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spk00: Good day, and thank you for standing by. Welcome to the Bank United, Inc. first quarter 2022 earnings call. At this time, all participant lines are in listen-only mode. After the presentation, there will be a question and answer session. To ask a question during this session, you'll need to press star, then 1 on your telephone keypad. Please be advised, today's conference may be recorded. If you require operator assistance during the call, please press star, then 0. I'd now like to hand the conference over to your host today, Susan Greenfield, Corporate Secretary. Please go ahead.
spk05: Thank you, Liz. Good morning, and thank you for joining us today on our first quarter 2022 earnings conference call. On the call this morning are Raj Singh, our Chairman, President, and CEO, Leslie Lunak, our Chief Financial Officer, and Tom Cornish, our Chief Operating Officer. Before we start, I'd like to remind everyone that this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that reflects the company's current views with respect to, among other things, future events and financial performance. Any forward-looking statements made during this call are based on the historical performance of the company and its subsidiaries around the company's current plans, estimates, and expectations. The inclusion of this forward-looking information should not be regarded as a representation by the company that the future plans, estimates, or expectations contemplated by the company will be achieved. Such forward-looking statements are subject to various risks and uncertainties and assumptions, including, without limitation, those relating to the company's operations, financial results, financial conditions, business prospects, growth strategy, and liquidity, including as impacted by external circumstances outside the company's direct control. The company does not undertake any obligation to publicly update or review any forward-looking statements, whether as a result of new information, future developments, or otherwise. A number of important factors could cause actual results to differ materially from those indicated by the forward-looking statement. Information on these factors can be found in the company's annual report on Form 10-K for the year ended December 31st, 2021, and then the subsequent quarterly report on Form 10-Q or current report on Form 8-K, which are available at the SEC's website, www.sec.gov. With that, I'd like to turn the call over to Raj.
spk10: Thank you, Susan. Welcome, everyone. Thank you for joining us for our earnings call. Let me start by some comments about the economy and our markets that we are in. and generally how we see the outlook for things that we don't control but impact our business. Then we'll get into our numbers, and then Tom and Leslie will follow me with more detail. So the Main Street view, which is the view that we get from talking to our clients day in and day out, is actually very healthy. We are seeing a robust economy. in Florida have been for quite some time. And even New York has improved quite a bit over the last couple of quarters. So we have nothing really to complain on the economic front. Growth is strong. Personal and business balance sheets are strong and healthy. Of course, the usual issues with labor constraints and inflation, that's nothing new. But overall, home prices are up. Residential markets are robust. So The mainstream view that I will bring to you at this time is very healthy and strong. Then there's the other view, which is the capital markets view, which we get by looking at our Bloomberg screens all day long these days. This was a very volatile quarter and probably the most volatile quarter in quite some time. So especially in fixed income, we saw obviously the yield curve go up to where it is. But we also saw spread widening pretty much across the board in fixed income assets. So that gives us a little bit of pause when we think about sort of the medium to long term, as in maybe next year, that there may be a slowdown. Again, that can change. We'll keep monitoring it. But those are the sort of inputs we're taking into account as we are thinking about how to execute the strategy. quickly getting into the financial results for the quarter. Earnings came in at about $67.2 million, or 79 cents per share. NIM expanded. I think last quarter we were at 244. This quarter we came in at 250. Just for comparison, last quarter I know there was a lot of noise in the numbers, but if you go back to quarter one of last year, we were 239. Cost of deposits came down again to 17 basis points for the quarter. I think we ended the quarter for spot balances. The deposit pricing was around 16 basis points. I think this is the bottom in terms of deposit pricing, to state the obvious. Fed is going to raise rates fairly aggressively from what everyone is talking about. It looks like this quarter there will probably be 100 basis points increase between the May and the June meeting. So I think the positive pricing will start to rise from here on. But it's nice that we were able to work it down to 16, 17 basis points. If you remember last time the Fed reduced rates, started raising rates in the last cycle, Our cost of funds bottomed out somewhere in the 50, 55 basis point range. So we're very happy with what we've been able to do with our deposit franchise. By the way, we also had $688 million of DDA growth this quarter. So that momentum continues. Total deposits did shrink. That was deliberate effort actually started last quarter, fourth quarter, and into mostly done in this quarter. We did shrink our deposits, interest rate deposits, but DDA. And the DDA growth that we got, the $688 million, was pretty widespread. It came from all parts of the company. It came from all geographies to do business in. So it wasn't concentrated in any one area. And even before I get the question about how much of this was core, it wasn't. I'd say a vast majority of it was core. There's probably a couple of hundred million which would fall into the category of just money moving around at the end of the quarter. So outside of that, everything was core deposit growth. Average loans increased $586 million, but end-of-period loans declined $227 million. The biggest driver in that decline is mortgage warehouse business, which came down roughly $400 million, which is returning to its normal seasonal trend. Utilization dipped into the 30s. which is what happens in March the last couple of years because of the pandemic. They've been sort of outlier years, but now we see that business returning to its normal cadence, which is March being the slowest time in terms of utilization, and then it starts to build from here into June and generally into the third quarter before starting to slow down in the fourth quarter again. So we're seeing that return. And our other businesses are also seasonal. First quarter is always our slowest quarter, even outside of the mortgage warehouse business. And so we're seeing that. But in terms of pipelines, we're pretty excited about what we're seeing in our pipeline, both CNI and CRE. I think this will be the year CRE will grow. We've been shrinking CRE for many years, but we see momentum in that and look forward to that optimistically. Just taking a 12-month view, which I often say, you know, you should always look at, you know, on a 12-month rolling basis instead of looking at any one quarter. So I had these numbers just pulled, you know, quickly before this call. Over the last 12 months, NIDDA, a non-interest DDA, grew $1.7 billion. Our total deposits grew about $800 million, $809 million, and this is all excluding, and loans excluding PPP grew $841. So the loan growth deposit growth is roughly in line And DDA was really the big story. Credit, really quick, nothing but good news here. Again, as expected, but nevertheless good to see the numbers. NPL declined from 87 basis points to 65 basis points. And by the way, if you carve out the guaranteed portion of the SBA loans, then the NPL stood at 47 basis points. Criticized classifieds. which have been declining steadily every quarter. That trend continued. It came down by another $280 million, which we're happy about. And annualized net charge-off rate came in at 15 basis points. Just to put it in context, last year, for the full year, we were at about 29 basis points. Our buyback program, we bought back $82 million of stock in the first quarter. You already know that we increased our dividend by $0.02 to $0.25 a share. And I expect that we will burn through this entire buyback authorization sometime in the second quarter. And when we do, we will go back and talk to our board, and I expect there will be another authorization which will be coming shortly after that. In terms of, you know, we gave you guidance on loans and deposits and expenses and margin and so on. We stand by all the guidance we gave you. So we're reaffirming everything and we're feeling good about what 2022 is shaping up to be. Putting aside the numbers, just a couple of other updates. We did come back to the office in the first week of March, so we are in the new normal now. So after many false starts with the virus and what have you, we eventually are back to the new normal. And it has gone well, you know, as long as you exclude the fact that Tom, Leslie, and I all got COVID very quickly after returning to the office. Other than that, everything has gone just fine. And we're fine. We're healthy. You've heard me talk a lot about the vision of the company and what we're trying to build long-term, which is a relationship-based middle market, small business bank. A relationship-based bank, our most important currency is trust, trust that our customers put in us and even our employees and our regulators and everyone puts in us. This is something that makes me really proud. Newsweek announced that they ranked all the banks in the country on a trust factor, and we were ranked number fourth most trusted bank in the country, and we're very proud of this achievement, and we're celebrating it in the company. Quickly on Atlanta and Texas expansion, we have hired the head of the CNI business, the head of the CRE business, Our head of healthcare practice, which is a vertical, already is in Atlanta, so that bench strength is getting in place, and we are moving into our offices, I think, within the next week or so. Same thing in Atlanta. We received approval for our branch just a couple of days ago, and we opened the doors, I think, next week. The team is hired, trained, and ready to go. So all good news and progress over there. In fact, in Atlanta, I think we've already booked our first piece of business, a pretty marquee name on the CNI front. We did that loan just a couple of weeks back. So with that, let me turn it over to Tom for a little more deep dive into the numbers.
spk01: Great. Thank you very much, Raj. So to follow up on Raj's comments on Atlanta and the Dallas expansion, there's a number of other strategic initiatives that we have in place for the year that we've also made some key hires. We bought in a sponsored finance leader in our New York market, focusing on sponsored finance business. We've not had a dedicated effort on the sponsored finance area previously, so we're excited about that. We've recently hired a new trade finance and supply chain finance leader in the Miami market. And Florida and New York and the Southeast are great export markets for us, so we are optimistic about that. And as Rod said, New York is on the move, and we have hired a middle market banking leader for the Long Island market. We like very much what's happening in middle market banking in Long Island, and I think it gives us a great opportunity to increase our portfolio and client base in the Long Island market. A lot of good successes on the hiring front over the last couple of months that we're optimistic about. We'll see through the results for the rest of the year. Covering deposits and loans, just a little bit more. As Raj mentioned, total deposits declined by $897 million. Most of that runoff was in what we believe to be interest rate-sensitive accounts, broker deposits and interest-bearing accounts. that are higher on the data side. We've been working over the last few quarters in awaiting interest rate rises that we expect to see in moving out of some of this activity. Some of it happened a little bit in the fourth quarter. Some of it got delayed into the first quarter of 2022. But our strategy continues to be around very solid NIDDA growth, as Raj mentioned, overall growth of $688 million, strong new business acquisition with new logos. You also see that bleeding through in transactional revenue business. Our service charge revenue was up year over year for the first quarter about 22%. So that strategy of new relationships, expanding, Winning singles and doubles and key relationships every quarter is an important part of our overall strategy. On the loan side, as Raj mentioned, average loans increased by $586 million for the quarter, although at a point end they were down $227 million, predominantly due to the large decline in the mortgage warehouse business that Raj explained. Residential did grow by $244 million. I'd also point out that the CNI books grew by $122 million in balances for the quarter, but was also up $345 million in total commitments for the quarter. That was broad throughout the corporate banking business, the commercial banking business, and our small business, and across a number of different industry segments. So we feel really good. about CNI growth for the rest of the year. I feel the same way about Cree growth. As Rod said, pipelines are very healthy for near-term business in the second quarter. I feel very good about the growth that we're going to see. I expect to see very solid growth in the CNI segment. I expect to see growth in the Cree segment. We're seeing particularly good growth in Cree. In the New York market, we're very optimistic about a lot of transactions that we feel are very near-term transactions in the New York free market. So with that, we'll turn it over to Leslie for more details on the quarter.
spk10: Actually, Leslie, let me just interrupt, just to add a little thing. We did see a fair amount of dislocation in the fixed income market, and we were opportunistic, especially in the month of March. We stepped in and deviated from what was our original plan. The original plan was not to grow the bond portfolio this quarter. In fact, the plan was to shrink it. but we looked opportunistically and we saw spreads that are at, you know, really amazingly wide spreads. So we stepped in and we grew the bond portfolio all towards the end of the quarter. So you don't see the impact of that in the P&L really. This quarter you will next quarter. But that's just an explanation on, you know, why the bond portfolio grew. Totally opportunistic, nothing else.
spk06: Thanks, Raj. Thank you. So a couple highlights from the quarter, a little more detail around the numbers. The NIM increased this quarter to $250 from $244 last quarter. To break that down a little bit, the yield on investment securities increased to $173 from $154. The duration of this portfolio is short, so we're already starting to see the impact of rising rates and widening spreads on the portfolio yield as new purchases are coming on at higher spreads. Slowing speeds on premium securities also positively impacted the yield on securities for the quarter by about eight basis points. We saw the yield on loans decline to 336 this quarter from 350 last quarter. I wouldn't say any one single factor drove that, but at a high level, You know, we still saw for most of Q4 and Q1 of 2022, loans that were coming on were coming on at a little bit lower yields than loans that were running off the portfolio. We didn't see this move in rates until very late in Q1. And we did start to see an inflection point towards the end of March in terms of the yields at which new loans are putting on. So we should start to see this go the other way as we move forward through 2022. The total cost of deposits declined by two basis points quarter over quarter, and the cost of interest-bearing deposits declined by three basis points. I will point out that we have locked in some term deposits in anticipation of rising rates. We've issued some callable CDs and some brokered CDs and put some cash flow hedges on against the deposit book. If we exclude all of those instruments from the cost of interest-bearing deposits, it would have been about three basis points lower for the quarter. We also saw the cost of FHLB advances decline to $111 from $186, and that's really due to the runoff and termination of borrowings and related hedges at higher rates and the addition of new advances at lower prevailing rates. We still expect double-digit growth in net interest income for the year and further expansion in the MIM over the course of the year, probably most concentrated in the back half of the year as we really see the impact of rising rates on the loan portfolio. The extent to which we see the NIM expand obviously will depend in part on how competition around deposit pricing evolves. Moving to the ACL and the provision, the provision for credit losses for the quarter was $7.8 million, and the provision was mostly driven by qualitative overlay that we added related to economic uncertainty around some of the factors Raj discussed at the beginning of the call. The reserve remained consistent as a percentage of loans, 54 basis points at March 31st compared to 53 basis points at December 31st, 2021. Some of the factors impacting the reserve for the first quarter, one was a, or the largest was a $12.8 million increase in qualitative overlays related to economic uncertainty, particularly around inflationary concerns and the impact of all the things the Fed is doing, rising rates, quantitative tightening as well as the war in the Ukraine and some lingering uncertainty around the pandemic. The economic forecast partially offsetting that drove a $4.9 million decrease in the reserve, an increase of $5.6 million related to updated assumptions, the most significant being updated repayment speed assumptions. and an offsetting decrease of $6 million related to various changes in the portfolio, new loans, runoff, risk rating, migration, et cetera. And we took net charge-offs for the quarter of $8.5 million. Slides 20 through 22 in the supplemental deck give some more information about criticized and classified assets and risk rating migration. Again, criticized and classified commercial loans declined by $280 million this quarter. special mention down 53, substandard accruing down 180, substandard non-accruing down 25, and doubtful down 21, so declines across all of those categories. Total non-performing loans decreased by $55 million to $151 million this quarter, and that $151 includes $42 million of the guaranteed portion of SBA loans on non-accrual. I want to talk for just a minute about the The mark on the bond portfolio, I'm sure you saw Raj talk about the volatility in fixed income markets. It was probably the most volatile fixed income market quarter we've seen in a long time. Unrealized losses on our available for sale securities totaled $235 million at 331 pre-tax. The after-tax impact on AOCI of that was $174 million. We have some details about that on slides 25 and 26 of the deck. Portfolio segments with the largest impact were RMBS, CMBS, and agencies. All of this is attributable. This is a rate mark. This is not anything indicative of any credit concerns in the portfolio. All of these unrealized losses are attributable to increasing rates and, to a lesser extent, widening spreads, all brought on by the Fed's actions and expectations about further quantitative tightening. They're temporary in nature, not indicative of credit concerns, and we are not concerned about this at all. We get a lot of questions about moving securities to held to maturity. Moving a security to held to maturity doesn't change the economics or the risk profile associated with holding a security and simply eliminates any flexibility that we have in managing our bond portfolio, so we've chosen not to do that. The silver lining in this is that we've been able to purchase securities Securities towards the end of March had some very attractive spreads, and we're already seeing some of that in the increase in the yield on securities this quarter. Related to this, in the first quarter, we also took a negative mark through the P&L of $10.5 million on some preferred stock investments that we hold at the holding company, also attributable to rising interest rates. The majority of the securities in that portfolio are still at a gain position compared to their original purchase price. And when this turns around, the positive mark will also run through earnings. Since these are equity securities, the mark runs through earnings. Other notes on non-interest income. I want to point out that the growth in non-interest DDA and changes we've made to our sales strategy and product suite in the treasury management area resulted in a 22% growth in deposit service charge revenue compared to the first quarter of 2021. The decline in that other non-interest income line for the quarter relates to a couple of things that can be somewhat episodic, in particular, again, response to what's going on in the fixed income markets, lower BOLI revenue, and a little bit lower income from our customer derivative program this quarter, which can also be somewhat episodic. On the non-interest expense front, comp expense declined by $3.5 million for the quarter. This is really related to the special employee bonus we paid in the fourth quarter of 2021 that was $6.8 million, and that was partially offset by the employee benefit type stuff that is always elevated in the first quarter. I would say from a comp expense standpoint, Q1 is probably a pretty decent run rate for comp for the rest of the year. While some of the typically higher first quarter stuff will moderate, we'll see the full impact of merit increases and planned staff additions in future quarters. That is all I have, and I will turn it over to Raj for closing comments.
spk10: Thanks, Leslie. Let's just open it up for questions.
spk00: If you'd like to ask a question at this time, please press the star, then the number one key on your touchtone telephone. To withdraw your question, press the pound key. Again, that is star, then one to ask a question. Our first question comes from Brady Gailey with KBW.
spk12: Hey, good morning. This is Will Jones on for Brady. How are you guys?
spk06: Hey, good, Will. How are you?
spk12: Hey, great. So I just wanted to start with the buyback. You know, you guys were obviously very active again this quarter. Raj, you've been active and very active in 3Q, very active in 4Q. Raj, your comments seem to indicate that there's not going to be any slowdown on the buyback. I mean, can we still expect the buyback to be at similar magnitudes as in prior quarters and I just wanted to get your thoughts on how you think about your excess capital position and whether there's any limiting factors in there.
spk10: Yeah, I think in the short to medium term, you know, I don't think there's anything there. I think long term you always have to look at growth prospects. You have to look at economy. You have to look at, you know, a number of things. But in the short term, defined as the next three, four months, I don't see really much of that changing, so that's why I say that I think we will get done sometime over the next few weeks with the authorization we have in place, and we expect to go back to the board for another $150 million. You know we get authorizations 150 at a time. We don't do a big one. This gives the board a chance to kind of look at it again, make the decision again, keeping in mind what has changed in the with the situation, but I fully expect, I think we have a board meeting in the middle of May, actually a shareholder meeting in the middle of May. It might be at that or if not that, maybe shortly thereafter, I think we'll be asking for another authorization.
spk12: All right, could you just remind us how much you have left on your current authorization?
spk10: At the end of the quarter, Leslie, do you have that number? How much should we?
spk06: I can find it. In just a minute.
spk12: Yeah, no worries. We can circle back if needed.
spk06: I'll find it. Carry on. I'll throw it out there when I find it.
spk12: That would be great. Thank you so much. And then just thinking, you know, bigger picture, you know, I know we haven't touched on Bank United 2.0 in a while. I think as of, you know, earlier last year you had already achieved the $40 million cost saves and we're working on the $20 million revenue synergies. Could you just update us? us on where that stands today, or maybe if that's already played out. And then, you know, as you think longer term, or maybe more intermediate term, growth is picking up, you're having a nice shift, rates are moving higher, and we're just in an environment to see some nice positive operating leverage. Have you guys had discussions over internal profitability targets? And do you think, you know, something like a 1% ROA could be plausible in the near term?
spk10: That is the near-term goal, is to hit 1% ROA, double-digit ROE, on a consistent basis. I mean, we hit that from time to time, but to be consistently above that is the short-term target. A lot depends on what happens. Listen, margin is going to expand. How much exactly, time will tell, but margin will expand. We're not betting the ranch on rates going up, but we are slightly asset-sensitive. So margin expansion will help get us closer to that. And, you know, it is the last two years of this pandemic, you know, it didn't do any permanent damage to the balance sheet for us or for most banks. What it did was, you know, that opportunity cost of not having grown our CNI business, not having sort of, you know, improved our asset mix, that is the real cost of kind of slowing us down in, you know, what batch we were on to achieving higher profitability. Now that the pandemic feels almost behind us, I don't think it will be ever fully behind us, but for the most part feels behind us and we're returning to normal, it is to pick up and, you know, those last 18 months in terms of CNI growth, CRE growth to actually execute on that and build margin and build revenue and build profitability.
spk06: Yes. Ross, just to interject, at the end of the quarter, there was $94 million left in the buyback authorization. Yeah. Well, there's your answer.
spk12: No, all very helpful. Thank you so much.
spk00: Our next question comes from Ben Gerlinger with Hubdy Group.
spk11: Hey, good morning, everyone.
spk00: Good morning, Ben.
spk11: I was curious. I know that you guys have had the expansion into Atlanta, and then soon... Texas. I think Raj said he actually booked your first loan in Atlanta. I was curious if you had any intermediate goals. I know you have a team that you're putting together. What can really be in shape of Atlanta relative to broader Bank United? Is there a loan portfolio metric you would like to see or have a balance of by the end of the three years?
spk10: Yeah, so, Ben, we have internally, obviously, a plan and targets for the team that has been hired, and their incentives are tied to that, so they have targets. But we have not disclosed them. In fact, for any business that we've started, we've never disclosed exactly what we're trying to do in the short, medium, long term. But I will say this much, that if you look back at any business we've started, we've never come out especially on the lending side of the business and said, you know, we're going to do hundreds of millions of dollars right off the bat. I don't think that's prudent. I don't think, you know, you would want us to do that. So, you know, in the first year of these initiatives, they don't move the needle for the company. You know, they're small and they don't move the needle, but over two, three, four years, they certainly become a very important part. Look at Orlando, look at Jacksonville, look at our mortgage warehouse business. All of these things, generally the takeoff is slow, but once we are comfortable, once you've gone through a cycle, audit and exam cycle, we get the confidence to say, okay, let's get into a higher gear. So I would expect more growth next year than this year. And by the way, for Texas, just to clarify, You know, I've said this in the past, that is more a deposit play, at least in the short term, and not a loan play. Atlanta is both. So it's a full-service play. But, you know, I don't want to throw out numbers. Internally, obviously, we have numbers, especially for the team that has been brought on. They have their targets they have to hit over the next year, two and three. But I don't think they are going to move the needle for the company in 2022.
spk11: Gotcha. Okay. No, that's very fair. Leslie, if we could just take a minute here to talk about the margin. Sure. I think the forward curve is expecting, I think last check it was like 50-50-50 over the next three Fed meetings. And when you think about the margin today, is it fair to say that the gain that we just saw linked quarter is something that we can kind of expect over the next couple quarters? Or is this outside improvement?
spk06: I would say over the rest of the year, I feel more confident now than I felt when we spoke last about margin expansion. I don't know that the second quarter will see as much margin expansion as the first quarter saw. Honestly, you know this, Ben, I don't really think about this on a quarter-by-quarter basis, but I think we'll see good expansion over the rest of 2022. I still tend to think you'll see more of it in the back half, just as commercial loans get added to the balance sheet at higher spreads and begin to have more of an impact on the margin. But I do expect further expansion over the course of the rest of the year. I'm not going to try to pinpoint exactly what quarter we're going to see how much of it ends.
spk11: Got you. Okay, that's fair. Direction is up, so that's good. And then if I can sneak one more in about expenses. Historically, you guys have had one queue has always kind of been a bit of the high watermark. And I know you gave guidance last quarter about It really encased the looming wage inflation, so I think that was prudent from your guys. But when you guys think about the additional hires, is that kind of baked in to previous guidance?
spk06: Yes. We still feel very good about the previous guidance on the mid- to high-single-digit guidance that we gave around non-interest expense in January. We still feel confident in that guidance.
spk11: Gotcha. Okay. I appreciate it. Thanks, guys.
spk06: Yes.
spk00: Our next question comes from Brock Vander Vliet with UBS.
spk02: Good morning. Thanks for the question, Raj. I wanted to go back to your comment on warehouse. One of the few optimistic comments on this business, for example, TCBI is going down about 30% for the year. What gives you the confidence, I guess specifically, that we see a seasonal uptick in the second and third quarter?
spk10: I think the business has – the mortgage origination business is now almost virtually a purchase business. There's no refi. I think the refi business got totally flushed out of the system probably four months ago when rates really started to rise. So the purchase business is still pretty decent. Now, there's a chance that if rates keep rising the way they are, that the purchase market will be impacted as well. If rates stabilize where they are, 5% mortgage rate, while it sounds terribly high compared to where it was in December, it's still not that crazy in terms of killing the purchase market. But if this goes up, it can impact the purchase market too. But, you know, for us, Mortgage Warehouse is one of the many spigots, right? We have all these spigots of lending, I call them. And it's a, on a $35 billion balance sheet, it's a $700 million in outstanding. So, you know, for that business line and for the people who are in that, obviously is everything. Look at what happens with utilization on an hour-by-hour basis. But for us as a company, you know, even if you're off a little bit here or there, it doesn't really impact the numbers that much because it's not the tail wagging the dog. It's still one of the many businesses we have. So I could be off. Maybe it doesn't return to normal. But, you know, I'm looking at where your position is now, and I went back and I looked at every March from the time we started the business. It kind of feels like exactly where March is supposed to be. You know, the last two years were the exception. But we're always in the 30% to 40% range in March. And then by June, it starts to be in the 55-ish range. In September, it holds up into the mid-50s as well. And December, it starts to peter down just a little bit. That's sort of a very, very consistent curve of utilization year after year after year, with the exception of the last two years. So I'm looking at that and saying it looks like it's returned to normal in the But there is a chance that the purchase volumes also come down. If the 30-year rate goes to 6%, which it could, seeing how fast it has come to 5% or even higher, you could see an impact and utilization may not go back up. But even if it doesn't, if it goes to only 40% or 45%, it's not that big a business for us.
spk06: Raj, I'm dating myself here, but I still remember my first mortgage. It was 12%.
spk01: I would also add to Raj's comments that our commitment level remains strong. So, you know, we actually expect our commitments will go up in the second quarter. And I think part of it is we remain well positioned in the relationships we're in sometimes in this business contracts. People consolidate lines. We're not seeing that in our client base. Our commitment levels are staying strong and even growing a little bit.
spk02: Okay. And just as a follow-up there on the one side, you tossed that color on the warehouse and the pot. What should we think of, you know, potentially with CNI utilization increasing later in the year, What should we be thinking about in terms of just total loan growth? How should we think about that?
spk10: Yeah, outside of the warehouse business, the CNI utilization levels are increasing slowly but steadily. So over the last six months, we've seen every month a few basis points up and up and up. It is still far from normal. It is, I would say, we're maybe halfway to normal from the bottom that we saw at the beginning of last year. So there is still room of improvement. It's hard to predict because it's so much tied to what happens with supply chain disruptions. I don't want to go out too much on a limb and say it will return to normal by the end of the year, but I think we will see improvement from where it is today because now we've had about five, six months of consistent improvement every month a little bit at a time.
spk06: I would also add that we guided in January to mid to high single-digit total loan growth for the year, ex-PPP, which at this point actually has become pretty irrelevant. And we haven't changed that guidance.
spk02: Okay, great, excellent. Thanks for the questions.
spk00: Our next question comes from Jared Shaw with Wells Fargo.
spk04: Hey, good morning. Hey, Jared. Looking at the commercial real estate, do you think we've hit the inflection point there, and should we start to expect to see some growth return to CRE? Yes.
spk06: We expect this to be a growth year for CRE, and it'll be our first growth year in CRE in the aggregate since 2017, so we're pretty excited about that. We spent many years kind of running down that multifamily portfolio in New York, And we do expect this 2022 to be a CRE growth year.
spk04: And will any of that be New York City or New York City multifamily, or is it sort of just all throughout the franchise?
spk10: It's some in New York City multifamily, but not like the old days. It is much more widespread. It is, you know, I'll tell you what it is not. It's not retail and it's not CBD, the Central Business District office. So it is a lot of other, it's multifamily in both geographies. It is industrial, it's warehouse. It is some office, some medical office space, some suburban office. And even a little bit of retail when it makes sense, but it's really on a sort of exception basis. So it is, you know, there's no one asset class that I would point to. So, New York policy family, yeah, there'll be some, but not a lot.
spk01: I would also add that when you look at the differences in the portfolio, the level of sponsors that are coming back into the market the last six to eight months, and that's what we're seeing in our pipelines, is a level of sponsorship that we feel you know, very good about throughout most of last year. What you saw in the market was really kind of short-term bottom fishers, you know, looking for deals. The entry-level point now in the loans that we have in the pipeline that I think will certainly lead to growth, especially in New York, are serious long-term investors in the market and very serious sponsors. We're very happy with the quality of what we're seeing.
spk04: Okay, that's a good color. Thanks. And then Looking at funding and deposits, what are some of your expectations for deposit changes as we go forward? Obviously, your loan-to-deposit ratio is still much lower than historic levels. Should we continue to see deposit migration and using the FHLB to fill in where needed?
spk10: First and foremost, we're not letting up on our DDA growth effort. So we want to keep bringing in new business. We've had a lot of success with it, and we don't want to get off that discipline. So let's start there. So DDA growth should continue. I will add a caveat to that. As rates rise and eventually ECRs rise, there will be a little bit of a headwind on DDA growth, not from new business coming into the banks, but just generally commercial customers not needing to keep that much in balances to avoid fees. So that will be the headwind that, you know, us and every other commercial bank is going to have later in the year. But other than that, DDA growth, you know, I can't tell you how busy we are in the back office, you know, onboarding new clients. It's actually a problem that we're trying to address that, you know, our people are working, you know, ungodly hours to onboard clients. And that's the kind of problem you want to have, right? It's a good problem. In terms of the rest of the deposit book, I think the guidance we gave you is that we're looking for very little or no growth in total deposits because eventually we want to kind of balance things out. We still have, you know, way more deposits than loans. So that still stays. This increase in deposits, while we're all sort of modeling away what this will have, how this will all play out, It's going to be quite different from last time. Last time around, if you remember, slower or lower longer was the word used over and over again describing how the Fed will lift off rates. Well, this time it's the opposite. It's higher faster is the mantra. I mean, what took three years to do last time for the Fed, I think the Fed is going to do that in a matter of three quarters, if not less. I think we just have to kind of just be careful in a very fast-moving market to stay on top of that and predict what will happen with deposit flows. But overall, we're not defining success by growing the total deposit book, but by growing the DDA book. That's really what we're incenting our people to do, and that's what I think builds long-term profitability, long-term franchise value for us. So, you know, we're ready. Rates are going to rise, you know, in a couple of weeks. I think it will be a different ballgame. And then in June, I mean, we'll be at 125, 150 basis points of Fed funds. It will be a different world by the time we talk to you in 90 days.
spk04: Yeah, that's good. So when you say little to no growth outside of DDA, is that little to no growth on the overall total balance?
spk06: In total deposits, correct.
spk04: Okay, so DDA will still grow up. The others will go down. The bottom line will stay the same. you know, relatively unchanged.
spk06: That'd be our goal. And to your comment on FHLB, you know, Jared, we're still very comfortable with where wholesale funding is on our balance sheet and the loan-to-deposit ratio. That growth in FHLB advances this quarter was really a product of us being opportunistic right near the end of the quarter in taking advantage of some opportunities we saw in the bond market to put on some higher spread assets. And, you know, we, you know, 90 days ago, we would have thought the bond portfolio would have amortized down this quarter. We ended up not including the fair value mark, growing that portfolio by $700 million. That's really the shift right there from thinking it would be down 300 to it being up 700. That's your billion dollars in wholesale funding right there. And it was just an opportunistic move that we made right at the end of the quarter, and it'll even out.
spk04: Okay. Does that make sense? It does, and that sort of brings up my final question. When we look at the The fair value adjustment, the $10.5 million charge through the securities gains. So you must have obviously sold some securities.
spk06: No, we didn't sell anything. We didn't sell anything. That was a mark on some preferred stocks that we hold at the holding company. And because they are equities, the mark runs through the P&L. Oh, you mean sold something to partly offset that. Yeah, we always do, and not with that intention. It's not like we sold something to offset that. Those sales were just incidental to the management of the bond portfolio. We always have a little bit of that every quarter.
spk04: Okay, can you share the balances that you sold? No.
spk06: No, I don't have all those details in front of me.
spk04: All right, how about what you purchased – I guess, what was the purchase yield and purchase duration?
spk07: All right, hold on. Yeah, I can tell you that. Give me just a minute.
spk06: So the yield on what we purchased for the quarter, Jared, was for the whole quarter was in the mid-2s, and what we sold was in the mid-1s. So that gives you, you know, towards the end of the quarter, what we were purchasing was in the mid-3s.
spk04: Okay. And you don't have the total...
spk07: No, I don't.
spk04: All right. Thank you.
spk00: Our next question comes from Matthew Breeze with Stevens.
spk03: Good morning. Morning. Hey, I wanted to go back to the mortgage discussion, but gain on sale. I'm sorry if I missed it in the prepared remarks. but what happened to cause the gain on sale item to be negative this quarter?
spk06: First of all, we don't have a mortgage origination in sales business, so that's not what's going on. That really related to the sales from our Jenny Mae EBO portfolio, and we've had kind of a weird phenomenon this quarter with the violent move in rates that we saw right at the end of the quarter. We had some loans that were kind of caught in the process of modification right then and got modified at lower than prevailing rates and ended up being re-pooled at a loss. That was kind of a weird sort of timing difference between when the loans were modified and when they were sold. The ones that are being modified now are being modified at much higher rates. But I will say the total yield on that EBO portfolio for the first quarter, including the interest yield and that loss, was still over 4%, so we're pretty happy with that.
spk03: Got it. Okay. And then I was hoping you could share with us your thoughts around or forecast on deposit betas and loan betas over the next, call it, 12 months.
spk06: I think where we sit with deposit betas, you know, I would say we project them to be significantly lower than they were last time we were in a rising rate cycle. I hesitate to put a specific number out there because any number I would put out there would be heavily assumption driven. And our deposit book is a completely different deposit book than it was last time we were in a rising rate cycle. So we don't have historical data that we can confidently base all of those assumptions on. But we are highly confident that we'll see lower betas than we saw last time around on the deposit side.
spk03: And at this point, have you increased pricing on any core or offered rates?
spk06: No. But that's coming. I mean, you know, we haven't yet.
spk10: It'll definitely happen this quarter given we're expecting 100 basis points move. So the first move. We didn't. Maybe Leslie, just to be absolutely correct, there may have been one or two clients where we went to do that.
spk06: Individual clients. Yeah, I was thinking more across the board offered rates.
spk10: No, not across the board. But it will happen, I'm sure, this quarter.
spk03: Got it. Okay. The other thing, just turning to expenses, was the deposit insurance expense has been steadily declining. Where does it settle out? Are we at that point right now? Probably right now.
spk06: Yeah, I think so. I think this is probably a fairly decent run rate.
spk03: Okay. And then just last one for me. You had mentioned hiring a team out in Long Island. Obviously those metro New York City markets have been heavily disrupted by M&A. Just curious if that team hire was due to the disruption we've seen out there or more from a traditional kind of, you know, big bank, larger bank employee or set of employees.
spk01: I would say the latter. The augmentation that we've done to the Long Island team has predominantly been, larger bank, long-term professionals that like our environment and our culture and the flatness of our organization and what we're about.
spk10: I will add to that, though, there is a fair amount of noise in the New York market from all the M&A activity. We have interviewed several people more than usual in the last few weeks and months.
spk03: Got it. Okay. Great. That's all I had. Thanks for taking my questions.
spk00: Our next question comes from Chris Marinette with Janie Montgomery Scott.
spk09: Thanks. Good morning. Matt asked the same question I had about beta. So let me just ask from a different perspective. So the world's going to be different in 90 days and probably a year given rates, as Raj had mentioned. I'm curious to Do you think that the combination of higher interest rates and some continued expense operating leverage is really going to position Bank United for much stronger profitability, kind of as your return on assets, PPNR returns, et cetera? Just kind of wanted to get that out there.
spk10: The reason I have Leslie on the call is because she gets all the fun answers, the fun questions.
spk06: So the high-level answer to your question is yes. But, yes, I do think we're going to continue to see margin expansion. While we are going to see an increase in interest expense, I think the – or not interest expense, in non-interest expense, operating expenses, I think the increase in revenue will outpace that. So you will see operating leverage, and you will see increasing profitability. Now, I'm not making a prognostication for any one particular quarter when I say that, but I do think that will be the trend.
spk09: No, I completely understand. I appreciate that. I just kind of wanted to clarify that. And Raj, you had mentioned earlier about loan rates getting higher at the end of March. So should we continue to see kind of new onboarding loan rate strength in this quarter? And then again, it will, I'm sure, be even higher come July and August.
spk10: Yeah, I think the best piece of news over the last three months has really been the widening of spread that we're seeing. And I have my own theory about this. I think the Fed stepping out of the market and letting private markets do their thing is really, really the best news that we've had in the last 90 days, which is why you had this violent movement in rates and spreads. I think overall it's a good thing. Nobody likes to see their bond portfolio get marked like every bank has seen this quarter. But I think we're all doing better business and healthier business for that reason. I think no matter what asset class you look at, and you can go look that up on Bloomberg, things have widened, spreads have widened. Rates are obviously where they are, but spreads have widened. I hope it sticks and it's not just momentarily. I mean, we've seen it now for about a month, wider spreads. And the loan portfolio, especially the commercial business, the news comes late over there of widening spreads, but it is getting there. And we're seeing it come into the business that we're doing. And if it sustains, that's good for us and for every other bank that is in the market. So the Fed stepping out was the biggest news this quarter, and I think it's good news.
spk09: Great, Raj. Thank you very much, and thank you, Leslie, as well. I appreciate it.
spk02: Thank you.
spk00: That concludes today's question and answer session. I'd like to turn the call back to Mr. Singh for closing remarks.
spk10: Thank you very much. Thanks, everyone, for joining us. And we'll see you again in 90 days, if not sooner. Thanks. Bye.
spk00: This concludes today's conference call. Thank you for participating. You may now disconnect.
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