Q3 2024 Amerant Bancorp Inc Earnings Call
Yeah.
Speaker Change: Greetings and welcome to the AMRI third quarter 2024 earnings Conference call. At this time, all participants are in a listen only mode.
Speaker Change: Anyone should require operator assistance during the conference. Please press star zero on your telephone keypad, a brief question and answer session.
Speaker Change: As of 31 million, we recorded in the second quarter. You'll also note that both noninterest income and noninterest expense included $1 $6 million impact from the unwinding of a swap in connection to the sale of a nonperforming loan. So if we exclude this item both noninterest income and noninterest expense are more in line with what we guided to.
Speaker Change: Last quarter.
Speaker Change: We'll turn now to slide five and I'll cover a few other items. So you'll note first that we completed a public offering of $8 $6 eight for 210 shares and class a voting common stock at a price to the public $19 a share and this all occurred on September 27th or 24.
Speaker Change: This also included 784210 shares issued upon the exercise in full of the underwriters of their option to purchase additional shares. So the total gross proceeds from the offering were approximately $165 million in net proceeds of approximately $155 8 million.
Speaker Change: We paid our quarterly cash dividend of <unk> <unk> per common share on August 13th of 2024, and our board of directors just approved a quarterly dividend of nine <unk> per share payable on November 29 through 2024.
Speaker Change: We are working on increasing our sources of liquidity and as such our borrowing capacity at the end of the quarter with either the fed or the federal home loan Bank was $1 6 billion.
Speaker Change: Of note as of October 21, 2024, after the transfer of additional loan collateral our borrowing capacity has increased to $2 6 billion.
Speaker Change: And lastly, our assets under management increased $98 7 million to $2 6 billion, driven primarily by market valuations and net new assets. We believe this is a great area of opportunity for us to look to grow fee income on a go forward basis.
Speaker Change: Youre going to note on slide six we reintroduced the slide we'd had previously to provide some details around our updated share count post transaction. So here you can see we issued approximately eight 7 million shares which brought total shares outstanding at the close of the third quarter to $42 million 103623 shares.
Speaker Change: Of which approximately $3 million, our nonvoting shares. So at this point I'm going to turn things over to Sherri to cover metrics snacks didn't get into the financials in greater detail Sherri. Thank you Gerry and good morning, everyone. I'll begin today by discussing our key performance metrics and your changes compared to last quarter and placed seven.
Sherri: The ratio of noninterest bearing deposits to total deposits decreased slightly to 18, 3% from 18, 7% in the second quarter.
Sherri: Our language guidance shared in our past earnings call net interest margin was 349% in the third quarter compared to $3, 56% in the second quarter as Gary Just mentioned is the result of higher average balances in NPL paired with higher average balances in interest bearing deposits and cost of funds.
Sherri: $18 2 million in previously and special mentioned, which were further downgraded to substandard three.
Sherri: $3 3 million in pay offs, and $2 9 million and upgrades.
Sherri: Decreases were partially offset by one relationship with for owner occupied loans in Florida totaling $5 5 million in newly downgraded loans to special mention.
Sherri: Turning to slide 14, we show the roll forward of nonperforming loans from the second quarter to the third quarter and provide color on the main drivers of these changes.
Sherri: The increase in nonperforming loans do you see on the slide it was primarily due to the $18 2 million in downgrades from special mentioned discussed earlier in.
Sherri: And mainly by six commercial loans and owner occupied loans and two CRE totaling $55 6 million. These increases were offset by $35 6 million in charge offs $33 6 million in note sales and $3 2 million in pay downs pay offs and other smaller changes.
Sherri: No sales included one owner occupied loans totaling 28 million and two small real estate secured loans. All notes were sold at par the downgrades were not concentrated in a specific industry or geography.
Sherri: Moving onto slide 15, we continue to have a well diversified deposit mix composed of domestic and international customers domestic deposits, which account for 68% over total deposits totaled $5 6 billion as of the end of the third quarter up by $271 4 million or five one person.
Sherri: And compared to the second quarter.
Sherri: International deposits, which account for 32% of total deposits totaled $2 6 billion also up $23 5 million or 9% compared to the second quarter.
Sherri: Total time deposits for the quarter were $2 4 billion, an increase of $92 9 million from the second quarter due to an increase in brokered time deposits of $1 6 million as well as an increase of $91 3 million in customer Cds.
Sherri: Our core deposits defined as total deposits. Excluding all time deposits were $5 7 billion as of the end of the third quarter, an increase of 202 million compared to the second quarter.
Sherri: The $5 7 billion and core deposits included $2 4 billion in interest bearing interest bearing deposits up $72 6 million versus the second quarter.
Sherri: One 8 billion in savings and money market deposits up 112.5, chameleon versus the second quarter and $1 5 billion in noninterest bearing demand deposits up $16 9 million versus the second quarter.
Sherri: Next I'll discuss net interest income and net interest margin on slide 16.
Sherri: Net interest income for the third quarter was 81 million up $1 6 million or two 1% compared to the second quarter. The increase was primarily driven by higher average balances on total interest, earning assets, primarily on loans and securities available for sale and lower average rates can be positive.
Sherri: The increase in net interest income was partially offset by lower average rates on total interest, earning assets primarily on securities available for sale and deposits with banks.
Sherri: Higher average balances in money markets and she'll be advances brokered time deposits in customer Cds and higher average rates on official be advances.
Sherri: In terms of our deposit beta we observed a quarterly rate of almost zero. This period as the fed started to cut interest rates late in the quarter as rates are expected to continue moving downward. We also expect our beta to pick up as it will be prompt to adjust interest bearing accounts to use our cost of funding.
Sherri: Moving on to interest rate sensitivity on slide 17, you can see the asset sensitivity of our balance sheet with 52% of our loans, having floating rate structures and 57 repricing within a year.
Sherri: We continue to position our loan portfolio for a change in rate cycle by incorporating rate floors, when originating adjustable rate loans. We currently have 48% of our adjustable loan portfolio with floor rates. Additionally, you can see here that within the variable rate loans, 37% of our indexes sofa.
Sherri: Our net interest income sensitivity profile could change too.
Sherri: The changes in interest rates is slightly higher primarily due to higher levels of cash on the balance sheet when compared to the second quarter.
Sherri: We also show here the sensitivity of our available for sale portfolio to changes in interest rates.
Sherri: We expect the repositioning of the investment portfolio, so helping them break down scenario and we will have less floating investments and more fixed in.
Sherri: In terms of the impact of interest rates and you'll see I you may recall that this account was negative 108 million as of the second quarter.
Sherri: To the repositioning it had improved as a result of interest rate projections, you can see how Aoc I guess now down to $18 million, resulting from the combination of the prior improvement in valuations and the repositioning of the portfolio.
Sherri: Additionally, you can see expected further organic improved Mindanao Ti if monetary policy changes in interest rates continue to decrease in 2025 are as expected.
We will continue to actively manage our balance sheet to best position our bank for the upcoming periods.
Sherri: Turning to slide 18, noninterest income was negative $47 7 million as a result of the net loss recorded on the investment portfolio repositioning initiated during the quarter extra.
Sherri: Excluding non routine items noninterest income was 28 million compared to noninterest income of $19 4 million and <unk> 24.
Sherri: The company also recorded an additional $8 3 million pre tax loss in October due to changes in market values from quarter end to the time of the sale. Please note that the combined after tax loss of September and October sales is in line with guidance previously provided.
Sherri: Additionally, noninterest income reflects a $1 6 million, resulting from the unwinding of us work related to the sale of a nonperforming loan.
Sherri: Duffy effect of $1 6 million is reflected in both noninterest income and noninterest expense discussed in the next slide.
Sherri: The decrease in noninterest income was partially offset by higher loan level derivative income due to new contracts.
Sherri: Turning to slide 19 third quarter noninterest expenses were $76 2 million up $2 9 million or $3, 96% from the second quarter.
Sherri: The quarter over quarter increase was primarily driven by an increase in Oreo due to a $5 7 million valuation expense recorded during the quarter an increase in professional fees and increase in loan level derivative expenses, primarily due to the unwinding of the swap previously mentioned and higher compensation costs due to higher average ftes this quarter compared to Q2.
Sherri: The increase in noninterest expense was partially offset primarily by the absence of $1 3 million in valuation expense. We had in Q2, resulting from the transfer of the Huston loans from the held for investment category to held for sale category and lower advertising expenses compared to the second quarter.
Sherri: In terms of our team. We ended this quarter with 735, Ftes, which is higher than the 720, we had in the second quarter, we added to our business development team again this quarter as part of our growth initiatives.
Sherri: Moving on to Slide 20, we show the elements that contributed to the change in EPS. This quarter, we reported third quarter diluted loss per share of $1 43 on net loss of $48 2 million compared to diluted EPS of <unk> 15 cents on 5 million net income in the previous quarter, which was primarily driven by the net impact of the non <unk>.
Sherri: Teen items associated with the repositioning of the investment portfolio and be Oreo valuation expense.
Sherri: I'll now give some color of our expectations for the fourth quarter.
Sherri: We expect NIM to be slightly higher from three Q results closer to Missouri, 15th.
Sherri: Regarding core noninterest income, we expect it to be approximately 17 $5 million to $18 million. We expect operating expenses to remain at approximately $68 5 million inclusive of new team members on board as part of our growth plan offset by reduction in expenses due to the Houston franchise to.
Sherri: Finally, we expect provision for credit losses to be around eight eight to 9 million next quarter as we do expect asset growth as I previously mentioned.
Sherri: So at least 5 million of this amount would be related to growth in the quarter, depending on asset mix with the remainder being related to macroeconomic factor updates, resulting from the generic reserves model.
Sherri: We are focused primarily on achieving the 60% efficiency ratio, 1%, ROA and 12% ROE targets, we established for ourselves with the capital raise completed the investment portfolio reposition and the team in place we have positioned the company to reach such levels in the second half of 2025, I will now pass it back to Jerry for closing.
Sherri: ARX.
ARX: Thanks, Jerry so before we move to Q&A I'd like to briefly comment on where we are in a number of topics. So first regarding the sale of our Houston franchise. We're scheduled to close on November eight at which time the premium from the sale will be recognized as income and that will be net of final investment banking and legal expenses.
ARX: We project those final expenses to be around 1.25 million.
ARX: Please note that a significant portion of this net gain however will be offset by the loss of $8 3 million on the sale of securities that Sherri mentioned that occurred in the first several days of October.
ARX: Next regarding our continued expansion in Florida, We just signed a letter of intent for a second banking center in Miami Beach as well as for our second Tampa region location. This one is located in downtown Tampa and.
ARX: And we just received OCC approval on the downtown Tampa location, and we will be filing our application for approval on the second Miami Beach location shortly.
Both would be expected to open by mid 2025, we also recently announced the hiring of a new market President for Broward County. This is a key new positions for the company.
ARX: And this position will oversee amyris ongoing expansion into Broward market also note that we continue we continue to actively recruit for additional relationship officers throughout South, Florida, and the greater Tampa marketplace.
ARX: We also just announced an organization change to move international banking out separately from our consumer banking business to add even more focus on this important part of our business going forward.
ARX: Our loan and deposit production during the third quarter was strong and the loan pipeline for four two as I. Previously mentioned is aligned with our previous guidance of 10% plus annualized growth I mentioned this again in my earlier comments, but as always funding all of this projected loan growth with deposits first focus remains our top.
ARX: Priority.
Regarding credit quality, we continue working on prudent and effective resolution of our special mention and nonperforming loans at the end of this month, we expect to have Npls down seven 4 million to $107 5 million without additional charges and special mentioned loans will be down $15 3 million to 60.
ARX: $1 1 million.
ARX: Please note we're continuing to work diligently to have significant reductions in both special mention and nonperforming loans by the end of the fourth quarter of <unk>.
ARX: Wrap things up and conclude from here on out it's all about execution, so with that I'm going to stop here Sharon I'll look to answer any questions. You have Paul Please open the lines for Q&A.
Paul: Thank you we will now be conducting a question and answer session.
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Speaker Change: Please when we poll for questions.
Speaker Change: Okay.
Speaker Change: Thank you. Our first question is from Russell Gunther with Stephens. Please proceed with your question.
Russell Gunther: Hi, good morning, guys.
Speaker Change: Hey, good morning Russell.
Russell Gunther: I wanted to first start on the loan growth expectations really strong result, this quarter and Jerry I appreciate the comments for <unk> could.
Russell Gunther: Could you just share with us any incremental color in terms of the drivers of growth.
Russell Gunther: Whether the mix is expected to be the same and as we think out into in the 2025.
Russell Gunther: Weighing new hires the macro environment, what type of growth rate you might expect.
Speaker Change: Yes no.
I think it's really a function as we've we've talked Russell over these last couple of calls that we've continuously added to the team.
Speaker Change: I think if you were to look at the additions we've made really across the board so whether it's on the private bank side.
Speaker Change: The commercial real estate side, the CNI side.
Speaker Change: Did you know theres been quality additions throughout and it's.
Speaker Change: Pretty evenly spread when you think about the different counties you probably note in my comments I tried to bring up more and more specifically what will happen in Palm Beach, where we've added folks are broward, where we just announced a new market president.
Speaker Change: And then all the additions we've had in Panther not to minimize we've obviously continued to add here in Miami Dade I think you're now seeing in the production the strength and the quality of the personnel, we've been adding which is really the biggest driver right. We add incremental people sharing I've talked about this in prior calls when you.
Speaker Change: Add these folks who've got great relationships no. The right sponsors have been doing the business for quite some time, it's just really a function of the incremental volume we get from each of these additions to staff.
Speaker Change: I appreciate it all right. Thank you.
Russell Gunther: Maybe switching gears to the margin Shar I appreciate the guide for the coming quarter.
Maybe building off the last question with you guys could share sort of where commercial loan yields are coming on.
Russell Gunther: And then as we look beyond <unk> and contemplate additional fed easing could you just share where you expect the margin.
Russell Gunther: To head in the early innings of 2025.
Russell Gunther: You're kind of a rate cut in deposit beta assumptions would assume.
Speaker Change: Yes, sure Russell so to address the question on the NIM more on the short term side I think there are elements up and down within that name, we have new production coming in between 7.5% to 8% right now we expect to have an improvement in NIM due to the securities repositioning.
Speaker Change: We expect to have the redeployment of the npls into interest, earning assets for the faster that happens the better for for the NIM and we also have the repricing of interest bearing liabilities had as rates go down all of that is partially offset by the repricing of the variable rate loans of course, but when we when we look at the contribution.
Speaker Change: For the margin some of those other items, we see an expansion of the NIM to the mid 350, this quarter and somewhere between $3 55, and $3 60 for the first half of 2025.
Russell Gunther: Okay, Great really helpful. Thank you Shari and then just last one for me Jerry you mentioned in the prepared remarks.
Speaker Change: You'll be stripping out international banking to focus towards to highlight the importance of that could you just share any incremental.
Russell Gunther: Thoughts around the strategic initiatives there.
Speaker Change: Yeah, I think it's important to note that we've not really spoken a lot about this and it is really going to become more and more of a another source right. So to speak as we I think I actually use the terminology of thinking of that.
Speaker Change: Current sources of funding as different phosphates, we can turn on and off and we we are very quietly behind the scenes done some very nice work on international to replace some of the attrition there is definitely more diversification.
Speaker Change: And the thought process here is we've got a very strong group that we just felt that we need to start to talk and spend more time, just focused on that and again, it's not to take away at all from the work that's been done in the past, it's really just to place more emphasis on emphasis on it as you know it.
Speaker Change: As a strong alternative.
Speaker Change: Source of funding for us and so and obviously in the prayer in this last couple of quarters. It's been one of the best things for us as it relates to cost of funds and we think that that can continue to to help us as we move into 2025 and beyond.
Speaker Change: Okay.
Russell Gunther: Excellent I appreciate all the color guys. Thanks for taking my question.
Speaker Change: Absolutely have a good day.
Speaker Change: Thank you Rocco.
Speaker Change: Thank you. Our next question is from Joe <unk> with Raymond James. Please proceed with your question.
Speaker Change: Good morning.
Speaker Change: Hey, good morning.
Speaker Change: So I was hoping it would probably go to kind of piggyback off.
Last question I missed that deposit betas will pick up as rates fall, but can you put a little finer point on that.
Speaker Change: And then do you think kind of a downrate betas will be more linear more lumpy and is there kind of any different thoughts between you know that on the domestic versus international customers.
Speaker Change: Yeah, so so going into the the projected beat us when we when we're projecting beta, especially on the short term, we're expecting it to be around I would say closer to the 40 to 45 basis points and the reason for that is it has to do a lot with the composition of our interest bearing deposit so depending on the time of the card.
Speaker Change: Depending on the competition that we would have on time deposits versus money market that would allow us to to refine that beta calculation, but what we're doing definitely is is taking action quickly and making sure that we can reprice the securities of Securities No sorry, God deposits as quickly as possible even with the cut that happened in <unk>.
Speaker Change: Timber for some of the accounts, we apply the same 50 basis points first time, we did a somewhat less than that but there is also a factor in terms of competition and making sure that we can maintain a strong level of deposits as well so.
Speaker Change: That's where we're seeing debate at least in the short term and in regards to the international deposits. We're repricing the interest bearing liabilities on international accounts, but we also have a significant amount of noninterest bearing deposits coming from international customers. So that he would not be impacted by a downward trend.
Very helpful.
Speaker Change: As alluded to in your prepared remarks, you had nice pick up in AUM in the quarter.
Speaker Change: The near to intermediate term targets for how big you'd like to grow your brokerage advisory business. At this point do you have a preference between growing either international or domestic.
Speaker Change: Yeah look I think we see opportunities on both sides. It's also one of the reasons with the additional focus on international as we think that it goes hand in hand with as you grow higher.
Speaker Change: Our higher net worth customers on the international side that it's just a logical next step to see that we will get some incremental pop from a U N, but that's not to take away at all from the fact that we're seeing a nice pick up on the domestic side.
Speaker Change: I think with the team we have in place, we're going to be talking about growth coming from both domestic and international in 2025.
Speaker Change: I appreciate that and then just one last for me here.
Speaker Change: Over the past couple of weeks, we've heard a lot of management teams talk about muted loan growth is the payoffs have been elevated.
Speaker Change: It appears that's not the case in South, Florida, given your pipeline unexpected loan production.
Speaker Change: So if you could talk a little about payoffs kind of how they trended where do you expect them to go and do you have any prepayment penalties.
Speaker Change: Yeah look I think it depends particularly in the asset class you know we're not a.
Speaker Change: Big.
Speaker Change: Thank you know, we're probably no different I would say that as it relates to weather stuff pays off like within the first year or so that there are obviously are clauses in contracts on prepayment, but generally speaking you know, we just don't see that.
Speaker Change: We've had a very material amount of pay offs.
Speaker Change: Frankly, the attrition that we have had has been because the focus we've had as an organization is on the full relationship as opposed to just being a.
Speaker Change: Single transaction on the financing side and so you know we may see some additional pick up in pay offs as rates go down but right now we really haven't seen.
Speaker Change: A significant amount.
Speaker Change: I appreciate it thanks for taking my questions.
Speaker Change: Absolutely have a great day.
Speaker Change: As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad.
Speaker Change: Okay.
Speaker Change: Our next question is from Woody lay with BW. Please proceed with your question.
Speaker Change: Hey, good morning, guys.
Speaker Change: Hey, good morning.
Woody Lay: Wanted to start on expenses I appreciate all of the the remarks, you outlined on slide 21.
Woody Lay: But just how should we think about the core expense.
Woody Lay: Growth rate into 2025, given youre still adding talent and.
Woody Lay: And adding some alternatives.
Woody Lay: Yeah.
Speaker Change: <unk> will team up on this one but I think the the hard part for the fourth quarter is you're still going to have a month and eight days of you know our our Houston based franchise in the expenses and you're going to see that we'll have a full quarters worth.
Speaker Change: <unk> expense as it relates to new team members.
Speaker Change: Some of the recent offices that we've opened et cetera, but.
The probably the best way to think about it is and I think the rough numbers are between two and a half a million that comes off as it relates to the run rate expense in Houston, we've been guiding towards that.
Speaker Change: We're looking to add the incremental people et cetera, and so when Sherry has given guidance out and 68 68 and a half range. We're basically back filling with personnel here in Florida. So I think that's a pretty good run rate to on a go forward basis to be thinking about.
Speaker Change: Yeah, I would I would see it in the reallocation. So the amount that will no longer be applicable on the operating expense side or FTE side would be reallocated for business grows on the Florida markets.
Speaker Change: Got it.
Speaker Change: That's really helpful and then I guess.
Speaker Change: Sort of another 20 to 25 gig question, but it was it's great to hear that the.
Speaker Change: Credit trends are improving heading into the fourth quarter, there's still going to be some some runoff in the consumer portfolio, but how are you thinking about more of a.
Speaker Change: More of a more normalized charge off rate into 2000 22025 and beyond.
Speaker Change: Yeah, I think the more normalized charge off levels you'd be closer to the 30 basis points are we do expect the fourth quarter do you still have some of that indirect consumer portfolio that you were mentioning so that would likely be closer to the 70 basis points or so but a normalized level in 2025 would be closer to 30 to 40 basis points.
Speaker Change: Alright, great. That's all for me thanks, guys.
Speaker Change: Where do you have a great day.
Speaker Change: Oh.
Speaker Change: Okay.
Speaker Change: There are no further questions at this time I would like to hand, the call back over to Jerry plus for any closing comments.
Jerry Plus: Okay. Paul Thank you and thank you everyone for joining our third quarter earnings call. We greatly appreciate your interest in Ameren and for your continued support have a great day.
Speaker Change: This concludes today's conference call you may disconnect. Your lines at this time. Thank you for your participation.