Q4 2024 Amerant Bancorp Inc Earnings Call
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Kevin: Good morning everyone and welcome to the Amerit Bank Corp fourth quarter and full year 2024 earnings conference call and live webcast. My name is Kevin and I'll be today's operator. Please be informed this conference call is being recorded.
Speaker Change: On today's call are Jerry Plush, Chairman and CEO, and Sharymar Calderon, Senior Executive Vice President and CFO.
Speaker Change: As we begin, please note that discussions on today's call contain forward-looking statements within the meetings of the Securities and Exchange Act. In addition, references will also be made to non-GAAP financial measures.
Speaker Change: 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. I'll now turn the conference call over to Chairman and CEO Jerry Plush. Please go ahead.
Jerry Plush: Thank you, Kevin, and good morning, everyone, and thank you for joining us today to discuss Ameren's fourth quarter and full year 2024 results.
Jerry Plush: So first, I want to take a moment to recognize my AMRIT teammates for their hard work throughout 2024, as we now transition from our multi-year transformation to focus on the execution and implementation of our strategic growth plans. Please know your collective efforts are greatly appreciated.
Jerry Plush: So now, moving on to the fourth quarter results, our core business demonstrated strong performance, highlighted by solid organic loan and deposit growth, and solid improvement in net interest income and the net interest margin.
Jerry Plush: So let's start with the balance sheet, and here on slide 3 you can see that total assets were $9.9 billion as of the end of the fourth quarter, a decrease from the $10.35 billion at the end of the third quarter.
Jerry Plush: The reduction in balance sheet size is primarily driven by the Houston franchise sale in November and from the early repayment of a net $170 million in Federal Home Loan Bank advances.
Jerry Plush: And that's partially offset by the loan and deposit growth I just mentioned in the quarter. Crossing back over the $10 billion threshold is expected in the first quarter of 2025, given a strong loan pipeline heading into the new year.
Jerry Plush: Our cash and equivalents decreased $81.5 million to $590.4 million, compared to $671.8 million at 3Q24. Our total investments were $1.5 billion, down slightly from the $1.54 billion in the third quarter.
Jerry Plush: Our total gross loans decreased by $294.7 million to $7.27 billion from $7.56 billion in the third quarter. Again, primarily as a result of the Houston sale transaction.
Jerry Plush: However, excluding the sale, loan growth for the quarter was strong at $255 million. And as I just mentioned, the loan pipeline is strong already in this first quarter, as we've already closed on approximately $100 million in loans to date and expect to end the quarter with approximately $300 million overall at this point.
Jerry Plush: Total deposits decreased by $256.9 million to $7.85 billion, compared to $8.11 billion in the third quarter. Also as a result of the sale of the Houston franchise. Excluding the transaction, organic deposit growth was strong for the quarter at $317 million.
Jerry Plush: As I just mentioned, we decreased Federal Home Loan Bank advances by repaying $170 million in long-term advances as we continue to execute on prudent asset liability management.
Jerry Plush: Our total capital ratio as of the fourth quarter was 13.43%, compared to 12.72% as of the third quarter. And our CET1 ratio was 11.21% as of the fourth quarter, compared to the 10.65% as of the third quarter.
Jerry Plush: Our Tangible Common Equity Ratio is 8.77%, which includes a $39.8 million reduction from AOCI, resulting in that after-tax change in the valuation of our AFS investment portfolio.
Jerry Plush: Lastly, as of the fourth quarter, our Tier 1 capital ratio was 11.95% compared to 11.36% as of the third quarter.
Jerry Plush: And please note that on January 22nd, our Board of Directors approved a dividend of nine cents per share, payable on February 8th, 2025.
Jerry Plush: So let's turn now to the financial highlights on slide four. So if we look at the income statement, diluted income per share for the fourth quarter was $0.40 compared to a diluted loss per share of $1.43.
Jerry Plush: The increase was driven by stronger core results in 4Q and the effects of non-routine items in each quarter. Of note, 3Q was significantly impacted by the security repositioning losses compared to the fourth quarter.
Jerry Plush: Net interest income was $87.6 million, up $6.6 million from the $81 million in the third quarter of 2004. And our net interest margin increased to 3.75%, 3.49% in the third quarter.
Jerry Plush: Our provision for credit losses was $9.9 million, down $9.1 million from the $19 million we reported in the third quarter.
Jerry Plush: Our non-interest income was $23.7 million up from the negative $47.7 million in the third quarter, which was driven by the higher loss from the bulk of the securities repositioning taking place at the end of the third quarter.
Jerry Plush: versus the residual sales and loss that we recorded in the early fourth quarter, as I just referenced. Also, the gain on the sale of Houston was recorded and the gain on the early extinguishment of FHLB advances. But our non-interest income excluding these non-routine items was $17.8 million.
Jerry Plush: Our non-interest expense was $83.4 million, which was up $7.2 million from the third quarter, primarily from the $12.6 million loss in the sale of loans we disclosed via Form 8K earlier this month, and the $2.5 million in transaction costs related to the Houston franchise sale.
Excluding non-routine items, non-interest expense was $68.2 million.
Jerry Plush: Our pre-provisioned net revenue or PPNR was $27.9 million compared to a loss of $42.9 million in 3Q.
Speaker Change: And again, we'll give a disclosure, excluding non-routine items in non-interest income and non-interest expense, our PPNR was up to $37.2 million compared to the $31.3 million we reported in the third quarter of 2004.
Speaker Change: So we'll turn now to slide 5, and I'll briefly recap on select items that occurred this quarter, some of which were previously disclosed via Form 8K, and as well I'll cover some other select items.
Speaker Change: We completed the repositioning of our securities portfolio in early October of 24. That resulted in a loss of $8.1 million in the fourth quarter due to market valuation changes from 3Q24, the final sale date.
Speaker Change: On November 8th of 24, we completed the sale of our Houston franchise, which resulted in a deposit premium of $12.5 million and transaction costs of approximately $2.5 million. As I mentioned before, we recruited a gain on the early repayment of the FHLB advances of $1.4 million.
Speaker Change: As we've reported previously on December 27th to 24th, we sold $71.4 million of business purpose investment property residential mortgage loans.
Speaker Change: with collateral across several states and average interest rate at 7.13%. We recorded a loss on the sale of $12.6 million, including estimated transaction costs.
Speaker Change: These loans were part of a third-party program that we elected to exit prior to year-end in line with our focus on organic womb growth. There's no outstanding balance related to this program left as of year-end.
Speaker Change: We also paid a quarterly cash dividend of nine cents per common share in November 29, 2024.
We're pleased to report our aggregate.
Speaker Change: Borrowing capacity from the Fed and FHLB was $2.5 billion as of the fourth quarter. And our assets under management increased $339.5 million to $2.89 billion, compared to $2.55 billion in 3Q, primarily driven by new net assets and market valuations.
Speaker Change: So, at this point, I'll turn things over to Shary to cover the metrics and get into the financials in greater detail. Shary? Thank you, Jerry, and good morning, everyone. I'll begin today by discussing our key performance metrics and their changes compared to last quarter on slide 6.
Shary: The ratio of non-interest bearing deposits to total deposits increased to 19.2% from 18.3% in the third quarter.
Shary: Net interest margin improved to 3.75% compared to 3.49% in the third quarter.
Shary: The increase was primarily driven by the impacts of items in 4Q24 such as the Houston franchise sale, investment securities repositioning, and reduction in FSLB advances as well as loan production.
Shary: Our efficiency ratio was 74.91% compared to 228.74% in the third quarter as a result of the $15.1 million in non-routine, non-interest expense items and $5.9 million in non-routine, non-interest income items Jerry previously covered.
Core efficiency ratio was 64.71% compared to 69.29% in 3Q24.
Shary: ROA and ROE in the fourth quarter were at 0.67% and 7.38% respectively compared to negative 1.92% and negative 24.98% respectively in 3Q24.
Shary: Excluding non-routine items, ROA was 0.83% compared to 0.37% in 3Q24, and ROE was 9.25% compared to 4.8% in 3Q24.
Shary: Lastly, the coverage of the allowance for credit losses to total loans held for investment increased to 1.18% compared to 1.15% in the third quarter.
Continuing on to slide 7, I'll discuss our investment portfolio.
Shary: Total investments were $1.5 billion, down from $1.54 billion in the third quarter, after the remaining securities subject to the repositioning were sold in early October 2024 and we purchased new securities.
Shary: When compared to the prior quarter, the duration of the investment portfolio increased to 5.2 years. This reflects the securities after the repositioning and the model anticipating slower MBS principal prepayments due to higher market rates at the time of quarter close.
Shary: 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.
Shary: Moving on to the rate composition of our portfolio, you can see that the floating portion increased to 16.8% compared to 14.3% in the third quarter.
Shary: The addition of floating-rate MBS securities allows the bank to earn an attractive current yield of approximately 6% versus current fixed-rate MBS yields and helps to reduce mark-to-market risk in the AFS portfolio.
Shary: Also note that as a result of the securities repositioning, we have derisked our AFS portfolio with 99% of it having government guarantees as of quarter end. In this line, we will be removing this graph going forward.
Shary: Now moving on to Slide 8, considering we had several loan-related transactions during the year, we added this slide to better show the loan activity for 2024.
Total loans at the beginning of 2024 were $7.26 billion.
Shary: We sold $401 million, or $365 million based on carrying value, in multi-family loans in Houston early in the year.
Shary: $474 million to mid-first through the sale of the Houston franchise in November and an additional $71.4 million of adjustable rate loans in December, which Jerry just referenced. Additionally, we had $1.2 billion in prepayments, paydowns, and maturities.
Shary: These decreases were offset by a production of $2.1 billion, which resulted in loans ending at $7.27 billion at the end of the fourth quarter of 2024.
Shary: Continuing on to slide 9, let's talk about additional details of our loan portfolio.
Shary: At the end of the fourth quarter, Total Gross Loans were $7.3 billion, down 3.9% compared to the end of the third quarter. The decreases were primarily driven by the sale of our Houston franchise.
Shary: The single-family residential portfolio was $1.5 billion, down $72.4 million, compared to $1.6 billion in the third quarter, primarily driven by the sale of the Houston franchise and loan sale in December.
Shary: The single-family residential includes loans to private banking customers and commercial clients with residential income-producing properties as collateral.
Shary: Consumer loans as of the end of 4Q24 were $273 million, a decrease of $5.4 million, or 1.9% quarter over quarter.
Shary: This includes $83.5 million in higher-yielding indirect consumer loans compared to $103.9 million in the third quarter, which were a tactical move for us to increase yields in prior years. We estimate that at current prepayment speeds, the portfolio will mostly run off by the end of 2025.
Shary: Moving on to slide 10, here we show our theory portfolio in further detail.
Shary: We have a conservative weighted average loan-to-value of 58% and debt service coverage of 1.5 times as well as strong sponsorship tier profile based on AUM, net worth, and years of experience for each sponsor.
Shary: As of the end of 4Q24, we had 38% of our CRE portfolio and talked to your borrowers.
Shary: We have no significant tenant concentration in our CRE Retail Loan Portfolio, as the top 15 tenants represent 22% of the total. Major tenants include recognized national and regional grocery stores, pharmacies, food and clothing retailers, and banks.
Shary: Our underwriting methodology for CRE includes sensitivity analysis for multiple risk factors like interest rates and their impact over debt service coverage ratio, vacancy and tenant retention.
Shary: As mentioned earlier in our loan activity slide, we sold 401 million multifamily loans and a portion of the 479 million loans that were part of the Houston franchise sale were also theory loans.
Shary: Now turning to slide 11, let's take a closer look at credit quality.
Shary: Overall, we made significant progress in reducing the criticized loans and reserve coverage is strong. Special mention loans totaled $5.4 million at the end of the fourth quarter of 2024, a decrease of $71 million compared to the third quarter, and a decrease of $40.6 million compared to the fourth quarter of 2023.
Shary: After quarter end, special mentioned loans were further reduced to $2.4 million due to additional paydowns.
Shary: Non-performing loans totaled $104.1 million at the end of the fourth quarter of 2024, a decrease of $10.8 million compared to the third quarter, and an increase of $69.7 million compared to the fourth quarter of 2023.
Shary: After quarter end, non-performing loans were further reduced by $4.2 million due to a note sale at Parr Valley. We anticipate further reduction in the first quarter.
Shary: The ratio of non-performing assets to total assets was 123 basis points, down 2 basis points from the third quarter of 2024, and up 67 basis points from the fourth quarter of 2023.
Shary: Our non-performing loans to total loans are 143 basis points compared to 152 basis points in the third quarter.
Shary: In the fourth quarter of 2024, the coverage ratio of loan loss reserved to non-performing loans closed at 0.8 times, consistent with 0.7 times at the end of the third quarter, and decreased from 2.8 times at the close of the fourth quarter of 2023.
Shary: Now moving on to slide 12, we show the drivers of the allowance for credit losses.
Shary: At the end of the fourth quarter, the allowance was $85 million, an increase of $5.1 million or 6.3% compared to $79.9 million at the close of the third quarter.
Shary: The drivers of the allowance movement this quarter were $7.4 million in charge-offs primarily related to indirect consumer portfolio and smaller commercial loans, which was offset by previously allocated reserves and requiring $5.1 million in provision.
Shary: $2.7 million in recoveries primarily related to one Texas commercial loan, $2.5 million in reserves related to two Florida commercial loans.
$1.7 million due to net loan growth.
0.5 million related to credit quality and macroeconomic factor updates.
Shary: We recorded a probation for credit losses of $9.9 million in the fourth quarter compared to a $19 million probation in the third quarter. The probation included $0.2 million for reserves for contingencies.
Thank you.
Shary: Turning to slide 13, we show the roll forward of special mentioned loans from the third quarter to the fourth quarter and provide color on the main drivers of these changes.
Shary: Upgrades of one CRE Florida retail loan, one owner-occupied loan, and the cash collateral portion of the CRE loan mentioned, and by payoffs of two owner-occupied relationships.
Shary: So far in January, month to date, special mention loans were further reduced to one loan for $2.4 million.
Shary: Turning to slide 14, we show the roll forward of classified loans from the third quarter to the fourth quarter and provide color on the main drivers of these changes.
Shary: Classified loans increased by $11.5 million, primarily driven by downgrades to substandard of one CRE construction loan, in addition to the two loans downgraded from special mention described in the previous slide.
Shary: These increases were partially offset by one property transfer to OREO, two CRE Florida loans sold with no losses, payoffs of one owner-occupied loan and one commercial loan, paydowns of four commercial loans, and charges described in the allowance slide.
Shary: So far in January, month-to-date, non-performing loans were reduced by one loan totaling $4.2 million through a no-sale at par value.
Shary: We currently anticipate additional reductions of $14.2 million in the upcoming weeks.
Shary: Now, turning to slide 15, we show our well-diversified deposit mix composed of domestic and international customers.
Shary: Domestic deposits account for 67% of total deposits totaling $5.3 billion as of the end of the fourth quarter, down $152.3 million or 2.8% compared to the fourth quarter last year.
Shary: Well, international deposits, which now account for 33% of total deposits, totaled $2.6 billion, up $111.5 million, or 4.5% compared to the fourth quarter last year.
Shary: Total time deposits for the quarter were $2.2 billion, a decrease of $169.1 million from the third quarter, primarily due to the sale of our Houston franchise.
Shary: Our core deposits, defined as total deposits excluding all-time deposits, were $5.6 billion as of the end of the fourth quarter, a decrease of $87.7 million or 1.5% compared to the third quarter.
Shary: The $5.6 billion in core deposits included $1.5 billion in non-interest bearing demand deposits of $22.2 million or 1.5% versus a third quarter.
Shary: $2.2 billion in interest bearing deposits down $160.1 million or 6.7% versus the third quarter. And $1.9 billion in savings and money market deposits up $50.2 million or 2.7% versus the third quarter.
Shary: Next, I'll discuss net interest income and net interest margin on slide 16.
Shary: Net interest income for the fourth quarter was $87.6 million up 8.2% quarter-over-quarter and up 7.3% year-over-year.
Shary: The quarter-over-quarter increase was primarily attributed to lower average rates and average balances on total interest-bearing liabilities.
Shary: Lower average balances in FSLB advances, higher average rates on securities available for sale, and increased average balances in deposits with banks, loans, and securities available for sale.
Shary: The increase in net interest income was partially offset by lower average rates on both loans and deposits with banks.
Shary: The net interest margin increased to 3.75% from 3.49% in the third quarter.
Shary: The NIMM 4.4Q also reflects the repricing of floating rate loans and interest-bearing deposits, while the NIMM 3.0Q included the effects of the reversal of interest income for loans placed in nonaccrual status.
Shary: In terms of our deposit beta, we observed a quarterly beta of 62 basis points this period as the Fed continued to cut interest rates this quarter. The bank was successful at passing on larger than anticipated rate decreases through our deposit portfolio.
Shary: The cumulative beta which we calculated based on August before the first cut of the Fed to reflect the beginning of the downward cycle was 27 basis points.
Shary: As rates continue to decrease, we also expect our beta to reflect our adjustment of interest-bearing accounts to ease our cost of funding.
Shary: Moving on to interest rate sensitivity on slide 17, you can see the asset sensitivity of our balance sheet with 55% of our loans having floating rate structures and 60% repricing within a year. We continue to position our loan portfolio for a change in rate cycle by incorporating rate floors when originating adjustable rate loans.
Shary: We currently have 46% of our adjustable loan portfolio with floor rates. Additionally, you can see here that within the variable rate loans, 40% are indexed to SOFR.
Shary: Our net interest income sensitivity profile to changes in interest rates is slightly lower due to lower levels of cash on the balance sheet when compared to the third quarter.
Shary: We also show here the sensitivity of our AFS portfolio to changes in interest rates, which has decreased as a result of the investment portfolio repositioning.
Shary: In terms of the impact of interest rates on AOCI, you may recall that this account has significantly improved after the repositioning and the lower interest rate projections we had at that time.
Shary: However, due to the market rates moving up since the end of 3Q, AOCI is negative $55 million as of the fourth quarter. We expect to see organic improvement in AOCI as the easing monetary policy takes effect and interest rates continue to decrease in 2025.
Shary: We will continue to actively manage our balance sheet to best position our bank for the upcoming periods.
Continuing to slide 18.
Shary: Non-interest income in the fourth quarter was $23.7 million, an increase of $71.4 million from the third quarter, primarily due to lower security losses due to the repositioning of the investment portfolio during the third quarter, a gain of $12.6 million primarily driven by the deposit premium on the sale of the Houston franchise.
Shary: A gain of $1.4 million on the early extinguishment of FHLB advances and higher deposits and service fees.
Shary: Partially upsetting the increase in non-interest income were decreases in loan level derivative income and lower mortgage banking income.
Shary: We consider $5.9 million of our non-interest income as non-routine items, a decrease compared to $68.5 million in the third quarter. Non-interest income in 4Q24 includes the following non-routine items.
Shary: Gain on sale of the Houston franchise of $12.6 million. Gain on early repayment of FHLB advances of $1.4 million.
Shary: and $8.1 million loss on sale of the security sold in October 2024. Excluding non-routine items, non-interest income was $17.8 million compared to $20.8 million in 3Q24.
Speaker Change: Ameren's assets under management and custody total $2.9 billion as of the end of the fourth quarter, up $339.5 million or 13.3% from the end of the third quarter.
Speaker Change: This increase was primarily driven by net new assets as we added a large trust relationship as well as to increase market valuations though to a lesser extent.
Speaker Change: Turning to slide 19, fourth quarter non-interest expense was $83.4 million up $7.2 million or 9.4% from the third quarter and down $26.3 million year over year.
The quarter-over-quarter increase was primarily due to the following.
Speaker Change: A loss on sale of $12.6 million related to the sale of business purpose investment property residential mortgage loans that we have previously disclosed.
Speaker Change: Hire other operating expenses primarily in connection with the sale of the Houston franchise. Hire professional and other service fees due to legal fees associated with the sale of the Houston franchise, as well as other various projects. Hire compensation expense related to the sale of Houston franchise. And hire advertising expenses.
Speaker Change: The increase in non-interest expense was partially offset by the absence of the OREO valuation allowance that we had in 3Q.
Speaker Change: A decrease in loan level derivative expenses due to the absence of the non-interest expense we had in 3Q that was related to the unwinding of the swap of a non-performing loan sold as well as less expenses in rent resulting from the sale of the Texas branches.
Speaker Change: We consider $15.1 million of our non-interest expenses as non-routine items, an increase compared to $5.7 million in the third quarter.
Speaker Change: Horton on interest expenses were $68.2 million in the fourth quarter compared to $70.5 million in the third quarter. The decrease was primarily driven by derivative expenses.
Speaker Change: In terms of our team, we ended the quarter with 698 FTEs, lower from the 735 we had in the third quarter, primarily from the sale of our Houston franchise.
Speaker Change: Moving on to slide 20, where we show the elements that contributed to the change in earnings per share this quarter. We reported fourth quarter diluted earnings per share of $0.40 on net income of $16.9 million compared to a diluted loss per share of $1.43 on net loss of $48.2 million.
Speaker Change: The improvement in EPS is primarily related to the lesser effect of non-routine items in the fourth quarter, stronger core PPNR, and lower provision for credit losses, partially offset by the increase in average shares as a result of the capital raise and income tax expense in the period.
Speaker Change: I'll now give some color of our outlook for 1Q25 and 2025 overall.
Speaker Change: So in summary, on slide 25, we would say the following regarding financial expectations.
We are projecting annual loan growth of approximately 15%.
Speaker Change: Our projected annual deposit growth is expected to match loan growth. We also intend to continue to focus on improving ratio of non-interest bearing to total deposits. Like I mentioned in the previous quarter, having our new treasury management platform and new digital account opening tools are factors in this growth.
Speaker Change: Our loan-to-deposit target remains at 95%. The net interest margin is projected to be in the mid-360s range for the first quarter of 2025.
Speaker Change: We are projecting expenses to be approximately $71 million in 1Q25, given continued investment in expansion and seasonal payroll taxes. We continue to project to achieve 60% efficiency in the second half of 2025 as we grow.
Speaker Change: We intend to continue executing on prudent capital management, balancing between retaining capital for growth and buybacks and dividends to enhance returns.
Gerry: And with that, I pass it back to Gerry for additional comments on 2025 and closing remarks.
Gerry: Thanks, Sherry. So on our last slide today, I'll provide some comments on how we see 2025. So first, as I stated in our press release, in 2025, we will be laser focused on the execution of our strategic growth plans.
Gerry: In the first two quarters of 2025, that will reflect our ongoing commitment to selectively invest in both business development and risk management personnel to drive incremental growth. We will continue to place emphasis on our digital transformation efforts.
Gerry: Note that this year we'll be opening our new regional office and banking center in West Palm Beach. Our new regional office there should be ready in early 2Q with the banking center to follow just a few months later in the quarter.
Gerry: In addition, we'll open in two new locations in Miami Beach, and we'll open a second location in downtown Tampa as well. All of this, hopefully, no later than the end of the first half of 25, and our intent is to continue to opportunistically look at other locations and markets.
Gerry: We believe if we execute as we anticipate, we'll see very much an improved growth trend and profitability that will result from said execution. And so in conclusion, please know that we remain firmly committed to becoming the bank of choice in the markets we serve.
Gerry: So with that, I'll stop and Sherry and I will look to answer any questions that you have. Kevin, please open the line for Q&A.
Gerry: Certainly. We'll now be conducting a question and answer session. If you'd like to be placed into the question queue, 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'd like to remove your question from the queue.
Russell Gunther: Once again, that's star one to be placed into question Q. Our first question today is coming from Russell Gunther from Stephen's. Your line is now live.
Hey, good morning, guys.
Mary Rothel
Russell Gunther: I just wanted to start on the asset quality discussion. I appreciate all the color that was provided including continued improvement post-quarter. First just to clarify and question the 14.2 million reduction expected in the coming weeks.
Speaker Change: Is that coming from the NPL bucket? And then, Shari, to follow, just if you could touch on how you'd expect classified assets to trend over the remaining course of the year.
Shari: Sure, Russell. So, yes, the 14.2 is coming out of the NPO bucket. And then in relation to your question of the changes into classified, we're working towards resolution of these classified assets and classified loans, and we're working towards a reduction of that balance quarter over quarter.
Jerry Plush: Let me just add a little more color, Shary's spot on. I will tell you, and I use the words laser-focused, not only on executing our plan but expediting getting this non-performing list down to just a handful.
Shary: We literally spend time every week going through progress reports on each and every one of the specific deals that are there. And so I think it's important for everyone to know that that too is a key priority for us in 2025.
Speaker Change: Thank you guys. And then maybe just following that thread and given that expected improvement, how are you guys thinking about the outlook for net charge-offs and the cadence there over the course of the year as well and maybe similarly ACL levels?
Speaker Change: Yeah, I think when we're looking at the charge of level, I think the previous guidance that we had provided of around 25 to 30 basis points is still applicable.
Speaker Change: Now, the indirect consumer portfolio being down to $83 million, that's going to start reducing that level. So, I think with the results that you saw this quarter at $26 million, that's a good reference for the upcoming quarter.
Speaker Change: Yeah, and I think just to add some additional color so you can model that in the maturity
Speaker Change: stated maturities on that portfolio where we expect everything gone by the end of the first quarter of 2026.
Thank you.
perfect okay great and then switching gears guys appreciate the
Speaker Change: color on near-term expenses as well as where you'd expect the efficiency to end up in the back half of the year You know given all of the continued franchise investment is that 71 million?
Speaker Change: a number on a dollar basis we should expect can or would continue to grow or does that efficiency ratio for the back half imply some reduction in dollar expenses or is it really the top line that's going to drive it lower?
Speaker Change: Yeah, Russell, I think the first half of the year typically carries a higher level of cost.
Speaker Change: We're working towards continuous growth in our team and that's built within that number that we shared with you. There's some portion of that related to, as I mentioned, the payroll tax.
Speaker Change: But similar to our discussions in the past, the path towards the efficiency ratio and the path towards the ROA is driven primarily from the growth and the revenue side.
Speaker Change: Okay, excellent, super helpful. Shari, thank you. Last one from you guys would just be the size of the investment portfolio going forward.
Speaker Change: should be relatively stable at the level that it currently is.
Speaker Change: Very good. Okay, that's it for me. Thanks for taking my question.
Thanks, Russell.
Speaker Change: Thank you. Next question today is coming from Tim Mitchell from Raymond James. Your line is now live.
Hey, good morning, everyone.
Tim Mitchell: I just want to start out on the margin, looks like you expect a little bit of pressure here in the first quarter. Just hoping you could walk through some of the drivers, both on the asset and the deposit side. Particularly it was nice to see the loan yield kind of held up nicely this quarter, kind of despite that loading rate portfolio, so I'm just kind of curious what you saw there and kind of what your expectations are moving forward.
Speaker Change: Sure, so the NIM in the fourth quarter, as I was covering the drivers, you're going to see that it's
Tim Mitchell: It saw an improvement related to the Houston franchise sale to the securities repositioning.
The reduction of the FHLB advances.
Tim Mitchell: and then the repricing of the deposits and loan production offset by the repricing of loans.
Tim Mitchell: However, when we move to the first quarter of 2025, we will see the assets that repriced at the end of the fourth quarter will have now a full quarter of impact, so that's why we believe that the margin will be slightly lower than what we saw during the fourth quarter.
Speaker Change: Thank you for joining us. Have a great day. Take care.
It's a function of the repricing of the loan.
Thank you.
Okay, got it. Then on loan growth...
Speaker Change: Slow that down a little bit, just curious how you're thinking about the kind of, is there a 2025? Yeah, when we give you a top-line loan growth, we're netting in what our expectations are of payoffs and paydowns.
Speaker Change: You know if you look back at the, we had that new schedule on the loan roll forward, you can see how robust the loan production was. It's one of the schedules Shary covered.
Speaker Change: And I think it's critical to note that, again, in this second half of the year, in 2024, we added additional personnel.
Speaker Change: We're continuing to hire literally, right here in the first quarter, have a number of additions already lined up. So our expectations are of being able to achieve that 15% and potentially plus.
Speaker Change: I think it's also important to note when you think about all the repositioning actions that we took last...
Speaker Change: year, right, of the portfolio adjustments, the securities adjustments, the sale of the Houston franchise to still show such a strong underlying loan growth. That's another one of the key things that why we wanted to put that schedule out for everyone.
Thank you.
Speaker Change: Absolutely. And just one more, Shary, just kind of curious your expectations, how we should be thinking about the income through the year, like what's a good run rate to kind of start at there?
Shary: Yeah, I think the level that we saw in the fourth quarter is a good level to use slightly higher, but pretty similar, I would say, to what we expect in 2025.
Speaker Change: Yeah, I think it's important to note, obviously, there's more pressure, Shari just referenced, on the mortgage banking side, just given what's happened with rates here in the last couple weeks, months, but, you know, and the steepening.
Speaker Change: But I think we are very positive on some of the signs that we've seen clearly in getting some of the other sources and fees up.
year-over-year, so.
Thank you.
Speaker Change: Awesome, well thanks for all the color. I'll set that down.
Thank you.
Yeah. Hey, good morning, everyone.
I will.
Speaker Change: Hey Shary, so helpful discussion on some of the margin drivers this quarter and then you know certainly appreciate the guidance for for the first quarter of next year just just as you think about many more expensive growth plans and maybe you know a more gradual methodical fed easing cycle.
Speaker Change: What would you expect to really kind of be able to hold the line on that 360 margin as you move to the balance of the year?
Speaker Change: Yeah, yeah, we do expect the margin to stay pretty stable and above the 360 and it's going to be a function of the loan production coming in replacing maturities and paydowns happening. So I do think that the levels that we're projecting for the first quarter will still be relevant for the remainder of the year.
Thank you for joining us. Have a great day.
Speaker Change: Yeah, and then just within that, how would you expect the positive data to behave? I think there's this narrative out there that...
Speaker Change: As the industry moves more towards a growth-oriented focus in 2025, there could be maybe a slowdown or lag in deposit betas as we move to the balance in 2025. How do you feel like full-cycle deposit betas could behave here?
Speaker Change: I think what you mentioned is a fair statement. As you were able to see this past quarter, we reacted very quickly and repriced our deposits. But that typically happens in the initial rate cuts. As the time passes, we're expecting some...
Speaker Change: The data to be closer to the previous guidance, we had shared a 40 basis points and that reflects not only the timing of the maturities of the time deposits, but also competition in the market to be able to reprice the money market. So, I think as we think about the subsequent periods now in 2025, our beta would be closer.
Speaker Change: Thank you for joining us. I'm Laura Rossi. We'll see you next time.
Speaker Change: Still kind of cultivating some operating leverage and driving profitability and I don't want to get too far ahead of ourselves But but do you still see did you see 2026 as you know another year of investment in amaranth? Or is that going to be really where you start to see some of the harvesting of the higher profitability play out?
Speaker Change: Yeah, I think the guidance that we've provided is really the second half of 2025 you truly see with the incremental growth.
Speaker Change: I'll call it a regional bank away from the community bank size.
Speaker Change: and all the incremental, you know, risk and other personnel that we've needed to add to the organization. We've already done that, a lot of that, a lot of that's embedded. Sure, there's some continued investment.
Speaker Change: But we think just given our growth level in the top line of what we expect to see
Speaker Change: will far exceed the continued investments. And I think, Will, it's important to know, I've used the word opportunistically.
Speaker Change: can help, you know, provide positive operating leverage. And, you know, I'm firmly committed to, and I made this in the comment, to make sure that we also balance that with appropriate additions in the risk management side.
Speaker Change: I think which is obviously critically important. So, look, I think, you know, Shary gave guidance that, you know, we still believe that the 60% is a second half of 2025. And we expect further improvement of that as we move ahead into 2026.
Thank you. Thank you. Thank you.
Speaker Change: Well, that's a really great color. Well, congrats on this nice quarter here, guys.
Thank you.
Speaker Change: Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over for any further or closing comments.
Speaker Change: Okay, thank you everyone for joining our fourth quarter and full year earnings call.
Speaker Change: We're excited about the foundational progress we made throughout 2024 towards becoming a stronger, higher performing bank.
Speaker Change: and for the opportunity to build upon that foundation in 2025. Again, let me thank you for your continued support and interest in AMRIN and have a great day.
Speaker Change: Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.
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