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spk02: Good day, and thank you for standing by. Welcome to the Amarant Bank Corp First Quarter 2022 Earnings Conference Call and Live Webcast. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Laura Rossi, Head of Investor Relations of Ameran Bank. Please go ahead.
spk01: Thank you, Gigi. Good morning, everyone, and thank you for joining us to review Ameran Bank Corp's first quarter 2022 results. Also on today's call are Jerry Plush, our Chief Executive Officer, and Carlos Yafiliola, our Chief Financial Officer. As we begin, Please note that the company's press release, our discussion on today's call, and our responses to your questions contain forward-looking statements. Ameren's business and operations are subject to a variety of risks and uncertainties, many of which are beyond its control, and consequently, actual results may differ materially from those expressed or implied. Please refer to the cautionary notices regarding forward-looking statements in the company's earnings release and presentation. For a more complete description of these and other possible risks, please refer to the company's annual report on Form 10-K for the year ended December 31, 2021, and in another filings with the SEC. You can access these filings on the SEC's website. Ameren has no obligation and makes no commitment to update or publicly release any revisions to forward-looking statements. in order to reflect new information or subsequent events, circumstances, or changes in expectations except as required by law. Please also note that the company's press release, earnings presentation, and today's call include references to certain adjusted financial measures, also known as non-GAAP financial measures. Exhibit 2 and Appendix 1 of the company's press release and earnings presentation, respectively, contain a reconciliation of each non-gap financial measure to its most comparable gap financial measure. I will now turn it over to our CEO, Jerry Plush.
spk03: Thank you, Laura. Good morning, everyone, and thank you for joining Ameren's first quarter 2022 earnings call. I'm pleased to be here today to report on our results for the quarter and update everyone on steps taken this quarter as part of our transformation efforts to better position the company for success. We remain committed to continue to execute throughout 2022 to build an even better and stronger version of Amerit. We're also pleased to report that based on the company's first quarter results on April 13, 2022, our board of directors approved a $0.09 per share dividend payable on May 31, 2022. The payment of dividends are an essential part of our commitment to provide greater value to our shareholders. It has been one year since I became CEO and first shared our strategic priorities with all of you. During the course of this call, in addition to covering the results of the quarter, we'll provide an update on the progress we have made on our way to fully deliver on those priorities. 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. So if you turn to slide three, here you'll see a summary of our first quarter highlights. Net income attributable to the company was $16 million, and that was down 75% quarter over quarter. This decline was primarily driven by the one-time gain on the sale of the headquarters building recorded in the fourth quarter of 2021. The first quarter saw higher average yields, higher balances on loans, and lower average balances on customer CDs and broker time deposits, which were replaced by higher average balances in core deposits. Our total gross loans were $5.72 billion, up from the $5.57 billion last quarter, even with the headwinds of $253 million in loan prepayments and the sale of $57.3 million from our former New York City loan production office that were classified as available for sale. Total deposits were $5.69 billion, and they're up $60.8 million compared to last quarter. And more importantly, core deposits increased by $150.4 million this quarter compared to the fourth quarter of 2021 as a result of our continued deposits first focus. We'll now turn to slide four. You can see that the company's capital continued to be strong and well in excess of minimum regulatory requirements to be considered well capitalized as of March 31st, 2022. During the quarter, we paid out the previously announced cash dividend of $0.09 per share. We also paid a $34 million dividend from the bank to the holding company to increase our liquidity position. And after having completed the first buyback authorization, our board approved a new $50 million share repurchase program on January 31st. As of quarter end, a total of $32.7 million has been used under this new authorization. You can see that we've repurchased a total of 1.6 million shares and that our shares outstanding at quarter end totaled 34,350,822. Also in February of 2022, we launched our employee stock purchase program with over one-third of our team members participating. We're delighted that so many of our team members want to participate in the ownership of the company. We'll turn now to slide five to look at core PPNR. Our core PPNR was 17.9 million, down by 5.5%, compared to the 18.9 million reported in the previous quarter. As we've noted before, it's essential to show the net revenue growth of the company, excluding one-time gains or losses or other non-recurring items, in order to show Ameren's core earnings power. Higher marketing spend this quarter and lower fee income versus fourth quarter were key drivers that impacted 1Q22 results. So let's cover some key actions that took place on slide six. So we announced the retirement of two long-time board directors and the appointment of four new ones, all of whom are in footprint, three in South Florida and one in Houston. We completed a private placement of $30 million of 4.25 percent fixed to floating rate subordinated notes that are due in 2032. We also reduced headcount by 80 FTEs as part of our agreement with FIS. which resulted in a total of 677 total FTEs as of the end of the first quarter. Of this total, 598 FTEs are part of Ameren Bank, and 79 are part of Ameren Mortgage. It's important to highlight this. As of quarter end, 58 percent of our total FTEs are in the business generating side of the company versus 42 percent in support functions. We initiated an internal process to reorganize lines of business and to have our focus on commercial and consumer banking done separately to drive performance in the geographies we serve. As a result of this reorganization of our teams, we've streamlined management layers in several areas during the month of April, which will positively impact personnel expenses going forward. We also joined the USDF Consortium. Amerint was the seventh bank to join the National Association Forum to provide a base source for banks' digital asset and blockchain strategies. We're pleased to announce that we hired a new head of retail banking who will drive a truly sales-focused culture in our branches. Regarding our new Tampa loan production office, we recruited our new market president, and other new CNI team members have been identified. We'll have an official announcement on this shortly. We've already closed on a number of CRE and CNI transactions to date, totaling 87 million through March 31st. And over the next 120 days, we've got a strong pre-NC&I pipeline of over 100 million, with 36 million scheduled to close in early May. We also executed a multi-year agreement for an outsourcing white label solution to provide equipment financing in all three markets that we serve. We're pleased to announce that we issued our first ESG report demonstrating our commitment to sustainability And the company's main subsidiary, Emirate Bank, was named the official hometown bank of the University of Miami Athletics, which further leverages local partnerships to support our community while driving brand awareness. We just received OCC approval for a new branch location in University Place in Houston, Texas. This is a significant upgrade over the branch it will replace. We project this office to open in 3Q22. Construction is now underway for our new, smaller operations center in Miramar, Florida. We also initiated the common-looking field project we've spoken about previously at our market headquarters location in Houston. So let's cover key metrics on slide seven. Here we've outlined key performance metrics. So in the first quarter, we improved our deposit base, now with 23% of total deposits being non-interest-bearing deposits. And our operating profitability stayed on track as the margin was 3.18%, up a basis point from last quarter. And please note that four basis points of the 3.17% reported last quarter were from prepayment fees. The allowance declined to 1% of total loans, reflective of charge-offs and the reversal of $10 million in the quarter based on credit quality trends. Our A-triple-L remains in excess of total non-performing loans. We again show the three core metrics of ROA, ROE, and operating efficiency, excluding the one-time non-recurring items in the footnotes to this slide to more clearly show the underlying performance for the quarter. We'll now turn to slide E, which focuses solely on Amerit Mortgage. In just the first quarter of 2022, we have received a total of 292 applications. We closed 157 loans for a total of $93.6 million. The current pipeline shows over $94 million in process or 166 applications. Amerit Mortgage solidified its wholesale team during the quarter and also launched its construction loan program to help drive future revenues. It's important to mention that as of March 31, 2022, the company has increased its ownership interest from 51% to 57.4% in order to meet Fannie Mae capital requirements. So with all that said, I'll turn things over to Carlos, who will walk through our results for the quarter in more detail.
spk08: Thank you, Jerry, and good morning, everyone. Turning to slide nine, I'll begin by discussing our investment portfolio. Our first quarter investment securities balance was $1.3 billion, stable compared to both previous quarter and first quarter 2021. When compared to prior year, the duration of the investment portfolio has extended to four years, due to lower prepayment speeds recorded and expected in our mortgage-backed securities portfolio in light of rising interest rates. The floating portion of our investment portfolio increased to 14% compared to 11% in the previous period. We continue to focus our investment strategy on assets with lower duration and better repricing profile in anticipation of interest rate hikes this year. I would like to take a minute to discuss the impact of interest rate hikes on the market value of debt securities available for sale. As of the end of March, the valuation of securities under AFS designation had dropped almost $40 million after tax as a result of more than 100 basic points increase in the long-term interest rate recorded since the last quarter. Loan portfolio highlights in the slide 10 will show a total loan growth of $5.7 billion in total, up 3% compared to the last quarter. The increase in total loans was primarily due to higher loan balances, which resulted from increasing loan production, complemented with indirect loan purchases. Despite having received $253 million in prepayments, which came primarily from CRE and CNI loans, and having sold $57 million in the New York portfolio, this net growth represents a great accomplishment for all teams involved in the loan origination efforts. Consumer loans, as of the end of March, were $486 million, an increase of $62 million, or 15%, quarter over quarter. Purchases under higher-yielding indirect consumer loans continue to represent a tactical move to increase yields. Loans held for sale total 86 million as of the end of March, which included 69 million in loans from the New York LPO and 17 million in the residential mortgage loans in connection with Amaran Mortgage Activities. Going to slide 11, we provide an update on the New York loan portfolio. Total loans outstanding from our former LPO have declined to 373 million in the first quarter of 2022. from $491 in the fourth quarter of 2021 during the first quarter and completed the sale of $57 million in loans held for sale at par. We expected this portfolio to continue to trend down as several prepayments are expected to occur during the rest of the year. Going to slide 12, we would take a closer look to the credit quality. For the first quarter, our credit quality remained sound and reserve coverage is strong. The allowance for loan losses at the end of this quarter was $56 million, almost 20% down from the $70 million at the close of the previous quarter. We released $10 million from the allowance for loan losses compared to a release of $6.5 in the previous quarter. The release was primarily driven by improved macroeconomic conditions, loan upgrades, and decreases in our non-performing and special mention loans. These were partially offset by additional reserve requirements and charge-off for loan growth and loans downgraded to non-performing during the period. During the first quarter of 2022, the loan loss provision associated with the COVID-19 pandemic was released. However, new reserves for almost $5 million were generated to account for the new risk associated with potential macroeconomic deterioration related to inflationary pressures, supply chain disruptions, and other factors. Net charge-off for the quarter were $3.8 million compared to $7 million in the fourth quarter. Charge-off during the period were primarily driven by $3.3 million into commercial loans, $1 million in consumer loans, offset by $0.5 in recoveries. These loans were previously specifically reserved. Non-performing assets totaled $56.7 million at the end of the first quarter of 2022. a decrease of $2.8 million or 4.7% compared to the fourth quarter, and a decrease of $33 million or 37% compared to the first quarter of 2021. Our non-performing loans declined 0.82% or $47 million compared to 0.89% or $49.8 million last quarter. Most recently, non-performing loans further decreased to 41 million as the sale of 6 million CRE loan was completed above par during April. The ratio of non-performing assets to total assets was 73 basic points down five basic points from the fourth quarter of 2021 and down 43 basic points from the first quarter of 2021. In the first quarter of 2022, The coverage ratio of loan loss reserve to non-performing loans closed at 1.19 times down from 1.4 times at the end of the last quarter and down from the 1.24 times at the close of the first quarter last year. Going to slide 13, we show some details on the deposits. Total deposits at the end of the first quarter were $5.7 billion, up $61 million from the previous quarter. Domestic deposits, which account for 56% of the deposits, totaled $3.2 billion, up $43 million, or 1.4%, compared to the previous quarter. Foreign deposits, which account for 44% of the deposits, totaled $2.5 billion, and they were slightly up by $18 million over the quarter. Though it was a small magnitude, this change is still reflective of our efforts to increase share of wallet from our international customers. Core deposits, which consist in total deposits excluding all the time deposits, were $4.4 billion as of the end of the first quarter, an increase of $150 million, or 3.5%, compared to the previous quarter. This amount includes interest-bearing deposits of $1.5 billion, savings and money market deposits of $1.6 billion, and of note, non-interest-bearing deposits went to $1.3 billion compared to the $1.2 in the previous quarter. which is reflective of our execution to prioritize this type of funding. Offsetting the increase in deposits was a reduction of $90 million, or 6.7% in time deposits. Customer CDs compared to the prior quarter decreased $97 million, or almost 9.3%, as the company continued to focus on increasing core deposits and emphasizing multi-product relationships versus single-product high-cost CDs. Broker time deposits increased a little bit to $8 million or 2.7% compared to the previous quarter as we took the opportunity to extend duration on this funding source and lock in lower costs given the expectation of higher interest rates in the upcoming quarters. Going to the net interest income, slide 14, we will show the performance of our net interest income and financial margin. Net interest income for the first quarter was $55.6 million almost unchanged quarter over quarter and up 17% year over year. In light of the rising rate environment, we're actively managing the duration of our liabilities. During the first quarter of 2022, we repaid $180 million in short-term advances from the FHLD and borrowed $350 million in long-term advances and extended duration of this portfolio and fixed them at a lower cost than previously borrowed funds. The timing for the execution allows us to effectively lock attractive long-term rates at a discount of almost 100 basic points versus current market rates. In terms of our deposits, we have adjusted only certain large commercial relationships given their rate sensitivity. However, most of the rates of the transactional deposits remain unchanged for the quarter. Understanding the behavior that each product will show we're getting a blended beta of 0.28, which will help us to navigate the new interest rate environment and reflect the value of our deposit composition. Moving to net interest margin, Q1 mean was 318, slightly up by one basic point, quarter over quarter, and up 52 basic points year over year. The change in net interest income and net interest margin was primarily driven by the increases in the yield of our loan portfolio, which is now 4.16%, an increase of six basic points versus four quarters. Though the change in NIM was not large, it reflects our efforts on the asset side while managing to keep cost of funds down while hedging against interest rate up. Going to slide 15, we provide a more detailed analysis on interest rate sensitivity you will notice that we have provided additional color compared to previous quarters. As you can see, our balance sheet continues to be asset sensitive with half of our loans either floating or maturing within one year. Taking into consideration the changes in the composition of liabilities, our continuous production in floating rate loans and new purchases in floating rate securities, our name sensitivity profile has improved versus last quarter. We are now showing a potential increase of approximately 8% in net interest income versus a 4.3% last quarter under a plus 100 basic points scenario. We also show an improved profile in the plus 200 basic points scenario. We will continue to actively manage our balance sheet to best position our bank for the expected rise in interest rates. Going to slide 16, we show a detail on the non-interest income. Non-interest income in the first quarter was $14 million down 63 million or 82% from the 77 we recorded in the fourth quarter. The decrease during the first quarter was driven by the absence of the 62 million gain from the sale of a company headquarter recorded in the fourth quarter 2021. Net losses on early extinguishment of FHLB advances for almost 700,000 lower income from brokerage and advisory activities, net unrealized losses on valuation of derivatives, and decrease in mortgage banking income. Of note, we recorded higher derivative client income this quarter, as well as net securities gains, which partially offset the decrease in non-interest income quarter over quarter. As rate goes up, this product becomes very relevant to clients and we look to drive non-interest income in the upcoming quarters with this activity. Ameren's assets under management totaled $2.1 billion as of the end of the first quarter, down $92 million, or 4.1%, from the end of the fourth quarter, which was primarily driven by lower market valuations. The decrease was offset by an increase of $12 million in net new assets as we continue to execute our relationship-focused strategy and increase share of wallets. Turning to slide 17, first quarter non-interest expenses was $61 million, up $5.7 million or 10.4% from the fourth quarter, and up $17.2 million year-over-year. Note that we consider $6.6 million of our non-interest expenses as non-recurring items. Excluding these items, core non-interest expenses was $54.2 million in the first quarter of 2022. The quarter-over-quarter increase was primarily due to higher non-interest expenses primarily in connection with the estimated contract terminations resulting from the company's transition to a new technology provider. Though this was partially offset via savings from FTE reductions. Evaluation expense recorded in the change in deferred value of New Year loans available for sale, rent expenses related to the leasing of the company's headquarter building, though this mostly offset by the income received from the subleasing of the property, increasing marketing expenses in connection with the company's efforts to increase brand awareness, severance expenses in connection with restructuring of the business line, and last, we had increased commission bonus payment primarily related to residential mortgage loan origination. Now, The increase in non-interest expenses was partially upset by lower salaries and variable compensation costs, which were driven by a lower number of FTEs in the first quarter, as we mentioned before, resulting from the agreement with FIS. Decrease in legal fees primarily due to the absence of additional expenses incurred in fourth quarter 2021 related to the cleanup merger and other special transactions. lower depreciation and amortization expenses resulting from the sale of the company's headquarters. The efficiency ratio was 87.3% in the first quarter of 2022 compared to 41.4% in the previous quarter and 70.67% in the first quarter last year. The quarter-over-quarter increase in the efficiency ratio was primarily driven by the absence of the gain of the company's headquarters building recorded in the fourth quarter. The year-over-year increase in the efficiency ratio was primarily driven due to higher non-interest expenses. Core efficiency ratio was at 76.4 in the first quarter of 2022 compared to 75 in the fourth quarter of 2021 and 73.4 last year. The quarter-over-quarter increase was primarily driven by higher rent expenses, advertising expenses, and commissions paid as previously described. Now, I will turn back to Jerry to talk about AMR and progress on near and long-term initiatives.
spk03: Thank you, Carlos. Let me share what has been done in connection with each of the key initiatives during the first quarter, as summarized on slide 18. So, starting with deposits first. Account opening campaigns and different marketing efforts were launched during the quarter to drive an increased digital and branch traffic, which resulted in increased consumer account acquisitions. Our treasury management and private banking teams' efforts have resulted in higher deposit levels, as evidenced this quarter. As for a superior customer experience, our FIS-numerated Marstone, Alloy, and ClickSwitch implementations are all underway. We are now actively marketing small business lending and AmeriSmart investing. Regarding rationalizing existing and evaluating new lines of business, As I previously mentioned, business organization changes were announced. We split the organization on the business side between the consumer bank and the commercial bank. This was essential as we need the laser focus on executing on growth strategies on both sides of the bank. Our branch rationalization continues. We were just approved by the OCC for a new, more highly visible office location at University Place in Houston, which will replace one we'll be leaving later this year. and planning and permitting is underway on our new downtown Miami location. With our new head of retail banking now on board, we will be evaluating opportunities as well as all current locations. The consumer shift to digital certainly is weighing in on the need for strategically located centers versus density. Regarding the Tampa Loan Production Office, as I mentioned, we recruited our new market president and other new CNI team members have been identified. so we'll be officially announcing all of this soon. We've already closed on a number of CRE and CNI transactions, totaling $87 million. We've got a strong CRE and CNI pipeline, as I mentioned, over $100 million, with $35 million scheduled to close in early May. We've also begun to onboard depository relationships as well. Other lines of business, like equipment finance, are now underway. We announced our new multi-year agreement, and we'll be adding sales personnel in each of the three markets we serve. Regarding operational efficiency, the FIS rebatch took place. ADFTE were moved as of January 1st. And other HR efficiencies were implemented during the quarter. Regarding brand awareness, we continue leveraging local partnerships and impactful campaigns, including our partnership with the NHL Best Florida Panthers through our out-of-home advertising efforts, our social media efforts, and our public relations efforts. Recently, we announced a broad-based strategic partnership with the University of Miami, making Ameren Bank the official hometown partner of the Miami Hurricanes. This partnership provides Ameren with a robust presence across all University of Miami athletics programs. And finally, regarding attracting, retaining, developing, and rewarding our team members, we launched an enhanced internship program, we developed a new executive leadership program, and we launched our employee stock purchase plan. We're also pleased to announce the issuance of our first ESG report, which you can find in the investor relations section of our website. We've also begun implementing our diversity inclusion program to improve and maintain an authentic inclusive culture, which is an essential part of our ESG efforts. So I just have a few closing remarks before we go to Q&A. A year ago, we launched our transformation journey. with clear priorities, and while we've accomplished a lot since then, there is still more to do. But our commitment remains unchanged. We need to continue to grow while doing all of this. They are not mutually exclusive. Growth and continued focus on transformation are key. So if there is one key takeaway from 1Q22 results, it is that we, in fact, did just that. We grew, and we added capabilities, and there were more strong additions to our team. but we know we need to do it again every quarter. I just want to openly acknowledge we know the task ahead, and we are all very focused on getting there. I want to again thank my teammates for all that they do to make Ameren the up-and-coming bank of choice in the markets we serve. We are working hard to build something very special here, and we appreciate the support and confidence that our board, our investors, and our customers have in us while we do all of this. So with that, I'll stop, and Carlos and I will look to answer any questions you have. Gigi, please open the line for Q&A.
spk02: As a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Our first question comes from the line of Michael Rose from Raymond James. Your line is now open.
spk05: Hey, good morning, guys. How are you? Morning, Mike. Hey, so the loan growth this quarter, obviously, you know, really, really good. I think last quarter you talked about growth in the single-digit range, but clearly if I annualize that and I take out the New York City wind down and the consumer loans, you know, you're tracking a lot higher than that. So can we just get any updates on loan growth expectations because it does seem like you have a lot of tailwinds at your back. Thanks. Thanks.
spk03: Yeah, no, Michael, it's Jerry. You know, we're pleased. You know, I've been saying, you know, over the last several quarters, we continue to add talented members on the business development side to drive growth. And I think you're seeing the fruition of having not only the folks that are on board, but folks that we're chatting with and hoping to add to the team. So our expectations are clearly going to be for higher than, you know, what we had previously projected. I think we'll be certainly more in the double-digit range on a go-forward basis.
spk08: Yeah. No, it was interesting to see, Michael, over the quarter, the increase on the CNI, which accounted for almost $130 million. That's accretive to the yield and the overall performance of the loan portfolio. CRE was also a portfolio that defended very well because we had significant prepayments on the New York plus the sale and other prepayments also in Florida. So the creation of new CRE was also very good. So yeah, definitely we're starting to see a very good pipeline and very vibrant amount of transactions.
spk05: Great, that's helpful. So like others, you had a AOCI hit this quarter, brought down tangible capital. You're still pretty active with buybacks. And I don't think you transferred any to HTM. Can we just get kind of the rationale there? And then does that lower kind of TCE give you any pause for share purchases? Stock is still pretty attractive here. Just wanted to get some thoughts on capital and the outlook. Thanks.
spk08: Sure. So in terms of the OCI, there was definitely a shock that was very rapidly absorbed during the quarter. If we compare quarter over quarter, I believe it was probably in the 120 basic points in the five-year rate, which definitely impacted the valuation. Nevertheless, all is related to interest rate shock for the most part. We believe that long-term rates may have a little bit more of an extra room for increases, but we believe that most of the shock was absorbed already in the long-term section of the yield curve. So in speaking about repurchases, I guess one of the topics this quarter will be that we'll be very tactic on our repurchase program. So I guess one of the goals is to have preserved liquidity at the holding level. We just issued the $30 million subordinated debt, which boosted liquidity. Another $34 million were paid from the bank to the holding company. So I guess at this point, we will be very selective when we wanted to get in and buying stocks.
spk03: Yeah, Michael, I think Carlos is spot on with that. You know, I think we have obviously been very, very aggressive on the buyback side, and I think it's good. I think we know that where we are in the remaining authorization is something where you have to be very, you know, I'll call it surgical about where you want to select the opportunities. So, yeah. you know, as always, it's always going to be based on the, you know, the performance of the stock and whether we see that, you know, we continue to see that it's a value play for us to repurchase.
spk05: Great. Maybe just one final one for me. So Jerry, it's been a pretty active year for you since you stepped into the role. Where do you feel like the company is in sort of, you know, your, where you came in on the transformation effort of the company. Are we still in the early innings? Are we middle innings, late innings? Obviously, there's a lot of moving parts and pieces as to what you guys are doing. Just wanted to get a sense for where you think we are and the targets that you laid out for the ROA and ROE. Would you expect to revise those at some point this year? Thanks. Thanks.
spk03: Yeah, no, Michael, thank you for the question. I would say that we're certainly in a number of ways in the middle innings. We laid out that the goals when I started were things we were trying to achieve by the end of 2022. Certainly a number of them were very close to hitting the mark. So if you look at the deposit targets that we put out and how much we wanted to be of you know, on the non-interest bearing to total or the reductions that we talked about in brokered and that we really wanted to be an organic, you know, deposits first organization. You're seeing all of that coming through now in the numbers. Same thing on the loan side. The reorganization really puts a laser focus on each of the lines of business and the leaders of each of those now know that, you know, we're completely behind them in terms of the growth in each of the segments, right? And so we're just bringing equipment finance on board. We have a full complement of folks in Cree. We're just about to bring on some more people as it relates to CNI. So, you know, the expectations for growth, both on the loan and deposit side, I think are very, very high for us. And, you know, our expectations of ourselves are, that's why I was saying in my closing remarks that, You know, my view is, you know, it's time. We need to be showing, you know, very consistent, strong growth each quarter in addition to trying to complete the remainder of the transformation items, you know, that we've been talking about. And so, you know, the way to get there is going to be to keep driving the top line, keep focused on the expense side. But I think people should know that we have no hesitation to add additional business producing personnel. We certainly have been very supportive of, and you can see our marketing spend is up dramatically, and we think that it's something that's critically important. It's essential for us to do as an organization. The raise in our brand awareness, I think, is really a big contributing factor, and that's just not the marketing that we're doing on billboards and elsewhere. It's all the public relations work that we're doing. It's these partnerships we talked about, so I would say we're in the middle stages there or the middle innings because you're now starting to see the transformation, you know, become less of an item after this quarter and more of the focus is going to be about driving top line growth.
spk05: Great. Thanks for all the color. Sure.
spk02: Thank you. Our next question comes from the line of Steven Scotland from Piper Sandler. Your line is now open.
spk04: Hey, good morning, everyone. I guess I might want to follow up kind of on that line of questioning from Michael in the sense of, you know, the need to potentially revise any of those targets. I mean, especially, I know, Jerry, you said everybody's focused and knows what they need to do and knows what's at hand and ahead. But, you know, we're a fairly long way off from that sub-60% sort of target. So I'm just wondering, you know, is that something we need to move back? Do we strip mortgage out of that when we think about it? Or is there any nuance to that target or – things we might not be seeing today that are still to come that could get us there?
spk03: Yeah, Stephen, it's a great question. We're still committed to be driving for the 60% for the fourth quarter. It's what we said initially. It's what we're still committed to driving to do. The combination of how to get there is we're not going to cost-cut our way to greatness. We are growing this company. We're investing, and I'm looking at this you know, as things we need to do to build, you know, a better organization that it's going to be very sustainable, you know, consistent, repeatable about our ability to grow quarter in and quarter out, right? And so, you know, that's why I said, you know, in my response to Michael is that I think we're in the middle innings. But the biggest issue for us right now is, you know, this reorganization and how we are pushing both our commercial and consumer efforts. You know, all along, we knew we had to grow the top line. And, you know, that's the result. You can see it coming through in the numbers. And I think, you know, as we look ahead to, you know, what we project to be NIM expansion, NII growth, growth on the fee side, that they're going to be major contributors to getting to, you know, what we have to achieve in the fourth quarter.
spk04: Okay. Um, maybe if I think about mortgage in particular, um, you know, obviously with, with rates moving like they have, I'm sure that business hasn't completely maybe panned out as you, as you would have hoped, but in the near term, um, what's, uh, what's the timeline for, for potential break even in that business? Um, I guess moving forward from here.
spk03: No, look, I think it's fair to say that, um, We were hoping for stronger contributions from the mortgage division. Obviously, we made an additional capital injection. So, you know, we're not backing down from what we thought we were going to get from this team. It's a highly talented group. We're committed to the space. I can tell you that the mortgage team is a huge differentiator coupled with our private banking efforts. And I think, you know, from the technology side and from process side, things are completely worked out. I think this is really now a function of driving the top line. There's still really strong demand for financing for new home purchases. I think what the market now, right, I mean, stating the obvious, I think what's very different about the mortgage market right now is the refinancing boom is over, right? I mean, you know, in terms of when you compare this to 90 days ago or 120 days ago, very, very different dynamics, right, for... how you were thinking about the magnitude of refinancing. I think we've looked at the business as something that is a contributor to the other products and services that we offer. And so one of the things we are doing is really focusing on adding key personnel in the markets that we serve. But there's no question, right? And one of the reasons we've split it out is to make sure people, and we're being very transparent about it, that people see you know, where that'll come along to get to a break-even. You know, I'd like to say that we're going to be a lot closer to that in the second quarter because I think the effort to the team, finally, the sales volumes that are coming through are going to get us much closer to that.
spk08: And I believe also to add to Jerry's answer is the fact that the mortgage company have contributed to the total assets of the bank. When you look into the cross-selling opportunities with the private banking teams and other customers that we have, now the total loans from the residential loans coming from the origination of the mortgage company are close to $100 million. That interest income, we believe it's a good asset class in the sense that it has a good yield, but at the same time, duration-wise, it's not extremely long, given the fact that there would be There is a private banking component there. So that portion is also accretive, even though it's not being shown into the slides that we showed the performance of the mortgage company because it gets consolidated with our financial margin. But there's also a contribution there that is not specifically shown into those numbers because of consolidation. But it's a business that is on development. It's a great compliment, as Jerry mentioned, and we believe the second quarter will be critical for them to get to breakeven.
spk03: Yeah, and Stephen, just to be really clear, we're keenly aware that this is a higher efficiency ratio business, very much like bankers looking across their lines of business. Two of the businesses that are typically going to be higher efficiency ratio businesses are are the mortgage, you know, mortgage banking just in general and or wealth, right? And so, you know, we're keenly aware that we've got to outperform to help offset that as well. And so, you know, certainly front and center in our minds.
spk04: Yep, that's great. Okay, maybe just last one for me, the move in asset sensitivity you guys laid out in that in slide 15, very meaningful and great to see, obviously, in this rate environment. And I know you noted the 350 million longer term FHLB borrowings that help some of that. What other drivers were there within that change? Was there any change to your assumptions around deposit betas? And then how much of that securities book is variable that you mentioned?
spk08: Yeah, so in the case of the FHLB, and that was probably one of the drivers of the financial margin being stable throughout the quarter, because we increased the weighted average cost of financial liabilities because of the FHOB being longer. But there are, in the three to five years duration, those new additions that we did on the $350 million, and as I mentioned on the comments, those were taken 100 basic points ago. they were very good in terms of creating the sensitivity and the low cost of funds given the prospective environment. So that is on that end. In the case of the beta, that's the beta that we started to see based on the moves that we would like to produce on our deposit cost. Remember that the presence of 2 billion or 2.4 in the case of the total international deposit portfolio that help us to delay some of the increases in interest rates. We believe that banks would allow to decompress financial margin, at least in Q2, and that's exactly what we have been doing. So as you can see, we grew deposits even though we didn't increase significantly our rates. We're just a specific large relationships that they show some interest rate sensitivity, the ones that we transmitted some of the change. But 0.28, as I mentioned in my notes, is very good based on the deposit composition. So we feel that that should be keep throughout the second quarter, and that would allow for margin expansion given the upcoming or expected interest rate increases. In the case of the investment portfolio, about 15% is floating. We keep adding some floating rate exposure, which will expand nicely with increases in software and library.
spk04: Great. Great. That's great, Keller, and thanks for the reminder about the foreign deposits. That's a great benefit for you all. Appreciate the time. Sure. Sure.
spk02: Thank you. Our next question comes from the line of Michael Young from Truist Securities. Your line is now open.
spk06: Hey, good morning. Thank you for taking the question. Wanted to follow up kind of on the asset sensitivity discussion. You know, Jerry, heard your comments. Very good to hear about the loan growth upside that's potentially on the come here, but also, you know, the loan-to-deposit ratio is kind of above 100% right now. So, moving into just a higher, you know, funding rate environment? You know, kind of what's the outlook there? And, you know, could we have some, you know, I guess, even though you project really high asset sensitivity, you know, maybe some of that gets given back just to fund growth?
spk03: Yeah, no. Hey, Michael. It's Jerry. Good morning. I think, you know, it's incredibly important to note that, all of our different lines of business are focused on generating non-interest bearing deposit relationships that we're looking to be the bank of choice with our customers. And so, yes, in certain cases, you know, customers are coming to us and opening, you know, deposit relationships at money market rates, for example. But, you know, the vast majority, we are looking for them to be, you know, us as I think that's why it's really important to note that the growth is broad-based. It's not just coming out of consumer. It's coming out of business banking. It's coming out of private banking. We actually see opportunities, frankly, that if we want to continue to expand on the international side, there's more opportunity there. I would say that, again, remember, we're a deposits-first organization. Our business development officers, our treasury management team, all know that it's critical for us to generate low-cost funding to continue to see not only the organic loan growth, but also the NIM expansion that we'd expect as we go throughout the year.
spk08: Yeah, no, that's exactly the case. So Just to give you a perspective, Mike, and good morning, by the way, the increase in the deposit relationships is great. Just to give you a quick reference, the private banking team that we added last year has brought over more than $50 million in deposit relationships in multiple accounts. So that angle of being a relationship bank is definitely paying off. and it's paying off in the type of accounts that we wanted. So either non-interest-bearing accounts or low-cost checking accounts that they are incredibly accretive for the cost of funds and the mean expansion. So as you can see, we have completely changed the deposit composition, being a particularly high-cost, time-deposit-oriented financial institution. Last year, we dropped about $500 million in time deposits now an extra $97 million. So you can see the progression of the change in the composition of the deposit towards a better mix that would allow us to expand financial margins.
spk06: Okay. So just as a follow-up, so at 100% loan-to-deposit ratio today, is that kind of where we should expect you guys to remain with just funding kind of matching growth going forward?
spk03: Yeah, you know, we've stated a goal that we'd like to be in that 95 to 100 range, right? And I think trying to maintain us, you know, somewhere in that range, you know, the ultimate goal would be to certainly be, you know, closer to the 95 than the 100. But, you know, we're comfortable with, you know, being at the higher side of that.
spk06: Okay, great. And then, Last one for me, just on expenses, I think the core expense run rate this quarter is about $54 million. You know, I'm not sure if you had the full headcount reduction at the beginning or kind of year end, so I'm not sure how much of that's reflected in one queue. And then, Jerry, you mentioned some of the reorganization and some of the benefits coming through. It sounds like maybe in two queues, so, you know, maybe just a little bit of a perspective on kind of how expenses are going to trend through the year.
spk08: Yes. No, that's a good question. So we haven't reflected all the organizational changes in our non-interest expenses. So there would be an impact on the FTEs and their business reorganization that we will absorb in Q2, either from some of the bonus accruals or the salaries being paid. So there will be reductions recorded in Q2. So Run rate for our total cost or non-interest expenses will be probably in the $52 to $53 million now. So $54 core that we reported this quarter, it's considerably higher compared with the run rate that we will face from now on. Okay, great.
spk05: Thank you, guys. Appreciate it. Sure. Thanks, Michael. Thank you.
spk02: Thank you. Our next question comes from the line of Samuel Varga from Stevens Inc. Your line is now open.
spk07: Good morning. Good morning. I wanted to ask a couple of questions on the deposit side quick. We noticed just a very slight pickup in the monomarket costs, and so I wanted to ask what drove that. And just more broadly, have you had any sort of deposit rate changes on the pricing side so far?
spk08: Yeah, good question. So there has been some specific adjustments done to large relationships that they tend to be tied to Fed funds. Those so far have been the changes that we have produced. They are not widely generated massively to all customers. This is just specific adjustments that we did to certain large relationships. But there is no massive increase across the board.
spk07: Understood. Thank you for that. And then my final question is just around the consumer indirect portfolio. I wanted to get some detail if you could provide some color on the breakdown of what part of that portfolio is student loans versus some other loans. And maybe if you could just provide some color on the credit expectations tied to that portfolio, that would be very helpful.
spk03: Yeah, just to clarify, nothing is student lending. It is all debt consolidation. So more of people financing debt out of a credit card into an amortizing loan. And so I think the key to think about it there is it's just a continuation of the programs that we've had, particularly we've highlighted with SoFi in the past. We're just continuing on that path. It's important to know that we're in the process of developing our own opportunities in that marketplace, which could be very advantageous for us, you know, in the second half of the year. So, but, you know, typically that is nothing more than, you know, I'll call it debt consolidation.
spk08: Right. That's right. Yeah. There is, when you drill down into the composition, there is debt consolidation, there is home improvement, The way that, and going back to your question about expected losses, we really like the underwriting process based on free cash flow, not only in FICO, but also free cash flow, which we have as understanding the underwriting process very well of those funds. of those originations, it helps a lot on the prospective performance. So far, losses have been in line or even below expectations for an effective yield, including those losses, close to the 7%. So it's been a good journey so far, and we really like the quality that is being presented.
spk07: Thank you for that. If I could just think one last one. Back on the FHLB borrowings, the new ones that you put on, could you provide some color on the yields that you got on that?
spk08: Sure. They were in the range of the 1.5 to 1.75 approximately. They were definitely very accretive compared to the current market. and the blended average yield for the whole portfolio came at 1.10%, including those items. There will be additional moves as we progress through the quarter, because as you can imagine, what we did is a move to anticipate as much as possible or secure the funding in the long term, and the quarter ended with an excess liquidity that our plan is not keeping there, but trying to additionally recompose the FHLB advances as well.
spk07: Understood. Thank you very much for taking my questions. I appreciate it. Thank you. Sure.
spk02: Thank you. At this time, I am showing no further questions. I would like to turn the call back over to Mr. Plush for closing remarks.
spk03: Thank you, Gigi. First of all, just want to say thank you to everyone for joining the call today. We greatly appreciate your interest in AMRIT, and we hope that all of you have a great day. Take care.
spk02: This concludes today's conference call. Thanks for participating. You may now disconnect.
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