Hello, everyone, and welcome to the Ameris Bank first quarter earnings conference call. My name is Juan, and I will be coordinating your call today. At this time, all participants are in listen only mode. There will be a question and answer session at the end of the presentation. If you would like to ask a question at this point, please press star followed by number one on your telephone keypads. Now, I would like to turn the call over to Nicole, Chief Financial Officer. Please, Nicole, go ahead.
Great. Thank you, Juan, and thank you to all who have joined our call today. During the call, we will be referencing the press release and the financial highlights that are available on the Investor Relations section of our website at amerisbank.com. I'm joined today by Palmer Proctor, our CEO, and Jon Edwards, our Chief Credit Officer. Palmer will begin with some opening general comments, and then I'll discuss the details of our financial results before we open up for Q&A. Before we begin, I'll remind you that our comments may include forward-looking statements. These statements are subject to risks and uncertainties, and the actual results could vary materially. We list some of the factors that might cause results to differ in our press release and in our SEC filings, which are available on our website.
We do not assume any obligation to update any forward-looking statements as a result of new information, early developments or otherwise, except as required by law. Also, during the call, we will discuss certain non-GAAP financial measures in reference to the company's performance. You can see our reconciliation of these measures and GAAP financial measures in the appendix to our presentation. With that, I'll turn it over to Palmer.
Thank you, Nicole, and good morning, everyone. I appreciate everybody taking the time to join our call today. I'm really pleased with the financial results we reported yesterday and excited to share some of the highlights with you from the quarter. You know, in thinking back to some of our core fundamentals that I mentioned on last quarter's call, I'm constantly reminded of the importance of discipline and the ability to stay focused on strategies and execute on the things that we can control, and our results this quarter are reflective of those high expectations. You know, the first of those fundamentals was consistent earnings with an ROA we said in a range between 1.30% and 1.40% and a ROTCE well above 15%.
In this quarter, the adjusted results represent a 1.31 ROA and a 16.38% return on tangible equity. Both of those are within the high-performing range we had targeted. The second thing we talked about in terms of fundamentals is meeting the growth expectations and maintaining a strong pipeline. We're fortunate to be positioned and well-positioned in the southeast with talented bankers in all of our markets. This quarter, we continued to deliver on this growth, with strong organic growth. Mind you, that's coming off of an incredibly strong fourth quarter of growth last quarter. Exclusive of PPP run-off, loans grew over $350 million or 8.9% annualized during the first quarter. It's encouraging that we're seeing such growth opportunities in our markets, especially as the southeast gets back to business.
We continue to anticipate 2022 loan growth in the upper single digits, and we certainly have the liquidity to fund that growth. As expected, deposits did decline this quarter due to our cyclical mini deposits at year-end, but we continued to grow, more importantly, low-cost deposits this quarter, and our non-interest-bearing deposits account for now over 40% of total deposits. This low-cost deposit mix is certainly gonna help us better control betas in a rising rate environment. The third fundamental is asset sensitivity and its impact on margin and NII, which ultimately affects capital. We continue to have an asset-sensitive balance sheet with 30% variable rate loans and then an additional 15% of short duration fixed rate loans that behave like a variable rate loan. We're well-positioned for a rising rate environment.
This quarter, our margin actually expanded by 17 basis points and our NII increased by $5.7 million or just over 3% compared to last quarter. That sensitivity to balance sheet management certainly affects capital. We've consistently said we are focused on tangible book value, and we're extremely proud of that once again this quarter as our tangible book value grew when most banks are seeing or are experiencing dilution due to unrealized losses in the securities portfolio. Over the past year from March of 2021 to March of 2022, we increased our tangible book value by over $1.57 or 6.2%, inclusive of the purchase of Balboa. We've been good stewards of the capital over the last five years and have grown tangible book value by over 10% annualized.
Remember, that includes that over those five years or five acquisitions, and we're very cognizant of dilution and earn back periods. Since I mentioned Balboa, let me jump into the fourth fundamental from last quarter, and that was Balboa and the positive impact they would have on our core banking segment. The integration is going extremely well, and we're more than pleased with the leadership and the results. Their net loan growth was $57 million for the quarter, or over 33% annualized, and their total production was just over $131 million. This growth was funded with existing liquidity in addition to paying off their remaining high cost borrowings during the quarter. Credit net portfolio remained solid and in line with our expectations. While I'm on credit, I'll hit a few highlights. Overall credit quality remains strong.
Our annualized net charge-off ratio is 9 basis points of total loans, and our non-performing assets as a percent of total assets was 47 basis points. Jon Edwards, our Chief Credit Officer, is with us today and is available to take any questions after our prepared remarks. I want to conclude by reiterating that we remain focused on our core fundamentals, and we're disciplined with our actions. We got strong momentum coming out of the first quarter, and we're excited about our future due to solid fundamentals and organic growth, balance sheet management in a rising rate environment and top of class financial results and of course, capital preservation. I'll stop there now and turn it over to Nicole to discuss our financial results.
Great. Thank you, Palmer. For the first quarter, we're reporting net income of $81.7 million or $1.17 per diluted share. On an adjusted basis, we earned $75 million or $1.08 per diluted share when you exclude our servicing asset recovery, merger and conversion charges, and a gain on sale of bank premises. Our adjusted ROA was 1.31%, and our adjusted return on tangible common equity was 16.38%. As Palmer mentioned, we grew tangible book value by 58 cents per share or 2.2% this quarter to end at $26.84. We had $1.02 from retained earnings. That was offset by only $.25 Of AOCI from the decline in unrealized gains on the bond portfolio, and then $.19 Of dilution from other items, including the stock we bought back.
We've been disciplined with our investment portfolio, and because of this strategy, we saw less than 1% dilution in our tangible book value from the decrease in AOCI. We're now beginning to backfill that bond portfolio with purchases. Compared to this time last year, our tangible book value is up $1.57 or just over 6%. Our tangible common equity ratio was 8.32% at the end of the quarter, compared to 8.05% at the end of the year. The approximate $3 billion of excess liquidity that remains on our balance sheet negatively impacted this ratio by 130 basis points. If you exclude this cash from total assets, our TCE ratio would have been about 9.62%, which is well above our stated target of 9%.
We continue to be well capitalized, and we feel comfortable with our capital and dividend levels. We do have a share repurchase program outstanding until October 31st of this year. We purchased $14.6 million during the first quarter. That leaves about $63 million left on the program. Moving on to net interest income and margin. Our net interest income for the quarter increased by $5.7 million. That was driven by $13.2 million in the bank segment, offset by a $5.3 million decline in PPP revenue and a $2.2 million decline in mortgage and warehouse. Included in the bank segment was the benefit of a full quarter of Balboa. Our net interest margin increased by 17 basis points from 3.18%- 3.35% during the quarter.
Our yield on earning assets increased by 17 basis points, while our total funding cost decreased by one. We have 12 basis points of expansion due to the higher loan yields and average balances, 5 basis points due to the reduction of use of some of our excess liquidity, 1 basis point of improvement in our funding cost, and that was offset by 1 basis point decrease in yields in the bond portfolio. As we've stated, we have about $3 billion of excess liquidity that remains. We anticipate net loan growth this year in the high single digits, about 7%-9%, which is about $1.1 billion-$1.4 billion of loan growth.
That leaves about $1.6 billion of excess cash to prepare for the cyclical deposit runoff and to begin purchasing investments in the bond portfolio as rates rise and yields are not quite so anemic. From an ALM modeling standpoint, we've positioned ourselves to be asset sensitive, with NII increasing approximately 6.5% in an up 100 environment. We've added quite a bit of interest rate sensitivity information to our presentation on slide 10 that I hope everybody finds useful. Non-interest income increased $5.1 million for the quarter. We recorded a $9.7 million servicing rights recovery compared to $4.5 million last quarter. Excluding that MSR activity, our total non-interest income was relatively flat. Mortgage revenues decreased by $3.1 million, and expenses in that division decreased by $3.5 million.
Retail mortgage originations as a percentage of our pre-provision, pre-tax income continued to decline, representing a balanced contribution of 12.3% this quarter. Production in the retail mortgage group was $1.5 billion. We were pleased to see the purchase businesses returning to normal levels, and our strong network of relationships has us well-positioned for the slowdown in refinance activity. The average gain on sale normalized to $294 this quarter, and we believe it'll continue to run between $275 and $325 going forward. Total non-interest expense increased this quarter by $5.5 million, from $138.4 million last quarter to $143.8 million this quarter. Excluding the loss on bank premises and the merger charges, non-interest expense increased $8.4 million for the quarter.
However, as we previously guided, the first quarter increase was attributable to three things. That was $7.1 million of additional Balboa expenses for having them the full quarter, four million dollars of cyclical payroll taxes and 401(k) match, and then those two things were offset by the mortgage expense reduction of $3.5 million. When you look at expenses, all other expenses increased less than 1% for the quarter. Our adjusted efficiency ratio was 56.95%. Those cyclical expenses affected that by 158 basis points. We expect our efficiency ratio to return under 55% as these expenses normalize going forward. Real quickly on the balance sheet, we ended the quarter with total assets of $23.6 billion, down slightly from the $23.9 billion at the end of the year.
We were pleased with our organic loan growth of $269.5 million or 6.8% annualized for the quarter. We've had the detail of that growth on slide 15 of the investor presentation, and you can see that excluding the PPP runoff, net loans growth was $350.7 million or 8.9% annualized for the quarter. Our total deposits decreased $77 million due to the cyclical public funds that we anticipated running out, and we're really pleased with the continued growth in low and no-cost deposits. We continued the momentum on non-interest-bearing deposits and improved our mix so that they are now 40.18% of our total deposits.
That certainly helps our deposit betas in an increasing rate scenario. With that, I'll wrap it up by reiterating how we've remained disciplined and focused on our operating performance. We're really excited about the remainder of 2022. I appreciate everyone's time today, and I'm gonna turn the call back over to Juan for any questions from the group. Thank you, Juan.
Thank you. If you would like to ask a question at this point, please press star followed by number one on your telephone keypads. If you change your mind or your question has been answered already, please press star followed by number two. When preparing to ask a question, please ensure your phone is unmuted locally. The first question comes from the line of Brady Gailey from KBW. Please, Brady, your line is now open.
Hey, thanks. Good morning, guys.
Good morning, Brady.
I just wanted to start with some of the moving pieces of Balboa. You know, I know they had you know, impact on the expense side and then on the fee income side. I think, you know, fees came a little higher than y'all were thinking. Is there any adjustments that should be made to, you know, fees and expenses kind of related to Balboa that we should think about kind of from a forward ongoing run rate point of view?
Yeah, Brady. Good morning, by the way. No, I think this was a solid quarter. We did have, you know, a little lag. We had a few acquisition expenses that came in this quarter where, you know, that from the acquisition. Other than that, we feel like they have a good run rate.
It's great to see y'all, you know, be active on the buyback here. You know, the stock is notably inexpensive here. It's 1.5x tangible, going about 8x earnings. I think I heard you say you have about $63 million of authorization left. You know, you can get more of that if you want, I'm sure. How do you think about getting more aggressive on the buyback at this rate just with the stock being so cheap?
Sure. When you look at what the stock did this past quarter, the big decline has been in the last couple weeks, really, while we were in blackout. We haven't been active, the last couple weeks of March, when we went into blackout. We definitely, again, we're cognizant of the tangible book value that we could get, but when the prices are this low, it's hard to not buy. And quite frankly, I think buying our stock back is probably one of the best investments we can make right now.
Yeah. On the credit quality front, you know, I know net charge-offs were still kind of close to zero, but, you know, NPAs were up a little bit. I think you call out some Ginnie Mae mortgages and maybe some portfolio mortgages that drove that up, and the classifieds and criticized were up some, too. Just the bigger picture, I know a lot of those loans are fairly low risk loans, but, you know, is there anything that is worrisome on the credit quality front for you guys at this point?
No, we're not seeing anything, Brady. Of course, everybody's keeping a keen eye to it across the industry. We're not seeing any cracks anywhere. Obviously the Ginnie Mae, that's just a process of working through the process and moving those loans out. Right now we feel pretty good across the board on all our verticals as it pertains to credit.
Okay. Congrats on the up tangible book value per share. That's rare to see this quarter. It's great to see for you guys. All right, thanks for the call.
Yeah.
Thank you.
Yeah.
Thank you. Our next question comes from Casey Whitman from Piper Sandler. Please, Casey, your line is now open.
Morning.
Good morning, Casey.
Maybe, just thinking about, you know, wondering, you know, if you could actually get a yield lift from rate hikes. Could we assume more than what is worth, you know, 12% of PPNR over the last two quarters? Can we assume that trends down from here on ultimately, you know, just sort of your best guess as to what the range would be, for that in, like, a higher rate environment, more normalized gain on sale margins?
Yep. You, like, you went in and out a little bit there, but I think your question was mortgage and the fact that it's been kind of that. Retail mortgage is about 12.5% the last two quarters and where do we kinda see that, especially as rates go up. A couple components to that. One, you know, we have always been more of a purchase shop than a refi shop, and so we were up this quarter. Historically, we were more in the 85%-90% purchase versus refi. We still have some room to go. I do think that we started to see some cyclicality come back into the first quarter, which was a little bit more normal.
Even taking the $1.5 billion of production and you know take that, even if it comes down just a little bit, we still could be looking at $6 billion-$7 billion of production for the year. I feel like that 12% is probably a good spot for us.
Okay, appreciate it. Sorry. Maybe just turning over to the overdraft. I know you guys recently announced some changes to the NSF overdraft policies. I think last quarter you sorta said maybe a 25% reduction from some of the moves. Is that still an appropriate level or has that changed?
It is. 25%, and I think that may have been misconstrued a little bit. It's 25% of our income, but just 25% of the overdraft fee. Last year, that was about $16 million. 25% of that would be about $4 million. Then, I think everybody probably saw the announcement where we had publicly announced what we were doing. That $4 million would be a full year, and those are really not going into effect until May. We'll have a portion of that hit in 2022, and then 2023 will be the full $4 million. Again, that's gonna go up or down based on customer behavior as well.
Based on historical behavior, we're expecting right about $4 million of decline on an annual basis.
Okay. Thank you for that clarification. Last for me, sorry to ask this, but the tax rate just a little higher this quarter, where do you think that lands sort of over the next?
It is. I think it.
Over the rest of the year.
Yeah, I think it comes back in the 2023-20 24, 23.5 probably. There was a non-discrete item that hit this quarter that should be non-recurring, and part of it was from acquisition costs of last quarter, and some of it coming through this quarter. 22- 23 to 24, close to that 23.5.
Okay. Thank you, guys. Good quarter.
Thank you.
Thank you. Our next question comes from the line of Kevin Fitzsimmons from the D.A. Davidson. Please, Kevin, your line is now open.
Hey, good morning, everyone.
Good morning.
Just curious, it's come up a couple of times, the point about, you know, the focus on tangible book and that you actually expanded this quarter. Can you dig in a little deeper into how you did that? Was it a matter of holding back on securities purchases when rates were lower and, or shifting over to held to maturity? Just because I just haven't seen a bank pull that off yet, taking the tangible book up this quarter. If you can give a little more detail on what you guys proactively did, for that. Thanks.
Absolutely. Thanks. We had let our bond portfolio decline as we received payoffs in this last cycle. We did not go out and buy bonds. We felt like the rates were fairly anemic. I think I even guided, I think it was the third quarter that I was asked about it on the earnings call, and I said that, you know, we really didn't want to go out and buy bonds at these anemic rates, and that the amount that we would earn in over the, you know, before rates, when we expected rates to go up, would be offset by the loss and the unrealized loss, and we would lose the capital. Any capital that we had earned by buying these 1% bonds, we would lose as soon as rates went up.
What we did over the last two years is really kind of looked at our mortgage loans held for sale in conjunction with our available for sale security. We used that to kind of offset the use of some of that cash that we were getting from the bond portfolio and using our mortgage. We now expect that to go back to normal levels. We're starting to buy bonds and getting, you know, much better rates and not having to go so far out. We did manage kind of through that bond portfolio. When you look historically, we would have run probably 10%, 9%-10% of earning assets, and we were down to 3% of earning assets. Again, offsetting that with a mortgage loan held for sale.
We do anticipate buying bonds and getting that back up to a more normal level now that rates are not quite so anemic.
A couple follow-up comments. Nicole was being modest, but she and her team did an excellent job on the discipline. I keep preaching discipline, because we have received a lot of questions from people, why aren't you buying, why aren't you buying? Being able to stick with those disciplines really paid off for us. Furthermore, I think what it also exhibits is the fact that we've had other places to put the money. A lot of people didn't have any opportunities for growth, and we did through that held for sale portfolio. We were happy to be able to lever that up as opposed to going out and getting stuck with a bunch of long-term low rate bonds. Kudos to Nicole and her team for sticking with their disciplines.
That's great. Thank you. As far as expansion, I'm assuming, like, it seems like in recent quarters, M&A has been less of a focus and with the stock pulled back, I would assume it's not primary focus today. With the organic growth, with Balboa, and maybe you can speak to if you anticipate any team lift outs, opportunities that might come from in-market merger disruption of competitors, just how you're feeling about that organic versus acquisition equation today. Thanks.
Sure. You know, as we have consistently said year- after- year, our primary focus is organic, and we've proven that, and we've not done any M&A, bank M&A in the last three years, so I think that's clear evidence of that. Even without that bank M&A, you've seen the power of the organic engine here, and that's part of the reason we have held off on M&A is to prove to the market and the world and ourselves that we've got the ability to operate this company and generate some significant growth in an organic fashion. When you look at our lines of business, that allows us to do that. We've got a great geography, so we don't feel any compulsion to have to move, like a lot of banks do into growth markets. We're already there.
More importantly, which is a good lead into your next question, we already have a lot of those bankers in place. As you'll recall, when a lot of people were retrenching, we were making the investment in talent. We've already done a lot of the lift outs two years ago, and we kept telling everybody that, you know, for us to hit our upper single digit type of loan growth, we already had the people in place. It wasn't based on a bet and a wish and a lift out, and then all of a sudden that lift out takes time to ramp up. We're already there. Now we do, to that point, we do obviously continue to look for talent on a regular basis.
One of the things we've done a very good job of is culling out lower performers and replacing those with top performers. I think when you look out going forward, yes, we will still continue to attract and hire talent and retain good talent. At the same time, our organic growth initiatives are based on what we've already hired in the past. A lot of what you're seeing today from some of our competitor banks out there, we had already made that investment in the you know, a year or two ago, and we're benefiting from the results of that investment.
Okay, great. Thank you. One last clarification. Nicole, when you were talking about the $3 billion of excess liquidity and then into loan growth and what was gonna be used and what was left, can you just repeat those numbers? I was not keeping up with you. Thanks.
Sure. It was about $1-$1.4 billion, $1.5 billion of loan growth, and then about $500 million-$1 billion in the bond purchases, $250 million of public funds we had about half run out in the first quarter. We expect a little bit more in the second quarter. $500 million to $1 billion of potential deposit runoff. Again, with loan growth being 1.4, that would bring the deposit runoff to $500 million, but kind of those ranges.
Got it. Okay. Thank you very much.
Absolutely. Thank you, Kevin.
Thank you. Our next question comes from the line of David Feaster from Raymond James. Please, David, your line is now open.
Hey, good morning, everybody.
Good morning.
I just wanted to touch on the organic growth outlook and was hoping that you could walk through some of the puts and takes on that. What do you expect to be the primary drivers behind that high single-digit pace, expectations for the contribution from Balboa, and then just any details you might be able to provide on production expectations and payoff and pay down trends that are kind of embedded in that outlook?
Yeah. I'll start off by kind of breaking it down by each vertical. I will tell you on the commercial front, we remain very bullish. When I look at our pipeline there, it is just as strong as it was over the last quarter. The opportunities are out there for what I call responsible growth. The competition, the pressure across the board when it comes to pricing, primarily from some of the larger big banks out there, is stronger than it's ever been. I think pricing is certainly a challenge for everyone when you're going up against some of the larger banks.
Payoffs will still be a headwind, but we still feel like with the production we have in place and the pipeline we have in place, we'll be able to offset that as it pertains to the commercial area. Construction loans, we are benefiting from an elongated period there with the construction development because it's taking longer to wrap up projects just due to supply chain issues. All banks are kind of benefiting from that, so I think we'll continue to have that lift there. Mortgage, as Nicole touched on, we did about $1.5 billion this quarter right now. I'll tell you, our apps and the production we've got going are very consistent right now. The biggest challenge there being just supply in terms of homes.
Once again, as we have preached consistently, our model is so different. As long as we get, and we will get more than our fair share of purchase activity, we feel very confident in our ability to maintain the production level there kind of at our current run rate. Balboa is a great addition for us because it provides not only diversification and then of course we remain focused on small business lending, which is what they do, but also, as we've stressed before, the importance of leveraging the technology they provide us throughout the entire company. We're rolling that out as we speak through the retail lending and through our small business banking initiative in the core bank.
The other benefit of that business is as it grows, we certainly always have as a governor the luxury of being able to package and sell that paper and retain servicing or release servicing with that, securitize the paper or do syndicated loan sales. That's a great governor to have. It's the paper's in high demand obviously, but right now it's a small percentage of our balance sheet, so we'll continue to benefit from that addition. I think that pretty much covers all the lines of business. I would tell you in a nutshell, we feel very good about the pipeline as it stands right now. Customer sentiment is still very positive. The only negative I hear from a lot of the clients that we call on is just mainly supply chain issues.
There's not a panic out there like you hear from a lot of the pundits on TV in terms of the sky falling. It's more they see opportunity and growth, at least in the markets we operate. That's encouraging to hear and to see, and our pipelines are reflective of that.
That's helpful. Thank you for that. Maybe just touching on expenses. That table with the breakdown of the increase is extremely helpful. I think if we take that, it looks like maybe adjusting for seasonal expenses and the negative credit resolution, maybe $140 million is kind of a good base rate. Just and obviously, look, mortgage production's gonna impact, you know, expenses. Just given the inflationary environment, you know, the strong production trends and continued investments that y'all are making, I guess, how do you think about the pace of expenses looking forward?
Take mortgage out, because obviously mortgage is gonna be cyclical depending on whether production goes up or down. Take kind of the mortgage piece out and look at just everything else, kind of the core. You're exactly right. Take out some of those cyclical payroll costs. I think Balboa's at a good run rate. I think that, take out the cyclical payroll and 401(k) matching, and I think we are gonna do our best to hold that to very, very little increase, if flat to slight increase. We really are focused on figuring out how to taper things through efficiency and through use of technology.
When we do spend money on technology, there's a case as to whether it's growing our revenue or whether it's saving us some expense somewhere else, and just continuing to look at that.
Okay. Maybe shifting gears back to the liquidity. I mean, you got a huge advantage here sitting with $3 billion in excess liquidity. We talked about deploying a large portion of that into the loan growth and then some potential for the deposit runoff. How do you think about the pace of securities purchases? I mean, you've been extremely disciplined. My gut says that you're gonna be investing at a pretty measured pace. Just any color on the pace of purchases, what you're looking to buy, and what kind of yields that you're seeing on new purchases.
Sure. We have started up to $500 million with our first kind of conversation in ALCO. This is not all on the balance sheet yet as of March 31st. So far, through yesterday, you know, we've purchased a little over $300 million. We're getting about a 3% yield, maybe a little bit better than that, and about a four-year duration. We feel really good about that compared to the, you know, 1.20 that we could have gotten a year ago. So far what we've bought will add about $1 million, $1.4 million of interest income per quarter. That's about $0.01 a share going forward.
You know, if we put $500 million in, that would make our portfolio 5%-6% of our earning assets. If we put $1 billion in, it would be 7%-8%. I feel like looking at that $500 million-$1 billion over the next few quarters could be realistic.
Okay. Are those going to the AFS bucket, I'm assuming?
They are. That is one thing I should have added on the question earlier. I don't think I addressed that, which I think was Kevin's question. We did buy some bonds during the last year, really kind of the last six months, but they were all kind of CRA investments, and they went to the held-to-maturity bucket. We did have a little bit of purchases prior to this quarter, but everything so far this quarter is going available for sale.
Okay. That's helpful. Thank you all. Thank you.
Thank you. As a reminder to ask any further question, please press star followed by number one on your telephone keypads. The next question comes from the line of Jennifer Demba from Truist Securities. Please, Jennifer, your line is now open.
Thank you. Good morning.
Good morning.
Question on loan losses as interest rates go up. Palmer, what do you feel like are the most vulnerable buckets? Can you talk about where you think Balboa net charge-offs will land as rates go up specifically?
Yeah. Jennifer, you know, I look at it more from each vertical and then more specifically, each product type. I think when you look at commercial, as we all are very well aware of the sensitivity around office, we're limited in our office exposure. I would tell you that that's one we're keeping a very close eye on, just as people are trying to figure out what they're gonna do in terms of back to work and their needs for space. Most people, I'm not worried about people defaulting on their leases. It's more along the lines of what amount of space they need at maturity. That's one area we're looking at.
The other thing that we're keeping a close eye on when it comes to small business, those people are obviously ones that in an environment that becomes stressed, that you keep a close eye on, whether it be through SBA. A lot of our loans there are obviously government-backed guarantees. But the Balboa loans, I think there, the important thing to focus in on is the FICO scores there and the type of credit we're looking to. I equate it to our old indirect portfolio, you know, which held extremely well during the day. I'm wondering what if you wonder what those are gonna look like, I think that the FICO scores there are extremely strong.
I think when you look at charge-offs, we've got FICO scores there around 721 average FICO, which is extremely healthy. The benefit of that Balboa portfolio too is we had over 30 years of historical trends that we could look at in terms of charge-offs. I would think there you may be looking at the peak, you know, 4 basis points at the most. Right now, we feel very good about that line of business. All in all, keep in mind too that those loans are small loans, smaller loans, and then they also, the duration is very short. We feel very comfortable there. I think probably primarily office. I do look carefully at construction too.
I think the housing market is gonna be a lot slower there because the inventory levels are so low. Those would probably be the three categories we're keeping a close eye on. Jennifer, let me kind of follow up on that, on that Balboa charge-off number. Just so you know, we had forecasted when we were doing due diligence that it would add that 4 basis points to our total. Clearly that kind of line of business or its own group will be more than that, but we didn't anticipate it would add any more than about four to the total bank, given the size of that portfolio to the rest of it. That's how it came in pretty much this quarter and how we expect it going forward.
Okay. Thank you.
Thank you. Our next question comes from the line of Christopher Marinac from Janney Montgomery Scott. Please, Christopher, your line is now open.
Hey, thanks. Good morning. I just want to follow up on kind of new loan yields, kind of beyond what we see in the disclosures last night. You know, how are new yields acting, and how do you think they will kind of reflect as the Fed tightens the next couple of quarters?
You know, Chris, obviously, as you know, we're experiencing stronger yields through the residential mortgage portfolio. You know, they're still low in my opinion when you look at 30-year rates. We're certainly gonna get the lift for that in both the held for sale and the portfolio itself. Commercial is extremely competitive right now, so there will continue to be downward pressure there on the yields as we go forward on the floating rate instruments. We're also seeing, you know, when you look at some of the bigger banks out there's still some 10-year money out there that we're passing on that's still got a three handle on it, which is. I don't know how anybody makes money doing that. We have passed on several of those opportunities, if you will.
Balboa is going to be a big contributor to us in terms of their coming on rate. You know, it's in the double digits, and so that's gonna be a big lift and improvement to the margins. I think when you look at the beauty of our balance sheet is the diversification, across the board. I feel better about our outlook on NIM probably than most of our competitors do as a result of primarily Balboa and the mortgage operation. Obviously, in a rising rate environment, we'll get the lift from the floating rate instruments. At the same time, that's gonna be a very competitive sector.
Sure. You'll probably still be more selective on C&I in some of those lower margin deals, as a result?
Absolutely, yeah. I mean, we clearly look at the relationship component of it and the deposits and everything associated with that. It's very competitive out there, especially when you start getting into long-term fixed rate. We'll all benefit because most people's floors will be exceeded, and we'll all benefit from the rising tide of the Fed moves. And the other thing that I think will be interesting on the flip side of that, on the liability side, is we'll find out very quickly what banks have done a good job and those who've not focusing on those sticky core deposits. Because you're gonna see a real change in betas.
Those who have focused heavily on that and the less rate sensitive type of deposits are really going to fare well as we move forward. I think with our bank, with all the excess liquidity we have, we're gonna be able to probably hold off on having to adjust the deposit rates up as quickly as a lot of our peers as a result of that, because we've just got a stronger deposit base.
Great. That's helpful. Then just a quick one on sort of the recovery of the servicing asset. Should we expect some more of that, Palmer, as the next few quarters unfold?
I would not. No.
Okay. Great. Thanks very much.
All right. Thank you, Chris.
Thank you. Our next question comes from the line of Brody Preston from Stephens Inc. Please, Brody, your line is now open.
Hey, good morning, everyone.
Good morning, Brody.
Good morning.
Nicole, I had to hop for a couple minutes in between. I think it was Brady and Casey's question. If I ask anything that's redundant, just feel free to point me to the transcript. I wanted to ask just really quick, just following up on Chris' question. The bank division origination yields, Nicole, do you know what those were, ex Balboa?
Sure. Ex Balboa, we reported $517 with Balboa. Ex Balboa, they were $382. I think that's compared to $335 last quarter. We saw a bump even without Balboa.
Got it. What was it ex Balboa that drove that bump? You know, I saw the last quarter increase in the construction book was a bit higher than it had been recently. Was it that?
It is. I mean, it's just rates in general and the anticipation of rates going up and then us being, as Palmer mentioned, you know, that we're not gonna kind of cut our nose to spite our face on rates, you know, in this environment.
Got it. Okay. Just on the Balboa fee income, thanks for putting the size of it in there. Just wanna ask, is that all, you know, a gain on sale income, or does it consist of anything else what's flowing through other income?
No, it is the gain on sale. There's still a piece of their portfolio or their production that maybe doesn't fit quite into our credit box, and so we will sell that. That was all modeled in our acquisition, that we would continue to have fee income or gain on sale income going forward with them.
Got it. Do you happen to know what the dollar amount of loans you sold this quarter was, and what was it, you know, last quarter in the month that y'all had them acquired?
Brody, I do not have that in front of me, but I can get it.
All right, cool. I'll follow up with you.
Okay.
Let me just on the mortgage portfolio. What is the size of the HFS portfolio looks like going forward, just considering I think the guidance was we think that origination is gonna fall somewhere in that $5 billion-$7 billion range per year. Is this 900 level a good level, or does it shrink a little bit more from here as well?
I think it could shrink a little bit, but not nearly, you know, 1.3%, 1.4% down to the 9%. I think that's the bulk of it. I think it could land somewhere between 7% and 9%, 7.50% and 9%.
Got it. Okay. Do you happen to know what the unpaid principal balance is of the servicing portfolio, for quarter end?
We'll get that for you.
All right, cool. On Balboa, thanks for putting the origination yields in there, but do you happen to know what the average yield on that portfolio is as of 1Q?
The average yield on the Balboa portfolio?
Yeah.
A little above 10, about 10.5.
Okay. All right, cool. Just could you remind me how big you wanna let that portfolio grow to as a % of the total loan portfolio through time?
Sure. Right now, you know, we are using their technology as well in the core bank as well. Which is kind of our but not necessarily Balboa national vendor customers. But we are comfortable with the credit that we're using in that, and how we're doing that. It could easily grow, you know, to 10%, which you figure right now they're 3.5%. That would be tripling. I think it's, you know, tripling their volume. If we got to that, we would look at it, and by then we would have some additional historical data. But I think it could easily get to at least that 10%, and then we would reanalyze it.
Thank you.
Well, to touch on that part, the nice thing is, you know, that paper, we can obviously package it up, securitize it, sell it, garner some servicing fee income off of. It's just got a lot of versatility to it, which we appreciate.
Yeah. That's good to know. Thank you for that. I just have a few more here quickly. The CECL reserve waterfall, I wanted to ask, what were the specific Q factors that went down and, you know, right next to it, there's model changes. So what were the specific, I guess what was the specific portfolios where you increased your loss forecasts, you know, the kind of the Q factor went down 47, the modeled losses went up 47. So could you kind of walk through that a little bit?
Well, Brody, this is John. The Moody's forecast that we use, you know, there are several scenarios, right? From the baseline to a, you know, a fairly difficult scenario. As we looked at the various options this quarter, we blended several that we felt like were, you know, were representative of what kind of a economic climate we were going into. As we looked at that, we felt like those were the Q factors that we hadn't used last quarter were basically picked up in the forecast models and therefore would've been more of a double dip to include both Q factor and the kind of model weighting that we were using.
I, you know, specific Q factors, I don't necessarily have that in front of me, but in the overall scheme of it, why it looks that way is that we felt like the model was more representative and those Q factors that we'd been using were included in that model. They weren't needed in this quarter.
Okay. Nicole, just on the interest rate sensitivity side, thank you for the additional detail there. Could I just ask, of that $4.7 billion or 29% that's variable rate, what percent of that is truly floating, you know? Is there any kind of variable rate loans that have a fixed portion within that $4.7 billion?
Yeah. That's all floating.
Okay. Got it. Thank you for that. Of the additional $2.4 billion that repriced quickly, could you just remind me what the, you know, I guess, average time period before those kind of reprice typically looks like?
Sure. Those really are our construction loans, that are typically, you know, 90-120 days. Then also our premium demands are technically fixed rate, but that's a rolling balance, and so there's a section of that repricing every year, every month. Those are typically about a 9-10-month duration, but again, those are rolling constantly. It's a rolling portfolio. Those are the main two.
Got it. Thank you. I just did have one last one on the deposit data. I saw the 25% non-maturity deposits assumption. I guess it's two questions. Does that include non-interest-bearing within that beta assumption, or is that just the interest-bearing deposit beta assumption? Is it static throughout your forecast, or does it kind of ramp to that 25% level?
Yep. The 25% includes the non-interest bearing. Without the non-interest bearing we are modeling closer to a 50% of just kind of the now, savings and money markets. Your question was it static?
Yeah. Was it static or does it kind of start? Yeah. Or does it increase to that level over time?
No, in our modeling, we do it static immediately, is what we're using. We feel like we can kind of beat that data.
Awesome. Thank you very much for taking all my questions, everyone. I appreciate it.
Brody.
Operator, any other questions?
We currently have no further questions on the phone lines. I will hand over back to Palmer Proctor for any final remarks.
Great. Thank you very much, Juan. Once again, I'd like to thank everybody for listening to our first quarter call. We're obviously excited about the momentum we have throughout the entire company and feel like we're extremely well-positioned when you look out to 2022 and beyond. That type of success, I'll tell you, doesn't just happen. It's based on, as I keep saying, the disciplined culture and the core fundamentals that our teammates continue to exhibit. A result of that, we remain very diligent and well focused on delivering top financial results to drive shareholder value. Thank you all once again for your time and your interest in Ameris Bank. Have a great day.
This concludes today's call. Thank you so much for joining. You may now disconnect your lines.