Good day, ladies and gentlemen, and welcome to the Almirall First Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will be given at that time. As a reminder, today's conference is being recorded. I would now like to turn the call over to Ms.
Laura Rosi, IRO. You may begin.
Thank you, operator. Good morning to everyone on the call, and thank you for joining us to review Amarin's Q1 results. With me this morning are Miller Wilson, Vice Chairman and Chief Executive Officer Al Peraza, Co President and Chief Financial Officer and Miguel Palacios, Executive Vice President and Chief Business Officer. Before we begin, note that the company's press release, comments made on today's call and responses to your questions contain forward looking statements. The company'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 press release. For more possible risks, please refer to the company's Annual Report and Form 10 ks for the year ended December 31, 2018, as well as to subsequent filings with the SEC. You can access these filings on the SEC's website. Please note that Amarant 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.
You should also note that the company's press release, earnings presentation and today's call include references to certain adjusted financial measures and other non GAAP disclosures. Please refer to the back of the company's recent earnings presentation to see the reconciliation of each non GAAP financial measure to the most comparable GAAP financial measure. I will now turn the call over to Mr. Wilson.
Good morning, and thank you for joining Amarant's Q1 2019 earnings call. On this call, we will provide some insight into the ongoing execution of our business strategy as well as our efforts to drive shareholder value. I'll begin with our Q1 2019 highlights, and then Al will review our financial performance in greater detail. After our prepared remarks, Al, Miguel and I will address any questions. Starting on Slide 3 and Slide 4, we have a summary of our performance for the quarter.
Our results reflect the progress we have made in our ongoing transformation from a subsidiary of a larger international financial group to an independent domestically focused community bank, placing a greater emphasis on profitability rather than the capital preservation sought by our former parent, Mercantil Servicio Financieros. In fact, this quarter we issued approximately 2.1 1,000,000 shares of Class A common stock and used the proceeds to repurchase all of the remaining Class B shares held by our former parent. Mercantil Servicios Financiros no longer has any stake in the company. As such, we continue implementing our new strategy as a standalone bank focused on the following four key areas executing a relationship focused strategy to increase core deposits shifting the mix of our loan portfolio to higher return, lower risk domestic loans attaining a greater share of wallet from new and existing customers, and focusing on driving operational efficiencies and improved customer service. This new focus has led to strong first quarter results.
We reported 1st quarter net income of $13,100,000 or $0.30 per diluted share. First quarter net income included $933,000 of restructuring expenses, approximately $700,000 after tax related to the company's rebranding to Amarin and a more normal tax rate of 21.5%. We estimate that we will incur approximately $3,000,000 to 4,000,000 dollars more of restructuring expenses during 2019 related to the company's rebranding. Excluding the rebranding costs included in the Q1, adjusted net income was 13,800,000 dollars or $0.32 per diluted share. Our 39% growth in net income compared to the same quarter last year is reflective of continued strong credit quality and improvement in the net interest margin.
Net interest income of $55,400,000 was down slightly from the prior quarter, reflecting a recovery on a problem loan recorded during the Q4 of 2018 and typical slow loan production in the Q1 of 2019. Total assets and loans also declined during the period. This reflects our planned reduction of less profitable foreign loans as well as our commitment to growing domestically, which Al will cover in more detail in just a moment. Deposits were also down largely due to our international customers continuing to spend their U. S.
Dollar savings in order to cover living expenses, together with a reduction in brokered deposits. These decreases were partially offset by an increase in customer CDs. On Slide 4, our credit and asset quality remained strong and we did not record any provision for loan losses in the Q1. Non performing assets as a percentage of total assets remained consistent quarter over quarter, increasing by just 4 basis points from the 4th quarter to 0.26%. Our ratio of net charge offs decreased significantly from the prior quarter from 0.43% to 0.10% of average net loans.
Our efficiency ratio improved from 79.5% last quarter to 75.7% this quarter. On an adjusted basis, this ratio increased from 69.6% to 74.4% as a result of an increase in operating expenses, which Al will cover in greater detail. Our efforts led to a continued year over year improvement in our return on equity and return on assets, which were 6.87% and 0.65% respectively at quarter end. Our profitability metrics continue to improve as we refocus on profitable growth and strategies to increase shareholder value. And now, I will turn the call over to Al, who will go over the quarter in more detail.
Thank you, Miller. Good morning, everyone. Turning to Slide 5, I would like to discuss highlights from our loan portfolio. 1st quarter loans of $5,700,000,000 decreased $176,000,000 compared to the 4th quarter, driven primarily by our planned reduction of financial institution loans or FI and non relationship shared national credit loans or SNCs, as well as historically slow 1st quarter loan production. We define non relationship loans as those where the company does not have a direct relationship with the borrower.
This planned reduction in FI and non relationship SNC loans aligns with our strategy to focus on profitability and return on capital by replacing low yielding non relationship SNC loans with higher yielding domestic products such as owner occupied, single family, residential, commercial and industrial loans in the domestic market. Our loan activity is typically lower in the Q1, while most commercial businesses are focused on closing the year, finalizing tax planning and returns and preparing financial statements. This quarter's production was also impacted as we transitioned our lending sales force to a relationship driven business model to capture a greater share of our customers' deposits and wealth management business. The traditionally slower Q1 was the perfect time of the year to make this strategic pivot. Throughout the year, as our teams are more fully trained in this business model and has sharpened their cross selling skills, we expect our loan production to improve.
We continue to allow our Latin American FI loan portfolio to run off and chose to not take on any additional FI exposure. We also sold off several of our non relationship SNC loans in the Q1 at strong prices, thanks to low market interest rates and opted out of refinancing some facilities as they matured or were renegotiated. As a result of these actions, our FI and SNC loans shrunk by $41,000,000 $145,500,000 respectively compared to last quarter. Over time, we expect to continue to taper off and ultimately eliminate our Latin American FI and non relationship SNC loans. The decreases in these portfolios during the quarter was partially offset by net growth in domestic owner occupied, C and I and single family residential loans in the amounts of approximately $25,000,000 $15,000,000 $6,000,000 respectively.
Domestic loans comprise more than 96 percent of the company's current loan portfolio. In terms of the geographic mix of the portfolio, we remain committed to growing loans in Florida, Texas and New York. Finally, to touch quickly on our CRE loans, the company's overall portfolio increased slightly in the Q1. CRE presently represents 3,000,000,000 or approximately 3 percent of total loans. Turning to Slide 6, you can see that our loan yield has been steadily improving over the last four quarters.
Our investment portfolio has also seen a significant increase in yield over the past year. This is due to the repricing of floating rate instruments, which make up approximately 13% of the company's total investments. The floating portion of the available for sale portfolio was over 19% in the Q4 of 2019 and we have progressively total deposits at the end of the Q1 2019 were $5,900,000,000 down 2.4% compared to the end of the 4th quarter of 2018 and down 6.2% compared to the end of the Q1 of 2018. Lower core transaction deposits and a reduction in brokered CD deposits were partially offset by growth in customer CDs. The decrease in core transaction deposits was caused primarily by the anticipated decline in international deposits, primarily from residents of Venezuela, up 3.5% and 13.1% compared to the prior quarter and the same quarter of last year, respectively.
Our customers who reside in Venezuela continue to face difficult economic conditions and increasingly rely on their U. S. Dollar deposits to cover living expenses. Nevertheless, we continue our efforts to increase our share of wallet from select international customers with whom we desire to maintain a long term relationship. This decrease in international deposits was partially offset by increased deposits from CD customers.
In February March, we implemented a new customer contact strategy for renewing CDs that focused banking center efforts on those clients with the highest risk of not renewing their CDs. By utilizing a CD renewal and repricing model, the company was able to renew approximately $44,000,000 in CDs that had a low probability of renewal at an average interest rate lower than the company's prevailing promotional interest rate. This quarter, we also began to explore funding alternatives outside our current deposit footprint through online CDs. While this initiative is in its early stages, we are excited to explore new geographies to expand our existing customer CD footprint. Due to the deposit mix shifting towards more expensive domestic deposits, our average cost of deposits in the Q1 rose by 7 basis points compared to the prior quarter.
We estimate that approximately half of this average cost increase is attributed to replacing very low cost foreign deposits with domestic CDs. We continue to proactively focus on our core domestic deposit growth gathering and improve pricing models to compensate for our declining Venezuelan deposits. Turning to Slide 8. The net interest margin improved 1 basis point in the Q1 compared to the prior period, which included a $1,000,000 recovery of interest a non performing international loan that paid off. However, the net interest income was $55,400,000 in the first quarter, down 2.4% from last quarter, primarily due to the decrease in average loan and investment balances and the recovery as previously discussed.
We are pleased with the steady improvement in net interest income and net interest margin over the past year, driven in part by an improved asset mix and higher market rates. As you can see, we have grown net interest income by approximately 5.3% from the Q1 of last year and improved NIM by more than 25 basis points over the same period. We expect this trend to continue in the coming quarters as we execute our strategies to improve our interest earning asset mix and our deposit costs. Also, we believe that the Federal Reserve's pause in its normalization policy may also relieve pricing pressure on deposits. On Slide 9, our Q1 non interest income of $13,200,000 was up almost 10% from the previous quarter.
This is attributed to a gain of $557,000 on an early extinguishment of debt and an increase in commissions of 337,000 on interest rate swaps sold to customers versus a 1,000,000 loss on securities sold during the prior quarter. In February 2019, the U. S. Placed restrictions on the trading of Venezuelan securities not previously restricted. These restrictions have effectively eliminated our customers trading in those securities and has negatively affected our fee income.
During 2018, the company earned approximately $1,500,000 in fees from customers trading in these securities. We expect these trading restrictions to continue for the foreseeable future. As a result, brokerage and management fees of $3,700,000 during the Q1 were down almost $200,000 from the year ago period. Finally, deposit and service fees were down $345,000 dollars due primarily to lower wire transfer activity. Ameren's total assets under management increased from $1,600,000,000 at the end of the Q4 to 1,700,000,000 at March 31 as we continue to focus on domestic growth and efforts to mitigate international runoff.
Turning to Slide 10. First quarter non interest expense was $51,900,000 a decrease of 5% over the prior quarter. However, in order to better understand our core non interest expense level, we present on the next slide adjusted figures. On Slide 11, we show 1st quarter adjusted non interest expense of $51,000,000 an increase of 6 point 5% over the prior quarter, largely driven by more normal overall marketing expenses of approximately $2,000,000 plus a $1,500,000 compensation expense resulting from the amortization of the restricted stock issued in December 2018 to management and key personnel. These higher costs were partially offset by lower salaries and benefits in the Q1 of 2019 of approximately $1,100,000 resulting from the workforce reduction programs announced in the 4th quarter.
Additional reductions during this quarter, as well as a reduction in the utilization of temporary staff. The aforementioned normal marketing expenses and the compensation expense related to the restricted share grants during the quarter were the primary contributors to the increase in the adjusted efficiency ratio. Now turning to Slide 12, our overall credit quality remains strong as non performing asset levels and net charge offs remain low. Non performing assets totaled $20,500,000 or 0.26 percent of total assets, up from 0.22 percent at the end of last quarter, mainly related to the non performance of a single commercial loan in Florida of 2,400,000 dollars Net charge offs for the quarter remained low at only 0.10% of the average loan portfolio balance, significantly below the 0.43% reported in the 4th quarter, mainly associated with 1 non performing CRE loan in the Houston market affected by hurricane flooding. Although our allowance for loan losses declined to $60,300,000 compared to $61,800,000 last quarter, the ratio of the allowance to total loans increased to 1.05%.
No loan loss provision was recorded during the Q1. Moving to Slide 13, we continue to be asset sensitive. However, given recent developments in market interest rate expectations, we have begun to work on reducing our interest rate sensitivity to declining rates. Given the continuous flattening of the yield curve, low inflation expectations and stability of the Fed Funds rate, we have progressively been substituting our floating rate assets with fixed rate assets throughout the quarter. The average duration of our loans in our portfolio increased slightly as we did not renew maturing floating rate loans such as FI and non relationship SNC loans and instead funded fixed rate loans with longer maturities.
The average duration of our investment portfolio also increased in the Q1 as we have been replacing floating rate investments for fixed rate and we unwound $280,000,000 in interest rate swap contracts early in the quarter when rates were higher than they are today. These measures increase the effective duration of our available for sale portfolio to 3.47 from 3.0 in the 4th quarter. Now I will turn it back to Miller who will provide some color on what to expect for the rest of 2019.
Thank you, Al. Now turning to our goals on Slide 14. Assuming current market trends in the U. S. Continue, we anticipate further growth in domestic loans, particularly as the new loan production office in Dallas starts to generate business and we expand later this year in Broward, Miami Dade and Palm Beach Counties, Florida through our branch openings in Miami Lakes, Davie, Delray Beach and Boca Raton.
These new branches will feature a new smaller format supported by enhanced digital marketing tools and technology. In CRE, the $128,000,000 in prepayments received during the quarter opened space under our CRE limits to pursue new business. Additionally, we have traditionally participated in club CRE deals and are now getting ready to lead syndicated transactions with our strong customer base and in partnership with other financial institutions with which we have extensive experience in club deals. This new activity will also generate non interest income in the form of administration and arrangement fees. Through the implementation of our strategy, we expect growth in our domestic deposits as we focus on a high touch relationship approach.
This includes pricing initiatives and tools to capture increased share of wallet of our existing customers along with our new branch concept. In addition, given our transition to higher margin lending products, we expect net interest income to continue to grow, while our allowance for loan losses should remain stable given our strong asset quality. In our Wealth Management unit, we continue to focus on leveraging this platform with our domestic customer base. We expect cost savings in that unit as we focus more on the domestic market. In summary, our Q1 results reflect the progress we have made in our ongoing transformation to an independent focused community bank.
As we look ahead to the remainder of the year, we will continue to focus on our strategy, which prioritizes driving profitable growth and higher returns. With that, we'll be happy to take any of your questions. Operator, please open the line for Q and A.
And our first question comes from the line of Michael Rose from Raymond James. You may begin.
Hey, good morning guys. How are you?
Good morning. Good morning. Good morning. Hey, maybe we could just start
on the expense side. I know you guys had the retirement programs. Can you just give somewhat of an update there? And then what are the levers you expect to pull on the expense side? And maybe what the run rate for expenses should be kind of for the year?
Thanks.
Sure. Michael, as you know, we're only 1 quarter into the 6 to 8 quarter journey we embarked on in December. As such, it's pretty early to give guidance on our non interest income as well as non interest expense. Several of the figures that we provided are starting to show progress on our goals. For example, we already cited the $1,100,000 savings in salary costs.
That is essentially the involuntary program that was announced in December as well as the VERIP, the retirement program. And not all the savings are baked into the results yet. We expect Q2 to actually be greater savings than the 1.1%. At the same time, we are continuing to look at our back office. We're continuing to look at all our operations and we're constantly identifying opportunities for cost savings.
So we expect those to start getting cooked in subsequent quarters throughout this year.
Okay.
That's helpful. Just moving to the loan side, it looks like if I take the domestic loans from the slide deck, it looks like the foreign loans were down about $71,000,000 They're about 4 percent of total loans now. I know the bulk of those was going to mature and pay off within the next 12 months. Is that still the goal? And I guess when I look at the domestic growth this quarter, I'm probably a little bit surprised to see Texas down, so maybe some color there.
I guess the point the question is, I mean, when would you expect, based on the scheduled maturities on the foreign side for the loan portfolio on totality to actually inflect?
Michael, this is Miguel. Mainly, as you know, we're running off and we did accelerate the runoff during the Q1. I think that we did almost $80,000,000 more than we were planning to do, which was great. And also we have still remaining around $70,000,000 on those international loans. Only 8 of those are F5, which will be running off soon, and the rest are the typical SNCs that should be running off or being sold during the remaining of the 3 quarters.
Okay. Maybe just one final one for me. With the interest rate backdrop clearly having changed and still obviously a lot of work to do on the expense and loan front, is it still realistic that you guys think you can hit a 1% ROA in the 6 to 8 quarter timeframe? Or has the interest rate backdrop changed that dynamic in any way? Thanks.
Yes, again, it's somewhat early, but we are sticking with our target to reach the running 1% ROA. The guidance we had given before was 6 to 8 quarters. Given the Fed's pause, some of this decline that we're going to be experiencing in the international trading fees, it may be closer to the 8 quarters, but we're still very optimistic. I mean, the trading activity income, that was a headwind that we were not anticipating in December. But at the same time, we hadn't baked into our numbers in December the additional fee income that we will probably be generating from the loan syndications.
I mean, we're a very active CRE lender in some of our markets. We're a prime participant in a lot of some of these club deals. And we feel that we're going to be able to be a lead in a lot
of those deals. And that's going to open fee income, that's going to open up capacity for us to continue to serve our CRE customers. Michael, also it's Miguel. Think it's important to mention that even though it has been a typical slow first quarter, we have a very good pipeline that is also being created in the commercial segment that is bringing derivatives and swap that will boost our fee income for the next 2 quarters. That's something that the team is working hard.
As you know, we have done some changes on the behavior and that is taking to place now.
Okay. I'll hop back in the queue. Thanks for taking my questions. Thank you.
And our next
So I know you mentioned the decline in the financial institution loans and the SNC loans, but what I'm guessing the financial institution loans is pretty much almost down to 0 now. And then the SNC balances, I think you're at around $600,000,000 last quarter. So this quarter that would take you down closer to the $450,000,000 mark. Do those numbers sound correct?
Yes. The SNC today at the end of the quarter is around $460,000,000 As I mentioned, they will be running off. But the ones that are not core are the ones that will be running completely, which is the $131,000,000 within the number that I mentioned.
Yes. The relationship SNCs, we're keeping those because those are SNCs where we actually have a relationship with the customer, with the sponsor.
All right. And then I think in addition to SNCs, you had club deals of around $210,000,000 last quarter. Is that number roughly the same in 1Q?
Yes. A little bit lower than number, around the 180. And those are the ones that we're going to keep. We might increase, as mentioned by Miller and Al. As we grow and we improve our deepened relationship with existing CRE customer and even middle market customer, we are going to be able to syndicate those club deals and get the income that before we were not part of it.
All right. And then just on the net interest margin, you all saw some nice expansion this quarter. I know that's a big piece of your story. You're talking about continued NIM expansion. You're trying to reduce your asset sensitivity given the new rate backdrop.
How should we think about the magnitude of NIM expansion from
here?
Well, given the Fed's easing, we would still expect improvement in our NIM, but it will be a moderate improvement throughout the year. Certainly, we are extremely close already to the 3% mark that we had laid out for modestly throughout the year as we continue the rebalancing, as we continue the efforts to control and somewhat reduce the cost of our funding of our deposits.
Okay, great. Thanks guys.
Thank you. And our next question comes from the line of Michael Young from SunTrust. You may begin.
Hey, good morning.
Good morning, Michael. Hi, Michael.
Wanted to dig a little deeper maybe just on the deposit side and deposit funding. I appreciate the color you provided already on the CDs, repricing, etcetera. But could you maybe just give us a little more color on expectations for bringing over some of the commercial deposits, the lower cost deposits potentially? And then any updated thoughts around kind of what you think new CD pricing will be relative to maybe your back book?
Okay. Hi, it's Miguel. As you know, we have been focusing on the last 4 months on the change of behavior from lenders to our end. And also in the same time, we have been training the branch team and the sales force into our new verticals that we believe are richer in deposit. We also created a tool that is mainly a dashboard where they can see where they could focus better.
And by doing that, we have seen an improvement with creation of new core deposit. In the past, we saw that the loan to deposits in the commercial segments were below the 15%. Now in this quarter, we have seen improvements already reaching almost 20%. We're trying to repeat the same for the middle market segment. And also, we have changed incentive plan on the retail side, mainly focusing more in core deposit, lost cost of fund and the creation of bundles and new products that will help to improve that number.
In addition to that, we have created several products for the commercial team that are going to be deployed sooner like the cash sweep and secured cash sweep and cash bulk that will generate additional increase on our deposit base. And Michael,
if I may add, I touched upon it, but we're developing a lot of pricing techniques where we're trying to renew CDs, trying to find the sweet spot that the CDs will renew at and won't just go to the bank next door. It doesn't necessarily always have to be the highest promotional arena. We're having a fair amount of success and also being able to identify and actually call those customers where the probability of renewal wasn't that low. That's going to put less pressure on having to advertise for new CD money for instance, if you're more successful in retaining the ones you got.
Okay. And maybe could you just talk about on the CD front kind of duration? We've heard a lot of talk about seeing the CV promotion rates come down and some of the longer duration CDs being maybe the advertised specials kind of being removed from the market. So can you just talk about your strategy in terms of how short or long do you plan to be in the CD space and any opportunities that you're seeing to be able to put on some new CDs at relatively cheaper prices?
Yes. In general terms, based on the new strategy and the methodology that we're using and seeing what the market is doing, we're not now the best promoting rating in the market unless it's the online CD. At the branch level, what we're doing, we lower between 25 to 40 basis point our CDs. And our focus mainly or what it has been the attraction is between 1 year 15 months. And also, we still have seen some people interested in the 5 year term.
But our best approach will be that if we don't have true relationship and we don't allow if we allow them to bring it into our bundle products, then we're going to be improving our relationship. What we have done is that we created different bundles for money market, for DDA and for CDs. And the only way to be placed on a better or more competitive is to have your core transactional account with us. So that blend will improve also our cost of funds.
Okay. And just last one for me on the international deposits. I think you mentioned they declined about 14% this quarter. Could you just talk about any color you can provide on is that your expectation kind of continuing for the rest of the year? Do you think that will moderate somewhat?
And then any influencing factors that you guys kind of keep an eye out for that could influence that to be either higher or lower?
Yes. If we annualize the 3.5 drop that we had this quarter, you're right, it's 14. That's a little bit more than what we were anticipating in December, which was closer to around the 9% mark. But we still feel that it's going to get closer to the 9%. We don't anticipate we don't feel that that's going to be increasing because at the same time, we're doing a lot of efforts to get a greater share of wallet from a lot of those customers.
We cannot certainly contain some of that flight of people taking their money out to live and that is generally primarily impacting the smaller accounts. But we still see a great opportunity to capture a greater share of wallet from our higher net worth customers. One good example of how more resilient that upper echelon of customers is, is the fact that our assets under management actually increased slightly. I mean, there were some domestic that is already being generated in there. But generally, our assets under management are more wealthy Venezuelan customers.
Those funds tend to be very stable. So we feel that we haven't we're going to be working to unleash that untapped potential on some of our higher network international customers to mitigate to a certain extent that utilization of funds to live in our lower customers.
Yes. In addition to what I also mentioned is that during this transformation, the RNs on the wealth management team, they also have been, let's say, forced to transform and becoming more hunters than they were in the past. So they are forced by their own merits to deepen relationship and bring and expand the share of wallet. The majority of those customers in the wealth management, we are not the only institution that they work with. So there are several funds that we can still attract to this institution and more with the new branding and really start in next month.
We believe that, that will improve a lot our sales and our speech into the market.
Underlying all of those efforts, generally, we're achieving successes is where we've essentially changed the compensation structures of a lot of the individuals, whether it's the wealth management reps or whether it's our relationship officers selling swaps and interest rate contracts. By honing in, by really refining those compensation schemes, we're achieving the desired results.
All right. Thanks for all that. I appreciate it.
Thank you. And our next question comes from the line of Tyler Stafford from Stephens. You may begin.
Hey, good morning and thanks for taking the question. Just a couple of follow-up for me. Sticking with just the deposits, what's the average cost of the foreign deposits for the Q1?
The average cost of the foreign deposits continue to be extremely low. They are in the neighborhood of about 35 basis points. It's really unchanged from it was essentially in December.
Okay, got it. And then just No pressure there. Yes. And then we kind of maybe danced around it a little bit on a few of the earlier questions, but just the average cost for the new dollar of domestic deposits coming on to the bank today, what is that rate just generally speaking?
Well, it depends on the product. If we're talking about CDE, it will be around between $225,000,000 $250,000,000 And if this is depending on the money market and if the customer goes through the bundles product, they could be between the 225, 240.
Okay, got it. Thanks.
But our mainly focus is, as I've mentioned before, growing our DDA and low cost of funds in both segments, the retail and the commercial.
So that leads to my next question or just last question on the margin. What was the average non interest bearing balances for the Q1?
Hold on a second here. I have that.
I got that here. Hold on a second.
Okay.
Okay. So if we looked at this quarter, the average both international and domestic, we're looking at roughly about 1%, 0.99%. That's including DDAs. I mean, excluding DDAs, it would be closer to about 1.16.
I'm sorry, just the do you just have the dollar of average non interest bearing deposit balances?
Okay. No, we don't have that. It's about $700,000,000 But you have to keep in mind, if we look at back in also in December, where we had disclosed that even our money market accounts can almost be considered as non interest bearing as well because the average cost of our money market accounts is around 5 basis points. So you really have to take our money market accounts and our non interest bearing to really come up to really a large percentage of our deposits that are nearly interest free.
Sure. Got it. Okay. Thanks for that. And then just last one for me.
Just I want to clarify one of the earlier answers about just the SNC expectations, SNC balance expectations. So when you're complete with running off the non relationship SNCs, what would you characterize or size up as the relationship SNC balances that you would expect to keep on a go forward basis, assuming no growth or any?
I would say around $350,000,000 $400,000,000
Okay. So $300,000,000 to $400,000,000 are relationships?
Yes, those are relationships. And mainly that increase should be focused on strong peer relationship, mainly on the middle market and real estate segment, where we have even the wealth management side of the customers.
Yes. Okay. So just to clarify, what's the total dollar of SNCs today?
Total, total?
Total, total.
$465,000,000 And
then $300,000,000 to $400,000,000 of that are the relationships that you expect to keep?
Yes.
Okay, got it. Thank you, guys.
Thank you. And our next question comes from the line of Christopher Merrimack from FIG Partners. You may begin.
Thanks. Good morning. I wanted to ask about new hires on the commercial lending side. Has there been enough turnover in South Florida to have additional hires? Or is that part of your plan this year?
And then perhaps just talk additional on Texas.
Well, that's a very interesting question. I do believe that the biggest challenge that the banking system will have is the talent. We have seen a slow turnaround or turnover of the commercial around. We are trying to improve mainly on creating a group for the wealth management team. We already have been working with several interviews and we should have for the 2nd semester a new structure for our domestic team on the wealth management side.
On the commercial side, we have had out of the 20 something RMs that we have, We have seen some layoff or lack of production mainly in Houston. 2 of those were let go at the beginning of the year, and we are already working on interviews. And also, we are we already hired for the Dallas LPO. And we continue seeing a lot of possible candidates and more when you have this merge between the big banks that were announced. We've taken advantage and we are seeing a lot of traffic on that sense.
Great. That's helpful. Thank you for that background. And then just a follow-up on credit quality. I know it's a little early on the CECL process for next year and the future years, but give a sense of sort of whether your reserves will ultimately be very strong relative to your loss rate just because you've got a history of limited losses.
And just curious if you had any kind of initial perspective as CECL comes into focus?
Yes. Well, CECL won't apply to us as an emerging growth company, it's not going to apply to us until 2022. We're already working on it. We've adopted an implementation plan. We selected a recognized software solution vendor.
And we're in the process now of implementing and validating the models for each of the portfolio. But it's too early. It's still too early for us to anticipate or really give any guidance whether what effect CECL is going to have on us, so 2 years down the road.
No, that's a fair point, Al. Thanks very much, guys.
Okay. Thank you. Our next question comes from the line of Michael Rose from Raymond James. You may begin.
Hey, guys. Yes, thanks. Just two quick follow ups. I don't know if I missed this, but did you give any color on the commercial loan that was moved to the NPL this quarter? What geography was it in and maybe what industry was it in and any color around why it was moved there?
Thanks.
You are talking about the $2,400,000 in commercial in Florida? Correct. That was mainly a C9 I type of ABL transaction we're monitoring, nothing in particular. Our portfolio team continues to do great job on monitoring the whole portfolio. We don't see or foresee any particular change.
What we are doing and what is important is what we are calibrating all our programs, in particular in the CRE side, we're taking a little more conservative approach adjusting those programs, mainly debt service coverage. And as you know, we're very conservative on that side. But we don't see or foresee concerns on we will be stable, but we are cautiously monitoring the whole portfolio. So I have no concern at this moment, even though we're always focused on trying to avoid any surprise.
Okay. Was that loan a SNCC or a club credit?
No, no, no. That's $2,400,000 That's a typical commercial relationship, not related to SNC.
Okay. And then just one follow-up, just back to the expenses. So maybe, Al, let me ask it another way. You guys had 911 full time equivalent employees at the end of the Q4. What was that number at the end of the Q1, if you have it?
Yes, it's in one of the slides.
Oh, it is? If it is, I'm sorry if I missed it.
Yes, it's $889,000,000
$889,000,000 Okay. Sorry, I missed that. Thanks for the clarification.
Oh, 5.10, yes.
Got it. There it is. Thanks, guys. Appreciate it.
Thank you. And I'm showing no further questions at this time. I'd like to turn the call back to Miller Wilson, CEO for closing remarks.
Let me close by thanking all of you for joining our Q1 conference call. I am pleased with our Q1 2019 results. I'm proud of our team for its execution of our transformation strategy to become an independent domestically focused community bank. As I mentioned before, the 4 key elements of our transformation are deepening our customer relationships, shifting the mix of our loan portfolio, attaining a greater share of wallet and driving operational efficiencies and customer service. We look forward to continuing to build on these successes in 2019 and beyond.
Thank you very much. Operator?
Thank you. Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a great day.