Q1 2024 Amerant Bancorp Inc Earnings Call
Operator: Greetings. Welcome to the Amerant Bancorp First Quarter 2024 Earnings Conference. At this time, all participants are in a listen-only mode.
Greetings and welcome to the Amyris first quarter 2024 earnings conference call. At this time, all participants are in a listen only mode.
A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. Please note. This conference is being recorded.
Operator: A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Laura Rossi, Head of Investor Relations. You may begin. Thank you, Shamali.
Now I'll turn the conference over to your host Laura Rossi head of Investor Relations you may begin.
Laura Rossi: Thank you sure Molly.
Laura Rossi: Good morning, everyone and thank you for joining us to review Rune Bancorp's first quarter 'twenty 'twenty four it resource.
Laura Rossi: On today's call are Jerry plush, our chairman and CEO and Sharon Malka lid on our executive Vice President and CFO.
Laura Rossi: We begin please note that discussions on todays call contain forward looking statements within the meaning of the Securities Exchange Act.
Laura Rossi: In addition references will also be made to non-GAAP financial measures.
Speaker Change: Please refer to the company's earnings release for a steam and regarding forward looking statements as well as for information and reconciliation of non-GAAP financial measures to GAAP measures.
Laura Rossi: Good morning, everyone, and thank you for joining us to review Amerant Bancorp's first quarter 2024 results. On today's call are Jerry Plush, our Chairman and CEO, and Sharymar Calderon, our Executive Vice President and CFO. As we begin, please note that discussions on today's call contain forward-looking statements within the meaning of the Securities Exchange Act. I will now turn it over to our chairman and CEO, Jerry Plush. So before we get to the slides, I'd like to make a brief comment.
Speaker Change: I will now turn it over to our chairman and CEO Jerry Josh.
Gerald Plush: Thank you Laura good morning, everyone and thank you for joining <unk> first quarter 2024 earnings call. We're happy to be here today to update everyone. On our continued progress we've made during this first quarter of the year.
Gerald Plush: So before we get to the slides I'd like to make a brief comment. So as previously noted you can clearly see the shift this quarter from transformation to execution highlighted by our decision to exit the Houston market with the recently announced sale of our franchise there and to instead focus all of our efforts on growing our Florida franchise.
Laura Rossi: You will also note this quarter the lack of noise in quotes as many refer to it in previous periods, having numerous non routine income and operating expense items in comparison to this first quarter of 2024.
Laura Rossi: Results. This quarter also clearly show organic growth from our team member efforts in growing both loans and deposits the focus on relationship banking the quality shift in the composition of our deposit portfolio reached another milestone with the run off of all remaining institutional funds.
Gerald Plush: As previously noted, you can clearly see the shift this quarter from transformation to execution, highlighted by our decision to exit the Houston market with the recently announced sale of our franchise there and to instead focus all of our efforts on growing our Florida franchise. Please note that the decline in broker deposits was replaced with the lower cost FHLB advance. Our assets under management increased $68.5 million to $2.36 billion, driven primarily by market valuations and net new assets.
Laura Rossi: And please nobody has asked that we will address credit in detail. This morning on the call specifically what happened in <unk> with special mention that continued perform and the elevated net charge offs for the discontinued indirect consumer portfolio.
Laura Rossi: So, let's now get to the slides and we will turn to slide three here you can see the total loans decreased by $258 5 million as we completed the sale of the previously announced 401 million multifamily loan portfolio in Houston.
Laura Rossi: Otherwise, we had strong organic loan growth of $142 5 million. Our pipeline is strong for Q2, and we've already closed on approximately $150 million in the month of April 'twenty 'twenty four we.
Laura Rossi: Had organic deposit growth of $331 8 million during the first quarter offsetting the planned reduction of $262 million, we had in institutional deposits and a decrease of $86 4 million in broker deposits. Please note that the decline in broker deposits was replaced with lower cost S. H L. B advances are at.
Laura Rossi: Assets under management increased $68 5 million to $2, three 6 billion, driven primarily by market valuations and net new assets.
Laura Rossi: Regarding our expansion in Florida, we officially opened our banking center in downtown.
Gerald Plush: We also opened a new regional headquarters office in Tampa, and we announced a multi-year partnership becoming the hometown bank of the Miami Marlins. Also, as announced on April 17th, we entered into a definitive purchase and assumption agreement under which Midfirst Bank, based in Oklahoma City, will acquire Amerant Bank's banking operations in six branches in Houston, Texas.
Laura Rossi: Fort Lauderdale at first banking center.
Laura Rossi: We also opened a new regional headquarters office in Taylor, and we announced a multiyear partnership becoming hometown Miami wireless, but also had a few subsequent actions correct. Some April 15th we opened our new regional headquarters office for Broward County, It's located in plantation, Florida, and this will support our efforts to grow in this market also.
Laura Rossi: As announced on April 17th we entered into a definitive purchase and assumption agreement under which mid first bank based in Oklahoma City will acquire Ameren banks banking operations in six branches in Houston, Texas.
Laura Rossi: Fans action includes approximately 576 million of deposits and $529 million in loans and it's expected to close in the second half of 2024.
Laura Rossi: So we'll turn now to slide four for financial highlights of the first quarter.
Laura Rossi: Looking at the income statement diluted income per share for the first quarter was 31 cents an improvement over the prior quarter due to the impact of non routine items had on operating results during the fourth quarter.
Gerald Plush: The additional decrease in margin comes as a result of the timing difference between the sale of the Houston Multifamily Portfolio in January 2024 and the repayment of institutional deposits later in the quarter, in addition to the reduction of higher yield in direct consumer loans. Our total assets reached a record high of $9.82 billion as of the close of 1Q, slightly up from $9.72 billion in the prior period. Total deposits decreased slightly by $16.6 million.
Laura Rossi: The net interest margin was 351% in the first quarter compared to $3 seven 2% in the fourth quarter note that the fourth quarter included an additional 16 basis points of interest collected from the loan principal recovery in that particular period.
Laura Rossi: The additional decrease in margin comes as a result of the timing difference between the sale of the Houston multifamily portfolio in January of 'twenty, 'twenty, four and the repayment of institutional deposits later in the quarter. In addition to the reduction of higher yields indirect consumer loans.
Laura Rossi: Credit quality events continue to be an area of focus and the reserve levels are carefully monitored to provide sufficient coverage provision for credit losses was $12 4 million down 100000 from $12 5 million in the fourth quarter Sherri, we'll be covering credit in further detail later in the presentation, including an update.
Sherri: And on nonperforming loans and special mentioned credits non.
Sherri: Noninterest income was $14 5 million downside five 1 million from $19 6 million in the fourth quarter. While noninterest expense was 66.6 million also down $43 1 million from $109 seven nine in the fourth quarter for two expenses included several non routine items.
Gerald Plush: Cash and cash equivalents increased $337.8 million to $659.7 million at the end of the quarter as a result of the previously mentioned Houston Multifamily Sale and also from Organic Deposit. Our tangible equity ratio was 7.28%, which includes $75.9 million in AOCI, resulting from the after-tax change in the valuation of our AFS investment portfolio. Also of note is that on April 24th, our board of directors approved a dividend of nine cents per share payable on May 30th, 2020.
Sherri: Our total assets reached a record high of 98 2 billion as of the close of one two slightly up from 972 billion in the prior period total deposits decreased slightly by $16 6 million.
Sherri: Two 7.88 billion compared to 7.89 billion in the fourth quarter. Our total gross loans decreased by $258 5 million to $7 billion down from 7.26 and four to our total securities were $1 6 billion up $81 6 million from the fourth quarter as we purchase fixed rate securities as part.
Sherri: Our asset liability management actions given an expected decline in rates later in 'twenty four it into 'twenty five.
Sherri: Cash and cash equivalents increased $337 8 million to $659 7 million at the end of the quarter as a result of the previously mentioned Houston multifamily sale.
Sherri: And also from organic deposit growth.
Sherri: Moving on to capital our total capital ratio as of Q ended at $12 five per cent compared to 12.12% for Q and our CET. One was 10 point of 11% compared to $9, 79%, our tangible equity ratio was 7.28%, which includes $75 9 million in.
Gerald Plush: This slight decrease was driven primarily by the reduction of $262 million in institutional deposits as we used the proceeds from the Houston loan sale. You will also note that our loan-to-deposit ratio decreased temporarily to 88.9% as a result of the Houston loan sale. This will eventually migrate closer to our stated target of 95% given loan sales. Our core deposits, defined as total deposits excluding time deposits, were $5.6 billion as of the end of the first quarter.
Sherri: A OCI, resulting from the after tax change in the valuation of our E. S. S investment portfolio lastly, as a one to our tier one capital ratio was 10, 88% compared to 10.54% as affords you.
Sherri: Also of note is that on April 24th our board of directors approved a dividend of nine cents per share payable on may 30th of 'twenty 'twenty four.
Sherri: So we'll move now to slide five I'll provide an overview regarding our deposit base.
Sherri: Total deposits at the end of the quarter was $7 9 billion down slightly as we mentioned before a $16 6 million from the previously quarter.
Sherri: This slight decrease was driven primarily by the reduction of $262 million in institutional deposits as we use the proceeds from the Houston loan sale and a decrease of $86 4 million of broker did decrease was mostly offset by increases in relationship deposits of 331 'twenty.
Sherri: You'll also note that our loan to deposit ratio decreased temporarily to 88, 9% as a result of the Houston loan sale. This will eventually migrate closer to our stated target of 95% given the loan demand.
Gerald Plush: It's an increase of 35.4 million, or 0.6%, compared to the previous quarter. The $5.6 billion in core deposits included $2.6 billion in interest-bearing deposits, and that's up $58.5 million, or 2.3%, versus the previous quarter. $1.6 billion in savings and money market deposits; that's up 6.5 million, or 0.4%, versus the previous quarter. Non-interest bearing deposits to total deposits decreased to 17.7% in one queue compared to 18.1% in the previous quarter as a result of customer interest and higher yielding. The net interest margin was 3.51% in the first quarter compared to 3.72% in the fourth quarter, which included 16 basis points in connection with a one-time loan repayment.
Sherri: We can turn now to slide six and you can see here that we continue to have a well diversified deposit mix composed of domestic and international customers, our domestic deposits, which account for 67, 67% of our total deposits totaled $5 3 billion as at the end of the first quarter and that's down to 141.4.
Sherri: Or two 6% compared to the prior quarter.
Sherri: International deposits, which account for 33% of total deposits totaled $2 6 billion up $124 7 million or five 1% compared to the previous quarter.
Sherri: We continue to take advantage of our infrastructure and capabilities as well as making the ameren brand more visible through corporate events and partnerships to emphasize international deposit gathering as a source of funds getting more favorable pricing.
Sherri: While also adding diversification to our funding base. The decrease in total deposits was driven by reductions in broker deposits and noninterest bearing deposits, partially offset by increases in interest bearing deposits and customers see dis <unk>.
Sherri: Speaking of C. DS total time deposits for the quarter were $2 2 billion, a decrease of $52 million from the previous quarter due it due to the decrease in brokered time deposits of $69 3 million.
Sherri: And that was offset by an increase of $17 2 million or partially offset $17 2 million in customer Cds.
Sherri: Our core deposits totaled defined as total deposits. Excluding time deposits were $5 6 billion as of the end of the first quarter, that's an increase of $35 4 million or 6% compared to the previous quarter to $5 6 billion of core deposits included $2 6 billion in interest bearing deposits and that's up $58 5 million.
Sherri: Our two 3% versus the previous quarter, one 6 billion in savings and money market deposits, that's up $6 5 million or 4% versus the previous quarter.
Gerald Plush: Moving on to the rate composition of our portfolio, you can see that the floating portion decreased to 12.9% compared to 13.3% in the fourth quarter. The decrease was primarily driven by the sale of $401 million in Houston-based multifamily loans, as previously discussed.
Sherri: And 1.4 billion and noninterest bearing demand deposits, that's down $29 6 million or two 1% versus the previous quarter.
Sherri: So at this point I'll turn things over to Sherry she'll go over key metrics other balance sheet items in our results for the first quarter in more detail. Thank.
Sherry: Thank you Jerry and good morning, everyone.
Sherry: As part of today's presentation, I will share more color on our financial position.
Sherry: So turning to slide seven I'll begin by discussing our keeper for any metrics or changes compared to last quarter.
Sherry: Noninterest bearing deposits to total deposits decreased to 17, 7% Q1compared to 18, 1% in the previous quarter as a REIT.
Sherry: Felt this customer interest in higher yielding accounts.
Sherry: Net interest margin was 351% in the first quarter compared to 372% in the fourth quarter, which included 16 basis points in connection with a one time long recovery.
Sherry: Our efficiency ratio was 72, 3% compared to 118, 30% last quarter, given the absence of material non routine items, we recorded last quarter.
Sherry: Our ROA and ROE were higher this quarter at 44% and 69% respectively.
Gerald Plush: While we see a decrease of 4 basis points in the loan yield from 7.09% in 4Qs to 7.05% in 1Qs, there was actually an increase in the normalized yield of the portfolio when excluding the loan recovery recorded during the period and the reduction in the high-yielding indirect consumer rate. I will cover this portfolio in the next video. The single-family residential portfolio was $1.51 billion, an increase of $33.5 million compared to $1.48 billion in 4Q20.
Sherry: Tier one capital ratio increased to $10, 88% as compared to $10, 54% due to the balance sheet improvement as a result of the sale of the theory multifamily loans in Houston and the income for the period.
Sherry: Lastly, the coverage of the allowance for credit losses to total loans remained stable at 138% compared to 39% in the previous quarter.
Sherry: Continuing on to slide eight I'll discuss our investment portfolio.
Sherry: Our first quarter investment Securities balance went from $1 5 billion slightly up from the previous quarter when compared to the prior quarter. The duration of the investment portfolio has extended to 5.2 years at the model anticipates lower MBS principal prepayments due to higher market rate is.
Sherry: Chart on the upper right shows the expected prepayments and maturities of our investment portfolio for the next 12 months, which represents a liquidity source available to support growth and higher interest earning assets.
Sherry: Moving on to the re competition of our portfolio you can see that the floating portion decreased to 12, 9% compared to 13, 3% in the fourth quarter.
Sherry: As Jerry mentioned before we purchase monthly fixed rate securities. During the quarter do you think your higher you and position the balance sheet for a decreasing.
Sherry: Rate environment, while maintaining our high credit quality of the portfolio.
Sherry: It is important to note that 80 per cent over available for sale portfolio had the government guarantees while the remainder are rated investment grade.
Sherry: Continuing on to slide nine let's talk about the loan portfolio.
Sherry: At the end of the first quarter total gross loans were seven point of 1 billion down slightly three 6% compared to $7 26 billion at the end of <unk>.
Gerald Plush: This amount includes loans originated during the quarter, primarily done with private banking customers and commercial clients with residential income-producing properties as collateral. Our underwriting methodology for CRE includes sensitivity analysis for multiple risk factors like interest rates and their impact on the debt service coverage ratio, vacancy, and tenant retention.
Sherry: The decrease was primarily driven by the sale of 401 million in Houston based multifamily loans, that's a pretty good piece that's cool.
Sherry: We see a decrease of four basis points in the loan yield from seven 9% you're in for Q2, seven point of 5% in <unk>. It was actually an increase in their normal I feel that the portfolio when excluding the law recovery recorded during the period and the reduction into high yielding indirect consumer portfolio.
Sherry: Most notable in this line as a reduction in our CRE portfolio. Following the completion of the sale of the 400 million of Houston based multifamily though.
Sherry: I'll cover this portfolio in the next slide.
Sherry: The single family residential portfolio was 151 billion, an increase of $33 5 million compared to $1 48 billion in four Q3 doesn't.
Sherry: This amount includes the loans originated during the quarter, primarily done with private banking customers and commercial plans with residential income producing properties as collateral.
Sherry: Consumer loans has a 124 were 337 6 million a decrease of 101 4 million or 23, 1% quarter over quarter.
Sherry: This includes $106 3 million in higher yielding indirect loans purchased prior to 2022, that's a tactical move to increase yield we estimate that our current prepayments speeds. This portfolio will run off by the first quarter of 2026.
Gerald Plush: Next, I'll discuss Net Interest Income and Net Interest Margin on Slide 14. In terms of our deposit beta, considering there was no change in the Fed Funds Rate this quarter, there is no beta calculation for this period. However, we observed a beta of approximately 49 basis points on a cumulative basis since the beginning of the interest rate upcycle. We also saw that the magnitude of the beta change from quarter to quarter, as well as the increase in cost of funds, is compressing, which is indicative of a flattening trend or the nearing of the inflection point in future periods.
Sherry: That's part of the announcement regarding the sale of our Houston franchise. We said, we had 230 million remaining and then he will manage from Florida up until they reach their maturity.
Sherry: Today, the balance is 187 million, which are primarily larger commercial customers of which 94 million mature in 'twenty 'twenty four and includes $61 million in construction loans.
Sherry: Moving onto slide 10 here, we show our theory portfolio in greater detail, we have a conservative weighted average loan to value of 58% and debt service coverage of 133 times as well as the strong sponsorship tiered profiles based on a U N net worth and yourself experience for each sponsor.
Sherry: And so at the end of <unk> 'twenty, four we had 31% over a theory portfolio in top tier borrowers.
Sherry: We have no significant tenant concentration inner theory retail loan portfolio and the top 15 tenants represent 23% of the total major tenants include recognized national or regional grocery stores pharmacy, food and clothing retailers and banks.
Sherry: Our underwriting methodology for theory include sensitivity analysis for multiple risk factors like interest rates interest rates and their impact over debt service coverage ratio vacancy and tenant retention.
Gerald Plush: Moving on to net interest margins, we show in slide 15 the contribution to NIM from each of its components. So, excluding the positive impact of this loan in the prior quarter, the net change in NIM quarter over quarter is only five basis points. Continuing to slide 17, non-interest income for the first quarter was $14.5 million, down by $5.1 million, or 26.1% from $19.6 million in the fourth quarter of 2020. Amerant's assets under management totaled $2.36 billion as of the end of the first quarter, up $68.5 million, or 3% from the fourth quarter.
Sherry: Turning to slide 11, let's take a closer look at credit quality credit quality events continue to be an area of focus and reserve levels are carefully monitored to provide sufficient coverage of the allowance for credit losses at the end of the first quarter was $96 1 million an increase of one 6% from $95 5 million at the close of the <unk>.
Sherry: This quarter.
Sherry: We recorded a provision for credit losses of $12 4 million in the first quarter, which was comprised of $11 7 million to cover charge offs.
Sherry: <unk> 4 million due to loan competition in ballroom change at <unk>.
Sherry: The provision requirements were offset by $1 6 million release related to credit quality macroeconomic factors et cetera.
Sherry: During the first quarter of 2024, and there were no charges of $11 9 million of which $8 6 million were related to purchase consumerism.
Sherry: 6 million related to up here in New York multifamily Knoxville, and $3 9 million were related to multiple retail and business banking loans. This was offset by $1.3 million in recovery.
Sherry: Nonperforming loans to total loans are down to 43 basis points compared to 47 basis points last quarter.
Sherry: This was primarily due to charges mentioned 1.8 million due to loan sold 2 million due to pay downs and one 9 million due to upgrade.
Sherry: Nonperforming assets totaled $50 5 million at the end of the first quarter, a decrease of $4 1 million compared to four Q 'twenty three primarily due to the decrease in M. P F.
Sherry: The ratio of nonperforming assets to total assets was 51 basis points down five basis points from the fourth quarter of 2023.
Sherry: In the first quarter of 2020 for the coverage ratio of loan loss reserve to nonperforming loans close at three two times up from two eight times at the end of last quarter and down from three eight times at the close of the first quarter of last year.
Sherry: Now moving on to Slide 12, which is the new flight, we added last quarter to better show the drivers of the allowance for credit losses.
Sherry: At the end of the first quarter. The allowance was $96 1 million, an increase of one 5 million or 6% compared to $95 5 million at the close of the fourth quarter.
Sherry: The drivers of the a lot of movement. This quarter were $3 2 million in charge offs, and we're often by $12 4 million due to provision expense and one 3 million in recovery.
Sherry: Previously mentioned the provision for the quarter of $12 4 million was primarily driven by incremental charge offs of $11 7 million, primarily due to the indirect consumer portfolio.
Sherry: If we exclude this portfolio be incremental charges for the quarter would have been $3 1 million.
Sherry: We introduced like 13 this quarter to provide more color regarding special mentioned loans.
Sherry: Special mentioned loans increased by 58 million or 126, 1%.
Sherry: The increase was primarily due to four commercial loans totaling 68 million that also extended payment performance were downgraded to special mention during the quarter due to covenant failure.
Gerald Plush: This increase was primarily driven by market valuations and net new assets. We expect operating expenses to be closer to $68 million as we onboard new team members towards our growth. Finally, we expect probation for credit losses to be in or around $8 to $12 million next quarter, as we do expect asset growth, as I previously mentioned. This amount will reflect the impact of the release as we transfer the Houston loan portfolio to Hell for Sale following the recently announced Texas franchise.
Sherry: These consist of one commercial loan relationship in Florida, and the health care industry totaling $32 4 million and three commercial loan relationships in Texas that are not part of the thing with the green.
Sherry: These types of loans totaling $28 4 million are in the health care car dealer and industrial machinery manufacturing industry.
Sherry: Approximately 40% of visa butchers are secured with real estate. These increases were offset by $2 5 million in pay down.
Sherry: Next I'll discuss net interest income and net interest margin on slide 14.
Sherry: Net interest income for the first quarter was 78 million down $3 7 million or four 5% compared to the previous quarter.
Sherry: The decrease was primarily driven by lower average balances on total loans following the sale of our Houston based multifamily portfolio.
Gerald Plush: So, as we previously announced on April 17th, we just entered into a letter of intent for a highly visible and accessible space for our new Palm Beach regional office, along with a new banking center. Additionally, we do have an executive search underway for a new Central Florida market president.
Sherry: Our average rates and securities available for sale and placement.
Sherry: Higher average volumes and money market accounts, and we continue to focus our efforts in relationship deposits as well as higher rates and interest bearing demand deposit and time deposit.
Sherry: The decrease in net interest income was partially offset by higher average rates and total loan even after adjusting for the effect of the whole recovery in for Q.
Sherry: Your average balances and securities and placements as a portion of the funds from the Houston multifamily loan sale was temporarily placed here well they already played them on production and lower average rates and money market accounts and she'll be offensive.
Gerald Plush: We intend to open three or more banking centers over the next 24 months in the greater Tampa area. And we just opened our new Broward County Regional Headquarters office this week, as I just previously mentioned. We also intend to open one additional banking center in Miami, for which negotiations are in the process, and we're actively recruiting for additional commercial relationship bankers and private banking officers and Paul B. Chomney of the Great Tampa Martins. During the first quarter, we hired 12 team members who had recently started or are starting in April 2024.
Sherry: In terms of our deposit beta considering there was no change in fed fund spread this quarter. There was no beta calculation for this period. However, we observed a beta of approximately 49 basis points in a cumulative basis since the beginning of the interest rate cycle.
Sherry: The combined effect of rate increases in transactional deposits and repricing of time deposits that had not repriced at current market rate.
Sherry: We also saw that the magnitude of the made a change from quarter to quarter and believe the increase in cost of funds is compressing, which is indicative of a flooding trend or the nearing of the inflection point in future period.
Sherry: Moving on to net interest margin, we show in slide 15, the contribution to name from each of its component men.
Sherry: NIM for the first quarter was 351% down by 21 basis points quarter over quarter. This change. However include 16 basis points in connection with the loan recovery recorded in for Q.
Sherry: So excluding the positive impact of this loan in the prior quarter. The net change in NIM quarter over quarter is only five basis points.
Sherry: This is not changing the name was primarily driven by the reduced interest income, resulting from the Houston multifamily sales, while still having the interest expense of the into institutional deposits and our cost of funds for an extended part of the quarter.
Sherry: In the short term, we expect the margin to be stable due to higher yielding loan production, partially offset by the reduction of the indirect consumer loan portfolio and deposit costs given market competition for domestic deposits and demand for hiring.
Sherry: Some additional color on NIM and my final remarks.
Sherry: Moving on to interest rate sensitivity on slide 16, you can see the asset sensitivity of our balance sheet with 53% over a long having floating rate structure and 58% repricing within a year.
Sherry: Also we continue to position our portfolio for a change in recycled by incorporating rate floors, when originating adjustable rate loan.
Sherry: We currently have 50% of our adjustable loan portfolio with Fleury and.
Sherry: Additionally, you can see here then within the variable rate mode, 36% are indexed a sofa.
Sherry: Additionally, we continue to execute asset liability management strategies, including hedging interest rate risk and we expect the downward trend in interest rates starting in the second half of 2024.
Sherry: Our NIM sensitivity profile remains stable compared to the previous quarter. We also show here the sensitivity of our available for sale portfolio to choking to showcase our ability to withstand additional negative valuation changes, although we should start seeing an organic improvement in the U S. Monetary policy changes and interest rates start to decrease later in the year.
Sherry: We will continue to actively manage our balance sheet, the best efficient or bad for the upcoming period.
Sherry: Continuing to slide 17, noninterest income for the first quarter was $14 5 million down by $5 1 million or 26, 1% from $19 6 million in the fourth quarter of 2023.
Sherry: The decrease was primarily driven by the absence of the gain on the early extinguishment of English will be advances during the fourth quarter of 2023, and lower and lower loan level derivative income.
Sherry: This decrease in noninterest income was partially offset by higher additional income stemming from the restructuring of both bully policies that began in the fourth quarter of 2023 and higher mortgage banking income.
Sherry: Average assets under management totaled $2 36 billion F. N B end of the first quarter up $68 5 million or 3% from the fourth quarter. This increase was primarily driven by market valuation and net new assets.
Sherry: Turning to slide 18, first quarter noninterest expenses were $66 6 million down $43 1 million or 39, 3% from the fourth quarter.
Sherry: The quarter over quarter decrease was primarily driven by the absence of non routine items that were included in for Q as well as lower professional and other fees compared to four Q lower occupancy and equipment expenses due to the absence of software services in the first quarter.
Sherry: The decrease in noninterest expenses, partially offset primarily by higher salaries and employee benefits and increased in M. B a T assessment base during the quarter.
Sherry: In terms of our team we ended the quarter with 696 FTE slightly higher from 682, we had them for acute.
Sherry: Moving on to Slide 19, we reported first quarter diluted income per share up 31 cents on net income of $17 1 million as mentioned earlier, we had a decrease in noninterest expense items this quarter, which resulted in a favorable net impact of non routine items diluted EPS.
Sherry: I will now give some color of our outlook for two Q 'twenty, four and 'twenty 'twenty four overall.
Sherry: Regarding growth, we estimate our balance sheet to grow between 200, and 250 million, we foresee organic deposit growth to continue to be strong we will use the path of growth and current liquidity to fund our loan production.
Sherry: We expect the NIM to be stable compared to fourth Q4, Q with results expected in the range of 315, and 355, and we onboard loan production at higher rates, partially offset by the reduction of the indirect consumer loan portfolio and deposit costs.
Sherry: Regarding noninterest income we expect it to be in the range of 14, five through $15 5 million.
Sherry: We expect operating expenses to be closer to 68 million as we onboard new team members towards her for all the time.
Sherry: Finally, we expect the provision for credit losses to be in or around eight to 12 million next quarter and we do expect asset growth as I. Previously mentioned this amount will reflect the impact of the relief and we transferred the Houston in our portfolio to held for sale following the recently announced Texas franchisee.
Sherry: I'll now pass it back to Jerry for closing remarks.
Sherry: Thanks, Jerry so before we move on to Q&A I'd like to briefly comment on some of the initiatives. We're working on to accelerate the execution of our growth plans here in Florida.
Jerry: So as we previously announced on April 17th we just entered into a letter of intent for a highly visible and accessible space for our new Palm Beach Regional office, along with a new banking center we.
Sherry: We do have an executive search underway for a new central Florida market President, we intend to open three or more banking centers over the next 24 months in the greater Tampa area and we just opened our new Broward County Regional headquarter office. This week as I just previously mentioned.
Gerald Plush: So in summary, we remain committed to the execution of a strategic plan to drive profitable growth and to be the bank of choice in the markets we serve. And our first question comes from the line of Tim Mitchell with Raymond James. Please proceed with your question. Hey, good morning, everyone. Yeah, it's Jerry.
Sherry: We also intend to open one additional banking center in Miami for which negotiations are in process and we're actively recruiting for additional commercial relationship bankers and private bank officers in Broward County.
Sherry: Yeah.
Sherry: Hobby Chinese integrate Tampa Martin Daum.
Sherry: First quarter was hired team members, who had recently started or are starting April 24. So in summary, we remain committed to the execution of our strategic plan and drive profitable growth and to be the bank of choice in the markets. We serve so with that I'll stop and sharing I'll look to answer any questions. You have if you would operator. Please open the line for Q&A.
Gerald Plush: From a CET1 perspective, I think we want to be certainly around the 10% level. We're happy to see that we pop back above that. I think as it relates to how we'll deploy capital, I think, you know, there's a combination of things. Certainly buybacks will be considered. We do have a program in place authorizing us for up to $20 million.
Speaker Change: Thank you.
Speaker Change: Thank you at this time, we will be conducting a question and answer session.
Speaker Change: To ask a question. Please press star one on your telephone keypad.
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Speaker Change: And our first question comes from the line of Tim Mitchell with Raymond James. Please proceed with your question.
Speaker Change: Yeah.
Tim Mitchell: Hey, good morning, everyone.
Tim Mitchell: Good morning, good morning.
Tim Mitchell: Just wanted to start on the special jobs and stuff on that.
Tim Mitchell: And loans this quarter I appreciate the color there share you gave in the prepared remarks, but.
Tim Mitchell: So any incremental color you could give on kind of what drove the downgrade, what where the covenant breaches and what do you think the ACL needs to especially in right now or do we need to migrate that little more north too as you kind of think about credit going forward.
Speaker Change: Sure. So when looking at special mention specifically are the claims piece.
Tim Mitchell: Some of them are related to like a nice timely oldest financial you must be received the other one is related to metrics like be a trailing 12 month leverage, but although we're seeing some deterioration. There. We're also monitoring the progress and positive trend in EBITDA. So it's it's a mix some of them are information.
Gerald Plush: And we do need capital for growth. You know, our expectations are that we're on a really good trajectory right now on both sides of the balance sheet. And so some, obviously, will be needed because we're going to grow through, you know, my expectations right now. Even, you know, when I gave you guys the number for April, I mean, doing $150 million in production already month to date should give you guys an indication that, you know, all these additional people that we've been bringing on are driving a lot of incremental growth.
Tim Mitchell: And some of them are metrics, but in essence, we are not seeing something a pervasive or we are not being an indicator right now of a further downgrades.
Speaker Change: Awesome. Thank you and then touching on the kind of capital Youre going to get from this is Houston sale that you guys announced last week.
Speaker Change: How do we think about the capital deployment from that you mentioned or maybe potential bond restructuring in the slides or do you think maybe it leaned a little bit more into the buyback I'm just kind of want it. It's got a flair for what do you think theyre going to do with that capital and maybe is there like a C. T. One level you'd like to stay above after you kind of deploy those proceeds.
Gerry: Yeah, It's Gerry.
Gerry: From a CET one perspective, I think we want to be certainly around the 10% level. We're happy to see that we popped back above that I think as it relates to how we will deploy capital I think you know there's a combination of things certainly buybacks will be considered we do have.
Gerald Plush: So I think, you know, you'll get to see this play out over time. But I think we want to have flexibility. So for supporting growth, for buybacks, prudent buybacks, I think also we'll always evaluate based on earnings, you know, where we are on the dividend side as well. Appreciate it. Then maybe just one last one for me.
Gerry: A program in place authorizing us for up to $20 million and we do.
Gerry: Need capital for growth you know our expectations are where we're on a really good trajectory right now on both sides of the balance sheet and so some of the obviously you'll be needed to because we're gonna grow through you know my expectations right now even Oh when I gave you guys spend number.
Gerry: For April I mean doing $150 million in production already month to date should give you guys. An indication that you know all these additional people that we've been bringing on are driving in a lot of incremental growth. So I think you know you'll get to see this play out over time, but I think we want to have flexibility.
Gerald Plush: I think initially in the fourth quarter slides, you guys talked about 15% annualized wind growth through the year. If I just do a quick math on that, $250 million for the quarter, that's about like 10%. Do you think maybe, I think you mentioned a few rate cuts you're expecting in the back half of the year. Do you expect wind growth to kind of pick up through the year? Yeah, absolutely.
Gerry: So for supporting growth for buybacks prudent buybacks I think also for we'll always evaluate based on earnings you know, where we are on the dividend side as well so.
Gerry: Yeah.
Gerry: Oh, but wait were to hold steady with that we will see you can see the earnings so sure.
Speaker Change: Appreciate it and then maybe just one last one for me I think initially in the fourth quarter slides you guys talked about 15% annualized loan growth or year, let's do a quick math on that $250 million for the quarter, that's about like 10% okay.
Speaker Change: Thank you Yeah, I think as I mentioned, a few rate cuts you expect.
Speaker Change: And in the back half of the year do you expect lender, if you kind of pick up through the year. Okay. Yeah, Yeah, Colorado, absolutely absolutely, we do see it ticking up over the course of the year.
Gerald Plush: Absolutely, we do see it ticking up over the course of the year. I think again, with these additions, yeah, I think again, factoring in these folks, you know, if you give them 60-90 days to start hitting stride, you know, our expectation is to get all our hiring done here between now and the end of this second quarter so that we've got, you know, positive contributions from all the new folks we've added in the course of the year. Perfect. Thanks for taking my questions, guys.
Speaker Change: Well I think a guy with his addition, yeah I think again when factoring in the these folks you know if you could give them 60 90 days to start hitting stride and our expectation is to get all of our hiring done here.
Speaker Change: Between now and the end of the second quarter. So that we've got you know positive contributions from all the new folks we've added in the course of the year.
Speaker Change: Thanks for taking thanks for taking my questions guys.
Speaker Change: Absolutely have a good day.
Speaker Change: Yes.
Speaker Change: Thank you. Our next question comes from the line of fairly strict language Janney Montgomery Scott. Please proceed with your question.
Speaker Change: Hey, good morning, everybody.
Speaker Change: Okay. Okay.
Speaker Change: It just want to make sure I'm thinking through the charge offs. Appreciate the prepared comments on that I mean did you basically just see a little bit more of an acceleration of the consumer book than you were anticipating here and you know should we think about that as maybe some of the charge offs that we thought were going to come from consumer later just.
Gerald Plush: Absolutely. Have a good day. See how that consumer book plays out and how much of a factor it was this quarter. Sure, Freddie.
Speaker Change: When I had some of that already happened in the first quarter. So maybe there's a little less to go later on just just trying to think about how to think through.
Speaker Change: How that consumer book plays out and how much of a factor it was this quarter.
Speaker Change: Sure. So if we if we go back to the $13 1 million in charge offs, we had this quarter and we break it down into two components right. We had $8 six that's related to the indirect consumer everything else was regarding our portfolio and that's more or less less than six basis points, but going back to the $68 six from the indirect if we and we.
Gerald Plush: So, if we go back to the $13.1 million in charges we had this quarter, and we break it down into two components, right? We had $8.6 million that's related to the indirect consumer. Everything else was regarding our portfolio, and that's more or less less than six basis points. Sure, so on that particular health care relationship, it's Surgical Center Specialty Health Care.
Speaker Change: Look at the competition over vintages were gonna see that are both programs in all of our vintages have already reached the peak so you're absolutely right. What we're expecting going forward from charge offs is not adopt sustained loss level than we experienced in the past.
Speaker Change: Yeah.
Speaker Change: Got it that's really helpful and then just.
Speaker Change: Wanted to talk about the commercial health care relationship as well.
Speaker Change: Can you give a little more specific on what type of health care is it like a managed care or I was just curious exactly what you know what what type of.
Speaker Change: Health care it is.
Speaker Change: Sure. So on that particular health care relationship its history, it's a surgical center, our specialty health care.
Speaker Change: Thank you chip.
Speaker Change: Got it and then just last piece here I'm just thinking through the Houston exit later in the year.
Gerald Plush: And then just last piece here, just thinking through the Houston exit later in the year. I've tried to do some preliminary calculations here, doing some of the math myself. I mean, do you expect an overall positive impact on the margin? I mean, I know there's probably – yields might come down some because you're not going to get the same yield on short-term instruments that you're going to get on loans.
Speaker Change: I've tried to do some preliminary look here doing some of the math myself I mean do you expect an overall positive impact to the margin I mean, I know, there's probably maybe had yields come down some because you're not going to get the same yield on it.
Speaker Change: Short term instruments that are going to get on the loans, but on the flip side I can see that the Houston footprint is a higher cost of deposits than your overall costs. So just trying to think through later in the year, whether that's a bit of a tailwind to the margin.
Gerald Plush: On the flip side, I can see that the Houston footprint has a higher cost of deposits than your overall cost. So just trying to think through later in the year whether that's a bit of a tailwind to the margin. But the next step with that is that we will be able to redeploy into loan production here. So with all of that factored in, we do expect an improved margin. Yeah, I think just to add to Shary's remarks, we're getting better spreads on production. We're booking right now.
Speaker Change: Sure. So at the point in time, when the transaction closes from a margin perspective, we do expect to see some improvement as you were mentioning it comes with a yield on loans, but it's partially offset by a higher cost of funds. So we do expect some improvement on the NIM there and then from an overall P&L perspective, when we can expect to see us.
Speaker Change: Is that although we're gonna be losing temporarily some of that interest income it's gonna be a wash with the reduction of operating expenses. So it's kind of a plus or minus will take us a twin that.
Speaker Change: Uh huh.
Speaker Change: No.
Speaker Change: But the the next step with Dod is then we will be able to redeploy into loan production here. So we with all of that factor and we do expect any proof margin. Yeah. I think just to add to share. His remarks, we're getting better spreads on production. We're booking right now obviously, we're getting higher pricing.
Gerald Plush: Obviously, we're getting higher pricing. Got it. And last quick question, just, you know, is the opening of these new offices and the teams and whatnot already kind of implied in that, I think you said 68 million expense guide for next quarter? And does that kind of continue to go up throughout the year? Or can it be relatively flat from there?
Speaker Change: And fees on that then that existing portfolio, so that will more than compensate if the funding we need to raise as higher cost in that 4% I believe it is in Houston right now right.
Speaker Change: Got it and last quick question just.
Speaker Change: Is the opening of these new offices in the teens and whatnot.
Speaker Change: It already kind of implied in that I think you said $68 million expense guide for next quarter and does that kind of continue to go up throughout the year or can it be relatively flat from there.
Speaker Change: Yes.
Speaker Change: Houston transaction.
Gerald Plush: Yeah, that's where we're expecting the 68 to be a normalized level throughout the year. That's factoring in the growth of our team members and everything that we have been mentioning in terms of, Thank you. Our next question comes from the line of Russell Gunther with Stevens. Please proceed with your question. Hey, good morning, guys. If we look at the balance we had in the fourth quarter and compare it to our projection of growth, we could see from a 10 to 12% growth year over year if we exclude the effect of the $400 million.
Speaker Change: Yeah, that's where we're expecting the 68 to be a normalized level throughout the year.
Speaker Change: That's my question and that's it for me and Yeah. That's factoring in the growth of our team members and everything that we have been mentioning in terms of growth.
Speaker Change: Got it thanks for the color guys.
Speaker Change: Thank you absolutely.
Speaker Change: Thank you. Our next question comes from the line of Russell Gunther with Stephens. Please proceed with your question.
Russell Elliott Teasdale Gunther: Hey, good morning, guys.
Russell Elliott Teasdale Gunther: Hey, Good luck good morning, just had.
Russell Elliott Teasdale Gunther: I just had a couple of follow ups first on the loan growth very clear momentum is quite strong.
Russell Elliott Teasdale Gunther: We talked around maybe the 15% target year over year, if that's still good with the multifamily or you're kind of talking about that.
Russell Elliott Teasdale Gunther: Ah is a overall kind of number.
Speaker Change: So Russell if we if we look at the balance we had the fourth quarter and we compare it to our projection of growth, we could see from a 10% to 12% growth year over year. If we exclude the effect of the 400 million. If we add back that reduction of the 400 million, we could see a number closer to the 17% growth. So I know, it's a little bit.
Gerald Plush: If we add back that reduction of $400 million, we could see a number closer to the 17% growth. So I know it's a little bit of an add-on to be able to get to the number, but overall, we are expecting growth in the next quarters to make it to 17% growth, excluding that piece. Got it, plan for the balance of the year to expand there. We've got a number of initiatives; you'll probably see press releases and appearances and things we're going to be doing here in the month of May and June that'll give you much more color as to how we're thinking about expanding.
Speaker Change: And then add back to be able to get to the number but in overall, we are expecting growth in the next quarters to make it to two.
Speaker Change: 2% to 17% growth excluding that <unk> got.
Russell Elliott Teasdale Gunther: I appreciate the clarification, that's very helpful and again very clear the opportunity Australia guys.
Russell Elliott Teasdale Gunther: And then on the expense side so.
Speaker Change: Very clear guidance from a core basis going forward can you just remind us of what the.
Speaker Change: P&L save will be on expenses from the Houston exit I think you've quantified.
Speaker Change: The number of folks, leaving it may be expensive, there, but sort of all in on the noninterest expense piece.
Speaker Change: Yeah from a P&L perspective, and just to confirm Russell in the P&L impact in terms of Houston.
Speaker Change: Tobey the expense solely right so that would be around 495 million.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Thanks, Sharon and then guys last one for me I noticed international deposits were up this quarter. I think you guys had sort of re engaged in effort to try to grow those balances. If you could just give any update there on the dynamics this quarter and.
Speaker Change: <unk> strategic focus on that on those balances.
Sharymar Calderon Yepez: Yeah, I mean, we we continue our efforts on our international deposit gathering with.
Speaker Change: Yeah.
Speaker Change: Then the competition, we have some commercial accounts that have been our friends and neighbors are what do we expect to have an international perspective, the more normal level are worried about them right now, but for the remainder of the year Yeah, we're actually.
Gerald Plush: Okay, great. All right, Jerry, and Shary, thank you very much for taking my question. Thank you. Absolutely.
Speaker Change: And I think we've talked about this in the last call really and a continued to be an effect finding of how exactly we're going to expand even further there. So we'll be giving more color you know either by the end of the second quarter of you know what the game.
Operator: Thank you, and we have reached the end of the question and answer session. I'll now turn the call back over to CEO Jerry Plush for a closing remark. And this concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.
Speaker Change: Yeah.
Speaker Change: And playing into the balance of the year.
Speaker Change: Two weeks out there, but we've got a number of initiatives, you'll probably see press releases and appearances and things are going to be doing here you know wed love to May and June that'll that'll give you much more color as to how we're thinking about to expand there.
Speaker Change: Okay, Great Alright, Jerry Sherri. Thank you very much for taking my question.
Speaker Change: Absolutely have a great day.
Speaker Change: Yeah.
Speaker Change: Thank you.
Speaker Change: We have reached the end of the question and answer session I'll now turn the call back over to CEO, Jerry Busch for closing remarks.
Gerald Plush: Thank you everyone for joining our first quarter earnings call. We appreciate your interest in Ameren as always and your continued support and have a great day.
Speaker Change: And this concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.
Gerald Plush: [music].
Gerald Plush: Uh-huh.
Gerald Plush: [music].
Gerald Plush: Mhm.
Gerald Plush: Mhm.
Gerald Plush: Mhm.