Q1 2023 Amerant Bancorp Inc Earnings Call

Speaker 1: so

Speaker 2: Good day and thank you for standing by. Welcome to the Amrit 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 this session, you will need to press star 11 on your telephone.

Speaker 2: You will then hear an automated message advising you that your hand is raised. To withdraw your question, please press star 1-1 again. Please be 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.

Speaker 3: Thank you, Michelle. Good morning, everyone, and thank you for joining us to review Amaran Bank Corp's first quarter 2023 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 3: 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.

Speaker 3: Please refer to the company's earnings release for a statement regarding forward-looking statements, as well as for information on reconciliation and non-financial gaps, financial measures to GAAP measures . I will now turn it over to our Chairman and CEO , Jerry Plush. Thank you, Laura. Good morning, everyone, and thank you for joining Amrit's first quarter of 2023 earnings.

Speaker 4: rest of 2023 and beyond, given the actions we have been taking, not just this quarter, but over the past two years.

Speaker 4: But, before we do that, I am delighted to announce the promotion of Carlos Iacoguiolo to Chief Operating Officer. This well-deserved promotion, which is effective immediately, is clearly the result of the significant contributions Carlos has made to Amrit as our CFO over the past three years.

Speaker 4: In the interim, he will continue to serve as our CFO as well until such time that we announce a successor.

Speaker 4: By Carlos taking on this new role, I will ultimately have greater bandwidth as well to help drive incremental business for the company.

Speaker 4: So please join me in wishing Carlos much success here for years to come as he takes on his new responsibilities.

Speaker 4: Also, we recently announced a new member to our board of directors. Ashaki Rucker, who joined us this week, is a consummate professional with extensive human capital management experience, and she truly complements our current group of highly skilled, dedicated, and growing number of locally based board members.

Speaker 4: We want our board to eventually be in footprint and involved in the communities we serve, and a Schottky joining our board is another step in that direction.

Speaker 4: 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.

Speaker 4: We are pleased to welcome Juan Esterritha as our new head of commercial banking and Caroline Varoux-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.

Speaker 4: We have significant opportunity for profitable growth in each of these markets and we're excited about our prospects.

Speaker 4: 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.

Speaker 4: We've added a significant amount of details in our earnings presentation.

Speaker 4: including information on our liquidity management practices, and Carlos will describe specific actions we took to strengthen our liquidity position this quarter.

Speaker 4: He will also provide detail on specific one-time items and will cover new charts and information we've included, such as showing the impacts of valuation of our AFS portfolio, as well as the unrealized losses from our held in maturity portfolio and what that does in impacting our tangible common equity ratio.

Speaker 4: While he will also go into greater detail about the following items that impacted the quarter, I wanted to summarize these points up front.

Speaker 4: 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 reflected updated economic factors.

Speaker 4: with a balance 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.

Speaker 4: The trucks and trailers from this relationship have been fair valued and they're now held in other RITA Zest assets.

Speaker 4: Non-interest expenses were $64.7 million this quarter, of which $3.4 million were non-routine items.

Speaker 4: In addition, we elected to continue to invest in business development personnel, specifically in commercial banking and amortized mortgage, which resulted in higher than expected routine non-interest expense. In addition, we elected to continue to invest in business development personnel, specifically in commercial banking and amortized mortgage, which resulted in higher than expected routine non-interest expense.

Speaker 4: 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.

Speaker 4: So let's turn to slide three where you can see a summary of our first quarter highlights.

Speaker 4: Net income attributable to the company was $20.2 million compared to $22 million in 4Q22. This decrease was primarily driven by lower non-interest income and higher non-interest expenses during the period, partially offset by the lower provision for credit losses in the fourth quarter, compared to the fourth quarter.

Speaker 4: As a reminder, we adopted CECL in 4Q22, which drove the higher 4Q provision.

Speaker 4: The higher non-interest expenses include a number of one-time items as well as the increased investment in business development personnel as I just mentioned.

Speaker 4: That interest income in the first quarter was virtually unchanged when compared to the prior quarter, as we were able to offset higher average costs and balances on deposits and FHOB advances with higher average yields and balances on earning assets.

Speaker 4: As a result, the net interest margin was a strong 3.9%, just slightly below the 3.96 ticks that we reported last quarter.

Speaker 4: Our balance sheet grew during the first quarter, with total assets reaching $9.5 billion, compared to $9.1 billion as of the close of fourth quarter. It's important to highlight that this growth includes $200 million in increased liquidity on hand that we elected to maintain in the second half of March, which Carlos will discuss in just a few minutes.

Speaker 4: Total gross loans were $7.12 billion compared to $6.92 billion last quarter, an increase of nearly $200 million, and total deposits were $7.29 billion, up $242.5 million compared to the $7.04 billion last quarter.

Speaker 4: Our capital levels continue to be strong and well in excess of minimum regulatory requirements to be considered well capitalized at March 31, 2023.

Speaker 4: More now than ever, preservation and growth and tangible book value is a top priority, and we achieve that this quarter. Also of importance is 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 tangible book value, these have been and continue to be reflected in the number.

Speaker 4: TBV remains a strong 7.44% as of March 31st.

Speaker 4: During the quarter, we also paid out the previously announced cash quarterly dividend of $0.09 per share on February 28, 2020.

Speaker 4: So we'll turn now to slide four, where you can see the core PP&R was a solid 37.1 million compared to the 37.8 million reported in the previous quarter.

Speaker 4: Also outlined on this slide are all the non-recurring items recorded in the quarter.

Speaker 4: Also outlined on this slide are all the non-recurring items recorded in the quarter as previously mentioned.

Speaker 4: Included in non-recurring expenses were costs related to severance, a branch closure that we'll cover in a minute, and conversion-related one-time expenses.

Speaker 4: So we'll turn to slide five and we'll cover some key additional actions.

Speaker 4: So we'll turn to slide five and we'll cover some key additional actions that we took during the first quarter.

Speaker 4: So, as I mentioned, we continue to add key personnel in Amrit Mortgage to our business development team here at the bank and to our digital transformation team.

Speaker 4: As also I previously mentioned, we recruited two executives for existing open positions. So we have a new head of commercial banking and a new Houston market president.

Speaker 4: Amrit Mortgage grew its national footprint with the addition of a Midwest team, adding business development personnel in the quarter to generate conforming mortgages for the sale in the secondary market.

Speaker 4: We also reorganized our international banking app.

Speaker 4: We wanted to simplify the structure and drive favorable cost deposit growth.

Speaker 4: 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.

Speaker 4: We believe this is essential as it provides additional diversification for our funding base.

Speaker 4: We completed our relocation into our new, highly efficient operations 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 at all of our facilities and our expectations will be.

Speaker 4: completed with that no later than the end of this year. We also announced the closing of our relocation at FM 1960 Road in Houston, Texas in 2-2-23. We expect that to happen as of May 31st.

Speaker 4: 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.

Speaker 4: This location is situated in the West Shore Business District, the most central business area in the Tampa Bay area, which is home to more than 4,000 businesses, both large and small, and near some of the most high-valued residential neighborhoods.

Speaker 4: The opening of this branch transitions our Tampa operation from a loan production office to a full service bank with full banking capabilities.

Speaker 4: 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 client banking, SBA lending, and we also have in-market support personnel from credit portfolio management and other client support positions.

Speaker 4: 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.

Speaker 4: 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.

Speaker 4: We did repurchase 22,403 shares of Class A common stock during the first quarter under our 25 million share repurchase program.

Speaker 4: We elected to prudently pause on additional repurchases given recent industry events impacting liquidity in the sector.

Speaker 4: Of note, the FIF conversion date moved from mid-May to mid-July 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.

Speaker 4: Here we've outlined key performance metrics and their changes compared to the last quarter.

Speaker 4: As I mentioned earlier, our net interest margin was 3.9% the first quarter. Our efficiency ratio was 63.7% compared to 58.4% last quarter, but the core efficiency for the first quarter was 62.47%. Both ROA and ROE were slightly lower this quarter, primarily given the one-time chart.

Speaker 4: We'll turn now to cover Amrit Mortgage, which is on slide 7.

Speaker 4: On a standalone basis Amrit Mortgage had a negative net PP&R of $1 million in 1Q compared to a negative net PP&R of $1.5 million in 4Q.

Speaker 4: The improvement resulted from higher revenues driven by the additions in the business development team.

Speaker 4: Our efficiency ratio, excluding activities from Amrit Mortgage, improves from 63.7% to 61.5%.

Speaker 4: During the quarter, the company purchased approximately $87.4 million in loans through Amrit Mortgage and as noted on the slide, these are all related to bank customers.

Speaker 4: The current pipeline shows a growth up to $117.2 million in process for 281 applications as of April 11th, with 111 of those being rate locked. We believe the team members we have added will drive increased production of conforming saleable loans into the secondary market.

Speaker 4: which will positively impact the bottom line in 2Q and future results. So with all that said, I'll now turn things over to Carlos, who will walk through our results for the quarter in more detail. Carlos? Thank you, Jerry, and good morning, everyone.

Speaker 5: Turning to slide eight, I'll begin by discussing our investment portfolio.

Speaker 5: Our first quarter investment securities balance was 1.3 billion, comparable to the previous quarter. When compared to 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 3.82%.

Speaker 5: As I did last quarter, I would like to take a minute to discuss the impact of interest rate increases on the valuation of debt securities available for sale.

Speaker 5: As of 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.

Speaker 5: These changes come as a direct result of decreases in the median and long-term interest rates and MBS spreads compressing during the quarter.

Speaker 5: 78% of our AFS portfolio has government guaranteed, while most of them remain securities are rated at the investment rate.

Speaker 5: Our corporate debt portfolio includes approximately 128 million in subordinated debt securities issued by financial institutions.

Speaker 5: Health and maturity securities represent 18% of total investment portfolio. The current market of HTM is 15.5 million of unrealized losses after taxes. We will discuss more details shortly.

Speaker 5: 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.

Speaker 5: This growth was driven by loan origination efforts, primarily in specialty finance and single family residential mortgages.

Speaker 5: Partially offset in this increase were prepayments of approximately $97 million in commercial loans.

Speaker 5: Commercial loans include 557 million in specialty finance loans compared to 420 million in fourth quarter 2022.

Speaker 5: Equipment financing under a wide label solution, which are part of our specialty finance lending, totaled $47 million in the first quarter of 2023.

Speaker 5: Single family residential portfolios were $1.24 billion, an increase of $83 million to convert to the $1.16 billion we had in the fourth quarter of 2022.

Speaker 5: This amount includes $87 million in loans originated and purchased through Amram Mortgage during the quarter as Jerry referenced earlier related to our customers mainly.

Speaker 5: Consumer loans as of the first quarter of 2023 were $550 million, a decrease of almost 27 million or 4.6% quarter over quarter.

Speaker 5: This includes approximately 372 million in higher yielding indirect loans, which in previous quarters represented a tactical move for us to increase yields. We can not bind any new production and this portfolio is set to run off over time.

Speaker 5: Loans held for sale, which were all in connection with Ameren Mortgage and therefore hedged, totaled $65 million as of the end of the previous quarter, compared to $62 million as of the end of 2022.

Speaker 5: 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.

Speaker 5: Tampa 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.

Speaker 5: Our credit quality remains sound and reserve coverage is strong.

Speaker 5: The allowance for credit losses at the end of the first quarter was $84.4 million, an increase of 1% from the $83.5 million at the close of the previous quarter.

Speaker 5: 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 charges and credit quality, $2.2 million to account for loan growth in the quarter, and $2 million to reflect updated economic factors. For more information, visit www.fema.gov

Speaker 5: It is important to mention that the four-quarter 2022 provision for credit losses now reflects the disaggregated impact of CECL implementation for that specific period.

Speaker 5: Net charge-offs totaled $10.8 million in the first quarter of 2023 compared to $9.8 million in the fourth quarter of 2022.

Speaker 5: charge-off during the first quarter were primarily due to $6.6 million related to the criminal financing relationship that Jerry referenced before.

Speaker 5: $6.3 million in connection with indirect loans purchase, becoming 90 days past due, and $1.5 million in several business banking loans.

Speaker 5: This was offset by 3.5 million in recoveries, primarily 2.7 from the coffee trader relationship charge off last year.

Speaker 5: Non-performing 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. This includes an increase in repossessed assets related to the transportation relationship we just mentioned. The ratio of non-performing assets to total assets was 51 basis points.

Speaker 5: of 10 basic points from the fourth quarter of 2022.

Speaker 5: Our non-performing loans to total loans are down to 0.31% compared to 0.54% last quarter. This is primarily due to the transfer of a property to Oreo for $20 million related to a CRE New York loan already disclosed last quarter.

Speaker 5: In the first quarter of 2023, the coverage ratio for loan loss reserve to non-performing loans closed at 3.8 times, up from the 2.2 times at the end of the last quarter, and from 1.6 times at the close of the first quarter 2022.

Speaker 5: We're bringing on slide 11 from the supplemental section a discussion of our CRE portfolio to provide for the detail.

Speaker 5: We have a conservative weighted average loan to value of 60% and debt service coverage of 1.5 times, as well as a strong sponsorship tier profile based on AUM, net worth and years of experience for each sponsor.

Speaker 5: As of the end of the first quarter of 2023, we have 32% of our CRE portfolio in top tier borrowers. We have no significant tenant concentration in our CRE retail loan portfolio as the top 15 tenants represent 22% of the total.

Speaker 5: May attendance include recognized national and regional grocery stores, pharmacies, food and clothing, and more.

Speaker 5: Our underwriting methodology for CRE includes sensitivity analysis for a variety of key risk factors like interest rates and the impact of their service coverage ratio, vacancy, and tenant retention.

Speaker 5: Please note that 41% of our CRE portfolio has been hedged via interest rate caps or swaps, which in turn protects our borrowers from raising interest rate environments. On slide 12, we discussed our deposit diversification and stability.

Speaker 5: In the first quarter, we ended at $7.3 billion, up $243 million from the previous quarter. You can see here we continue to have a well-diversified deposit mix composed by domestic and international customers.

Speaker 5: The growth this quarter was primarily driven by increased time deposits, which totaled $1.9 billion, up 200 million, or 12%, compared to the previous quarter, and broker deposits, which totaled $738 million, up 108 million, or 17%, compared to the previous quarter.

Speaker 5: Domestic deposits now account for 67% of our total deposits.

Speaker 5: totaling $4.9 billion as of the end of the first quarter, up 271 million or 6% compared to the previous quarter.

Speaker 5: foreign deposits which account for 33% of the total deposits.

Speaker 5: are primarily international deposits.

Speaker 5: 2.4 billion dollars and down 28 million or 1.2 percent compared to the previous quarter.

Speaker 5: To provide more granularity on our accounts, domestic deposits included 42,000 customers with an average account size of $116,000, while international deposits included 58,000 customers with an average account size of $41,000 per account.

Speaker 5: Our core deposits, defined as total deposits, including all-time deposits, were $5.4 billion as of the end of the first quarter, an increase of $41 million, or 0.8%, compared to the previous quarter. The $5.4 billion in core deposits included $2.5 billion in interest-bearing deposits, which increased.

Speaker 5: 343 million versus the previous quarter, 1.5 million in savings and money market accounts, down 229 versus the previous quarter.

Speaker 5: and 1.4 billion in non-interest bearing demand deposits of 42 million versus the previous quarter.

Speaker 5: Moving on to slide 13, this quarter we have included a new table to provide photo color regarding deposit composition.

Speaker 5: We believe it is important to show our percentage of insured deposits as well as the percentage of large phone providers in our depository base.

Speaker 5: We estimated that 69% of our deposits are FDIC insurers 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. Again, this is the pool of other policies that are added total activity for maintenance

Speaker 5: which are 100% insured by the FDIC primarily through Interfi 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.

Speaker 5: Additionally, our large fund providers, which we consider to be those with balances above $20 million, represented 15% of the total funding for Amrit. Moving to slide 14, in light of the recent changes in liquidity conditions in the financial system with those Macarena in mind.

Speaker 5: we consider important to provide additional color regarding our liquidity management practices.

Speaker 5: as well as some additional actions we have taken to mitigate the impact from recent events and strengthen our funding and capital position.

Speaker 5: Our standard liquidity management practices includes regular testing of line of credit, daily monitoring of Federal Reserve bank accounts, and large phone providers.

Speaker 5: Daily analysis of lending pipeline and deposit gathering opportunities are their impact on cash flow projections.

Speaker 5: targets associated with liquidity stress test scenarios, targets for deposit concentration, limits on liquidity ratios, and an active collateral management of both loans and investments with lending facilities at the Federal Home Loan Bank and other market participants.

Speaker 5: As of the end of the first quarter of 2023, total advances from the FHLB were $1 billion, equivalent to 11% of assets pledged, with an additional $1.7 billion availability from this source. No funds were needed from any emergency funding facility or discount window from the Federal Reserve Bank during the period.

Speaker 5: Regarding additional actions taken in the later part of Q1 to increase our liquidity position, we highlight

Speaker 5: increase our cash position at the Federal Reserve Bank by 200 million, borrowed from the Federal Home Loan Bank

Speaker 5: As of the end of Q1, we held over $485 million in cash and equivalents.

Speaker 5: And also we have diligently working with our large depositors to enroll them into ICS in the FDI-SUNTRAFI-INSUURE-CASH-SUIT program to ensure that all of their holdings are 100% insured by the FDIC.

Speaker 5: We increased volumes under this product by 282 million and 93 accounts during the first quarter of 2023.

Speaker 5: Turning to slide 15, I would like to show our relative position in terms of capital for cultural reasons that although different URLs are still strongly included, there is

Speaker 5: As of the end of the first quarter 2023, our capital ratio, total capital ratio, ended at 12.36% and our CET1 was 10.10%.

Speaker 5: Our tangible common equity, which includes $74.3 million in AOCI resulting from the after-tax change in the valuation of our AFS investment portfolio, ended at 7.44%.

Speaker 5: 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.

Speaker 5: Such metrics ended at a strong 7.29% and we believe this is a key differentiator factor and a proof of sound risk management.

Speaker 5: Given the liquidity and capital position I just discussed, we feel comfortable with our ability to hold and wait for the reversal of these unrealized losses in our investment portfolio.

Speaker 5: 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 debt services as of the end of Q1.

Speaker 5: The dividend we just declared will only use 3.1 million out of that cash available.

Speaker 5: Next, I will discuss the net interest income and the net interest margin on slide 16.

Speaker 5: Net interest income for the first quarter of 2023 was 82.3 million, almost unchanged compared to the previous quarter. Our asset sensitivity position enabled us to offset via repricing the incremental cost of deposits we recorded during Q1. contributing to the offset where higher average balances in the loan portfolio.

Speaker 5: As rates continue to increase during this quarter, we experience higher betas via the combined effect of the rate increase in money market deposits as well as repricing of the time deposit portfolio that were lacked and had not reprised at current market rates. As you can see in the graph.

Speaker 5: We observe a beta of approximately 32 basis points on the cumulative basis from the beginning of the interest rate up cycle, but over 100 basis points during the current quarter.

Speaker 5: I would like to bring to your attention that two thirds of our time deposit portfolio have already reprised at current market rates and only a portion is left to reprice, limiting the impact of our interest expenses in the upcoming quarters.

Speaker 5: Moving into the net interest margin, as you already mentioned, NIM for the first quarter was 3.9% down 6 basis points quarter over quarter.

Speaker 5: As I said in the fourth quarter, our ability to offset funding costs and contain further decreases in mean is a reflection of our asset-sensitive position.

Speaker 5: Moving to slide 17, I would like to take a closer look at the interest rate sensitivity analysis.

Speaker 5: 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.

Speaker 5: We also take a prudent risk approach to best position our portfolio for a change in the interest rate cycle by incorporating interest rate floors when originating adjustable loans.

Speaker 5: We currently have over 80% of our adjustable loan portfolio with flow rates.

Speaker 5: Additionally, you can see how we have progressively transitioned to software rates and now we have 26% of our adjustable portfolio indexed to this rate.

Speaker 5: Our mean sensitivity profile remains stable compared to the previous quarter. We added the sensitivity of our AFS portfolio to showcase our ability to withstand additional negative valuation changes.

Speaker 5: I would like to remark the organic improvement in the AOCI by 15 million for the rest of 2023 due to the expected run-off of the investment portfolio.

Speaker 5: We will continue to actively manage our balance sheet to best position our bank for the remainder of 2023.

Speaker 5: Moving to non-interest income on the slide 18, the non-interest income ended up $19 million down $5 million, or 21%, from the 24% we reported during the last quarter of 2022.

Speaker 5: The 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 in derivatives with customers' devaluation and volume.

Speaker 5: The decrease was partially offset by higher net gains on early extinguishment of FHLB advances.

Speaker 5: higher mortgage banking income driven by higher gains on the sales of loans, higher deposits and service fees, and higher brokerage fees resulting from the fixed income trading volumes to improve during the quarter.

Speaker 5: Ameren assets under management totaled $2.1 billion as of the end of the first quarter of 2023, up 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.

Speaker 5: Additionally, $55 million due to this concept. Moving to slide 19, the first quarter non-interest expenses were $64.7, up 2.5 million, or 4% from the fourth quarter.

Speaker 5: We consider $3.4 million as a non-routine item resulting primarily from the upcoming conversion to FIS in July , in addition to the closure of a banking center in Texas and some other severance expenses. Excluding this item, core non-interest expenses were $61.4 million in the first quarter of 2023.

Speaker 5: The quarter over quarter increases were primarily driven by higher salaries in connection with business development personnel and American mortgage and other lines of businesses, higher consulting and other professional fees in connection with FIS conversion, higher expenses on FDIC assessment and insurance driven and increase in the balance sheet.

Speaker 5: higher impact in charges related to the closing of a branch in Houston.

Speaker 5: The increase in non-interest 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.

Speaker 5: The efficiency ratio was 63.6% in the first quarter of 2023, which was compared to the 58.4% in the previous quarter, but down from the 87.3% in the same quarter of last year.

Speaker 5: Core efficiency ratio increased to 62.5% in the first quarter of 2023 compared to 61.3 in the fourth quarter of 2022.

Speaker 4: 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.

Speaker 4: So while we anticipate continued loan growth in 2Q, we will not have loan growth exceed the deposit growth, so the same as we did in the first quarter, as we remain committed to maintain our current ratio of loans to deposits.

Speaker 4: Continuing to have a deposit's first focus is job wanted amaranth. So a range of two to three hundred million in growth for the second quarter is a likely outcome.

Speaker 4: And just a reminder 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.

Speaker 4: We expect the margin to continue to be pressured given substantial market competition for domestic deposits.

Speaker 4: This will likely result in a 10 basis point margin reduction from current levels given upcoming lower costs 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 to emphasize international deposit gathering.

Speaker 4: as a source of funds giving more favorable pricing.

Speaker 4: With recent hires complementing the existing international staff, we should see stronger production here in the second quarter. We do expect a more positive contribution from Amorant Mortgage evidenced by the pipeline growth we are seeing from additions to the team.

Speaker 4: Again, this growth is in conforming loans, which should result in opportunities for gains on sale.

Speaker 4: And regarding non-interest expense, as I previously referenced, we intend to find offsetting efficiency.

Speaker 4: to reduce the recent additions to run rate expenses, of which the full impact should be seen in the third and fourth quarter of this year.

Speaker 4: So in summary, while we recognize there are clearly headwinds and there's continued economic uncertainty,

Speaker 4: we continue to remain focused on prudently executing on our initiatives.

Speaker 4: continuing to selectively rebuild to our team and add where we can and gaining additional market share.

Speaker 4: We're excited to see the progress our two new executives and other recent hires will make as they begin to contribute this quarter as well.

Speaker 4: So in conclusion, our commitment to becoming the bank of choice in the markets we serve remains our primary goal.

Speaker 4: So with that I'll stop and Carlos and I will look to answer any questions you have. So Michelle if you would please open the line for Q&A.

Speaker 2: Thank you. As a reminder, to ask a question at this time, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile our Q&A roster.

Speaker 2: And our first question comes from the line of Michael Rose with Raymond James. Your line is open. Please go ahead.

Speaker 4: Hey, good morning, guys. Thanks for taking my questions. Jerry, I appreciate the color there at the end, deposit growth and margin. Maybe we could just start on loan growth, which is another kind of good story this quarter. I think you mentioned that deposit growth should likely exceed.

Speaker 4: you know, loan growth, but I think previously it talked about 10%. Obviously, there's been a little bit of a change in the market year in different markets that are, you know, probably going to hold up a lot better, but, you know, end user demand likely slows. So just wondering to get a sense of if 10% is still kind of in the ballpark, and if not, what are the puts and takes? Thanks.

Speaker 4: 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 the deposit side, and so the emphasis on the team is to get as much share of wallet.

Speaker 4: given the way we've added sales personnel really focused in each of those areas. So I do think, you know, at the end of the day, if you were to look at us sort of, you know, back from what we said at the year end, I think we're still on track in that relative range.

Speaker 4: Okay, that's helpful. And then maybe just wanted to shift back to expenses and I appreciate kind of all the color and kind of the puts and takes, but just given the hires, the incentive comp, I would expect some of that higher consulting costs to come out of the run rate, but you probably hired.

Speaker 4: for Amorit Mortgage kind of throughout the quarter. So just trying to get a sense for if the adjusted non-interest expense basis is a good place to start as we think about the second quarter and the rest of the year. Thanks.

Speaker 4: Yeah, let me give sort of an overview for the rest of the year and I'm sure Carlos will want to chime in too. I believe it's our responsibility.

Speaker 4: 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 side. And so rather than get into the specifics, because the focus obviously, as you can imagine, has been a lot around liquidity.

Speaker 4: 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 you'll 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.

Speaker 4: So, you know, I think 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 you'll see that stuff start to fall off in 3Q and 4Q. Carlos, if you would, just…

Speaker 5: Yeah, so speaking about the run rate and definitely this quarter around the core was 61 million and we expected the core expenses to be closer to the 60 million approximately, but you should expect on the cap adorable- You folks applies some savings in there and we expect that.

Speaker 4: Extraordinary items to to boost this to around 62 million that that is the expectation for the upcoming quarter So 60 core and 62 and yeah So the consulting and others related to conversion will continue this this coming correct for this quarter that we're now in correct Okay, so drop into the second quarter, but is there additional kind of

Speaker 4: efficiencies as we move into the back half? Like you mentioned, as you get through the FIS conversion that that $60 million would actually go lower or are you going to continue to add the headcount and things like that to drive that a little bit higher?

Speaker 4: Yeah, you know, 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 gatherers. What 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 that I.

Speaker 4: to be using going forward and we'll obviously update you guys if not mid certainly close to quarter end or even at quarter into Q of all the things we're going to do on the expense side. Great maybe just one final one for me. I know we're talking about only a handful of credits but

Speaker 4: It's seemingly like every quarter there's kind of a larger charge offer too that kind of spikes ratios and things like that. I know from very low levels and the MPA ratios at very low levels, but it does seem to happen kind of every quarter. I think that's one of the pushbacks that I get from investors. How can you help us understand that credit isn't going to be...

Speaker 4: you know, certainly for these last several quarters we've had something of size occur. Obviously, this quarter we got a surprise close, literally close to the within five working days of the end of the quarter on the transportation credit. And, you know, without I can't get into a ton of detail right now on this, but I mean this was a real

Speaker 4: was, you know, I think there were probably some opportunities to on this one that will certainly not see a repeat of that. I think this was a very unique case in that regard. You know though Michael, I do want to say, you know, as people think about provision expense and we've talked about this a lot, you know, you're going to have a couple things I think with us.

Speaker 4: to take into account. One, you're going to have loan growth every quarter, right? So if we're going to say that we're growing two to three hundred, you know, you're going to pencil in that there's got to be a couple million in provision in there. I think given the economic environment, the uncertainty, you could have factor changes like we did this quarter that will also drive that.

Speaker 4: You know, 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 you know, that's been consistently sort of this last quarter and now this quarter sort of in that five.

Speaker 4: five-ish to almost six million, I think this order range. And so if you're looking at a baseline, you could easily say for us that, you know, I think for 2Q you can, you know, forecast at least a 10 million dollar provision, which is not inconsistent with what we've been thinking about internally, you know, just so everyone's aware of that. I think, you know, we always have the uncertainty because we still have some remaining

Speaker 4: and you know how the credits can withstand you know the the relationships can withstand higher rates we're very proactively working with those customers and I think you know that that's probably the one other area that while we have roughly I want to say about 300 million left in that portfolio that we need just to be very cautious about that.

Speaker 4: I think that fits the definition.

Speaker 6: I appreciate all the color and Carlos, congratulations. Thanks. Thank you.

Speaker 2: Thank you and one moment for our next question.

Speaker 2: And our next question comes from the line of Steven Scouten with Piper Sandley. Your line is open. Please go ahead.

Speaker 7: Hey good morning everyone.

Speaker 4: I guess maybe if we could start on the foreign deposits, I don't know if I missed this, but can you give a feel for what you're seeing in terms of the betas on those deposits and you know with this push and focus on those deposits if you think you can grow absolute balances there? Yeah in terms of the betas for for this deposit it continues to be very well contained.

Speaker 5: Just to give you a perspective, for the full cycle it was 0.09, the beta of the international deposits.

Speaker 5: Just in Q1 we just have a couple of re-pricings of the time deposit portfolio which obviously surged in light of being locked for more than a year with previous interest rates and that created the surge to the 0.53 cost of funds in the international side.

Speaker 5: but it continues to be very very benign. As Jerry mentioned, that team is being retooled with additional business development team and with a new set of goals and and to growth going forward. As a matter of fact,

Speaker 5: There have been several wins during the current quarter that have helped us to keep going in that portfolio and to keep dropping the cost of funds.

Speaker 5: has been several wins during the current quarter that have helped us to keep going in that portfolio and to keep dropping the cost of funds. Is that clear, Steven?

Speaker 4: Yeah, that's extremely helpful. Thank you. Yeah. Hey, Steven, just let me add a little bit of color. You know, just to clarify, this group that, you know, and I think really merits spending the time to make sure everyone understands.

Speaker 4: You know, we had zero travel, obviously COVID. We were probably more in what we'll call a maintenance mode of customer service mode with that existing portfolio, which has roughly been around $2.45 to $2.5 billion consistently over these. We have a call here in minutes if you want to catch any time.

Speaker 4: 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, you know, in retail and private bank, and then also in the commercial bank, having a singular leader, single focus.

Speaker 4: to drive 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 we've already and always have been a cross-border institution.

Speaker 7: Yeah, no, I think that's great. That's kind of why I asked. I think it's a major differentiator for you versus

Speaker 7: Really every other bank in your peer groups, that's great. Could you speak maybe just, I'm curious just around the overall competitive environment and kind of, I mean I definitely appreciate and I'm glad to hear you're 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 mean are people in your markets kind of backing away?

Speaker 7: I guess could you get all the growth you want today at the rates you would want if the deposit funding was there?

Speaker 4: I think that there are significant opportunities, you know, the talent that we've added to the company, the contact list that they have, the amount of time they're spending in the market, you know, yeah, the answer is there's definitely opportunities for us. And there's also...

Speaker 4: without saying anything other than there are others that are going into a pullback mode. And so there's always going to be opportunity for those that, you know, we're going to be prudent about it. We're not just going to add growth for growth sake. We're going to make sure that it meets all of our underwriting standards, that it's a full relationship.

Speaker 4: You know, if you want financing from us, you're going to bank with us. And so I do think there's 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 you know, this is before putting

Speaker 4: two extremely talented individuals to now drive Houston and now drive the corporate bank. I feel very, very comfortable in saying that there's 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.

Speaker 4: for deposits first, you know, and I do want to just reiterate, you know, I've, I've, I said on our first earnings call two years ago that, you know, a 95% loan to deposit ratio was always going to be sort of the optimal and we have strived to continue to just stay right in between sort of, I'll call it the 95 to 99%, maybe it was our max, maybe 98 and change.

Speaker 4: So landing in around 97 or so, would I like to lower that a little bit more? Sure. But I want to try and also make sure everyone understands that 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, stopping doing the things that have been indirect.

Speaker 4: you know, this is all about us and what we can produce. And I think the value creation a bank should be able to give to its shareholders is to organically generate, you know, that value for them. And so that's what we're very, very focused on.

Speaker 7: Yeah, absolutely. Okay, and maybe just one last one for me. Obviously appreciating the funding pressure that every bank is experiencing. I'm just trying to reconcile the interest rate sensitivity like kind of as modeled, which shows you know, plus 3% in a 50 basis point up scenario. Okay.

Speaker 7: versus, you know, seeing the NIM go down this quarter and 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? Yeah, sure. Bear in mind that all this interest rate sensitivity analysis are done over the course of a year.

Speaker 5: They are not done instantaneous, so it's an instantaneous shock, but the horizon, it's a year, so that's why it shows an upward movement of 3.1%. So that implies the structure, the repricing structure that we have in the balance sheet, where you have that to happen over the course of a year, evidently.

Speaker 5: with the interest rate shocks that we're having right now and measuring quarter over quarter, the outcome wouldn't be necessarily a 3.1% increase, that would be over the course of a year.

Speaker 7: Got it. Yeah, that makes sense. So kind of a catch-up in some respects. You probably outperformed some of these numbers in the past and now it's catching up to some degree. That is correct. Yep, that makes sense. Okay, great. Well, thanks for all the color guys. I appreciate it.

Speaker 7: So kind of a catch up in some respects. You probably outperformed some of these numbers in the past and now it's catching up to some degree. That is correct. Yep, that makes sense. Okay, great. Well, thanks for all the color guys. I appreciate it. Thanks Stephen.

Speaker 2: Thank you and one moment for our next question. Our next question comes from the line of Freddie Strickland with Danny. Your line is open. Please go ahead. Hey, good morning. What's great is.

Speaker 8: Great to see the growth in core non-interest income this quarter. You know, what's a good run rate there and should we continue to see that growing with, you know, wealth? I know we've got the mortgage piece and everything else, but does that...

Speaker 4: have an upward trajectory from here? Yeah, hey, Fadi, it's Jerry. 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 really...

Speaker 4: 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's...

Speaker 4: nice upside for us in the, certainly in the wealth management side. In addition, we've just added some additional talent, you know, that literally started Monday. We also had another key advisor start, you know, at the beginning of the year. We're starting to really build momentum and I believe...

Speaker 4: You know, we could switch talk a little bit too about the mortgage banking side is definitely to grow this non-interest income line. And I think that there's clearly some opportunity, wealth, domestic, wealth international, from the activity that we're doing and from the select, you know, highly talented additions we've made to the team..

Speaker 4: I think the other part, we didn't really get into it much other than making a few references. The strength of the pipeline in mortgage banking with that production as conforming, saleable, we're generating a lot of volume that is coming from, we'll call it a two-prong approach.

Speaker 4: 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're generating a lot more volume from the folks that they've picked up. You know, particularly, you know, we talked about this as a Midwest hub. You know, they're generating a lot of...

Speaker 4: informing loans for sale in the secondary market. And so I think you'll see a significant shift here as we move forward. Contrary to anyone's opinion, there are still the need for mortgages. People are still buying homes and you know, yes, is it anywhere near the levels that it's been in the last several years? Of course not.

Speaker 4: But here's an opportunity right now for us to really be pushing and adding production in areas where the loans are saleable is critically important to understand.

Speaker 4: 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, you know, 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.

Speaker 5: I believe it's the slide number 7. We added a very good disclosure on the rate logs.

Speaker 5: of the pipeline of AMRA mortgage. You see how that amount has continued to increase. Now we have, or as of the end of Q1, more than a hundred million in rate logs. So all that production is to be sold to agencies.

Speaker 5: And that's a great accomplishment. Getting these teams to work on the qualified mortgage space and getting into the secondary market has been a great addition and we expect that to continue to be a credit to other income. Got it. Now that's really helpful. And just one quick follow-up on that. I know the mortgage is more of a big deal.

Speaker 4: Hey, absolutely. I think the private banking team here in South Florida. We've we've added

Speaker 4: producer in private banking in Tampa and frankly looking for more and we think there's just tremendous opportunities now with Caroline in place is our new market president to add not only strong producers potentially even teams of people there. For private banking purposes, I think we think it's really critical to be able to give that.

Speaker 5: positive by having those capabilities around. I guess a very good way to look into our mortgage platform is the fact that our national footprint helps us to keep the per unit cost.

Speaker 5: of mortgage origination at a lower level as we continue to expand. And that will help us to originate lower cost mortgages to our customers within the bank. So you don't have a specific unit just to originate loans for private banking, but.

Speaker 5: the leverage on a platform that originates nationwide to have a lower per cost unit production. Got it. That's helpful. Thanks for taking my question. Sure. Absolutely. Thanks, food.

Speaker 8: Thank you and one moment for our next question. Our next question comes in the line of Matt Olney with Stevens. Your line is open. Please go ahead. Hey, thanks. Good morning. Just want to follow up on Freddie's question around fees, more of a forecasting question. That is our online account and our website,ards. web

Speaker 7: 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 got some momentum in mortgage and wealth. Any numbers you can put behind that?

Speaker 5: Yes, we are projecting other income on the 16th for this upcoming quarter. There is more, there actually is a possibility that that would get even better with the new additions that we're getting into the mortgage business and getting more into the other income. So yeah, you can definitely.

Speaker 5: see that being under $16 million other income potentially even in the 17 range, 16 to 17 range. Yeah, Matt, I would say I think you could see that just ratcheting up each quarter. Yep, okay. And then mortgage and wealth being the primary drivers, I would assume.

Speaker 4: Yeah, I would tell you that our view on, you know, what I'll call the traditional fee sources for banks, we've actually gone through and...

Speaker 4: Yeah, we probably never covered it enough in the past, but you know, we've been very customer friendly you know in terms of you know, what we've done with overdrafts and you know with our our cover me program, you know, and not not having any of the nuisance ones that are like $100 or less and

Speaker 4: We've reduced those charges. So, you know, we're not relying for the income off of sort of the I'll call it the nuisance deposit charges as much as we're relying on our build here.

Speaker 4: As you just said, more around wealth and mortgage banking. And derivatives for customers. Of course, derivatives are a critical part.

Speaker 4: more around wealth and mortgage banking. And derivatives for customers. Yeah, and of course, yeah, apologies, derivatives are a critical part. Thank you.

Speaker 4: And then, I guess switching over to the margin, just kind of following up there, I think I heard you mention that the margin could be down up to 10 bits in the second quarter. Did I hear that correctly? And if so, what kind of deposit beta does that assume? Yeah, hey Matt, we'll both jump on that one. Let me just say yes, the projection is that it could be down 10. What Carlos and I have looked at is where the majority of the

Speaker 4: time deposits that will reprice and we think the biggest piece is coming this 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 if it relates to the betas, Carlos, do you want to? Sure. So no, complementing what Jerry was mentioning, out of the time deposit portfolio for customers, we're already

Speaker 5: are at a blended rate of 1.6% that they will come and reprice at a higher rate. That's factoring into the minus 10 basic 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 and the case that already most of the...

Speaker 5: that we saw in the Q1. So Q1 was a very, I would say, specific 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 the 0.5 to 0.60 beta.

Speaker 4: Okay, that's helpful. Carlos, thank you for that. And then I guess, kind of related topic around on balance sheet liquidity or called overnight liquidity. I think 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. your thoughts on Kar alright.

Speaker 5: Is this going to be a permanent change for the bank or is this more temporary? We are carefully looking into liquidity all the time. We are definitely going to carry higher levels of liquidity. We believe it is prudent in terms of this environment.

Speaker 5: Obviously the $485 that we reported was significantly higher compared to the structural amounts that we carry. We are typically between the $200 to $300 million cash in hand so we progressively should be going that but we believe we have a very liquidity management infrastructure in place to monitor that.

Speaker 4: Yeah, and I think, Mads, if you want to use the target, it makes sense to think we took what we think were the prudent actions, pulled 200 million immediately when, you know, the morning that all that volatility started and kept that throughout the end of the quarter.

Speaker 4: you know, the 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, you know, if we...

Speaker 4: was moved back a little ways. Not too terribly long, but I heard you mention this was for just a better customer experience. Any other details you can provide as far as why the timeline is being pushed out a little bit?

Speaker 4: Yeah, to be very specific, you know, we obviously customized a lot of things for both our domestic and international customers. And we want to make sure that the experience is as comparable as possible. And so rather than push to get this done May 8th,

Speaker 4: 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 that's probably the best way to summarize it. Right. Okay. Okay, guys. Thanks for your help. Thank you. Thanks, Matt.

Speaker 2: Thank you, and one moment for our next question. Our next question comes from the line of Will Jones with KBW. Your line is open. Please go ahead.

Speaker 9: Hey, great. Good morning, guys. Thanks for the questions. Hey, Will. Hey. Hey, so I just wanted to continue to follow up on 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 of easing of deposit cost pressures on the time deposit side. Do you feel like the margin could stabilize and –

Speaker 4: favorable costs for us. We also with the with the new team members we've been adding you know including additions even into our Treasury management area we're going to push even more and more you know for core DDA as well I mean that's an area we know we have to significantly improve in.

Speaker 4: And so I just think with the capabilities that we'll have, you know, post this FIS conversion in TM, coupled with the personnel we've added, there's an upside opportunity there. You know, we'll continuously update you guys, Will, as we're making progress on those.

Speaker 4: 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'll 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.

Speaker 9: Gotcha, very helpful. I know I'm asking you to look into your crystal ball a little bit there, but I guess switching over to one of the last things I haven't talked about is really the buyback. I know you guys kind of prudently and understandably paused that during the quarter, and I know today you guys are really more of a growth-focused bank and buyback is really coming second. With the math, looking pretty attractive.

Speaker 4: at the holding company, you know, we're well in excess. I mean, I would expect it, you know, we'd love to at least be at 2 to 3x any operating expenses and debt service coverage at all times. So obviously that gives us some capacity if we elect to...

Speaker 4: be very selective in reinstituting some buybacks, I think we have the capacity. But at this point, we do think it's really prudent just to stay the course, evaluate how things go forward. And you have to have some sense of balance on here because obviously I do agree that the stock is as.

Speaker 4: 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 is prudent if we are to go and do something at this point. Right. Understood. Thanks, guys. And Carlos again. Congrats on the promotion.

Speaker 8: continued support. So have a great day and thanks again. This concludes today's conference call. Thank you for participating. You may now disconnect.

Speaker 1: I.

C.

Good day and thank you for standing by. Welcome to the Amrit Bank Court 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 this session, you will need to press star 11 on your telephone. You will then hear an automated message advising you that your hand is raised. To withdraw your question, please press star 11 again.

Please be 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 Amaran Bank Corp's first quarter 2023 results. On today's call are Jerry Plosh, our Chairman and Chief Executive Officer.

and Carlos Yafiliola, our Senior Executive Vice President and Chief Financial Officer. 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, as well as for information on reconciliation and non-financial gaps, financial measures to GAAP measures . I will now turn it over to our Chairman and CEO , Jerry Plush. Thank you, Laura. Good morning, everyone, and thank you for joining Amrit's first quarter.

and how well we believe Ameren is positioned for the rest of 2023 and beyond, given the actions we have been taking not just this quarter, but over the past two years. But before we do that, I am delighted to announce the promotion of Carlos Iacoguiola to Chief Operating Officer. This well-deserved promotion.

which is effective immediately, is clearly the result of the significant contributions Carlos has made to Amrit 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 Carlos 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 Carlos much success here for years to come as he takes on his new responsibilities.

Also, we recently announced a new member to our Board of Directors. Ashaki Rucker, who joined us this week, is a consummate professional with extensive human capital management experience, and she truly complements 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 manage.

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 will cover new charts and information we've included.

such as showing the impacts of valuation of our AFS portfolio, as well as the unrealized losses from our health and maturity portfolio, and what that does in impacting our tangible common equity ratio. While he will also go into greater detail about the following items that impacted the quarter, I wanted to summarize these points up front.

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 reflected updated economic factors, with a balance 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 have been fair valued and they're now held in other repossessed assets. Non-interest 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 and amorite mortgage.

which resulted in higher than expected routine non-interest 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 in 4Q22. This decrease was primarily driven by lower non-interest income and higher non-interest expenses during the period, partially offset by the lower prediction.

for credit losses in the fourth quarter, compared to the fourth quarter. As a reminder, we adopted CECL in 4Q22, which drove the higher 4Q provision. The higher non-interest expenses include a number of one-time 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 and balances on deposits and FHLB advances with higher average yields and balances on earning assets.

As a result, the net interest margin was a strong 3.9%, just slightly below the 3.96 that we reported last quarter. Our balance sheet grew during the first quarter, with total asset reaching $9.5 billion compared to $9.1 billion as of the close of fourth quarter. It's important to highlight that this growth includes $200 million in increased 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 $7.12 billion compared to $6.92 billion last quarter, an increase of nearly $200 million, and total deposits were $7.29 billion, up $242.5 million compared to the $7.04 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 31st, 2023. More now than ever, preservation and growth and tangible book value is a top priority and we achieve that this quarter. Also of important is 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 tangible book value, these have been and continue to be reflected in the number. And TBV remains a strong 7.44% as of March 31st. During the quarter, we also paid out the previously announced cash quarterly dividend of $0.09 per share on February 28th of 2023.

So we'll turn now to slide four, where you can see the core PP&R was a solid 37.1 million compared to the 37.8 million reported in the previous quarter. Also outlined on this slide are all the non-recurring items recorded in the quarter, as previously mentioned. Included in the non-recurring expenses were costs related to severance, a branch closure that we'll cover in a minute, and conversion-related one-time expenses. So we'll 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 Amrit Mortgage to our business development team here at the bank and to our digital transformation team. As also I previously mentioned, we recruited two executives for existing open positions. So we have a new head of commercial banking and a new Houston market president.

Amrit mortgage grew its national footprint with the addition of a 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 focused 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 operations 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 look and feel initiative that we have at all of our facilities and our expectations will be completed with that no later than the end of this year. We also announced the closing of our relocation at FM 1960 Road in Houston, Texas in 2Q.

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 client banking, SBA lending, and we also have in-market support personnel from credit portfolio management and other client support positions. We intend to add even more resources to our team in the future to capitalize on the market.

in the first quarter under our 25 million share repurchase program.

We elected to prudently pause on additional repurchases given recent industry events impacting liquidity in the sector.

Of note, the FIF conversion date moved from mid-May to mid-July 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've outlined key performance metrics and their changes compared to the last quarter. As I mentioned earlier, our net interest margin was 3.9 percent the first quarter. Our efficiency ratio was 63.7 percent compared to 58.4 percent last quarter.

but the core efficiency for the first quarter was 62.47%. 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 showed the three core metrics of ROA, ROE, and operating efficiency, excluding anything that's non-routine in the footnotes.

so you can more easily understand the underlying performance in each quarter. We'll turn now to cover Amrit Mortgage, which is on slide 7. On a standalone basis, Amrit Mortgage had a negative net PP&R of $1 million in 1Q compared to a negative net PP&R $1.5 million in 4Q. The improvement resulted from higher revenues driven by the additions in the business development team.

Our efficiency ratio, excluding activities from Amorit Mortgage, improves from 63.7% to 61.5%. During the quarter, the company purchased approximately $87.4 million in loans through Amorit Mortgage, and as noted on the slide, these are all related to bank customers. The current pipeline shows a growth up to $117.2 million in process, or $281 million in total.

applications as of April 11th with 111 of those being rate locked. We believe the team members we have added will drive increased production of conforming saleable loans into the secondary market which will positively impact the bottom line in 2Q and future results.

So with all that said, I'll now turn things over to Carlos who walked through our results for the quarter in more detail. Carlos? Thank you Jerry and good morning everyone. Turning to slide 8, I'll begin by discussing our investment portfolio.

Our first quarter investment securities balance was 1.3 billion comparable to the previous quarter. When compared to 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 3.82%.

As I did last quarter, I would like to take a minute to discuss the impact of interest rate increases on the valuation of debt securities available for sale. As of 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 come as a direct result of decreases in the median and long-term interest rates and MBS spreads compressing during the quarter.

78% of our AFS portfolio has government guaranteed, while most of them remain securities at rated investment rates. Our corporate debt portfolio includes approximately $128 million in subordinated debt securities issued by financial institutions. Automateriality securities represent 18% of total investment portfolio.

The current 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 origination efforts, primarily in specialty finance and single-family residential mortgages. Partially offsetting this increase were prepayments of approximately $97 million in commercial loans.

Commercial loans include 557 million specialty finance loans compared to 420 million in fourth quarter 2022.

Equipment financing under a wide label solution, which are part of our specialty finance lending, total 47 million in the first quarter of 2023. Single family residential portfolio were 1.24 billion, an increase of 83 million compared to the 1.16 billion we had in the fourth quarter of 2022. This amount includes 87 million in loans originated and purchased through Amran Mortgage during the quarter, as Jerry 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 4.6% 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 yields.

We're not buying any new production and this portfolio is set to run off over time. Loans held for sale, which were all in connection with Ameren Mortgage and 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 over the past several levels. In the past couple of years we have introduced fastverted looks, which means fairly strong and sharp photoPen has been really interesting over the last several year. Our.. In temporary corners please create

losses at the end of the first quarter was 84.4 million, an increase of 1% from the 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 charges and credit quality. $2.2 million to account for long growth in the quarter and $2 million to reflect updated economic factors. It is important to mention.

that the four quarter 2022 provision for credit losses now reflects the disaggregated impact of seasonal implementation for that specific period. Net charge-offs totaled $10.8 million in the first quarter of 2023 compared to $9.8 in the fourth quarter of 2022. Charge-offs during the first quarter were primarily due to

$6.6 million related to the criminal financing relationship that Jerry referenced before. $6.3 million in connection with indirect loans purchase becoming 90 days past due, and $1.5 million in several business banking loans.

This was offset by 3.5 million in recoveries, primarily 2.7 from the coffee trader relationship charged off last year. Non-performing 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.

This includes an increase in repossessed assets related to the transportation relationship we just mentioned. The ratio of non-performing assets to total assets was 51 basis points of 10 basis points from the 4th quarter of 2022.

Our non-performing loans to total loans are down to 0.31% compared to 0.54% last quarter. This is primarily due to the transfer of a property to REU for $20 million related to a CRE New York loan already disclosed last quarter. In the first quarter of 2023, the coverage ratio for loan loss reserve to non-performing loans closed at 3.8 times.

up from the 2.2 times at the end of the last quarter and from 1.6 times at the close of the first quarter 2022. We're bringing on the slide 11 from the supplemental section discussion of our CRA portfolio to provide further details.

We have a conservative weighted average loan to value of 60% and debt service coverage of 1.5 times, as well as a strong sponsorship tier profile based on AUM, net worth and years of experience for each sponsor.

As of the end of the first quarter of 2023, we have 32% of our CRE portfolio in top tier borrowers. We have no significant tenant concentration in our CRE retail loan portfolio as the top 15 tenants represent 22% of the total.

Major tenants include recognized national and regional grocery stores, pharmacies, food and clothing, and more. Our underwriting methodology for CRE includes sensitivity analysis for a variety of key risk factors like interest rates, under impact of the service coverage ratio, vacancy, and tenant retention.

Please note that 41% of our CRE portfolio has been hedged via interest rate caps or swaps, which in turn protects our borrowers from raising interest rate environments. On the slide number 12, we discussed our deposit diversification and stability. In the first quarter, we ended at 7.3 billion, up 243 million from the previous quarter.

You 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 time deposits which total 1.9 billion up 200 million or 12% compared to the previous quarter and broker deposits which total 738 million up 108 million or 17% compared to the previous quarter.

Domestic deposits now account for 67% of our total deposits, totaling $4.9 billion as of the end of the first quarter, up 271 million or 6% compared to the previous quarter. During deposits, which account for 33% of the total deposits.

are primarily international deposits, $2.4 billion dollars and down 28 million or 1.2% compared to the previous quarter.

To provide more granularity on our accounts, domestic deposits included 42,000 customers with an average account size of $116,000, while international deposits included 58,000 customers with an average account size of $41,000 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 0.8% compared to the previous quarter.

The 5.4 billion in 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 229 versus the previous quarter, and 1.4 billion in non-interest-bearing demand deposits of around 100,000 webpageares!

our depository base. We estimated that 69% of our deposits are FDIC insurers 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 ranging from 004 million to 0 on intro login system, anduds of $( heck fear,

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, our large fund providers, which we consider to be those with balances above $20 million, represented 15% of the total funding for Amrit. Moving to slide 14, in light of the recent changes in liquidity conditions in the financial system.

We consider it 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 fund providers, daily analysis of lending pipeline and deposit gathering opportunities are varying patterns.

equivalent to 11% of assets pledged with an additional 1.7 billion availability from this source.

No funds were needed from 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, as of the end of Q1, we held over $485 million in cash and equivalents. Also, we have diligently worked with our large depositors to enroll them into ICS in the

to ensure that all of their holdings are 100% insured by the FDIC. We increased volumes under this product by $282 million and 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 of 2023, our capital ratio is $2.5 million.

total capital ratio ended at 12.36% and our CET1 was 10.10%. Our tangible common equity, which includes $74.3 million in AOCI resulting from the after-tax change in the valuation of our AFS investment portfolio, ended at 7.44%. We would like to enhance our disclosures providing an adjusted tangible capital ratio.

with our ability to hold and wait for the reversal of dis- 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 debt services.

as of the end of Q1. The dividend we just declared will only use 3.1 millions 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 2023 was 82.3 million, almost unchanged compared to the previous quarter. Our asset sensitivity position enabled us to offset via reprising the incremental cost of deposits we recorded during Q1. This is also contributing to the offset where higher average balances in the loan portfolio.

As rates continue to increase during this quarter, we experience higher betas via the combined effect of the rate increase in money market deposits as well as repricing of the time deposit portfolio that were lacked and had not reprised at current market rates. As you can see in the graph, we observe a beta of approximately 32 basis points on the cumulative basis from the beginning of the interest rate up cycle. But over a hundred basis points during the current quarter.

I would like to bring to your attention that two thirds of our time deposit portfolio have already reprised at current market rates and only a portion is left to reprice limiting the impact of our interest expenses in the upcoming quarters. We are now moving into the net interest margin as Jerry mentioned.

Mean for the first quarter was 3.9%, down six basis points quarter over quarter. As I said in the fourth quarter, our ability to offset funding costs and contain further decreases in mean is a reflection of our asset sensitive position. Moving to slide 17, moving to slide 19,

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 taken a prudent risk approach to best position our portfolio for a change in the interest rate cycle by incorporating interest rate floors when originating adjustable loans. We currently have over 80% of our adjustable loan.

the organic improvement in the AOCI 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 non-interest income on slide 18.

The non-interest income ended at $19 million, down $5 million or 21% from the 24% we reported during the last quarter of 2022. The 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 in derivatives with customers, re-evaluation and volume.

The decrease was partially offset by higher net gains on early extinguishment of FHOB advances, higher mortgage banking income driven by higher gains on the sales of loans, higher deposits and service fees, and higher brokerage fees resulting from the fixed income trading volumes to improve during the quarter. Ameren assets under management totaled $2.1 billion as of the end of the first quarter 200,000 dollars passed, her

of 2023, up 112 million or 6% from the end of the fourth quarter, driven by 50 million in net new assets, and as we continue to see improved market valuations in some asset classes, additionally 55 million due to this concept. Moving to slide 19, the first quarter non-interest expenses were 64.7, up 2.5 million or 4% from the fourth quarter. We consider 3.4 million as a non-routine item resulting primarily from the upcoming conversion to FIS in July , in addition to the closure of a 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, personal and American mortgage, and other lines of businesses.

higher consulting and other professional fees in connection with FIS 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. The increase in non-interest 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 the 58.4% in the previous quarter, but down from the 87.3% in the same quarter of last year. Core efficiency ratio increased to 62.5% in the first quarter of 2023 compared to 61.3 in the fourth quarter of 2022. 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. So while we anticipate continued loan growth in 2Q, we will not have loan growth exceed the deposit 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 deposit's first focus is job one at Ameren. So a range of $200 to $300 million in growth for the second quarter is a likely outcome. And just a reminder 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 costs 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 complimenting the existing international staff, we should see stronger production here in the second quarter. We do expect a more positive contribution from Amorit Mortgage evidenced by the pipeline growth we are seeing from additions to the team. Again, this growth is in conforming loans, which should result in opportunities for gains on sale. And regarding non-interest expense, as I previously referenced.

giving more favorable pricing. With recent hires complementing the existing international staff, we should see stronger production here in the second quarter. We do expect a more positive contribution from Amrit Mortgage evidenced by the pipeline growth we are seeing from additions to the team. Again, this growth is in conforming loans which should result in opportunities for gains on sale. And regarding non-interest expense, as I previously referenced, we intend to find 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 initiatives, continuing to selectively rebuild 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 as 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 and I will look to answer any questions you have. So 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 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by 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 on deposit growth and margin. Maybe we could just start on loan growth, which is another kind of good story this quarter. I think you mentioned that deposit growth should likely exceed loan growth, but I think previously you talked about 10%. Obviously, there's been a little bit of a change in the market. You're in different markets that are probably going to hold up a lot better, but end-user demand likely slows. I'm just wondering 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 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 Interfi 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 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 shift back to expenses, and I appreciate kind of all the color and kind of the puts and takes, but just given the hires, the incentive comp, I would expect some of that higher consulting costs to come out of the run rate, but you probably hired for Amorit Mortgage kind of throughout the quarter. So, just trying to get a sense for if the adjusted.

non-interest expense basis is a good place to start as we think about the second quarter and the rest of the year. Thanks.

Yeah, let me give sort of an overview for the rest of the year and I'm sure Carlos will want to chime in too. 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 side.

And so rather than get into the specifics, because the focus obviously, as you can imagine, has been a lot around liquidity, 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 you'll 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, you know, I think 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 you'll see that stuff start to fall off in 3Q and 4Q. Carlos, if you would just...

Yeah, so speaking about the run rate and definitely this quarter around the core was 61 million and we expected the core expenses to be closer to the 60 million approximately, but you should expect on the extraordinary items to boost this to around 62 million. That is the expectation for the upcoming quarter, so 64 and 62. Yeah, so the consulting and others.

we're going to continue to be opportunistic where we see opportunities to add revenue producers, deposit gatherers. What we're not going to do is continue a big infrastructure build. I think you know we've got some things that are going to wrap up here that I think you'll start to see a smoother course on.

We're done with a lot 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 60 is probably a good baseline to be using going forward and we'll obviously update you guys if not mid certainly close to quarter end or even at quarter into Q of all the things we're going to do on the expense side.

Great. Maybe just one final one for me. I know we're talking about only a handful of credits, but it's seemingly like every quarter there's kind of a larger charge up or two that kind of spikes ratios and things like that. I know from very low levels and the MPA ratios at very low levels, but it does seem to happen kind of every quarter. I think that's one of the pushbacks that I get from investors. How can you help us understand that credit isn't going to be an issue, that maybe these are legacy credits? Just give us some comfort.

These truly are kind of just a handful of credits and idiosyncratic in nature and not anything systemic. Thanks. Yeah, no, and by the way, I can completely understand that because you know certainly for these last several quarters we've had something of size occur. Obviously, this quarter we got a surprise close, literally close to the within five working days of the end of the quarter on the transportation credit and you know 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 you know it's a particular situation where they grew too fast and I think got caught in the squeeze of the costs of running that business. You know I think that the biggest challenge for us was you know I think there were were probably some opportunities to on this one that will will certainly not see a repeat of that. I think this was a very unique case in that regard. You know though Michael I do want to say you know as people think about provision

as Carville 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 six million, I think this order range. And so if you're looking at a baseline you could easily say for us that you know, I think for 2Q you can you know forecast at least a 10 million dollar provision, which is not inconsistent with what we've been thinking about internally. You know, just so everyone's aware of that.

I think, you know, we always have the uncertainty because we still have some remaining exposure in New York and commercial real estate. While we are very, very closely monitoring, spending a ton of time, you know, when you think about know your customer, on-site visits, you know, consistent conversations with each of these customers, Guinea, need to know much more because they have to. But the things that are getting audited quite quickly are a part of the human fear because certainly the watertight people in New York or the environment, the struggles that people have and not only the people who have to be ED, I think it's a practical thing to just okay, politics step by step Girl function and

carefully looking through, you know, who's repriced up and, you know, how the credits can withstand, you know, the relationships can withstand higher rates. We're very proactively working with those customers, and I think, you know, that that's probably the one other area that while we have roughly, I want to say about 300 million left in that portfolio, that we need just to be very cautious about that.

But you know again back to your original question, this was a customer where we knew well, you know that the bigger charge took this quarter and I just think that it's something that, it's very unfortunate and you know I do think that it's, I think you used the word idiosyncratic, idiosyncratic, I think that fits the 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 Steven Scouten with Piper Sandley. Your line is open. Please go ahead. Hey, good morning, everyone. I guess maybe if we could start on the foreign deposits, I don't know if I missed this, but can you give a feel for what you're seeing in terms of the betas on those deposits and with this push and focus on those deposits, if you think you can grow absolute balances there.

Yeah, in terms of the betas for this deposit it continues to be very well contained. Just to give you a perspective for the full cycle it was 0.09 the beta of the international deposits. Just in Q1 we just have a couple of reprisings of the time deposit portfolio which obviously

in light of being locked for more than a year with previous interest rates. And that created the surge to the 0.53 cost of funds in the international side. But it continues to be very, very benign. As Jerry mentioned, that team is being retooled with additional business development team and with a new set of goals and to grow going forward. As a matter of fact, there has been several wins during the current quarter. And J arrays is specifically domestic data.

that have helped us to keep going in that portfolio and to keep dropping the cost of funds. Is that clear, Stephen? Yeah, that's extremely helpful. Thank you. Hey, Stephen, just let me add a little bit of color. You know, just to clarify, this group that, you know, and I think is really merit spending the time to make sure everyone understands. You know, we had zero travel, obviously, COVID. We had, we were probably more in what we'll call a maintenance mode of customer service mode with that existing

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 we've already and always have been a cross border institution. So I just think this is something where

there's 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 it's a major differentiator for you versus.

and really every other bank in your peer groups. That's great. Could you speak maybe just, I'm curious just around the overall competitive environment and kind of, I mean, I definitely appreciate it and I'm glad to hear you're saying deposits are gonna 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, you know, the talent that we've added to the company, the contact list that they have, the amount of time they're spending in the market, you know, yeah, the answer is there's definitely opportunities for us. And there's also, without saying anything other than, there are others that are going into a pullback mode. And so there's always going to be opportunity for those that, you know, we're going to be prudent about it. We're not just going to add to the

And so I do think there's 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 you know, 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 there's 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. And I do want to just reiterate, I said on our first earnings call two years ago that a 95% loan to deposit ratio was always going to be sort of the optimal and we have strived to continue to just

stay right in between sort of, I'll call it the 95 to 99 percent, maybe it was our max, maybe 98 and change. You know, so landing in around 97 or so, would I like to lower that a little bit more? Sure. But I want to try and also, you know, make sure everyone understands that 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, you know, stopping doing the things that have been indirect, you know, this is all about us and what we can produce. And I think the value creation a 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. Yeah, absolutely. Okay, and maybe just one last one for me. Obviously appreciating the funding pressure that every bank is experiencing. I'm just trying to reconcile the interest rate sensitivity, like kind of as modeled, which shows, you know, plus 3% in a 50 basis point up scenario versus, you know, seeing the NIM go down this quarter and then looking like it's gonna go down again next quarter. So can you help me kind of reconcile what's different in the modeling versus.

I guess reality. Yeah, sure. Bear in mind that all this interest rate sensitivity analysis are done over the course of a year. They are not done instantaneous. So it's an instantaneous shock, but the horizon it's a year. So that's why it shows an upward movement of 3.1%. So that implies the structure, the 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 3.1% increases. That would be over the course of a year. Got it. Yeah, that makes sense. So kind of a catch up in some respects. You probably outperformed some of these numbers in the past and now it's catching up to some degree. That is correct. Yep, that makes sense. Okay, great. Well, thanks for all the color guys. I appreciate it. Thanks, Stephen. Thank you. Thank you. And one moment for our next question.

Our next question comes from the line of Freddie Strickland with Tani. Your line is open. Please go ahead. Hey, good morning. It was great to see the growth in core non-interest income this quarter. What's a good run rate there and should we continue to see that growing with wealth? I know we've got the mortgage piece and everything else, but does that have an upward trajectory from here? Yeah. Hey, Freddie. It's Jerry. Absolutely. I think we're going to have to stay and I think we're going to have to continue to stay

So we really think that there's nice upside for us, certainly on the wealth management side. In addition, we've just added some additional talent that literally started Monday. We also had another key advisor start at the beginning of the year. We're starting to really build momentum.

you know, we could switch talk a little bit too about the mortgage banking side, is definitely to grow this non-interest income line. And I think that there's clearly some opportunity, wealth, domestic wealth international, from the activity that we're doing and from the select, you know, highly talented additions we've made to the team.

I think, you know, the other part, we didn't really get into it much other than making a few references. You know, the strength of the pipeline and mortgage banking with that production, you know, as conforming, saleable, you know, we're generating a lot of volume that is coming from...

you know, sort of, we'll call it like a two-prong 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're generating a lot more volume from the folks that Dave picked up.

Particularly, we talked about this as a Midwest hub. They're generating a lot of conforming loans for sale in the secondary market. And so I think you'll see a significant shift here as we move forward. Contrary 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 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, you know, 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 logs of the pipeline of farmer and mortgage.

You see how that amount has continued to increase. Now we have, or as of the end of Q1, more than 100 million in rate logs. So all that production is to be sold to agencies. And that's a great accomplishment. Getting these teams to work on the qualified mortgage space and getting into the secondary market has been a great addition, and we expect that to continue to be a credit to other income. Got it. Now that's really helpful. Just one quick follow up on that.

in Tampa and frankly looking for more and we think there's just tremendous opportunities now with Caroline in place is our new market president to add not only strong producers potentially even teams of people there. For private banking purposes I think we think it's really critical to be able to

And so all of that is definitely a positive by having those capabilities around. I guess a very good way to look into our mortgage platform is the fact that our national footprint help us to keep the per unit cost of mortgage origination at a lower level as we continue to...

to have a lower per cost unit production. Got it. That's helpful. Thanks for taking my question. Absolutely. Thanks, food. Thank you. And one moment for our next question.

Our next question comes from the line of Matt Olney with Stevens. Your line is open. Please go ahead. Hey, thanks. Good morning. Just want to follow up on Freddie's question around fees, more of a forecasting question. Any numbers you can help put behind the outlook there? I think you said the core fees in the first quarter were around $2.5 million.

$16 million, it sounds like you got some momentum in mortgage and wealth. Any numbers you can put behind that? Yes, we are projecting other income on the 16 for this upcoming quarter. There is more, there actually is a possibility that that would get even better with the new additions that we're getting into the mortgage business and getting more into the other income. So yeah, you can definitely see that being in the $16 million other income potentially even in the 17 range, 16 to 17 range. Yeah, Matt, I would say, I think you could see that just ratcheting up each quarter. Yep, okay, and then.

mortgage and wealth being the primary drivers, I would assume. Yeah, I would tell you that our view on well-called the traditional fee sources for banks, we've actually gone through and we probably never covered it enough in the past, but we've been very customer friendly in terms of what we've done with overdrafts and with our cover meet program and not having any of the nuisance ones that are like $100 or less and we've reduced those charges. So, you know, we're not relying for the income.

off of sort of the, I'll call it the nuisance deposit charges as much as we're relying on our build here, as you just said, more around wealth and mortgage banking. And derivatives for... Yeah, and of course, yeah. 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 mention 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 assume? Yeah, hey, Matt, we'll both jump on that one. Let me just say yes, the projection is that it could be down 10.

What Carlos and I have looked at is where the majority of the time deposits that will reprice, and we think the biggest piece is coming this 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 it relates to the betas. Carlos, do you want to? Sure. So no, complementing what Jerry was mentioning, out of the time deposit portfolio for customers, we already had power sources in the center, it was the samsthat was pirates flams.

significant amount of repricing. So when you look at the average cost, it's already reflective of the different or higher rate than it used to be before. And particularly we have Q2 and Q3 that will have a combine of maybe 350 million dollars that they are at a blended rate of 1.6 percent that they will come and reprise at a higher rate. That's factoring into the minus 10 basic 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 and the case that already most of the...

Okay, that's helpful, Carlos, thank you for that. And then I guess, kind of related topic around on balance sheet liquidity or called overnight liquidity, I think 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 carrying higher liquidity? Is this going to be a permanent change for the bank, or is this more temporary? Yeah, so we're carefully looking into liquidity all the time. We're definitely going to carry higher levels of liquidity, we believe is prudent in terms of this environment. Obviously, the 485 that we reported was significantly higher compared to the 485 that we reported.

the structural amounts that we carry, we are typically between the $200 to $300 million cash in hand. So we progressively should be going that, but we believe we have a very liquidity management infrastructure in place to monitor that. Yeah, and I think, Madge, if you want to use the target, it makes sense to think we took what we think were the prudent actions, pulled $200 million immediately when the morning that all that volatility started and kept that throughout the end of the quarter.

the 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.

I think that's probably the better target to use. And then you mentioned a few times in the call the FIS conversion was moved back a little ways, not too terribly long, but I heard you mention this was for just a better customer experience. Any other details you can provide as far as why the timeline is being pushed out a little bit?

Yeah, to be very specific, you know, we obviously customized a lot of things for both our domestic and international customers. And we want to make sure that the experience is as comparable as possible. And so rather than push to get this done May 8th, it just made sense to allow for the additional time to get as close to where we should be and then build out any other capabilities that we need thereafter.

So I just wanted to continue to follow up on 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 of easing of deposit cost pressures on the time deposit side. Do you feel like the margin could stabilize and kind of level out and flatline?

as we move into the third and fourth quarter of the year? Yeah, look, I think we're being very cautious about how we're forecasting that. We're not taking into account, you know, really a big ramp up on international, which we definitely believe comes at more favorable costs for us. We also, with the new team members we've been adding, you know, including additions even into our treasury management area, we're gonna push even more and more, you know, 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 we'll have, you know, post this FIS conversion and TM coupled with the personnel we've added there's a upside opportunity there. You know, we'll continuously update you guys, Will, on as we're 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'll 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. Gotcha, very helpful. I know I'm asking you to look into your crystal ball a little bit there, but I guess switching over to one of the last things I haven't talked about is really the buyback. I know you guys kind of prudently and understandably paused that during the quarter, and I know today you guys are really more of a growth-focused bank and buyback is really coming second, but with the math looking pretty attractive here with where the shares trade, has your philosophy or thought changed anymore on the buyback going forward? Yeah, look, I think one of the nice positions 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 at 2 to 3X 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 reinstituting some buybacks. I think we have the capacity. But at this point, we do think it's really prudent just to stay the course, evaluate how things go forward. 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 is prudent if we are to go and do something at this point. Understood. Thanks guys and Carlos again congrats on the air promotion there. Thank you. Thank you. Thank you. I would like to hand the conference back over to Jerry Plush 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. Thank you.