Q1 2022 Amerant Bancorp Inc Earnings Call
Good day, and thank you for standing by and welcome to the <unk> Bancorp first quarter 2022 earnings conference call and live webcast. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question during the session.
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Now I'd like to hand, the conference over to your Speaker today, Laura Rossi head of Investor Relations of Adam Ramp Inc. Please go ahead.
Yes.
Thank you Gigi good morning, everyone and thank you for joining us to review <unk> Bancorp's first quarter 2022 resold.
Also on today's call are Jerry plush, our Chief Executive Officer, and Carlos <unk>, Our Chief Financial Officer.
As we begin please note that the company's press release, our discussion on today's call and our responses to your questions contain forward looking statements.
<unk> business and operations are subject to a variety of risks and uncertainties many of which are beyond its control and consequently actual results may differ materially from those expressed or implied.
Please refer to the cautionary notices regarding forward looking statements in the company's earnings release and presentation.
For a more complete description of these and other possible risks. Please refer to the company's annual report on Form 10-K for the year ended December 31 2021.
And other filings with the SEC.
You can access these filings on the SEC's website.
<unk> has no obligation and makes no commitment to update or publicly publicly release any revisions to forward looking statements in order to reflect new information or subsequent events circumstances or changes in expectations, except as required by law.
Also note that the company's press release earnings presentation and today's call include references to certain adjusted financial measures also known as non-GAAP financial measures.
<unk> two in appendix one of the Companys press release and earnings presentation, respectively contained a reconciliation of each non-GAAP financial measure to its most comparable GAAP financial measure.
I'll now turn it over to our CEO Jerry flush thank.
Thank you Laura good morning, everyone and thank you for joining <unk> first quarter 2022 earnings call I.
I am pleased to be here today to report on our results for the quarter and update everyone on steps taken this quarter as part of our transformation efforts to better position. The company for success. We remain committed to continue to execute throughout 2022 to build an even better and stronger version of family.
Also pleased to report that based on the company's first quarter results on April 13, 2022, our board of directors approved a <unk> <unk> per share dividend payable on May 31, two.
<unk> 2020 to the payment of dividends are an essential part of our commitment to provide greater value to our shareholders.
It has been one year since I became CEO and first shared our strategic priorities with all of you. During the course of this call. In addition to covering the results of the quarter. We will provide an update on the progress we have made on our way to fully deliver on those priorities.
I'll now provide a brief overview of our performance in the first quarter and then I'll hand, it over to Carlos to get into the details. So if you turn to slide three here you will see a summary of our first quarter highlights.
Net income attributable to the company was $16 million and that was down 75% quarter over quarter. This decline was primarily driven by the onetime gain on the sale of the headquarters building recorded in the fourth quarter of 2020 was.
The first quarter saw higher average yields higher balances on loans and lower average balances on customers Cds and brokered time deposits, which were replaced by higher average balances in core deposits.
Our total gross loans were $5 72 billion up from the $5 $5 7 billion last quarter, even with the headwinds of $253 million in loan prepayments and the sale of $57 3 million from our former New York City loan production office that were classified as available for sale.
Total deposits were $5 six 9 billion and they were up $68 million compared to last quarter.
More importantly core deposits increased by $150 4 million this quarter compared to the fourth quarter of 2021 as a result of our continued deposits first focus.
We'll now turn to slide four.
You can see that the Companys capital continued to be strong and well in excess of minimum regulatory requirements to be considered well capitalized as of March 31 2022.
During the quarter, we paid out the previously announced cash dividend of <unk> per share. We also paid a <unk> $34 million dividend from the bank to the holding company to increase our liquidity position.
And after having completed the first buyback authorization, our board approved a new $50 million share repurchase program on January 31.
As of quarter end, a total of $32 $7 million has been used under this new authorization.
You can see that we've repurchased a total of one 6 million shares and that our shares outstanding at quarter end totaled $34 million 350 822.
Also in February of 2022, we launched our employee stock purchase program with over one third of our team members participating we're delighted that so many of our team members want to participate in the ownership of the company.
We'll turn now to slide five to look at core P. PNR, our core PNR was $17 9 million down by five 5% compared to the $18 9 million reported in the in the previous quarter.
As we've noted before it's essential to show the net revenue growth of the company, excluding onetime gains or losses or other nonrecurring items in order to show Avalanche of core earnings power.
Higher marketing spend this quarter and lower fee income versus fourth quarter were key drivers that impacted <unk> 'twenty two results.
So let's cover some key actions that took place on slide six.
So we announced the retirement of two longtime board directors and the appointment of four new ones all of whom are in footprint three in South, Florida and one in Houston.
We completed a private placement of $30 million of 425% fixed to floating rate subordinated notes that are due in 2032, we also reduced head count by 80, Ftes as part of our agreement with Fas, which resulted in a total of 677 total ftes as of the end of the.
First quarter.
This totaled 598 Ftes are part of Ameren Bank and 79 are part of Ameren mortgage it's important to highlight this as as of quarter end up 58% of our total ftes are in the business generating side of the of the company versus 42% and support functions.
We initiated an internal process to reorganize lines of business and to have our focus on commercial and consumer banking done separately to drive performance in the geographies. We serve as a result of this reorganization of our teams we've streamline management layers in several areas during the month of April which will positively impact personnel.
Expenses going forward.
We also joined the USD consortium Ameren was the seventh bank that joined the National Association for him to provide a base source for banks digital asset and block chain strategies.
We're pleased to announce that we hired a new head of retail banking, who will drive a truly sales focused culture in our branches.
Regarding our new Tampa loan production office, we've recruited a new market President and other new C&I team members have been identified will have an official announcement on this shortly.
We've already closed on a number of CRE and C&I transactions to date totaling $87 million through March 31, and over the next 120 days, we've got a strong free and C&I pipeline of over 100 million with $36 million scheduled to close in early may.
We also executed a multi year agreement print outsourcing white label solution to provide equipment financing in all three markets that we serve.
We're pleased to announce that we issued our first ESG report demonstrating our commitment to sustainability and the company's main subsidiary Ameren Bank was named the official hometown Bank of the University of Miami Athletics, which further leverages local partnerships to support our community while driving brand awareness.
Just received OCC approval for our new branch location in University place in Houston, Texas. This is a significant upgrade over the branch. It will replace we project. This office to open in <unk> 'twenty to <unk>.
Construction is now underway for our new smaller operation Center in Miramar, Florida. We also initiated a common look and field project. We've spoken about previously at our market headquarters location in Houston.
So let's cover key metrics on slide seven here, we have outlined key performance metrics. So in the first quarter, we improved our deposit base now with 23% of total deposits being noninterest bearing deposits at our operating profitability stayed on track is our margin was $3, one 8% up a basis.
From last quarter and please note that four basis points of the $3 one 7% reported last quarter were from prepayment fees the.
The allowance declined to 1% of total loans reflective of charge offs and the reversal of $10 million in the quarter based on credit quality trends are a triple well remains in excess of total nonperforming loans. We again showed the three core metrics of ROA ROE and operating efficiency, excluding the onetime nonrecurring items in the <unk>.
Notes to this slide to more clearly show the underlying performance for the quarter.
We'll now turn to slide eight which focuses solely on mortgage and just the first quarter of 2022. We have received a total of 292 applications. We closed 157 loans for a total of $93 6 million.
Current pipeline shows over $94 million in process or 166 applications Ameren.
Mortgage solidify this wholesale team during the quarter and also launched its construction loan program to help drive future revenues. It is important to mention that as of March 31, 2022 companies.
Company has increased its ownership interest from 51 to 57, 4% in order to need Fannie Mae capital requirements.
So with all that said I'll turn things over to Carlos who will walk through our results for the quarter in more detail. Thanks.
Thank you Jerry and good morning, everyone turning to slide nine I'll begin by discussing our investment portfolio.
Our first quarter investment Securities balance was $1 3 billion stable compared to both previous quarter and first quarter 2021, when compared to prior year duration of the investment portfolio has extended to four years due to lower prepayment speeds recorded unexpected where mortgage backed securities portfolio light light of rising.
Interest rates.
The floating portion of our investment portfolio increased to 14% compared to 11% in the previous period, we continue to focus our investment strategy on assets with lower duration and better repricing profile in anticipation of interest rate hikes. This year.
I would like to take a minute to discuss the impact of interest rate hikes on the market value of debt securities available for sale.
So at the end of March the valuation of Securities under <unk> designation had dropped almost $40 million after tax as a result of more than 100 basis point increase in the long term interest rate recorded in the last quarter.
Loan portfolio highlights in the slide 10.
We'll show a total loan growth growth of five 7 billion.
A total of 3% compared to the last quarter.
The increase in total loans was primarily due to higher loan balances, which resulted from an increase in non production complemented with indirect loan purchases.
Despite having received $253 million in prepayments, which came primarily from CRE and C&I loans and having sold $57 million in your portfolio. This net growth represents a great accomplishment for all teams involved in the loan origination efforts.
Consumer loans as of the end of March were $486 million, an increase of $62 million or 15% quarter over quarter.
Richard is under higher yielding indirect consumer loans continue to represent a tactical move to increase yields.
Loans held for sale totaled $86 million as of the end of March which included 69 million loans from the New York El appeal and $17 million in the residential mortgage loans in connection with Ameren mortgage.
<unk>.
Going to slide 11, we provide an update on the New York loan portfolio.
Total loans outstanding from our Formula OBO have declined to 373 million in the first quarter of 2022.
From 491 in the fourth quarter of 2021 during the first quarter and completed the sale of $57 million loans held for sale at par.
We expect that this portfolio to continue to trend down several prepayments are expected to occur during the rest of the year.
Going to slide 12, we would take a closer look to the credit quality.
For the first quarter, our credit quality remains sound and reserve coverage is as strong the allowance for loan losses at the end of this quarter was $56 million almost 20% down from the $70 million at the close of the previous quarter.
We released 10 million from the allowance for loan losses compared to a release of $6 five in the previous quarter.
The release was primarily driven by improved macroeconomic conditions loan upgrades and decreases in our nonperforming and special mentioned loans.
These were partially offset by additional reserve requirements and charge offs for loan growth and loans downgraded to non performing during the period.
During the first quarter of 2022, the loan loss provision associated with the COVID-19 pandemic was released however, new reserves were almost 5 million were generated to account for the new risk associated with potential macroeconomic deterioration related to inflationary pressures supply chain disruption Amelanotic factors.
Net charge offs for the quarter were $3 8 million compared to $7 million in the fourth quarter.
Charge offs <unk> were primarily driven by $3 3 million in two commercial loans $1 million and consumer loans offset by five recoveries. These loans were previously it specifically reserve.
Nonperforming assets totaled $56 7 million at the end of the first quarter of 2022.
A decrease of $2 8 million or four 7% compared to the fourth quarter, and a decrease of $33 million or 37% compared to the first quarter of 2021.
Our nonperforming loans declined, 82% or $47 million compared to 89% or four 9% for $49 8 million last quarter.
Most recently nonperforming loans decreased to $41 million as the sale of 6 million CRE loan was completed at both par during April .
The ratio of nonperforming assets to total assets was 73 basis points down five basis points from the fourth quarter of 2021 and down 43 basis points from the first quarter of 2021.
In the first quarter of 2022, the coverage ratio of loan loss reserve to nonperforming loans closed at 119 times down from one four times at the end of the last quarter and down from the 124 times at the close of the first quarter next year.
Going to slide 13, we show some details on the deposits totaled.
Total deposits at the end of the first quarter were $5 7 billion up $61 million from the previous quarter domestic.
Domestic deposits, which account for 56% of the policies totaled $3 2 billion up $43 million or one 4% compared to the previous quarter.
Foreign deposits, which account for 44% of the deposits totaled $2 5 billion and they were slightly up by $18 million over the quarter.
So it was this morning 90 to these changes is still reflective of our efforts to increase share of wallet from our international customers.
Core deposits, which consists in total deposits excluding all the time deposits were $4 4 billion as at the end of the first quarter, an increase of 150 million or three 5% compared to the previous quarter.
This amount includes interest bearing deposits of $1 5 billion savings and money market deposits of $1 6 billion and don't know non interest bearing deposits went to $1 3 billion compared to the one two in the previous quarter, which is reflective of our execution to prioritize this type of funding.
Offsetting the increase in deposits was a reduction of $90 million or six 7% in time deposits.
Customer Cds compared to the prior quarter decreased $97 million or almost nine 3% as the company continued to focus on increasing core deposits and emphasizing multi product relationship versus single product high cost Cds.
Broker time deposits increased a little bit to $8 million or two 7% compared to the previous quarter. As we took the opportunity to extend duration in this funding source unlocking lower cost given the expectation of higher interest rates in the upcoming quarters.
Going to the net interest income on slide 14, we will show the performance of our net interest income on financial margin.
Net interest income for the first quarter was $55 6 million almost unchanged quarter over quarter and up 17% year over year.
In light of the rising rate environment, we are actively managing the duration of our liabilities.
During the first quarter of 2022, we repaid $180 million in short term advances from the acreage Ob and borrowed 350 million long term advances and extended duration of this portfolio and fix them at a lower cost than previously borrowed funds.
The timing for the execution allow us to effectively lock in attractive long term rates at a discount of almost 100 basis points versus current market rates.
In terms of our deposit we have adjusted only certain large commercial relationships given the rate sensitivity. However.
The rates of the transactional deposits remain unchanged for the quarter.
Understanding the behavior that each product will show, we're getting a blended beta of <unk> 28, which will help us to navigate the new interest rate environment and reflect the value of our deposit composition.
Moving to net interest margin Q1, NIM was three <unk> slightly up by one basis points quarter over quarter, and up 52 basis points year over year.
The change in net interest income net interest margin was primarily driven by the increases in the yield of our loan portfolio, which is now $4, 16% an increase of six basis points versus fourth quarter.
Though the changing need and what is not large it reflects our efforts on the asset side, while managing to keep cost of funds down well hedged against interest rate up.
Going to slide 15, we provide a more detailed analysis on interest rate sensitivity.
You will notice that we have provided additional color compared to previous quarters.
As you can see our balance sheet continues to be asset sensitive with half of our loans, either floating or maturing within one year.
Going into consideration the changes in the composition of liabilities, our continuous production in floating rate loans and new purchases in floating rate securities. Our NIM sensitivity profile has improved versus last quarter.
We are now showing a potential increase of approximately 8% in net interest income.
This was a four 3% last quarter on the rate plus 100 basis points scenario.
We also show an improved profile in the plus 200 basis points of scenario.
We will continue to actively manage our balance sheet to best position our bank for the expected rising interest rates.
Going to slide 16.
We show a detailed on the non interest income.
Noninterest income in the first quarter was $14 million down 16, $63 million or <unk>, 82% from the 77% we recorded in the fourth quarter.
The decrease during the first quarter was driven by the absence of the $62 million gain from the sale of a company headquarter recorded in the fourth quarter 2021.
Net losses on early extinguishment of it youll be advances for almost 700000.
Lower income from brokerage and advisory activities net unrealized losses on valuation of derivatives and decrease in mortgage banking income.
Of note, we recorded higher derivative client income this quarter as well as net securities gains, which partially offset the decrease in <unk>.
Non interest income quarter over quarter.
As rate goes off this product becomes very relevant to clients and we look to drive non interest income in the upcoming quarters with this activity.
Amarin assets under management totaled $2 1 billion as of the end of the first quarter down $92 million or one.
And 1% from the end of the fourth quarter, which was primarily driven by lower market valuations.
The decrease was offset by an increase of $12 million net new assets as we continued to execute our relationship focused strategy and increase share of wallet.
Turning to slide 17 first quarter noninterest expenses was 61 million up $5 7 million or 10, 4% from the fourth quarter and up $17 2 million year over year.
We consider $6 6 million of our noninterest expenses are nonrecurring items. Excluding these items core non interest expenses was $54 2 million in the first quarter of 2022.
The quarter over quarter increase was primarily due to higher noninterest expenses, primarily in connection with the estimated contract terminations.
<unk> from the company's transition to a new technology provider.
This was partially offset savings for an FTE reduction.
Evaluation expense recorded in the change in deferred value of newer loans available for sale.
Rent expenses related to the leasing of the company's headquarter building.
It's mostly offset by the income received from the sub leasing of the property.
The increase in marketing expenses in connection with the company's efforts to increase brand awareness.
Severance expenses in connection with restructuring of the business line and last we had increased commission bonus payments primarily related to residential mortgage loan origination now the increasing noninterest expenses was partially offset by lower salaries and variable compensation costs, which were driven by a lower number.
Ftes in the first quarter.
As we mentioned before resulting from the agreement with Fas.
A decrease in legal fees, primarily due to the absence of additional expenses incurred in fourth quarter.
Quarter 2021 related to the cleanup merger and noticed spatial transactions lower depreciation and amortization expenses, resulting from the sale of the company's first quarter.
The efficiency ratio was 87, 3% in the first quarter of 2022.
Third to 41, four in the previous quarter and 70, 67% in the first quarter last year.
Quarter over quarter, increasing the efficiency ratio Westbury, mainly driven by the absence of the gain of the company's headquarter building recorded in the fourth quarter the year over year increase in the efficiency ratio was primarily driven due to higher noninterest expenses.
Core efficiency ratio was $76 four in the first quarter of 2022 compared to <unk> 75 in the fourth quarter of 2021, and 73 point forward last year.
The quarter over quarter increase was primarily driven by higher rent expenses advertising expenses and commissions paid as previously described.
Now I will turn back to Jerry to talk about the amarin progress on near and long term initiatives.
Thank you Carlos.
Let me share what has been done in connection with each of the key initiatives during the first quarter.
As summarized on slide 18.
So starting with deposits first account opening campaigns in different marketing efforts were launched during the quarter to drive an increased digital and branch traffic, which resulted in increased consumer account acquisition, our treasury management and private banking teams efforts have resulted in higher deposit levels as evidenced this quarter.
As for our superior customer experience, our Fios numerator Marsh stone alloy and click switch implementations are all underway.
We're now actively marketing small business lending and amarin smart investing.
Regarding rationalizing existing and evaluating new lines of business as I previously mentioned business organization changes were announced we split the organization on the business side between the consumer Bank and the commercial bank. This was essential as we need to laser focus on executing on our growth strategies on both sides.
Of the bank.
Our branch rationalization continues we were just approved by the OCC for a new more highly visible office location at University place in Houston, which will replace one will be leaving later this year and planning and permitting is underway on our new downtown Miami location.
With our new head of retail banking now onboard we will be evaluating opportunities as well as all current locations that the consumer shift to digital certainly is weighing in on the need for strategically located centers versus density rigs.
Regarding the Tampa loan production office as I mentioned, we recruited a new market President and other new C&I team members have been identified so we'll be officially announcing all of this soon we've already closed on a number of creative C&I transactions totaling $87 million, we've got a strong Korean C&I pipeline as I mentioned over 100.
With $35 million scheduled to close in early May.
We've also begun to onboard depositary relationships as well other lines of business like equipment Finance are now underway, we announced a new multi year agreement and we will be adding sales personnel in each of the three markets. We served.
Regarding operational efficiency. The FASB veg took place eight FTE were moved as of January one another HR efficiencies were implemented during the quarter.
Regarding brand awareness.
We continue leveraging local partnerships and impactful campaigns, including our partnership with the NHL Best Florida Panthers through our out of home advertising efforts, our social media efforts and our public relations efforts.
Recently, we announced a broad based strategic partnership with the University of Miami, making Ameren bank the official hometown partner of the Miami Hurricanes. This partnership provides ameren with a robust presence across all university of Miami Athletics programs.
And finally.
Regarding attracting retaining developing them rewarding our team members, we launched an enhanced internship program. We developed a new executive leadership program that we launched our employee stock purchase plan.
We're also pleased to announce the issuance of our first ESG report, which you can find in the Investor Relations section of our website. We have also begun implementing our diversity inclusion program to improve and maintain an authentic inclusive culture, which is an essential part of our ESG efforts.
So I just have a few closing remarks before we go to Q&A a.
A year ago, we launched our transformation journey with clear priorities and while we've accomplished a lot. Since then there is still more to do but our commitment remains unchanged we.
We need to continue to grow while doing all of this they are not mutually exclusive.
Growth and continued focus on transformation our key.
So if there is one key takeaway from <unk> 22 results. It is that we in fact did just that we grew and we added capabilities and they were more strong additions to our team, but we know we need to do it again every quarter.
Just want to openly acknowledge we know the task ahead, and we are all very focused on getting there.
I want to again, thank my teammates for all that they do to make amarin, the up and coming bank of choice in the markets we serve.
We're working hard to build something very special here and we appreciate the support and confidence that our board our investors and our customers have in us while we do all of this.
So with that I'll stop and Carlos and I will look to answer any questions. You have Gigi. Please open the line for Q&A.
As a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key please standby, while we compile the Q&A roster.
Our first question comes from the line of Michael Rose from Raymond James Your line is now open.
Hey, good morning, guys how are you.
Morning, Mike.
Hey, so.
The loan growth this quarter obviously.
Really good I think last quarter, you had talked about.
Both in the single digit range, but clearly if I.
If I annualize that and I take out the New York City wind down and the consumer loans.
Youre tracking a lot higher than that so can we just get any updates on on loan growth expectations. Because it does seem like you have a lot of tailwind you back. Thanks.
Yes, Michael its Gerry.
We're pleased.
I've been saying over the last several quarters, we continue to add talented members on the business development side.
To drive growth and I think you're seeing the fruition of having not only the folks that are onboard but folks that we're chatting with and helping to add to the team.
Our expectations are clearly going to be for higher than what we had previously projected.
I think we'll be certainly more than the double digit range on a go forward basis.
Yes, no it was interesting to see Michael.
For the quarter the increase on the C&I, which accounted for almost $130 million that was.
That's accretive to the to the yield.
On the overall performance of the of the loan portfolio.
Sorry <unk>.
A portfolio that defended very well because we had the significant prepayments on the on the New York Plaza sale and order prepayments also in Florida. So the creation of New CRE was also very good. So yeah definitely we're starting to see a very good pipeline and.
They are very vibrant amount of transactions.
Great that's helpful.
So like others you had a OCI has this quarter brought down tangible capital.
Still pretty accurate with buybacks.
And I don't think you transferred any to HTM can we just get kind of the.
The rationale there and then does that lower kind of TCE to give you any pause for share repurchases stock is still pretty attractive here I just wanted to.
You got some thoughts on capital and the outlook. Thanks.
Sure. So in terms of the of the OCI. There was definitely a shock there was very rapidly absorbed during the quarter.
If we compare quarter over quarter I believe it was probably in the 120.
Basic points and the five year rate, which definitely impacted the valuation.
Nevertheless, all is related to <unk>.
The interest rate shock for the most part.
We believe the long term rates may have a little bit more of an extra room for increases, but we believe that most of the shock.
Was absorbed already for the launch and the long term section of the yield curve.
So speaking about.
Repurchases I guess one of the topics this quarter would be that we will be very.
Tactic on our repurchase program. So I guess one of the goals is to have.
Preserve liquidity at the holding level, we just issued the $30 million subordinated debt, which boosted liquidity another $34 million were.
The from the bank to the holding company.
So I guess at this point, we will be very selective when we wanted to get in and buying stocks.
Yes, Michael I think Carlos is spot on with that I think it's we we.
We have obviously been very very aggressive on the buyback side and I think it's good I think we.
No that.
But where we are in the remaining authorization is something where you have to be very ill.
Ill call it surgical.
Where you want to select the opportunities so.
As always its always going to be based on the performance.
Formats of the stock and whether we see that.
We continue to see that it's a value play for us too.
Repurchase.
Great maybe just one final one for me so Jerry it's been up.
Cardiac severe.
Yeah.
Got into the role.
Where do you feel like the company is in sort of.
Sure.
Yes.
Where you came in on the transformation effort of the company or are we still in the early innings are we middle innings late innings, obviously theres a lot of moving parts and pieces to what you guys are doing just just wonder if you guys sense for where you think we are in.
The targets that you've laid out for the ROA and ROE.
Would you expect to revise those at some point this year. Thanks.
Yes, Michael Thanks for the question.
Would say that we're certainly in certain a number of ways in the middle innings.
We laid out at the goals when I started were things we were trying to achieve by the end of 2022.
Certainly a number of them were very close to hitting the mark. So if you look at the.
Deposit targets that we put out.
How much we want it to be.
On the noninterest bearing to total are the reductions that we talked about in brokered and that we really wanted to be inorganic.
Deposits first organization Youre seeing all of that coming through now in the numbers same thing on the loan side.
The reorganization really puts a laser focus on each of the lines of business and the leaders of each of those.
Now know that.
We're completely behind them in terms of the growth in each of the segments right and so we're just bringing in equipment finance onboard we have a full complement of folks and Cree were just about to bring on some more people as it relates to C&I. So the expectations for growth both on the loan and deposit.
Syed I think are very very high for us and our expectations of ourselves.
That's why I was saying in my closing remarks that my view is it's time, we need to be showing very consistent strong growth each quarter. In addition to trying to complete the remainder of the transformation items that we've been talking about and so the way to get there is going to be to keep driving the top.
Offline keep focus on that.
<unk> side, but I think people should know that we have no hesitation to add additional business producing personnel.
We certainly have been very supportive of and you can see our marketing spend is up dramatically and we think that it's something that's critically important it's essential for us to do.
As an organization the raise in our brand awareness I think is really a big contributing factor. That's just not the marketing that we're doing on billboards.
Elsewhere. It has all of the public relations work that we're doing to these partnerships we talked about so I.
I would say we're in the middle stages. There are in the middle innings, because you are now starting to see the transformation.
Come less of an item after this quarter and more of the focus is going to be about driving top line growth.
Great. Thanks for all the color.
Sure.
Thank you. Our next question comes from the line of Stephen Scouten from Piper Sandler. Your line is now open.
Hey, good morning, everyone.
I guess that might you might want to follow up kind of on that line of questioning for Michael.
In the sense of.
The need to potentially revise any of those targets I mean, especially.
Jerry you said, everybody is focused and knows what they need to new nodes with the Hampden ahead, but.
We're fairly long way off from that sub 60% target. So I'm. Just wondering is that something we need to move back do we strip mortgage out of that when we think about it or is there any any nuance to that target or.
Things, we might not be seeing today that are still to come that could get us there.
Yes Stephen.
It's a great question.
We're still committed to be driving for the 60% for the fourth quarter is what we said initially it's what we're still committed to driving to do the combination of how to get there is we're not going to cost cut our way to greatness. We're growing this company, we're investing and I'm looking at this.
As things, we need to do to build a better organization that it is going to be very sustainable consistent repeatable about our ability to grow quarter quarter ending quarter outright and so.
That's why I said in my response to Michael is it I think we are in the middle middle innings, but the biggest issue for US right. Now is this reorganization and how we are pushing both our commercial and consumer efforts.
All along we knew we had to grow the topline.
And that's the result, you can see it coming through in the numbers and I think as we look ahead to what we project to be NIM expansion NII growth.
Growth on the fee side that theyre going to be major contributors to getting to what we have to achieve in the fourth quarter.
Okay.
If I think about mortgage in particular.
You know obviously with rates moving like they have I'm sure that business doesn't completely maybe panned out as you would've hoped but in the near term.
What's the what's the timeline for potential breakeven in that business.
I guess moving forward from here.
Look I think it's fair to say that.
We were hoping for a stronger contributions from the mortgage division.
Obviously, we made an additional capital injection. So we're not backing down from what we thought we were going to get from this team. It's a highly talented group. We're committed to this space I can tell you that the mortgage team is having a is a huge differentiator.
Coupled with our private banking efforts and I think from the technology side and from process side.
Things that are completely worked out I think this is really a function of driving the top line. There is still really strong demand for financing for new home purchases I think what the market now right I mean, stating the obvious I think.
Very different about the mortgage market right now is the refinancing boom is over right.
In terms of when you compare this to 90 days ago 120 days ago, very very different dynamics right for.
How you were thinking about.
The magnitude of refinancing I think we've looked at the business is something that is a contributor to the.
Other products and services that we offer and so one of the things. We are doing is really focusing on adding key personnel in the markets that we serve but theres no question right and one of the reasons. We've split it out is to make sure people and we're being very transparent about it that people see.
Where that will come along to get to a breakeven I'd like to say that we're going to be a lot closer to that in the second quarter, because I think the efforts of the team. Finally, the sales volumes that are coming through or are going to get us much closer to that.
And I believe also to add to Jerry's answer is the fact that the.
The mortgage company have contributed to the to.
Total assets of the bank.
When you look into the <unk>.
Selling opportunities with the private banking teams in order costumers that we have.
Now the total loans from the residential loans coming from the origination of the mortgage company are close to a 100 million.
That interest income we believe it's a good asset class in the sense that he has a good yield but at the same time duration wise is not extremely long given the fact that there would be.
There was a private banking component there.
<unk> Dot portion is also accretive even though he is not being shown into the.
The slides that we showed the performance of the.
Mortgage company because it gets consolidated with our.
Financial margin, but there's also a contribution there that is not specifically shown into those numbers because of consolidation, but it's up.
It's a business that is on development.
It's a great complement as Jerry mentioned and we believe the second quarter as you will be critical for them to get to breakeven and.
And Steve just to be just to be really clear. We're keenly aware that this is a higher efficiency ratio business very much like bankers looking across their lines of business. Two of the businesses that are typically going to be higher efficiency ratio businesses or are the mortgage mortgage banking.
Just in general and or wells right and so we are keenly aware that we've got to outperform to help offset that as well and so.
Certainly front and center in our lives.
Yep, that's great. Okay, maybe just last one for me the move in.
Asset sensitivity you guys laid out in that slide 16.
Very meaningful and great to see obviously in this rate environment and I know you've noted.
$350 million longer term FHL b borrowings to help some of that what other drivers were there within that change was there any change to your assumptions around deposit betas and then how much of that securities book.
The variable that you mentioned.
Yes so.
In the case of the <unk> and that was probably one of the drivers.
The financial margin being stable throughout the quarter, because we increased the weighted average cost of financial liabilities because of the <unk> been longer but they are.
In the three to five years duration, those new additions that we did on the $350 million and as I mentioned on the on the common.
Those were taken.
101 hundred basis points ago. So they were very good in terms of the creating the sensitivity and the low cost of funds given the prospective environment. So that is on that in.
The case of the beta thus the beta that we started to see based on the moves that we would like to produce in our deposit.
On our deposit cost remember that the presence of.
2 billion or $2 four in the case of the total international.
Deposit portfolio that help us to delay some of the increases in interest rates.
We believe that.
Banks would allow too.
The compressed financial margin at least in Q2 and Thats exactly what we have been doing so as you can see we grew deposits, even though we did increase.
Significantly our rates were just a specific.
Large relationships that did show some interest rate sensitivity the ones that we transmitted some of the change but boy 28 as I mentioned in my notes is very good based on the deposit composition. So we feel that that should be keep throughout the second quarter and that would allow for margin expansion.
<unk> given the.
Upcoming.
Correct that interest rate increases.
In the case of the investment portfolio about 15% is floating.
We keep adding.
Some floating rate exposure, which will expand nicely with increases in sulfur in labor rates.
Great Great that's great color and thanks for the reminder, about the foreign deposits great I.
I appreciate the time.
Sure sure.
Thank you. Our next question comes from the line of Michael Young from <unk> Securities. Your line is now.
Hey, good morning. Thank you for taking the question wanted to follow up kind of on the asset sensitivity discussion.
Gerry I heard your comments very good to hear about the loan growth.
Upside that's potentially on the come here, but also the loan to deposit ratio is kind of above 100% right now so moving into just the higher funding rate environment kind of what what's the outlook there and could we have some I guess, even though your project really high asset sensitivity, maybe some of that.
Let's give it back just to fund growth.
Yes, Hey, Michael Jerry Good morning, I think.
It's an incredibly important too.
To note that.
All of our different lines of business are focused on generating noninterest bearing deposit relationships that we're looking to be the bank of choice with our customers and so yes in certain cases customers are coming to us at opening deposit relationships at money market rates.
For example, but.
The vast majority we are looking for them to be.
US as their bank right. So thats, the receipts and disbursements account and so I think that's why it's really important to note that the growth is broad based right. It's not just coming out of consumer it's coming out of business banking, it's coming out of private banking.
We actually see opportunities frankly that if we want to continue to expand on the international side.
There is more opportunity there so.
I would say that again remember were deposits first organization our business development officers, our Treasury management team all know that it's critical for us to generate.
Low cost funding.
We continue to see that.
Not only the organic loan growth, but also the NIM expansion that we would expect.
We go throughout the year.
Yes, that's exactly the case, so just to give you a perspective, Mike and good morning by the way.
The increase in the <unk>.
In the deposit relationships, it's great just.
To give you a quick reference the private banking team that we added last year has brought over more than $50 million in deposit relationships in multiple accounts so that.
Angle of being a relationship bank has definitely paid paying off and it's paying off and the type of accounts that we want it so either non interest bearing accounts or low cost.
Checking accounts that they are incredibly accretive for the for the cost of funds and then naeem expansion. So.
As you can see we have completely change the deposit composition being.
Particularly high cost time deposit oriented financial institution last year will drop about 500 million in time deposits now an extra $97 million. So you can see the progression of the change in the composition of the deposit tours.
A better mix that would allow us to expand financial margin.
Yeah.
Okay.
So just as a follow up to it.
100% loan to deposit ratio today is that kind of where we should expect you guys to remain with just funding kind of matching growth going forward.
Yes, we've stated a goal that we'd like to be in that 95 to 100 range right and I think trying to maintain us somewhere in that range over the ultimate goal would be to certainly be closer to the 95% to 100, but we're comfortable with.
Being at the higher side of that.
Okay, Great and then last one for me just on expenses I think the core expense run rate this quarter is about $54 million.
I'm not sure if you had the full head count reduction at the beginning or kind of year end. So im not sure how much of that is reflected in <unk> and then Gary you mentioned that some of the reorganization and some of the benefits coming through and it sounds like maybe in <unk>. So maybe just a little bit of a perspective on kind of how expenses are going to trend through the year.
Yes, no. That's a good question. So we haven't reflected all the organizational changes in our noninterest expenses. So there would be an impact on the ftes in the business reorganization that we will have absorbed in Q2.
Either from.
Some of the bonus accruals.
<unk> has been paid.
So there will be reductions recorded in Q2, so run rate for our total cost.
Noninterest expenses will be probably in the in the $52 million to $53 million now. So 54 cores that we reported this quarter, it's considerably higher compared with the run rate that we would face from now on so.
Okay, great. Thank you guys I appreciate it sure.
Sure. Thanks, Michael Thank you.
Thank you. Our next question comes from the line of Daniel <unk> from Stephens, Inc. Your line is now open.
Good morning.
Good morning.
I wanted to ask a couple of questions on the deposit side quick.
As the distributions might pick up in the.
The money market costs, and so I wanted to ask what drove that and just more broadly.
Have you had any sort of deposit rate changes on the pricing side, so far yes.
Yeah. Good question. So there has been some.
Specific adjustments done two large relationships that they tend to be tied to two fed funds. Those so far have been the changes that we have produced.
Date are not widely generated four massively to all customers versus just specific adjustments that we did.
To certain large relationships, so but there is no.
Massive increase across the board.
Understood. Thank you for that.
And then my final question is just around the consumer indirect portfolio. We wanted to get some detail if you could provide some color on.
The breakdown of what.
What part of their portfolio of student loans versus some other loans, maybe if you could just provide some color on the credit expectations portfolio.
Yes, just to clarify nothing is student lending is all.
That consolidation.
More people financing debt out of our credit card into a.
And amortizing loan.
So I think the key to think about it is there is just a continuation.
<unk>.
The programs that we've had particularly we've highlighted with Sofia in the past.
We're just continuing on that path, it's important to know that we're in the process of.
Developing our own opportunities in that marketplace, which could be very advantageous for us.
Second half of the year, so, but typically that is nothing more than.
I'll call it debt consolidation right that's right, yes, there is.
When you drill down into the composition there is that consolidation there is home improvement.
The weighted.
And going back to your question about expected losses, we really lagged.
The underwriting process based on free cash flow not only in FICO, but also a free cash flow.
Which we have.
Understanding the underwriting process is very well of those.
Of those originations.
It helps a lot on the prospective performance so far.
Losses have been in line or even below expectations.
For an effective yield including the.
Those losses close to the 7% so it's been a.
Good journey, so far and we're really lagged the quality that is being presented.
Thank you for that if I could just sneak one last one.
On the <unk> borrowings to new ones that you put on could you.
Some color on the yields that you got on that.
Sure they were in the range of.
One five to $1 75 approximately.
There were definitely very accretive compared to current market.
And.
Our blended average yield for the whole portfolio came at 110%.
<unk> does items, there will be additional moves as we progress through the quarter because.
As you can imagine what we did is moved to anticipate.
As much as possible the fill or secured funding in the long term and the quarter ended with an excess liquidity that our plan is to keep it there but trying to.
Additionally, recompose, the FH will be advances as well.
Understood. Thank you very much for taking my questions I appreciate it thank.
Sure.
Thank you at this time I am showing no further questions I would like to turn the call back over to Mr. <unk> for closing remarks.
Thank you Gigi first of all just wanted to say thank you to everyone for joining our call today, we greatly appreciate your interest in Ameren and.
And we hope that all of you have a great day take care.
This concludes today's conference call. Thank you for participating you may now disconnect.
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