Q2 2024 Amerant Bancorp Inc Earnings Call
Good morning, and welcome to the Ameren Bancorp second 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.
Speaker Change: And once you require operator assistance during the conference. Please press Star Zero on your telephone keypad. As a reminder, this conference is being recorded I would now.
I would like to turn the.
Operator: All over to Laura Rossi, Head of Investor Relations. Thank you. You may begin.
Call over to Laura Rossi head of Investor Relations. Thank you you may begin.
Laura Rossi: Thank you Darryl.
Laura Rossi: Good morning everyone, and thank you for joining us to review Amerant Bancorp's second 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. In addition, references will also be made to non-GAAP financial measures; please refer to the company's earnings release for a statement 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, our Marin Bancorp's second quarter 2024 refills.
Speaker Change: On today's call are Jerry plush, our chairman and CEO and shedding Monica they own our executive Vice President and CFO.
Speaker Change: As we begin please note that discussions in today's call contain forward looking statements within the meaning of the Securities Exchange Act. In addition references will also be made to non-GAAP financial measures. Please refer to the company's earnings release for a statement regarding forward looking statements as well as for information and.
Speaker Change: Filiation of non-GAAP financial measures to GAAP measures.
Gerald Paul Plush: I will now turn it over to our chairman and CEO Jerry flush. Thank you Laura good morning, everyone and thank you for joining us today to discuss <unk> second quarter 2024 results.
Gerald Paul Plush: Thank you, Laura. Good morning, everyone, and thank you for joining us today to discuss Amerant's second quarter 2024 results. To start, I'd like to call your attention to how this quarter underscores the continued focus we have demonstrated toward executing on our strategic plan and driving growth. This quarter, we saw that, upon the receipt of updated financial statements from certain borrowers and covenant testing, there were clear signs for five borrowers to be downgraded to substandard, three of which were previously classified as special men.
Speaker Change: To start I'd like to call your attention to how this quarter underscores. The continued focus we have demonstrated towards executing on our strategic plan and driving growth excluding.
Gerald Paul Plush: Excluding the impact of $5 6 million of deal related expenses in connection with the sale of the Companys Houston franchise as we disclosed in form 8-K on July one 2020 for our core business demonstrated strong performance highlighted by solid loan growth continued improvement in the net interest margin and NII.
Gerald Paul Plush: Noninterest income and only a moderate increase in expenses compared to the first quarter, primarily from investments, we are making in personnel and market expansion.
Gerald Paul Plush: And while total deposits declined by $62 2 million organic deposit growth in two two nearly offset the run off of higher cost municipal deposits and reductions in two large corporate deposit relationships this quarter as well.
Speaker Change: However, the sustained high interest rate environment year over year and higher operating costs have impacted several of our borrowers as we will cover in greater detail in just a few minutes. This quarter. We saw that upon the receipt of updated financial statements from certain borrowers and covenant testing there were clear signs for five borrowers to be down.
Speaker Change: Graded substandard three of which were previously classified as special mention two of the downgraded loans are larger relationships both of which are paying as agreed one is a C&I legacy loan for $26 8 million and the other in owner occupied loan for $28 2 million, which are the more significant driver.
Gerald Paul Plush: Two of the downgraded loans are larger relationships, both of which are paying as agreed. One is a C&I legacy loan for $26.8 million, and the other is an owner-occupied loan for $28.2 million, which are the more significant drivers of the increase in non-performing loans quarter over quarter. Furthermore, regarding the aforementioned C&I legacy credit, again, while payment is agreed, we booked $8 million in provision this quarter resulting from running scenarios for multiple outcomes.
Speaker Change: Of the increase in nonperforming loans quarter over quarter.
Speaker Change: Furthermore, regarding the aforementioned C&I legacy credit again, while paying as agreed we booked $8 million in provision this quarter, resulting from running scenarios for multiple outcomes. We remain optimistic about a positive outcome here in the next several months and regarding the owner occupied credits we are in a V.
Speaker Change: Very strong collateral position in the 40% range.
Gerald Paul Plush: I think in the case of the downgrades this quarter, the guidance is clear that where there is a sign of a covenant not being met or other weakness exhibited, that downgrading is appropriate. And that's what we did.
Speaker Change: I think in the case of the downgrades this quarter. The guidance is clear that where there is a sign of a covenant not being met or other weakness exhibited the downgrading is appropriate and that's what we did.
Speaker Change: More to come regarding credit in the upcoming slides, including the other components of the provision quarter over quarter.
Sharymar Calderon Yepez: We also continue this quarter to execute on prudent asset liability management. Our assets under management increased $94.2 million to $2.45 billion, primarily driven by market valuations and net new assets. Central Florida Markey President
Speaker Change: We also continue this quarter to execute on prudent asset liability management recent results on inflation and industry action to these reports suggest a positive outlook for potential interest rate cuts in the upcoming quarters. Therefore, we continue to position our balance sheet in light of this potential change in interest rates.
Speaker Change: Regarding our Houston franchise, we are continuously monitoring loan and deposit balances to be sold and we reclassified assets and liabilities to held for sale this quarter, which resulted in the charges recorded this quarter associated with this transaction.
Speaker Change: We still anticipate closing in the fourth quarter of this year and at that time the premium from the sale would be recognized as income net of any final investment banking and legal expenses.
Speaker Change: So we'll turn now to slide three and here you can see that total loans increased by $316 5 million all driven by organic loan growth. The loan pipeline is strong for three Q as we've already closed on approximately $80 million month to date here in July and $40 million more is expected before month end.
Speaker Change: Total deposits decreased $62 2 million as I referenced earlier as organic deposit growth was offset by the reductions in higher cost municipal and the two large commercial depositors.
Speaker Change: We increased S. H L D advances by $15 million to add three year fixed rate funding as part of our asset liability management strategy.
Speaker Change: Our assets under management increased $94 2 million to $2 45 billion, primarily driven by market valuations and net new assets noninterest income increased to $19 4 million, primarily driven by higher income from loan derivatives in the mortgage business noninterest.
Speaker Change: Noninterest expenses increased to $73 3 million however, excluding the non routine transaction costs in connection with the sale of our Houston operations. They remained at $67 7 million comparable to the prior quarter into guidance.
Speaker Change: Regarding our expansion in Florida, we officially opened our banking center in downtown Miami, and we hired our new Palm Beach, and central market, our central Florida market Presidents.
Speaker Change: Additionally, we signed agreements for a new banking center in Miami Beach, and for our Palm Beach Regional office in a banking center, there as well both of which we expect to open in the first quarter of 2025 note that we've received regulatory approval for both locations.
Sharymar Calderon Yepez: We repurchased 200,652 shares for $4.4 million in the second quarter at an average price of $22.17 per share. We had $15.6 million remaining under the current approval as of the end of the second quarter. And of note, in closing on this slide, we paid our quarterly cash dividend of $0.09 per common share on May 30th, 2022. We'll turn now to slide four for financial highlights for the second quarter. The net interest income was 3.56% in the second quarter compared to 3.51% in the first quarter. The increase in margin resulted from higher-yielding loan production and lower deposit costs as we reduced higher-cost municipal deposits and replaced brokered seeding maturities with lower-cost deposits.
Speaker Change: We repurchased 200000, and 652 shares for $4 4 million in the second quarter at an average price of $22 17 per share.
Speaker Change: We had $15 6 million remaining under the current approval as at the end of the second quarter.
Speaker Change: And of note in closing on this slide we paid our quarterly cash dividend of nine per common share on may 30th of 'twenty 'twenty four.
Sharymar Calderon Yepez: And again, of note, one legacy credit accounted for $8 million of the provision. Non-interest income was $19.4 million in the second quarter, up $4.9 million from $14.5 million in the first quarter, while non-interest expense was $73.3 million, also up $6.7 million from $66.6 million in the first quarter. Our total assets came in at $9.75 billion as of the end of the second quarter, slightly down from the $9.82 billion in the first quarter.
Speaker Change: We'll turn now to slide four for financial highlights for the second quarter looking at the income statement diluted income per share for the second quarter was 15 <unk> compared to 31 cents in the first quarter. This was primarily due to the increased provision for credit losses during the quarter.
Speaker Change: Not in the net interest income was $3 five 6% in the second quarter compared to $3 five 1% in the first quarter. The increase in margin resulted from the higher yielding loan production and lower deposit costs as we reduced higher cost municipal deposits and replace brokered CD maturities with lower cost funds.
Speaker Change: Credit quality events continue to be an area of focus from reserve levels are carefully monitored to provide sufficient coverage. The provision for credit losses was $19 2 million up $6 8 million from the $12 4 million, we reported in the first quarter.
Speaker Change: And again, no one legacy credit accounted for $8 million of the provision increase.
Speaker Change: Noninterest income was $19 4 million in the second quarter up $4 9 million from $14 5 million in the first quarter, while noninterest expense was $73 3 million also up $6 7 million from the $66 6 million in the first quarter.
Speaker Change: Our total assets came in at $9 75 billion as of the end of the second quarter slightly down from the 982 billion in the first quarter. Our total deposits decreased slightly as noted previously down to $7 82 billion compared to 7.88 billion in the first quarter. Our total loans increased by $316 5 million up to seven.
Sharymar Calderon Yepez: Our total deposits decreased slightly, as noted previously, down to $7.82 billion compared to $7.88 billion in the first quarter. So if we move on to capital, our total capital ratio at the end of the second quarter was 12% compared to 12.49% as of the first quarter. Our CET1 was 9.7% compared to 10.10%. Our tangible equity ratio was 7.3%, which includes $78.9 million in AOCI resulting from the after-tax charge for the valuation of the AFS investment portfolio.
Speaker Change: One 3 billion up from the 7 billion in the first quarter. Our total securities were $1 5 billion and that was up $51 million from the first quarter and cash and cash equivalents decreased 350 million to $310 3 million at the end of the quarter.
Speaker Change: So if we move on to capital our total capital ratio at the end of the second quarter was 12% compared to $12, 49% as of the first quarter. Our CET. One was nine 7% compared to 10 point, 10% our tangible equity ratio was seven 3%, which includes $78 9 million and a OCI, resulting.
Speaker Change: The after tax charge of the valuation of the Iff's investment portfolio and lastly, as of the second quarter, our tier one capital ratio was 10, four 4% compared to 10, 87% as of the first quarter. You'll also note that on July 24th our board of directors approved a dividend of <unk> per share that's payable.
Sharymar Calderon Yepez: And lastly, as of the second quarter, our Tier 1 capital ratio was 10.44%, compared to 10.87% as of the first quarter. You'll also note that on July 24th, our Board of Directors approved a dividend of $0.09 per share that will be payable on August 30th, 2020.
Speaker Change: On August 30 of 2024.
Speaker Change: So at this point I will turn the presentation over to Sharon to cover metrics and get into the financials in greater detail.
Sharon: Thank you Jerry and good morning, everyone I'll begin today by discussing our key performance metrics and are changes compared to last quarter.
Sharon: We continue committed to customer relationship, which increased the ratio of noninterest bearing deposits to total deposits from 17, 7% in the first quarter to 18, 7% in the second quarter.
Gary: Our language guidance shared in our past earnings call net interest margin improved to 356% in the second quarter compared to $3, 51% in the first quarter as Gary just mentioned this is the result of higher yielding loan production and lower cost would be possible.
Gary: Our efficiency ratio was $74, 21% in the second quarter compared to 72 point or 3% in the first quarter as a result of the non routine expenses in connection with the Houston transaction.
Speaker Change: Our our only in early this quarter were 21% and 268% compared to 44% and 569% respectively in the first quarter visa.
Gerry: These decreases were primarily driven by an increased provision for credit losses, and non routine expenses related to the Houston transaction Gerry just mentioned.
Sharymar Calderon Yepez: Tier 1 capital ratio decreased slightly to 10.44% compared to 10.87% due to the change in the acid composition. Lastly, the coverage of the allowance for credit losses to total loans increased to 1.41% compared to 1.38% in the first quarter, driven by the provision for credit losses recorded this period. Moving on to slide 6, we continue to have a well-diversified deposit mix composed of domestic and international customers. Domestic deposits, which account for 68% of our total deposits, totaled $5.3 billion as of the end of the second quarter, slightly down by $6.8 million, or 0.1%, compared to the first quarter.
Speaker Change: Tier one capital ratio decreased slightly to 10, 44% compared to $10, 87% due to the change in the asset competition.
Speaker Change: Lastly, the coverage of the allowance for credit losses to total loans increased to 141% compared to $1 30 year, 38% in the first quarter driven by the provision for credit losses recorded this period.
Speaker Change: Moving on to slide six we continue to have a well diversified deposit mix composed of domestic and international customers.
Speaker Change: Domestic deposits, which account for 68% over total he faucet.
Speaker Change: Total $5 3 billion as of the end of the second quarter slightly down by $6 8 million or 1% compared to the first quarter.
Speaker Change: International deposits, which account for 32% of total deposits totaled $2 5 billion down $55 5 million or two 1% compared to the first quarter.
Speaker Change: Total time deposits for the quarter were $2 3 billion, an increase of $65 6 million from the first quarter due to an increase in brokered time deposits of $49 8 million as well as an increase of $15 8 million in customer Cds.
Sharymar Calderon Yepez: Our core deposits, defined as total deposits excluding all-time deposits, were $5.5 billion as of the end of the second quarter, a decrease of $127.8 million, or 2.3%, compared to the first quarter. The $5.5 billion in core deposits included $2.3 billion in interest-bearing deposits, down $302.1 million or 11.5% versus the first quarter, $1.7 billion in savings and money market deposits, up $106.5 million or 6.6% versus the first quarter, and $1.5 billion in non-interest-bearing demand deposits, up $67.5 million or 4.9% versus the first quarter.
Speaker Change: Our core deposits defined as total deposits. Excluding all time deposits were $5 5 billion as of the end of the second quarter, a decrease of $127 8 million or two 3% compared to the first quarter.
Speaker Change: The $5 5 billion in core deposits included $2 3 billion in interest bearing deposit down $302 1 million or 11, 5% versus the first quarter $1 7 billion in savings and money market deposits up $106 5 million or six 6% versus the first quarter and one 5 billion in noninterest bearing.
Speaker Change: Demand deposits up $67 5 million or four 9% versus the first quarter.
Sharymar Calderon Yepez: Continuing on to slide seven, I'll discuss our investment portfolio. When compared to the prior quarter, the duration of the investment portfolio has extended to 5.3 years as the model anticipated lower MBS principal prepayments due to higher market rates at the time of quarter close. The chart on the upper right shows the expected prepayments and maturities of our investment portfolio for the next 12 months, which represents the liquidity source available to support growth and higher interest earnings.
Speaker Change: Continuing on to slide seven I'll discuss our investment portfolio.
Speaker Change: Our second quarter investment Securities balance was at 1.5 billion slightly up from the first quarter.
Speaker Change: When compared to the prior quarter the duration of the investment portfolio has extended to five three years at the model anticipated slower MBS principal prepayments due to higher market rates at the time of quarter close.
Speaker Change: The 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.
Speaker Change: Moving on to the right composition of our portfolio you can see that the floating portion remains unchanged at 12, 9% compared to the first quarter.
Speaker Change: We mentioned last quarter, we have continued positioning the balance sheet Freddie Crazy rate environment also note that 79% of our asset portfolio has the government guarantees while the remainder is rated investment grade.
Sharymar Calderon Yepez: Also note that 79% of our AFS portfolio has government guarantees, while the remainder is rated investment grade. At the end of the second quarter, total growth loans were $7.3 billion, up $316.5 million or 4.5% compared to $7 billion at the end of the first quarter. This increase was organic, relationship-driven growth and despite a reduction in indirect consumer loans of $31.4 million. This amount includes loans originated during the quarter, primarily done with private banking customers and commercial clients with residential income-producing properties as collateral.
Speaker Change: Continuing on to slide eight let's talk about the loan portfolio.
Speaker Change: At the end of the second quarter total gross loans were $7 3 billion up $316 5 million or four 5% compared to 7 billion at the end of <unk>.
Speaker Change: This increase was organic relationship driven growth and despite a reduction in indirect consumer loans of $31 4 million.
Speaker Change: The single family residential portfolio with $1 6 billion in the second quarter, an increase of $107 4 million compared to $1 5 billion in the first quarter.
Speaker Change: This amount includes loans originated during the quarter, primarily done with private banking customers and commercial clients with residential income producing properties as collateral consumer.
Speaker Change: Consumer loans, that's off the second quarter were $296 4 million a decrease of $41 3 million or 12, 2% quarter over quarter. This includes $131 9 million in higher yielding indirect loans purchased prior to 2022, that's a tactical move to increase yields again, we estimate that at current prepayments speed.
Sharymar Calderon Yepez: This includes $131.9 million in higher-yielding indirect loans purchased prior to 2022 as a tactical move to increase yields. However, we estimate that at current prepayment speed, this portfolio will mostly run off by the first quarter of 2025. We have no significant tenant concentration in our CRE Retail Loan Portfolio, as the top 15 tenants represent 21% of the total. Major tenants include recognized national and regional grocery stores, pharmacies, food, and clothing retailers, and banks.
Speaker Change: This portfolio of multi run off by the first quarter of 2025.
Speaker Change: Moving onto slide nine 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 one three times as well as strong sponsorship to your profile based on AUM net worth and yourself experience for each sponsor.
Speaker Change: So at the end of the second quarter, we have 30% of our CRE portfolio and top tier borrowers we have no significant tenant concentration in our CRE retail loan portfolio at the top 15 tenants represent 21% of the total.
Speaker Change: Major tenants include recognized national and regional grocery stores pharmacy, food and clothing retailers and banks.
Sharymar Calderon Yepez: Turning to slide 10, let's take a closer look at credit quality. Our non-performing loans to total loans are up to 138 basis points compared to 43 basis points last quarter, which I will cover in detail in later slides. Non-performing assets totaled $121.1 million at the end of the second quarter, an increase of $70.6 million compared to the first quarter, primarily due to the increase in NCLs Jerry mentioned in his remarks. In the second quarter of 2024, the coverage ratio of loan loss reserves to non-performing loans closed at 0.9 times, down from 3.2 times at the end of the first quarter. $7.8 million in payoffs and $5 million in upgrades.
Speaker Change: Turning to slide 10, let's take a closer look at credit quality.
Speaker Change: Our credit quality remains sound and reserve levels provide sufficient coverage the allowance for credit losses at the end of the second quarter was $94 4 million a decrease of one 7% from $96 1 million at the close of the first quarter or.
Speaker Change: Our nonperforming loans to total loans are up to 138 basis points compared to 43 basis points last quarter, which I will cover in detail in later slides.
Gerald Paul Plush: Nonperforming assets totaled $121 1 million at the end of the second quarter, an increase of $70 6 million compared to the first quarter, primarily due to the increase in Npls Jerry mentioned in his remarks.
Gerald Paul Plush: The ratio of nonperforming assets to total assets was 124 basis points up 73 basis points from the first quarter.
Gerald Paul Plush: In the second quarter of 2020 for the coverage ratio of loan loss reserve to nonperforming loans close at nine times down from three two times at the end of the first quarter.
Gerald Paul Plush: Turning to slide 11, we show the roll forward of special mention and nonperforming loans from the first quarter to the second quarter and provide color on the main drivers of these changes.
Gerald Paul Plush: Special mention loans decreased by $8 5 million, primarily driven by $46 3 million in loans previously in special mention which were further downgraded to substandard $7 8 million in pay offs and five mammalian and upgrades.
Sharymar Calderon Yepez: These decreases were partially offset by $49.7 million in newly downgraded loans to special mentors. These consist of two non-owner-occupied serial loans in Florida totaling $33.9 million, one commercial loan in Florida totaling $13.2 million, and one owner-occupied loan in Houston totaling $2.5 million. These increases were offset by paydowns, payoffs, and other smaller changes. The increase in non-performing loans you see on this slide was primarily due to three commercial loans totaling $46 million, which were disclosed in the first quarter as special mentioned credits and were downgraded based on updated financials received in the second quarter. Additionally, there were two newly downgraded commercial loans totaling $47.3 million in Florida, primarily an owner-occupied credit of $28.2 million in the construction materials manufacturing industry.
Gerald Paul Plush: These decreases were partially offset by $49 7 million in newly downgraded loans to special mention.
Gerald Paul Plush: The decrease in special mention loans was primarily driven by three commercial loans totaling 46 million that were further downgraded to substandard. These decreases were offset by new downgrades to the special mentioned during the quarter that although exhibit payment performance were downgraded due to covenant failures.
Gerald Paul Plush: These consist of two non owner occupied CRE loans in Florida totally totaling $33 9 million one commercial loan in Florida totaling $13 2 million and one owner occupied loan in Houston totaling $2 5 million. These increases were offset by pay downs pay offs and other smaller changes.
Sharymar Calderon Yepez: These increases were offset by paydowns, payoffs, and other smaller changes. Now, moving on to slide 12, which shows the drivers of the allowance for credit loss. It is important to note that these were offset by a $5.3 million release related to credit quality and macroeconomic projection updates and a $4.4 million release due to the Houston Loan Portfolio Classification as held for sale. During the second quarter of 2024, there were net charge-offs of $19.3 million, of which $5.4 million were related to purchased consumer loans, $9.9 million related to a commercial Houston-based loan, of which $4.9 million was provision This was offset by $0.9 million in recovery. Please note we decided to fully write off the aforementioned Houston-based credit this quarter, given the longer than anticipated litigation and book recoveries as they occur.
Gerald Paul Plush: The increase in nonperforming loans you see on the slide was primarily due to three commercial loans totaling 46 million, which were disclosed in the first quarter as special mention credits and were downgraded based on updated financials received in the second quarter.
Gerald Paul Plush: Additionally, there were two newly downgraded commercial loans totaling $47 3 million in Florida, primarily in owner occupied credit of $28 2 million in the construction materials manufacturing industry.
Gerald Paul Plush: These increases were offset by pay downs pay offs and other smaller changes.
Gerald Paul Plush: Now moving onto slide 12, which shows the drivers of the allowance for credit losses at.
Gerald Paul Plush: At the end of the second quarter. The allowance was $94 4 million a decrease of $1 7 million or one 7% compared to $96 1 million at the close of the first quarter.
Gerald Paul Plush: The provision for credit losses was $19 2 million in the second quarter.
Gerald Paul Plush: The reserve for a commitment to the provision was $17 7 million and was comprised of $12 eight millions of covered charge off $12 7 million in new specific reserves for nonperforming loans and $1 8 million due to loan competition and growth.
Gerald Paul Plush: The primary driver of the new reserves was one commercial loan totaling $26 8 million in Florida, which had been classified as special mention in the first quarter and for which we booked 8 million in reserves. It is important to note that these were offset by a $5 3 million relief related to credit quality and macroeconomic projection apathy and a 4.4 million release due to the.
Gerald Paul Plush: Houston loan portfolio classification as held for sale.
Gerald Paul Plush: During the second quarter of 2024, there were net charge offs of $19 3 million of which $5 four were related to purchase consumer loans $9 9 million related to our commercial Houston based loan of which $4 9 million with provision in the prior quarter and $4 9 million were related to multiple retail and business banking loans.
Gerald Paul Plush: This was offset by pointing malian and recoveries.
Gerald Paul Plush: Please note that we decided to fully write off the aforementioned Houston based credit this quarter given longer than anticipated litigation and book recoveries of they occur.
Speaker Change: Next I'll discuss net interest income and net interest margin on slide 13.
Speaker Change: Net interest income for the second quarter was $79 4 million up $1 4 million or one 8% compared to the first quarter the.
Speaker Change: The increase was primarily driven by higher average balances and rates on total interest, earning assets, mainly on loans and securities available for sale.
Speaker Change: Lower average balances on transactional accounts and broker time deposits as well as lower lower average rates in D D as in brokerage Cds.
Speaker Change: The increase in net interest income was partially offset by lower average balance in deposits with banks and higher average balances and rates on official be advances in customer Cds as well as higher rates and money market deposits.
Speaker Change: In terms of our deposit beta considering there was no change in the fed funds rate. This quarter. There was no beta calculation for this period. However, we observed a debate of approximately 49 basis points on accumulative basis since the beginning of the interest rate up cycle unchanged from the first quarter indicative of a flattening trend and nearing inflection point this scheme.
Speaker Change: Relative beta reflects the combined effect of rate increases insurance section will be pocket and repricing of time deposits that had not repriced at current market rates.
Sharymar Calderon Yepez: Moving on to the net interest margin, we show in slide 14, the contribution to NIM from each of its components. As mentioned, LIM for the second quarter was 3.56%, up 5 basis points quarter over quarter. This change in the name was primarily driven by higher interest income resulting from growth in higher yielding loans and non-interest bearing deposits, paired with the reduction of high cost deposits from municipalities and the replacement of broker CD maturities with lower cost. I'll provide some additional color on NIM in my final remarks.
Speaker Change: Moving on to the net interest margin we show in slide 14, the contribution to NIM from each of its components.
Speaker Change: Mentioned NIM for the second quarter was 356% up five basis points quarter over quarter.
Speaker Change: This change in the NIM was primarily driven by the higher interest income, resulting from growth in higher yielding loans and noninterest bearing deposits paired with a reduction of high cost deposits from municipalities and the replacement of broker CD maturities with lower cost one.
Speaker Change: 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 higher rates.
Speaker Change: I'll provide some additional color on them in my final remarks.
Sharymar Calderon Yepez: Moving on to interest rate sensitivity, on slide 15, you can see the asset sensitivity of our balance sheet with 51% of our loans having floating rate structures and 58% repricing within a year. Also, we continue to position our portfolio for a change in the rate cycle by incorporating rate floors when originating adjustable rate loans. We currently have 49% of our adjustable loan portfolio with floor rates.
Speaker Change: Moving onto interest rate sensitivity on slide 15, you can see the asset sensitivity of our balance sheet with 51% of our loans, having floating rate structures and 58% of your pricing within a year.
Speaker Change: Also we continue to position our portfolio for a change in rate cycle by incorporating great, Florida, when originating adjustable rate loans. We currently have 49% of our adjustable loan portfolio with floor rates. Additionally, you can see here that within the variable rate loans, 36% of our indexed a sofa.
Sharymar Calderon Yepez: Additionally, you can see here that within the variable rate loans, 36% are indexed to SOFR. This could see an organic improvement in AOTI if monetary policy changes and interest rates start to decrease later in the year as expected. Continuing to slide 16, non-interest income in the second quarter was $19.4 million, up by $4.9 million, or 34%, from $14.5 million in the first quarter. The increase was primarily driven by higher loan-level derivative income, as well as higher other non-interest income due to higher mortgage banking income and the absence of a loss on the sale of the Houston Theory loan portfolio that we had in one case. Amerant's assets under management totaled $2.5 billion as of the end of the second quarter, up 94.2 million or 4% from the first quarter.
Speaker Change: Additionally, we continue to execute a L M strategies, including hedging interest rate risk as we expect a downward trend in interest rates starting in the second half of 2024 or early 2025.
Speaker Change: Our NIM sensitivity profile remains stable compared to the first quarter. We also show here the sensitivity of our assets portfolio to showcase our ability to withstand additional net negative valuation change it although we should start.
Speaker Change: C N N organic improvement in a O T I, if monetary policy changes and interest rates start to decrease later in the year as expected.
Speaker Change: We will continue to actively manage our balance sheet to best position or bad for the upcoming periods.
Speaker Change: Continuing to slide 16, noninterest income in the second quarter was $19 4 million up by $4 9 million or 34% from $14 5 million in the first quarter.
Speaker Change: The increase was primarily driven by higher loan level derivative income as well as higher other noninterest income due to higher mortgage banking income and the absence of a loss on the sale of the Houston CRE loan portfolio that we had in <unk>.
Speaker Change: Contributing to the increase was also the gain on early repayments of 595 million an official be advances.
Speaker Change: This increase in noninterest income was partially offset by higher higher security losses during the quarter.
Speaker Change: Ameren assets under management totaled $2 5 billion as of the end of the second quarter up $94 2 million or 4% from the first quarter. This increase was primarily driven by net new assets and market valuation.
Sharymar Calderon Yepez: This increase was primarily driven by net new assets and market valuation. Turning to slide 17, second quarter non-interest expenses were $73.3 million, up $6.7 million or 10.07% from the first quarter, and an increase in advertising expenses in connection with our sports partnership. Yes, going four rounds in the Stanley Cup playoffs increased expenses, higher legal fees in connection with the Houston suit. However, the increase in non-interest expenses was partially offset primarily by lower telecommunications and data processing fees and lower FDIC assessments and insurance.
Speaker Change: Turning to slide 17 second quarter noninterest expenses were $73 3 million up $6 7 million or 10 points or 7% from the first quarter the quarter over quarter increase was primarily driven by an increase in the Cuban C and equipment expenses, mainly due to the valuation impairment charge of $3 4 million in connect.
Speaker Change: One with the Houston branches being for sale, one 3 million in losses on loans held for sale into Q4, the transfer of approximately 552 million in Houston that were in loans held for investment prior to the transaction.
Speaker Change: An increase in advertising expenses in connection with our sports partnerships, yes going for around some of the Stanley Cup playoffs increased expenses.
Speaker Change: Legal fees in connection with the Houston sale.
Speaker Change: An increase in salaries and employee benefits due to higher average ftes in the quarter.
Speaker Change: An increase in loan level derivative expenses, which were driven by a higher volume of derivative transactions into Q compared to the first quarter.
Speaker Change: The increase in noninterest expenses was partially offset primarily by lower telecommunications and data processing fees and lower FDIC assessments and ensuring feed and in terms of our team. We ended the quarter with 700, and 20-F T which is higher than the 696, we had in the first quarter, we added to our business development team against this.
Sharymar Calderon Yepez: And in terms of our team, we ended the quarter with 720 FTEs, which is higher than the 696 we had in the first quarter. We added to our business development team again this quarter as part of our growth initiative. I'll now give some color on our expectations for the third quarter. We expect the NIM to be stable compared with 2Q. Regarding non-interest income, we expect it to be approximately $17 million. We expect operating expenses to remain at the $68 million previously mentioned, including onboarding new team members towards our growth.
Speaker Change: Quarter as part of our growth initiatives.
Speaker Change: Moving on to Slide 18, we show the elements that contributed to the change in the EPS. This quarter, we reported second quarter diluted earnings per share of 15 cents on net income of 5 million compared to 31 cents on $10 6 million net income in the previous quarter, which was primarily driven by the higher provision for credit losses, and non routine expenses in <unk>.
Speaker Change: Connection with the Houston transaction.
Sharymar Calderon Yepez: Finally, we expect probation for credit losses to be in or around $12 million next quarter, as we do expect asset growth, as I previously mentioned. So at least half of this amount would be related to growth in the quarter. We are focused primarily on achieving the 1% ROA and 12% ROA targets we established for ourselves. It is more likely now that the 60% efficiency ratio could slide to 1Q25 as we continue to see opportunities to keep investing in our future. I will now pass the floor back to Jerry for his closing remarks.
Speaker Change: I will now give some color of our expectations for the third quarter.
Speaker Change: We expect the NIM to be stable compared with two cute regarding noninterest income we expect it to be approximately $17 million. We expect operating expenses to remain at the 68 million previously mentioned, including Onboarding new team members towards our growth plan.
Lee: Lee we expect we expect for provision for credit losses to be in or around 12 million next quarter. As we do expect asset growth as I previously mentioned so at least half of this amount would be related to growth in the quarter. We currently estimate the Houston transaction will close in mid <unk> with the premium on the transaction settling prior to yearend that's premium.
Lee: Well in a different quarter will more than offset the charges recorded into Q1.
Sherry: We are focused primarily on achieving the 1% ROA and 12% ROE targets, we established for ourselves. It is more likely now that the 60% efficiency ratio could slide to 125, as we continue to see opportunities to keep investing in our future I will pass now back to Jerry for closing remarks. Thanks Sherry.
Gerald Paul Plush: Thanks, Shary. So before we move 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. Our deposit growth to fund projected loan growth continues to be our top priority as part of our Deposits First initiative. We continue to actively recruit additional commercial relationship bankers, private banking officers, as well as market managers in Broward County, Palm Beach County, and the greater Tampa market.
Gerald Paul Plush: So before we move 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.
Gerald Paul Plush: So as I noted earlier loan production was strong in the second quarter and the pipeline for <unk> 24 is on track with our previous guidance of 10% annualized growth.
Gerald Paul Plush: Our deposit growth to fund projected loan growth continues to be our top priority as part of our deposits first initiatives.
Gerald Paul Plush: We continue to actively recruit traditional commercial relationship bankers private banking officers.
Gerald Paul Plush: As well as market managers in Broward County, Palm Beach County, and a greater Tampa market as.
Gerald Paul Plush: As we ramp up building our team in Palm Beach, we've already taken temporary space in the same building, where a regional office in new banking center will be.
Gerald Paul Plush: And as noted before, as part of our expansion in the greater Tampa market, we intend to open five additional banking centers over the next 24 months. And, please note, we're already close to signing a letter of intent for the first location in downtown Tampa. So, in summary, our focus remains on the execution of our strategic plan as we pursue our goal of being the bank of choice in the markets we serve.
Gerald Paul Plush: And as noted before as part of our expansion in the greater Tampa market, we intend to open up five additional banking centers over the next 24 months and please note we're already close to signing a letter of intent for the first location in downtown Tampa.
Gerald Paul Plush: So in summary, our focus remains on the execution of our strategic plan as we pursue our goal of being the bank of choice in the markets. We serve at the same time, we also fully intend to reach prudent and timely resolution to the nonperforming loans that we've discussed here today.
Gerald Paul Plush: At the same time, we also fully intend to reach prudent and timely resolution to the non-performing loans that we've discussed here today. So with that, I'll stop, and Shary and I will look to answer any questions you have. Gerald, if you would, please open the line for Q&A. Thanks.
Gerald Paul Plush: So with that I'll stop and sharing our love to answer any questions. You have Daryl if you would please open the lines for Q&A.
Operator: Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the line. One moment, please, while we poll for your question.
Speaker Change: Thank you at this time, we'll be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line. This is a question on queue. You May press star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing.
Speaker Change: This darkies one moment, please while we poll for your questions.
Speaker Change: Our first questions come from the line of Tim Mitchell with Raymond James. Please proceed with your questions.
Tim Mitchell: Hey, good morning, everyone.
Speaker Change: Good morning, Tim.
Analyst: I just want to start out on credit, appreciate all the color from Shary and the prepared remarks, but just curious, you know, is there one or two of those credits that were downgraded to non-accrual this quarter that are particularly concerning to you? I understand you're still kind of working through a lot. And then just kind of your outlook for charge-offs through the rest of the year. Thanks. Yeah, look, I'll take the
Tim Mitchell: Just want to start out on credit I appreciate all the color for sure.
Tim Mitchell: Remarks, but just curious is there one or two of those credits that were downgraded to nonaccrual. This quarter that are particularly concerning to you I understand you're still kind of working through a lot.
Speaker Change: And then just kind of your outlook for for charge offs through the rest of the year.
Gerald Paul Plush: Yeah, look, I'll take the first two, or the first question, and then Shara can add some color. You know, in terms of the... You know, the credits for the quarter, when you look at the five, you know, the comments that I made earlier, you know, we have painted multiple scenarios on the one that we expect a resolution to in the next several months. And I think that we took a prudent approach to booking the $8 million.
Speaker Change: Yeah look I'll take the first two or the first question and then ask shared add some color.
Speaker Change: You know in terms of the.
Speaker Change: You know the credits for the quarter. When you look at the five you know the comments that I made earlier you know we we've painted multiple scenarios on the one that we expect a resolution to in the next several months.
Speaker Change: And I think that that we took a prudent approach to booking the 8 million that doesn't mean that we think that that's the most likely outcome and so you know we see that with private equity backing and that particular relationship we definitely see that there could be a very positive outcome that comes from that regarding.
Gerald Paul Plush: That doesn't mean that we think that that's the most likely outcome. And so, you know, we see that with the private equity backing in that particular relationship, we definitely see that there could be a very positive outcome that comes from that. Regarding the other one, and again, remember, these two large credits were the driver of the bulk of the non-performing downgrades.
Speaker Change: The other one and again remember these two large credits where the big driver of the bulk of the nonperforming downgrades.
Gerald Paul Plush: The other one, the collateral behind the deal is so strong, you know, with where we are from a coverage perspective, I think it's actually even more favorable than 40%. Our view is that, you know, we can see a positive resolution there as well. You know, in that particular case, there was an incident that occurred with a leadership transition that we think is now well on its way to getting through. So, you know, with that color, I think the two larger ones, we feel that there are positive outcomes that can come from that. And then you asked about charge-offs for the rest of the year.
Speaker Change: The other one the the collateral behind the deal is so strong you know with the where we are for me.
Speaker Change: <unk> perspective, I think it's actually even more favorable than a 40% of our view is that you know we can see a positive resolution there as well you know in that particular case, there was an incident that occurred with.
Speaker Change: With a leadership transition that we think is now well on its way to getting worked through so you know with that color I think the two larger ones. We feel that there is positive outcomes that can come from those.
Speaker Change: Great.
Speaker Change: Yeah, and then you had asked about charge offs for the rest of the year I'm sure. If you want to yeah sure. So in terms of charge offs and I'm going to give more of a rate excluding indirect consumer and excluding this one time charge offs. We recorded this quarter are to fully write off on a credit we should be in around 25 to 30 basis points.
Sharymar Calderon Yepez: Yeah, sure. So, in terms of charge-off, and I'm going to give you more of a rate excluding indirect consumer and excluding this one-time charge-off that we recorded this quarter to fully write off a credit, we should be in around 25 to 30 basis points. If we add back the indirect consumer, which is going down in balance quarter over quarter, we should be something closer to the 70 and gradually going down until we get to that 30 normalized level.
Speaker Change: And we add them back the indirect consumer which is going down and balance quarter over quarter, we should be something closer to 70 and progressively going down until we get to that 30, a normalized level.
Analyst: Okay, great, I appreciate the color. And then, switching gears to loan growth, I understand you guys are certainly a higher-growth bank than most, but the industry really isn't seeing much growth right now. I was hoping you could lay out some of the key drivers of the 10% number. And then, as it relates to deposit growth, you know.
Speaker Change: Okay, Great I appreciate the color.
Speaker Change: And then switching gears to loan growth and I understand you guys are certainly higher growth.
Speaker Change: Most of the industry really isn't seeing much growth right now just hoping you could lay out some of the key drivers of the 10% number and then as it relates to deposit growth.
Speaker Change: Do you expect deposit growth to kind of.
Speaker Change: Maybe pick back up here or just kind of a level you'd like.
Speaker Change: The odds ratio trend over time.
Gerald Paul Plush: Yeah, look, I think it's important to note we've set a target at 95%. You know, our view was we were never going to continue operating in the 87, 88% range that we had dipped down to post when we did the sale transactions. And so we've utilized that excess cash, obviously, this quarter. And as we noted, we had higher costs for commercial clients that had some significant, you know, reductions as well as the higher cost municipal go out, which then offsets all the hard work of the growth right on the organic side, you know, so we had a net loss of $62 million.
Speaker Change: Yeah look I think it's important to know we've set a target of 95% you know our view was we were never going to continue operating in the 80, 788% range that we had dipped down to post you know when we did the sale transactions and so we've utilized that excess cash.
Speaker Change: Obviously this quarter and as we noted we had higher cost commercial to commercial clients that had some significant reductions as well as the higher cost municipal go out, which then offsets all the hard work of the growth rate on the organic side you know so we had a net down 60.
Speaker Change: $2 million.
Gerald Paul Plush: Our view is always, has been, and will continue to be, that we need to grow deposits in tandem with loans. We want to stay, you know, in and around that 95 percent. That doesn't mean that, you know, we'll always hit 95. We can be within a range of that. So whether it stays at this 93 and changes, or whether it goes up to 97 and changes, our view is that 95 is the target, and that's what we want to maintain.
Speaker Change: Our view is always it has been and will continue to be that we need to grow deposits in tandem with loans, we want to stay in.
Speaker Change: In and around that 95% that doesn't mean that you always hit 95, we can be within a range of that so whether it stays in this 93 and change or whether it goes up to 97 and change our view is the 95% target and that's what we want to maintain you know.
Speaker Change: Regarding the the loan production. It's a combination of you know what in my mind two things two there's the drive that's happened across both the consumer and the commercial portfolios with all of the people you know the quality people, we've added particularly over the last two.
Gerald Paul Plush: You know, regarding loan production, it's a combination of, you know, in my mind, two things. The drive that's happened across both the consumer and the commercial portfolios with all of the people. The quality people we've added, you know, particularly over the last 12 to 18 months, coupled with the quality people we have in the organization. That continues to build. And again, we added a significant number of business development personnel this past quarter.
Speaker Change: To 18 months, coupled with the quality of people we had in the organization that continues to build and again, we added a significant number of business development personnel this past quarter.
Gerald Paul Plush: You know, as Shary referenced in the increase in head count, when you get those folks added in a quarter, and now they're here, onboarded, and beginning to produce, you've now got full quarters worth of production that they're now bringing to the table. And so, you know, that's the way we're getting to that annualized growth.
Speaker Change: Gerry referenced in the the increase in head Count you know when you get those folks <unk> added in a quarter and now they're here on boarded and beginning to produce you've now got full quarters worth of production that they're now bringing to the table and so you know that's the way we're getting to that annualized growth number.
Speaker Change: Awesome, Thanks, and thanks for taking my questions guys.
Speaker Change: Okay. Thank you.
Speaker Change: Thank you. Our next question is coming from the line of will Jones with the K B W. Please proceed with your questions.
Analyst: Hey, great morning, everyone. I just wanted to start, I wanted to go back to the current discussion, Shary. I appreciate the commentary on just where you think charge-offs are going, and I know 70 basis points is a little bit higher than, you know, kind of the 40 or 50 that we had previously talked about. I guess the broader question is... If we see, you know, more charge-offs in the 70 basis point range and you think normalized is closer to 30, Is it going to be, you know, a 2025 event in your mind?
Will Jones: Hey, great good morning, everyone.
Will: Good morning will.
Will Jones: I just wanted to start off I wanted to go back to the credit discussion I'm sure. You. Appreciate the commentary on just where you think charge offs are going and I know you know 70 basis points is a little bit higher than kind of a 40 to 50 that we had previously talked about I guess the broader question is.
Speaker Change: You know if we see you know more charge offs from the 70 basis point range and think normalized is closer to 30, what do you feel like is the timeline to get to get back to that 30 basis point range is it gonna be you know what 2025 event in your mind.
Sharymar Calderon Yepez: The reason for the 70 basis points is primarily driven by the indirect consumer portfolio. Once the indirect consumer portfolio runs off, which we're estimating would be primarily by the first quarter of 2025, we're expecting to be back at the normalized level of charge-offs below 30.
Speaker Change: The the reason for the 70 basis points was primarily driven by the indirect consumer portfolio. Once the indirect consumer portfolio runs off which we're estimating would be by primarily by the first quarter of 2025, we're expecting to be back at the normalized level of charge off number than 30.
Speaker Change: It would be early 2025.
Gerald Paul Plush: I think it's also important to add, you know, we obviously took a significant commercial charge off. Shary referenced that in her comments, half of which had previously been reserved in the balance. Our view was, because of what we think is going to be a protracted period of resolution on that, you know, I think the litigation that goes on sometimes in the resolution, it's better for us to get it behind us and recover it in future periods.
Speaker Change: Oh, Okay, I didn't think yeah, well I think it's also important to add you know, we obviously took a significant E.
Speaker Change: Commercial charge offs Sherri referenced that in her comments half of which had previously been reserved in the balance our view was because of what we think is going to be.
Speaker Change: A protracted.
Speaker Change: Period of resolution on that you know I think the litigation that goes on sometimes in these then the resolution it's better for us to get it behind us and recover it in future periods and I think you know that that path. Obviously that was much more significant when you see quarter over quarter, but you know that.
Gerald Paul Plush: And I think, you know, that pop obviously was much more significant when you see it quarter over quarter, but, you know, that's probably the one case where we felt that it was important rather than to continue to, you know, observe and see how things went quarter to quarter, to take a more, you know, proactive approach, get it off, and then recover as we move forward.
Speaker Change: That's probably the one case, where we felt that it was important rather than to continue to observe and see how things went quarter to quarter was to take a more you know.
Speaker Change: Proactive approach and get it off and then recover as we move forward.
Analyst: Okay, that makes sense. And, Jerry, I'll just kind of give you the floor here. What's your kind of pitch that, you know, you have your arms ring-fenced kind of around what credit issues you see that are in front of you? I mean, we saw, you know, further migration this quarter, charge-offs are high, and they're still going to kind of be, you know, in an elevated range. What kind gives you the confidence that, you know, we will ultimately see an inflection where you have your arms kind of ring-fenced around, you know, what potential credit problems are out there? Yeah.
Speaker Change: Yeah, Okay that makes sense and then I'm just kind of give you the floor here.
Speaker Change: What's your kind of pitch that that you you have your arms ring fence kind of around what credit issues. You see that are in front of you I mean, what we saw you know further migration. This quarter you know charge offs are.
Speaker Change: Hi, there, they're still going to kind of be you know in an elevated range, what what kind of gives you. The confidence that you will ultimately see an inflection that you have your arms kind of ring fence around what potential credit problems are out there.
Gerald Paul Plush: Yeah, look, I think what we were seeing, right, and I referenced this, you're looking at a 500 basis point swing in interest rates that's impacted, you know, particularly as Shary's referenced, right, most of the floating rate we've got is on the CNI side. And so, you know, when you look at the loans that we're talking about today, the majority are on the CNI side, where those borrowers have had more financial pressure than you have. You know, they've also had higher operating costs, right, year over year, right, things just simply such as the insurance costs, you know, the increases year over year.
Speaker Change: Yeah look I think what we were seeing right and I referenced if you look at it a 500 basis point swing in interest rates that's impacted.
Speaker Change: Particularly sherry's referenced right most of the floating rate. We've got is on the C&I side and so you know when you look at the credits that we're talking about today. The majority are on the C&I side, where those borrowers have had more financial pressure than you had you know they've also had higher ARPA.
Speaker Change: <unk> costs right year over year right you things just simply such as the insurance cost you know the.
Speaker Change: The increases year over year. So our view is the ones who can sustain going forward right that we've seen that they've met their debt service covenant as they've met there.
Gerald Paul Plush: So our view is the ones who can sustain going forward, right, that we've seen that they've met their debt service covenants, they've met their, you know, their coverage ratios, they've met their requirements for getting their financials done on time, and that we're not seeing deterioration. I think we've seen a pop here of what happened year over year in the portfolio. And, you know, Frankly, if you think about the timing of when you would expect the year-end financial information, it's the second quarter.
Speaker Change: You know their coverage ratios they've met their requirements for getting their financials done on time and that we're not seeing deterioration I think we've seen a pop here of what happened year over year in the portfolio and you know frankly, if you think about the timing of when you would expect the year end financial.
Speaker Change: Nation, it's the second quarter.
Gerald Paul Plush: You know, most of those audited financials or reviewed financials are coming in in 2Q. And so, you know, that's what I think, from our perspective, and the discussions we've had, give us, you know, more confidence as we look forward to the portfolio. Look, it's not to say that there can't be something else. You know, and by the way, I do want to just make a comment.
Speaker Change: So most of those audited financials are reviewed financials are coming in into Q and so you know that's that's what I think you know from our perspective and the discussions we've had you know it gives us more confidence as we look forward in the portfolio.
Speaker Change: Look it's not to say that there can't be something else.
Speaker Change: And by the way I do want to just make a comment.
Gerald Paul Plush: Anyone who's listened to our calls, Medicine Investor Conferences knows that we book fairly, you know, solid financial exposures. When you think about the credits we book, you know, we're referencing 20 to 30 million dollar exposures. You know, we're booking a lot more commercial production on our books, you know, so whether it's CNI or CREIT, then probably other banks our size who probably have bigger one to four portfolios than we do, etc.
Speaker Change: Anyone who's who's listened to our calls medicine investor conferences knows that we book fairly.
Speaker Change: You know solid financial exposures. When you think about credits we booked were referenced in 20 to 30 million dollar exposures, we're booking a lot more of commercial production on our books you know so whether it's C&I or tree than probably other banks, our size, who probably got bigger one before.
Speaker Change: Portfolios than we do et cetera, So I think with us.
Gerald Paul Plush: So I think with us, you know, that's something else also to take into account. And that's why I wanted to highlight that it was two larger credits. They were very specific situations in both of those. And, you know, again, the timing of the second quarter and the receipt of information is really important to take into account.
Speaker Change: That's something else also to taken note and that's why I wanted to highlight it was two larger credits. It was very specific situations in both of those and yeah.
Speaker Change: The timing of the second quarter and the receipt of information is really important to take into account.
Analyst: Okay. And thanks for all that commentary.
Speaker Change: Okay.
Speaker Change: Thanks for all that commentary and then I just wanted to clarify just two quick things on the on the Houston sale you know so I know it will take place in the fourth quarter and in the deck you kind of called out about 5 million of personnel costs that are associated with that that will help kind of exit out of that transaction, though it comes through but are there any other costs or any other form of cost savings that you.
Analyst: And then I just wanted to clarify just two quick things. On the Houston sale, I know it'll take place in the fourth quarter. In the deck, you kind of called out about 5 million personnel costs that are associated with that. That'll kind of disappear as that transaction comes through. But are there any other costs or any other formal cost savings that you expect to kind of harvest or realize from that transaction that maybe we're not thinking about as we move into 2025?
Speaker Change: You expect to kind of harvest or realize from that transaction that maybe we're not thinking about that as we move into 2025.
Sharymar Calderon Yepez: I think that in addition to the direct costs that we have covered as part of the transactions disclosure, I would see an opportunity to be able to redeploy some of the Florida team members that also work in connection with the Houston team to be able to focus on the increased production that we're going to have in Florida.
Speaker Change: I think that in addition to direct cost and we have covered as part of that transaction disclosure I would see our opportunity to be able to redeploy some of the Florida team members that also work in connection with the Houston team to be able to focus on the increased production that we're gonna have in Florida.
Gerald Paul Plush: Yeah, I think that that's really well said because we are still right up through the closing, which we expect again, as we've talked about sometime in the fourth quarter, giving full support, right. So, you know, whether you think about it for operation support, tech support, facility support, you name it, you know, that's all part of, you know, what Shary's referencing. So yes, those folks can be either repositioned to focus on opportunities here, the growth opportunities and support here, or if there's any kind of attrition that we've got of existing personnel to offset that. So I think it gives us some capacity as we continue to grow down here in Florida.
Speaker Change: Yeah, I think that that's that's really well said because we are still right up through the closing, which we expect again as we've talked about sometime in the fourth quarter, giving full support right. So you know whether you think about it for operation support Tech support facilities support.
Speaker Change: You name. It you know that's all part of what share is referencing there. So yes, there the those folks can be either reposition to focus on you know opportunities here the growth opportunities and support here or you know if there's any kind of attrition that we've got of existing personnel.
Speaker Change: The offset that so I think it gives us.
Gerald Paul Plush: Some capacity you know as we continue to grow.
Speaker Change: Down here in Florida.
Speaker Change: Yeah.
Analyst: Yeah, okay. And then just as we think about how that would translate to where 2025 expenses land, if we get some of this cost savings from the transaction, but a lot of that is reinvested, what is kind of like a good growth rate to think about for 2025 as we think about expenses? I know we're a long ways away from that, but I'm not trying to pin you down on guidance now but just trying to think about how expenses could look as we kind of exit 2025.
Speaker Change: Yeah, Okay, and then just as we think about how do you know how that would translate to where 2025 expenses land. If we get you know.
Analyst: So some of those cost savings from the transaction, but a lot of that is reinvested what is kind of like a good growth rate to think about into 2025 is as we think about expenses.
Speaker Change: I know, we're a long ways away from that.
Speaker Change: No the guidance now but just.
Analyst: So just trying to think about how expenses could look as we kind of exit 'twenty 'twenty four.
Sharymar Calderon Yepez: I think that when we think about the expenses after we adjust for the Houston transaction, I think we would still see ourselves closer to $68 million, and it's kind of a repurposing of the expenses towards our investment here in Florida, so it should be more of a normalized level. Yeah, well, I think the thing, and we'll give clear guidance on this next quarter and the fourth quarter, but the ramp up that we're having now, and that's kind of where we were going with the incremental spend, not just on people, but it's also the expansion on facilities, the growth push into Palm Beach, the growth push to Miami Beach, where we had no coverage, or we had no coverage here before, and then the push to get Some of those expenses, obviously, are going to be part of that offset that Shary was referencing.
Speaker Change: Yeah, I think I think that when we when we think about the expenses from after we adjust for the Houston transaction I think we would still see yourself closer to the $68 million and it's kind of a repurposing of the expensive tours are investment here in Florida. So it should be more of a normal normalized level.
Sharymar Calderon Yepez: Yeah, well I think that you know the thing and will give clearer guidance on this you know next quarter in the fourth quarter, but the the ramp up that we're having now and that's that's kind of where we were going with the incremental spend is not just on people, but it's also the expansion of facilities right the growth pushing to Palm Beach.
Speaker Change: The growth push.
Speaker Change: You know to Miami Beach, where we had no coverage, where we had no coverage here to four and then the push into you know get some size and scale in Tampa.
Sherry: That's some of those expenses, obviously are going to be part of that offset that that sherry was referencing.
Sharymar Calderon Yepez: Okay.
Analyst: Okay. That's helpful. And lastly for me, just housekeeping, the provision this quarter also included the $4.4 million reversal from Houston, right? Thanks for my questions, guys.
Speaker Change: And then last thing for me just housekeeping the provision this quarter, but that also included the $4 4 million reversal from from Houston right.
Analyst: Yes.
Analyst: Alrighty, Thanks for my questions guys.
Speaker Change: Thanks Hugo.
Operator: Thank you. Our next questions come from the line of Stephen Scoutland with Piper Sandler. Please proceed with your questions.
Speaker Change: Thank you our next questions come from the line of Stephen Scouten with Piper Sandler. Please proceed with your questions.
Analyst: Hey, good morning, everyone. Um, I guess I'm curious. I know, Jerry, you said these are kind of some specific situations around some of the commercial loans, but It's just obviously outside of what we've seen from most of the industry this quarter. So I'm kind of curious, do you think there's any trends happening specifically in Florida in terms of overall economic or business trends that maybe are? not as positive as what we've become accustomed to over the past few years, or are these more idiosyncratic in nature, in your view?
Stephen Scoutland: Hey, good morning, everyone.
Stephen Scoutland: Hey, David I guess I'm curious I know Gary you said these are kind of some specific situations around some of the commercial loans, but.
Analyst: You know, it's just obviously outside of what we've seen for most of the industry. This quarter. So I'm kind of curious do you think theres any trend happening.
Speaker Change: Specifically in Florida in terms of you know overall economic or business trends that maybe are.
Analyst: Not as positive as what we'd become accustomed to over the past few years or are these more idiosyncratic in nature in your view.
Gerald Paul Plush: I have to tell you, Stephen, I think they are far more idiosyncratic. You know, we've talked about the one being a specialty healthcare industry credit. The other one is absolutely the change of leadership. You know, I don't want to go into all the details, but the CEO change due to the passing of someone obviously, you know, had a significant impact on that particular credit. Our view is there's a path to a good resolution on these.
Jerry: I have to tell you Stephen I think they're far more idiosyncratic.
Gerald Paul Plush: Talked about the one being a specialty health care.
Gerald Paul Plush: Industry related credit the other one is absolutely the change of leadership you know I don't want to go into all the details, but the CEO change and the passing of someone obviously you know had a significant impact in that particular credit. Our view is there's a path to a good resolution on these and again you know.
Gerald Paul Plush: And again, you know, what I said before, I think we ran multiple scenarios to make sure that we took a prudent, we'll call it, you know, approach to the one to make sure. But again, given that it's private equity-backed, we feel that there's a path to getting it done. And we're going to know that here in the next couple of months.
Gerald Paul Plush: What I said before I think we ran multiple scenarios to make sure that we took a prudent we'll call. It you know approach to the one to make sure but again given that private equity backed I, we feel that there's there's a path to getting done and we're going to know that here.
Gerald Paul Plush: In the next couple of months.
Gerald Paul Plush: Yeah.
Gerald Paul Plush: And does what you've seen, and you kind of noted, there are a couple of larger commercial loans, which, you know, maybe your balance sheet looks different than some of the other like-sized banks. Does that make you any more apprehensive about near-term growth, specifically in larger commercial loans?
Speaker Change: And does what you've seen and you kind of noted there's a couple of larger commercial loans, which you know maybe your balance sheet looks different than some of other like sized banks does it make you any more apprehensive about near term growth specifically maybe in larger commercial.
Gerald Paul Plush: You know, I, I think the we're continuously refining, you know, on a risk appetite perspective, to make sure that we're not going to be booking something that becomes so specialty oriented, or, you know, could could create some sort of other more challenging scenario for us if there were a credit, you know, event there. And I think that, you know, our view on this, and again, remember, I The interesting thing with these, Stephen, is you're dealing with a situation where these loans are performing, right, they're paying as agreed, you know, so it's odd to say they're non-performing, right, in that respect, but I think that the way I look at it going forward is still, look, we've got a lot of expertise in the building and we've added a lot more expertise both on the biz dev side, I mean, you know, from the leadership of the court commercial bank on down through the leadership in credit, I mean, we've added, you know, really, really strong folks in both the C&I and the commercial real estate side, so I think the strength of the teams gives me a lot more confidence about the forward view, you know, when you think about in meeting the goals.
Speaker Change: Do you know I I think the we're continuously refining you know on a risk appetite perspective to make sure that we're not going to be booking something.
Gerald Paul Plush: That becomes so specialty oriented or you know could could create some sort of other more challenging scenario for us if there were a credit.
Gerald Paul Plush: There and I think that you know our view on this and again remember I.
Gerald Paul Plush: The interesting thing with these Steven is you're dealing with a situation where these wells are performing Reits are paying as agreed.
Gerald Paul Plush: It's odd to say their nonperforming right in that respect, but I think that the the way I look at it going forward is still look we've got a lot of expertise in the building and we've added a lot more expertise both on the Biz Dev side I mean, you know from the leadership of the CT commercial bank on down through the leadership in credit I mean, we've.
Gerald Paul Plush: We've added you know really really strong folks in both the C&I and.
Gerald Paul Plush: Commercial real estate side, so I think our the strength of the teams gives me a lot more confidence about the forward view you know when you think about in meeting the growth.
Analyst: Yeah, that's helpful. Okay. And then maybe the last thing around this topic is, as you get to, let's call it 2Q25 for argument in the indirect, consumers run down, and, you know, we're past these more elevated net charge-offs. What's a kind of fair?
Gerald Paul Plush: Yeah.
Stephen: Helpful. Okay, and then just maybe last thing around around this topic.
Analyst: As you get to let's call. It <unk> 25 for argument in the indirect consumers run down and we're past these more elevated net charge offs with the kind.
Analyst: That's fair.
Gerald Paul Plush: Percentage for the loan loss reserve? I mean, would you expect it to come down from this 141 back to, I don't know, maybe 120 the level we saw in 1Q23? Or what's kind of a normalized level for the reserve? Yeah, look, I think it's always going to be something probably closer to the 125 range. Remember that in our particular case, there are a couple of specific reserves in that mix of the 140 plus right now.
Speaker Change: Percentage for the loan loss reserve I mean would you expect it to come down from this 141 back to I don't know if maybe 120 level, we saw in 123 or what's kind of a normalized level for the reserve look I.
Gerald Paul Plush: I think it's always going to be something probably closer in the 125 range remember that in our particular case, there's a couple of specific reserves in that mix of the 140 plus right now so as you get to a resolution on those credits I think you'll naturally see us be more in the 125 range.
Gerald Paul Plush: So as you get to a resolution on those credits, I think you'll And as we think about production on a go-forward basis, we're always looking that it's roughly around 1% just given the assets. Yeah, perfect. Okay, and then just last thing for me is on the, you know, you guys noted some talk about balance sheet preparation for lower rates. Can you remind me what that looks like and if there's anything that should materially change your asset sensitivity as it stands?
Orange: Orange. You know, as we think about production on a go-forward basis, we're always looking that it's roughly around 1% just given the asset mix.
Gerald Paul Plush: You know and as we think about production on a go forward basis, we're always looking but its roughly around 1% just given the asset mix.
Speaker: Yeah, perfect. Okay.
Speaker Change: Yes, perfect. Okay, and then just last thing for me is on the you guys noted.
Stephen Scouten: And then just last thing for me is on the, you know, you guys noted from talk about balance sheet preparation for lower rates.
Speaker Change: I'm talking about balance sheet preparation for lower rates can you remind me what that looks like and if there's anything that should materially change kind of your asset sensitivity.
Speaker: Can you remind me what that looks like?
Speaker: And if there's anything that should materially change, kind of your asset sensitivity as it seems?
Speaker: Now, so in preparation for the downward rate trend, we're working with floor rates as we continue loan production on the credits.
Sharymar Calderon Yepez: In preparation for the downward rate trend, we're working with floor rates as we continue loan production on the credit. We also have multiple hedging alternatives, including low and high floors. We also work into the deposits that are tied as deposit covenants to these loans. They're interest-bearing deposits that would reprice automatically as the loan reprices as well. So under a downward rate scenario, we have calculated shocks of 25 cuts, and that would represent a full quarter's activity for less than $500,000.
Speaker Change: Yeah. So in preparation for the downward trend, where we're working with for rates as we continue loan production on the credit.
Speaker: We also have multiple hedging alternatives, including low and high floors. And we also work into the deposits that are tied as deposit covenants to these loans. They're at interest, varying their interest rate deposits that would reprise automatically as the loan reprise this as well. So under a downward rate scenario, we have calculated shocks of 25 cuts, and it would represent full quarters' activity less than 500,000 for us.
Sharymar Calderon Yepez: We also have multiple hedging alternatives, including a low and high floors and we also work into the deposits that are tied as deposit covenants to these loans. They're at interest bearing are their interest bearing deposits then that would reprice automatically at the loan repricing as well so under a downward rate scenario we have.
Sharymar Calderon Yepez: Related shocks of 25 hubs and it would represent a full quarter's activity are less than 500000 for us.
Analyst: Okay, great. Thanks for all the color and the transparency today.
Speaker: Okay. Great.
Speaker Change: Okay, great. Thanks for all the color and the transparency that much.
Speaker: Thanks for all the color and the transparency that much.
Speaker: Thank you. Okay. Thanks, Stephen.
Gerald Paul Plush: Thank you, Stephen. Okay, thanks, Stephen.
Analyst: Thank you okay. Thanks Steven.
Speaker: Thank you.
Operator: Thank you. Our next question has come from the line of Jake Civiello with Janney Montgomery Scott. Please proceed with your question.
Speaker Change: Thank you. Our next question is come from the line of Jake <unk> with Janney Montgomery Scott. Please proceed with your questions.
Jake Siviella: Our next question has come from the line of Jake Siviella with Janie Montgomery Scott.
Jake Siviella: Please proceed with your questions. Hi. Good morning.
Jake Civiello: Hi, good morning.
Speaker: Hey, Jake. Was there, I apologize if I missed this, but was there any negative impact the name from the interest accrual reversals due to the higher non-accrual loans in the quarter?
Analyst: Hey Jake. Was there, I apologize if I missed this, but was there any negative impact to the NIM from the interest accrual reversals due to the higher non-accrual loans in the quarter? I think there was an
Jake: Hey, Jake.
Analyst: Was there I apologize if I missed this but was there any negative impact the NIM from.
Analyst:
Speaker Change: Interest accrual reversals due to the higher non accrual loans in the quarter.
Sharymar Calderon Yepez: There was an impact, but because most of these credits are still performing, the amount that we had to reverse for that last period was not as significant. If they had been without payment performance, the reversal would have been higher. But there was a slight impact. It's roughly 700.
Speaker: There was an impact, but because most of these credits are still performing, the amount that we had to reverse for that last period was not as significant.
Speaker Change: That there was an impact but because most of these credits are still performing the amount that we had to reverse for that last period was not a significant if they had been without payment performance. The reversal would have been higher.
Speaker: If they had been without payment performance, the reversal would have been higher, but there was a slight impact into the name yet. It's roughly 700,000.
Sharymar Calderon Yepez: But there was a slight impact into the name yet.
Sharymar Calderon Yepez: And so roughly a 700000.
Speaker: Okay. Thank you.
Speaker Change: Okay. Thank you.
Speaker: And then the one other question that I wanted to ask was just any updated thoughts around the potential for utilization of the buyback. Obviously, this quarter was a little more elevated than it has been in recent periods and just kind of wanted to get your updated thoughts there.
Analyst: And then the one other question that I wanted to ask was just any updated thoughts around the potential for utilization of the buyback. Obviously, this quarter was a little more elevated than it has been in recent periods, and I just kind of wanted to get your updated thoughts there.
Speaker Change: And then the one other question that I wanted to ask was just any updated thoughts around.
Analyst: Potential for utilization of the buyback obviously this quarter was a little more elevated than it has been in recent periods.
Analyst: Just kind of wanted to get your updated thoughts there.
Speaker: Yeah, look, I think we, you know, we've noted that we're authorized still for another 15.6. I believe the number is, you know, we, we basically, you know, during the second quarter, just given everything that was on. We've put it in a 10B51 and set parameters, and, you know, we're pretty much continuously in the market. You know, right now we're still in that plan.
Gerald Paul Plush: Yeah, look, I think we, you know, we've noted that we're authorized still for another 15.6, I believe the number is, you know, we basically, during the second quarter, just given everything that was on, we put it in a 10b51 and set parameters. And, you know, we're pretty much continuously in the market right now, we're still in that plan. And, you know, look, as always, we'll evaluate capital needs, growth plans, you know. I think that we've said repeatedly that, you know, maintaining, you know, the strong capital ratios that we have, you know, and putting, you know, the, obviously, future earnings are going to be very critical for us continuing, you know, to want to continue buybacks post-third quarter.
Speaker Change: Yeah look I think we you know we've noted that were authorized still for another 15.6 I believe the number is.
Gerald Paul Plush: You know, we we basically you know during the second quarter, just given everything that was on we've put it in a <unk> five one in and set parameters and.
Gerald Paul Plush: No where pretty much continuously in the market right now we're still in that plan and you know look as always we'll evaluate you know capital needs growth plans. You know I think that we've said repeatedly that you know maintaining strong capital ratios that we have.
Speaker: And, you know, look, as always, we'll evaluate, you know, capital needs, growth plans. You know, I think that we've said repeatedly that, you know, maintaining, you know, the strong capital ratios that we have, you know, in putting, you know, the obviously future earnings. So we're going to be very critical for us continuing, you know, to wanting to continue buybacks, you know, post third quarter. So, you know, our expectations are for stronger performance going forward in order to continue to support it, you know, to continue with, you know, you start to think about late third quarter going into the fourth quarter.
Gerald Paul Plush: And putting the obviously future earnings are going to be very critical for us continuing to wanting to continue buybacks you know post third quarter. So our expectations are for stronger performance going forward in order to continue to support it you know to continue it.
Gerald Paul Plush: So, you know, our expectations are for stronger performance going forward in order to continue to support it. As you know, to continue it, you start to think about late third quarter going into the fourth quarter. But our view is that it's an important tool. We've said that all along, and the sense is that we believe that we should have, obviously, taken very seriously what has happened this quarter as it relates to the impact and the additional provision. But sans the provision, obviously, you can see it was a very strong performance. And we believe we can achieve that strong performance going forward.
Gerald Paul Plush: When you start to think about late third quarter going into the fourth quarter.
Speaker: Quarter.
Speaker: But our view is that it's an important tool. We've said that a long and the sense is that we believe that we should have, obviously, we take very seriously what has happened this quarter as it relates to the impact in the additional provision, but sans the provision, obviously you can see it was very strong performance and we believe we can achieve that strong performance and go forward.
Gerald Paul Plush: But our view is is that it's a it's an important tool. We've said that all along and you know the sense is that you know we believe that you know we should have you know obviously, we take very seriously what has happened this quarter as it relates to the impact you know when the additional provision booked.
Gerald Paul Plush: Sans the provision obviously you can see it was very strong performance and we believe we can achieve that strong performance on a go forward.
Speaker: Appreciate the thoughts, Jerry. Thanks.
Analyst: I appreciate the thoughts, Jerry. Thanks.
Speaker Change: I appreciate the thoughts Gerry thanks.
Speaker: Absolutely. Thanks, Jerry.
Gerald Paul Plush: Absolutely.
Jerry: Great. Thank you.
Operator: Thank you. We have reached the end of our question and answer session. I would now like to turn the floor back over to Jerry Plush for his closing remarks.
Gerald Paul Plush: Thank you we have reached the end of our question and answer session I would now like to turn the floor back over to Jerry flush for closing comments.
Speaker: We have reached the end of our question-and-answer session.
Gerald Plush: I would now like to turn the floor back over to Jerry Plush for closing comments.
Gerald Paul Plush: All right, thank you everyone for joining our second quarter call. We appreciate your interest in our company and your continued support. Have a great day.
Gerald Plush: All right. Thank you, everyone, for joining our second quarter call. We appreciate your interest in our company and your continued support.
Gerald Paul Plush: Alright. Thank you everyone for joining our second quarter call. We appreciate your interest in our company and your continued support have a great day.
Speaker: Have a great day.
Speaker: Thank you.
Operator: Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.
Speaker Change: Thank you. This does conclude today's teleconference. We appreciate your participation you may disconnect. Your lines at this time enjoy the rest of your day.
Speaker: This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.
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Operator:
Operator: Yeah.
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