
That is one thing I should have added on the question earlier I don't think I addressed that with I think Kevin's question and we did buy some bonds during the last year really kind of the last six months, but they were all kind of CRA investments and they went to the held to maturity bucket. So we.
We did have a little bit of purchases prior to this quarter, but everything so far this quarter is going available for sale.
Okay. That's helpful. Thank you all.
Thank you.
Thank you as a reminder to ask any further question. Please press the star followed by number one on your telephone keypad.
The next question comes from the line of Jennifer <unk> from <unk> Securities. Please Jennifer your line is now open.
Thank you good morning.
Good morning.
Question on.
Loan losses as interest rates go up Palmer, what do you feel like are the most vulnerable bucket.
And can you talk about where you think Balboa net charge offs won't land as rates go up specifically.
Yeah.
Yeah, Jennifer I'll look at it more from each.
Each vertical and then more specifically each product type and I think when you look at commercial as we all are very well aware of the sensitivity around office.
We're limited in our office exposure.
But I would tell you that.
That's why we're keeping a very close eye on just as people are trying to figure out what they're going to do in terms of back to work and their need for space. Most people I'm not worried about people defaulting on their leases, it's more along the lines of what amount of space they need at maturity.
And then the.
And so that's one area we're looking at.
And then the other thing that we're keeping a close eye on when it comes to small business. Those people are obviously ones that we've done.
And the environment is kind of stress that you keep a close eye on whether it be through SBA. There are a lot of our loans, they're obviously government backed guarantees, let's see Balboa loans I think they're the important thing to focus in on is the is the.
The FICO scores there and the type of credits were listening to and I quote it too.
R R.
Our old indirect portfolio, which held up extremely well during the day.
So I'm wondering what if you wonder what those are going to look like I think with the FICO scores are extremely strong I think when you look at our charge offs.
We've got FICO scores are around 721 average FICO, which is extremely healthy and the benefit of that doubt Boa portfolio too is we had over 30 years of historical.
Trends that we could look at in terms of charge offs and so I would think there you may be looking at the peak four basis points.
Most.
But right now we feel very good about that line of business. So all in all and keep them on Tuesday as those loans are small loans smaller loans and then they also the duration is very short so we.
We feel very comfortable there, but I think probably primarily office I do look carefully at construction too.
I think the the housing mortgage is going to be less worried there because inventory levels are so low, but those would probably be the three categories.
So Jennifer let me.
A follow up on that on that now both charge off number just so you know we had.
We had forecasted.
When we were doing due diligence that it would add four basis points to our total so clearly that kind of line of business or its own group will be more than that but but we didnt anticipate it would add any more than about four to the total bank given the size of that portfolio to the rest of it and that's how it came.
I'm in pretty much this quarter and how we expect it going forward.
Okay. Thank you.
Thank you. Our next question comes from the line of Crystal Martinez from Janney Montgomery Scott. Please Christopher your line is now open.
Hey, Thanks, Good morning, I, just wanted to follow up on kind of new loan yields kind of beyond what we see in our disclosures last night, how new yields acting and how do you think they will kind of reflect those of cloud Titans in the next couple of quarters.
Yes, Chris obviously as you know, we're experiencing stronger yields through the residential mortgage portfolio.
And.
But you know there is still low in my opinion when you look at 30 year rates, but we're certainly going to get the lift for that in both the held for sale and the portfolio itself.
Commercial is extremely competitive right now so there will continue to be downward pressure there on the yields.
We go forward on the floating rate instruments and we're also seeing you know when you look at some of the bigger banks out there there's still some 10 year money out there that we're passing on it's still got a three handle on it which is I don't know how anybody make some money doing that but.
So we have passed on several of those opportunities if you will.
Balboa is going to be a big contributor to us in terms of they are coming on right.
And the double double digits, and so that's going to be a big lift in improvement to the margin. So I think when you look at the beauty of our balance sheet is the diversification across the board. So I feel better about our outlook on NIM, probably the most of our competitors do as a result of of primarily Balboa and the mortgage operation and then.
Obviously in a rising rate environment, we will get the lift from the from.
The floating rate instruments, but at the same time, that's going to be a very competitive.
Sector.
Sure so you'll probably still be more selective on C&I and some of those lower margin deals as a result, absolutely yeah and I mean, we.
Clearly look at the relationship component of it and the deposits everything associated with that but.
It's very competitive out there, especially when you start getting into long term fixed rate and we will all benefit because most people's floors will be exceeded and we'll all benefit from the from the rising tide of fed moves but.
And the other thing that I think is going to be interesting on the flip side of that on a liability side is we will find out very quickly what banks have done a good job in those who've not focusing on all those sticky core deposits, because you're going to see a real change in betas.
Those who have focused heavily on that and the less rate sensitive type of deposits are really going to fare well as we move forward and I think with our bank with all the excess liquidity, we have we're going to be able to probably.
Hold off on having to adjust deposit rates up as quickly as a lot of our peers as a result of that because we just got a stronger deposit base.
Great. That's helpful. And then just a quick one on sort of the recovery of the servicing asset.
Should we expect some more of that Palmer as the next few quarters unfold.
I would not know.
Okay.
Great. Thanks.
Thanks very much.
Alright, Thank you Chris.
Thank you. Our next question comes from the line of Brody Preston from Stephens incorporated Please Brady your line is now open.
Hey, good morning, everyone.
Good morning, good morning.
Nicole I had the hot for a couple of minutes so much money and I think it was Brady and Casey's question. So if I if I ask anything that's redundant must feel free to appointment of the transcript.
I wanted to ask real quick just following up on on Christian's question.
The Bank Division origination yields Nicole do you know what those were <unk> Butler.
Sure ex Powerball I said, we reported $5 17, with Balboa and ex Balbo as they were $3 82, and I think that's compared to $3 35 last quarter and we saw a bump even without Balboa.
Got it and what was it ex Balboa that that drove that bump.
The linked quarter increase in the construction book.
It was a bit higher than it had been recently it wasn't that.
It is I mean, it's just rates in general and the anticipation of rates going up and then I see them as Palmer mentioned, you know that we're not going to kind of.
Despite our faith on on rate.
Knowing in this environment got it.
Okay, and then just on the Balboa fee income.
Thanks for putting the size of it in there.
Is that all.
A gain on sale income under the consensus of anything else, what's flowing through other income.
It is the gain on sales.
Their portfolio or their production that maybe doesn't fit quite into our credit box and so we will sell that and that was all modeled in our acquisition that we would continue to have fee income or gain on sale income going forward with them.
Got it and do you happen to know what the dollar amount of loans you sold this quarter was and what was it you know last quarter in the month that you all have them.
Fire.
Yeah.
Sorry, I did not have that in front of me, but I can get it.
Alright, cool I'll follow up with you.
Okay, Let me just on the mortgage portfolio.
What is the what do you think the size of the Hff's portfolio looks like going forward, just kind of sit there and I think I think the guidance was you think that originations are going to fall somewhere in that $5 billion to $7 billion range per year.
900 level, a good level or doesn't shrink a little bit more from here as well.
I think it could shrink a little bit, but not nearly the 1314 down to the nine I think that's the bulk of it I think it could it could land somewhere between seven and nine 759.
Got it.
Okay.
And do you happen to know what the unpaid principal balances of the servicing portfolio.
At quarter end.
I will get that for you.
All right cool.
On Balboa. Thanks.
Thanks for putting the origination yields in there, but do you happen to know what the average yield on that portfolio as I said <unk>.
The average yield on a barbell portfolio.
Yeah.
A little above 10 about 10, 10 and a half.
Okay.
Alright.
Could you remind me how big you're willing to let that portfolio grow to as a percent of the total loan portfolio through time.
Sure So right now.
We are using their technology as well and are in the core bank as well, which is kind of are there not necessarily balboa national's vendor customers. So, but we are comfortable with the credit that we're using in that and how we're doing that so it could easily grow to 10% unless you figure right now there are three.
5%, so that would be tripling and I think if you know tripling their volume and if we got to that we would we would look at it and by then we would have some some additional historical data, but I think it could easily get to at least at 10% and then we would realize it.
Thank you for the nice thing is that paper, we can obviously package securitize and sell it.
Garner some servicing fee income off of it. It's just got a lot of versatility to which we appreciate.
Yeah. That's good to know thank you for that.
I actually have a few more here just quickly.
It tripled the seasonal reserve waterfall.
I wanted to ask what was the specific Q factors net went down and.
Right next to me there's model changes so what wasn't specific.
I guess what was what were the specific portfolios, where you increased your loss.
Loss forecasts.
Or they kind of acute cochlear went down 47, the modeled losses went up 47, so could you kind of walk through that a little bit.
Brody the Moody's this genre, the Moody's forecast that we use.
You know there are several scenarios right from the baseline to.
A fairly difficult scenario and as we looked at the various options. This quarter, we blended several that we felt like were.
Were representative of what kind of.
Economic climate, we were going into and as we looked at that we felt like that those were the key factors that we had used last quarter. We're basically picked up in the forecast models.
And therefore would have been more of a double dip to include both Q factor in and the kind of model weighting that we were using so.
Specific key factors.
Certainly have that in front of me, but.
In the overall scheme of it why it looks that way is that we felt like the model was more representative in those key factors that we've been using were included in that model. So they weren't they weren't needed.
They weren't needed in this quarter.
Okay.
And on the call just on the interest rate sensitivity side. Thank you for the additional detail there.
Can I, just ask of that $4 7 billion or 29%, which is variable rate.
What percent of that is is truly floating.
Or is there any kind of variable rate loans that have a fixed portion within that $4 7 billion.
Got it that's all floating.
Okay got it thank you for that and.
Of the additional $2 4 billion that repriced quickly.
Could you just remind me what the.
But the I guess average time period before those kind of reprice typically looks like.
Sure. So those really are our construction loans that are typically you know in 90 to 120 days and then also my premium demands are technically fixed rate, but that's a rolling balance until there is a section of that repricing every year every month and those are typically about a nine to 10 months duration, but again those are.
And constantly growing portfolio.
That does it those are the main two.
Got it. Thank you and then I just didn't have one last one on the deposit data.
I saw the 25%.
Non maturity deposits assumption does that I guess two questions does that include noninterest bearing where there might be an assumption or is that just the interest bearing deposit beta assumption and then is it static throughout.
Throughout your forecast and it doesn't it kind of a ramp to that 25% level.
Yeah. So the 25% includes the noninterest bearing and without the noninterest bearing we are modeling closer to about 50% of just kind of the now savings and money markets.
And then it is a your question was was it static.
Yeah, whatever static or doesn't it kind of start yeah does it increase to that level over time.
No in our modeling we do it on a static immediately.
What were you using so we feel like we've got it we can kind of beat that data.
Awesome. Thank you very much for taking all my questions everyone I appreciate it.
Brody.
No that's great.
Yeah.
Operator any other questions.
We currently have no further questions on the phone lines I would hand over back to Palmetto Brook Taube for any final remarks.
Great. Thank you very much one and once again I'd like to thank everybody for listening to our first quarter call. We're obviously excited about the momentum we have throughout the entire company and feel like were extremely well positioned when you look out into 2022 and beyond.
That type of success I'll tell you it doesn't just happen.
It's based on as I keep saying the disciplined culture and the core fundamentals that our teammates continue to exhibit and as a result of that we remain very diligent well focused on delivering top financial results to drive shareholder value. So thank you all once again for your time and your interest in the mirrors bank have a great day.
Yeah.
This concludes today's call. Thank you so much for joining you may now disconnect your lines.
Uh huh.
Okay.
Yeah.
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