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spk02: Good day, and thank you for standing by. Welcome to the Amarant Third Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one one on your telephone. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Laura Rossi, Head of Investor Relations. Please go ahead.
spk01: Thank you, Tanya. Good morning, everyone, and thank you for joining us to review Amer and Bancorp's third quarter 2022 results. On today's call are Jerry Plosh, our Chairman and Chief Executive Officer, and Carlos Gafiliola, our Chief Financial Officer. 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, reference 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 on reconciliation of non-GAAP financial measures to GAAP measures. I will now turn it over to our Chairman and CEO, Jerry Plush.
spk06: Thank you, Laura. Good morning, everyone, and thank you for joining Ameren's third quarter 2022 earnings call. I'm pleased to be here today to report on our results for the quarter. But before we do that, I'd like to acknowledge the impact Hurricane Ian had on Southwest Florida. Our thoughts and prayers go out to those most affected by the storm. At Amarant, we've been actively involved in several efforts to support impacted communities recover from this unfortunate event, and we look forward to seeing everyone affected back on their feet. From a business perspective, we are fortunate to report there have been no significant impacts identified in our Florida loan portfolio. Moving on to the remarks of the quarter, on October 19th, 2022, our board of directors approved a $0.09 per share dividend payable on November 30th of this year. As I've shared in previous calls, paying dividends are an essential component of our plan to provide greater value to our shareholders. I'll now provide a brief overview of our performance in the third quarter and outline the steps we took to best position ourselves for the balance of the year and beyond. And then I'll hand it over to Carlos to get into the details. So if you turn to slide three, here you can see a summary of our third quarter highlights. Our net income attributable to the company was $20.9 million, up significantly quarter over quarter. This increase was primarily driven by higher net interest income in the third quarter, as we recorded higher average yields and balances on loans, as well as on our investments. These were partially offset by the increase in higher average costs and balances on deposits and FHLB advances. But as a result, the net interest margin expanded to 3.61%, an increase of 33 basis points quarter over quarter. Our balance sheet also grew significantly during the third quarter, with total assets reaching a historic high point at $8.7 billion compared to $8.2 billion as of the close of 2Q22. Total gross loans were $6.5 billion compared to $5.85 billion in 2Q22, an increase of $656 million. And total deposits were $6.6 billion, up $385 million compared to $6.2 billion in 2Q22. The company's capital levels continue to be strong and well in excess in the minimum regulatory requirements to be considered well capitalized as of September 30th of this year. During the quarter, we also paid out the previously announced cash dividend of $0.09 per share on August 31st. We'll turn now to slide four. And you can see that our core PPNR was $30.3 million, up nearly 56% compared to the $19.4 million reported in the previous quarter. As we've consistently stated, we believe this slide is essential to show the net revenue growth of the company, excluding provisions and non-routine items. so you can clearly see Ameren's core earnings power. And as I noted in my remarks last quarter, there were significantly fewer non-recurring items recorded this quarter compared to Q22. We can turn now to the key items on slide five, and we can cover what happened during the third quarter. So we continue to work on reducing non-performing loans as part of our commitment to increase our percentage of earning assets to total assets. As of Q3, NPLs declined to 18.7 million compared to 25.2 million as of 2Q22. We intend to continue to focus on driving down NPLs in future periods. We're also pleased to report that the sale of the New York City-based real estate-owned property closed this month, so in the month of October. So coupled with the drop in NPLs, this significantly reduces our level of non-performing assets. As I've stated when discussing our retail network, we continue to look for expansion into new key markets while continuously looking for opportunities to consolidate in others. So during the third quarter, we opened our new Hylia, Florida location. We received OCC approval for a new location in Key Biscayne, Florida, a market we're very excited to do business in and look to be open in by the end of the first quarter of next year. We closed our Pembroke Pines, Florida location as announced last quarter. Additionally, our new University Place location in Houston will open October 31st, while the location it replaces, South Shepherd, will close the same day with our current customers moving over to the new location. And the opening of our downtown Miami location is now expected sometime in early 2023. Regarding our Tampa loan production office, We continue to add key business development personnel in Tampa, specifically in CNI, and now have 14 team members with four more openings to fill. And we also added to our business development team here in South Florida, and we plan to continue to look to expand in both Broward County and Palm Beach County. We'll turn now to slide six. You can see here we've outlined key performance metrics and their change compared to last quarter. It's clear our operating profitability improved from higher outstandings and improved net interest margin, as I just mentioned, was 3.61%. Our efficiency ratio improved to 65.4% compared to the 86.6% last quarter. Both ROA and ROE significantly improved, as you can see here, from higher net income this quarter. For consistency and transparency, we again show the three core metrics of ROA, ROE, and operating efficiency. excluding any one-time non-routine items in the footnotes, so you can more easily see the underlying performance for the quarter. We'll turn now to slide seven, which focuses on Amerit Mortgage. On a standalone basis, Amerit Mortgage had net income of $800,000, an increase of $400,000, or 88%, compared to Q2, primarily as a result of mortgage banking income from transactions with the bank. However, on a consolidated basis, we recorded a net loss of $1.4 million for the third quarter in connection with the operations of Amerit Mortgage. Year to date, 2022, the company has purchased approximately $298 million in loans through Amerit Mortgage, which includes loans originated and purchased from different channels. The current pipeline shows $51 million in process, or 79 in applications as of October 12th, in line with the headwinds currently in place for the mortgage business in general. So with that said, I'll now turn things over to Carlos, who will walk through our results for the quarter in more detail.
spk05: Thank you, Jerry, and good morning, everyone. Turning to slide eight, I'll begin by discussing our investment portfolio. Our third quarter investment securities balance was $1.3 billion, down compared to both previous quarter and the third quarter of 2021. When compared to prior year, the duration of the investment portfolio has extended to five years due to lower prepayment speeds recorded in our mortgage-backed securities portfolio in light of rising interest rates. The investment strategy has focused on achieving the right balance between yield and duration, as current market conditions provide better reward on longer-duration assets. The floating portion of our investment portfolio increased to 16% compared to 11% in the previous year. As I did last quarter, I would like to take a minute to discuss the impact of interest rate increases on the valuation of debt securities available for sale. As of the end of September, the market value of this portfolio decreased $35 million after tax compared to the second quarter and $100 million year-to-date. These changes come as a direct result of increases in interest rates and are consistent with our interest rate sensitivity analysis. the relative credit exposure of our investment portfolio is very limited, reason why there was no need to record any other than temporary burden. It is also important to comment that our tangible common equity ratio ended at 7.8% after considering the impact of changes in valuation of our EFS portfolio. Continuing to slide nine, let's talk about the loan portfolio. At the end of the third quarter, total gross loans were 6.5 billion, or up 11% compared to the $5.85 billion at the end of the last quarter. This growth was driven by loan origination efforts primarily on the CRE side and single-family residential mortgages. Additionally, the production enamored mortgage was complemented with loan purchases through third parties. Partially offset in this increase were prepayments, totaling $182 million primarily in commercial loans. Also, during the third quarter, we had $22 million from loans originated with the wide-level equipment financing solution that we announced last quarter. Loans held for sale as of the end of the quarter totaled $58 million compared to $121 million as of the second quarter of 2022. As of the third quarter, loans held for sale consisted of residential mortgages, loans, We transferred the New York City CRE loans previously accounted as loans available for sale to investment category, as we now have the intent and ability to hold this until maturity or repayment. Consumer loans as of September 30th were $577 million, an increase of $20 million or 3.5% quarter over quarter. This includes approximately $487 million in higher yielding indirect loans. which continues to represent a tactical move for us to increase yields given higher funding costs. During the third quarter, we purchased $91 million of consumer loans under the indirect lending program. We also launched a new FinTech-enabled program, which generated $6 million in consumer loans and is intended to progressively replace our indirect purchases. Turning to slide 10, let's take a closer look to the credit quality. Our credit quality remains sound and reserve coverage is strong. The allowance for loan losses at the end of the third quarter was $54 million, an increase of 3.2% from the $52 million at the end of the previous quarter. There was a provision for loan losses of $3 million in the third quarter to account for the loan growth. During the third quarter, the $2.7 million allowance associated with the COVID-19 pandemic was further reduced to $1.6 million, now as a generic reserve. This generic reserve accounts for losses pending to be identified in our portfolio, such as those that may result from Hurek and Ian. At this time, we haven't identified any immediate significant impact to the collateral of our portfolio. AMRAN's current exposure to Ian's path is approximately 300 million. Our team members have been in contact with these borrowers and have been making side visits as well. Net charge-off during the third quarter totaled $1.3 million compared to the $4 million in the second quarter. During the third quarter of 2022, the company charged off $1.7 million related to multiple consumer loans and 0.2 in connection with two commercial loans. Non-performing assets totaled $25 million at the end of the third quarter, a decrease of $6.6 million, or 21%, compared to the second quarter, and a decrease of $68 million, or 73%, compared to the third quarter of 2021. The ratio of non-performing assets to total assets was 29 basis points, down 10 basic points from the second quarter of 2022, and down 95 basic points from the third quarter of 2021. Our non-performing loans to total loans are down to 0.29 compared to the 0.43 last quarter, as a result of our commitment to increase earning assets to total assets. As Jory mentioned, The non-performing asset rate ratio was further decreased as a result of the sale of the New York Oreo we closed this month of October. In the third quarter of 2022, the coverage ratio compared to loan loss reserve to non-performing loans closed at 2.9 times up from the 2.1 times at the end of the last quarter and from one time that we recorded a year ago. Continue to slide 11. Total deposits at the end of the third quarter were $6.6 billion, up $385 million from the previous quarter. This growth was driven by customer transactional accounts, which were up $258 million, or 5.3%, primarily from interest-varying demand accounts. As the company obtained additional deposit source via large fund providers during the period. We also elected to increase broker-time deposits, which were $143 million increased, in order to lock lower interest rates in light of rising market rates. The increase in total deposits was offset by a slight decrease in customer time by 11 million, or 1.2%, which reflects our retention efforts in this interest rate environment. Important to highlight that domestic deposits now account for 63% of our total deposits, totaling 4.2 billion as of the end of the third quarter, up 444 million, or 12%, compared to the previous quarter. Foreign deposits, which account for 37% of the total deposits, total $2.4 billion, slightly down by $59 million, or 2.4% compared to the previous quarter. Our core deposits, which consist of total deposits excluding all time deposits, were $5.2 billion as of the end of the third quarter, an increase of $253 million, or 5.1%, compared to the previous quarter. The $5.2 billion in core deposits included $2.1 billion in interest-bearing deposits, which increased $127 million versus the previous quarter, $1.7 billion in savings and money market accounts, which increased more than $100 million versus the second quarter, $1.3 billion in non-interest-bearing demand deposits, which were up $20 million versus the previous Q. Next, I will discuss the net interest income and the net interest margin on slide 12. Net interest income for this reporting period was $70 million, up 11 million, or 19%, quarter over quarter. This increase was driving by higher average yields on loans and investments, resulting from a total increase of 300 basic points in short-term interest rates, higher average balances in floating commercial real estate and single-family residential loans, as well as changes in deposit rates being handled via specific allowances to manage the pressure over cost of funds. As rates continue to increase, we're disciplined in managing the increases in our product rates. As we explained last quarter, we adjust certain interest rate sensitive products and relationships to partially reflect increases in market rates. There is a lot of value leveraged the product mix to differentiate pricing and control deposit betas. During the third quarter, based on the current deposit mix, we observed a beta of approximately 30 basic points. which help us to navigate the interest rate increases we saw during the period. Moving to the net interest margin, as Jerry mentioned, the third quarter mean was 3.61%, up by 33 basic points quarter over quarter. The change in the net interest income and the mean was primarily driven by the increase in the yield of our loan portfolio, which is now at 5.1%, an increase of 68 basic points versus the previous quarter. As I said in Q2, The improvement in NIEM is a reflection of our asset sensitivity position. Moving to slide 13, you can see our balance sheet continues to be asset sensitive with about half of our loans having floating rate structures and 58% reprice within a year. Our NIEM sensitivity profile to interest rate office scenarios has decreased compared to the last quarter in light of updated beta assumptions on interest-bearing deposits. These changes are consistent with a more competitive environment for deposit gathering. This quarter, we're showing a potential increase of approximately 6% net interest income in the up 100th scenario and 9% for the 200th. We will continue to actively manage our balance sheet to best position our bank for the expected rise in interest rates for the remaining portion of 2022. Moving to slide 14, non-interest income in the third quarter was $16 million. Up $3 million versus the previous quarter and 23% from the $13 million in the second quarter. The increase was driven by positive valuation on marketable securities holdings of $1.5 million in the third quarter compared to a negative valuation of $2.6 in the second quarter. An increase of $1.8 million in fee income from client derivatives. An increase of $0.2 million in total brokerage and advisory fees. primarily driven by higher securities trading coming from the fixed income side from our customers' portfolio. The increase was partially offset by lower mortgage banking income of $2.3 million, the absence of net unrealized gain on derivatives valuation of 0.9 in the second quarter. Amaranth's asset under management totaled $1.8 billion as of the end of the third quarter, down 57 million, or 3%, from the end of the second quarter. which comes as no surprise given the lower market valuations in equity and fixed income markets. Turning to slide 16, third quarter non-interest expenses was 56 million, down 6 million or 10% from the second quarter. As we announced on our previous earnings call, there was a significant reduction in one-time expenses. We considered 2 million as a non-routine item, excluding these items Corner interest expenses were 54 million in the third quarter of 2022. The quarter over quarter decrease was primarily driven by the absence of 3.2 million related to an or evaluation in New York, 1.6 million in permanent charge related to the closing of a banking center, as well as lower expenses in connection with the upcoming transition to FIS by 2.5 million, lower advertising expenses by 1.2 million, and severance and other compensation expenses by $0.8 million. The decrease in non-interest expenses was partially offset primarily by higher salaries for $0.7 million resulting from new hires and $1 million of consulting fees in the third quarter in connection with the engagement with FIS. The efficiency ratio was 65.4% in the third quarter of 2022 compared to 86.6% in the previous quarter and 74.2% in the third quarter last year. Core efficiency ratio decreased to 64.1 in the third quarter of 2022 compared to 73.7 in the second quarter of 2022. Improvement was driven by higher net interest income as well as lower expenses during the third quarter. I will now turn the call back to Jerry for closing remarks.
spk06: Thank you, Carlos. In closing, I just want to state that we are seeing the benefits of the decisions we've made in recent quarters as well as from the efforts of our team members. And that's resulted in higher net income, solid net interest margin expansion, strong loan and deposit growth, a significant reduction in non-performing loans, and a further reduction to non-performing assets just post quarter end, and continued strong capital ratios. In summary, while we recognize there are clearly headwinds given the continued economic stress in the environment, we remain focused on prudently executing on our strategic initiatives and continuing to build our team and gaining additional market share. Our commitment to finishing our transformation and becoming the bank of choice in the markets we serve is unwavering. With that, I'll stop, and Carlos and I will look to answer any questions you have. Tonya, please open the line for Q&A.
spk02: Certainly. As a reminder, to ask a question, please press star 1-1 on your telephone. Please stand by while we compile the Q&A roster. One moment. And our first question will come from Brady Gailey of KBW. Your line's open.
spk04: Hey, thanks. Good morning, guys.
spk08: Morning, Brady.
spk06: Good morning.
spk04: So roughly $298 million of mortgages repurchased. I think you said year-to-date. What was the amount repurchased just in the third quarter?
spk05: In the third quarter, it was probably close to the $150 million that we bought from the production coming from AmeriMortgage plus additional sources that we got on the quarter. So it's an asset class right now that has a very good balance between yield and duration is the way that we see it now.
spk04: Yeah, so even if you back that out, I mean, loan growth was incredibly robust. So can you talk a little bit about where you're seeing the loan growth and what the outlook is for loan growth as we head into 2023? Yeah, Brady, it's Jerry.
spk06: I think on the call for the second quarter, we referenced that with the additions that we've had and the build out of Tampa and the continued strong performance of the business development teams, both in Texas and here in South Florida, we have a pretty good pipeline headed into this quarter. I think you saw a strong loan growth in commercial real estate. I think we gave some information about the changes that have happened in the different geographies, but I'd also note that we continue to see CNI, even with high repayment activity, we had a very strong pipeline there as well and a good quarter of production. And I think we continued to do what we said we were going to do in the past. The white label program was really going to start to kick in on equipment finance. You can see that we just started the white label FinTech solution that Carlos referenced as a replacement for indirect production. So I think all of these contributed to the growth overall during the quarter. Apologies, Brady. You asked the second question, which is the pipeline continues to look very strong in all the different lines of business. I think the biggest comment I'd make about that is what we will record in loan growth needs to be funded by deposit growth. We've got a strong commitment as a deposits-first organization to really emphasize that as a way to continue to grow the balance sheet. So, you know, while we may have several hundred million dollars that we could possibly grow in the quarter, we need to also grow the deposits at the same point in time.
spk04: Yep. Okay. And maybe just an update on the 1% ROA and 60% efficiency ratio targets. I mean, you basically you hit a 1 ROA in 3Q, so do you think you can keep it there? And then just an update on timing. I know you've kind of targeted a 60% efficiency ratio at some point. It doesn't feel like that'll happen in the next couple quarters. Maybe an update on timing on how you're thinking about that?
spk06: Yeah, no. I think we can continue to be in and around the 1% return on assets on a go forward. I think the strength of the balance sheet. We expect that we should see some expansion in the margin again here in the fourth quarter, even with rising deposit costs. And so that's going to help. I think in terms of what happens with growth, I think is really the biggest question, right? Because you know, we want to be prudent in terms of the use of the capital. We achieved, you know, an 11 plus percent ROE, but, you know, at some point we want to keep a sharp eye out on, you know, our tangible common equity ratio and make sure that what we add is going to be beneficial for future returns, right? So I kind of think you're the 60 percent, you know, we talked, you know, a while back that, I made the conscious decision to continue to add to the business development personnel, and I think you just heard me say it again, that we continue to see opportunities to add quality people. We have some openings in Tampa. We want to continue the expansion in Palm and Broward. We're bringing on some new personnel as it relates in our wealth business, continue to look for private bankers. There's going to be some uptick on the core expense line, specifically in personnel expense too. But I think these are all the right things to be doing to build the long-term value for the franchise. And so as much as I'd love to hit the 60% next quarter, I think we'll continue to be in the low 60s with a goal of getting there in 2023. Okay.
spk04: And then finally for me, just on the buyback, you know, it doesn't appear you guys were active in the quarter. I know TCE, you know, has run a little under where it has been historically for you guys at a little under 8%. So should we expect buybacks from here or is that, you know, not in the mix?
spk06: Yeah, you know, Brady, I think it, we've been pretty consistent in saying, you know, the way we think about capital is we need to prudently use it or we need to return it. I think right now our focus is we've got opportunities to use it. And I think that the one other item in return is the consistency of paying out a dividend. I think, you know, we completed two very successful buyback programs. You know, when you look back at what we did in the fourth quarter of last year going into the first quarter and then another completed by the end of the first quarter, right now we've not asked for authorization to do more. We think that the right thing to do is grow into that base, which is what we just did here in the third quarter, and continue to evaluate what we'll pay out from a dividend standpoint going forward.
spk04: Okay, great. Thanks, guys.
spk08: Thank you. Thank you.
spk03: So one moment.
spk02: And our next question will come from Michael Rose of Raymond James. Michael, your line's open.
spk08: Hey, good morning, guys. Thanks for taking my questions. Obviously, credit quality continues to be a really good story here, but the reserve ratio did come down. kind of a little bit, can you just give us kind of your general kind of overarching thoughts on credit and, you know, maybe how some of your markets in Florida and Texas might do a little bit better, maybe just what gives you confidence because we've seen others definitely begin to build reserves this quarter. Thanks.
spk06: Yeah, sure. Thanks, Michael. It's Jerry. In terms of, you know, how we feel on the reserve process, I guess first and foremost, With all the improvements that we've seen in the NPO and now the NPA totals, that gives us some confidence. We did add to the reserve. I would say that half the provision that we did record was eaten up by charge-offs in the quarter. There was definitely a little bit of an uptick, and we're keeping an eye on that on that consumer indirect portfolio. But in terms of the rest of the portfolio, we're continuing to see pretty solid performance across. I think it's really important to note, we haven't talked about that yet on this call, but we will be adopting CECL. And I think, again, you'll see that just naturally because of the economic factors that go into those calculations, you're going to see that we'll obviously have an adjustment, you know, as the Jan 1 date, right, that comes out of equity. Plus, there'll also be a P&L adjustment that'll take place for all the production we've booked during the course of the year. So I would expect, and I think it's, I think everyone should expect that our, you know, our reserve ratios are going to go up in the fourth quarter just because of seasonal implementation. But, you know, in addition, we're going to obviously continue to closely monitor the portfolio
spk05: There will be, Mike, on the thank you, a disclosure about the T-cell range for day one implementation, which you will find that it has decreased the range versus the previous quarter as we progress on the implementation. So now it's 15 to 20 million incremental reserves due to day one implementation. And as Jerry mentioned, there will be you know, other different adjustments based on the production that we have recorded over the year.
spk08: Perfect. Yeah, that was going to be one of my follow-ups. Maybe just switching gears to deposits. Obviously, deposit costs up like everybody. Do you have to, what's the number for interest-bearing costs were at the end of September? And then just more broadly, just given the fact that you guys have, you know, a decent chunk of international deposits, can you just talk about Any updates or changes to your deposit strategies as you move through your higher interest rate cycle? Thanks.
spk06: Yeah, let me answer the second one first. I think it's really important to note that the deposit growth from the quarter, really we had contributions from every line of business of particular note. This reflects the build that we've been doing in the private bank side. We saw that. grow very, very nicely in the quarter. You know, it's up close to, I believe it was 75 million in growth just in that segment alone. And so, you know, people are obviously very focused with all these rate hikes. There's lots of competitors that are offering some pretty strong rates out there. And so, you know, we're navigating through an environment right now, right, or a period of time where you've got national players as well as local players trying to run offers at, you know, fairly high rates, to be candid. And, you know, we will as well look for, you know, money probably around the 12-month CD range because I think we want to be somewhat cautious to, A, on the one side, lock money in, but at the same point in time, give ourselves some flexibility, you know, given where we don't want to go too long term with, you know, and build back up that time deposit book, which I know you're very aware of. You know, we had, you know, a lot of work in 2021 where we we basically had a lot of that shift from time deposits over to either non interest bearing or interest bearing, you know, alternatives such as money market. So Carlos will give you some comments on the on the cost, which clearly I think it's safe to say deposit costs are going up for us just like they're going up for everyone else.
spk05: I guess it's important to comment that on the first stages of this interest rate increases, at least that was our case and we believe it's the case for other institutions, there has been allowances being provided to the different business lines to increase interest rates on certain deposits, the ones that are more interest rate sensitive. We believe that from now on, there will be changes or adjustments on the deposit rates on the tables that they are being published. Therefore, there would be a more steep increase in the cost of funds. Our beta, as we discussed on the call, was 0.30, quarter over quarter. And we expect that on the fourth quarter, we'll be probably on the 40-ish beta. So you should expect an incremental cost of funds. In the case of the International side, they continue to be as a blended, close to the 11 basic points. However, we started also to see some pressures from certain private banking customers on the international side that they are aware of the rates that they're paying in the local markets and they are having pressure as well. So I would say you see the interest-bearing deposits went from 0.62 to 105. That is reflective of about 30 beta. Domestic were the ones driving most of the change. International were very stable for the most part. But we're starting to see signs of increases, too.
spk08: Very comprehensive. Thanks for taking my questions.
spk03: Thank you. Sure.
spk08: Have a great day.
spk03: One moment.
spk02: Our next question. We'll come from Matthew Only. Stephen, your line is open.
spk09: Hey, thanks. Good morning, everybody. Good morning, Matthew. I guess more of a big-picture question, thinking about the local markets there, South Florida, Tampa. I think we all read headlines about dark clouds across the country economically. Anything stand out in Florida that you see that could be somewhat beneficial different or is it a similar or same dark clouds that we read about for most other metro markets across the country?
spk06: No, we, you know, Matt, great question. We still see really strong demand for housing. You know, you've got the continued inflow to the state and particularly in the two markets in which we operate. So South Florida and Tampa particularly here in South Florida, I think sales have continued. There's still a scarcity of inventory. I think the biggest headwind that we face, which is no different than the rest of the country, is just what's happening with the cost of living. We're seeing higher costs pretty much across the board. And I think that, in particular, we were always a little higher cost to begin with. you know, there's definitely pressure there. But, you know, in terms of real slowdown, I mean, we're going right into the season, which is very positive for hospitality. We're seeing, you know, full restaurants. We're seeing, you know, I can assure you there's still lots of traffic. So we're still pretty bullish about, you know, these markets. And I can also tell you, Carlos and I had recently visited in Houston and continue to see that it looked pretty strong there as well. So, you know, I do think we're very fortunate because we are in, you know, high-growth, desirable markets. I think that will play pretty well for us.
spk09: Yeah. Okay, appreciate that. And then I guess on the quarter, as far as the non-interest income on an adjusted basis, Looks like we were pretty flattish in the third quarter. I think last quarter you talked about a potential rebound in the 3Q. So curious about kind of what you saw in the third quarter. And then as you look into the fourth quarter, what are some of the puts and takes around the fees? Thanks.
spk05: Sure. So the... You know, we have this particular quarter, the change on the derivatives income coming from customer, that was the guidance that we provided the last quarter, so that continued to help during this quarter. We believe that that demand will be probably not the same coming into the next quarter. offer this solution to customers in order to hedge interest rate risk, but we've seen the demand may be lower. Also remember that there was a record quarter in long production, so that also helps with that type of instrument. In the case of the AUM, there was a surge, but was related from the brokerage activity on the fixed income side. Customers, as you can see, the level of interest rates, they have now multiple options on the fixed income space to go and invest, so that also created free income this quarter around, and we believe in Q4 that will be very active as well. And in the case of AMRAAM Mortgage, which is the other source. I'm just describing the three items that created most of the changes, quarter over quarter. The rest are pretty stable. In the case of our mortgage is the fact that refi activity has decreased a lot and production is lower. So we should expect, you know, fee income that is similar to the one that we have on the third quarter of this year. Speaking about the fourth.
spk09: Okay. Thank you for that. And then also earlier on the call you mentioned we should expect another step up on NII and the margin in the fourth quarter, and that makes sense given kind of balance sheet growth and interest rate sensitivity. Any more color on the degree of step up that we could see in the fourth quarter? I mean, I guess in the third quarter it looks like the NII improved $11 million. and the margins stepped up 33 bps. My assumption would be the step up in the fourth curve would be more moderate than that, but any color you can give us for forecasting purposes? Thanks.
spk05: Yeah, no, that's completely the case. It wouldn't be as steep as on the third quarter. As you can see, the positives are starting to catch up faster. And we anticipated something in the 375 to 380 financial margin for the fourth quarter. That includes a more aggressive beta on the net interest income simulation process.
spk09: Okay. That's helpful. And then just lastly, going back to the loan growth discussion from earlier, in looking at the slides, it looks like part of the growth was in Texas. Any more color on that growth? Was this the multifamily growth or the single family? Just any color at all?
spk06: Yeah, no, you just hit it. It's a big part of its multifamily growth, which we think we've got good spreads. And obviously, it's a more secured and with the demand, particularly for these type of units. We thought it was a smart play for us to make those kind of loans this quarter.
spk05: And they are a floating rate.
spk06: Yeah, exactly.
spk09: Yep.
spk06: Perfect.
spk09: Okay, guys. Thank you very much for taking my questions.
spk06: Thank you. Have a good day.
spk03: One moment.
spk02: And our next question will come from Freddie Strickland. Jenny Montgomery Scott, your line's open.
spk07: Hey, good morning, everybody. Hey, good morning. Just going back to deposits, it sounds like you guys think you can continue to grow core deposits. Do you think you'll be able to stay below 100% on the loan to deposits ratio going forward, or do you think you'll have to take down a little bit of additional FHLB funding down the road?
spk06: Yeah, hey, Petty, it's Jerry. I think, you know, we've said we wanted to stay, you know, in and around the 95% range. We obviously are a little higher than that, you know, at 98 and change. My sense is, you know, and I think my team just hears this come out of my mouth every single day, every interaction I have, but it's all about deposits first. I really like the momentum in the lines of business and the diversity of the growth that we talked about in the quarter. So I feel good that we've got a great opportunity here to continue to grow. I think the momentum of these new additions to the teams, you know, and basically in all of the teams is really going to help us a lot. You know, we've got to stick to funding our loan growth with deposit growth. And so, you know, the way to do that is to emphasize that we've got to get the deposits in order to hit the loan targets we want. So, you know, I made that comment about the pipeline earlier. I really want us to push ourselves hard in order to try and do that. You know, that said, if we blip above or blip, you know, stay below, I mean, we could continue to see staying in this kind of range. But I think trying to stay between 95 to 100 is obviously our target.
spk07: Got it. And then I guess along that same line, it sounds like you should be able to get some good deposit growth from the wealth management division. Do you think there's some good additional opportunity there for that to grow further?
spk06: Yeah, I think our private banking team has done an excellent job, continue to do so. We've actually continued to look to add to the team. That was the reference I was making about the growth in the counties. We're also looking to add our first private banker in the Tampa marketplace as well. And we do have someone that started with us a while back and is adding value in the Houston marketplace. So I think that coupled with You know, we had an excellent change, you know, on our leadership side in retail, and I think that's also making a really big shift, you know, to much more of a sales culture coming through the retail system. And I think that that's a really positive, you know, contribution that those teams are making. You know, we've also, and I think I added this in prior quarters, we've really emphasized the build in treasury management. And I think that team is just doing an outstanding job and we're seeing more and more new business every day. So I think, again, that was kind of the comment I made about, you know, the investments and the decisions that we've made in the past quarters paying off. I think we're really starting to see that show in the numbers. And, you know, I do feel good about what the team's going to be capable of doing. You know, all that said, I do want to just reiterate, there are some very aggressive offers. You know, I'd expect that, you know, the banks that are also, you know, looking for, you know, building out their deposit book to be super competitive rate wise. And so, you know, that's why I had referenced before there's going to be pressure on deposit costs. There's no question about it. But at the same point in time, given the mix of the balance sheet, you know, on the loan side and the investment side, we're going to continue to benefit from the higher rate environment.
spk07: Got it. No, that all makes sense. And then just one final modeling question. I think you mentioned earlier core expenses are likely to come up some in the fourth quarter. Just as far as the magnitude, should we expect something closer to $55 million Is the run rate there, or is it higher than that? I was just kind of curious what the magnitude of that increase would be.
spk06: Yeah, look, I think there's a couple components that can have that pick up in the quarter. One is going to be how well we do with the quarter itself, because there's obviously going to be incentive comp. And recognize, again, we're continuing to add personnel, so there's going to also be some pressure in the personnel expenses. So, you know, our expectation is you're gonna see in the core expense, you know, a slight tick up there, you know, in that 55 to 56 range. 56 and a half maybe. Yeah. So, I mean, I just think you have to be probably thinking along those lines. You know, we're also looking to be very, continuing to add to people, right? And so, you know, we're not gonna add and also, you know, We're going to be prudent with the decisions we make there, but I do think it's something you always have to take into account that I think we're a little bit in the, we've got to continue to invest to support the growth ambitions that we've got.
spk05: And that guidance, just to be clear, is on the core side of the expenses. There may be a million or million or so related to the transformation of technology that we're making, that that will come as a combined total expense.
spk06: Yeah, I think it's a great point, Carlos. I think it's safe to say for everyone that we are going to have some continued, we'll call it non-routine items that relate in transformation. So as much as we'd love to report that we're not going to have some non-routine, I think you'll continue to see us report both core and pointing out where we have the one-timers and what they're from. It's much smaller, obviously, not all that noise that you saw a couple quarters in the past.
spk07: Got it. Nope, that makes sense. Appreciate the clarification, guys, and congrats on a great quarter. Thank you. Thank you.
spk02: Thank you. And I would now like to turn the conference back to Mr. Plush for closing remarks.
spk06: Thank you, Tanya, and thank you, everyone, for joining our third quarter earnings call. We appreciate your interest in Ameren and your continued support. Have a great day.
spk02: This concludes today's conference. Thank you all for participating. You may now disconnect.
spk03: The conference will begin shortly. To raise your hand during Q&A, you can dial star 1-1.
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