Q2 2022 Amerant Bancorp Inc Earnings Call
Speaker 3: Good day and thank you for standing by. Welcome to the Amrit Bank Corp second quarter 2022 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. To ask a question during the session you need to press star 1 on your telephone.
Speaker 3: The idea that today's conference is being recorded. I would like to hand the conference over to you, speaker today, Laura Rossi, head on to the relates at Amaran. Please go ahead.
Speaker 4: Thank you, Victor. Good morning, everyone, and thank you for joining us to review Amaran Bank Corp. Second quarter, 2022 results.
Speaker 4: Also on today's call are Jerry Plosh, our chairman and chief executive officer, and Carlos Yafiliola, our chief financial officer. And Carlos Yafiliola, our chief financial officer.
Speaker 4: As we begin, please note that the company's press release, our discussion and today's call and our responses to your questions contain forward-looking statements.
Speaker 4: Amarin's business and operations are subject to a variety of risks and uncertainties, many avoid our beyond its control and consequently actual results may differ materially from those expressed or implied.
Speaker 4: Please refer to the cautionary notices regarding forward-looking statements in the company's earnings release and presentation.
Speaker 4: For a more complete description of these and other possible risks, please refer to the company's annual report on Form 10K for the year end of December 31, 2021. The quarterly report on Form 10Q for the quarter ended March 31, 2022, and our other findings with the SEC as you can access these findings and the SEC's website.
Speaker 4: Amaranth has no obligation and makes no commitment to update or publicly release any revisions to forward-looking statements in order to reflect new information or subsequent events, expenses, or changes in expectations, except as required by law.
Speaker 4: Please also know that the company's press release, earnings presentation and today's call include references to certain adjusted financial measures, also known as non-gov financial measures.
Speaker 4: Exhibit two and appending one of the company's press release and earnings presentation, respectively, contain every conciliation of each non- GAAP financial measure to its most comparable gut financial measure.
Speaker 4: I will now turn it over to our Chairman and CEO , Jerry Flusch.
Speaker 5: Thank you, Laura. Good morning, everyone, and thank you for joining Amarance Second Quarter 2022 Orange Call.
Speaker 5: I'm pleased to be here today to report on our results for the quarter and provide an update on very important steps taken during the period toward the completion of our transformation efforts so that we will be best positioned for the balance of the year and beyond for profitable growth.
Speaker 5: We believe our commitment to continue to execute throughout 2022 and build an even better and stronger version of Amorin is showing and our loan growth, our deposit growth, and margin expansion.
Speaker 5: Most importantly, you can see our belief in ourselves by making the necessary people, technology, and partnership investments.
Speaker 5: to consistently grow our company.
Speaker 5: Also, based on the company's second quarter results on July 20 of 2022, our Board of Directors approved the 9 cent per share of dividend payable on August 31, 2022. Our commitment to the payment of dividends is strong. As we've stated before, we believe dividends are an essential part of providing greater value to our shareholders.
Speaker 5: I'll now provide a brief overview of our performance in the second quarter, and outline the steps we took to best position ourselves over the balance of the year and beyond. And then I'll hand it over to Carlos to get into the detail. And then I'll hand it over to Carlos to get into the detail.
Speaker 5: So, turning to slide three, you can see a summary of our second quarter highlights.
Speaker 5: Net income attributable to the company was $7.7 million, down 51.9% quarter over quarter.
Speaker 5: This decrease was primarily driven by 8 million of non-routine charges recorded in the quarter, which we'll cover in greater detail in a few slides.
Speaker 5: During the second quarter, we had higher average yields and balances on loans, lower average balances on customer time deposits and FHLB advances were replaced by higher average balances in lower cost core deposits.
Speaker 5: All of that resulted in a higher net interest.
Speaker 5: margin. Our total gross loans were 5.85 billion up from 5.72 billion last quarter, even with 272 million in loan repayments.
Speaker 5: Total deposits for 6.2 billion up by over 511 million compared to last quarter. And more importantly, quarter deposits increased by 535 million this quarter compared to the first quarter of 2022 as the company continued to seek new sources of deposits.
Speaker 5: We also repaid $350 million in callable FHLB advances, and we borrowed $200 million in longer-term fixed advances, as we anticipate advances in the balance sheet would become variable rate given higher rate expectations.
Speaker 5: So with this action, we effectively increase the duration of our liabilities and locked in fixed interest rates under a scenario of an imminent increase in market rates.
Speaker 5: We'll move now to slide four. The company's capital continue to be strong and well in excess of minimum regulatory requirements to be considered well capitalized at June 30, 2022.
Speaker 5: During the quarter we paid out on the previously announced cash divin of $0.9 per share on May 31st. And as of quarter end, we had completed two consecutive $50 million repurchase programs.
Speaker 5: Effectively repurchasing an aggregate 3,148,399 shares of Class A common stock since mid-November of 2021 when we announced the successful conversion to one class of common stock.
Speaker 5: Specific to this quarter, you can see that we repurchased a total of 611,525 shares, and that our shares outstanding a quarter in total 33,759,604 shares.
Speaker 5: As they say, buying back part of your business, as we have done shows how much you believe in what you are doing and the value you can create. one lot of worries is that such a breath is probably not the right answer or what it is for Innovation. you
Speaker 5: So we'll turn now to slide five and cover core PP&R.
Speaker 5: Court of Tp and R was 19.4 million this quarter, up by 8.8% compared to the 17.9 million reported in the previous quarter.
Speaker 5: We've been consistent in stating this. It's essential to show the net revenue growth of the company, excluding the one-time and non-routine gains and losses.
Speaker 5: In order to show Amarance core earnings power.
Speaker 5: If we turn to slide six, we'll cover the key actions taken during the quarter.
Speaker 5: We reduced non-performing loans to $25.2 million as of June 30, 2022, compared to $47 million as of 1-22.
Speaker 5: We said we needed to get the level of NPLs significantly lower as part of our commitment to increase our percentage of earning assets Total assets and we did and we intend to continue to pursue driving NPLs as low as possible.
Speaker 5: As part of this reduction in NPLs, we received a $5.5 million payment and charged off the remaining $3.6 million, which was partially reserved, on the previously disclosed coffee trader relationship.
Speaker 5: We plan to record all future receipts as recovery.
Speaker 5: Amrit Mortgage reported improved results in breach break even on a standalone basis despite headwinds from current market conditions.
Speaker 5: Rising interest rates coupled with the CIDing refinance demand and other factors also let us to reassess our staffing needs.
Speaker 5: which declined by 12 FTEs at June 30th.
Speaker 5: As we previously noted, we successfully completed the company's second $50 million Class A common stock repurchase.
Speaker 5: We've now completed the two repurchase programs and have repurchased an aggregate of 3,148,399 shares of Class A common stock since mid-November of 2021.
Speaker 5: We effectively now have bought back 8.5% of the company with these two repurchase programs.
Speaker 5: We launched the new White Label Equipment Finance Solution and two of the three business development officers planned for our onboard and they generated $10 million new originations in Q2.
Speaker 5: As we continue to see in branch efficiencies, we will be closing one more banking center in South Florida, which is expected to occur in October of 2022.
Speaker 5: This action represents 1.1 million in expected annual savings and it generated a non-routine closer charge to 1.6 million in Q2. 2.1.6 million in Q2.
Speaker 5: The customer relationships will move to a nearby more modern location.
Speaker 5: At the same time, we're investing in the future, in brand awareness and digital banking to ensure sustainable growth.
Speaker 5: Our downtown Miami branch is in the permit stage and we are hopeful by year-end or early 2023 to be announcing the grand opening.
Speaker 5: Additionally, we recorded an additional 2.8 million in estimated contract termination costs during the quarter and connection with the upcoming conversion to FIS. In connection with the upcoming conversion to FIS.
Speaker 5: We believe in on routine charges related to this conversion that we are now behind us. We are now behind us. We are now behind us. We are now behind us. We are now behind us. We are now behind us. We are now behind us. We are now behind us.
Speaker 5: We also incurred 3.6 million in other non-routine charges, including a $3.2 million valuation adjustment on a real estate-owned property, and 0.7 million in severance charges, which were partially offset by improved valuation of 0.3 million in loans, how it's for sale. My improved valuation of 0.3 million in loans, how it's for sale.
Speaker 5: Also, we continue to execute on building our brand awareness by entering into a multi-year agreement to become the official bank of the NBA's Miami Heat. The valve state seems public solution to a small issue. The November 2010 rights Act is a caramel corruption that isoking spillidence, censored by smoking. Rule says industry and policy liebe??? are pistols excuses. You should see the process of directory Although the next party is an popular attorney, the second guilty role of September 11 falls interference in diaper you
Speaker 5: We also just announced that we entered into a multi-year agreement as proud partner of the NHL's Florida Panthers. As proud partner of the NHL's Florida Panthers.
Speaker 5: We believe these partnerships, coupled with our previously announced university of Miami multi-year deal, reflect the commitment we have toward being fully invested in Miami.
Speaker 5: in comparison to our competitors here.
Speaker 5: We also announced four senior executive appointments, including a new head of consumer banking, who's also a new member of our executive management committee.
Speaker 5: Our new Chief Digital Officer, our new Chief Legal and Administrative Officer, and a new Chief People Officer.
Speaker 5: All of whom we feel are key to positioning of our management team for future success.
Speaker 5: With these hires and moves, we've reached completion of the management team buildout. From here on out, it's all about execution.
Speaker 5: Finally, regarding our Tampa LTO, we announced their new commercial banking team.
Speaker 5: including onboarding our new market president.
Speaker 5: This team now consists of 10 full time equivalents, with most of them focused on commercial industrial originations.
Speaker 5: We've already closed in a number of CRE and CNI transactions to date, telling 37 million through June 30th, and have a similar pipeline already in 3Q of CRE ended CNI and we're just getting started. We've already closed in a number of CRE and CNI transactions to date, and we're just getting started.
Speaker 5: I think it's important to stop here and note the obvious that's been taking place at Ameren.
Speaker 5: We've seized the opportunity to make a substantial investment in people to drive future performance.
Speaker 5: In addition to the hires just mentioned during the quarter, we added additional pre-private banking and commercial banking business development personnel, and we continue to continue to do so.
Speaker 5: This, of course, will likely impact near-term stated goals of getting expenses down in order to achieve a 60% efficiency by year-end as we previously discussed.
Speaker 5: But we believe it's more important to see the opportunity invest in ourselves in a future growth than delay cuts hires at this time. And delay cuts hires at this time.
Speaker 5: But please know we are working hard to still get there in the 60% efficiency as soon as possible.
Speaker 5: But we do believe it's important to see the day and make the tires now, which will drive even greater profitability in 2023 and ensure a 60% or better efficiency ratio going forward.
Speaker 5: If we turn the slide 7,
Speaker 5: We've outlined here key performance metrics in their change compared to last quarter.
Speaker 5: It's worth highlighting that in the second quarter our operating profitability improved as our margin was up to 3.28% and that's 10% value, this is point improvement over last quarter.
Speaker 5: Other profitability metrics are so much skewed, given the non-routine charges we recorded in the period. We again show the three core metrics of RRA, RRA, we in an operating efficiency, including one time non-routine items and the footnotes to this slide to more clearly show the underlying performance for the quarter.
Speaker 5: On our next slide, slide eight. This one focuses solely on amort mortgage.
Speaker 5: This quarter Amrit Mortgage reported improved results and reached break-even on a standalone basis despite headwinds resulting from the interest rate environment.
Speaker 5: And the second quarter of 2022, we increased our ownership to 80% from 57.4% at the close of first quarter of 22.
Speaker 5: primarily from two of the former principals surrendering their interest in AMTM to the company when they became full time employees of the bank.
Speaker 5: In addition, the company made a $1 million capital contribution to Amrit Mortgage in the second quarter.
Speaker 5: The mortgage team is now at 67 FTEs.
Speaker 5: at 2Q22 compared to 79 at 1Q22, which we believe was needed in light of current market conditions.
Speaker 5: During the second quarter of 2022, we received a total of 285 applications and funded 253 loans, excuse me, totaling 118.6 million. The current pipeline shows 77.8 million in process or 119 applications in process as of July 11, 2022. Or 119 applications in process as of July 11, 2022.
Speaker 5: So with all that said, I'll turn things over to Carlos who will walk through our results for the quarter in more detail. For the quarter of the quarter, I'll turn things over to Carlos who will walk through our results for the quarter. And more detail. And more detail. And more detail. And more detail.
Speaker 6: Thank you Jerry and good morning everyone. Turning to slide 9, I'll begin by discussing our investment portfolio.
Speaker 6: Our second quarter investment security balance was 1.4 billion Up slightly compared to both previous quarter and second quarter 2021.
Speaker 6: When compared to the prior year, the duration of investment portfolio has extended to 4.9 years due to lower-prepainment speeds recorded in our mortgage-backed securities portfolio in light of rights and rates.
Speaker 6: The floating portion of our investment portfolio increased to 15% compared to 12% in the previous year. We continue to focus our investment strategy on assets with lower duration and better reprise in profile in anticipation of further interest rate increases for the rest of this year.
Speaker 6: I would like to take a minute and discuss the impact of interest rate changes on the evaluation of that security is available for sale.
Speaker 6: As of June 30, 2022, they change in the market value of their securities available for sale, resulted in a $26 million post tax adjustment driven by the increase in long-term interest rates during the quarter.
Speaker 6: The year-to-day change is close to 66 million. The described changes in valuation are consistent with our interest rate sensitivity analysis.
Speaker 6: Continue to slide 10. I will talk about the loan portfolio.
Speaker 6: At the end of the second quarter, total gross loans were $5.8 billion, up 2% compared to the end of the last quarter.
Speaker 6: The increase in total loans was primarily due to the higher loan balances which resulted from increased loan production primarily in CNI complemented with indirect loan purchases despite having received almost 272 million repayments in both CRE and CNI.
Speaker 6: This net growth represents a great accomplishment for all the teams involved in the business origination efforts.
Speaker 6: Consumer loans as of June 30 were $557 million, an increase of $72 million or 15% quarter over quarter. This includes approximately $477 million in high yielding indirect loans, which continues to represent a tactical move to enhance the yield of the loan portfolio.
Speaker 6: Loans held for sale were $121 million as of June 30, which includes $66 million in the loans from the former New York LPO and $55 million in residential mortgages in connection with the activities of our mortgage.
Speaker 6: Going to slide 11, we show an update on the New York loan portfolio. Total loans outstanding from the former LPO have declined to $354 million in Q2 from $373 million in Q1. We expect this portfolio to decrease as several prepayments are expected to occur over the rest of the year and we will be discontinuing this slide in future quarters.
Speaker 6: Turning to slide 12, let's take a closer look at the criticality.
Speaker 6: For this quarter, our credit quality remains sound and reserve coverage is strong. The allowance for loan losses at the end of Q2 was $52 million, a decrease of 7% from $56 million at the close of the previous quarter.
Speaker 6: There were no probation expense or release from the allowance for Q2 compared to a release of 10 million in Q1.
Speaker 6: During Q2, the 4.9 million allowance associated with COVID-19 pandemic was further reduced to 2.7 million.
Speaker 6: The decrease in this provision was allocated to long row recorded during the second quarter.
Speaker 6: Please note that starting in Q3.
Speaker 6: Given our intent to continue to grow that would not portfolio, it is likely we would record provision expense to be added to reserves.
Speaker 6: Net charge off during the second quarter of 2022 totaled $4 million, compared to the 3.8 million in the first quarter of 2022 and $1.8 million net charge off in the second quarter of 2021.
Speaker 6: Charge off during the period where primarily due to 4 million in two commercial loans and 0.9 million in consumer loans, offset by 1.5 million in recovers.
Speaker 6: Non-performing assets totaled $31.7 million at the end of the second quarter, a decrease of $25 million or 44% compared to the first quarter, a decrease of $89 million or 74% compared to the second quarter of 2021.
Speaker 6: This is a reflection of our continued commitment to resolve NPAs.
Speaker 6: The ratio of non-performing assets to total assets was 39 basic points, down 34 basic points from the first quarter of 2022, and down 122 basic points from the second quarter of 2021. And down 122 basic points from the second quarter of 2021.
Speaker 6: Our non-performing loans to total loans significantly declined to 0.43% compared to the 0.82 last quarter.
Speaker 6: As Jerry referenced earlier, we received a $5.5 million payment and charged up the remaining $3.6 million of the previously disclosed coffee trader relationship.
Speaker 6: In the second quarter of 2022, the coverage ratio of loan loss reserve to non-performing loans closed at 2.1 times, up from the 1.2 times at the end of the last quarter and from 0.9 times at the close of the second quarter last year.
Speaker 6: Continued to slide 13, total deposits at the end of the second quarter were 6.2 billion of 511 million from the previous quarter.
Speaker 6: Domestic deposits with account for almost 60% of the total deposits and at 3.7 billion of 540,000,000 or 17% compared to the previous quarter.
Speaker 6: For the deposits which account for 40% of the total deposits, sold out 2.5 billion, slightly down by 31 million or 1% compared to the previous quarter. The total deposits are sold out 2.5 billion, slightly down by 31 million or 1% compared to the previous quarter.
Speaker 6: Core deposits, which consist on total deposits including all time deposits, were $4.9 billion as of the end of the second quarter, an increase of $505 million or 11% compared to the previous quarter as the company continued to add additional sources of deposits during the period such as funds from escrow accounts and municipalities.
Speaker 6: The 4.9 billion in court deposits includes interest rate deposits of $2 billion, savings and money market deposits of $1.6 billion, and non-interest varying demand deposits for $1.3 billion. And non-interest varying demand deposits for $1.3 billion.
Speaker 6: Offsetting the increase in total deposits was a decrease of 90 million, or 1.5%, in non-interest-bearing deposits compared to the first quarter of 2022.
Speaker 6: Customer time deposits compared to the prior quarter decreased 14 million or 1.5% as the company continued to focus on increasing core deposits and emphasizing multi-product relationship versus single product higher cost time deposits.
Speaker 6: Broker 10 deposits increased slightly by 20 million dollars or 7% compared to the previous quarter.
Speaker 6: As the company saw the opportunity to extend duration on this funding and lock in lower financing costs, given the expectation of additional market rate hikes for the coming quarters.
Speaker 6: Next, I'll discuss the net interest income on net interest margin and slide 14.
Speaker 6: Net interest income for the second quarter was $59 million up $3 million or 6% quarter over quarter and up $9 million or 18% year-to-year. As previously mentioned, in light of rising interest rate environment, we're actively managing the duration of our liabilities.
Speaker 6: The timing of the execution of repayment and borrowing of long-term fixed rate advances allow us to effectively extend duration and lock in attractive fixed rates.
Speaker 6: In terms of the barrel of our deposits, we have adjusted certain interest rate sensitive products and relationships to remain competitive as we monitor increases in the market rates.
Speaker 6: As I said before, understanding the different behaviors in each product will show the value of it opposite the eyeball off over to the opposite I would deposit them position.
Speaker 6: With the current deposit mix, we recorded a beta of approximately 0.15 for Q2, which will help us to navigate the rates of environment.
Speaker 6: Second quarter net interest income ended at 3.28%, slightly up by 10 basic points quarter over quarter and up 47 basic points year over year.
Speaker 6: The change in the net interest income and net interest margin was primarily driven by the increase in the yield of our long portfolio, which is now at 4.38% and increase of 20 to basic points versus the previous quarter. The increase in the yield of 20 to basic points versus the previous quarter.
Speaker 6: The improvement in mean is a reflection of our asset sensitivity position and our efforts to increase the duration of our liabilities via ALM strategies under interest rate up in Byeipan.
Speaker 6: Moving to slide 15, interest rate sensitivity. You can see our balance sheet continues to be asset sensitive with about half of our loans having floating rate structures and 58% reprising within a year. And 58% reprising within a year.
Speaker 6: from which approximately 10% are fixed ray loans for maturity.
Speaker 6: Actions related to the changes in the composition of our liabilities, our continuous production in floating rate loans, and purchases in floating rate securities have resulted in an improved mean sensitivity profile versus last quarter for interest rate up in scenarios.
Speaker 6: We are now showing a potential increase of approximately 10% or $26 million for net interest income versus an 8% or $17.5 million increase last quarter under the 100-up scenario.
Speaker 6: We also show an improved profile for the 200 op Seneri.
Speaker 6: We will continue to actively manage our balance sheet to best position our bank for the expected rise in interest rate for the remaining of 2022.
Speaker 6: Coming to slide 16, non-interesting come in the second quarter of 2022, what's 13 million?
Speaker 6: down 1 million or 8 percent from the 14 million recorded in the first quarter.
Speaker 6: The decrease during the second quarter was driven by the negative valuation of marketable securities of $2.6 million and lower fee income from client derivatives.
Speaker 6: However, the decrease was partially offset by higher mortgage banking fee income for about $1.8 million, net unrealized gain under rebate devaluation for $0.9 million, and the absence of a net loss of $0.7 million on the early extinguishment of FHLB advances incurred in the first quarter of 2022.
Speaker 6: As Jerry mentioned before, hammer and mortgage had improved results recorded non-interesting income of 2.4 million on a standalone basis. Applications and clause loans were better compared to prior periods, despite the challenging conditions in the mortgage market.
Speaker 6: Amerind assets under management totaled $1.9 billion as of the end of the second quarter 2022, down 261 million or 12% from the end of the first quarter.
Speaker 6: This is primarily driven by lower market valuations in equity and fixed income markets.
Speaker 6: Turning to slide 17, second quarter non-interest expense was 62 million, 12, 1.4 million or 2% from the first quarter and up 11 million year over year.
Speaker 6: Note that we consider 8 million of our non-inference expands this quarter as non-routine items.
Speaker 6: excluding these items, core non-interest expense was 54 million in the second quarter of 2022.
Speaker 6: The quarter of a quarter increase was primarily driven by a non-routine charge of 3.2 million related to the market valuation adjustment to an Oreo property in New York, a lease impairment of 1.6 million on the closing of a banking center.
Speaker 6: Higher-order professional fees primarily in connection with customer derivative transaction, incremental variable compensation expenses, and higher up the advertising fees.
Speaker 6: Now, the increase in non-itrus expense was partially upset primarily by lower estimated technology contract terminated from four million in the previous quarter to 2.8 million this quarter, this quarter.
Speaker 6: that is related to our upcoming transition to FIS.
Speaker 6: and we do not anticipate any significant voter charge-up going forward in connection with contract termination.
Speaker 6: Also contributing to the offset of non-interest expense were lower salaries and employee benefits resulting from fewer FTEs.
Speaker 6: Lower consult in fees primarily driven by the absence of additional expenses on the first quarter of 2020.
Speaker 6: The efficiency ratio was 86.6% in the second quarter of 2022 compared to 87.3% in the previous quarter and 77.8% in the second quarter of last year.
Speaker 6: Core efficiency ratio.
Speaker 6: went down to 73.7.
Speaker 6: In the second quarter of 2022, compared to 76.4 in the first quarter of 2022 and 74.4 were standing in the second quarter of 2021.
Speaker 6: both primarily driven by higher net interest income.
Speaker 1: I will.
Speaker 6: I will now turn it back to Jerry to talk about Ameren's progress on the near and long-term initiatives.
Speaker 5: Thank you, Carlos. Here on slide 18, we've provided updates on each of the key strategic initiatives.
Speaker 5: and the progress we made in the second quarter. I'm not going to review all the details on this call, but we can assure you that we'll continue to provide this type of update on this slide each quarter. So each of you can track our progress.
Speaker 5: Turning to slide 19 and I'll call it the last but not least slide. This quarter we prepared one summarizing our partnerships to date.
Speaker 5: I previously mentioned that we recently announced an expansive strategic partnership as we entered into a multi-year agreement to become the official bank of the NBA's Miami Heat.
Speaker 5: Through this strategic partnership, we are redefining the meaning of our bank being an integral part of the community.
Speaker 5: One that supports and aligns with those businesses and organizations truly rooted here in South Florida.
Speaker 5: This partnership marks our third sports sponsorship deal in the last year.
Speaker 5: We also just announced a new multi-year agreement as proud partner of the NHL Florida Panthers this week.
Speaker 5: And we recently disclosed that we renamed the official hometown bank of Miami-Heratains.
Speaker 5: All furthering our commitment to the South Florida community.
Speaker 5: We believe these partnerships positively impact our customers, our team members, and the community as a whole.
Speaker 5: We think these partnerships clearly show our commitment, not just to South Florida, which clearly is critically important, but they also demonstrate our belief in ourselves and in our strategy.
Speaker 5: We have a great team and they too can see with these changes that are being made how we are strengthening the team even further and broadening our capabilities.
Speaker 5: They know it is now up to us to keep driving profitable growth.
Speaker 5: So with closing I just want to summarize our second quarter.
Speaker 5: We demonstrated strong, lone, and deposit growth. We showed solid net interest margin expansion. We showed solid net interest margin expansion.
Speaker 5: We showed a significant reduction in non-performing loans.
Speaker 5: We're near completion of our transformation efforts and do not expect additional significant one-time charges in future quarters.
Speaker 5: We've made significant quality additions to our senior management team that complete our build-out, and we've added quality personnel in our lines of business to supplement our business development capabilities.
Speaker 5: Again, our commitment to Miami and South Florida has never been stronger, and I promise you we are not done yet adding to our capabilities here to drive even better results.
Speaker 5: Our Tampa team is now in place and ready to drive meaningful, profitable growth. And I can assure you that we are now also focusing on Houston growth opportunities and we look forward to updating on our efforts there in the near future.
Speaker 5: We're very excited about the progress being made, but I can assure you that once this call is over, it's back to work. There is much more that can and will be accomplished over the balance of this year.
Speaker 5: So with that, I'll stop and Carlos and I will look to answer any questions you have. Victor, please open the line for Q&A.
Speaker 3: Of course as a reminder to ask a question you will need to press star 1 on your telephone Once again, that's star 1 for questions. Please stand by while we compile the Q&A roster.
Speaker 3: And our first question from from the line to Michael Rose from Raymond James. Your line is open.
Speaker 5: Hey, good morning everyone. Thanks for taking my questions. I have found a little bit late. So sorry if you touched on this, but the expenses.
Speaker 5: adjusting for some of the items were a little bit higher than I think we were looking for and kind of what you had said last quarter. With the caveat that I know that you guys have made a lot of progress along the way and that progress is not going to be linear so any quarter could be kind of above or below. But just help us think about the trajectory of expenses from here given kind of all the things you have going on. I understand that in future quarters it is just that Jerry that.
Speaker 5: You know, this is probably going to be less noise than numbers, which I think we would all appreciate. But, you know, obviously, just want to see where your head is at around expenses and where you're allocating investment dollars. Thanks.
Speaker 5: Yeah, hey Michael, it's Jerry. Thanks for the question and for joining today. You know, I'll take first crack here and obviously Carlos will chime in, but I think a couple of things can explain the uptick in comparison to what we said or expected. We had better growth, obviously in the quarter of both sides of the balance sheet, which also requires us recognizing, you know, from an incentive standpoint.
the business development personnel driving that growth. So that's a component. And I think in addition, as I said, you know, we sort of, I've looked at it as seed of the day. We had a great opportunity this quarter to add some really talented individuals as part of our build-out and just felt that it was very important for us to go ahead and execute. Our expectation is these people additions are going to help us drive even more incremental growth in Q3.
to the 55. As Jerry mentioned, there is a change in the FTE composition more geared towards business development people that obviously the compensation wise is different than back office and that's part of the recomposition that is driving the growth in the balance sheet and the change in the loan portfolio and the policies that you're seeing.
Great, that's exactly what I was looking for. And then just on the fee side, it looks like the derivative income has been, it was down key on Q, but obviously has been kind of lumpy. I know it's hard to kind of peg that on a quarter to quarter basis, but just from a client perspective in what you're seeing.
and given what rates are doing, I mean, is there any sort of expectation for what we could expect for that line? Thanks.
Yeah, so there were multiple transactions that are coming with derivatives associated, as you may expect. So customers are looking forward as they close floating rate structures, they wanted to go ahead and do swaps to hedge the interest rate risk that may have in front of them. So yeah, we do expect that part of the pipeline that will be originating in Q2 and Q3.
that wind down by the end of the year, is that still the thought. And then if you can just kind of talk about some of the more specific. some of the more specific.
You know, core long growth, drivers this quarter and maybe, you know, break out of, you know, what some of the newer markets, whether it be Tampa, Texas versus kind of the core portfolio, is looking like at this point. Thanks.
So yeah, the new portfolio, we continue to expect a high level of prepayments. So we moved during 2022 and 2023. The relationships are going ahead and re-fired away from us or repain in some cases. So we have seen that decline over the quarter about 20 million when for pay downs and we expect that.
that behavior will continue to happen, so that will continue to be the emphasize out of the total assets, so you will expect to see that in Q2 and Q3, I mean in Q3 and Q4. In the case of the growth, we have seen a strong CNI pipeline in general. The equipment financing activities are coming along very well. The flavor that we provided on the call were about $10 million.
was just the beginning. The pipeline is looking very attractive and we expanded the capabilities to be in Tampa and Houston as well. So I believe you would expect to see a balanced growth between CNI and CRE from now to the end of the year.
Okay, great. I can just squeeze in one last one with the higher expense guide, but obviously some better long growth momentum. and
higher rates. I mean, are you guys still committed to the 60% efficiency ratio on the fourth quarter?
Yeah, Michael, I made a comment on that that I think the incremental investments that we're making could impact that slightly. We expect...
Better growth than we had originally anticipated, which I think would go a long way towards getting us close to that. But our sense right now is that it was worth the trade off. But our sense right now is that it was worth the trade off.