Amalgamated Financial Corp. Q1 2023 Earnings Call
Good morning, ladies and gentlemen, and welcome to the Algo made it financial Corporation first quarter 2023 earnings conference call.
During todays presentation, all parties will be in a listen only mode.
Following the presentation. The conference will be opened for questions with instructions to follow at that time.
As a reminder.
This conference call is being recorded.
I would now like to turn the conference over to Mr. Jason Darby Chief Financial Officer. Please go ahead, Sir Thank you operator, and good morning, everyone. We appreciate your participation in our first quarter 2020 earnings call.
With me today is <unk> Brown, President and Chief Executive Officer.
As a reminder, a telephonic replay of this call will be available on the investors section of our website for an extended period of time. Additionally.
Additionally, a slide deck to complement today's discussion is also available on the investors section of our website.
Before we begin let me remind everyone that this call may contain certain statements that constitute forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
We caution investors that actual results may differ from the expectations indicated or implied by any such forward looking information or statements invest.
Investors should refer to slide two of our earnings deck as well as our 2022 10-K filed on March 19, 2023 for a list of risk factors that could cause actual results to differ materially from those indicated or implied by such statements.
Additionally, during today's call, we will discuss certain non-GAAP measures, which we believe are useful in evaluating our performance.
Presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with U S. GAAP a reconciliation of these non-GAAP measures to the most comparable GAAP measure can be found in our earnings release as well as on our website let.
Let me now turn the call over to Priscilla.
Thank you Jason Good morning, everyone. We appreciate your time and your interest today.
Well certainly a lot has happened since our last earnings release and conversation the market turmoil that has been seen following the collapse of Silicon Valley Bank and signature bank in early March has been all consuming for markets. The last 30 to 45 days, we are engaging employees customers and investors.
To help them understand the financial stability of their bank of choice.
This time investment was actually and valuable as a means for reinforcing the already strong connection with each of our stakeholders I've been so impressed by our entire bank's ability to rise to this occasion.
I've mentioned before I truly believe we have the right team in place to manage through difficult situations and position us for continued success.
It made it back is unique in that it just under 8 billion of total asset we rate high among the 200 top publicly traded U S banks until the last that side. Yet are also able to have our executive management team engage directly with our customers.
And our partners to reaffirm trust and confidence.
Our customers were able to see executive management as an extension of their relationship banker and also witnessed the value they themselves directly bring to the bank, which only serve to strengthen the long standing ties we have with them.
We are quite fond of reminding our stakeholders that we aren't the same bank we were in before the closures conservatively run financial institution. That's a good steward of our customers' money. It's also not lost on us.
Or our stakeholders that we turned 100 years old on March 16th 2023 and.
In a strange bit of irony, our centennial birthday comes at a time when history and stability are at the forefront of the banking discussion.
It'd be 100 year old birthday to us our employees to all of our friends and partners. There are very few banks that are in that 100 clubs.
We just celebrated our centennial anniversary this past week by ringing the bell at NASDAQ with our employees, who have been here for over 25 years.
During the celebration I was reminded that amalgamated bank has seen many turbulent periods over the last century and we come out stronger every time, we were founded in New York City, and 1923 immigrant textile workers in order to provide basic banking services to their families. While in search of a better life.
Themselves.
For 100 years, we have demonstrated the successful banking means doing what's right for our customers and doing what's right for the communities. We serve we have been committed to using our voice to advocate for responsible public policy increased access to the financial system and to create the kind of community changed.
Positively impacts our customers and our employees.
Ultimately, it's our belief that our mission and values resonate with our existing customers, while continuing to attract new customers who shared the vision.
Our first quarter results again validate that mission.
In fact, our results demonstrate the resiliency of our growth for good strategy as well as the strength of our customer relationships.
We were able to deliver GAAP, earning Ah 69 cents per diluted share and core earnings of 74 cents per diluted share, we selectively grew loans by $92.2 million or 2.2%.
And also our pace portfolio grew by $84.5 million or 9.3%.
Additionally, we.
Deliberate net interest income of $67.3 million, which exceeded our expectations at $63 million to $65 million and a 21 basis point expansion in our loan yields.
Two a five basis point increase in our net interest margin to 3.59%.
While we expect earnings headwinds in the upcoming quarter, and then Jason will discuss in a bit our mission based banking model continues to prove that we can do well by doing good simply put our first quarter results clearly demonstrate the financial strength of this bank is still there and the competitive advantage that we have.
And the market is still strong.
Recently, there's been much talk about deposit granularity.
The ability to run on the bank.
Our conversation is understandable in the industry because it was the primary driver for the bank failures that occurred in early March.
Well, we believe those failures can be attributed to other factors a business strategy decision. Nevertheless, I'd like to address our deposit granularity and share some key insights to help you better understand our primary funding composition.
Our deposit franchise is a true differentiator for us and it has experienced strong organic growth and segmenting, our customer base in 2015, and recruiting constituent posted focused bankers to gather deposits.
We have grown our mission aligned core deposit base from $2 $7 billion debt to $6 $6 billion today, a compound annual growth rate of 12, 8%.
Our customers are change makers. They are the individuals organizations and businesses in our six key segments of labor sustainability philanthropy, social advocacy not for profit and political.
What they all have in common is that they care about what their money it does in the world.
Our deposit franchise is comprised of customers been banked with us for decades, given our shared values and our Union heritage.
In fact 3 billion of our core deposits are from labor Union related customers.
To further illustrate our deposit granularity we are introducing a designation a super core deposit.
The deposits that are in our core segments with a calculation in excess of five years.
Our simple core deposits totaled $3 $5 billion or 53.6% of our total core deposit most significantly the weighted average life of these deposits is 17.2 years I'll say again 17.2 years.
This is the type of stickiness that defines our deposit base and contribute to our top 20 ranking in terms of deposit quality.
When thinking about susceptibility to runs on deposit we believe amalgamated is insulated as any bank in the country.
This is something a 100 year old bank can say with confidence and pride, having been tested repeatedly throughout history.
Stating the obvious a customer's money is safeguarded by our liquidity and our capital.
We have long been carefully managing our balance sheet, having maintained our asset sensitivity while rates were low resisting the urge to chase yield and sacrifice liquidity.
Our discipline with our securities portfolio proved to be a real tailwind when rates rose quickly and I was delighted to return much of that benefit to shareholders in the form of substantially improved performance metrics.
Over the past few quarters, we have significantly reduced our asset sensitivity and we've also been selectively reducing our securities portfolio as we have grown our loan portfolio.
Accordingly, our available for sale Securities portfolio had an effective duration of only 1.8 years at quarter end.
We ended the first quarter with cash and immediate borrowing capacity of $2 $6 billion and another $868 million a two day capacity from Unpledged securities, resulting in $3 4 billion a two day total liquidity.
Our two day total liquidity covers 79% of our total uninsured deposit.
Perhaps more importantly, our immediate liquidity covers 137% of those deposits that don't fit into the Super core category that I spoke about earlier.
Amalgamated has a differentiated position in the market as a values based bank, but it's been run conservatively with long tenured client relationships, we have never wavered from our mission of being America's socially responsible bank and are seeing the benefits of this individuals and organizations increasingly care how their money.
Isn't that good.
This societal change is still in the early innings and amalgamated is positioned to benefit as we pursue the next leg of our growth strategy.
We recognize the headwinds presently facing the industry and our strategy.
Able to pivot and to adapt as needed we will continue to explore a digital transformation given the opportunity we see to tie our commercial business into our re imagine consumer business and also accommodate the needs of our customers to maintain pace with ease of transaction technology.
We are carefully managing our expense base and are closely watching the economy is.
<unk> still need to be made but what's the pace with our lending strategy, we will make disciplined choices funded through profitability with a requirement for timely returns.
I will now turn the call over to Jason to provide a review of our first quarter financial results.
Thank you Priscilla.
Net income for the first quarter of 2023 was $21 $3 million or 69 cents per diluted share compared to $24 $8 million or 80 cents per diluted share for the fourth quarter of 2022.
A point $5 million increase in provision expense.
A 3.0 a million dollar increase in noninterest expense and.
And the point $8 million increase in income tax expense offset by a $1.6 million increase in noninterest income, which excludes the loss related to the Silicon Valley Bank Senior note sale.
Beginning on slide five there were no exclusions related to solar tax equity investments for the first quarter of 2023.
Because of the income statement volatility associated with the accounting for these investments we believe metrics, excluding the timing impact of tax credits or accelerated depreciation is a helpful way to evaluate our current and historical performance.
Core net income excluding the impact of solar tax equity investments a non-GAAP measure for the first quarter of 2023 was $23.0 million or 74 cents per diluted share compared to $27 $2 million or 87 cents per diluted share for the fourth quarter of 2022.
Turning to slide seven deposits at March 31, 2023 were $7.01 billion, an increase of $446 $4 million from the fourth quarter of 2022, while core deposits declined 1% to $6 $6 billion, primarily related to pension customer timing client diversification for yield or insurance.
And slowed new customer acquisition.
Through April 21, 2023, total deposits decreased by approximately $206 million to $6 $8 billion total deposits, excluding brokered Cds decreased by a modest $5 million and core deposits decreased by $12 million.
Noninterest bearing deposits represent 48% of average deposits and 43% of ending deposits for the quarter ended March 31 2023.
Contributing to an average cost of deposits of 81 basis points in the first quarter of 2023.
A 47 basis point increase from the previous quarter as numbers were negatively impacted by the shift of borrowings to broker deposits.
Our cost of funds, excluding brokerage Cds was 61 basis points up 29 basis points from the previous quarter.
Moving to slide eight at a more granular level, our high quality deposit base is comprised of long tenured relationships with Michelle on commercial and consumer customers totaling $3 $5 billion of deposits as.
As I mentioned, we view this as our Super core deposit base, which uniquely displays important insights to our impact customer segments at quarter end total uninsured deposits were $4 $4 billion or 62% of total deposits.
Excluding uninsured Super core deposits of approximately $2 $5 billion remaining uninsured deposits were approximately 25% to 28% of total deposits with immediate liquidity coverage of 137%.
As Priscilla mentioned and consistent with prior quarters, we have maintained significant liquidity with cash and immediate borrowing capacity of $2 $6 billion.
$868 million, a two day capacity from Unpledged securities, resulting in $3 $4 billion of total to date liquidity.
We believe our core deposit base as demonstrated stability and resiliency in the early innings of Postbank seizures.
Looking at our core deposits by impact segment on page nine all segments showed consistent balances for the past several quarters with the noted exception of political balances, which were expected to run off in the fourth quarter of 2022 with the conclusion of the congressional elections.
Turning to slide 10 deposits held by politically active customers were 678 $1 million as of March 31, an increase of $34 $5 million on a linked quarter basis.
As noted on our previous call, we expect political deposit flows to rebuild in the first quarter of 2023, following the typical pattern of seasonality.
Additionally, we had experienced $26 $9 million of incremental political deposit inflows through April 21st a 2023.
We expect political deposit inflows to increase throughout 2023, and 2024 and anticipation of the next presidential election.
Jumping ahead to slides 13, and 14 book value of our investment securities portfolio decreased $110 million during the quarter, primarily as a result of $148 $4 million in strategic sales and $49 $2 million in traditional securities pay downs offset by $84 $5 million and net piece assessment growth.
Floating rate represented 47% of total securities excluding pace assessments at quarter end as we have continually reduced that ratio over the past several quarters to reduce our asset sensitivity and protect our earnings streams.
Our unrealized loss positions in our available for sale securities portfolio was $117 million or six 6% of the total portfolio balance importantly, RFS portfolio duration was only 1.8 years, reflecting our conservative investment decisions.
Turning to slide 15.
Loans receivable net of deferred fees and costs at March 31, 2023, or $4.2 billion, an increase of $92 $2 million or 2.2 per cent compared to December 31 2022.
The increase in loans was primarily driven by a $95.3 million increase in multifamily loans and an $18 $4 million increase in residential loans offset by a $7.9 million decrease in our consumer loan portfolio and a $7 $7 million decrease in the commercial real estate portfolio as we continue to reduce our exposure.
During the quarter, we had $5 $6 million of payoffs of criticized or classified loans as we continue to focus on improving the credit quality of the bank's commercial portfolio. The yield on our total loans was 4.40 per cent compared to 4.19% in the fourth quarter of 2022.
As noted a moment ago, our commercial real estate portfolio has been a portfolio we have been derisking for the past several quarters at.
At quarter end, we had $78 million in office only exposure across eight credits with an average LTV of approximately 38% of the eight credits are pass grade with the exception of two special mentioned.
On slide 16, net interest margin was $3 five 9% for the first quarter of 2023, an increase of five basis points from 354% in the fourth quarter of 2022.
Margin increase was driven by continued loan growth with increases in yields and higher average balances of interest, earning assets offset by increased rates and average balances of interest bearing liabilities, particularly in interest bearing brokerage certificates of deposits amid our focus routine deposits.
No prepayment penalties were earned in loan income in the first quarter of 2023 compared to one basis point contribution to net interest margin in the fourth quarter of 2022.
Core noninterest income excluding the impact of solar tax equity investments a non-GAAP measure was $7 $5 million for the first quarter of 2023 compared to $7 $3 million in the fourth quarter of 2022.
The increase of point $2 million was primarily related to losses on the shelf nonperforming held for sale loans during the fourth quarter of 2022.
Core noninterest expense, our non-GAAP measure for the first quarter of 2023 was $38 $6 million, an increase of $3 $1 million from the fourth quarter of 2022. This.
This was primarily due to a $2.4 million increase in compensation and employee benefits.
Prize mainly of an expected increase in payroll taxes, given timing of corporate incentive payments.
Remember every personnel costs and benefit insurance costs incurred during the quarter.
Additionally, professional services increase from carryover costs related to year end audit work and data processing increased mainly as a result of sales tax refunds collected in the fourth quarter of 2022.
As noted on last quarter's call, we anticipated our noninterest expense to rise to approximately $36 $75 million to $37 million to counter the effect of certain accrual releases and refunds recognized in the fourth quarter.
Moving to slide 19, nonperforming assets totaled $38 $7 million or <unk>, 49% of period end total assets at March 31, 2023, an increase of $10 $1 million compared with $28 $6 million or 44% on a linked quarter basis. The increase in nonperforming assets was a result of.
The Silicon Valley Bank Senior note and one construction loan placed on nonaccrual in the first quarter of 2023 offset by a 1.1 million dollar charge offs of a multifamily loan.
Our criticized assets increased $3 $4 million or 3% to $110.3 million on a linked quarter basis.
On January one 2023, the current expected credit loss seesaw methodology for establishing the allowance for credit losses was adopted which increased the allowance for credit losses on loans and securities for on and off balance sheet credit exposures during the quarter the allowance for credit losses on loans increased $22.3 million.
To $67.3 million at March 31, 2023 from $45 million at December 31st 2022.
The initial adoption of the Cecil standard increased the allowance for credit losses on loans by $21.2 million to recognize the day one cumulative effect.
Primarily attributed to our consumer solar portfolio.
The allowance for credit losses, unhealthy maturity securities was <unk> $7 million to recognize the day when cumulative effect, primarily attributed to commercial and residential pace securities.
Additionally, the allowance for expected credit losses on off balance sheet loan exposures was increased by $2 $6 million to recognize the day when cumulative impact of adopting the Cecil standard the.
The ratio of allowance to total loans was 1.61% at March 31, 2023, and 1.10% at December 31 2022.
The ratio of allowance to nonaccrual loans was $224 seven 4% at March 31 2023.
Provision for credit losses totaled $5 million for the first quarter of 2023 compared to $4.4 million in the fourth quarter of 2023.
During the quarter the bank recognized a $1.2 million impairment charge on the S. A V B senior note and an additional $1.1 million of provision expense related to the charge off of a multifamily loan.
Adjusted for these items, our provision for credit losses was $2 $7 million under the new Cecil standard primarily driven by solar charge offs portfolio grows and changes in economic forecast used to calculate the allowance.
Continuing to slide 21, our core return on average equity and core return on average tangible common equity excluding the impact of solar tax equity were 18, 6% and 19, 2% respectively for the first quarter of 2023.
We repurchased $2.4 million of our common stock during the first quarter and have $25.6 million of remaining capacity under our $40 million share repurchase program. Additionally, we have declared our quarterly dividend of 10 cents per share. As previously noted we are judiciously managing our capital position based on the state of the current economic and banking sector volatile.
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Our capital position held steady at 750% and our common equity tier one ratio is stronger than that of our peers, given our lower risk weightings, which we believe is noteworthy considering the capital impact of our adoption of the Cecil standards.
Slide 23 shows a reconciliation of the change in tangible common equity and related tangible book value.
As expected the Federal Reserve Board continued its cycle of interest rate increases in the first quarter of 2023.
The committee reduce its pace of increases by declaring a 25 basis point increase at each of the February and March meetings.
Currently we anticipate further rate increase do you incur in may with potential interest rate reductions to occur by the end of 2023 or early 'twenty 'twenty four.
As a result of our $21.3 million quarterly earnings and an $11.4 million improvement in accumulated other comprehensive loss.
Due to the tax effective mark to market on our securities portfolio.
Our tangible book value per share non-GAAP measure improved to $16.42 as of March 31, 2023, as compared to $16.05 in the prior quarter. We also remain pleased with our tangible common equity to tangible assets of $6 43 per cent for the quarter in comparison to $6 three zero percent from the previous quarter.
Reflecting our continued practice of safeguarding our conservative balance sheet.
We remind investors that we publicly set a general tangible common equity minimum of 6% back in the second quarter of 2022.
On the fourth quarter call, we provided our anticipated outlook for net loan growth to moderate to approximately 2% to 3% sequential growth in 2023 led mainly by our commercial portfolios. During the first quarter, we met our 2% target and expect net loan growth remains unchanged at approximately 2% to 3% run rate for the remainder of 2023.
Hey.
Growth in loans and pace are generally expected to be funded with reductions in securities.
Turning to slide 24, and consideration of recent events, we have updated our full year 2023 guidance as follows.
Core pretax pre provision earnings excluding the impact of solar of $133 million to $140 million and net interest income of $248 million to $255 million, which considers the effect of reduced deposit growth and the forward rate curve for the remainder of 2023.
Going forward, we estimate an approximately $5 million decrease in annual net interest income for a parallel 25 basis point increase in interest rates, reflecting higher beta assumptions and changes in deposit mix.
To conclude we remain focused on growing our capital position minimizing potential borrowings in balance sheet leverage and managing expenses. We do expect our net interest margin to compress by 15 to 20 basis points in the near term as pressure on deposit costs continues.
As a result, we anticipate our non interest income to decline to approximately $62 million to $63 million in the second quarter of 2023.
Looking forward, we will continue to remain competitive in order to maintain and attract deposits as we work to reduce our borrowings while providing liquidity to support our growth through good strategy.
Our results this quarter demonstrate the strength of the bank as well as the mission based differentiation that we share with our customers and communities and with that I'd like to ask the operator to open up the line for any questions operator.
Thank you we will now conduct a question and answer session.
I'd like to ask a question. Please press star one on your telephone keypad.
Hey, confirmation tone will indicate your line is there any question in queue.
You May press Star two if you would like to remove your question if I'm to queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing to Starkey one moment. Please while we poll for our first question.
My first question comes from Alex Tour, It out with Piper Sandler. Please proceed.
Hey, good morning.
Good morning, good morning, Alex.
First off I was hoping you could give us a little bit more color on the moving parts in deposits.
Specifically kind of what you saw during the quarter with respect to the noninterest bearing decline and sort of the re shifting if that's something that accelerated in March in the wake of what happened and some other banks.
Or if that's something you saw over the course of the quarter and then hoping you could give us the updated thoughts on deposit betas are you know just sort of given all the changes we saw in the last couple of months.
Sure Alex I'm I'm happy to take that question for you.
The shift and and <unk>.
Noninterest bearing to interest bearing we had seen that starting to.
Accelerate and even in the fourth corner of 2022, and you know we had been modeling in a a shift in DDA to interest bearing as part of our 2023 guidance when we.
Excuse me when we last spoke to you we did see a little bit more acceleration post the discussion or around.
The bank seizures that occurred in early March and you know the bank, meaning us we've had a reciprocal product that we've offered for quite some time and we were sort of standing at the ready.
To make that product available to our customers you know in the moment when they were looking for for insurance on some of their demand demand deposit bases. So you know the acceleration there everything you know there was a there was a fair amount of contribution that related to some insurance seeking them, but at the same time you know that's something that we had been mod.
Going into our into our business and we you know we think that it's really important to be able to accommodate customers in that way to your question on beta.
I think we've been consistently saying that the betas are increasing our assumptions anyway are increasing with each fed increase and we haven't changed that that mode of thinking I think for for any upcoming rate increases that might occur you know, we're thinking of our interest bearing betas as being.
And the and the 50 mid 50% range at this point yeah. What we think we saw last quarter was a you know excluding some of our consumer CD repricing, a beta of around 45% to 50% in the fourth quarter on interest bearing as well.
You know this is of course, not not factoring any deposit repricing that we've done on uncertain deposits either in this quarter or prior but I think the important thing for us is really to focus on customer need and making sure that our that were in tune with what customers are thinking and really being a defensive with our deposit port.
Folio for it for now and for the foreseeable future.
Okay. Thank you for that and then just kind of stepping back I'm just thinking about some of the constituencies that you guys Bank and you know being somewhat rely.
Relying on donations and contributions and things like that that maybe.
If we go into a recession, maybe people are less eager to donate.
To various causes I'm just curious how you think about it.
Managing the bank in and how the business model needs to shift you know if we do go into recession. If you see that kind of sort of thing happen and Hey, you know what.
You're thinking about to prepare for it.
Okay.
That's a that's a good question and I think maybe what we could do in future quarters is help you understand more specifically some of those segments.
You will see that some are more.
Affected than others.
You will also see that we are not only talking about a charitable organizations that receive money, but also organizations that contribute a that that our donor based organizations.
Organizations, there certainly is a cyclical nature to them a lot of the deposits. They they complement one another in the way they do that typically and we've tried to give you a pretty good sense for those which have you know which are dependent on for example on them.
Campaigns elections, and and and the like if we look back to the period of.
Recessions in the past what we will see is that these deposits actually have grown over time. So we don't we don't find.
Find ourselves feeling extremely vulnerable to a specific segment and a specific event that way.
Okay. That's helpful. And then just final question for me I was hoping you could give us a little bit more color on that construction loan that went into non performing this quarter and if that was already included a shot criticized.
Yeah that that loan was a special mention and the pre actually.
It was we had been thinking about that as a special mention it did not make its way to special mention at the end of the previous quarter. So it wasn't a move and it's actually structured in two parts there isn't a partner be part a the a part is still performing that's about $5 $5 million. The B you know we had to move that into nonaccrual.
For this quarter. It is a partnership deal with a with a government entity I'm a little bit of this and you know in my view. We're our view is timing related and you know the financial reporting requirements versus the maybe the funding cycle don't always line up with one another ultimately.
Overtime and it probably will take a little bit of time, we feel pretty good about our opportunities for full repayment. There. There are some problems with the deal that we're still working through but.
But we feel pretty good about the overall collectability at this point, although it may take a little time, Alex to realize that.
Okay. Thanks for taking my questions.
Welcome. Thank you.
Our next question comes from Janet Lee with J P. Morgan. Please proceed.
Hi, good morning, Congrats on your Congestee our anniversary.
I am I have a few questions I just wanted to I guess start with deposits.
So that's part of the Sox is doctors that you pointed to flat or decline and core deposits excluding brokered Cds.
Shang cloud new customer acquisition was just driven by some of the recent events and in March or is it more weighted towards the customer is looking for higher outside of outside of the bank are what.
Not to that slower pace of client acquisition.
Hey, Janet Thanks for that question I'll I'll jump in and answer I think really that that's slowed slowed new customer acquisition is more centered around post a S. A V b and and signature announcements, we had seen some some new deposit wins during the quarter.
A lot of a lot of our pipeline as we're obviously you know it took a little pause in terms of moving banking relationship says as the events sort of unfolded.
You know we feel reasonably good about what our pipeline still looks like although it's going to take probably a little bit longer than we originally thought at the beginning of year to get those conversations back going and and see those customers start to move in our direction, but we you know we did have some wins in the quarter that we felt pretty good about it a little bit of that was offset by some.
Folks seeking yield and you know we feel like we had a good treasury alternative deposits come off the balance sheet that way, but it remains with the bank through our investment management arm and we got a little bit of a pickup probably in future quarters in the noninterest income there, but in terms of you know people seeking seeking yield there really wasn't a reason for.
A slowing of new customer growth in fact, I think we did whatever we felt was necessary on certain exception pricing for you know for key customers and anybody that was coming into the banks that are that was new when we think we've found competitive pricing for them that matched up with what their fiduciary needs were.
I think the only thing I'll add to that is that the the fact that we had.
Had new commercial customers coming into the bank at a rate that's comparable to prior years and as we look at our pipeline, albeit a paused one.
We do expect that over the course of the year the projections, we've given our sounded good.
Okay great.
And in terms of your NII outlook. It says it incorporated with your outlook for deposit growth last quarter I believe the guidance was average deposit balances up.
About 5% on a conservative side like how should we think about your updated outlook for deposit growth, excluding well actually excluding.
Excluding brokered Cds.
Right. So yeah, we were thinking that the same way excluding brokered Cds.
Probably say its somewhere in the range of about 2% versus the 5% that we talked about earlier, we still think there'll be an opportunity for average deposit growth over the course of the year you know there's been some announcements in the political political space that hopefully will start to jumpstart some of the fund raising that would occur for the president.
So and and there is first of all I mentioned, you know still a pipeline for us to be working through with regard to new customer attraction and we feel okay about it but you know certainly a pause as as I mentioned in Brazil mentioned as well as giving us a.
Reason for us to re re forecast on the deposit growth and we think that 2% is probably a better number for the for the end of the year.
Right and so that 2% is excluding brokered Cds I know that you guys have.
Correct.
Outside broker Cds by $200 million already in April also.
Is it your plan to lower our brokered CD balances.
As you get more customer deposits in the next couple of quarters or do you want to maintain those broker CD balances called the elevated for a little longer to maintain that like quite Andy how should we think about the balance of brokered Cds over the near term.
So yes debt to clarify yes. The gross number I quoted you was a was based on X brokered deposit balances in terms of the brokered CD. Yeah. We are down a couple hundred million, but I think that's just a timing related.
Related moment, we do think that the brokered market is a really good source of liquidity for us I do think that we'll try to maintain.
Brokered CD balances appropriate with with our balance sheet and limit our need to use.
Short term borrowings unless of course, the pricing changes in some way that the brokers become a little bit more expensive.
And so I think you can think of the March 31st results as sort of a benchmark for how you know we'd like to see our our funding mix relative to total deposits with brokered and and any short term borrowings you know I think our idea also as we pointed out in our revised guidance is to keep our balance sheet.
From a total asset point of view are neutral to where we finished the quarter in which basically was neutral from where we finished last year and that ought to give you a good indication of how we will try to manage the kind of the total liability side of the balance sheet.
In terms of our funding composition.
Got it and.
So reserve build in the quarter for a day, one effect, which is 21 million can you walk through what was our coverage ratio was assumed for your consumer loan portfolio and the dollar amount dollar.
The amount of reserves specific to that segment out of that 21 million.
I think the best way to characterize it as the majority of that that seasonal build was attached to the consumer solar portfolio.
We had spoken a bit about this in the previous quarters. We knew that we were going to be adopting sees all at the end of the year and we had filled up our consumer solar basket.
Fairly fairly not fairly early but you know within within the 2022 year. So I don't really expect to be doing too much more of a consumer's ore in 2023, but the.
The primary portion of that seasonal build really relates to the consumer solar side I think when we look at the charge off ratios that we've you know we've seen kind of throughout 2020 to them you know and the average life of that particular portfolio. It sort of indicates a need to have a further build what were hopeful.
Four is the charge offs and we've talked about this before and we have protections that had been built into some of these structures. We're starting to meet those and we're starting to see some of the benefits from those you know we're hopeful that the charge off rates over time will will actually come down a bit and therefore have a little bit of a benefit from.
From the reserve that we've put forth in the seasonal model and.
So that's I think that's the way I'd best characterize kind of the Cecil impact relative to consumer solar.
Okay.
So basically can we see.
Yeah, The total reserve seafood reserve specific to <unk>.
Yeah.
Or was there does that net charge off ratio that you guys might experience and <unk>.
In recent quarters, but then.
Obviously multiply that by like however.
Along the duration of that portfolio is that the way right way to think about it.
I think so and you know if it helps you know from a consumer solar point of view, we think of those from a duration point of view as being similar sharing similar characteristics to.
To our residential one to four portfolio.
So hopefully that gives you that gives you a sense and yes. They do.
The charge off rates, but I wouldn't look at it as just the charge off rates we've seen in the in the more recent quarters. We've you know we've taken them over a over a longer life, which has a little bit of a lower implied rate, but again, if you take that sort of charge off rate history and take that against the duration. It looks like a one to four.
Family style property or style duration that we could give you a good indication of how we think of the modeling.
Alright, thank I'll stop and step back into queue. Thanks.
Yeah.
Once again, ladies and gentlemen to ask a question. Please press star one on your telephone keypad that next question is from Chris O'connell with K B W. Please proceed.
Hey, good.
Morning.
Was hoping to start off on the expenses and I think if I heard you right.
They should be trending down towards 36, 75 to 37 million run rate for the remainder of the year is that correct.
Yeah, so what what I've been referring to in my commentary was that we had thought we'd be in that 36 to 37, $36 seven 5% to $37 million on a quarterly run rate going forward.
And I was also making.
A comparison to the previous quarter I think our expenses were a little bit lower optically as a result of some accrual releases and some sales tax refunds that we were able to recognize in the fourth quarter. So I kind of normalized last quarter or two about $37 million and I think $37 million is still a good quarterly run rate going forward on <unk>.
On average basis, we saw a little bit of an uptick in this particular quarter because of some timing.
There was a there was a third payroll that occurred in March which you saw some of our our payroll tax expense and some other related compensation items, a little bit elevated from what it would probably look like on a quarter with with one less payroll on a normal basis and I think we also had a little bit of a temporary personnel expense that flowed through.
As we are is we need to support a couple of areas in the business that have now had permanent hires.
And then you know some some benefit increases that we saw in terms of premium expense in the quarter, but we think those are largely temporary and can be brought.
Brought back to a more normalized number in coming quarters going forward, but we are seeing expense pressure. There's no question about it.
And so you know holding at 37 will be a it will be a challenge, but that's something that for sonar focused on episodes went out anything that no.
No I think he said it well we certainly.
Think that they are a key areas to invest in across the business. These are not would not be surprising to you. The things we've been talking about as far as long as we've introduced the growth for good strategy.
But as you've heard us say before we will build into those investments in the business and so you won't see discrete increases incremental increases in expenses, you'll see offsets well, you'll see the net of offsets are occurring in other parts of the business.
Sure.
Got it.
That's helpful. Thank you and then.
On the AR and the office portfolio can.
Can you just kind of go over the L. T V's and what the reserves are held for the two on special mention and then maybe how much Oh.
The office portfolio is coming due during 2023.
Sure Yeah sure. So the yeah, I think we put some additional information in our deck to help everybody understand a little bit better on the on the two special mention there isn't a.
Specific reserve on those particular particular properties, mainly because of the the strong ltvs that are still there and the fact that they are still paying them.
I think the overall reserve coverage and I don't have an exact quote for you Chris I can get back to you on that but I think it's pretty solid relative to our you know our our reserve coverage in total and you know as we carry.
If you strip out kind of the the seasonal impact you know, we're somewhere around 110 or $1 15 in total reserve coverage and I think everything is appropriately distributed.
Across the asset classes, but I think it's important to pick up in the in the CRE portfolio is that you know we report a GAAP number of $327 million, but when you disaggregate it.
We're down to about $70 million of of office only kind of investment related credits.
Credits that hopefully can take a little bit of the.
Of the of the risk profile down for the overall portfolio. The LTV on that total group is about 38%. So we feel pretty good about them.
The collateral that's associated with that Oh, sorry, with that portion of the <unk> of the portfolio.
And then in terms of maturity you know generally speaking about 20% of the portfolio matures each year I'd have to look specifically at the office portfolio itself, but I think 20% some number that's worth it's reasonable too soon.
Got it.
And do you know if either of the two special mentions mature this year.
Neither do I know that but theyre, not long and and the and the maturity table.
Great.
And then as far as you know loan growth for the remainder of the year you know I know, it's supposed to be relatively subdued him on a net basis, but.
If you could go over you know what areas you are looking to add in and that you see a good demand and good.
Risk reward our you know relationships on versus some of the areas that you know might be pulling back on or kind of declining AR to offset that.
Sure absolutely.
I think high level, we've said that we expect our loan growth to be led by our commercial portfolios mainly.
Family real estate, and C&I, particularly in our AR and our sustainability segment for C&I.
We'll probably do worse and residential lending will be less in consumer solar as me as I mentioned before with Janet.
Sort of filled up our basket there and we also have a really terrific alternative for solar based consumer lending with our residential pace product, which we do expect to see some some decent growth for us throughout the rest of this year.
With regard to the CRE I'm, sorry to the C&I and the multifamily.
We didn't really show much growth in C&I, but I think that's a little misleading we did about $47 million in originations during the quarter almost all of that were impact related loans and a lot of it was was climate related particularly.
You know we had a couple of Paydowns that occurred kind of late in the quarter and we also have one pay off which wasn't you know what wasn't a regrettable loss. So you know I think that that business is going to continue to be able to generate and contribute to our 2% to 3% sequential growth target for you know for the upcoming quarters and on the <unk>.
The family side I think you know the team that we built out is really strong. So it is a you know really generating a lot of relationship based business you know and we're hopeful that not only will we continue to see some origination on the multifamily side to bolster our lending for the year within New York, but also start to see some development in the Boston market.
Hopefully in the San Francisco market as we placed some new real estate bankers, respectively in those areas Chris.
Great and if you what's the AR. The current origination yields are on loans that'd be great too.
Sure just give me one moment.
I think.
The kind of the bring on right now and you see and I you know we're up in the you know.
Kind of mid sixes 675 range CRE, it's around five wells here I would think about total real estate around 575 somewhere in that range and then in pace you know it's again, it's in that probably 66667 range as well.
Great and.
I know you guys are.
We're gonna be lowering our you know the.
The pure Securities book over the course of the year to help fund loans, but.
But it sounds like there'll be some rescue pace growth.
I don't think a net net basis I guess.
You know how how do you see those combined factors are growing or declining over the course of the rest of the year.
Yeah, So I think target wise, Oh, let's just kind of go through our pace you know I think we've got about $85 million of capacity left on our flow arrangement with with P. F. G. I think about $25 million a quarter in.
Origination is probably inappropriate number maybe a little bit more but probably about $25 million per quarter and our pace you know that'll be offset by by some pay downs there that pay downs are running about $15 million a quarter somewhere in there and sometimes it's higher sometimes it's lower depending on the timing of the payments.
Probably do a little bit less and C pace, mainly because of the of the duration associated with some of those deals. So I don't see a lot of growth in C pace, but probably some and then from there you know I think we'll we'll continue to let the securities portfolio are amortized.
Amortize its amortizing at about $50 million a month on the traditional.
The securities portfolio between a F. S. H T M. And then we will also continue to sell.
So you know pools of securities to reduce our exposure.
But also to do some funding what that ultimately ends up with nothing that I think it'll be you know a still a decline overall in the total securities portfolio. When you factor in pace, but I don't have an exact number for you at that point I think well the way I kind of more look at this is we're really looking to keep the balance sheet from a total asset point of view level and you know how we manage that mix.
So we'll be all a bit of a little bit of art and a little bit of science throughout the year.
Great.
And for the for the brokered Cds Oh, what did you guys see in for the rates. There you know relative to the you know alternative Ah you know.
Funding from borrowings.
Mhm.
I think earlier on you know we were seeing some really attractive.
<unk> spreads and you know we started getting into the brokerage market towards the end of 2022, and then you know really accelerated our pace in and in early 2023, you know we saw.
About a 40 basis point 40 basis point spread earlier on I think that spread has been tightening a bit.
I think really at the end of the day, we're just taking a very close look at you know kind of where the rates are on those on those brokerage Cds you know, we're doing a little bit of mixing between shorter term brokers and in longer term you know we've done some five years as well and you know and I don't really have a great.
Empirical answer for you between you know how we're how we're looking at the pricing between the a short term FHL bees in the brokerage, but we do take a take a close eye on on kind of the pick on interest in and obviously, we want to make sure that we're able to deliver a good funding composition, but also maintain some level of NII.
Benefit throughout the whole process.
Great and last one for me.
How are you guys considering or thinking about are you know at all.
Share repurchases going forward as a you know T C.
It builds on you know a fairly tepid our balance sheet growth.
Yeah, we.
We are and we and we did a little bit in in the first quarter, we did about $2 million to $4 million worth for somewhere around 80000 shares.
You know, we have still 25, or so $26 million of availability under our previously announced program.
So it's certainly an option for us, Chris and and you know the obviously with where the stock's trading and she comes in you know more and more of an attracted by at least in our opinion, we think the stock is as you know.
Got a bit undervalued at this point is probably a number of other banks as well you know I think the balance here is capital I'm, you know I'm I'm very very focused on capital.
You want to see our overall capital ratio continued to improve throughout the year and it'll it'll always be kind of a bit of a balance between our earnings you know whenever it's flowing through the mark and ER and what we can afford through dividend and capital repurchases to make sure that you.
You know, where we're continuing to maintain our TCE levels and continuing to maintain them.
Ah Ah Ah growing leverage level.
Great. That's all I had thanks for taking my questions.
Youre welcome.
Thank you at this time I would like to turn the call over to personal assumes brown for closing comments.
Thank you. Thank you all for your questions and thank you for your time and interest today.
We appreciate all of that and we know that we'll be continuing the conversation offline with some of you as well.
We also.
Feel that we have we hold an important place in the market by providing capital and services to our mission of line customers and that's not only the right thing to do but it also is something that is good for business and we were grateful that you your understanding that as well I cannot be more excited with what the future holds for the bank for them.
<unk> made it our shareholders and our customers I also want to just mention that in this era as sort of focus on the short term headwinds the cycle that we're currently in we feel it's our responsibility. We hope you have seen that we have for several quarters now talked about.
TCE and conservative credit alignment and other things that we think are really important for defense of our book and the protection of our shareholders as well as other stakeholders, but we continue to be really focused on the longer term as well and growing the business. So that as we come out of this cycle we continue.
You did did benefit from the tailwind that come from the continued focus on net zero among.
Many in the asset management and investment community and corporations more generally and we are we stand ready to benefit from the return to a focus on these these longer term goals.
And communities have so thanks again for your time today, we look forward to talking to you in the future as well.
Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation and enjoy the rest of your day.