Q1 2022 Amalgamated Bank Earnings Call
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Ladies and gentlemen, thank you for standing by the amalgamated financial call will begin shortly once again. Please continue to hold amalgamated financial will begin momentarily.
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Good morning, ladies and gentlemen, thank you for standing by and welcome to the amalgamated Financial Corporation first quarter 2022 earnings Conference call. During today's presentation. All parties will be in a listen only mode. Following the presentation. The conference will be opened up.
For questions with instructions to follow at that time as a reminder, this conference call is being recorded I would now like to turn the call over to Mr. Jason Darby Chief Financial Officer. Please go ahead Sir.
Thank you operator, and good morning, everyone. We appreciate your participation in our first quarter 2022 earnings call with me today is for Silicones, Brown, President and Chief Executive Officer.
As a reminder, a telephonic replay of this call will be available on the investors section of our website for an extended period of time. Additionally, a slide deck to complement today's discussion is also available on the investors section of our website.
Before we begin let me remind everyone that this call may contain certain statements that constitute forward looking statements within the meaning of the private Securities Litigation Reform Act of 1095, we caution investors that actual results may differ from the expectations indicated or implied by any such forward looking statements or information.
Investors should refer to slide two and three of our earnings slide deck as well as our 2021 and 10-K filed on March 11th 2022 for a list of risk factors that could cause actual results to differ materially from those indicated or implied by such statements.
Additionally, during today's call, we will discuss certain non-GAAP measures, which we believe are useful in evaluating our performance presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with U S. GAAP a reconciliation of these non-GAAP measures to the most comparable GAAP measure can be found in our earnings release as well as on our website.
Let me now turn the call over to Priscilla.
Thank you Jason and good morning, everyone. We appreciate your time and interest today.
This morning, I will provide an update on our strategic plan to generate sustained and profitable organic loan growth.
Jason will then provide a more in depth review of our first quarter financial results.
Our results are a clear indication of the fundamental earnings power of amalgamated bank as we execute on the four pillars of our growth for good strategy.
Along these lines there are four key performance measures, but I'd like you to take away from this mornings call.
The first is that loan growth is.
Clooney pace assessments, we were up one 8% compared to the linked quarter, reflecting our second consecutive quarter of growth due to the solid momentum of our core loan growth strategy established in the second half of 2021 .
Including patients that's why we grew the lending activity by 6.5%.
Over the course of 2022 we anticipate loans will meaningfully drive net interest income and earnings.
Second on the heels of successfully with creating six new bankers in the fourth quarter up 21, we've continued our talent acquisition efforts in the first quarter of 'twenty. Two also recruiting six new established bankers with relationships across our various focus regions, enabling our ability to tap more broad.
Totally into our existing footprint for opportunistic loan origination and to gain market share.
We also completed the restructure of the organization to align to our strategic imperatives.
Third our deposit growth was considerable exceeding our expectations and increasing nine 7% to $7 billion from the linked quarter as our political deposit franchise rose to $1.1 billion, while we held our cost of deposits steady at nine basis points.
Fourth our net interest income rose by 2.8% demonstrating the inherent earnings power of our asset sensitive balance sheet paired with our industry, leading low cost deposit franchise.
As we achieve meaningful consecutive long growth, we are confident that our team our product platform and our overall operations are well suited to achieve a high single digit loan growth target, we set in the fourth quarter call.
The high quality banking talent, we acquired during the quarter, which include subject matter expert C. D F I and climate finance are incremental to our growth outlook.
And as I previously discussed we believe our existing footprint of New York, Boston, San Francisco, and Washington D. C is right for both broadening and deepening both in our and taking lending expertise from one market to the others as well as to expand beyond our traditional deposit gathering.
Model.
We saw this during the first quarter when our reconstructed CRE team successfully originated a sizable multifamily residential loan in Boston with a runway for additional loan volume to build upon this achievement.
The four pillars of our growth for good strategy have been and will continue to be the fulcrum for our strategic decision.
So far I've spoken mostly about our third pillar, which we call our offer.
It is largely driven by growing our lending platform in order to grow franchise value and fund future expansion goals.
We've also been hard at work at our other three pillars of mission customer insights and efficiency.
Our mission is evidenced by both the key customer segments. We work in and also the mission aligned products we engage in.
Our customers their change makers largely individuals small businesses or in six other key commercial segments, but what they all have in common is that they care about what their money does in the world.
We are committed to environmental and social responsibility in all of our customers care about our actions as much as they care about their own.
During the quarter, we were the first bank in the United States to receive approval from science based targets initiative of our net zero carbon target.
And recently, we announced that the 31% about 2021 lending related activity went toward climate solutions.
In the coming quarters, I will have more to share on our customer insights pillar and related digital platform development is that experience is core to our ability to grow with the demands of our mission based customer segments.
Before turning the call over to Jason I'd like to just make one more comment tethered to our fourth pillar of key effectiveness and efficiency.
With the increased profitability, we anticipate in 2021 and beyond due to the rising interest rates our efforts to improve our valuation and performance measures are a top priority. So you can expect continued focus on improving efficiency.
I'll now turn the call over to Jason.
Thank you Priscilla net income for the first quarter of 2022 was $14 2 million or 45 cents per diluted share compared to $15 9 million or 50 cents per diluted share for the fourth quarter of 2021 and $12 2 million or 39 cents per diluted share for the first quarter 2021 to.
The $1.7 million decrease for the first quarter of 2022 from the preceding quarter was primarily driven by a 5.0 million dollar decrease in noninterest income, which was due to the tax credits from solar equity investments recognized in the prior quarter, partially offset by a $1.3 million increase in net interest income of $1.3 million decrease in the provision for loan loss.
And a point $6 million decrease in noninterest expense.
Beginning on slide five our solar tax equity investments represented in a matter of to clarify and explain the volatility associated with the GAAP accounting.
As of the fourth quarter 2021 we have made three solar tax equity investments. Since these investments are mission aligned and offer highly retractive returns over time, we expect to make more solar investments in the future.
The accounting treatment of these investments generally results in a near immediate realization of investment tax benefits and a subsequent accelerated depreciation of the value of the investment which creates volatility in our GAAP and core earnings presentation, specifically within non interest income.
We believe metrics, excluding the impact of tax credits or accelerated depreciation is a meaningful way to evaluate our current and historical performance occur.
Accordingly, we have begun presenting metrics, excluding the tax credit or accelerated depreciation impact of our solar tax equity investments.
Exclusions related to solar tax equity investments work.
$1 million of tax credits recorded as equity method noninterest income for the first quarter 2022 $5.3 million of tax credits in the fourth quarter of 2021 and $3.8 million of accelerated depreciation recorded as equity method noninterest Contra income in the first quarter of 2021.
Yes.
Core net income excluding the effects of tax credits and accelerated depreciation from our solar investments our non-GAAP measure for the first quarter of 2022 was $14 $3 million or 45 cents per diluted share compared to $12 $7 million or 40 cents per diluted share for the fourth quarter of 'twenty, 'twenty, one and $15 9 million.
Or 50 cents per diluted share for the first quarter of 2021.
Turning to slide seven.
Posits at March 31, 2022 were $7.0 billion, an increase of $617 $2 million from the fourth quarter of 2021, and an increase of $1.3 billion as compared to March 31 2021.
Noninterest bearing deposits represented 53% of average deposits and 54% of ending deposits for the quarter ended March 31, 2022, contributing to an average cost of deposits of nine basis points in the first quarter of 2022 unchanged from the previous quarter and a decrease of two basis points from the prior year.
Yeah.
Deposits held by politically active customers were $1 $1 billion as of March 31, 2022, an increase of $159 $9 million as compared to $989 $6 million as of December 31st 2021.
We expect political deposits rise by another $400 million to $500 million over the second and third quarter, and then run off approximately $600 million to $700 million in the fourth quarter when the congressional elections conclude.
Turning to slide 10.
Including that deferred costs at March 31st 2022 loans were $3.4 billion, an increase of $158 million compared to December 31, 2021 .
The increase in loans was primarily driven by a $79 $5 million increase in residential loans, mainly from direct originations and a $97.6 million increase in our consumer and other loans, primarily driven by solar loan originations from existing floor arrangements offset by a combined $19 $9 million decrease in the commercial portfolio.
Payoffs exceeded originations.
The volume of payoffs as a result of our continued focus on credit quality improvement in the commercial portfolio with $23 million of payoffs from criticized loans. In addition to certain other pass grade loans.
Okay.
The yield on our total loans was 385% compared to four point of 1% in the fourth quarter of 2021 and 3.83% in the prior year.
After adjusting for $1 million in interest repaid on a reinstated loan the fourth quarter 2021 loan yield was 3.89%.
The four basis point decline in the linked quarter is primarily related to recognize deferred fees on the PPP loans in the fourth quarter after adjusting for prepayment penalty fees or loan yield was essentially flat as compared to the previous quarter.
On slide 12, our net interest margin was 2.76% for the first quarter of 2022.
Decreased from 277% in the fourth quarter of 'twenty, 'twenty, one and a decrease of nine basis points from 2.85% in the first quarter of 2021 .
Prepayment penalties earned this loan income added three basis points of our net interest margin in the first quarter of 2022 as compared to two basis points in the fourth quarter of 2021 and four basis points in the first quarter of 2021.
We estimate that excess liquidity in the quarter from deposit growth suppressed our NIM by 13 basis points.
Noninterest income for the first quarter 2022 was $7 4 million compared to $12 $4 million in the linked quarter and 4.0 a million dollars for the first quarter in 2021.
Core noninterest income excluding the effect of tax credits and accelerated depreciation from our solar investments for the first quarter 2022 was $7.4 million compared to 7.0 a million dollars for the fourth quarter of 2021 and $7.8 million for the first quarter of 2021 .
Noninterest expense for the first quarter 2022 was $34.4 million a decrease of <unk> $6 million from the fourth quarter of 2021 and an increase of $1.6 million from the first quarter of 2021 .
Decline from the preceding quarter includes $5 million of unwind costs related to the terminated a b O C deal.
We do not anticipate material one off expenses in the second quarter of 2022 .
The increase in the first quarter of 2021 , it's primarily driven by a $2 $2 million increase in data processing related to the modernization of our trust department and higher overall contractual fees offset by decreases in professional fees.
Moving to slide 16, nonperforming assets totaled $61 $1 million or eight zero percent of period end total assets at March 31, 2022 an increase of $6 $5 million compared with $54 6 million or <unk>, 77% of period end total assets at December 31st 2021.
The increase in nonperforming assets at March 31st 2022, compared to December 31, 'twenty 'twenty. One it was primarily driven by a multi loan new troubled debt restructuring totaling $10 $5 million from the same borrower relationship.
Offset by a $5 $1 million decrease in residential non accrual loans.
Nonperforming assets increased overall credit quality improved with criticized assets declining 15, $1.6 million or 22, 3% to $179 $3 million on a linked quarter basis, and by $155 million or 46, 4% on a year over year basis.
The allowance for loan losses increased $1.6 million or $37 5 million at March 31, 2022 from $35 $9 million at December 31, 2021 primarily due to increases in loan balances.
At March 31st 2022, we had $58.2 million of impaired loans for which a specific allowance of $4 6 million was made compared to $53 $2 million of impaired loans at December 31, 2021 for which a specific allowance of $5 $1 million was made.
The ratio of allowance to total loans was 1.08% at March 31, 2022 unchanged from December 31, 2021 .
Yeah.
Provision for loan losses was an expense of $2.3 million for the first quarter of 2022 compared to an expense of $3 $6 million in the fourth quarter of 2021 and a recovery of $3.3 million for the first quarter of 2021 .
The expense in the first quarter of 2022 was primarily driven by higher loan balances and a point $4 million charge off related to a loan that was transferred to held for sale, partially offset by improved credit quality.
Moving along to slide 17, and 18, our core return on average equity and core return on average tangible common equity excluding the impact of solar tax equity were 10, 4% and 10, 7% respectively for the first quarter of 2022.
We repurchased two $8 million of common stock under our $40 million share repurchase program that we announced during the quarter and maintained our dividend at eight cents per share importantly, we remain well capitalized to support our future ongoing growth initiatives.
Slide 19 shows a reconciliation of the change in tangible common equity and related tangible book value as expected. The federal reserve commenced that cycle of interest rate increases with a 25 basis point increase at the March meeting further the committee message the increasing likelihood for more aggressive rate increases through the remainder of 2022 and likely into 2023.
As a result of long term interest rates rising significantly during the quarter, our tangible book value per share declined by six 3%, primarily driven by a tax affected mark to mark adjustment to the fair value of our available for sale securities portfolio.
While we were cognizant of our decline in tangible common equity were focused on driving earnings through prudent deployment of our liquidity, we believe restaurant on balance sheet liquidity position borrowing capacity and low cost deposit gathering ability well protects us from acquiring realization of these transitory market declines.
Importantly, fluctuations from Mark to market adjustments have no impact on our tier one capital position.
As a reminder, the current rising rate environment provides a strong net interest income benefit to amalgamated which I will discuss further in a moment.
Turning to slide 20, as previously mentioned, we are focused on our core loan growth strategy and deployment of liquidity to drive earnings power in the year ahead. We also have been resolute in building an asset sensitive balance sheet structure to be well positioned once the rising rate environment return because it affords us the forward curve suggests substantial rate increases through the remainder of 2022, we are updating our.
Full year 2022 guidance as follows.
Excluding the effects of tax credits and accelerated depreciation from our solar investments we estimate Corp.
Core pretax pre provision earnings of $97 million to $105 million, which includes only the effect of the 25 basis point fed increase in March of this year for the remainder of 2022.
Core pretax pre provision earnings of $110 million to $120 million.
So does the effect that forward rate curve for the remainder of 2022.
Net interest income of $205 million to $215 million, which includes only the effect of the 25 basis point fed increase in March of this year for the remainder of 2022.
And net interest income of 220 million to $230 million, which considers the effect of the forward rate curve for the remainder of 2022.
Generally speaking, we estimate a range of 4.0 to $4 $5 million increase in annual net interest income for each 25 basis point increase in short term forward curve rates for the remainder of the year.
We are pleased with our first quarter results and are optimistic that our organic loan growth prospects paired with a reliable low cost deposit franchise will deliver meaningful increases in earnings and shareholder value.
Over the course of 2022, we look forward to updating you again, our second quarter call.
And with that I'd like to ask the operator to open up the line for any questions operator.
Thank you at this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.
Confirmation tone will indicate your line is in the question Kim You May press star two if you'd like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.
Yeah.
Thank you. Our first question comes from the line of Alex toward all with Piper Sandler. Please proceed with your question.
Hey, good morning.
Good morning, good morning Al.
First off I was.
You can give us a little bit more clarity on the the loan growth outlook and the targets. You said if you can maybe help us understand sort of what the complexion of the loan growth that you expect over the rest of the year I think this quarter was a lot stronger in the consumer and at least I was anticipating and if you think that you know, we're gonna get sort of loan growth across different segments.
Or if there's going to be a handoff to commercial and some of these lenders that you've hired a come online later this year.
Sure Alex I'm happy to take that question for you so.
So I think the prospects overall for our loan growth are pretty strong.
A little bit of a mixed bag in the results for Q1 in the sense that you know the residential and the consumer mainly our our solar driven business. You know really was the key driver is and it appears there wasn't a.
A lot of growth that's coming out of the out of the commercial segment, but I think the the.
Thing to think about there is you know when we when we look at the commercial business, we actually had quite a bit of a new commitment volume as.
As our new CRE team for example, they came on.
In January in the first quarter.
You know they were at about $80 million of new commitments during the year I'm, sorry, I'm, sorry, $70 million of new money for the year and $60 million of refinances, we had a fair amount of payoffs that occurred but you know what we've been able to do is we've got the origination volumes going through is the sort of strategic and evaluating some of our pass grade credits for.
For additional refinance and so you know we've been doing a little bit of balance sheet management I'm you know over the course of this quarter I expect that in the commercial space and I expect that'll that'll continue into the second quarter as we sort of look at our asset quality is an equally important metric for us in terms of our overall credit portfolio.
But you can think of that portfolio is being able to churn in terms of of asset quality and then hopefully start to reach our growth pattern as we get a little bit further into the year you know.
The things that we see in the pipeline look really strong and I think that's one of the reasons why we've also stayed a.
A little bit off of expanding our loan growth targets, because we wanted to make sure that you know we're growing I guess cautiously, but optimistically in terms of of making sure that we have our pipeline, but also making sure. We have good strong asset quality, that's going to be sustained within the portfolio and sort of meeting new pricing and new.
No wonder standards.
Okay and can you just remind me sort of the differences between the pace loans and the consumer solar loans.
Yeah. So so they're they're relatively the same in terms of the final product. It ultimately ends up in an energy efficient improvement.
Improvement to a consumer residents in and in a normal state you know on the pay side, it's very much tethered to the tax position are in terms of its repayment process and its position relative to the senior debt on a mortgage on the consumer side, it's a little bit more of a you know kind of like a I went too.
Unsecured, but you know a regular kind of unsecured loan I guess, the best way to describe it which with the same type of of kind of asset improvement to the actual underlying property.
Yeah.
Okay.
And then just a final question for me, Brazil, you alluded to the efficiency ratio as being kind of a top priority.
Do you have some expense initiatives in mind or is that just kind of a promise that as you earn more because rates are going higher you are not going to spend all of it.
Spend all of this sort of found money away yeah. That's the latter its the ladder, Alex we where we're gonna stay disciplined we certainly as we said to you in prior quarters intend to invest as we see the revenue coming through on the Strat plan, but where are we wanted to signal to you that we are not looking at.
This is all found money.
As you know as we get the benefit of the rate increases.
Okay. So I think that last time, we spoke the target for efficiency was around 65%.
And if we get the foreign curve you know follows through that.
Maybe you can go a little bit lower than that it's sort of a longer term target.
That's right yeah, we could get tail winds that are help too to enable us to get a better ratio than that.
Yeah perfect.
Yeah.
Sorry, Yes, I was just saying we you know we came in at under 62% for the quarter, but I think when we think about the efficiency ratio I think we're also thinking about just sort of the overall guidance. We've given on total expenses and I think we've been we've been out there with I think $138 5 million for the year and I would expect that we'd stay pretty close to.
Do you know to that target maybe increased slightly on the margin, but but you can kind of think of that as a guardrail for you know what efficiency might look like in a in a rising rate scenario.
Yeah. That's a good point, so we were probably about 500000 better than a.
Quarter, then we would expect on that run rate.
Great. Thanks for taking my questions.
Thank you thank you Alex.
Thank you once again, ladies and gentlemen, as a reminder, if you'd like to join the question queue. Please press star one on your telephone keypad. Our next question comes from the line of Chris O'connell with <unk>. Please proceed with your question.
Good morning.
Was hoping to start off with.
The new banker hires that you added this quarter.
What areas, they're in and then how youre thinking about expense growth for the year encompassing kind of you know the P. P. R. P. P R.
Outlook.
Yeah.
Do you want to take the expense growth one at all.
Certainly yeah. So.
So the on the expense growth Chris I.
I I think.
We came in slightly under where we thought we'd be at a where do we come in at about $34 million on a core basis. You know we've planned for about 34 and a half million dollars on it on a quarterly basis and what I would expect is that we're going to catch up that difference from this quarter over the course of the year or so.
To Alex's question previously you know, we're targeting 138 and a half a million dollars for the entire year on an opex basis core.
You know if there was a marginal uptick in that number as we make some additional investments and maybe some compliance infrastructure or other things that we need to kind of support the growth of the business that that number would might incur increase on the margin, but you know our view on increases over that 138, and a half million dollars would be you know really funded by <unk>.
The ability from the from the growth initiatives that we have underway right now so hopefully that would be kind of a net neutral in terms of incremental expense increase if we had it over that budgeted number.
Okay.
Grilling suddenly lender hires yeah. So so the lenders are really pretty well across the board, Alex where we're looking to as we've talked about in the past take expertise, we have in one area and and export it to others and so we're leveraging them.
People that are you know maybe sitting in New York or D. C to supplement the work in other markets, but we're also hiring.
C D I C. D. S. I experts for example, continuing to build on the CRE team.
Team, so really really pretty well distributed.
And Greg personally.
Chris maybe to just crystallize that I think hum.
Oh, I think rightfully so the number was six bankers for for this quarter.
Six last quarter.
And then one with C. D. A five one was climate related and then filling out the the real estate portion of our business.
Now that that means we're where net for as we you know we're doing a little bit of.
Talent management as well so you know the people that we brought on a net basis, where we're at for incremental from the end of last quarter.
Great and then you mentioned some changes.
Internal structure.
The business line.
Our strategic goals.
Is that a banker incentives or any expansion on kind of the details there.
Yeah. So there there are kind of two ways to look at that one is we have just moved org structure around to bring our revenue generating areas together and then Conversely bring our operations areas together so in the past we'd had.
Consumer and commercial completely separate today, we recognize that a lot of our consumer business and through our commercial relationships and so we brought the revenues are in customer facing parts of the.
Consumer business together with the customer facing parts of the commercial business and then in the back office suite. We've also done the same with them with our operations. There. That's it that's probably the biggest part of the change that.
But we definitely saw in the quarter.
We also are as we talked about with our pillars. We're focused on this sort of customer centricity and we've added a role associated with developing customer insights that's really a transfer of consultant expense to permanent hire once we were able to test the the work.
And and and really think about how we want that to be focused and we're doing the same with digital bringing some resources together, where appropriate and also bringing in a leader there. So it's at the the biggest part is what I described to you the consumer and the commercial coming together.
Both our front and back.
But there are some tweaks going on around the organization just to align.
To create centers of expertise, where we where we think we are we could benefit from an efficiency or an effectiveness perspective.
Great.
Appreciate the color.
And.
As far as the origination yields on the loans are where are they coming on in kind of the blended portfolio and then what are the pace.
Origination yields coming on it now.
Yeah, So I'll I'll grab that for you Chris I think you know on average the the loan yields are coming on that are you know in the low four percents right now or solar pools, which I was talking a little bit about before those are more in the ER and the 5% range.
And then in the pace world that they're coming on now in the in the mid 4% range. I think also what's important is you know a lot of the loan growth that we reported in this particular quarter, we really Didnt book a lot of that until the latter half of March. So when you look at the yield.
The portfolio for the quarter, which didn't really move very much in the previous quarter.
It's really not baking in any of the effect of the loan growth that we had in this particular quarter. So you know we're also expecting you know loan yield two on a reported basis to increase.
You know fairly dramatically as you move into the second quarter, and obviously that'll pull forward in our NIM as well.
Yeah.
Great and then.
For the NII guide.
Alright, how what's the you know you mentioned the 13 basis points of excess liquidity kind of hampering the margin this quarter, what's embedded in terms of excess liquidity deployment and the NII guide and.
And how are you seeing that.
That come off over the course of the year and in the guide.
Yeah.
That's gonna be a little bit of a moving target throughout the year, mainly because of the of the political deposits that are probably going to ramp up you know over the course of the next two quarters heading into the until the congressional elections in November and so I tend to think of it a little bit more is what will look like at the end of the year as opposed to what we'll look at.
It looked like over the next couple of quarters.
We're trying to manage to a $200 million of cash. So you know in terms of how we think about our excess liquidity drag you know anything above $100 million starts to become the the.
The capital drag in the in the AR and the NIM drag.
So I think.
That said E M.
The NII guidance, so it doesn't necessarily.
Focused tremendously on on the margin from a you know from a calculus point of view, it's much more focused on.
The the fact that we have the higher loan volumes coming on and the fact that the spreads on the deposits that were bringing on or are much greater and we have an ability to deploy that either through hopefully our lending or through our securities portfolio.
And then you know just need the fact that the 25 basis points, that's already been implemented by the fed.
Flowing through on a resets on our floating rate asset. So I don't know if I answered your question exactly the way you want it but that's kind of how we're bridging the difference from the previous guidance to current on NII.
Great.
And as for the NII Guide.
What what are you guys assuming in terms of deposit betas.
Going forward, yes.
Yeah. So we're actually fairly conservative on our deposit beta assumption I think and I'll get you the exact number but I think we assumed a 20% deposit beta.
Our model. So clearly there is some room on the you know on the upside I guess, if you know our deposit betas hold to what they've been in the past rising rate cycle I think as we spoken before deposit betas for us in the last rising rate cycle for the 100 per 100 basis points on total cost of funds basis was about 3%.
So we think when we model out of 'twenty I'm, you know were being very conservative in our AR and our forward assumptions.
Okay.
And then for the you know you mentioned you know the regulatory capital.
And between that.
You know that you're focusing more on that versus you know the T C.
Is there an absolute level of TCE that.
Does it start to become a concern at all for you guys.
How do you kind of balance that versus the regulatory capital in terms of the buyback utilization going forward.
Oh, that's a really good question.
And absolute level of TCE, you know I think.
Where are we are you know sub seven right now we're keeping our eye very closely on it.
I don't think we'd have an appetite to go.
Much further below where we're at at the same time, you know we want to be.
<unk> for the fact that we have a tremendous amount of liquidity to be able to kind of hold these unrealized losses in a position of unrealized up until the point, where eventually you know there theyre valuable will turn when rates start to decline.
I think more a little bit more in terms of leverage and I think the way we model ourselves out you know seven or even slightly below seven which kind of gets us to where we thought we might be when we closed a b O C is sort of a R. R floor. If you will I mean, it moves around a little bit, but that's generally right.
I would think about it and as we've communicated before with this rising rate environment and some of the Optionality. That's due to the bank you know part of our plan is to really return capital to you know to get us back to a more comfortable kind of green zone, seven 5% level by the end of the year and hopefully that gives you a little bit.
Have a sense for where we're trying to manage the balance sheet for this year.
Yeah absolutely.
And then.
For.
A single credit that went to.
NPL this quarter, the 10 million any any color you can provide there.
Yeah, you know, it's it's a credit that we had our eyes on for a little while it's been moving in that direction or it's a it's a relationship. It's it's it's four different credits are a part of this relationship.
Its a credit that we've been watching for a while.
You know, it's been moving through our past graded into substandard you know over the course of the past four quarters and you know, we just got to a point, where we found a way to.
Negotiate terms with the borrower to you know to keep them in a position, where they're able to pay them and able to keep their business.
You know viable I guess is the best way to describe it and then.
That that's ultimately where where it ended up in terms of being in an accruing performing TD or it's it's it's I mean, that's where it kind of fits in our npls.
Loving it, but but that was sort of the background. That's been a relationship we've worked on with them for a while and you know openly that was the conclusion of our of how we got them back to paying status or to keep them and thinks that it's better way to describe it.
Great.
And then last question for me is just can you give us an update on.
Okay.
The progress of our ESG funds initiative in that rollout.
Okay.
Yeah.
Do you want me to take that Jason.
I could response once you want to take our opening shot.
Starting today with sponsored funds and so yes, that's continuing to roll out the activity that we have seen them.
For most of the quarter has been really around getting consultants up to speed on the product and answering many either question, that's going very well and we're starting to see a bit of traction the pipeline looks decent on it we do.
Expect that we will has activity around just expanding the.
The the number of people focused internally on our sales of that as we go forward now that the foundation has been laid with the with the consultants.
Yeah, Okay great.
Oh, sorry, it's Chris I'll, just add to that that you know we did have a nice little uptick in the trust Department income.
And that really was not the result of any increase in response to funds its more on our base business. So.
Response funds moves along like Brazil has mentioned, we hope that that's going to be incremental to the to the revenue opportunity there.
Great. Thanks for taking my question.
Great. Thank you Chris.
Thank you. Our next question comes from the line of Jack Meehan with J P. Morgan. Please proceed with your question.
Hello.
Hi, Janet.
So I just wanted to clarify on your NII guidance, assuming that's hard car. So you touched on it a little bit but can you just tell us how much deposit growth and pace of curious growth. That's assumed in this guidance and I believe that 5% balance sheet growth.
Guidance and the prior quarter quarter was pulled.
So is there any change to that as well.
Got it to really know.
Sorry that we pulled that guidance that that was unintended you know I think we're still planning on our balance sheet guidance.
As with our 5% growth it may be slightly higher as we came in a little bit better than expected in this particular quarter, but we still are expecting you know the balance sheet to grow over Q2, and Q3, and then pulled back down in Q4 as a result of the kind of the political deposit sway.
And therefore, you know when we think about the end of the year balance sheet, we're not seeing it as being tremendously different from what we had originally said at that 5% growth rate. When we think about you know the forward guidance, we really haven't changed our assumptions on what we thought loan growth would be in total so that.
Would be still in that high single digit range, although we feel really confident that that's a very hittable market at this point and then on the deposit side again, yeah. We're not really expecting you know much more than what we talked about them maybe in the previous quarter somewhere in the net range of three to 400, maybe $450 million increase.
In deposits and on the pay side I think we are a little bit ahead of our ahead of our plan with pace and we had an opportunity to put on.
A $75 million residential pool early in the AR in the quarter that we really hadn't thought of when we were originally contemplating budget and so we were able to take that opportunity, but going forward I think we would stay very much on our pace target and I forget what the exact numbers, but somewhere in the range of $150 million of Oh.
Total pace activity for the year.
Okay. That's helpful.
I think it just it might be a sensitive subject, but I think many of US here are you now looking for any additional color you can give around the a b O C deal that was strong and what that means to you in terms of.
Why theyre, having to potentially increase expenses to meet regulatory standards. So I would appreciate it if you could shed any light on these points what happened given there's still lots of questions.
Yeah.
You know Janet there's just not much more that.
We can say about it it we think we were pretty straightforward. Your your specific question about regulatory.
Expense, we don't anticipate any additional expense.
Outside of what's in our plan and what we would have anticipated a doing anyway.
And I guess the additional color I will give is that look we.
We are you saw in the quarter, our construction loan and you know we don't we don't do much in that area.
Perhaps it was about $9 million that was that a deal in Chicago that we did actually.
With a b S. C post the withdraw them that was a participant when I say, we did with it that's not exactly accurate. It was a participation where yeah. We obviously did our own underwriting they did theirs, but it was a union customer that we both regard highly well capitalized customer cash six.
You are exactly the kind of deal that we would love to continue to be doing a with a b O see them, but that says this is what was one of the significant benefits if we had them.
If we had closed the transaction and we are please.
Pleased that we're able to get it done even as two separate companies with our.
Our own individual process.
So we would look.
To continue to find opportunities, whether that's with a b M C or others and and we think that that that's going to continue and we think our our organic loan growth.
We will continue and we are you know as we said to you in that in the quarter about a b or C is it really still.
Still accurate.
Accurate and complete from our perspective, which is to say that.
We have demonstrated now over these two quarters that our organic progress is strong and that when faced with the opportunity to continue building on organic and on our business organically or.
Or just sort of wait through and and go through a very long elongated process distracting our employee we chose the former and Oh, we did so because we really felt we had no choice in the immediate.
Period, but we certainly would look to work with a b O C. In the future that are if other opportunities come up.
Okay. That's that's really helpful.
Are you why do you know content play I know that your focus is now on Oregon, driving organic growth, but if you why do you contemplate any M&A deals and that's a friend and.
And the long term future like does that mean.
I mean, you have to you know spend more in order to satisfy whatever.
That the regulator was looking for like why do you have to do yeah order, it's Hugh Yeah got it.
So two things, we think about with respect to our additional deals first and foremost much. Most important one is as was the case. When this deal was originally presented it fit really nicely we thought in our plan to to both expand and deepen our relationships and so we were.
Look for that we would look to to build on the strat plan through any deal.
And while we are focused on the organic growth for the time being it's not a it's not a decision we make out of a necessity are only we make this decision because theres so much opportunity in each of our markets and I think we're demonstrating that.
Should we see something come across that looks attractive I don't think we would want to get off of our trend right. Now. We've just brought on a bunch of new new bankers are we've got a lot of activity going but if in the near to intermediate future. We start to see something else coming along we would know.
Not expect as I said that there would be an additional amount of expense about plan in order to satisfy regulators before we could we could see a deal happening.
Okay great.
Just going back to deposit growth.
Well you also see some so besides the political deposits that.
And that's one way we also see some deposit growth normally Jason given that Q T on the noninterest bearing deposit side, excluding the political or do you expect and noggin needed to be sort of an outlier given your unique customer base.
Yeah, Yeah. That's a that's a great question in fact, we were literally talking about that last night and the day before.
As we think about you know kind of at the forward view on on deposits and I you.
We think look whenever immune to anything right. I mean, you know customers are customers in and and and they they make their choices same as anyone else would but we feel like our deposit franchise as it has been built over the past seven or eight years in particular and the types of bankers that we have that are running.
These deposit relationships and the diversification of the deposits that we have even this quarter alone you know well, we had a $160 million of political deposit growth we had another three.
$350 million of commercial and an almost $100 million of consumer growth. We feel we are unique in this space and that we're somewhat.
Insulated from maybe some of the of the run off risk that you know that other banks similar to our size might have so we think that that might be one of the real.
You know value players that this that this bank and demonstrate over time would be the stickiness of our deposits and the ability to sort of move through the rate environment cycle and in a manner with with lower volatility than others I hope that answered your question.
Yeah.
And my last question is just a follow up on on deposit beta.
You said, 3% last rising recycle actually calculate around like 1%. If you look at the total you know period of rising rates in the prior cycle and if you're assuming 20% I know you're trying to be really conservative year, but like.
Like how does your NII guidance would change if you assume you know like mid single digit deposit beta or maybe if you don't have that handy like how does that NII benefit for 25 basis point rate hike change if you assume a much lower beta.
As you did have a fire rating cycle.
Yeah. So thanks for asking that I think I need to correct myself I had said 20, 20% on total that was 2020 per cent an hour on just our interest bearing so the number is going to be substantially.
Substantially less when you mix in or our DDA and total cost of funds on our estimate so it's probably more in the range of about 10% are in total in terms of the deposit beta.
But that said I think that's where we kind of come up with that four and a half to $4 million range. When we look forward when we factor in the the rate sensitivity on the forward curve you know I think if we got lower too or or or if our deposit beta kind of looked at.
Like our historical deposit beta you'd be at that four and a half million dollar range, possibly even a little bit better than that.
Great. Thanks for taking my questions.
Thank you, ladies and gentlemen that concludes our question and answer session I'll turn the floor back to Ms. Brown for any final comments.
Thank you Melissa and go and thank you for those really great questions that both my behalf and Jason and the team.
They reflect that you understand I think that our balance sheet is well positioned to capture both the upside that we are anticipating with interest rates, but also protect us against the eventual.
A flattening or a decline in rates.
We have a lending team that we're very excited about which is focused on asset quality and origination and I think that that's what a responsible investor would want to see we really appreciate your time today. We appreciate your continued interest.
We really love the opportunity to discuss our optimism for the future of amalgamated and I know, we'll be continuing some of these conversations and smaller conversation.
We're just thrilled with the growth we've delivered in this quarter.
Strategically design team continues to build momentum.
We will remain focused on the mission based niche lending space that we occupy to continue to make an impact on the customers and communities we serve.
Excited about the depth of our banking team and the development of their customer relationships to build amalgamated into a full service banking franchise.
Thank you again for your time, and we look forward to continuing the dialogue.
Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.
Yeah.