Q1 2022 BankFinancial Corp Earnings Call
Okay.
Yeah.
Good day and thank you for standing by welcome to the Bank Financial Corp, Q1, 2022 earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session. Please be advised that today's conference is being recorded.
A question. During this session you will need to press star one on your telephone if you require any further assistance. Please press star zero I would now like to hand, the conference over to our speaker up todays call F. Morgan Gasior, Chairman and CEO . Please go ahead.
Good morning, welcome to the first quarter 'twenty, two Investor Conference call at this time I would like to have our forward looking statement read.
Okay.
The remarks made at this conference May include forward looking statements within the meaning of section 21 E of the Securities Exchange Act of 1934, we intend all forward looking statements to be covered by the safe Harbor provisions contained in the private Securities Litigation Reform Act of 1995 and are including the statements for the purposes of invoking these safe Harbor provisions.
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Forward looking statements involve significant risks and uncertainties and are based on assumptions that may or may not occur. They are often identifiable by the use of the words believe expect intend anticipate estimate project plan or similar expressions or ability to predict results or the actual effects of our plans and strategies is inherently uncertain and actual results.
It's may differ from those predicted for further details on the risks and uncertainties that could impact our financial condition and results of operation. Please consult the forward looking statements declarations and the risk factors. We have included in our reports to the SEC.
These risks and uncertainties should be considered in evaluating forward looking statements. We do not undertake any obligation to update any forward looking statements in the future and now the chairman and CEO Morgan Cesar. Thank you Oh filings with respect to activity through March 31, 2022 are complete.
However, we had some activity in April 'twenty, two that we'd like to update everyone on.
First and foremost we saw some rather substantial loan growth in <unk>.
April of 2022.
The loan portfolio increased to just over $1 1 billion.
We grew approximately $45 million in the month of April .
The growth was nicely balanced tilting a little bit more towards multi.
Multifamily loans and commercial real estate loans.
Strong originations during the month, but also a considerably reduced prepayment ratio, which is similar to what we saw in the first quarter.
The equipment Finance Division also had a strong month.
They originated more you know in April of 'twenty two than they did in the entire first quarter of 'twenty two and that's just reflective as we said in our filings of some of the timing delays. We are seeing on transactions funding, whether it's supply chain or labor or people in the office to execute documents those all have an impact but we were pleased.
To see the growth.
Both areas and we also saw some growth in the commercial finance area as well.
We'll see some line balance volatility.
In March in the first quarter in April and we expect it on and off throughout the year again, principally tied to timing of transactions.
But we're pleased to finally see the growth dropping to the bottom line like we've expected.
So our goal has always been $40 million a quarter, so roughly that would've been 1.090 billion by the end of first.
First quarter, we've now achieved that and we've gone beyond that.
And our goal for second quarter. So our second quarter goal is to get somewhere between 1 billion and $1 $25 billion to $1 billion $1 50, we do have some scheduled prepayments in the equipment finance portfolio and second quarter semiannual governmental payments that might make the one 1 billion $1 50, a bit challenging.
We also have very good pipelines in real estate, we have good pipelines in equipment finance some of which have still carried over from the first quarter of 'twenty two so.
So we think it's a.
Our reach but its still feasible.
And we have good pipelines smaller, but good pipelines in commercial finance, we've seen some new opportunities in healthcare finance.
So topic by topic Department by Department, we're seeing contributions from virtually every department just in varying degrees.
In terms of yield activity.
The yield on originations in April was $4, 6% to 8%.
Compared to $4 five 6% at the end of the first quarter and again Thats reflective of two things one is the mix of the originations and two we are getting a little bump from market yields and the increase in prime rate that occurred in March.
So going forward, if we look at second quarter, we would see originations continued yields on originations continue to increase again, partly due to mix.
One benefit of the of the delay in the equipment finance transactions as they will be booked at considerably higher yields because the swap curve has moved up so much so transactions that might have if they closed in early January might have been in the fives are going to be closer to the high <unk> or even low Sevens for example, if they can.
Close in the second quarter based on where the swap curve is.
So net net we ended April up about 6% in the loan portfolio for the year for our commercial related loans.
We feel good about the pipelines going forward. Our next task is to put two quarters in a row of good growth.
Then set up the second half of the year.
With that I would open it up for questions.
Certainly as a reminder to ask a question you will need to press star one on your telephone to withdraw your question. Please press the pound key one moment.
Okay.
Yeah.
Again, if he would like to ask a question you will need to press star one on your telephone.
And our first question comes from Brian Martin of equity Research. Your line is open.
Hey, good morning Morgan.
Good morning, Brian .
It sounds like a great start April so maybe can you just walk back through some of just kind of your your outlook pipeline.
Pipeline, just kind of what's driving it and then maybe just.
The originations versus kind of the paydowns. It sounded like it was largely originations with pretty minimal payoffs and I think you've talked about the last couple of quarters has kind of been what you're looking for in the originations have been really good to me.
Just a little color on <unk>.
And kind of specifically, where you're seeing the strength and then withdraw.
What drove the decline in pay offs or thus far in April just kind of how you're how you're seeing that unfold.
Well look first of all just do the most recent activity.
The decline in pay offs is twofold as we said in the first quarter call.
We had a number of borrowers, especially in the fourth quarter harvest gains they saw potential changes on rates coming.
Incredible games on their properties, particularly in the real.
Real estate multifamily portfolio and they took advantage of those of those positions.
And to a lesser extent, we also saw paydowns and equipment finance some due to people realizing residual positions. Obviously the value of used equipment has gone up tremendously because you cannot get new equipment as easily.
So they harvested gains in those positions.
You even had some businesses that were sold and they paid off the debt.
So those are all factors in in the Paydowns in the fourth quarter and we saw a much more normal run rate in the first quarter, obviously with rates going up.
Real estate tends to be sensitive to.
Our prepayments in declining rate environment.
And versus now true rates are rising rather rapidly.
The opportunity to refinance is compressing.
And and so therefore, two things are true one is fewer rate opportunities to two that are being offered in the market right now.
Into the cap rates will start moving up a bit.
And maybe the window was closing to harvest some of those gains people are now focused on increasing rents.
Improving their NOI and <unk> got the portfolio theyre going to have for a little while.
Our originations on multifamily.
Our continued to be driven by people still looking to lock in refinance opportunities.
And we're able to support that we have good pricing in the market across all markets and we have a price for lower risk.
With essentially rate and term refinances, where borrowers as want to lock in a good rate while they can and that is helping to drive some of the volumes we're seeing.
Especially with with good solid low low risk transactions, where are the most important thing for the borrowers to lock in a good rate for the next several years, they're planning on hanging out of the building.
Just want to manage their debt service costs. Accordingly, we are still seeing some purchases.
Not quite not as many as we've seen.
And candidly, even though the prepayments were down in the first quarter specifically.
Handful of prepayments, probably about $6 million in the real estate portfolio, where borrowers that had money sitting in the bank.
We attempted to find buildings they could not find the.
The buildings they wanted and they took the 10 31 proceeds and paid off loans as a result to avoid the negative spread.
So, but generally speaking we feel good about the pipelines going into the second quarter and now he's in third quarter.
We expect to hear.
Our strong second quarter on originations, we did approximately $35 million in the in the first quarter and we did $35 million in the month of April .
So we feel pretty good about going forward for second quarter are gaining will continue in the third quarter.
And the way this is working we feel good about growing those originations further.
Same for commercial real estate, we're more selective about it but we are seeing borrowers.
Looking for the similar opportunities we've just recently closed one.
Balding a family Trust. This was one of their primary assets.
Very very good location here in the western suburbs of Chicago, well tenanted and their priority was stable cash flow to the beneficiaries and lock in the debt service was a priority for them. So we're grateful for that opportunity to work with them looking forward to maybe do a little bit more with them, but there is another example of where we're seeing some growth on the real estate side.
Yes.
The equipment finance side, there is continued demand for equipment.
But obviously the delivery of the equipment is still the wildcard.
We had transactions in early March we could have had.
A much stronger March but some of it happened in April because they just didn't get the equipment delivered and installed in time, we had other transactions that we thought might happen in March that have been pushed off to June or even September based on supply chain issues principally out of out of Asia.
But the pipelines are there and as a result, they are growing so again, an equipment finance we did more in April than we did in the entire first quarter of 'twenty two we.
We feel that we will continue in the second quarter, and we're actually building a pipeline into third quarter right now.
Third quarter is also the last full quarter for government government equipment budgets, so use it or lose it so.
So we expect to see some strong activity as we often do in the third quarter.
So in the commercial side the C&I side.
We've seen some increased activity in healthcare it continues to be spotty cast is drawn and it comes back and lessor Finance also spotty line utilization is down a bit because again, they usually draw on those lines. When the equipment arrives at the dock and it has not yet arrived at the dock, but hopefully over time some of those.
Some of those supply chain issues are not themselves and there is quite a bit of demand for equipment. We have one customer on the on the equipment finance side that wound up finding the assets in Australia that they were looking for and so they are working on the exports from Australia.
Somewhere like Canada.
Because that's where they can find the equipment. They want it's going to take a while to get here, but we expect it to close in second quarter. It was originally supposed to be first quarter, but.
Circumstances changed.
So bottom line, we feel that the big contributors going forward will still be real estate.
And then equipment finance the C&I lines are generally showing an uptrend, we're seeing opportunities across the board.
Most recently in the commercial finance space asset based loans in factored receivables.
So we're going to continue to push that it's the smallest one but the average yields in those portfolios tend to be 7% to 8% or better. So they can have a net interest margin impact when they do close and fund.
So that's how we see it.
For next quarter as I said, if we can get our loan portfolio between $1 billion $125 billion to $151 billion $1 50 somewhere in that range. We would think that's a good result, especially given a little excess of scheduled prepayment here in second quarter, then build on that for third and fourth quarter in <unk>.
Based on the pipelines based on the activity were seeing based on the results in April we.
We are still working towards our $40 million, a quarter, which would put us slightly over $1 2 billion by the year end and if we're picking up an average of $4 75, 5% or better on those originations than the contribution to net interest to interest income is substantial and that's the operating leverage that.
But we have been seeking for this amount of time and everyone has been patiently waiting for.
Gotcha and then <expletive>.
Your comments Mark about what's happened in April .
As far as originations versus Paydowns, you said there was more in multifamily senior north of 35 million.
Multifamily and just the what did you say as far as total originations in the month of April .
Total originations in the month of April were $148 million just in that month.
848 eight.
Eight yield.
Gotcha and the breakdown by bucket you said.
Families in the mid <unk> or so and then the rest of it within mostly in equipment finance and real estate real estate was approximately $45 million.
Equipment finance was $35 million and the rest was draw activity in commercial but there were also paydowns in the commercial area in the C&I area too.
So the big contributors were real estate and equipment finance.
C&I was actually down just a bit in April because of the last bit of paydowns in the lines.
Okay got you and then just.
The paydowns thus far in April what was how are the paydowns.
Can you give any thought on what that was so far.
Paydowns were nominal.
I don't have those numbers in.
Front of us, but paydowns were probably less than $10 million in the real estate side, and probably less than $10 million on the equipment finance side, but don't hold me to those numbers.
They were more scheduled paydowns, but but much much smaller than than before okay and just.
Big picture I appreciate all the color on just kind of how youre thinking about the next couple of quarters and it sounds.
It sounds pretty nice as far as the opportunities there.
The paydowns that you've seen the last couple of quarters kind of in that 200.
Kind of in the $2 million to $300 million range.
Based on kind of your commentary about how that rates are changing and how that's impacting it and what you've seen so far in April I mean, I guess, if you kind of put it put a fence around where you think payoffs kind of settle in as things normalize.
Not by bucket, but just kind of on a consolidated basis I mean, how should we think about payoffs.
Over the balance of the year and just what are you thinking right now is reasonable that is kind of an outlook on that.
Right now I would say that the real estate portfolio, probably does somewhere around 20 million to $25 million a quarter, but that could that could decline, but it seems like a conservative number to go with.
Equipment finance, probably does somewhere around $25 million, a quarter, but third quarter can spike a little bit so theres, probably at least $75 million there for.
For the rest of the year and then the C&I is all a function of draws on payoffs, it's almost impossible to predict that.
But we are seeing some greater utilization in those lines.
An intra quarter basis, and if really the fed is is starting to tightened liquidity further.
Then two things are going to happen one the excess balances that some of the commercial borrowers are carrying on deposits, we will start to diminish.
I will then use the lines more frequently and for longer periods of time and then the overall utilization percentages should trend up. It's happened every single time theres been a cycle. This has been an extraordinary time of liquidity, where they're sitting on just enormous amounts of cash.
That helps us in two fronts one the line utilization goes up we're earning more on those lines. The rates on those lines are going up because they are floating rate so that helps us.
It goes down a little bit because the balance sheet gets a little smaller but the path to earnings a substantial if that happens.
Got you Okay. That's helpful.
And just maybe one other one just on on margin and just kind of the yields you are picking up now.
He said that one of the some of the growth.
Is it credit later like it is now.
The swap curve, which bucket is really going to see the benefit from the swap curve, where it's at today and the growth being delayed a little bit here.
Equipment finance, absolutely you've seen.
The five year, the five year treasuries just over 3%. So that's leased to 200 point increase over the last three months or so.
That would take us a small.
Just use that as a proxy and then add on average say 200 to 250 basis points over that for a risk margin and you quickly get into the mid fives or higher.
As I said right you just picked up 200 points and remember with our mix right.
Government is our is our is our highest quality asset there.
Those will be in those have moved now into the low to mid fours.
Middle market is moved firmly into the mid fives to low sixes.
And sometimes even a little bit higher.
And small ticket has now moved into the high fives, and low sixes, and sometimes a little bit higher and Thats why we added those different capabilities is to take advantage of an eventual recovery in the swap curve and obviously at those yields are certainly deposit costs are going to increase but at a slower rate. So we'll see some margin expansion on that in the <unk>.
Run might slow down as time goes on as.
As deposits catch up.
But you are going to get the benefit of those increased swap spreads in the market.
Yes.
A good chunk of the growth Thats, the real pickup and that operating leverage you are talking about so okay and then maybe just out.
Outside of the pick up youre going to get on the growth.
The benefits from that I guess the rate hikes here can you just talk more I don't know, whether you got market or Paul just a little bit on how you're thinking about.
And what your outlook is on rates and kind of how do we think and the benefit to the margin just.
Outside of what you just highlighted as far as you pick up youre going to get on this volume.
Let me turn it over to Paul.
Yes, Brian if you go back to the first rate hike of 25 basis points in the middle of March that equated to about a little over $1 million of.
The increase to our annualized net interest margin and it allowed us to make some small tweaks to some deposit accounts and with each additional rate hike coming up with the asset sensitivity that we currently have we expect to increase net interest margin by at least a million probably.
Closer to a million and a half with each additional rate hike because now we are redeploying some of that excess liquidity that we had in the first quarter into loans. So we've already picked that up with the repositioning of the cash so we have less repricing immediately.
Against the fed rate hikes, but we're expecting somewhere in the neighborhood of a million a million and a half increase to net interest margin with each additional rate hike going forward.
And then Paul just the balance of loans that are variable that is around 50% of the loan portfolio, maybe it changes a little bit now with the growth youre, putting on but 40% to 50% is kind of a.
An estimate of what the variable rate in there it moves kind of immediately.
Yes.
The loan portfolio, we've got.
Just over $100 million of loans that reprice immediately to changes in.
Interest rates they are tied to prime.
And then we've got the cash at the Federal Reserve would.
At the end of the year was over 400 million now it's over 300 million so as it gets redeployed.
That won't have the immediate impact, but its in loans, which were picking up 400 basis points or more once it's deployed into the loan portfolio.
Okay.
We will have about in the short run will have about 400 million, that's going to change right when when rates do.
As we deploy more of the loans some of those loans are going to be floating rate, maybe another $25 million to $30 million, maybe a little bit more during the course of the year.
And even in the cash flows that roll off the portfolio there'll be deployed at higher rates. So again, you see some pretty substantial improvements to interest income $45 million of growth in April will contribute $2 million of increase to interest income.
And if you just carry that forward times, another $100 million or so of growth. This year. If we're lucky enough to achieve that youll get that contribution plus you get the contribution on the cash.
Got you Okay. No that's great. That's helpful and let me ask one more and I'll step out and I can get back in if need to but.
Just the.
I guess when you guys look at the.
What was the other thing here just for me.
Maybe just a operating expenses this quarter were obviously a little bit.
Lower than last quarter, but I know you've talked about potentially that may be ebbing, and flowing based APC opportunities to hire people, but kind of where we stand today just in general.
On the expense base looks like a pretty good kind of stepping off point.
As you.
You get into second quarter here.
Yes, Brian we had the seasonal impacts in first quarter.
No removal and payroll taxes as it impacts comp and benefits, but going forward, we're thinking it'll normalize somewhere around $10 million a quarter range give or take.
At least for the next couple of quarters.
And that debt that wouldnt include any additional hires if you have higher than it is just the benefit just to pick up and expense, but youll get the operating leverage.
People produce.
Yes, I would agree with that we are priorities right now are strengthening up equipment finance on the corporate side.
Corporate balance sheets have had a lot of cash typically in this environment as rates go up people get more interested in equipment finance and conserving cash.
So we want to strengthen our capabilities there as much as we can.
We're going to keep adding to commercial finance that department is now at breakeven based on it.
Closings and we want to add some additional origination capabilities to leverage the investment we have in the department.
Wouldn't expect those dollars to be a substantial quarterly impact but to your point, though certainly help the operating leverage and we're going to be putting more money into marketing.
We're in an environment, now, where our product configuration and real estate.
Is exactly what the market needs and the more people that know about in the market the better off we are.
We're new to the commercial parts of the commercial finance space, we're getting good responses on the products, we put out there that are different than.
Somewhat innovative to the market. So we need to make sure that you know about it.
But I wouldn't expect those to have huge dollar impacts for the quarter not like setting up these departments did to begin with.
We will also see some.
Modest reduction in <unk> expenses, we've been running parallel on data communications and that is steadily ebbing.
And so we'll see some benefit there.
I will also say just the volatility in people right now there'll be some months, where we actually saved some money because we have fewer people that there will be months, where we get their replacements aboard.
And so those will be a little bit of volatility in those numbers as well too.
Two other things I might add youll.
You will see some volatility in it.
And compensation expenses.
We continue to have the strong start to the quarter in second quarter will be putting money away for incentives based on production and performance.
And the other thing is we on a quarterly basis, obviously with the loan growth will be putting some money away for loan loss reserves.
You have to put some money away in the first quarter for growth in the loan portfolio based on the mix and we would expect to continue to do so in the second third and fourth quarter.
Gotcha, Okay, let me ask this and I'll jump out and I'll get back in the <unk>.
As far as the last quarter, you were buying and deploying some of the cash into securities given the pickup in rates, but now given the volume.
Opportunity Youre seeing on the lending side pipe fair to assume that what you've got in the investment portfolio is what it is and now it's just really about using that liquidity to fund loan growth.
Yes in two dimensions, one the increase in fed funds rates projected.
Is going to contribute more in earnings than just locking it up into securities and of course, you wouldn't take the price risk and two we want to continue to deployed into loans. So I'd say at the securities portfolio is not likely to change materially at least into the next quarter and possibly for the rest of the year, but obviously conditions are changing fairly <unk>.
Rapidly and somewhat unpredictably, so I would take that guidance a quarter at a time. So right now the securities portfolio is going to do what it's doing it's relatively short duration at this point, obviously as time goes on that duration will continue to decline that was the purpose of it is contributing to earnings.
But probably our focus is going to continue to be.
Obviously, the loan portfolio and then we'll just ride the federal funds for.
At least those for.
For the foreseeable circumstances, we have now.
Gotcha, Okay, let me, let someone else get in and I can get back end, but thank you for the update Morgan and Paul.
Okay.
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And our next question comes from Eric Grubel Lynch.
Bank Investor Your line's open.
Hi, good morning.
Just Brian asked a lot of questions very thorough was helpful. But I just wanted to follow up on one thing you had mentioned.
The the numbers involved and the improvement expected improvement.
Interest income with the fed rate increases what was your expectation 25 or 50 a quarter.
To get.
To produce those numbers that you talked about I remember, you mentioned $1 million million and change that that kind of thing.
How are you looking at that.
That's based on I expect expectation over the next few rate hikes being 50 basis points, but we'll have to do something along the lines of increasing some of our deposits. The legs are going to be less going forward than they have been in the past, but we're not expecting the betas to be along the lines of the historical level.
So we're expecting 50 basis point hikes over the next.
A few meetings.
Okay, No that's fine thanks for clarifying that and then just on <unk>.
You almost answered my second question just on the deposit side or you are you seeing any movement in your market.
It looks like the local Chicago area market.
Or pricing on any of the any of the products retail or commercial that you have you seen anything right now or not.
No as of the end of March and early April we have not.
We actually moved even though competitors did not.
To meet customer expectations and make sure the customers know we are paying attention.
So that goes to our point.
Notionally you pick up on.
400 million times 25 basis points, you are picking up a $1 million for 25 basis points. We would expect for example, if theres 50 basis points today, we're going to pick up $2 million in interest income immediately.
On top of the $2 million, we picked up in April on loan growth.
Then we will move we will start moving deposit rates slowly.
And we will keep an eye on market conditions, but we expect the market to probably move very slowly at least for the second quarter, maybe end of the third quarter.
It will catch up eventually it almost always does.
We will get the benefit.
Go ahead.
It's a good point.
Thanks for thanks for sharing that thought and then just just lastly.
With where your stock is below tangible book.
I noticed it looks like you bought 50000 shares in the past quarter, what's what's your outlook.
Appetite for stepping up the buyback since it's really doubly accretive to you right now and it's below tangible book value.
Yes.
I will say right now, we're we're sticking with and the share repurchase.
Parameters that we recently updated and published it.
A little bit frustrating to us.
Raised the sub debt last year in anticipation of Russell 2000.
Yes.
Hindsight, you could say if we just kept that money in the bank. This would be the perfect opportunity, but we conducted share repurchases last year and based on market conditions.
And.
That's where it's at so we're a little frustrated by it right now, though I wouldn't expect a substantial change in our approach to share repurchases. The focus is is putting the excess cash to work and managing the AUM to the best results for net interest income.
And getting earnings up to get a multiple on the earnings and we feel that it's going to be the best path forward to an improved share price.
Okay, great. Thanks very much.
Complete thank you thanks for your questions.
To ask a question you will need to press star one on your telephone to withdraw your question. Please press the pound key.
Well again, if you would like to ask a question.
Okay.
We do have a question from a follow up from Brian Martin of equity Research. Your line is open.
Got it just one or two others for me.
Just on the provisioning Morgan with the growth you're expecting can you just give a thought on how to think about.
Based on the equipment finance I guess the government, obviously, one element, but just how to think about what we should be when we set up our growth now.
<unk> allocation.
I think Brian .
A reasonable range would be $40 million a quarter in growth.
Approximately 80 basis points reserve on that growth.
Might be a little lower based on the mix it might be a little higher based on the mix, but that seems reasonable.
A reasonable range based on what we're seeing.
Obviously, it's a little higher it's principally because we put in a higher mix of credits, earning a higher yield so either way. That's good news, but I would say 80 basis points seems like a reasonable a reasonable average over several quarters.
Third quarter for example could be strong for government and therefore the.
Reserve ratio might decline, a little bit second quarter might be a little higher on commercial finance, they're affordable higher we'll have to see but I think.
Given the mix that were seeing in previous calls we said more like 75, now I might be they get more <unk> and it wouldn't surprise me to see have you been a little bit higher if we really see a pop in the commercial finance side.
And some of the higher yielding equipment finance things like middle market and small ticket.
Got you Okay. That's helpful and just the other one was.
As far as the expense outlook.
With your volume.
Volume does pick up like you think it does I mean in your kind of thought about where that where the expenses are.
Does that include that incentive comp pick up or should we be adding to that 10.
$10 million kind of range.
For the expenses.
Right now it includes that includes.
A reasonable range of incentive comp results based on what we think the growth is going to be obviously, we have a lot of growth say late in a quarter, we're going to be some people based on that growth you might not see the improvement in the interest income right away. So you could see some anomalies like that that also happened in the fourth quarter. For example, you had great origination.
<unk> in the quarter, we had to put some money away, but we didn't get the loan growth because of the payoffs. So you'll see some volatility like that but the $10 million number we're working with as a reasonable range of incentives that might be off by 100000 or something like that but it's not going to be a huge number.
Gotcha, Okay, and then the last one Mark and Dave can you give any thought on just high level kind of when you look at the profitability as you get later in the year, if things kind of unfold the way you're expecting today kind of where you think the ROI is heading toward or just kind of how youre thinking about.
Where the roadmap is at.
This momentum.
First of all as we've said we're focused on earnings per share those are the things we control the most.
So we're hopeful to see somewhere in the neighborhood of 14 to 16 <unk> per share in the second quarter.
Based on what we're seeing right now than we'd like to see us add three to five a quarter based on continued loan growth.
The improvements in yields and the improvements in.
Interest income from from the liquidity portfolio over time.
So notionally that gets us into the Twenty's like we've been wanting to get to for quite some time now.
As far as <unk> is concerned.
Harley possible that the total assets could decline a little bit.
Commercial deposits could decline because of line utilization.
Customers could wind up spending excess liquidity, because theyre paying bills.
Due to inflation rate, it's a much different environment than monthly household and business expenses than it was six months ago. So we could see some liquidity being burn just to run the business and run the household.
So, but if you pulled altogether, we would hope to be somewhere in the in the Eighty's. So.
<unk> range on a run rate to start 'twenty three but that is that requires us to performance second quarter performance third quarter consistent with what we're saying and then have a good have a good run rate going into the fourth quarter, but we do think it's feasible based on the strength, we're seeing in the originations pipeline and <unk>.
Finally, the growth that we saw in April as a starting point.
Okay, well the momentum sounds great. So keep up the good work and now we will look for an update in the next quarter. Thanks for taking the questions and thanks for all your time and insightful questions. We appreciate it.
Sure.
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Your question. Please press the pound key.
And our next question comes from Henry <unk> Private Investor Your line is open.
Again as tank Wassat, calling here.
Hello Henry.
I just have a couple of comments to make a lot of.
People always look at book value.
You talked about your book value I believe it was 11.
Last quarter.
<unk>.
Right.
So we dropped like 22 pennies in book value can you Mike.
Give me some outlook on that please.
Sure.
The change in the change in market rates.
<unk> reduced the value of the United States Treasury note portfolio. This was in the 10-Q and Thats the entire difference in it you have to essentially adjust your book value by the unrealized loss in the portfolio, it's known as accumulated other accumulated other comprehensive income or OCI.
And that's the adjustment it was about two 6% for us we've seen banks, averaging around six or 7%, sometimes even worse, but we don't have mortgage backed securities exposure in that portfolio. These are short duration treasuries.
Full faith U S. U S government credit so as time goes on as the duration of that portfolio of declines if rates stay the same that impact will also decline and then obviously to the extent we can continue to grow earnings.
In excess of the dividend that will add to tangible book value on top of that maybe as much as five a share and overcome some of that and then finally, if we do wind up purchasing more shares at these levels Youll see some accretion to tangible book value from that but given what we said earlier I would expect it to have a minimal contribution at this time.
Okay, Mark and just one more kind of questions circling back sooner.
Our repurchases.
First quarter overall.
Really big blocks of shares traded.
Just curious why.
We werent able to take advantage of those shares being offered.
We're pretty we're pretty well set as far as leverage right now at the holding company.
As I said earlier.
If we'd known of the change in market sentiment.
Summer when we had Russell rebalancing.
We notionally would have kept some extra cash aboard but nobody net last year thought that we would see a decline in bank stocks and certainly we didn't think so so this environment is somewhat of a surprise to us, but given the fact that the holding company already has the $20 million of subordinated debt.
And it already repurchased the shares last year.
Sitting on a sufficient amount of cash to make a material difference in share repurchases. This year.
I can't tell you.
How frustrating it is for us.
At the same time, we didn't want to sit on that and do absolutely nothing with it if anything we thought we would improve on the share price and we didn't want to lose an opportunity to purchase shares below book last year. So frustrating beyond recognition right now, but that that for the time being is why we are going to be quite.
<unk> in the market now over time during the course of this year.
If we accumulate more cash and we are still trading at these levels, we will be as aggressive as we can be but there are limitations on what we can do it is also worth noting that at least in the first quarter. We had regulatory restrictions. We purchased so many shares last year that we had reached our regulatory limit.
Now those limits reset and we will have more flexibility for the next 12 months, but the cash availability will be the principal limitation and because we're sitting on a certain amount of debt at the holding company. We really don't think at the moment, adding to that debt level.
As frankly, a prudent idea from a risk management perspective.
We feel good about our loan pipelines were also being careful about our risk management, but there is also the possibility that the United States economy, and even the global economy.
A decrease in economic activity potentially a recession that word has jumped into the into the economic dialogue here in the last three months or so and the last thing we want to do is be over leveraged at the holding company, especially for a financial engineering transaction like share repurchases the holding company has to be.
A source of strength for the bank at all times and we are it is in a good position now and for the time being we need to leave it that way.
Hey, Mark and just one more comment.
Comments kind of you guys are sitting on $400 million cash is that correct.
Right around $300 million.
So more like three.
$300 million.
Just two here.
At eight 2% I mean, that's a nice comment.
<unk>.
Sure, but that's what if we bought there today and rates went up tomorrow, its going to contribute to a decline in tangible book value.
Also going to see probably at least 100 points and as much as 200 points of increase in federal funds between now and yearend. So you'll get that 200 points pickup in income and take no price risk whatsoever.
And also August maturity does it really matter.
It does to us and we don't want to chew up that much liquidity, we can put it into loans. It's just also.
It's a liquidity problem on the other end if we have a drop in deposits. We are not going to want to commit that much into held to maturity securities that would not be prudent.
Okay. Thank you Martin and I'm done thank.
Thank you.
<unk>.
Ladies and gentlemen, I'm showing no further questions I would now like to turn the conference back to Mr. Morgan Gasior for closing remarks.
Thanks, everyone for your questions.
We are looking forward to spring and continued progress we hope everyone enjoys their day in spring and we'll talk to you next quarter.
This concludes today's conference. Thank you for participating you may now disconnect.
Okay.
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