Q1 2022 BankUnited Inc Earnings Call
Good day, and thank you for standing by and welcome to the Bankunited, Inc. First quarter 2022 earnings call.
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And I'd like to hand, the conference over to your host today, Susan Greenfield Corporate Secretary. Please go ahead.
Thank you.
Thank you.
This call.
Jeremy.
Yeah.
Our Chief Financial Officer.
Yeah.
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Thank you.
This call may contain.
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Private Securities litigation.
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Future events and financial.
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Any forward looking statements made during this call are based on that.
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The company and its subsidiaries around the company.
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The inclusion of this forward looking information should not be regarded as a representation by the company.
Your plans.
Expectations contemplated by the company.
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Such forward looking statements are subject to various risks and uncertainties.
Including without limitation those.
Getting into the company's operations financial results.
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Growth strategy and liquidity, including active.
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Circumstances outside of the company's direct control the company does not undertake any obligation to publicly update or review any forward looking statements, whether as a result of new information future developments or otherwise.
Important factors could cause actual results to differ.
Materially.
As indicated by the forward looking statements.
Information on these factors can be found in the company's annual report on Form 10-K for the year ended December 31, 2021, and then the subsequent quarterly report on Form 10-Q for a current report on form 8-K, which are available at the SEC website.
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With that I'd like to turn the call over to Ross.
Thank you Susan welcome everyone. Thank you for joining us for our earnings call.
Let me start by some comments about the economy in our markets that we are in and generally how we see.
The outlook.
So I think that we don't control but.
<unk> our business, then we'll get into our numbers and.
And then Tom and Leslie will follow me with more detail so.
The main street view, which is the view that we get from talking to our clients day in and day out is actually very healthy.
We are seeing a robust economy and Florida have been for quite some time and even New York has improved quite a quite a bit over the last couple of quarters.
So nothing really to complaint on the economic front.
<unk> is strong.
Personal and business balance sheets are strong and healthy.
Of course, the usual issues with labor constraints and inflation, that's nothing new.
But overall the home prices are up residential markets are robust.
<unk>.
The main street view that I will bring to you at this time is very healthy and strong.
Then the other deal which is the capital markets view, which we get by looking at our Bloomberg screens.
All day long these days.
This was a very volatile quarter.
And probably the most volatile quarter in quite some time, so, especially in fixed income we saw obviously the yield curve go up to where it is but we also saw a spread widening pretty much across the board at fixed income assets. So that gives us a little bit of pause when we think about sort of the medium to.
Long term as in maybe next year that there may be a slowdown.
Again that can change.
Keep monitoring it but those are the sort of inputs, we're taking into account as we are thinking about how do we execute the strategy.
Quickly getting into the financial results for the quarter earnings came in at about <unk> $67 $2 million was <unk> 79 per share.
NIM expanded I think last quarter, we were at $2 44. This quarter, we came in at 250.
Just for comparison last quarter I know there was a lot of noise in the numbers, but if you go back to quarter one of last year, we were 239.
Cost of deposits came down again to 17 basis points for the quarter I think we ended the quarter for spot balances.
The.
The deposit pricing was around 16 basis points I think this is the bottom in terms of deposit pricing to state the obvious.
Is.
Going to raise rates.
Raise rates fairly aggressively from what everyone.
Everyone is talking about it looks like this quarter, they will probably be 100 basis points increase between demand the June meeting.
So I think deposit pricing will start to rise from here.
But it's nice that we were able to work it down too.
16 to 17 basis points, if you remember last time, the fed reduced rates.
We started raising rates.
Last cycle.
Our cost of funds bottomed out somewhere in the 50 55 basis point range. So we're very happy where we've been able to what we've been able to do with our deposit franchise.
By the way, we also had $688 million of DDA growth this quarter.
So that momentum continues total deposits did shrink.
That was deliberate effort actually started last quarter with fourth quarter and into mostly done at this quarter, we did shrink our deposits interest bearing deposits, but DDA and.
The DDA growth that we got the $688 million.
Pretty widespread it came from all parts of the company. It came from all geographies to do business and so it wasn't concentrated in any one area and even before I get the question about how much of this was core wasn't I'd say from a vast majority of it was core there's probably a couple of hundred million, which would fall into the category of just money.
Being around at the end of the quarter so outside of that everything was.
Core deposit growth.
Average loans increased $586 million, but end of period loans declined 227.
<unk> driver and that decline is our mortgage warehouse business.
Which came down roughly $400 million, which it is returning to its normal seasonal trend utilization dipped into the <unk>, which is what happens in March the last couple of years because of the pandemic.
<unk> years, but now we see that business returning to its normal cadence, which is march being the slowest time in terms of utilization and then it starts to build from here into June and generally into the third quarter before starting to <unk>.
Slowdown in the fourth quarter again, so we're seeing that.
Turn.
In our other businesses are also seasonal first quarter is always our slowest quarter, even outside of the mortgage warehouse business.
And so we're seeing that but in terms of what pipelines were pretty excited about what we're seeing in our pipeline.
Both C&I and CRE I think this will be the year. So you are able to grow we've been shrinking CRE for many years, but we see momentum in that.
Look forward to that optimistically.
Just taking a 12 month view, which I often say you should always look at 12.
12 month rolling basis, instead of looking at any one quarter.
So I had these numbers just pull this quickly before this call over the last 12 months Ni DDA and noninterest DDA grew $1 7 billion. Our total deposits grew about $800 million $809 million.
This is all excluding <unk>.
Loans, excluding PPP grew 841, so loan growth deposit growth was roughly in line and DDA was really the big story.
Yes.
Credit really quick nothing but good news here.
Again as expected, but nevertheless, good to see that numbers Npls declined from 87 basis points to 65 basis points and by the way if you will.
Carve out b the guaranteed portion.
Of the SBA loans than the Npls stood at 47 basis points Chris.
Criticized classifieds.
<unk> been declining steadily every quarter that Craig.
It came down by another $280 million, which we're happy about it.
Annualized net charge off rate came in at 15 basis points.
Just to put it in context last year for the full year, we were at about 29 basis points.
Our buyback program, we bought back $82 million of stock in the first quarter.
You already know that we increased our dividend by <unk> 25, a share.
I expect that we will.
Burns for this entire buyers.
Buyback authorization sometime in the second quarter and when we do we will go back and talk to our board and I expect they will.
Would it be another authorization.
Which will be which will be coming shortly after that.
In terms of we.
We gave you guidance.
On loans and deposits expenses and margin and so on.
We stand by all of the guidance. We gave you so we're reaffirming everything.
And we're feeling good about what 'twenty two is shaping up to be.
Putting aside.
The numbers just a couple of other updates.
We did come back to the office in the first week of March. So we are in the new normal now so after many false starts with the virus and what have you. We eventually are back.
To the new normal so.
And it has gone well.
No.
As long as you exclude the fact that card and lastly, an auto got Covid very quickly after returning to the office.
That is the thing has gotten just fine.
And we're fighting warehousing.
The.
You've heard me talk a lot about sort of division of the company and what we're trying to build long term, which is relationship based.
Middle market small business bank.
The relationship based bank.
Most important currency is trust trust that company is that our customers put in us and even our employees and our regulators and everyone put to us.
So this is something that makes me really proud Newsweek announced.
That the the rank.
All the banks in the country on a trust factor and we were ranked number fourth most trusted bank in the country and we're very proud of this achievement, we're celebrating it to the company.
Quickly on Atlanta, and Texas expansion.
We have hired.
The C&I business ahead of the CRE business, our head of healthcare practice, which is a vertical already is in Atlanta.
Look that bench strength is getting in place.
And we.
Moving into our offices I think within the next week or so.
Same thing in Atlanta, we received approval for our branch just a couple of days ago.
We opened the doors I think next week. The team has hired trained and ready to go so all good news and progress over they are attractive Atlanta, but I think we've already booked our first piece of business pretty marquee name on the C&I front, we did that loan just a couple of weeks back.
So with that let me turn it over to Tom.
For a little more deep dive into the numbers alright. Thank you very much Raj so to follow up on.
Rogers comments on Atlanta, and Dallas expansion.
There is a number of other strategic initiatives that we have in place for the year that we've also made.
Some key hires we brought in a.
A sponsored finance leader.
In our New York market.
Focusing on sponsor finance business.
We've not had a dedicated effort on the sponsored finance area previously so we're excited about that.
Recently hired a new trade finance it supply chain finance leader.
Any market.
Florida, and New York in the southeast a great export markets for us.
We're optimistic about that.
And.
As Raj said, New York is on the move.
We have hired.
A middle market banking leader for the long island market, we like very much what's happening in middle market banking and law.
It gives us a great opportunity to.
To increase our portfolio and client base and the long island market. So.
A lot of.
Good successes on the hiring front.
Over the last couple of months that we're optimistic about growth will feature of the results for the rest of the year.
Covering deposits and loans, just a little bit more as Raj mentioned total deposits decline.
$897 million most of that run off was in what we believe to be.
Interest rate sensitive accounts broker deposits and interest bearing accounts that are higher on the data.
Side, we've been working over the last few quarters.
And are waiting.
Rate rises that we expect to see in moving out.
Some of this activity some of it happened a little bit in the fourth quarter some of it got delayed into the.
Into the first quarter of.
2022, but our strategy continues to be around very solid DDA.
<unk> growth as Raj mentioned overall growth of 688 million strong new business acquisition with new logos.
You also see that bleeding through and transactional.
Revenue.
Our service charge revenue was up year over year for the first quarter.
About 22% so.
That strategy of new relationships expanding.
Singles and doubles and key relationships every quarter.
Its continuing to look at.
As an important part of our overall strategy on the loan side as Raj mentioned average loans increased by $586 million for the quarter, although at a point and they were down $227 million.
Predominantly due to the large decline.
Mortgage warehouse business that Raj explained residential did grow by $244 million.
I'd also point out that the C&I book.
Grew by $122 million.
<unk>.
Imbalances for the quarter was also up $345 million in total commitments for the quarter.
And that was broad throughout the corporate banking business commercial.
Commercial banking business and our small business.
A number of different.
Industry segments. So we feel really good about C&I growth for the rest of the year.
The same way about Cree growth.
As Raj said pipelines are very healthy.
For near term business in the second quarter feel very good about the growth that we're going to see expect to see very solid growth in the C&I segment, we expect to see growth in the <unk> segment.
We are seeing particularly good growth in Cree in the New York market, we're very optimistic about a lot of transactions that.
We feel a very near term transactions in the <unk>.
The New York market, so with that we'll turn it over to Leslie for more details on Florida.
Actually Leslie.
Let me just interrupt just to add a little thing.
We did see a fair amount of dislocation in the fixed income market.
And we were opportunistic, especially in the month of March at least back then and deviated from what was our original plan. The original plan was not to grow the bond portfolio. This quarter in fact blammo shrinking.
But we looked opportunistically and we saw spreads that are at.
Really amazingly widespread.
We we stepped in and we grew the bond portfolio all towards the end of the quarter. So you don't see the impact of that in the P&L really this quarter you will next quarter.
But that's just an explanation.
Why the bond portfolio.
Totally opportunistic nothing else.
Yes. Thank you.
Keith.
A couple of highlights from the quarter, a little more detail around the numbers.
NIM increased this quarter to <unk> 15 from $2 44 last quarter.
Break that down a little bit the yield on investment securities increased to 173 from $1 54.
Eurasia This portfolio short so we're already starting to see the impact of rising rates and widening spreads on the portfolio yield with new purchases are kind of normal higher spreads.
Slowing speeds on premium Securities also positively impacted the yield on securities for the quarter by about eight basis points.
We saw the yield on loans declined to $3 36. This quarter from 350 last quarter I wouldn't say any one single factor growth, but at a high level.
We still saw for most of Q4 and Q1 2022.
Ones that were coming on were coming on at a little bit lower yields lower.
But we're running off the portfolio, we didn't see this moving rates for very late in Q1, and we did start to see an inflection point towards the end of March in terms of the yields that with new loans, we're putting on so we should start to see that go the other way.
Move forward through 2022.
The total cost of deposits declined by two basis points quarter over quarter and the cost of interest bearing deposits declined by three basis points I will point out that we have locked in some term deposits in anticipation of rising rates, we've issued some callable Cds and some brokerage Cds and put some cash flow hedges against the departure.
The book.
If we exclude all of the instruments from the cost of interest bearing deposits we're talking about.
Three basis points lower for the quarter.
We also saw the cost of <unk> advances declined to 111 from 186.
And that's really due to the runoff and termination of borrowings and related hedges at higher rates and the addition of <unk> slower.
Lower hurdle rate.
We still expect double digit growth in net interest income for the year and further expansion in the NIM over the course of the year, probably most concentrated in the back half of the year as we now see the impact of rising rates on our loan portfolio.
The extent to which we see the NIM expand obviously will depend in part on how competition around deposit pricing.
Moving to the ACL in the provision the provision for credit losses for the quarter was $7 $8 million in the provision was mostly driven by <unk>.
Qualitative overlay that we added related to economic uncertainty around several factors Raj discussed at the beginning of the call.
The reserve remained consistent as a percentage of loans 54 basis points at March 31, compared to 53 basis points at December 31, 2021.
Some of the factors impacting our reserve for the first quarter, one with the largest was a $12 8 million increase in qualitative overlays related to economic uncertainty, particularly around inflationary concerns on the impact of all the things that is feeling rising rates.
Quantitative tightening as well as well.
The war in the Ukraine, and some lingering uncertainty around the phone.
<unk>.
The economic forecast offset partially offsetting that drove a $4 9 million decrease in the reserve.
An increase of $5 $6 million related to updated assumptions, the most significant being updated prepayment speed assumptions.
And an offsetting decrease in $6 million related to the various changes in the portfolio. The new loans ran off risk rating migration et cetera, and we kept net charge offs for the quarter and $8 $5 million.
Slide $23 22 in our supplemental that gives some more information about.
Criticized and classified assets and risk rating migration again criticized and classified commercial loans declined by $280 million this quarter.
Special mentioned down 53 standard accruing down 180, substandard non accruing down 25, and doubtful down 21, so declines across all of those categories total nonperforming loans decreased by $55 million.
$151 million this quarter and 151 includes $42 million of the guaranteed portion of SBA loans on nonaccrual.
I want to talk for just a minute about the <unk>.
Mark on the bond portfolio I'm sure you saw.
Yeah Raj talked about the volatility in fixed income market that is probably the.
Most volatile fixed income market core income market quarter, we've seen in a long time.
Unrealized losses on our available for sale securities totaled $235 million.
At $3 31 pre tax.
After tax impact on OCI and that was a $174 million. We have some details about that on slide 25, and 26 of the deck.
Portfolio segments, with the largest impact where our MBS MBS and agency. All of this is attributable this is a rate mark. This is not anything indicative of any credit concerns in our portfolio. All of these unrealized losses are attributable to increasing rates and to a lesser extent widen spreads all brought on by.
The fed's actions and expectations about further quantitative tightening.
Were temporary in nature, not indicative of credit concerns.
We're not concerned about this at all.
We get a lot of questions about moving securities to held to maturity.
Being a security to held to maturity doesn't change the economics or the risk profile associated with holding a security and simply eliminates any flexibility that we have in managing our bond portfolio.
And not to do that.
The silver lining in this is that we've been able to purchase.
<unk> towards the end of March at some very attractive spreads and we're already seeing some of that will increase in the yield on securities This quarter.
Related to this in the first quarter. We also took a negative mark through the P&L.
10, and a half million dollars on some preferred stock investments that we hold at the holding company also attributable to rising interest rates.
Majority of the securities in that portfolio are still at a gain position compared to their original purchase price.
When this turns around the positive Mark will also run through earnings since these are equity securities to Mark rents to earnings.
Other notes on noninterest income I want to point out that the growth in noninterest DDA and changes we've made to our sales strategy and product we will try to Treasury management area resulted in a 22% growth in deposit service charge revenue compared to the first quarter of 2021.
The decline in that other noninterest income line for the quarter relates to a couple of things that can be somewhat episodic in particular.
In response to what's going on in town markets lower only revenue.
And a little bit lower income from our customer derivative program this quarter, which can also be somewhat.
Got it.
On the noninterest expense Bryant comp expense declined by $3 5 million for the quarter. It was really related to the special employee bonus we paid in the fourth quarter of 2021.
$6 $6 $8 million and that was partially offset by the employee benefit type stuff that is always elevated in the first quarter I would say from a carpet.
Q1 is probably a pretty decent run rate for comp for the rest of the year, while some of the typically higher first quarter stuff will moderate we'll see the full impact of merit increases and planned staff additions in future quarters.
That is all I have and I'll turn it over to Raj for closing comments.
Thanks Leslie.
Let's just open it up for questions.
Okay.
If you'd like to ask a question at this time. Please press. The Star then the number one key on your Touchtone telephone.
To withdraw your question press the pound key.
Again that is star then one to ask a question.
Our first question comes from Brady Gailey with <unk>.
Hey, Good morning. This is will Jones on for Brady how are you guys.
How are you.
Great. So I just wanted to start with the buyback you guys were obviously very active again this quarter.
Raj unless you've been active and very active in <unk> very active and <unk>. Roger your comments seem to indicate that there's not going to be any slowdown on the buyback I mean can we still expect the buybacks to be.
Similar magnitude as in prior quarters.
I just wanted to get your thoughts on how you think about your excess capital position.
Wasn't any limiting factors in there.
Yes, I think.
In the short to medium term I don't think Theres anything there I think long term you always have to look at growth prospects you have to look at economy, you have to look at.
A number of things, but in the short term defined as the next three or four months.
I don't see really much of that changing so that's why I say that because I think it will get done sometime over the next few weeks with the authorization we have in place and we expect to go back to the board for another $150 million you know, we get authorization to 150 at a time, we don't do a big one this gives the board chance to kind of look at it again.
Then we'll make the decision again keeping in mind.
Yep.
What has changed.
With this with the situation but.
I fully expect I think we have a board meeting in the middle of May actually a shareholder meeting in the middle of May.
It might be at that or if not that maybe shortly thereafter, I think we will be asking for other authorization.
And could you just remind us how much you have left in your current authorization.
At the end of the quarter.
Leslie do you have that number how much should we.
I can find it.
Just a minute.
No.
Yes, no or is it we can circle back if needed.
I find it carryon throw it out there when I find it.
Okay, Great and then.
Just thinking bigger picture I know, we haven't touched on banking I had to point out in a while I think as of early last year, you had already achieved the 40 million of cost saves and we're working on the 'twenty. One revenue synergies could you just update us on where that stands today and maybe if that's already played out and then.
As you think longer term or maybe more intermediate term.
Growth is picking up you have a nice portfolio mix shifts.
Rates are moving higher and we're just.
And our environment, you'll see some nice positive operating leverage have you guys had discussions over internal profitability targets and do you think.
Like a 1% ROA could be plausible in the near term.
That is a near term goal is to hit 1% ROA and double digit ROE on a consistent basis.
Get that wood from time to time, but you can be consistently above that is the short term market.
A lot depends on.
What happens if there's a margin that is going to expand.
How much exactly.
Time will tell but margin will expand we're not betting the ranch on on rates going up but we are slightly asset sensitive so margin expansion will help get us closer to that.
And.
You know it is.
The last two years off of the spend that make it didnt do a permanent damage to the balance sheet for us or for most banks, but what it did was it.
The opportunity cost of not having grown our C&I business not having sort of.
Proved out that our asset mix that is the real cost of kind of <unk>.
Slowing us down.
The Bachelor onto achieving higher profitability now that the pandemic feels almost behind US I don't think it will be fully behind us, but for the most part feels behind us.
Returning to normal.
It has to pick up and those last 18 months in terms of <unk>.
C&I growth CRE growth to actually execute on that and and build margin in billed revenue build profitability.
Ross just to interject at the end of the quarter, there was $94 million left in the buyback authorization.
Yes.
Hey, great.
All very helpful. Thank you so much.
Okay.
Our next question comes from Ben Garlinger with hub group.
Hey, good morning, everyone.
Good morning, Ben.
Curious I know that you guys have.
The expansion to Atlanta and Texas.
Texas.
I think Raj Saudi battery booked your first one.
I was curious if you had any.
Intermediate goals I know you have a team that you're putting together.
What it can really be in shape.
Atlanta relative to broader bank, United but like is there a loan portfolio metric you would like to see or of a balance that by the end of the three years.
Yes, so Ben we have internally obviously.
Our plan.
Targets for the team that has been hired and their incentives are tied to that so they have targets.
But we have not disclosed in fact for any business that we started we've never disclosed exactly what we're trying to do in the short medium long term.
And but I will say this much that if you look back at any business. We've started we've never come out, especially on the lending side of the business and said what are you going to one hundreds of millions of dollars right off the bat I don't think thats prudent.
Pink.
You would want us to do that.
So.
In the first year of these initiatives.
They don't move the needle for the company there are small and they don't move the needle, but over 234 years. They certainly become very important part look at Orlando look at Jacksonville look at our mortgage warehouse business. All of these things generally take off is slow, but once we are comfortable once you've gone through a cycle and audit and exams.
Cycle, we get the confidence to say, okay, let's get into a higher gear. So I would expect more growth next year than this year, but.
And by the way for Texas just to clarify.
I've said this in the past that as more of a deposit play at least in the short term and not alone play.
Atlanta is both so it's at full service play so but.
I don't want to throw out numbers internally, obviously, we have number especially for the team that has been brought on Dave They have been hardest hit over the next year or two or three.
But I don't think they are going to move the needle for for the company.
2022.
Got it Okay. That's fair.
Fair.
So if we could just take a minute here talking about the margin.
The forward curve is expecting.
And glass at last check it was like $50 $50 50 over the next three fed meetings and when you think about the margin.
Day.
Is it fair to say that the game and we just saw linked quarter.
And what you can kind of expect over the next couple of quarters or is this improvement.
Improvement go ahead.
I'd say over the rest of the year I feel more confident now than I felt when we spoke last about margin expansion I don't know that.
<unk> quarter, we will see as much margin expansion.
Quarter, Shawn I honestly you available.
And I don't really think about this on a quarter by quarter basis, but I think we'll see good expansion over the rest of 2022 I still tend to think you'll see more of it in the back half just as commercial loans get added to the balance sheet as higher spread at higher spreads and begin to have more of an impact on the margin, but I do expect.
Other expansion over the course of the rest of it I'm not going to try to pinpoint exactly what quarter you can see how much of it is.
Got it Okay, that's fair direct signs up.
And then if I can sneak one more in about expenses.
So you guys are that <unk> is always kind of been a bit of a high watermark and I know you gave guidance last quarter.
Yes, it really encase.
Looming wage inflation, so I think those accretive on your guidance yet, but when you guys think about the additional hires or is that kind of baked in to your previous guidance. Yes. We still think we still feel very good about previous the previous guidance on the mid to high single digit guidance that we gave around noninterest expense in January .
Still feel confident in this guidance.
Got you Okay I appreciate it thanks guys.
Yes.
Yes.
Our next question comes from Brock Vandervliet with UBS.
Hi, good morning, Thanks for the thanks for the question Raj I wanted to go back to your comment on <unk>.
One of the few optimistic comments on this on this business.
For example, <unk> guiding down about 30%.
For the year.
What gives you the confidence I guess, specifically that we see a seasonal.
A seasonal uptick in the second and third quarter.
I think the business has.
The mortgage origination business is now almost virtually purchase business. There's no refi I think the refi business got totally flushed out of the system, probably four months ago. When rates has really started to rise so the.
Purchase business is still pretty decent.
There is a chance that if rates keep rising the way they are that the purchase market will be impacted as well.
We don't.
Stabilize where they are a 5% mortgage rate while it sounds terribly.
Terribly high compared to where it was in December it's still not that crazy in terms of killing the purchase market, but if this goes up it can impact the purchase market too but.
But.
For us mortgage warehouse was one of the many spigots right. We have all these figures for lending I call them.
And it's a.
$35 billion balance sheet, it's a $700 million in outstanding so.
For that business line and for the people who are in that obviously as everything we look at what happened to the utilization on the hour by hour basis.
But for us as a company, even if you're off a little bit here or there or it doesn't really impact the numbers that much because it's not.
The tail wagging the dog, it's still one.
One of the many businesses we have.
I could be off maybe it doesn't return to normal but.
I am looking at where utilization is now and I went back and I've looked at every March from the time, we started the business.
Feels like exactly where march was supposed to be.
The last few years with the exception.
But we're always in the 30% to 40% range in March and then by June It starts to be 55 ish range in September it holds up into the mid fifties as well and December starts to Peter down just a little bit that's sort of.
Very consistent curve of utilization year after year after year with the exception of last two years. So.
I'm looking at that and saying it looks like it has returned to normal but there is a chance that the purchase volume has also come down.
The 30 year rates closer to 6% which is good.
I've seen how fast has come to five or even higher <unk>.
And then back in utilization May not go back up.
But even if it doesn't if it goes to only 40% or 45%, it's not that much of a.
That bigger business for us.
I still remember Raj I'm dating myself here, but I still remember my first mortgage it was 12%.
I would also just comment that our commitment level remains strong so we actually are.
Our commitments will go up in the second quarter and I think part of it is we remain well positioned in the relationships. We're in sometimes in this business contracts people consolidate volumes were not seeing that in our client base. Our commitment levels are staying strong and even growing a little bit.
Okay, and just as a follow up there and alongside that.
That.
Color on warehouse in the pot.
What should we.
I think of potentially with C&I utilization, increasing later in the year, what should we be thinking about just total total loan growth.
Yes.
How should we think about that yes.
Outside of the warehouse presents a C&I utilization.
Levels are increasing slowly but steadily.
So over the last six months, we've seen every month, a few basis points up and up and up it is still far from normal. It is I would say, we're maybe halfway through normal from from the bottom that we saw at the beginning of last year.
So there is still room of improvement, it's hard to predict because it's so much tied to what happens with supply chain disruptions.
Yeah.
Yes.
I don't want to go out too much on a limb and say it will return to normal by the end of the year, but I think we will see improvement from where it is today because now we've had about five to six months of consistent improvement every month, a little bit at a time.
I would also add than we guided in January to mid to high single digit total loan growth for the year ex PPP, which at this point actually become pretty irrelevant and and we haven't changed that guidance.
Okay, great excellent thanks for the questions.
Our next question comes from Jared Shaw with Wells Fargo.
Hey, good morning.
Sure.
Looking at the <unk>.
Commercial real estate do you think we've hit the inflection point, there and should we start to expect to see some some.
Some growth returning to CRE.
Yes.
We expect this to be a growth year for CRE and it'll be our first growth year in CRE.
In the aggregate since 2017, so we're pretty excited about that.
We spent many years kind of running down that multifamily portfolio in New York.
And we do expect 2022 to be in CRE as last year.
And will any of that be.
New York City or in New York City multifamily or is it sort of just all all throughout the franchise.
Yes.
In New York City multifamily, but not.
Not like the old days.
It is much more widespread it is.
I'll tell you what it is not it's not retail and start CBD.
Central business District office, so it is.
A lot of other it's multifamily and both geographies as industrial its warehouse.
It has some office some medical office space, some suburban office and even a little bit of retail when it makes sense, but it's really.
On a sort of exception basis.
So it is.
There is no one asset class that I would point to.
So New York multifamily, yes, there'll be some but not not not a lot.
I would also add that.
When you look at the differences in the portfolio.
The level of sponsors that are coming back into the market the last <unk>.
Six to eight months and Thats what were seeing in our.
Our pipelines is a level of sponsorship that we feel.
Very good about throughout most of last year, which you saw in the market was really kind of short term bottom fishers looking for deals.
The entry level point now in the loans that we have in.
And the pipeline that I think will certainly lead to growth, especially in New York are serious long term investors in the market and very serious sponsors were very happy with the quality of what we're seeing.
Okay. That's good color. Thanks, and then sort of looking at funding and deposits. What are what are some of your expectations for <unk>.
Deposit changes as we go forward, obviously your loan to deposit ratio was still so.
<unk> much lower than historic levels should be.
To see deposit migration and using the <unk> to to fill in where needed.
No I think what.
So first and foremost we're not letting up on.
Our DDA growth effort.
So we want to keep bringing in new business.
We've had a lot of success with it and maybe you don't want to get off that discipline. So let's start there.
So DDA growth should come to Neil I will.
Add a caveat to that as rates rise and interventional ecr's rise there will be a little bit of a headwind on DDA growth not from new business coming into the bank, but just generally commercial customers not needing to keep that much imbalances to avoid fees. So that will be the headwind that we are us and every other <unk>.
<unk> Bank is going to have later in the year, but other than that DDA growth.
I can't tell you how busy we are in the back office Onboarding new clients, it's actually.
The problem that we're trying to address that our people are working.
I am gladly hours due to block to onboard clients.
That's the kind of problem you want to have a good problem.
In terms of the rest of the deposit book I think the guidance. We gave you is that we're looking for very little or no growth in total deposits. Because eventually we want to kind of balancing out we still have way.
The way more deposits than loans, so that still stays.
This this increase in deposits, while we're all sort of modeling away what this will happen.
How this will all play out.
It's going to be quite different from last time last time around.
If you remember slower.
Lower longer was the word you use over and over again, describing how the fed will.
Lift off rates well this is how much the opposite it's higher faster as a mantra I mean, what the three year should do last time for the fed.
Fred is going to do that.
A matter of three quarters, if not less.
No.
I think.
We just have to kind of.
Just be careful in.
Very fast moving market to stay on top of that.
And predict what will happen with deposit flows, but overall you know we're not defining success by growing the total deposit book, but by growing the BD April that's really what and sending our people to do and that's what I think builds long term profitability long term franchise value for us.
So we're ready rates are going to rise.
A couple of weeks I think it'll be a different ballgame and then in June .
It'll be about 120, 550 basis point fed funds it'll be a different world by the time, we talk to you in 90 days.
Yeah.
So when you say little or no growth outside of DDA that little or no growth on the overall total debt totaled in total deposits. So the remix so DDA will still grow up the others will go down the bottom line will stay.
Relatively unchanged.
Our goal.
To your comment on FHA.
Jared we're still very comfortable with where wholesale funding is on our balance sheet and our loan to deposit ratio.
Growth in <unk> advances this quarter was really a product of us being opportunistic right near the ended the quarter in.
Taking advantage of some opportunities we saw in the bond market to put on some higher spread assets.
Yes.
90 days ago, we would have thought the bond portfolio would have amortized down this quarter, we ended up not.
Not including the fair value Mark growing that portfolio by $700 million, that's really the shift right. There I'm thinking it would be down 300 to it being up $700 billion in wholesale funding there and it was just an opportunistic move that we made right at the end of the quarter and it will even out.
Okay.
Yeah, It does and that sort of brings up my final question when we look at the <unk>.
Fair value adjustment that $10 $5 million charge through the securities gains.
So you must have obviously sold some some secure we didnt sell anything we didnt sell anything that was that that was a mark on some preferred stocks that we hold at the holding company and because they are equities. The mark runs through the P&L, you mean sold something to partly offset that yeah. We always said, we always do and not with that intention it's not like we saw.
It's something to offset that those sales were just incidental to the management of the bond portfolio, we always have a little bit of that every quarter.
Okay.
The balances that you sold what the.
I don't have all those details in front of me.
Or how about how about the.
How about what you purchased.
I guess, what was the purchase yield and purchase duration right all of that yes.
I can tell you that.
The yield on what we purchased for the quarter Sharon was.
For the whole quarter. It was in the mid teens and what we sold was in the mid one <unk>.
Good to you towards the end of the quarter, what we were purchasing within the mid threes.
Okay, and you don't have the total.
No idled.
So let's wait for the cash flow statement for that okay. Yes.
Alright, thank you.
Yes.
Our next question comes from Matthew Breese with Stephens.
Good morning.
Good morning, Hey, I wanted to go back to the mortgage discussion, but gain on sale I'm, sorry, if I missed it in the prepared remarks.
But what happened to cause.
Gain on sale item to be negative this quarter.
Yeah.
First of all we don't have a mortgage origination and sale.
That's not what's going on that really related to the sale of our.
Ginnie Mae sales from our Ginnie Mae ABL portfolio, and we had kind of a weird phenomenon this quarter with the violent move in rates that we saw right at the end of the quarter. We had some loans that were kind of caught in the process of modification.
Then <unk> got modified at lower than prevailing rates and ended up being retooled at a loss that was kind of a weird sort of timing difference between when the loans were modified and when they were sold as the ones that are being modified now being modified at much higher rates, but.
But I will say the total yield on that uba ABL portfolio for the first quarter, including the interest yield in that loss was still over 4% and we're pretty happy with that.
Got it okay.
And then I was hoping you could share with us.
Your thoughts around or forecast on deposit betas and loan betas.
Over the next call it 12 months.
I think where we sit with deposit betas.
Yes.
I would say we project them to be significantly lower than they were last time, we were in a rising rate cycle I hesitate to put.
Specific number out there because any number I would put out there would be heavily assumption driven and our deposit book is a completely different deposit book than it was last time, we were in a rising rate cycle. So we don't have historical data.
That we can.
Confidently based on all of those assumptions on but we are highly confident that we will see lower betas than we saw last time around on the deposit side.
And at this point have you increased pricing on any core or offered rates.
Hello.
Okay.
We haven't yet.
Definitely happened this quarter, given we're expecting 100 basis points more.
So the first move.
And maybe maybe Leslie just to be absolutely correct that may have been one or two clients wherever you are.
The visual client, yes, I was thinking more across the across the board offered rate.
Not across the board, but it.
It will happen short this quarter.
Got it okay.
The other thing just turning to expenses was the deposit insurance expense has been steadily declining where does it settle out or are we at that right. Now yes, I think so I think this is probably a fairly decent run rate.
Okay and then just last one for me you had mentioned hiring a team out in long Island, obviously, those Metro New York City markets have been heavily disrupted by M&A. Just curious if that team hire was due to the disruption we've seen out there or more from a traditional kind of.
A big Bank.
Larger bank employee or set a set of employees.
Say the latter.
The augmentation that we've done to the long island team has predominantly been.
A larger bank long term.
Professionals that like our environment, and our culture and the flatness of our organization and what we're about.
I will add to that though there is a fair amount of noise in the New York market from all the M&A activity, we have interviewed several people.
More than usual.
Last few weeks and months.
Got it okay, great. That's all I had thanks for taking my questions.
Our next question comes from Chris <unk> with Janney Montgomery Scott.
Thanks, Good morning, Matt asked the same question I had about beta so let me just ask from a different perspective. So the world is going to be different in 90 days and probably a year given rates as Raj had mentioned I'm curious do you think that the combination of higher interest rates and some continued expense operating leverage is really going to transition. Thank you guided for a much stronger.
Profitability kind of measure of return on assets.
PNR returns et cetera, just kind of wanted to get that out there.
The reason I have Leslie on the call that's because she gets all the financers the fun question.
So the high level answer your question is yes.
[laughter].
But yes, I do think we're going to continue to see margin expansion.
We are going to see an increase in interest expense I think the art noninterest expense in noninterest expense operating expenses I think the increase in revenue will outpace that so you will see operating leverage.
In.
You will see.
Increasing profitability now I'm, not making a prognostication for any one particular quarter when I say that but I do think that'll be the trend.
Okay.
No I completely understand I appreciate that just kind of wanted to clarify that and Raj you had mentioned earlier about loan rates getting higher at the end of March. So should we continue to see kind of your new onboarding loan rate strength in this quarter and then again it will I'm sure be even higher in July and August .
I think the best piece of news over the last three months has really been.
The widening of spreads that we're seeing and I have my own purely about this I think the fed stepping out of the market and letting private markets do their thing is it really really the best news that we've had in the last 90 days.
Which is why we had this violent movement in rates and spreads.
I think overall, it's a good thing.
Nobody likes to see the bond portfolio a bit Mark like every bank has seen this quarter, but I think we're all doing better business and healthier business for that reason I think no matter what asset class you to look at and.
And you can go look at that a Bloomberg things at widen spreads are wide and rates are obviously, where they are but the spreads have widened.
Hope it sticks and it's not just moment momentarily I mean, we've seen it now for about a month to wider spreads.
The loan portfolio, especially the commercial business.
News comes late over there.
Widening spreads, but it is getting there and we're seeing it come into into the business that we're doing and if it sustains that's good for us and for every other bank that is.
That is in the market. So the fed stepping out was the biggest news this quarter and I think that's good news.
Great Ross. Thank you very much and thank you wisely as well I appreciate it.
Thank you.
That concludes today's question and answer session I would like to turn the call back to Mr Singh for closing remarks.
Thank you very much thanks, everyone for joining us.
And we will see you again in 90 days if not sooner.
Alright.
This concludes today's conference call. Thank you for participating.
You may now disconnect.
Okay.
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Yes.
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Yes.
Okay.
Sure.