Sandy Spring Bancorp, Inc. (NASDAQ:SASR) Q1 2022 Earnings Conference Call April 21, 2022 2:00 PM ET
Company Participants
Daniel Schrider – President and Chief Executive Officer
Aaron Kaslow – General Counsel
Phil Mantua – Chief Financial Officer
Conference Call Participants
Casey Whitman – Piper Sandler
Erik Zwick – Boenning & Scattergood
Catherine Mealor – KBW
Russell Gunther – D.A. Davidson
Brody Preston – Stephens
Operator
Hello and welcome to today’s Sandy Spring Bancorp, Incorporated Earnings Conference Call and Webcast for the First Quarter of 2022. My name is Bailey and I will be the moderator for today’s call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. [Operator Instructions]
I would now like to pass the conference over to Daniel Schrider, President and CEO. Daniel, please go ahead.
Daniel Schrider
Thank you, Bailey, and good afternoon, everyone. Thank you for joining us for our conference call to discuss Sandy Spring Bancorp’s performance for the first quarter of 2022. As mentioned, this is Dan Schrider and I’m joined here by my colleagues, Phil Mantua, Chief Financial Officer; and Aaron Kaslow, General Counsel for Sandy Spring Bancorp.
As usual, today’s call is open to all investors, analysts and the media. There’s a live webcast of today’s call and a replay will be available on our website later today. Before we get started, covering highlights from the quarter and then taking your questions, Aaron will give the customary Safe Harbor statement.
Aaron Kaslow
Thank you, Dan. Good afternoon, everyone. Sandy Spring Bancorp will make forward-looking statements in this webcast that are subject to risks and uncertainties. These forward-looking statements include statements of goals, intentions, earnings and other expectations, estimates of risks and future costs and benefits, assessments of expected credit losses, assessments of market risk and statements of the ability to achieve financial and other goals.
These forward-looking statements are subject to significant uncertainties because they are based upon or affected by management’s estimates and projections of future interest rates, market behavior, other economic conditions, future laws and regulations and a variety of other matters, including the impact of the COVID-19 pandemic, which, by their very nature, are subject to significant uncertainties.
Because of these uncertainties, Sandy Spring Bancorp’s actual future results may differ materially from those indicated. In addition, the company’s past results of operations do not necessarily indicate its future results.
Daniel Schrider
Thanks, Aaron. We’re pleased to be on the line with you today to discuss our first quarter performance. On the heels of a record year in 2021, we feel we really carry that momentum and delivered a strong first quarter. And we continue to provide excellent commercial loan production and growth, which is especially notable during a quarter that is traditionally soft.
We maintain a strong pipeline all quarter long and by continuously refilling that pipeline, we demonstrated our ability to grow client relationships, win new business and set ourselves up for sustained success. Fueling the liability side of the balance sheet, our treasury management teams and branch colleagues continued to generate impressive deposit growth during the quarter. And while our wealth revenue was impacted by market forces outside of our control, our wealth group continued to drive new business that will benefit the company into the future.
We also successfully enhanced our regulatory capital through our sub debt offering in the first quarter and our sustainable margin remains a source of strength. And our efficiency ratio is a testament to our ability to manage this revenue to expense relationship. And I’ll hit on all of these in more detail during my comments, but for now, let’s get into the details of what made it such a successful quarter for the company.
Today, we reported net income of $43.9 million, which is $0.96 per diluted common share for the quarter ended March 31, compared to net income of $75.5 million or a $0.58 per diluted common share for the first quarter of 2021 and $45.4 million or $0.99 per diluted common share for the fourth quarter of 2021. Core earnings for the quarter were $45.1 million, compared to $46.6 million for the linked quarter and $83.5 million for the prior year quarter.
The decline in core earnings is primarily the result of a charge to the provision compared to a significant credit for the prior year quarter. A slight decline in core earnings from the linked quarter is primarily driven by lower PPP income coupled with lower non-interest income, partially offset by lower non-interest expense. The provision for credit losses was $1.6 million, compared to the prior year’s quarters’ credit of $34.7 million. The provision this quarter reflects continued growth in the loan portfolio, as well as our view of recessionary pressures.
To clarify, given the looking forward nature of our CECL methodology, we proactively made changes in certain qualitative factors based on management’s assessment of the probability for a recession within the next 12 to 18 months. Shifting to the balance sheet, total assets were $13 billion, a 1% increase compared to $12.9 billion at March 31, 2021 and $12.6 billion at December 31, 2021. Over the past two quarters, excess liquidity from deposit growth as well as PPP loan forgiveness was used to fund loan growth as well as growth in our investment securities portfolio.
Total loans excluding PPP increased 10% to $10 billion compared to $9.1 billion at March 31, 2021 and excluding the impact of the PPP loan forgiveness. Total commercial loans grew by $983.2 million or 13% during the previous 12 months. During this period, the company generated $3.8 billion of gross new commercial loan production of which $2.5 billion was funded. This production more than offset the $1.5 billion in non-PPP commercial loan runoff.
During the first quarter of 2022, funded commercial loan production increased to $545 million or by 90% compared to $288 million for the same quarter of the prior year. The growth in the commercial portfolio, excluding PPP occurred in all commercial portfolios and was led by the $736 million or 20% growth in the investor owned commercial real estate portfolio.
Year-over-year, the consumer portfolio declined 15% due to refinancing activity in the residential mortgage markets. Looking forward, our commercial pipeline continued to be solid at $1.5 billion at the end of the quarter, which is comparable to the pipeline at year-end and in prior quarters. Our outlook for loan growth continues to be in the 8% to 10% range, assuming the market competitive pricing is reasonable and meets our profitability targets.
Looking at PPP at the end of the quarter, we had outstanding loans of $75 million compared to over $1 billion in the prior year quarter and remaining fees to be earned total $1.7 million. PPP interest income and fees earned in the quarter totaled $3.22 million compared to $9.22 million in the linked quarter and $10.9 million in the prior year quarter.
Shifting to the deposit side of things, year-over-year deposits grew 2%. This was driven by 7% growth in non-interest bearing deposits and reflects the impact of PPP forgiveness and the growth in transaction relationships. Due to the planned attrition of time deposits, interest-bearing deposits declined 1%. Non-interest income for the current quarter decreased by 29% or $8.3 million compared to the prior year quarter. This anticipated reduction was primarily driven by a decrease in mortgage banking revenue, given the increase in market rates, as well as the reduction in refinance activity.
As a result, income from mortgage banking, activities declined 77%. Other non-interest income decreased 45% compared to the first quarter of 2021. And these decreases were partially offset by 7% growth in wealth management income, 26% growth in service charges on deposit accounts and a 10% increase in bank card fees. We successfully executed on the strategy, I mentioned last quarter to hold a larger percentage of mortgage production on the balance sheet and an effort to regrow this asset class. Compared to the linked quarter mortgage loans held in portfolio grew 6.7%.
We expect future levels of mortgage gain revenue to be comparable to that of the current quarter as refinancing activities assume to continue to decline with expected market rate increases. While wealth management income decreased 3% this quarter, our wealth group continues to successfully develop new and existing relationships that will translate into portfolio growth as the market rebounds. The net interest margin was 3.49% compared to 3.56% for the same quarter of 2021 and 3.51% for the linked quarter. The amortization of fair value marks derived from acquisitions did not affect this quarter’s net interest margin compared to $3.46 for the first quarter of 2021 and 3.52% for the linked quarter.
The current quarter’s core margin excluding the impact of PPP revenues was 3.41%. On a go-forward basis, we expect the margin to show continued stability with the potential for slight expansion. In our forecast, we anticipate rates for the remainder of the year that would include anywhere between five to eight rate increases by the Fed, which depends on the size of each increase, but overall totaling 2.5% for the remainder of 2022.
And we’re also forecasting three additional moves in 2023 at this time. Non-interest expense for the current quarter decreased $6 million or 9% compared to the prior year. But the prior year quarter included a $9.1 million loss from the redemption of FHLB borrowings and was the main driver of the quarter-over-quarter decline. Excluding that redemption, non-interest expense increased 5% compared to the prior year quarter, driven by an increase in compensation and benefit costs.
The non-GAAP efficiency ratio for the first quarter was 49.34% compared to 42.65% for the prior year quarter and 50.17% for the linked quarter. The decline in non-interest income, primarily mortgage gains and the increase in non-interest expense drove the increase of the non-GAAP efficiency ratio compared to the prior year quarter. But it does remain within our desired range.
Shifting to credit quality, all credit related metrics continue to be very strong. The level of non-performing loans was 46 basis points compared to 94 basis points at March 31, 2021 and 49 basis points at December 30. Loans placed on non-accrual, totaled $1.5 million compared to $400,000 for the prior year quarter and $0.5 million for the linked quarter. Non-accrual loans at quarter end declined from the prior quarter due primarily to pay off activity. A net charge-offs for the first quarter were $200,000, compared to $300,000 for the first quarter of 2021 and $400,000 for the linked quarter.
And the allowance for credit losses was at $110.6 million or 1.09% of outstanding loans and 239% of non-performing loans, compared to $109.1 million or 1.1% of outstanding loans and 224% of non-performing loans at the end of the prior quarter. Excluding PPP, the allowance for credit losses to outstanding loans was 1.1% at quarter end.
The increase in the allowance compared to the previous quarter was a result of growth in the loan portfolio during the quarter, net of the impact of continued improvements in forecasted economic metrics and an update to all other qualitative factors used to determine the allowance for credit losses.
On the capital side, the tangible common equity ratio decreased to 8.7% of tangible assets at March 31, compared to 8.9% at March 31 of 2021. This decreases the result of the $107.3 million repurchase of common shares during 2021 and the $66.6 million increase in the accumulated other comprehensive loss coupled with the increase in tangible assets during the year.
The company had total risk-based capital ratio of 16.77%, a common equity Tier 1 risk-based capital ratio of 12.03%, a Tier 1 risk-based ratio of the same amount 12.03%, and a Tier 1 leverage ratio of 9.66%. The increase to the AOCI was predominantly driven by the after-tax mark to market decline in the bank’s investment portfolio. Its impact on our tangible capital levels will continue to be monitored in conjunction with any future decisions we make concerning share repurchase activity.
As you know, the Board of Directors took action during the quarter to authorize the repurchase of $50 million worth of shares. And beyond our financial performance, there are a few other updates I’d like to share with you before we close and then move to your questions. As you know, we have a frozen defined benefit plan. We started the process of determinating our pension plan, and we expect determination to occur in late 2023. This point there’s no estimate of expense at this time.
On the corporate recognition front, Sandy Spring Bancorp was named a top five bank by Forbes and S&P Global Market Intelligence. Both of these honors are recog – in recognition of our financial performance and really grateful to our employees for making this performance possible. We also recently announced three exciting internal promotions. Melissa Kelly was promoted to Division Executive Marketing. Sherman Moore took on Division Executive of the Private Client Group. And Charlie Cullum was promoted to Division Executive in Corporate Treasurer effective upon the retirement of our cur current Corporate Treasurer, Mark DuHamel on June 30.
We have exceptional talent at Sandy Spring and really pleased that we are able to grow and promote from within the company. And finally, last month we issued our second annual corporate responsibility report. This report details where we are in our journey to address environmental, social, and corporate governance issues that we believe are most important to our stakeholders into drive long-term value. You can find the report and read it on our website.
So Bailey, that concludes our general comments for today and now we can move to your questions.
Question-and-Answer Session
Operator
Thank you. [Operator Instructions] Our first question today comes from Casey Whitman from Piper Sandler. Casey, please go ahead. Your line is now open.
Casey Whitman
Hey, good afternoon, everyone.
Daniel Schrider
Good afternoon, Casey.
Phil Mantua
Hi, Casey.
Casey Whitman
Hi, so we’ve already heard from at least one of your competitors that they started to raise deposit rates, but are you seeing that at all? And also just maybe remind us what kind of betas you’re assuming in the ALCO modeling and around your commentary that you can keep that core margin pretty stable here.
Phil Mantua
Yes, Casey, so we have not ourselves made any moves towards increasing any of the deposit rates at this point. And we have rarely, very little if any more that is completely tied to market rates with the exception of a couple of broker type transaction accounts. So we have a couple other larger banks.
We have not seen in this market overall move by any of our competitors. I think I do know of one and that may be the one you’re referring to that has jumped out there a little bit and made some changes to their offering rates. But I think we’re like most others that are going to try to lag this as long as possible and minimize the impact until it’s pretty well absolutely necessary.
When we do model, our deposit base the kind of transaction oriented accounts that would be subject to change. We use about a 40 – 35% to 40% beta on those. We think that’s actually pretty aggressive and would certainly hope to not have to go to that extent. I think as I’ve said before, and Dan alluded this a little bit in his comments related to the number of moves the feds anticipating or the potential, the larger the movements the more I think we end up being kind of pushed or compelled to have to move and move more in larger pieces. So if we do in fact get 50 basis point adjustments here or bumps in the next couple of meetings, then I think that that may tend to change the equation, but I still think that we’ll try as hard as we can to lag all of that as much as possible.
Casey Whitman
Okay. What about just some pressure in the second quarter from a full I guess quarter impact on the sub that would you expect that at all? Or can we still expect to hold the margin I guess in this low 340s?
Phil Mantua
Yes. I – yes, I’ve kind of taken that into consideration in terms of Dan’s qualitative comments about it being some slight expansion. I think it’s the bigger element of it is something else that he said, which is related to making sure that we get paid for the lending activities that we get involved in going forward. And that’s probably got as big an impact as anything else relative to maintaining stability and having some additional expansion even in the face of rising rates.
Casey Whitman
Okay. I’ll shift gears maybe to just a bigger picture question. Dan, can you remind us sort of your priorities for uses of capital and how that plays into sort of how aggressive you might be with the buyback and maybe just update us on your general appetite for M&A.
Daniel Schrider
Yes. Casey, I mean, first and foremost, we’ve developed over the course of the last several quarters and really nice momentum of growth here organically within our market. We don’t – we really don’t want that to be limited in any way. And so from a utilization of capital standpoint that will remain a priority. As you know, in this business, scale continues to be important, which would have us continue to build relationships to and so I think acquisitions both bank and non-bank would be something that we would still see as part of our going forward strategy from a capital utilization standpoint.
We look forward to continue to be a dividend payer as long as performance warrants and share repurchases, we are active in 2021. As we communicated, we’ve earmarked some dollars from our recent sub debt offering to be utilized for that purpose. And so we’re evaluating when the best time to do that is. And so I think those are kind of the four different ways in which we look at capital. I think the most important thing is we don’t want to put ourselves in a position and I think we’re in a great position not to have to be concerned about organic growth and to be active in and growing the company going forward.
Casey Whitman
Understood. Thank you.
Daniel Schrider
Thank you, Casey.
Phil Mantua
Thanks, Casey.
Operator
Thank you. The next question today comes from Erik Zwick from Boenning & Scattergood. Erik, please go ahead. Your line is now open.
Erik Zwick
Thank you. Good afternoon.
Daniel Schrider
Hi, Erik.
Phil Mantua
Hi, Erik.
Erik Zwick
Wondering if I could start I may have just overlook this somewhere. Do you have the current kind of period end balance as well as the remaining unamortized fees for the PPP loans?
Daniel Schrider
Yes. Erik, this is Dan. At quarter end, we are at $75 million in PPP outstandings and $1.7 million in remaining fees to be earned.
Erik Zwick
Perfect. Thank you. And then just looking at the average earning balance – average interest earning balance for the quarter, they were down quarter-over-quarter and looks like the driver was lower average balance of the interest bearing deposits at banks. And as I looked at the period end, for the first quarter as well as the fourth quarter of last year, it looked like both of those balances were higher. So I’m just kind of curious what transpired there in the quarter with those balances and how should we think about the trajectory of average earning assets going forward into 2Q?
Phil Mantua
Erik, this is Phil. I think all of that is just related to our ability to absorb the additional liquidity that we talked about in prior quarters. And a lot of that happened at the very end of last year, if you remember, in terms of the kind of backend load and loan growth. So that’s going to have a bigger impact on the average here in the first quarter given where we’re going to start.
And so I would think that the levels we’re at now where we ended this quarter are those that we would probably look to manage at going forward. Having really been, as Dan mentioned in his comments really successful in our attempts to absorb that excess liquidity. So I think that’s where I would kind of look at it as we move forward and not look at – not look forward to either shrink or grow significantly in either direction.
Erik Zwick
That’s helpful. Thank you. And then just given the strong loan production in 1Q, can you provide an update on the dollar value of the pipeline at the end of the quarter and how that compared to at the end of last year?
Daniel Schrider
Yeah. Erik, Dan, if you look back over the past four quarters, including this quarter end, I think with the exception of quarter – end of the third quarter, we were about $1.5 billion going into at quarter end in the commercial pipeline. I think we had one quarter at the end of the third quarter, where it had a grown to $1.7 billion, but where it is now or where it was at the beginning of the second quarter is where it was at the end of the year. And that’s – that is – from our perspective, pretty exceptional given the fact that the first quarter, if you go back many, many years has traditionally been a pretty soft quarter in terms of commercial loan production and growth. So feel pretty good going into the second quarter.
Phil Mantua
Yes. Hey Erik, this is Phil again. Let me come back to your commentary around that cash in the front position. The other thing that I just thought about that did impact things as we got through the end of the quarter was the additional funds that were raised through the sub debt issuance of $200 million. There wasn’t enough time in a quarter for that to be fully absorbed. So that is a bit of a inflationary position in that cash number today that we would certainly hope to have redeployed into in the loan growth here as we move forward.
Erik Zwick
Got it. That makes sense. And so the – I guess, going back to your earlier comment that kind of managing at the current level, we should look at that average earnings kind of the average balance instead as you kind of put some of that period into workshop. Okay, great. Perfect.
Phil Mantua
Yes, yes, yes.
Erik Zwick
And then last one for me, just curious, if you can provide any insight into the current kind of yield in the commercial pipeline, I’m just curious how that compares to the existing yield in that portfolio, if you’d expect that to be able to kind of hold the line there or with the increase in interest rates recently, is there some opportunity just to see some upward revisions?
Daniel Schrider
Yes. Let – we’ll probably tag team this one. Phil can talk a little bit about the history from the quarter in terms of average yields. I would, I think the – and what we’re experiencing is the competitive environment and particularly in commercial banking has been slow to react to the realities of where the treasury curve has gone. We’re seeing that play out appropriately in the residential mortgage space, but not as quickly as it needs to commercially. So our expectation and a lot of it’s driven by what we also think we need to do on the deposit funding side is that we need to see some expansion in those yields as we move through 2022.
Phil Mantua
Yes. And Erik from a booked yield standpoint here in the first quarter – in the more significant categories where we had growth, which would be the owner occupied fixed and in investor real estate fixed categories. Those yields probably averaged out in the mid-3, 3.50 to – in terms of investor real estate and probably in the 3.65 to 3.75, maybe 3.80 range on the owner occupied side. So sub-4% rates as we look forward would certainly not be optimal from my perspective.
Erik Zwick
Great. I appreciate the color. Thanks for taking all my questions today.
Phil Mantua
You bet.
Operator
Thank you. The next question today comes from Catherine Mealor from KBW. Catherine, please go ahead. Your line is now open.
Catherine Mealor
Thanks. Good afternoon.
Daniel Schrider
Hi, Catherine.
Phil Mantua
Hey, Catherine.
Catherine Mealor
Just the question on expenses. The expenses run rate came in a little bit lower than you had guided. Are you thinking we return to the $64 million, $65 million range next quarter and how you think about expense growth kind moving forward this year? Thanks.
Phil Mantua
Yes. Catherine, this is Phil. I think the direct answer to your question is more yes, but not this quarter. I think we – if you want to call it, we benefited from the fact that, I don’t know if it really benefited from an expense standpoint from the fact that we’ve got a fair number of vacant positions and things that we’re trying to redeploy with to help us grow the company forward and that ultimately should occur as we find the appropriate talent and resources that we were ultimately looking for because the more large majority of the variants here was in that salary and benefit area. And so I would run projections using that $64 million to $65 million range as an estimate and as I think I said on the call last time on a kind of normalized basis about a 4% growth and expenses on a year-over-year basis as well.
Catherine Mealor
And do we see any benefits from lower mortgage on the expense line as well?
Phil Mantua
It’s not really evident in that number this quarter. It could be more so as we move ahead, as we try to react to kind of the now or new realities of where mortgage activities are and probably going to be – as we look at what the impact is going to be certainly on the gain numbers. And I think we got a pretty good handle on where that’s at to then have some hopeful come back on the expense side. It certainly won’t get anywhere near offsetting it, but there ought to be some, but that has not manifested itself in this quarter yet.
Catherine Mealor
Got it. Okay. Great. And then on the efficiency target, you’ve targeted a 50% to 51% target. Is that still – where you’re thinking that ratio should be or is there any – could you even push that lower just given a higher margin and a better revenue outlook?
Phil Mantua
I would maintain it in that same place even with the possibility of some additional margin expansion there, given what we’re trying to do from a longer term perspective in investments for the future, some of which, again, didn’t really work its way into the first quarter based on the speed of accomplishment in certain projects, that will ultimately come through. And so I think that that’ll temper the ability for that efficiency ratio to be a whole lot lower than where it is at this point.
Catherine Mealor
Great. And then my last question, just on fee outlook, I know Dan, you gave us some guidance on mortgage, but how about other fees. Any guidance on how you – where you think non-mortgage fee growth should land this year?
Daniel Schrider
Yes, when we put our plan together, we customarily are particularly in the wealth area and insurance area plan for double-digit anywhere from 8% to 10%, 8% in the insurance, 10%-ish in the wealth space, absent market moves. So even with – if you look back over prior year quarter, despite what we experienced in the first quarter, in terms of asset values, we still grew the wealth business year-over-year. And I still think we’d aim for the same, obviously that was a greater volatility given the market side.
Those are really – the outside of mortgage it’s wealth and insurance and our service charge related revenue while we saw some growth, just because the world opened back up again, not a significant piece of our overall fee based revenue.
Phil Mantua
Yes. Catherine, I will remind everyone that we will be subject to Durbin in the second half of the year. And we have – and maybe you have to, but we’ve built into the third, fourth quarters and beyond, the reduction that’s going to come from that kind of being legislated on us. And I think on a quarterly basis, it’s probably somewhere in $1 million or $1.2 million a quarter.
Catherine Mealor
All right. That’s great. Yes, we do have that in our numbers, but thanks for the reminder there. All right. That’s all I got. Thank you so much.
Phil Mantua
Thanks, Catherine.
Daniel Schrider
You’re welcome. Thank you.
Operator
Thank you, Catherine. The next question today comes from Russell Gunther from D.A. Davidson. Russell, please go ahead. Your line is now open.
Russell Gunther
Hey, good afternoon guys.
Daniel Schrider
Hi, Russell.
Phil Mantua
Hey, Russell.
Russell Gunther
Circle back to the growth conversation, you guys reiterated the 8 to 10 on the commercial side. Also talked about adding qualitatively to reserves for the potential – for recessionary pressures in the next 12 months. So just curious if that 8% to 10% contemplates any softness in the back half of the year, and you’re comfortable there given where pipelines are in other catalysts. But what are your thoughts there?
Daniel Schrider
Yes. I don’t – it does not anticipate a softness in the latter half of the year. We’re benefiting, however, in the event, things did soften up. Really strong beginning to the year with how we closed out 2021 and in the first quarter of 2022, and as we’ve even this first month, and the second quarter is proving out to be strong. So the 8% to 10% is, we think kind of a healthy level for us to maintain. Our view towards desired credit quality, as well as our ability to take – to win our fair share of opportunities at profitable levels within the year. So it does not anticipate a slow down, so to speak toward the end of the year.
Russell Gunther
That’s helpful. I appreciate it. And then you touched on the growth in the single-family portfolio. Is that mostly the ARM product? Would you continue to portfolio around current levels? And if so, how are you thinking about overall loan growth depending on what you’re thinking on the consumer side?
Daniel Schrider
Yes. I think on the res mortgage piece, we had seen over the course of several periods, some runoff in that portfolio and we had not replenished it. And so when we kind of got into the third quarter of 2021, decided that from a diversification standpoint it would be wise to rebuild that. I think future growth in that is really going to be determined by what we believe is most valuable to us, whether we push it off balance sheet into gain revenue or portfolio. So it is a blend of ARM product as well as some longer-term fixed rate, although not meaningful in the overall interest rate risk space.
So I think what you’ve seen in the first quarter could be tempered in terms of growth, but at this point, we’re still originating for portfolio. But like I said, if we can – we feel like it’s more beneficial probably to the earlier question about our ability to contract that business, to push it into gain, and then we’ll look to do that as well.
Russell Gunther
Okay. I appreciate it. And then on the margin discussion, could you remind us in terms of, so the 5% to 8% hikes for this year, how does that act up against what you have in terms of floors on the commercial side? Would you be through the bulk of them with that type of rate projection?
Phil Mantua
This is Phil. Most of our floors are around 4%, so it would take this first 75 to get us back even. We’ve had 25 already, if the next one is a 50 basis point move, then we’re pretty much there and starting to see incremental improvement from there.
Russell Gunther
Okay. I appreciate that. And then, so the guide for slight expansion alongside that that rate move, is that in consideration of the deposit betas of 35% to 40% that you guys think could prove aggressive? And so if it does not materialize, there’s some upward bias to the slight expansion, or how should we think about tying this all together?
Phil Mantua
That’s exactly how I would couch it. Exactly right, using the betas that we talked about as being incorporated in the slight expansion in our ability to mitigate against that would only in my view allow the margin to expand in a better way. Yep.
Russell Gunther
Okay. Great. Well, thanks for taking my questions guys. That’s it for me.
Daniel Schrider
All right. Thank you.
Operator
Thank you, Russell. [Operator Instructions] The next question today comes from Brody Preston from Stephens. Brody, please go ahead. Your line is now open.
Brody Preston
Hey, good afternoon, everyone.
Daniel Schrider
Hi Brody.
Phil Mantua
Hey Brody.
Brody Preston
I just wanted to – most of my questions have been asked. I just had a couple other questions on the fee income front. There’s a – it just looked like a unique dynamic this quarter where wealth management AUM grew nicely. But the fees came in a little bit. So could you speak to what drove of that?
Phil Mantua
Yes. Brody, this is Phil. I’m not sure that the actual total AUM quarter-over-quarter went up. I think it actually – I think it contracted by about $285 million, if I’m not mistaken mostly driven – well, probably exclusively driven by market conditions. It doesn’t mean to say, that we didn’t have some wins in terms of new client origination type activity or whatever. But I think the overall market levels and pressure probably mitigated any of that. So I’m almost certain that AUM in total went down.
Brody Preston
You’re right. I look at the wrong quarter, Phil. I’m sorry about that.
Phil Mantua
No worries.
Brody Preston
Okay. On the mortgage front, could you remind us what the mix of purchase and refi is?
Phil Mantua
Yes. I’ve got it here Brody. So purchasing construction in the first quarter was 64% and the refi was 36%. That’s completely opposite of what it was last year this time, almost to the same percentages where it was 34% and 66%.
Brody Preston
Got it. Got it. Okay. And then I would just ask one more, you mentioned earlier, Phil, that you had some vacant positions that drove the salaries and benefits decrease. Is there anything specific that’s driving the vacancies or are folks leaving further institutions or retiring. Just some color there would be helpful?
Phil Mantua
Yes. So first let me clarify kind of what I meant – kind of what I meant there. So the quarter-over-quarter decline was – and we didn’t talk about this was as much for some of the things that we spent money on in the fourth quarter related to year end, incentive accruals and things like that that drove that number higher then than what it ended up being here in the first quarter. And so that had a lot to do with why it declined. But as we look forward in terms of guiding towards a higher level of overall expenses, I’m suggesting that there are vacancies throughout the organization for things we want to – people we want to hire to get some other different things accomplished that as filled will allow that number to go up to that guided level. So that’s the essence of the commentary there.
I would say, and Dan can certainly qualify these comments. I mean, we’ve got openings across the organization. It’s everything from frontline to support positions in all facets of the company. And some of it I think is driven by some of the same things that are going on from a broader standpoint in the market retirements and folks that are just walking away from the things they did for years and having a tough time finding qualified folks to come in and take their place.
Brody Preston
Got it. And I would just ask one last one. I’m sorry if I missed this earlier, I think it was Casey asked about the deposit betas. Could you remind us what you have in the way of floating rate loans and percentage of those that are subject to floors?
Phil Mantua
Yes. I think 24% of total loans are floating and about half of those that float have floors on them. And as we just mentioned, the majority of them are at 4%.
Brody Preston
Got it. Thank you very much.
Phil Mantua
Sure.
Operator
Thank you, Brody. [Operator Instructions] There are no additional questions waiting at this time. So I’ll pass the conference back over to Dan Schrider for closing remarks.
Daniel Schrider
Thank you, Bailey, and thanks everyone for joining us today. Hope you found our time together valuable. And if you have any follow-up questions, please reach out to Phil or I. And so thanks again for participating and have a great afternoon.
Operator
That concludes the Sandy Spring Bancorp, Inc. earning conference call and webcast for the first quarter of 2022. Thank you for your participation. You may now disconnect your lines.
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