Q4 2022 Amerant Bancorp Inc Earnings Call
Speaker 3: To ask a question during this session, you will need to press star 1-1 on your telephone. Please be advised today's conference is being recorded. I would now like to hand the conference over to your host today, Laura Rossi, head of the Vest Relations at Amaranth. Please go ahead.
Speaker 4: Thank you, Michelle. Good morning, everyone, and thank you for joining us to review Amaran Bancorp's fourth quarter and full year 2022 results. On today's call are Jerry Plosh, our Chairman and Chief Executive Officer, and Carlos Yafilola, our Senior Executive Vice President and Chief Financial Officer.
Speaker 5: As we begin, please note that discussions on today's call contain forward-looking statements within the meaning of the Securities Exchange Act. In addition, references will also be made to non-GAAP financial measures. Please refer to the company's earnings release for a statement regarding forward-looking statements.
Speaker 6: as well as for information and reconciliation of non-GAAP financial measures to GAAP measures.
Speaker 7: I will now turn it over to our Chairman and CEO , Jerry Bloch.
Speaker 8: Thank you, Laura. Good morning, everyone, and thank you for joining today. I am pleased to be here to report on our performance for the quarter and full year.
Speaker 9: But before we get into that, I would like to first acknowledge and thank all of my colleagues here at Ameren for their dedication and effort again this quarter. We have a great team and we're excited about the strong additions to the Ameren family this quarter and throughout the year. They will play an essential role in our growth in 2023 and beyond.
Speaker 10: So, moving on to the remarks for the quarter, I'm pleased to share that on January 18th of 2023, our board of directors approved a dividend of $0.09 per share payable on February 28th of 2023.
Speaker 11: The ability to pay dividends, along with the ability to repurchase stock, are essential parts of effective capital management and value creation for our shareholders. More on this in a few minutes.
Speaker 12: So I'll now provide a brief overview of our performance for the fourth quarter and year, and then Carlos will go over the details. He will then turn it back to me for some observations regarding 2023 as part of my concluding remarks.
Speaker 13: So let's turn to slide 3 for a summary of our fourth quarter highlights.
Speaker 14: Net income attributable to the company was $18.8 million, down 10.3%, quarter over quarter, driven by the recording of a provision of credit losses of $20.9 million, which includes a one-time $11.1 million provision expense in connection with the adoption of CECL.
Speaker 15: as well as some other items which Carlos will cover in further detail in the coming slides.
Speaker 16: Please note we will provide disaggregated seasonal impacts for each quarter of 2022 in our upcoming 10K report.
Speaker 17: Our net interest margin expanded to 3.96%, an increase to 35 basis points quarter over quarter. Our balance sheet continued to grow, reaching a record high of $9.1 billion in total assets, compared to $8.7 billion as of the close of 3.22.
Speaker 18: Total gross loans were $6.9 billion, up $416 million from the $6.5 billion last quarter.
Speaker 19: The total deposits were $7 billion, up $456 million from the $6.6 billion last quarter.
Speaker 20: Court deposits also increased by $114 million this quarter compared to 3-22.
Speaker 21: The company's capital continue to be strong in excess of the minimum regulatory requirements to be considered well capitalized as of December 31st, 2022.
Speaker 22: And during the quarter, we paid out the previously announced cash dividend of 9 cents per share on November 30, 2022.
Speaker 23: So, regarding effective capital management, as I referenced earlier, on December 19th, we announced that our Board authorized a new $25 million share repurchase program, which became effective on 1-1-2023, and this will remain active for the calendar year of 2023.
Speaker 24: At the time of this announcement, we stated we did not intend to use this new authorization before reporting the results today, and we did not use it. We do now intend to be opportunistic throughout the year to utilize this authorization where appropriate.
Speaker 25: So let's look at core PP&R on slide 4.
Speaker 26: Core PPR increased to $37.8 million, up 24.8 percent compared to the $30.3 million reported in the previous quarter. As we've consistently stated, we believe it's essential to show the net revenue growth of the company, excluding provisions and non-routine items, to show Amrit's core earnings power.
Speaker 27: Turning now to slide five, here is a list of several key actions taken during the fourth quarter. We continue to focus on actions that will drive profitability and improve our efficiency ratio. We also intend to continue investing in future growth as you will see.
Speaker 28: We referenced last quarter a commercial property that moved into REO. This was disposed of in October at no additional loss.
Speaker 29: Regarding an update related to our banking centers, as we previously announced, we did close the Pembroke Pines, Florida location on 1017.
Speaker 30: and we consolidate the existing customers into our newer Davy Branch location.
Speaker 31: We opened in University Place in Houston at the end of October and closed the South Shepherd Banking Center.
Speaker 32: This is a far superior location for us as the Texas Medical Center, Rice University, Drexel Village, and the NRG Center complex are all within a one mile radius.
The downtown Miami location is now expected for 3-2 of 23. This will be a flagship location for us in the heart of the city with private banking, wealth management and commercial banking all having business development officers located there.
We received OCC approval to open a new full service banking center in Key Biscayne, Florida.
Permits are expected sometime this quarter and opening is expected for the second quarter. We're excited to be opening there and we've already attracted a well-respected team to drive growth.
And we also received OCC approval for a new location on Las Olas Boulevard in Fort Lauderdale, Florida. This office is expected to open in 3Q23.
and will bolster our consumer bank growth, especially in private banking there.
We continue to add key business development personnel in domestic retail, private and commercial banking as well as wealth management.
Our board appointed Ms. Erin Dolan Knight as a member of the Board of Directors effective on December 15 of 2022. Erin is well known and respected here in the Miami Marketplace and her knowledge and banking experience make her an excellent addition to our board.
And as previously referenced, the Board authorized the new Share Repurchase Program for up to 25 million of Emoryn shares of Class A common stock.
On the partnership front, we announced an expanded multi-year partnership with the Florida Panthers, making Amerenth the official bank of the Florida Panthers an FLA live arena.
We're excited to not only be able to say we're the official Bank of the Panthers, but to also have them as one of our newest customers.
And the same goes for our partnership with the Miami Heat.
Banking with us is an essential part of these partnerships. We'll talk more about this in our concluding remarks.
and then finishing up this slide.
We became a large accelerated filer and adopted the current expected credit loss accounting standard which Carlos will go into detail shortly.
So now we'll turn to slide six.
Here are select key performance metrics and their change compared to last quarter.
Our net interest margin improved to 3.96% compared to the 3.61% in the previous quarter, and our efficiency ratio improved to 58.4% compared to 65.4% last quarter.
Please note that the core efficiency ratio for 4222 was 61.3%. For consistency and transparency, we included the three core metrics of ROA, ROA, and efficiency, excluding any one-time or non-routine items in the footnotes in this slide. We included the four core metrics of the ROA, ROA, and efficiency, including any one-time or non-routine items in the footnotes in this slide.
so you can easily see the underlying performance for the quarter. We'll turn now to slide seven, which focuses on amort mortgage. On a standalone basis, amort mortgage had net income of 0.9 million dollars, an increase of 100,000 or 13.9 percent compared to Q3.
primarily the result of mortgage banking income from transactions with the bank. On a consolidated basis, we recorded a net loss of $1.5 million for the fourth quarter in connection with the operations of Amrit Mortgage.
Year-to-date 2022, the company has purchased approximately $413 million in loans through Amorit Mortgage, which includes loans originated and purchased from different channels. The current pipeline shows $64 million in process or 88 applications as of January 12, 2023.
So with that said, I'll now turn things over to Carlos who will walk through our results for the quarter in more detail.
Thank you Jerry and good morning everyone.
So turning to slide 8, I'll begin the discussion with our investment portfolio.
Our four-quarter investment securities closed at $1.3 billion. We also had a strong cash position of $290 million for the end of the quarter.
When compared to the prior year, the duration of the investment portfolio extended to 4.9 years due to higher market rates and lower prepayment speeds recorded in our mortgage-backed securities.
As I shared last quarter, our investment strategy has focused on achieving right balance between yield and duration while maintaining a high credit quality in the portfolio.
The floating portion of our investment portfolio increased to 13% compared to 11% in the previous year.
As I had done in the previous quarters, I would like to reference the impact of the interest rate increases on the valuation of the debt securities available for sale.
As of the end of the fourth quarter, the market value of this portfolio had increased by $3.9 million after tax compared to the decrease of $35 million in the third quarter.
The quarter over quarter increase was driven by mortgage bond spreads contracting during the performance of the quarter.
We had an after tax decrease of $97.2 million in the evaluation of our AFS portfolio during 2022, which was the direct result of increases in interest rates and is consistent with our interest rate sensitivity analysis for a 300 basic point shot.
Note that 73% of our AFS portfolio is guaranteed by the government, while the remainder portion is investment grade.
It is also important to comment that our tangible common equity ratio ended at 7.5% after considering the impact of changes in valuation of our AFS portfolio.
Continuing to slide number nine, let's talk about the loan portfolio. At the end of the fourth quarter, the total gross loans were $6.9 billion, up 6.4% compared to the end of the last quarter.
The increase in total loans was primarily driven by higher CNI loan balances and residential loan purchases during the quarter.
despite having received approximately $163 million in prepayments from both CRE and CNI portfolios.
Consumer loans as of the end of the fourth quarter were $605 million, an increase of 28 millions or 4.8% quarter over quarter. This includes 433 million of higher yielding indirect consumer loans compared to 497 in the previous quarter.
Loans held for sale total approximately $62 million as of the end of December , all in connection with the activities of Amran Mortgage.
Turning to slide number 10, let's take a closer look at credit quality.
Overall, credit quality remains sound and reserve coverage improves over the quarter, despite charge-offs recorded during the same period.
The allowance for credit losses at the end of the fourth quarter was $83.5 million compared to $53.7 million at the close of the previous quarter.
The change was primarily due to CECL.
We elected not to apply the three-year transition provision to our capital calculations.
In the fourth quarter, we recorded a one-time, day one, 18.7 million adjustment to retain earnings with a corresponding after-tax cumulative effect of $13.9 million to account for the seasonal impact as of January 1, 2022.
and a day 2 $11.1 million adjustment through provisions to account for the seasonal impact for the year ended in December 31, 2022, including long growth and changes in macroeconomic conditions during the year.
The provision for credit losses in the fourth quarter under CISO, excluding the retroactive effect corresponding to the first, second, and third quarter of 2022, is approximately $7 million.
The provision also included $9.8 million in additional reserve requirements for charge-offs.
The total provision recorded for the quarter was $20.9 million, compared to a $3 million provision in the previous quarter.
Net charge-offs of 9.8 million in the fourth quarter compared to 0.7 million in the third quarter.
Charge-offs during the period were primarily due to $5.5 million related to consumer loans, of which $3.4 million resulted from a change in the consumer credit charge-off policy from 120 to 90 days past due.
$3.9 million in connection with a New York-based CRE retail loan and $1.1 million in business loans.
This was offset by 0.6 million in recovers.
The CRE retail loan is expected to transition into OREO during the first quarter of 2023 with no additional changes in valuation once we finalize updating ownership.
Non-performing assets totaled 37.6 million at the end of the fourth quarter of 2022, an increase of 12.5 million compared to the third quarter, and a decrease of 22 million compared to the fourth quarter of 2021.
The increase this quarter was primarily due to the New York property I previously mentioned and primarily offset by the disposition of a $6.3 million oreo previous quarter.
The ratio of non-performing assets to total assets was 41 basic points of 12 basic points from the third quarter of 2022 and down 37 basic points from the fourth quarter of 2021.
In the fourth quarter of 2022, the coverage ratio of loan loss reserved to non-performing loans decreased to 2.2 times from 2.9 times in the third quarter.
and increase from 1.4 times at the close of the fourth quarter of 2021.
Continue to slide 11. Total deposits at the end of the fourth quarter were $7 billion, up $456 million from the end of the third quarter. For more information, visit www.fema.gov
This growth was driven by time deposits which totaled 1.7 billion of 342 million compared to the previous quarter.
Note that domestic deposits account for 66% of our total deposits.
totaling $4.6 billion as of the end of the third quarter, of 455 million or 11% compared to the previous quarter.
Foreign deposits, which account for 34% of total deposits, total $2.4 billion, slightly up by $1.5 million compared to the previous quarter.
Our core deposits, which consist on total deposits excluding all time deposits, were $5.3 billion as of the end of the fourth quarter, an increase of $114 million or 2.2% compared to previous quarter.
The increase in core deposits was primarily driven by commercial deposits.
inclusive of new funds from our sports partnerships and additional funds from municipalities.
The 5.3 billion in core deposits include 2.3 billions in interest-bearing deposits, which increase 154 million versus the previous quarter, 1.6 billion in savings and money market deposits, which decrease 88 million versus previous quarter as opportunity cost of customers increases with interest rates. The 5.3 billion in savings and money market deposits includes 2.3 billion in savings and money market deposits, which decrease 88 million versus previous quarter as opportunity cost of customers increases with interest rates increase.
and $1.4 billion in non-interest bearing demand deposits of $49 million versus previous quarter.
Next, I will discuss the net interest income and net interest margin on slide 12.
Forequarter 2022 net interest income was $82.2 million, up 18% quarter over quarter, and up 47% year over year.
The quarter over quarter increase was primarily attributed to higher rates in total interest earning assets, primarily in loans.
driven by combined effect of 125 basic points increase in the Federal Reserve benchmark during the fourth quarter and 75 basic points increase at the end of the third quarter.
We observed a beta of approximately 55 basic points in our long portfolio during the third quarter and a beta of 41 basic points for the full year, which helped to drive our margin.
Also contributing to the increase in the net interest income was higher average balances in loans.
The increase in net interest income was partially offset by higher rates.
in interest bearing deposits, broker CDs, and if it should be advances.
As we mentioned in the past quarter, we continue to be very disciplined in managing an increase in our product rates during this interest rate cycle.
We adjusted certain interest rate sensitive products and relationships to partially reflect the increases in the market rate.
As a result, we observe a beta of interest bearing accounts of approximately 49 basic points during the third quarter and 28 basic points for the full year.
Moving to the net interest margin, as Jerry mentioned, NIM was 3.96% of 35 basic points quarter over quarter.
The change in the net interest income and the net interest margin was primarily driven by the increase in the yield of our loan portfolio, which is now at 5.85%, an increase of 79 basic points compared to the previous quarter. As I said in the last quarters, the improvement in the NIM is a reflection of our asset-sensitive position.
Moving to slide 13, we will show the interest rate sensitivity analysis.
As you can see, our balance sheet continues to be asset sensitive, with about half of our loans having floating rate structures and 59% repricing within a year.
our mean sensitivity profile to interest rate up scenarios has decreased compared to the last quarter due to increased amount in time deposits.
These changes are consistent with a more competitive environment for deposit gathering.
This quarter, we are showing a potential increase of approximately 5% in net interest income under an up 100 scenario and an 8% for an up 200 scenario.
We will continue to actively manage our balance sheet to best position our bank for expected, remaining increases in interest rate as the Federal Reserve continues its efforts to tamper inflation in 2023.
Continuing to slide 14, non-interest income in the fourth quarter was $24.4 million, an increase of $8.4 million from the third quarter.
of the year and I guess one of the items were the accrual for the variable comp. That was definitely one of them plus the severances but those are extraordinary items. For the core expenses we still expect the 58 to 59 million dollars. Remember that inflation it's already being factored in the cost of the personal expenses and that's been pretty much there were several adjustments performed during 2022 that will take full effect in 2023. That's part of the change and additionally to this we also have the expenses of the projects that you mentioned that that will be recorded as a one-timer as we go through the conversion process. So we expect roughly between the 58 to 59 in core expenses and including extraordinary it will be probably closer to the 61 approximately with the with the conversion services. Yeah you know Matt I just would add to that that one of the things though there clearly will be some a little bit of volatility but it's good volatility when you start to look at it from the standpoint of the you know if we if it's around accruing for you know driving deposits and and loans you know that's a good thing right at the end of the day and so you know what the guidance Carlos just gave you is inclusive of what we expect but obviously if we have outperformance in a given quarter just like we just did this quarter.
we had a higher number, right, to true up, you know, what we need to accrue for payouts. So, that I think is probably the only variable and the only additional comment I'd make. Okay, that's helpful guys. Thanks for your help. Thank you and one moment for our next question.
And our next question comes from the line of Brady Gailey with KBW. Your line is open. Please go ahead.
Hey, thank you. Good morning, guys.
Go ahead Brady.
So there's now less than a billion in assets to go until you hit the 10 billion threshold. And you know, with 10 to 12% growth, it feels like you'll kind of be flirting with that 10 billion maybe by the end of this year. Do you think that you cross 10 billion this year? And can you remind us?
of any of the expense impacts or Durbin impacts that we need to think about over 10 billion.
Yeah, look, I think, you know, we gave, obviously, we said around 10% or so, you know, you're right, we'll be right there.
I think that we're going to be very conscious of
Crossing through that, I will tell you we've been spending a lot of time doing the necessary preparation and we'll do that throughout 2022. I think Carlos can comment on any kind of Durbin implications.
to be candid at my expectation is if there are, that's closer to a 2024 item. Yeah, we have been doing analysis, Brady, and honestly the gap of what we need in terms of risk management.
integrated audit and board risk and all that regulatory framework crossing the 10 billion dollars will probably already are completed on that end. We do every possible sensitivity analysis, risk, shocks, etc. So those are already covered.
I believe one of the items that you mentioned, Jerry, the Durban amendment wouldn't have a significant impact for us. We started estimating, and it's probably in the $500 to $1 million a year, that's preliminary.
expectations what we have. But again you have to have a four quarters average going north of the 10 billion in order for all these changes to kick in. So we definitely keep an eye and as we get closer we're definitely going to do any type of gap analysis to understand but based on that we're pretty...
hit there's a lot of noise in the gear but you basically on a core basis hit a one-hour away
How are you thinking about profitability looking forward? Do you think the one ROA is kind of stable from here? Is there room for additional profitability improvement or pushing the efficiency ratio down further?
No, I believe the one is sustainable. We have been doing a lot of changes in terms of our cost structure and in terms of our income. I believe it's one of the key drivers.
It's the financial margin that we believe is very strong and as you saw, capturing almost, you know, people refers to 125 basic points over the quarter, but in reality we have the last change of the Federal Reserve on September 21st. So in reality it feels like 200 basic points.
We believe that we should be stable at around 4% financial margin that will give us the core earnings to keep closer to the 1%. So we feel strong on that too.
And then finally for me, just this core system conversion in May, outside of any sort of one-time expenses, will there be any changes in the expense base? Will the expense base go higher with this new system, or does it allow you to...
potentially become more efficient so expenses could go down. Any impact from that conversion?
Yeah, we will provide more guidance on the decrease on the second semester, probably when we get closer to conversion, because there will be several applications, if you recall in the Q1 and Q2, we recorded provisions for contract termination for two of our largest36 trouble indie companies Kak cruise Laurier South Mason
More to come on that, but we'll feed you up with more information on those decommission as we get closer to conversion.
Okay, but post-conversion expenses are more likely to go down.
They should be going down due to this decommission of certain services, correct?
Yeah. And actually one more. So the expense outlook for 58 to 59 million, is that just for the first quarter of 2023 or do you think that that's kind of the 2023 quarterly run rate for the full year?
That's reflective of what we believe it will be the first quarter. Again, as Jerry mentioned, as we continue to build up business teams and as we continue to...
For instance, the last quarter of 2022 was a great example. There was a surge in production, so therefore there was an increase needed in the accrual for variable comp. So as we move and as we create more businesses, so that...
should be subject to change, but this guidance is for the Q1. Okay, great, thanks for the color. It was great to see the buyback, so thanks for the color, guys.
for the Q1. Okay, great. Thanks for the color and it was great to see the buyback, but thanks for the color guys. Thanks.
Thank you and one moment for our next question.
Our next question comes from the line of Michael Rose with Raymond James. Your line is open please go ahead.
Hey, good morning, guys. Thanks for taking my questions. Just wanted to start on the deposit side and just get an update on – and sorry if I missed this. I hopped on a little bit late, but just any sort of expectations for betas. On the one hand, you guys are pretty race sensitive and are benefiting from –
From the feds actions, but you know there are some out there Especially some of the larger banks that are now calling for a pivot by the end of the year So just wanted to see you know from a flow perspective beta perspective What you guys would expect the the loan to deposit ratios obviously you know kind of elevated You still have you know some attrition of the foreign deposits over
but that does pivot. Thanks.
Yeah.
Good question. So in terms of beta, Michael, during the quarter we recorded a 0.50 more or less on the on the deposit side.
Something that really helped this quarter around was the stability and the cost of the international deposits.
They barely moved. We went from probably 0.11 to a 0.16 the cost so it continues to be very cheap and very low sensitivity so that helped us a lot with the blended beta for deposits.
So the 0.50 was definitely a sensitive number, given the changes that we saw in the market. We expect to be closer to the 40 and 50 for the first quarter.
Remember that liquidity in the financial system is shrinking and the competition for deposits is high right now. And there are certain accounts that you definitely need to move and be proactive in adjusting rates. Even though you do it on certain prototypes, you also have to be...
we believe that the level of acceleration that we have in the last quarter of the year wouldn't repeat itself. I believe it was significant. We started to feel like the financial margin will grow but more decrementally I would say so
thinking about 4% financial margin will be kind of the level that we feel that should be steady throughout the year. Jerry? Yeah, hey Michael, I think it's important to note a couple things.
We're going to continue to evolve how we incent our personnel. Again, as I made a comment earlier about we're looking for full banking relationships and you know with any existing and with new customers.
And we're putting on a very strong incentive program to really drive deposit growth first and foremost. If you recall, we've talked frequently about being a deposit first bank is one of the most important things.
are laser focused on maintaining that loans deposit ratio and not allowing it to get up above 100%. And I think that we've demonstrated that is something we focused on all throughout 2022. We're going to continue to do that.
you know, in 23. And, you know, my comment would be that between all the business development people we've added, you're going to see incremental volumes come, you know, from a combination of more people, more focus. And these new systems are going to enable it to be a lot easier, particularly as we acquire more and more commercial customers.
and also on the municipal side as well. So we think there's a combination of things that will enable us.
to continue to grow on that side of the balance sheet.
So Jerry, that's a great point. And just to kind of follow up on that, I mean, do you feel like you have the products?
in place that your competitors have to be competitive? Or is that kind of still work in progress is you roll out the core systems.
Integration and maybe some other products and services, but you feel like you are where you need to be or do you feel like there's still more work to be done to compete more effectively? Yeah. Because I think everybody has changed their deposit incentives. Right? So, I mean, do you have the product set and capability to.
You know, be successful in your strategy. Thanks. Yeah, no, I definitely think so and I think they're going to be further enhanced.
you know, post this conversion in May. And so I think that, you know, at the end of the day a lot of the deposit gathering we do, I mean, we're a people business, right? It's personal, it's relationships. All the expansion we've done in private banking will continue to do.
You know, these new offices, I mean, they are in very deposit-rich markets and this is very targeted by us.
to be able to basically have some physical presence, you know, certainly not the big sized branches of the past, but you know, certainly
smaller and just very well located in the right spots. I think it's a combination of all these things that are going to get there. But again, directly to your question, I think it's a question for me of saying, hey, we're okay today and we'll get better as we go forward.
on the product and service side.
Perfect. And then maybe just definitely one final one for me just on credit, obviously, CECL implementation, but you did build the reserve, which I think is prudent. I appreciate all the detail on the back of the deck on commercial real estate. That's certainly a lot of focus. Can you help us get comfortable with
with credit and kind of where you are from a reserve perspective. You know, you've had some chunkier loans come through over the past, you know, couple years just trying to size, you know, the bucket of, you know, potential credits that you could be working through over the next couple quarters and if we should, you know, expect the...
the reserve to continue to grow from here. Thanks.
Yeah, well, I think you know that under CECL, you will see higher provisioning, right, just as a result because you're doing lifetime expected, right? So, you know, I think you know that under CECL, you will see higher provisioning, right?
As we grow, you'll see more provision expense than you would have historically seen. And that's really what the purpose of this change was all about, you know, from an accounting standpoint.
I think the
The question on the quarter and there was definitely a little bit of noise vis-a-vis, you know, we changed the policy on the Consumer side where you know, we were going to 120 days to charge off. We backed that to 90 days
So somebody goes three cycles, it's done, it's charged off, and then it's in full recovery mode. And so you had a catch-up adjustment that also flowed through. You know, regarding the one specific credit that Carlos referenced on the call a couple times related to New York...
Obviously it's a Cree relationship. It is something we put a lot of time and energy and understanding and we decided that it was the prudent thing to do on that particular credit to take that four million, well it's basically a two and a half million dollar incremental adjustment.
on that credit in particular. You know, look.
particular. You know, look, we book
good sized relationships, right? And to your question about Chunky, we do think that it's really important to recognize that that was, you know, and this kind of goes back to one of the earlier questions, why we're doing so much diversification in terms of the type of loans we're booking going forward and there's more emphasis.
on the private banking side, we've ramped our emphasis up in business banking, we're ramping our emphasis up in diversification and
you know, CNI, you know, particularly, you know, the addition of equipment finance and doing more middle market. So, I mean, you know, there's part of, you know, the question is we're evolving the portfolio, the composition of the portfolio. You know, the emphasis, I guess, in the past, and you know this, is on the portfolio.
You know that was a seven hundred and forty million dollar portfolio two years ago when we made the decision to Stop and it's a commercial real estate portfolio. So if there is some chunkiness that that does happen. It was just basically You know a result of you know, these past two credits that have happened and flow through the P&L this
You know over the course of 22 there really has been a significant reduction in commercial real estate retail
I can tell you that as it relates to in the portfolio and certainly it's very selective if we would have done anything like that production-wise.
I guess the other comment is consumer and as you referenced we changed the policy but still the behavior of that portfolio, its losses are below our expectations it's probably in the 1.5 to 2% losses
and pretty much we run models that take that to 3.5 or 4 percent. So still the behavior is below those parameters.
performing well compared to that even though we change the policy and you see additional charges this quarter in that concept.
That's great, Tyler. Thanks for answering all my questions, guys.
Sure.
Thank you and one moment for our next question.
And our next question comes from the line of Betty Strickland with Jani. Your line is open. Go ahead.
Hey, good morning everybody.
Hey, Freddie. Hi, Freddie.
Just sticking with credit for a second, it looks like overall criticized balances were down, which is a positive. But it looks like there was some migration from special mention to substandard potentially. Can you walk us through a little bit more of what you're seeing in that criticized balances?
Yeah, that was specifically the loan that we mentioned that was downgraded from REM for special mention to substandard and that is the source of the additional reserves that we took.
this quarter. So that that loan was dropped from 24 million to 20 based on a specific reserve and then it will transition into Oreo this quarter. So we made that comment on the call that will go into Oreo with no additional changes in valuation.
That was the biggest item yet.
Got it. Sorry, I was having some technical difficulties with my phone earlier. So I missed that.
I'm having some technical difficulties with my phone earlier, so I missed that. Nope. And then just... I'm having some technical difficulties with my phone earlier, so I missed that.
I'm curious where do you see the most opportunity on the non-interest income side and just kind of wonder what should we expect there as we go through the year. I know it's obviously a challenging environment for mortgage still but you know it seems like wealth management accounting has been a bright spot for you guys in the past and just if you could walk through a little bit more of what you're seeing there.
Yeah, look, I think with the emphasis we're placing on private banking, there's a natural evolution as these customers come on to also be able to cross-sell on the wealth side. So I think that's one driver.
I think the other is we've added some key personnel, very experienced people to help develop, you know,
using the capabilities that we've already got in the house.
to really develop more on the domestic side. You know, historically we've had a fair bit, virtually all of it, being, you know, connected with, you know, the international side. And we think there's just huge upside for us.
So, you know, in terms of expectations, I think it's really a volume play for us to, you know, continue to be a slow, steady build. But it's a very, very important part of our plans is to really, you know, drive incremental AUM into the organization.
I believe the last quarter was a good example, 127 million of increases in net new assets.
that we really want to keep up with that behavior of keep growing and of course the interest rate cycle is not helping that much the mortgage company but we still you know we're having production and we expected to keep going up with
with the mortgages and selling into the secondary market. Got it, that's helpful. And just one last one for me. You guys said that it sounds like the...
the balance between the different.
loan categories growing throughout the year should be kind of similar to what we had this past quarter. So should we expect consumer stays around eight-ish percent of loans over time? Is that kind of the number you're comfortable with?
No, I think you'll see that diminish because we've done the transition into a white label solution and that we'll have direct influence over. So in terms of if you think about us...
in historically, Carlos can comment, but we had a pretty steady appetite of the indirect from the relationships we had. And I think we clearly should see some trail off from that as the other begins to ramp up. Yeah, I guess the best way to describe is that.
The indirect purchases were done in bulk and were probably bigger in amount every month. We just stopped buying from the indirect sources and now we're coming in, as Jerry mentioned, on the wide level. The wide level are focused on footprint.
where we operate. So you have just Houston and Florida, so the growth would be slower than the payments coming out from the indirect purchases. So it will be a net decrease or to say but the composition will be chunky. Correct.
Thanks for taking my questions. Have a good one. Sure. Have a great day.
Thank you and one moment for our next question.
Our next question comes from the line of Steven Scouten with...
Piper Sandler, your line is open. Please go ahead.
Hey, good morning, everyone. Maybe first just following up on that SoFi conversation, those ones, it looks like we're down 63 million. How much of that, if any, is in the
update on the net charge offs was related to those loans versus kind of your maybe core self-originated consumer?
It was about $3 million coming from that indirect purchases. And then we had another surge due to the change in policy. But related to the performance was about $3 million. Okay. That's helpful. And finally, Cool, thank you for your time, Rana.
And then if you could give me an idea of what you guys are booking new CDs at and domestic deposits, it looks like that's probably going to be the biggest driver of deposit growth from here, at least in the near term. So what are you having to pay to get that new CD growth?
Yeah, I think market rates have run around 4% and that's where we are.
customers seem to prefer the, you know, I'll call it sort of the 9 to 12 month buckets and you know that's where we're pricing our 12 month product right now.
Yeah, we have managed to be a promotion as opposed to changing the rate. So we keep it up on the branches and on the website as a promotional rate that we can discontinue whenever. But it's not affecting our typical repricing of CDs.
on an ongoing basis. Okay, that's great. And then have you been able to hold spreads, I guess? I mean, obviously the international deposits help a lot in terms of your overall average cost, but have you been able to hold spreads in terms of new production versus what you're having to pay for new funding? Maybe give a feel for where those new loan yields are coming on it.
Yeah, new loans yield, so definitely the changes in software and labor have helped a lot, increasing the base rate. We haven't forget, even in this interest rate cycle, to keep being very disciplined with adding floors.
to lending structures. I'm going directly to Steven's question. You maintain the spread. We have not made any adjustments on spread. Meaning on the plus. Yeah, but on the lending side, we actually have been favorable because of the more CNI component.
compared to theory. Yes, definitely composition that drives it. That's great, okay, super. And I guess maybe just thinking about that holistically as we look at 23 for NII trends through the year, I know Carlos, you said you feel like you can kind of hold the NIM flat through the year.
I would think just given how acid-sensitive you are if we do actually get what the forward curve is projecting that would be really hard
to keep the NIM flat in the back half of the year.
especially if you continue to grow and have to pay for CDs at a near market rate. So how do you sustain that NIMM throughout the year, and how do you think about the ability to grow NII, maybe particularly in the back half of the year, if rates get pressured back lower?
Well, the question I guess comes out of Jerry's comment on increasing DDA's and non-interest bearing accounts. That's one of the items that will be working the most. As you noticed, the commercial side was one of the key drivers on the last quarter.
and we expect that to continue and onboarding full relationships with DDA should help us with the DDA side and blending out the cost of funds. That should be one of the offsetting factors of incremental CDs or additional or costly morning markets.
Yeah, I think too, Stephen, it's the
Incentive plan for our biz dev officers, you know, there's a combination here, right? There are more biz dev officers. There's a much greater focus. We're focused on full relationship. You know, it's, it's a combination of things to Carlos's point that will help drive, you know, and keep us growing on, you know, the non-interest.
bank at work we're looking to do.
private banking, you know, I mean there's all sorts of things that we are emphasizing that historically have not been the priority.
And I think that you'll see this is a big, big change for us. And I think that's going to be very helpful. Look, I think you're spot on. There's going to be pressure towards the back end of the year, but I think from a...
There's a difference between us thinking about the NIM versus the NII and I just wanted to make sure you we were all Aligned on this, you know, obviously greater outstandings is going to drive incremental NII every quarter for us so I mean my sense is You're you're gonna see NII growth, you know
depending on how they're going to be in liquidity stress. And, you know, we're going to have to selectively react to those type of things. So, yeah, sure. Sure. That's helpful. And then just last question for me, uh, what is, when you guys think about capital, what's kind of your constraining ratio as you think about that? I mean, the 25 million buyback, I mean.
you know, where the stock is today, the stock's a lot lower than when you were extremely active in the buyback in late 21 and 22. So it kind of feels like you're not getting paid for the improvements in the bank, frankly, with where the stock is. So how aggressive might you be with that buyback at these levels?
Look, I think what we said was we will be opportunistic to exercise that. But I also think it's important to say you got to be balanced, right? I mean, we're in a nice place where, you know, we're trying to make sure we have sort of all the tools in the...
strong points about us that I think people should take a lot of comfort in is that 7.5% ratio is an excellent ratio in this day and age and that's obviously inclusive.
of the marks. And so I think we're in a good place. You know, I just think it's
It's also a function of making sure we're managing all our liquidity sources as well, right? You know, so capital is precious. I mean the cash is precious right now, right? Because we've got good demand that we've got to deploy it into.
So we'll be making lots of trade-off decisions as to which one's going to provide the best return in the capital.
Is that?
Is that 7.5% TCE? Is that kind of the constraining ratio you look to or is there another ratio you focus on more intently there?
We are looking typically for capital planning purposes. We like to look into the tier one, which provides a more holistic approach to the position of the company.
But yeah, as Jerry mentioned, we like to look at the 7.5 as well because that includes the change in valuation as I mentioned during the year that changed as well.
But it's a balancing act right now between the growth that you want to have and the opportunity that the stock and the market presents.
Thanks for all the color guys, I thought it was a really impressive quarter, whether or not the mark agrees. Congrats!
the color guys I thought it was a really impressive quarter whether or not the mark agrees congrats thank you thank you
Thank you and I'm showing no further questions at this time and I would like to hand the conference back over to Chairman and CEO Mr. Jerry Plush for any further remarks.
Thank you again everyone for joining the call and we greatly appreciate it. Have a great rest of the day. This concludes today's conference call. Thank you for participating. You may now disconnect.
in Fort Lauderdale, Florida. This office is expected to open in 3Q23 and will bolster our consumer bank growth, especially in private banking there. We continue to add key business development personnel in domestic retail, private commercial banking, as well as wealth management. Our board appointed Ms. Erin Dolan Knight as a member of the board of directors effective on December 15 of 2022. Erin is well known and respected here in the Miami marketplace and her knowledge and banking experience make her an excellent addition to our board. And as previously referenced, the board authorized the new share repurchase program for up to 25 million of Ameren shares of Class A common stock. On the partnership front, we announced an expanded multi-year partnership with the Florida Panthers, making Ameren the official bank of the Florida Panthers and FLA Live Arena. We're excited to not only be able to say we're the official bank of the Panthers, but to also have them as one of our newest customers. And the same goes for our partnership with the Miami Heat. Banking with us is an essential part of these partnerships. We'll talk more about this in our concluding remarks. And then finishing up this slide, we became a large accelerated filer and adopted the current expected credit loss accounting standard, which Carlos will go into detail shortly. So now we'll turn to slide six. Here are select key performance metrics and their change compared to last quarter. Our interest margin improved to 3.96% compared to the 3.61% in the previous quarter. And our efficiency ratio improved to 58.4% compared to 65.4% last quarter. Please note that the core efficiency ratio for 4.222 was 61.3%. So for consistency and transparency, we included the three core metrics of ROA, ROE and efficiency, excluding any one-time or non-routine items in the footnotes in this slide, so you can easily see the underlying performance for the quarter. We'll turn now to slide seven, which focuses on amort mortgage. On a standalone basis, amort mortgage had net income of $0.9 million, an increase of 100,000 or 13.9% compared to Q3, primarily the result of mortgage banking income from transactions with the bank. On a consolidated basis, we recorded a net loss of $1.5 million.