nCino, Inc. (NCNO) Q4 2022 Earnings Call Transcript
Amerant Bancorp Inc (AMTB) Q1 2022 Earnings Call Transcript
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Amerant Bancorp Inc ( AMTB -1.14% )
Q1 2022 Earnings Call
Apr 21, 2022, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, and thank you for standing by. Welcome to the Amerant Bancorp first quarter 2022 earnings conference call and live webcast. [Operator instructions] I would now like to hand the conference over to your speaker today, Laura Rossi, head of investor relations of Amerant. Please go ahead.

Laura RossiHead of Investor Relations

Thank you, Gigi. Good morning, everyone, and thank you for joining us to review Amerant Bancorp’s first quarter 2022 results. Also on today’s call are Jerry Plush, our chief executive officer; and Carlos Iafigliola, 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.

Amerant’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 other filings with the SEC. You can access these filings on the SEC’s website.

Amerant 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-GAAP financial measure to its most comparable GAAP financial measure. I will now turn it over to our CEO, Jerry Plush.

Jerry PlushVice-Chairman, President, and Chief Executive Officer

Thank you, Laura. Good morning, everyone, and thank you for joining Amerant’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 Amerant.

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 3, 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 onetime 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 brokered 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 4. You can see that the company’s capital continue to be strong and well in excess of minimum regulatory requirements to be considered well-capitalized as of March 31, 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 31. 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 5 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 onetime gains or losses or other nonrecurring items in order to show Amerant’s core earnings power.

Higher marketing spend this quarter and lower fee income versus fourth quarter were key drivers that impacted 1Q ’22 results. So let’s cover some key actions that took place on Slide 6. So we announced the retirement of two longtime 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% 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 Amerant Bank and 79 are part of Amerant Mortgage. It’s important to highlight this. As of quarter end, 58% of our total FTEs are in the business generating side of the company versus 42% 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. Amerant was the seventh bank to join the National Association formed to provide a base source for bank’s 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 C&I team members have been identified. We’ll have an official announcement on this shortly. We’ve already closed on a number of CRE and C&I transactions to date, totaling $87 million through March 31.

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 multiyear agreement for an outsourcing white label solution to provide equipment financing in altering 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, Amerant 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 3Q ’22. Construction is now underway for our new smaller operations center in Miramar, Florida. We also initiated the common-looking field project that we’ve spoken about previously at our market headquarters location in Houston.

So let’s cover key metrics on Slide 7. Here, we’ve outlined key performance metrics. So in the first quarter, we improved our deposit base now with 23% of total deposits being noninterest-bearing deposits, and our operating profitability stayed on track as the margin was 3.18%, up one 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 ALLL remains in excess of total nonperforming loans. We again show the three-core metrics of ROA, ROE, and operating efficiency, excluding the onetime nonrecurring items in the footnotes to this slide to more clearly show the underlying performance for the quarter. We’ll now turn to Slide 8, which focuses solely on Amerant 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. Amerant 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.

Carlos IafigliolaExecutive Vice President and Chief Financial Officer

Thank you, Jerry, and good morning, everyone. Turning to Slide 9, 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 fees 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 a 100 basis points increase in the long-term interest rate recorded in the last quarter.

Loan portfolio highlights in Slide 10 will show a total loan gross 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 an increase in nonproduction complemented with indirect loan purchases. Despite having received $253 million in prepayments, which came primarily from CRE and C&I 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 yield in indirect consumer loans continue to represent a tactical move to increase yields. Loans held for sale totaled $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 Amerant 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 million in the fourth quarter of 2021.

During the first quarter, 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 remains 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 million in the previous quarter. The release was primarily driven by improved macroeconomic conditions, loan upgrades, and decreases in our nonperforming and special mention loans. These were partially offset by additional reserve requirements and charge-offs for loan growth and loans downgraded to nonperforming during the period.

During the first quarter of 2022, the loan loss provision associated with the COVID-19 pandemic was released. However, new reserves or almost $5 million were generated to account for the new risks associated with potential macroeconomic deterioration related to inflationary pressures, supply chain disruptions among other factors. Net charge-offs for the quarter were $3.8 million compared to $7 million in the fourth quarter. Charge-offs during the period were primarily driven by $3.3 million into commercial loans, $1 million in consumer loans, offset by $0.5 million in recoveries.

These loans were previously specifically reserved. Nonperforming 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 nonperforming loans declined 0.82% or $47 million, compared to 0.89% or $49.8 million last quarter. Most recently, nonperforming loans further decreased to $41 million as the sale of $6 million CRE loan was completed above par during April.

The ratio of nonperforming assets to total assets was 73 basis points, down five basis points from the fourth quarter of 2021 and down 43 basis points from the first quarter of 2021. In the first quarter of 2022, the coverage ratio of loan loss reserve to nonperforming 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 small in 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, noninterest-bearing deposits went to $1.3 billion, compared to the $1.2 billion 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 multiproduct relationships versus single-product high-cost CDs.

Brokered 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 cost 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 are actively managing the duration of our liabilities.

During the first quarter of 2022, we repaid $180 million in short-term advances from the FHLB 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 allow us to effectively lock attractive long-term rates at a discount of almost 100 basis 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 NIM was 3.18%, slightly up by one basis point quarter over quarter and up 52 basis points year over year. The change in net interest income, 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 basis points versus fourth quarter.

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 quarter. 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 NIM 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 basis points scenario. We also show an improved profile in the plus 200 basis 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 noninterest income. Noninterest income in the first quarter was $14 million, down $63 million or 82% from the $77 million 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 noninterest income quarter over quarter. As rate goes up, this product becomes very relevant to clients, and we look to drive noninterest income in the upcoming quarters with this activity. Amerant’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 increased share of wallet.

Turning to Slide 17. First-quarter noninterest 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 noninterest expenses as nonrecurring items. Excluding these items, core noninterest expenses was $54.2 million in the first quarter of 2022.

The quarter-over-quarter increase was primarily due to higher noninterest 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 the fair value of New York 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 noninterest expenses was partially offset 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 clean-up 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 headquarter building recorded in the fourth quarter.

The year-over-year increase in the efficiency ratio was primarily driven due to higher noninterest 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 Amerant’s progress on near- and long-term initiatives.

Jerry PlushVice-Chairman, President, and Chief Executive Officer

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 and increase digital and branch traffic, which resulted in increased consumer account acquisition.

Our treasury management and private banking team’s 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 Amerant smart 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 when 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 C&I 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 C&I transactions totaling $87 million.

We’ve got a strong CRE and C&I 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 multiyear agreement, and we’ll be adding sales personnel in each of the three markets we serve.

Regarding operational efficiency, the FIS rebadge took place. 80 FTE removed as of January 1, 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 Amerant Bank the official hometown partner of the Miami Hurricanes.

This partnership provides Amerant 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 1Q ’22 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 Amerant 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.

Questions & Answers:

Operator

[Operator instructions] Our first question comes from the line of Michael Rose from Raymond James. Your line is now open.

Michael RoseRaymond James — Analyst

Hey. Good morning, guys. How are you? So on the loan growth this quarter, obviously, 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’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 that get back.

Jerry PlushVice-Chairman, President, and Chief Executive Officer

Yes. No, Michael, it’s Jerry. We’re pleased. I’ve been saying 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 what we had previously projected. I think we’ll be certainly more in the double-digit range on a go-forward basis.

Carlos IafigliolaExecutive Vice President and Chief Financial Officer

Yes. No, it was interesting to see, Michael, over the quarter, the increase on the C&I, which accounted for almost $130 million that was — 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 yes, indefinitely, we’re starting to see a very good pipeline and very, very vibrant amount of transactions.

Michael RoseRaymond James — Analyst

Great. That’s helpful. So like others, you had 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 repurchases? Stock is still pretty attractive here. I just wanted to get some thoughts on capital and the outlook.

Carlos IafigliolaExecutive Vice President and Chief Financial Officer

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 basis 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 for the — in the long-term section of the yield curve. So — and 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 a 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.

Jerry PlushVice-Chairman, President, and Chief Executive Officer

Yes, Michael, I think, Carlos, just spot on with that. I think it’s — 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 and the remaining authorization is something where you have to be very, I’ll call it, surgical about where you want to select the opportunities.

So as always, it’s always going to be based on the performance of the stock and whether we see that we continue to see that it’s a value play for us to repurchase.

Michael RoseRaymond James — Analyst

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 and sort of 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?

Jerry PlushVice-Chairman, President, and Chief Executive Officer

Yes. No, Michael, thank you for the question. I would say that we’re certainly in certain — 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 on the noninterest bearing the total or the reductions that we talked about in brokered and that we really wanted to be an organic 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 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 CRE.

We’re just about to bring on some more people as it relates to C&I. So the expectations for growth, both on the loan and deposit side, I think, are very, very high for us, and our expectations of ourselves are — that’s why I was saying in my closing remarks that my view is it’s time. We need to be showing very consistent strong growth each quarter in addition to trying to complete the remainder of the transformation items that we’ve been talking about. And so the way to get there is going to be to keep driving the top line, keep focus 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 in the middle innings because you’re now starting to see the transformation become less of an item after this quarter and more of the focus is going to be about driving top-line growth.

Michael RoseRaymond James — Analyst

Great. Thanks for all the color.

Jerry PlushVice-Chairman, President, and Chief Executive Officer

Sure.

Operator

Our next question comes from the line of Stephen Scouten from Piper Sandler. Your line is now open.

Stephen ScoutenPiper Sandler — Analyst

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 the need to potentially revise any of those targets. I mean, especially — I know, Jerry, you said everybody is focused and knows what they need to do and knows what’s the hand and the head.

But we’re a fairly long way off from that sub-60% sort of target. So I’m just wondering, 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?

Jerry PlushVice-Chairman, President, and Chief Executive Officer

Yes, Stephen, just — it’s a great question. we’re still committed to be driving for the 60% for the fourth quarter is 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 as things we need to do to build a better organization that it’s going to be very sustainable, consistent, repeatable about our ability to grow quarter in and quarter out, right? And so that’s why I said in my response to Michael is that I think we’re in the middle innings, but the biggest issue for us right now is this reorganization and how we are pushing both our commercial and consumer efforts. All along, we knew we had to grow the top line. And that’s the result, you can see it coming through in the numbers.

And I think as we look ahead to 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 what we have to achieve in the fourth quarter.

Stephen ScoutenPiper Sandler — Analyst

OK. Maybe if I think about mortgage, in particular, obviously, with rates moving like they have, I’m sure that business hasn’t completely maybe panned out as you would have hoped. But in the near term, what’s the time line for potential breakeven in that business, I guess moving forward from here?

Jerry PlushVice-Chairman, President, and Chief Executive Officer

No. Look, I think it’s fair to say that we were hoping for stronger contributions from the mortgage division. Obviously, we made an additional capital injection. So 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 having a — is a huge differentiator, coupled with our private banking efforts. And I think from the technology side and from process side, things that 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 with 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 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 where that will come along to get to a breakeven. I’d like to say that we’re going to be a lot closer to that in the second quarter because I think the efforts of the team, finally, the sales volumes that are coming through are going to get us much closer to that.

Carlos IafigliolaExecutive Vice President and Chief Financial Officer

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, is 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 show 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 doing — it’s a great complement, as Jerry mentioned, and we believe the second quarter is — it will be critical for them to get to breakeven.

Jerry PlushVice-Chairman, President, and Chief Executive Officer

Yes. 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. 2 of the businesses that are typically going to be higher efficiency ratio businesses are the mortgage banking, just in general and/or wealth, right? And so we’re keenly aware that we’ve got to outperform to help offset that as well. And so certainly front and center in our minds.

Stephen ScoutenPiper Sandler — Analyst

Yes. That’s great. OK. Maybe just last one for me.

The move in asset sensitivity you guys laid out in Slide 16, 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?

Carlos IafigliolaExecutive Vice President and Chief Financial Officer

Yes. 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 FHLB being longer. But they 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 basis points ago.

So 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 in our deposit cost. Remember that the presence of $2 billion or $2.4 billion 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 with just 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, it’s 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 LIBOR rates.

Stephen ScoutenPiper Sandler — Analyst

Great. That’s a great color. Thanks for the reminder about the foreign deposits. That’s a great benefit for you.

Appreciate the time.

Operator

Our next question comes from the line of Michael Young from Truist Securities. Your line is now open.

Michael YoungTruist Securities — Analyst

I wanted to follow-up kind of on the asset sensitivity discussion. Jerry heard your comments, very good to hear about the loan growth upside that’s potentially on the come here, but also the loan-to-deposit ratio is kind of above 100% right now. So moving into just a higher funding rate environment. Kind of what’s the outlook there? And could we have some, I guess, even though you project really high asset sensitivity, maybe some of that gets given back just to fund growth?

Jerry PlushVice-Chairman, President, and Chief Executive Officer

Yes. No. Michael, it’s Jerry. I think it’s incredibly important to note that all of our different lines of business are focused on generating noninterest-bearing deposit relationships that we’re looking to be the bank of choice with our customers.

And so yes, in certain cases, customers are coming to us and opening deposit relationships at money market rates, for example. But the vast majority, we are looking for them to be us as their bank, right? So that’s their receipts and disbursements account. And so I think that’s why it’s really important to note that the growth is broad-based, right? 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. So I would say that, again, remember, we’re 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 the — not only the organic loan growth, but also the NIM expansion that we’d expect as we go throughout the year.

Carlos IafigliolaExecutive Vice President and Chief Financial Officer

Yes. No, that’s exactly the case. So just to give you a perspective, Mike, the increase in the deposit relationship 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 noninterest-bearing accounts or low-cost checking accounts that they are incredibly accretive for the cost of funds and the NIM expansion. So as you can see, we have completely changed the deposit composition being particularly high cost, time deposit-oriented financial institutions. 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 toward a better mix that would allow us to expand financial margin.

Michael YoungTruist Securities — Analyst

OK. 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?

Jerry PlushVice-Chairman, President, and Chief Executive Officer

Yes. 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 somewhere in that range. The ultimate goal would be to certainly be closer to 95% and the 100%, but we’re comfortable with being at the higher side of that.

Michael YoungTruist Securities — Analyst

OK. Great. And then last one for me, just on expenses. I think the core expense run rate this quarter is about $54 million.

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 1Q. And then Jerry, you mentioned some of the reorganization and some of the benefits coming through, it sounds like maybe in 2Q. So maybe just a little bit of a perspective on kind of how expenses are going to trend through the year?

Jerry PlushVice-Chairman, President, and Chief Executive Officer

Yes. No, that’s a good question. So we haven’t reflected all the organizational changes in our noninterest expenses. So there would be an impact on the FTEs and the 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 noninterest expenses will be probably in the $52 million to $53 million now. So $54 million core that we reported this quarter, it’s considerably higher compared with the run rate that we will face from now on, so —

Michael YoungTruist Securities — Analyst

OK. Great. Thank you, guys. Appreciate it.

Jerry PlushVice-Chairman, President, and Chief Executive Officer

Sure. Thanks, Michael. Thank you.

Operator

Our next question comes from the line of Samuel Varga from Stephens, Inc. Your line is now open.

Samuel VargaStephens, Inc. — Analyst

Good morning. I wanted to ask a couple of questions on the deposit side quick. We noticed just a very slight pickup in the money market 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?

Carlos IafigliolaExecutive Vice President and Chief Financial Officer

Yes. 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.

Samuel VargaStephens, Inc. — Analyst

Understood. 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.

Jerry PlushVice-Chairman, President, and Chief Executive Officer

Yes. Just to clarify, nothing in 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 is 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 note that we’re in the process of developing our own opportunities in that marketplace, which could be very advantageous for us in the second half of the year. So — but typically, that is nothing more than, I’ll call it, debt consolidation loan.

Carlos IafigliolaExecutive Vice President and Chief Financial Officer

Right. That’s right. Yes. There is — when you drill down into the composition, there is debt consolidation, there is some improvement.

The way that the — 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 originations, it helps a lot on the prospective performance. So, 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.

Samuel VargaStephens, Inc. — Analyst

If I could just sneak one last one in. Back on the FHLB borrowings, the new ones that you put on, could you provide some color on the yields that you get on that?

Carlos IafigliolaExecutive Vice President and Chief Financial Officer

Sure. They were in the range of the 1.5% to 1.75% approximately. They were definitely very accretive compared to 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 the — as much as possible the — or secure the funding in the long term. And the quarter ended with an excess liquidity that our plan is not to keep it there, but trying to additionally recompose the FHLB advances as well.

Samuel VargaStephens, Inc. — Analyst

Thank you very much for taking my questions. I appreciate it. Thank you.

Carlos IafigliolaExecutive Vice President and Chief Financial Officer

Sure.

Operator

Thank you. At this time, I’m showing no further questions. I would like to turn the call back over to Mr. Plush for closing remarks.

Jerry PlushVice-Chairman, President, and Chief Executive Officer

Thank you, Gigi. First of all, I just want to say thank you to everyone for joining the call today. We greatly appreciate your interest in Amerant, and we hope that all of you have a great day. Take care.

Operator

[Operator signoff]

Duration: 59 minutes

Call participants:

Laura RossiHead of Investor Relations

Jerry PlushVice-Chairman, President, and Chief Executive Officer

Carlos IafigliolaExecutive Vice President and Chief Financial Officer

Michael RoseRaymond James — Analyst

Stephen ScoutenPiper Sandler — Analyst

Michael YoungTruist Securities — Analyst

Samuel VargaStephens, Inc. — Analyst

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