Q1 2023 Amerant Bancorp Inc Earnings Call
Good day and thank you for standing by welcome to the Amarin Bank Corp, first quarter 2023 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 to ask a question. During the session you will need to press star one one on your telephone you will then hear an automated message advising you that your hand is raised to withdraw your question. Please press star one again.
The advised today's conference is being recorded I would now like to hand, the conference over to your speaker today, Laura Rossi head of Investor Relations and sustainability. Please go ahead ma'am.
Thank you Michelle.
Good morning, everyone and thank you for joining us to review I'm around the Bancorp's first quarter 2023 result.
On today's call are Jerry plus our chairman and Chief Executive Officer.
Carlos you have to build out our senior executive Vice President and Chief Financial Officer.
As we begin please note that discussions on todays 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 as well as for information on a reconciliation.
On financial GAAP financial measures to GAAP measures.
I will now turn it over to our chairman and CEO Jerry flush.
Laura Good morning, everyone and thank you for joining Emirates first quarter 2023 earnings call. This morning, We will report on our results for the quarter and will make some comments on quarters to come.
It has certainly been quite an eventful last 30 days or so for the industry Carlos and I will provide some color again on the results of the quarter.
Well, we believe Ameren is positioned for the rest of 2023 and beyond given the actions we've been taking not just this quarter, but over the past two years.
But before we do that I'm delighted to announce the promotion of Carlos you have to give you all our chief operating officer. This well deserved promotion, which is effective immediately is clearly the result of the significant contributions carnival's has made to amarin as our CFO over the past three years.
In the interim he will continue to serve as our CFO as well until such time that we announce a successor by Carlo is taking on this new role I will ultimately have greater bandwidth as well to help drive incremental business for the company. So please join me in wishing carnival as much success here for years to come as he takes on his new responsibilities.
Yeah.
Also we recently announced a new member to our board of Directors Shockey rocker, who joined US. This week is a consummate professional with extensive human capital management experience and she truly compliments. Our current group of highly skilled dedicated and growing number of locally based board members, we want our board to eventually be.
In footprint and involved in the communities, we serve and a schottky joining our board as another step in that direction.
In addition, this week, we just announced two significant senior executives joining the company, who we believe will be significant contributors towards the achievement of our strategic objectives.
We are pleased to welcome one ask to read that as our new head of commercial banking and Carolina Road Moore as our new Houston market President both of whom are replacing individuals who stepped down from these respective positions. We also announced that the market presidents of Tampa and Houston will now report directly to me, we have significant opportunity for profitable.
Growth in each of these markets and we're excited about our prospects.
So I'll now provide a brief overview of our performance in the first quarter and then I'll hand, it over to Carlos to get into the details. We've added a significant amount of details in our earnings presentation.
Including information on our liquidity management practices and Carlos will describe specific actions, we took to strengthen our liquidity position this quarter.
He will also provide detail on specific one time items and we'll cover new charts and information. We've included such as showing the impacts of valuation a very vast portfolio as well as the unrealized losses from our held to maturity portfolio and what that does and impacting our tangible common equity ratio.
Well he will also go into greater detail about the following items that impacted the quarter I wanted to summarize these points upfront first we recorded a provision for credit losses of $11 7 million this quarter of which $2 2 million was related to loan growth and $2 million, reflecting updated economic factors with the.
Balanced covering charge offs that took place the provision was higher than projections for the quarter, giving unexpected charge offs late in March 2023 related to a specific transportation industry relationship the trucks and trailers from this relationship had been fair valued and they are now held and other repossessed assets.
Noninterest expenses were $64 7 million this quarter of which $3 4 million were non routine items. In addition, we elected to continue to invest in business development personnel, specifically in commercial banking in Ameren mortgage which resulted in higher than expected routine noninterest expense, but please note we intend to.
Find efficiencies to offset these recent investments in personnel, we have made in the coming quarters more on that in a few minutes.
So, let's turn to slide three where you can see a summary of our first quarter highlights.
Net income attributable to the company was $20 2 million compared to $22 million and <unk> 22.
This decrease was primarily driven by lower noninterest income and higher noninterest expenses during the period, partially offset by the lower provision for credit losses in the fourth quarter compared to the fourth quarter. As a reminder, we adopted six on <unk> to 'twenty, two which drove the higher for coopervision.
The higher noninterest expenses included a number of onetime items as well as the increased investment in business development personnel as I just mentioned.
Net interest income in the first quarter was virtually unchanged when compared to the prior quarter as we were able to offset higher average costs in balances on deposits and <unk> advances with higher average yields and balances on earning assets as a result, the net interest margin was a strong three 9% just slightly below the $3 96.
We've reported last quarter.
Our balance sheet grew during the first quarter with total assets of treating reaching $9 5 billion compared to $9 1 billion as of the close of the fourth quarter. It is important to highlight that this growth includes $200 million an increase liquidity on hand that we elected to maintain in the second half of March which Carlos will discuss in just a few minutes.
Total gross loans were 712 billion compared to $6 92 billion last quarter, an increase of nearly $200 million and total deposits were $7. Two 9 billion up $242 5 million compared to the seven 4 billion last quarter.
Our capital levels continue to be strong and well in excess of minimum regulatory requirements to be considered well capitalized at March 31 2023.
More now than ever preservation and growth in tangible book value is a top priority and we achieved that this quarter also are important as we have consistently classified the vast majority of our investment portfolio as available for sale. So the mark to market on that portfolio has always been deducted from tangible common equity. So when you see our COO.
<unk> book value of these have been and continue to be reflected in the number and TBB remains a strong 744% as of March 31.
During the quarter. We also paid out the previously announced cash quarterly dividend of nine <unk> per share on February 28, 2020.
So we'll turn now to slide four where you can see the quarter PNR was a solid $37 1 million compared to the $37 8 million reported in the previous quarter.
Also outlined on this slide are all of the nonrecurring items recorded in the quarter.
As previously mentioned.
<unk> and nonrecurring expenses were costs related to severance branch closures that will cover in a minute and conversion related onetime expenses.
We will turn to slide five and we'll cover some key additional actions that we took during the first quarter. So as I mentioned, we continue to add key personnel in Ameren mortgage to our business development team here at the bank and to our digital transformation team.
As also previously mentioned, we recruited two executive for existing open positions. So we have a new head of commercial banking and our new Houston market President.
Ameren mortgage grew its national footprint with the addition of our Midwest team, adding business development personnel in the quarter to generate conforming mortgages for the sale in the secondary market.
We also reorganized our international banking efforts, we wanted to simplify the structure and drive favorable cost.
Deposit growth. So we brought the three separate groups that were previously reporting under retail private banking and commercial banking to be under one leader dedicated to solely focus on growing international deposits. We believe this is essential as it provides additional diversification for our funding base.
We completed our relocation into our new highly efficient operation Center in Miramar, Florida, and we continue to make strategic investments in our bank centers in key locations, we need to complete the branch refresh to finish our common looking feel initiative that we have in all of our facilities and our expectation is we'll be completed with that no lay.
Other than the end of this year.
We also announced the closing of our relocation indefinitely 1960 road in Houston, Texas, and <unk> 23, we expect that to happen as of May 31st.
And as recently announced we signed a five year lease for our first banking center in Tampa with an estimated opening in the fourth quarter of this year. This location is situated in the west shore business District, the most essential business area in the Tampa Bay area, which is home to more than 4000 businesses, both large and small and near some of it is high Val.
<unk> residential neighborhoods the opening of this branch transitions, our Tampa operation from a loan production office to a full service bank with full banking capabilities since expanding into the Tampa Bay market. Our team has grown significantly. We're now at 17 team members, providing commercial banking commercial real estate Treasury management private club.
Banking SBA lending and we also have in market support personnel from credit portfolio management and others client support positions.
We intend to add even more resources to our team in the future to capitalize on the market opportunities available in Tampa and we now have the space to do so.
Other actions include launching our new website, which provides an improved user experience with enhanced navigation and ease of access to information across all device types.
We did repurchased 22000, and 403 shares of class a common stock during the first quarter under our $25 million share repurchase program.
We elected to prudently pause on additional repurchases given the recent industry events impacting liquidity in this sector.
Of note. The Fas conversion date moved from mid May to mid July and in order to enable us to provide a greater digital experience for our consumers our consumer banking efforts and also as previously referenced we recruited a new board member who officially joined our board effective April 17 2023.
We'll turn now to take a look at the key metrics on slide six here, we have outlined key performance metrics and they are changes compared to the last quarter as I mentioned earlier, our net interest margin was three 9% in the first quarter. Our efficiency ratio was 63, 7% compared to 58, 4% last quarter, but the court.
Patiency for the first quarter was $62 four 7%, both ROA and ROE were slightly lower this quarter, primarily given the one time charges and as we've done in the past for consistency and transparency. We show the three core metrics of ROA ROE and operating efficiency, excluding anything thats non routine in the footnotes.
You can more easily understand the underlying performance in each quarter.
We'll turn now to cover Ameren mortgage which is on slide seven on a standalone basis mortgage had a negative net <unk> 1 million Q1compared to a negative net PP&E or $1.5 million in <unk>. The improvement resulted from higher revenues driven by the additions and the business development team are in.
<unk> ratio excluding activities from Amarin mortgage improves from 63, 7% to 61, 5%.
During the quarter the company purchased approximately $87 4 million in loans through Amarin mortgage and as noted on the slide these are all related to bank customers.
Our current pipeline shows a growth up to $117 2 million in process or 281 applications as of April 11, with 111 of those being rate locked we believe the team members. We have added will drive increased production of conforming salable loans into the secondary market, which will.
Positively impact the bottom line and <unk> and future results. So with all that said I'll now turn things over to Carlos who walk through our results for the quarter in more detail Carlos. Thank you Jerry and good morning, everyone turning to slide eight I will begin by discussing our investment portfolio.
Our first quarter investment Securities balance was $1 3 billion comparable to the previous quarter.
When compared to the prior year the duration of the investment portfolio has extended to almost five years due to lower prepayment speeds and contributed to a higher yield of 382%.
As I did last quarter I would like to take a minute to discuss the impact of interest rate increases on the evaluation of debt securities available for sale as of.
At the end of March the market value of portfolio increased by $6 1 million after tax compared to $3 9 million in the fourth quarter.
These changes comments, a direct result of decreases in the medium and long term interest rates and MBS spreads compressing during the quarter.
78% of our <unk> portfolio has government guaranteed while motto of them remained securities are rated investment grade our corporate debt portfolio includes approximately $128 million subordinated debt securities issued by financial institutions.
Held to maturity securities represent 18% of total investment portfolio. The current mark to market of HTM is $15 5 million of unrealized losses. After taxes, we will discuss more details shortly.
Continuing to slide number nine let's talk about the loan portfolio at the end of the first quarter total gross loans were $7 1 billion up 3% compared to the $6 9 billion at the end of the previous quarter. This growth was driven by loan originations have where it's primarily in specialty finance on a single family residential mortgages.
Partially offsetting this increase were prepayments of approximately $97 million in commercial loans commercial.
Commercial loans include $557 million in specialty finance loans compared to $420 million in fourth quarter 2022.
Equipment financing under a white label solution, which are part of our specialty finance lending totaled $47 million in the first quarter of 2023.
Single family residential portfolio were $1 24 billion, an increase of $83 million compared to $1 16 billion, we head into fourth quarter of 2022.
This amount includes $87 million in loans originated and purchased drummer in mortgage during the quarter as Gerry referenced earlier related to our customers mainly.
Consumer loans as of the first quarter of 2023 were $550 million, a decrease of almost $27 million or four 6% quarter over quarter. This includes approximately 372 million in higher yielding indirect loans, which in previous quarters represented a tactical move for us to increase <unk>.
We're not buying any new production in this portfolio would be set to run off over time.
Loans held for sale, which were all in connection with Amarin mortgage therefore hedged totaled $65 million as of the end of the previous quarter compared to $62 million as of the end of.
2022.
In line with our business focus in Tampa. We have included this market to show our progress as a percentage of the total loan portfolio, which was almost 4% as of the end of the quarter.
Ah represents a significant source of growth opportunity for us and for our full banking relationships.
Turning to slide 10, let's take a closer look at credit quality our.
Credit quality remains sound and reserve coverage is as strong.
Balanced for credit losses at the end of the first quarter was $84 4 million, an increase of 1% from $83 5 million at the close of the previous quarter.
We recorded a provision for credit losses of $11 7 million in the first quarter, which includes $7 5 million in additional reserve requirements for charge offs and credit quality $2 2 million to account for the loan growth in the quarter and $2 million to reflect updated economic factors.
It is important to mention that the fourth quarter of 2022 provision for credit losses now reflect the disaggregated impact of seasonal implementation for data specific period.
Net charge offs totaled $10 8 million in the first quarter of 2023 compared to nine eight in the fourth quarter of 2022.
Charge off during the first quarter were primarily due to $6 6 million related to the premium financing relationship that Jerry referenced before.
$6 3 million in connection with indirect loans purchased becoming 90 days past due and one $5 million in several business banking loans. This was offset by $3 5 million in recoveries, primarily $2 seven from the coffee trader relationship charge off last year.
Nonperforming assets totaled $48 7 million at the end of the first quarter, an increase of $11 1 million compared to the fourth quarter of 2022.
These include an increase in repo sites assets related to the transportation relationship. We just mentioned.
The ratio of nonperforming assets to total assets was 51 basis points up 10 basis points from the full quarter of 2022.
Our nonperforming loans to total loans are down to 31% compared to <unk> 54 last quarter.
This is primarily due to the transfer of appropriate detour you for $20 million related to our CRE in New York loan already disclosed last quarter.
In the first quarter of 2023, the coverage ratio for loan loss reserve to nonperforming loans close at three eight times upfront at two two times at the end of the last quarter and from one six times at the close of the first quarter 2022.
We're bringing on to slide 11 front.
From the supplement on section discussion of our CRE portfolio to provide further detail.
We have a conservative weighted average loan to value of 60% and debt service coverage of one five times as well as the strong sponsorship Deere profile based on AUM net worth and years of experience for each sponsor.
As of the end of the first quarter of 2023, we had 32% of our CRE portfolio in top tier borrowers.
We have no significant tenant.
Concentration, where CRE retail loan portfolio.
15, 10, 3%, 22% of the total.
Mayor tenants include recognized national and regional grocery stores pharmacies, food and clothing among others.
Our underwriting methodology for CRE includes sensitivity analyses forever idea of key risk factors like interest rates and the impact of that service coverage ratio vacancy and tenant retention.
Please note that 41% of our CRE portfolio has been hedged the interest rate caps or swaps, which in turn protects our borrowers from raising interest rate environments.
On the slide number 12, we discuss our deposit diversification and stability in the first quarter. We ended at $7 3 billion up $243 million from the previous quarter.
Can see here, we continue to have a well diversified deposit mix composed by domestic and international customers.
The growth this quarter was primarily driven by increased during deposits, which totaled $1 9 billion up $200 million or 12% compared to the previous quarter and broker deposits, which totaled 738 million up $1 8 million or 17% compared to the previous quarter.
Domestic deposits now account for 67% of our total deposits.
$4 9 billion. So at the end of the first quarter of $271 million or 6% compared to the previous quarter.
Foreign deposits, which account for 33% of the total deposits.
Primarily international deposits.
Two $4 billion and down 28 million or one 2% compared to the previous quarter.
To provide more granularity on our accounts domestic deposits included 42000 customers with an average account size of $116000. While international deposits included 58000 customers. We don't average account size of $41000 per account.
Our core deposits defined as total deposits. Excluding all time deposits were $5 4 billion as of the end of the first quarter, an increase of $41 million or 8% compared to the previous quarter.
$5 4 billion and core deposits included $2 5 billion in interest bearing deposits, which increased 343 million versus the previous quarter.
$1 5 million in savings and money market accounts down to 129 versus the previous quarter.
And one 4 billion in noninterest bearing demand deposits up $42 million versus the previous quarter.
Moving on to slide 13. This quarter. We have included a new table to provide further color regarding deposit composition. We believe it's important to show what what percentage of insured deposits as well as a percentage of large phone providers in our depositary base.
We estimated that 69% of our deposits are our FDIC insurance at the end of the first quarter. Additionally, we carry $280 million in qualified public deposits, which are subject to collateral maintenance requirements by the state of Florida.
Reciprocal deposits, which are 100% insured by the FDIC, primarily through its refined networks represented $691 million and just over 120 customers as of the end of the first quarter.
We are offering this alternative to our high balance customers. Additionally.
Additionally, our large from providers, which we consider to be dose with balances at both $20 million represented 15% of the total funding for amarin.
Moving to slide 14 in light of the recent changes in liquidity conditions in the financial system, we consider important to provide additional color regarding our liquidity management practices as well as some additional actions we have taken to mitigate the impact from recent events and strengthen our funding and capital position.
Our standard liquidity management practices includes regular testing of line of credit daily monitoring of Federal Reserve Bank accounts and large phone providers.
Alien analysis of lending pipeline on deposit gathering opportunities our duty impact on cash flow projections targets associated with liquidity stress test scenarios targets for deposit concentration limits on liquidity ratios and inactive collateral management of both loans and investments with lending.
It is at the federal home loan bank and other market participants.
As of the end of the first quarter of 2023 total advances from the <unk> were 1 billion equivalent to 11% of assets pledged with an additional $1 7 billion availability from this source no funds where needed for any emergency funding facility or discount window from the Federal Reserve Bank.
During the period.
Regarding additional actions taken in the later part of Q1 to increase our liquidity position we highlight.
Increase our cash position at the Federal Reserve Bank by 200 million borrowed from the federal home loan Bank.
So at the end of Q1, we held over $485 million in cash and equivalents.
And also we have diligently working with our large depositors to enroll them into Ics in <unk> insured cash suite program to ensure that all of their holding are 100% insured by the FDIC.
We increased volumes on there just brought up by 282 million 93 accounts during the first quarter of 2023.
Turning to slide 15, I would like to show our relative position in terms of capital ratios.
As of the end of the first quarter 2023, our capital ratio total capital ratio ended at $12, 36% and our CET one was standpoint, 10%.
Our tangible common equity, which includes $74 3 million in a youll CIO, resulting from the after tax change in the valuation of our <unk> <unk>.
The portfolio ended at 744%.
We would like to enhance our disclosures, providing an adjusted tangible capital ratio, which includes the after tax valuation of the HTM portfolio for $15 4 million.
So such metric ended at a strong 729% and we believe this is a key differentiator factor and approved for sound risk management.
Given the liquidity and capital position I, just discussed we feel comfortable with our ability to hold and wait for the reversal of diesel and realized losses in our investment portfolio.
In terms of liquidity at the holding level, we carry $69 million in liquidity available at the holding company, which covers more than four times of our annual Opex and it services as of the end of Q1. The dividend. We just declared will only use $3 1 million out of.
That cash available.
Next I will discuss the net interest income and the net interest margin on slide 16.
Net interest income for the first quarter of 2020 was $82 3 million almost unchanged compared to the previous quarter, our asset sensitivity position enabled us to offset the repricing the incremental cost of deposits were reported during Q1 also contributed to the offset where higher average balances in the loan portfolio.
As rates continue to increase during this quarter, we experienced higher betas be it the combined effect of the rate increase in money market deposits as well as the repricing of the time deposit portfolio that we lack and had not reprice at current market rates as you can see in the graph we observe.
Our beta of approximately 32 basis points on the accumulative basis from the beginning of the interest rate up cycle, but over 100 basis points during the current quarter.
I would like to bring to your attention that two thirds of our time deposit portfolio have already repriced at current market rates and only a portion is left to reprice limiting the impact of our interest expenses in the upcoming quarters.
Moving into the net interest margin as Gerry mentioned NIM for the first quarter was three 8% down six six basis points quarter over quarter.
As I said in the fourth quarter, our ability to offset funding cost and contain further decreases in mean is a reflection of our asset sensitive position.
Moving to slide 17, I would like to take a closer look at the interest rate sensitivity analysis.
You can see our balance sheet continues to be asset sensitive with 52% of our loans, having floating rate structures and 55% repricing within a year.
We also have taken a prudent risk approach to best position our portfolio for a change in the interest rate cycle by incorporated interest rate floors. When originated adjustable loans. We currently have over 80% of our adjustable loan portfolio with floor rates. Additionally, you can see how we.
Have progressively transition to software rates and now we have 26% of our adjustable portfolio indexed to this right.
Our NIM sensitivity profile remains stable compared to the previous quarter. We added the sensitivity of our <unk> portfolio to showcase our ability to withstand additional negative valuation changes.
I would like to remark the organic improvement in the OCI by $15 million for the rest of 2023.
Due to the expected runoff of the investment portfolio.
We will continue to actively manage our balance sheet to best position our bank for the remainder of 2023.
Moving to noninterest income on slide 18.
The noninterest income and debt of $19 million down $5 million or 21% from the 24% we reported during the last quarter of 2022.
Decrease was driven by higher net losses on the sale of securities, including $9 5 million in subordinated debt issued by a financial institution lower gains and derivatives with customers via evaluation and volume.
The decrease was partially offset by higher net gains on early extinguishment of FX Youll get batches.
Higher mortgage banking income driven by higher gains on sales of loans.
Higher deposit service fees and higher brokerage fees, resulting from the fixed income trading volumes to improve during the quarter.
Amarin assets under management totaled $2 1 billion as of the end of the first quarter of 2023 of $112 million or 6% from the end of the fourth quarter, driven by $50 million net new assets and as we continue to see improved market valuations in some asset classes. Additionally, 50.
$5 million due to this concept.
Moving to slide 19.
First quarter non interest expenses were $64 seven up $2 5 million or four 4% from the fourth quarter, we consider $3 4 million as of non routine items, resulting primarily from the upcoming conversion to <unk> in July .
Addition to the closure of our banking center in Texas, and some other severance expenses.
Excluding these items core non interest expenses were $61 4 million in the first quarter of 2023.
The quarter over quarter increases were primarily driven by higher salaries in connection with business development personnel in mortgage and other lines of businesses.
Higher consulting and other professional fees in connection with the conversion higher expenses on FDIC assessment and insurance driven an increase in the balance sheet higher impact in charges related to the closing of a branch in Houston.
Decrease in noninterest expenses was partially offset primarily by lower derivative expenses due to lower volume of derivative transactions lower advertisement expenses and the absence of certain depreciation expenses.
The efficiency ratio was 63, 6% in the first quarter of 2023, which was compared to 58, 4% in the previous quarter.
Down from the 87, 3% in the same quarter last year.
Our efficiency ratio increased to 62, 5% in the first quarter of 2023 compared to 61 three in the fourth quarter of 2020.
I will now turn it back to Jerry for closing remarks.
Thanks, Carlos first I'll make a couple of brief comments regarding the second quarter.
While we anticipate continued loan growth in <unk>.
We will not have loan growth exceeds the growth. So the same as we did in the first quarter as we remain committed to maintain our current ratio of loans to deposits.
Continuing to have a deposits first focus is job one at ameren. So a range of $2 million to $300 million in growth for the second quarter is a likely outcome and just a reminder, here that we have previously stated and I'll say repeatedly our loan to deposit ratio target is 95% and our intent is not to exceed.
100%.
And we've consistently managed between that range.
We expect the margin to continue to be pressured given substantial market competition for domestic deposits. This will likely result in a 10 basis point margin reduction from current levels given upcoming lower cost time deposit maturities in the second quarter, and we're assuming market pricing remains comparable to current rates.
As previously noted we intend to emphasize international deposit gathering as a source of funds, giving more favorable pricing with recent hires complementing the existing international staff, we should see sauger stronger production here in the second quarter.
We do expect a more positive contribution from Ameren mortgage evidenced by the pipeline growth we are seeing from additions to the team.
This growth is in conforming loans, which should result in opportunities for gains on sale and.
Regarding noninterest expenses I previously referenced we intensified offsetting efficiencies to reduce the recent additions to run rate expenses of which the full impact should be seen in the third and the fourth quarter of this year.
So in summary, while we recognize there are clearly headwinds and there's continued economic uncertainty. We continue to remain focused on prudently executing on our signature Dave's continuing to selectively build to our team and add where we can and gaining additional market share. We're excited to see the progress.
Our two new executives and other recent hires will make it.
They begin to contribute this quarter as well.
So in conclusion, our commitment to becoming the bank of choice in the markets. We serve remains our primary goal so with that I'll stop and Carlos <unk> to answer any questions. You have some Michelle if you would please open the line for Q&A.
Thank you as a reminder to ask a question at this time. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please standby, while we compile our Q&A roster.
And our first 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.
Jerry I appreciate the color there at the end.
Deposit growth and margin maybe.
Maybe if we could just start on loan growth, which is another good story. This quarter I think you mentioned that deposit growth should likely exceed loan growth, but I think previously you had talked about 10%.
Obviously theres been a little bit of a change in the market you are in different markets that are probably going to hold up a lot better but end user demand likely slows. So I just wanted to get a sense of if 10% is still kind of in the ballpark.
And if not what are the puts and takes thanks.
Yes, so Michael Thanks for the question and good morning.
I would tell you that I still think 10% could be the outcome. However, I did want to caveat. It with again, we've got to grow in the deposit side and so the emphasis on the team is to get as much share of wallet in our existing customer base and continue to expand and grow.
New relationships, we think everything we're doing around <unk> Ics as well as on the international side are going to give us.
Real competitive advantages just given the way we've added.
Sales personnel really focused in each of those areas.
So I do think at the end of the day, if you were to look at us.
Sort of.
Back from what we said at the year end I think we're still on track in that relative range.
Okay. That's helpful. And then maybe just wanted to step back.
Spencer and I appreciate kind of all the color in kind of the puts and takes but just given the higher incentive comp.
I would expect some of that higher consulting.
Cost to come out of the run rate.
But you probably hired parameter mortgage kind of throughout the quarter. So just trying to get a sense for.
Adjusted noninterest expense basis is a good.
Price.
To start as we think about the second quarter and the rest of the year.
Yes, let me give.
Sort of an overview for the rest of the year and I'm sure Carlos will want to chime into I believe it's our responsibility to continuously evaluate where we're spending the dollars and so we think there are opportunities for efficiency that we can still get out of our expense.
Syed and so rather than get into the specifics because the focus obviously as you can imagine has been a lot around liquidity.
And the volatility in the market, we'll shift our focus now back on.
Where we can become.
We can basically become a little more effective and efficient not only on the front side of the company, but on the back side and that's why I said I think youll see that really more coming through in Q3 and Q4.
Because let's face it we're almost.
A third of the way through this quarter.
So I think the.
The Big thing I would tell you is the consulting expenses you see a lot of this one time.
My expectation is once we get through the conversion again, that's another reason why youll see that stuff start to fall off in <unk> and <unk> Carlos If you would just thought yes, so speaking about the run rate.
And definitely this quarter around the core was $61 million and we expect that the COO.
Core expenses to be closer to the $60 million approximately but you should expect the.
The extraordinary items to boost this to around $62 million.
What's the expectation for the upcoming quarter, So 60 core and 62, and so the consulting and others related to the conversion will continue this coming correct for this quarter that we're now correct.
Okay. So so drop into the second quarter, but is there additional kind of.
Our specialties as we move into the back half and you can imagine as you get through the.
Conversion that that $60 million would actually go lower or are you going to continue to add head count.
Things like that.
I've had a little bit higher.
Yeah, Michael Great question, because look I think we've been saying that we're going to continue to be opportunistic where we see opportunities to add revenue producers deposit gathers.
We're not going to do is continue.
A big infrastructure build I think.
We've got some things that are going to wrap up here.
I think youll.
You'll start to see a smoother course on.
We're done with.
A lot of around again around the conversion and I think just in terms of where we should run I think Carlos and I are in agreement that the 16 is probably a good baseline to be using.
Going forward and we'll obviously update you guys.
Not mid certainly close to quarter end or even at the quarter.
<unk> is one of the things we're going to do on the expense side right.
Great and maybe just one final one for me.
I know, we're talking about only a handful of credits, but it seemingly like every quarter. There's there's kind of a larger charge opportune, but kind of spikes ratios and things like that I know from very low levels.
Pay ratios at very low levels, but it does seem to happen kind of every quarter and I think thats one of the pushback.
I got from investors.
How can you help us understand.
Credit is going to be an issue that maybe these are legacy credits.
Just give us some comfort that.
These truly are kind of just a handful of credits.
There was some product in nature and not anything systemic.
Yes, no and by the way I can completely understand that.
Certainly for these last several quarters we've had.
Something of size occur obviously this quarter, we got a surprise close literally close today within five working days of the end of the quarter.
On the transportation credit and.
Without I can't get into a ton of detail right now on this but I mean this was a relationship that was very long standing with the bank.
It was.
Something where I think it was a particular situation where they grew too fast and I think it got caught in the squeeze of the cost of running that business.
I think the biggest challenge for us was.
I think there were probably some opportunities too on this one that will certainly not see a repeat of that.
I think this was a very unique case in that regard.
I do want to say as people think about provision expense and we've talked about this a lot.
Going to have a couple of things I think with us to take into account one youre going to have loan growth every quarter right. So if we're going to say that we're growing two to 300.
Youre going to pencil in that Theres got to be a couple of million dollars and provision there I think given the economic environment. The uncertainty you could have factor changes like we did this quarter that will also drive that.
We discontinued as Carlos said this indirect consumer program. It appears that there's some charge offs that have certainly surged and come through.
And that's been I think consistently sort of this.
Last quarter and now this quarter sort of in that five five ish to almost $6 million I think this record of range and so if youre looking at a baseline you could easily say for us that.
Thank you.
You can forecast that at least a $10 million provision, which is not inconsistent with what we've been thinking about internally.
Just so everyone's aware of that.
I think we're.
Always have the uncertainty because we still have some remaining exposure in new York and in commercial real estate.
While we are very very closely monitoring spending a ton of time.
You think about know your customer.
Onsite visits.
Consistent conversations with each of these cost are customers carefully carefully looking screw you know who's repriced up and how the credits can withstand.
The relationships can withstand higher rates were very proactively working with those customers and I think.
That's probably the one other area.
While we have roughly I want to say about $300 million left in the portfolio.
That we need just to be very cautious about that.
But again back to your original question. This was a a customer where we knew well that the chart. The bigger charge you took this quarter and I just think it's something that it's very unfortunate.
I do think that it's I think you used the word idiosyncratic idiosyncratic I think anything that fits that definition.
I appreciate all the color and Carlos congratulations thanks. Thank you.
Thank you and one moment for our next question.
And our next question comes from the line of Stephen Scouten with Piper Sandler. Your line is open. Please go ahead.
Hey, good morning, everyone.
I guess, maybe if we could start on the foreign deposits skin I don't know if I missed this but can you give a feel for what youre seeing in terms of the the betas on those deposits in.
This push and focus on those deposits. If you think you can grow absolute balances there.
Yes in terms of the beta is for <unk> capacity continues to be very well contained.
Just to give you a perspective for the full cycle.
It was 0.09.
Data.
International deposits just.
In Q1, we just have.
Couple of repricing soft.
Time deposit portfolio, which obviously.
Search in light of being locked for more than a year.
With previous interest rates and that created the search to the <unk> 53 cost of funds in the international side, but it continues to be very very benign.
As Jerry mentioned.
That team is bearing is been retool with additional business development.
And with a new SER set of goals and.
And growth going forward as a matter of fact, there has been several wins during the during the current quarter to have help us to keep growing in the portfolio and to keep dropping the cost of funds.
Is that is that two years David.
Yes, that's extremely helpful. Thank you.
Yeah, Hey, Steven just let me add a little bit of color.
So just to clarify this this group.
And I think is really merit spending the time to make sure everyone understands.
We had zero travel obviously COVID-19, we had we're probably more in what we'll call a.
A maintenance mode of customer service mode with that existing portfolio, which is roughly been around 245% to $2 5 billion consistently over these.
Probably the last six to eight quarters now with the merging of these three units, which is you got to think about it we're sub units in both in retail and private bank and then also in the commercial bank, having a singular leader single focus to draw.
Ray this business right as opposed to really just in a maintenance mode.
I think there's just significant upside opportunity for us we already have the infrastructure.
In place that we must maintain obviously for where we do business and that we've already and always have been a cross border institution. So I. Just think this is something where there is great opportunity.
For our organization without really having to add a lot of incremental expense.
At all to do this.
Yeah, No I think that's great that's kind of why I asked I think.
Major differentiator for you versus.
Really every other.
And your peer group so that's great.
Could you speak maybe just I am curious just around the overall competitive environment and kind of I definitely appreciate it and I'm glad to hear Youre, saying deposits are going to kind of determine what your loan growth will be.
But I mean are people in your markets kind of backing away I mean could you.
I guess could you get all the growth you want today at the rates you would want if the deposit funding was there.
I think that there are significant opportunities.
Talent that we've added to the company.
Contact list that they have.
The amount of time, they're spending in the market. Yes. The answer is there is definitely opportunities for us and there is also without saying anything other than there are others that are going into a pullback mode and so there is always going to be opportunity for those that were going to be prudent about it we're not just going to add growth.
Growth's sake, we're going to make sure that it meets all of our underwriting standards that it's a full relationship I think Carlos.
<unk> had some references I think in his notes about.
Our we're insisting on deposit covenants and deals maintaining minimum average balances. It's just the right thing for us to be doing if you want financing from us youre going to bank with us and so I do think theres, great opportunity and continues to be and we see it clearly in the Tampa.
Marketplace, we continue to see it in Houston as well as here in South, Florida. So and this is before putting two extremely talented individuals to now drive Houston and now drive the corporate bank.
I feel very very comfortable in saying that theres not only opportunities, we're going to be able to be very selective on that and so it's imperative back to the deposit side that we continue to drive for deposits first.
I do want to just reiterate.
As I said on our first earnings call two years ago that are 95% loan to deposit ratio was always going to be sort of the optimal and we strive to continue to just stay right in between sort of the I'll call. It the 95% to 99% maybe it was our matters, maybe 98 and change.
So landing in around 97, or so what I'd like to lower that a little bit more sure, but I want to try and also <unk>.
Make sure everyone understands.
This whole idea of us being very very focused on we're only going to grow to the extent, we grow our funding that's why being organic doing stopping doing the things that had been indirect.
This is all about us and what we can produce and I think the value creation of bank should be able to give to its shareholders is to organically generate.
That value for them and so that's what we're very very focused on.
Absolutely, Okay, and maybe just one last one for me.
Obviously appreciating the funding pressure that every bank is experiencing I am just trying to reconcile.
Interest rate sensitivity like kind of as modeled which shows.
Plus 3% and a 50 basis point up scenario versus seeing the NIM go down this quarter and then looking like it's going to go down again next quarter. So can you help me kind of reconcile what's different in the modeling versus I guess reality.
Yes sure.
Reminded all of this interest rate sensitivity analysis are done over the course of a year.
They are not done instantaneous, so eaton instantaneous shock, but the horizon, it's a year. So thats why it shows up on upward movement of three 1%. So that implies the structure of that repricing structure that we have in the balance sheet, but you have that to happen over the course of a year evidently.
With the interest rate shocks that we're having right now and measuring quarter over quarter, the outcome wouldn't be necessarily a three 1% increases that would be over the course of the year.
Got it yeah that makes sense, so kind of a catch up in some respects, probably you're probably outperformed some of these numbers in the Paas and now it's catching up to some degree that is correct yes.
That makes sense, okay, great well, thanks for all the color guys I appreciate it.
Thanks, David and thank you. Thank you and one moment for our next question.
Our next question comes from the line of Freddie Strickland with Janney. Your line is open. Please go ahead.
Hey, good morning.
Great.
Great to see the growth in core noninterest income this quarter.
Whats a good run rate there and should we continue to see that growing with well I know, we've got the mortgage piece and everything else, but does that.
Have an upward trajectory from here.
Yeah, Hey, it's Gerry absolutely I have to say and I feel a little remiss, we didn't add more color in our opening remarks about this we have added some really good talent to an already good.
And you know really strong wealth unit I think this is the same opportunity for us if you think about us driving the international deposit side, it's going to come with higher net worth customers that are going to want to also place AUM with us and so we really think.
That there is nice upside for us in India.
Certainly in the wealth management side. In addition, we've just added some additional talent that literally started Monday, we also had.
Another.
Key advisers start at the beginning of the year, we're starting to really build momentum and I believe we mentioned previously that we had hired a new head of wealth new head of trust.
We feel that we're really well positioned and it's just at this stage of where youll start to see growth in the coming quarters, and so part of our diversification.
We could switch talk a little bit too about the mortgage banking side is definitely to grow this noninterest income line and I think that.
There's clearly some opportunity wealth domestic well to international from the activity that we're doing in terms of the select highly talented additions we've made to the team.
I think the other part we didn't really get into it much other than making a few references the strength of the pipeline and mortgage banking with that production is conforming saleable.
Generating a lot of volume that is coming from.
Sort of we'll call. It a two pronged approach the team we continue to need the capabilities of the mortgage banking unit to support our private bank efforts and other customer relationships, we have but the other side of it is they are generating a lot more volume from the folks that they've picked up.
Particularly we've talked about this as a Midwest hub.
We're generating a lot of conforming loans for sale in the secondary market and so I think youll see a significant shift here as we move forward.
Entre to anyone's opinion, there are still the need for mortgages people are still buying homes and yes is it anywhere near the levels that it's been in the last several years of course, not but here's an opportunity right now for us to really be pushing in and adding production in areas where the.
Loans are saleable is critically important to understand and so we've kind of gone away from where we are in candor higher cost markets, where the production here is going to result in a lot of jumbo production, which we've actually decided it makes a lot more sense.
To be looking at areas to add production to add producers that are going to bring conforming loans on and be able to sell those into the secondary.
I believe it's.
The slide number seven we added a very good disclosure on the rate locks.
Hi.
The pipeline of family and mortgage you see how.
That amount has continued to increase.
Now we have or as of the end of Q1 more than a $100 million in raid logs. So all of that production is to be sold to agencies.
And that's that's a great accomplishment getting teams to work on the quantified.
Mortgage space and get it into the secondary market has been a great addition, and we expect that to continue to be accretive to other income.
Got it that's really helpful and just one quick follow up on that I know the mortgage.
More of a it's a national.
Base, but does being in South, Florida, and then Texas kind of help you when you're talking to your regular commercial customers or consumer customer whoever.
Just given the population inflow do you think that the <unk>.
So that.
When it comes to mortgage.
Yes, absolutely I think the private banking teams here in South Florida, We've we've added.
Our producer in private banking in Tampa, and frankly looking for more and we think there's just tremendous opportunities now with Carolyn in places or a new market president to add.
Not only strong producers potentially even teams of people.
There.
Private banking purposes, I think we think it's really critical to be able to give that concierge level.
And I think our team on the mortgage side does a really good job supporting our private bank team and you remember they're there they tend to be chunkier mortgages.
Tend to be seconds, right vacation homes et cetera, and so all of that is definitely a positive by having those.
Those capabilities around I guess.
Very good way to look into our mortgage platform.
Is the fact that.
Our national footprint and help us to keep the per unit cost.
Mortgage origination at a lower level as we continued to expand and that will help us.
Originate lower cost mortgages to our.
Customers within the bank. So we don't have a specific unit just to originate loans for private banking, but.
The de leverage on the on our platform that originates nationwide to have that.
Lower per cost unit production.
Got it that's helpful. Thanks for taking my questions.
Sure absolutely.
Thank you and one moment for our next question.
Our next question comes from the line of Matt Olney with Stephens. Your line is open. Please go ahead hi.
Thanks, Good morning, just wanted to follow up on.
Jerry.
On Fridays question around around fees more of a forecasting question any any numbers you can help put behind the outlook. There I think you said the core fees in the first quarter were around $16 million. It sounds like you've got some momentum in mortgage and wealth any any numbers you can put behind that.
Yes, we are project in other income.
16.
For this upcoming quarter there is more.
Actually it's a possibility that that would get even better.
The new <unk>.
<unk> that we're getting into the mortgage business.
And getting more into the other income. So yes, you can definitely see that being in the $16 million other income potentially even into 17 range 16 to 17, but yes, Matt I would say I think you could see that just ratcheting up each quarter.
Yeah, Okay, and then mortgage and wealth being the primary drivers I would assume.
Yes.
I would tell you that our view on <unk>.
I'll call the traditional fee sources for banks, we've actually gone through and we've probably never covered it enough in the past, but we've been very customer friendly.
In terms of what we've done with overdrafts.
Our our cover me program.
Not having any of the nuisance ones that are like $100 or less than that.
And we've reduced those charges. So we're not relying for fee income off of sort of the.
I'll call it the NUCYNTA deposit charges as much as we're relying on our build here.
But as you just said more around wealth and mortgage banking.
Derivatives and of course, <unk> and derivatives are a critical part okay.
And then I guess switching over to the margin and just kind of following up there I think I heard you mentioned that the margin could be down up to 10 bps in the second quarter did I hear that correctly and if so what kind of deposit beta does that does that assume.
Yeah, Hey, Matt will both jump on that one let me let me just say, yes. It is the.
Projection is that it can be downturn.
Carlos and I have looked at is where the majority of the time deposits that will re price and we think the biggest piece is coming in the second quarter and if you just look at the Delta of.
Those rolling over that's going to create some of that.
Decline there I think as it relates to.
Debate as Carlos do you want to sure. So complementing what Jerry was mentioned in out of the time deposit portfolio for customers who already had.
Significant amount of repricing.
When you look at the <unk>.
<unk> cost, it's already reflective of the.
A different number of higher rate than it used to be.
Before and particularly we have Q2 and Q3 that we will have a combine or maybe.
<unk> $350 million that they are at a blended rate of one 6% that they will come.
And reprice at a higher rate that's factoring into the minus 10 basis points that Jerry was mentioning.
But I don't think you should be able to see this particular quarter a beta as high as the one that we reported.
Just because of this effect.
In the case that already most of the morning market transaction and money market accounts in order.
Different interest bearing accounts already reflected a higher rate. So I would I will go into.
Specific.
A quarter with a lot of repricing in money markets a lot of maturities in time deposits that created this.
Particular effect of having a beta of one but in this in the second quarter, we should diminish that being in the $5 60 beta.
Okay. That's helpful. Carlos Thank you for that and then I guess.
Kind of a related topic around on balance sheet liquidity are called overnight liquidity.
You mentioned you carried a higher level at the end of the quarter like a lot of your peer banks did I'm just curious kind of what your thoughts are today understanding that could change what are your thoughts on kind of carrying higher liquidity, it's going to be kind of a permanent change for the bank.
Or is it more more temporary.
Yes. So no we are carefully looking into liquidity all the time, we definitely going to carry higher levels of liquidity. We believe it's prudent in terms of this environment. Obviously, the 485 that we reported was significantly higher compared to the.
Structural amounts that we carry we are typically between the $200 million to $300 million cash with cash on hand, so we progressively should be growing that but we believe we have a very liquidity management infrastructure in place to monitor that yes, and I think Matt if you want to use a targeted.
Makes sense to two things.
What we think where the prudent actions put $200 million immediately win.
The morning that all of that volatility started and kept that throughout the end of the quarter.
Expectations are as Carlos said I think holding 300 is probably a good target for us just given our availability and as we showed we've just got.
A lot of ability to go against.
The federal home loan bank to borrow there and then obviously if we wanted to go to other sources.
We still have plenty of capacity, so I think thats, probably a better target to use.
Okay.
And then.
You mentioned a few times on the call.
Conversion was moved back a little ways, not not too terribly long, but.
I heard you mentioned this was for just a better customer experience any other details you can provide as far as kind of why the timelines being being pushed out a little bit.
Yes to be very specific we obviously.
Customized a lot of things for both our domestic and international customers and we wanted to make sure that the experience is as comparable as possible and so rather than push to get this done.
It just made sense to allow for the additional time to get as close to.
To where we should be and then build out any other capabilities that we need thereafter, but I just think thats, probably the best way to summarize it right.
Okay.
Okay guys. Thanks for your help.
Thanks, Matt.
Thank you and one moment for our next question.
Our next question comes from the line of will Jones with <unk>. Your line is open. Please go ahead.
Hey, great. Good morning, guys. Thanks for the questions.
So I just wanted to continue to follow up on that the margin discussion I appreciate all the color and commentary around this next quarter, but as we think about the back half of the year and we start having a conversation around peak rates.
Maybe you get a little bit easing.
Deposit cost pressures on the time deposit side did you feel like the margin could stabilize and kind of level out and flat line as we move into the third and fourth quarter of the year.
Yes look I think we're being.
Very cautious about how we're forecasting that.
We're not taking into account really a big ramp up on international which we definitely believe comes at more favorable costs for us we also.
With the with the new team members, we've been adding including additions EBIT into.
Our Treasury management area, we're going to push even more and more for core DDA as well I mean, that's an area. We know we have to significantly improve in.
And so I just think with the.
The capabilities that will have post this fas conversion and TM coupled with the personnel. We've added there is upside opportunity there.
We will continuously update you guys will on as we were making progress on those I think at this stage. It's the prudent thing to say look we've got a good line of sight as to what we expect to happen for the second quarter, I think going into the third and the fourth quarter, we will certainly have.
A better line of sight for the second half of the year and how we can continue to improve.
On the funding side.
To keep the costs more in check.
Got you very helpful.
Asking you look into your crystal ball, a little bit there but.
I guess switching over to one last thing you haven't talked about is really the buyback I know you guys kind of prudently understandably pause that during the quarter.
And I know today, you guys are really more of a growth focused bank and buyback is it really comes.
With the mass looking pretty attractive here with.
Where the shares trade.
Philosophy your thoughts change anymore.
The buyback going forward.
Yes look I think one of the nice position that we're in is that.
We have.
A very nice level of cash at the holding company.
We're well in excess I mean, I would expect that we'd love to at least.
Be it two to three X any operating expenses and debt service coverage at all times. So obviously that gives us some capacity if we elect.
To be very selective and re instituting some buybacks.
We have the capacity, but at this point, we do think it's really prudent just to stay the course evaluate how things go.
Go forward and you have to be.
You have to have some sense of balance on here, because obviously I do agree that the stock is incredibly attractive at this level, but at the same point in time, we want to make sure that we're.
I'll call. It again, the best word to use as prudent if we are to go and do something at this point right.
Understood, Thanks, guys and Carlos again, congrats on the promotion there.
Thank you. Thank you.
Thank you I would like to hand, the conference back over to Jerry <unk> for any further remarks.
Thank you Michelle and thank you everyone for joining our first quarter earnings call. We appreciate your interest in our company and your continued support so have a great day and thanks again.
This concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
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