Amerant Bancorp Inc.

Good day and thank you for standing by. Welcome to Amerit Bank Corp's second quarter 2023 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 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Laura Rossi, Head of Investor Relations and Sustainability at Ameren Bank Corp. Please go ahead.

Thank you, Gigi. Good morning, everyone, and thank you for joining us to review Ameren Bank Corp's second quarter 2023 results. On today's call are Jerry Plush, our Chairman and Chief Executive Officer, and Sharemar Calderon, our Executive Vice President and 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, references will also be made to non-GAAP financial measures. Please refer to the company's earnings release for a statement regarding forward-looking statements as well as for information and reconciliation of non-GAAP financial measures to GAAP measures. I will now turn over to our Chairman and CEO, Jerry Plush.

Thank you, Laura, and good morning, everyone, and thank you for joining Ameren's second quarter 2023 earnings call. I'd like to first welcome Sherry, who, as our new Chief Financial Officer, is on her first earnings call with us today, and to also thank Carlos C.F. Vigliola for his tenure as our CFO. As recently announced, Carlos became our new chief operating officer in June. I believe having both of them as part of our executive team makes us a much stronger organization. Next, I think it's important to address up front that while this was an outstanding quarter in many ways, the results are clearly overshadowed by the provision expense reflected in the 2Q results. The substantial increase from last quarter was driven by a legacy New York City commercial real estate loan originated in 2016. and from increased negative economic factors used in the CECL calculation. In her section, Sherry will provide additional details of the provision recorded this quarter. The outstanding deposit growth in 2Q and year-to-date that we will review in the presentation reflects our goal of being able to rely on ourselves for organic deposit growth, and we believe this clearly sets us apart from the competition. We've been talking about how essential it is to be a deposits-first, relationship-based bank and it is showing in our 2Q and year-to-date performance. We provided more granular information on the sources and types of deposits in today's earnings presentation, and I will go into it in detail shortly. In addition, this quarter we are reporting on reflects the achievement of the highest core pre-provision net revenue for any quarter in the history of the company as a public company, primarily driven from a higher average balance overall, coupled with a strong net interest margin. So, as a result of higher NII and lower core expenses, we were right at 60% in core efficiency. So, as we go through the slides today, you will see that we have changed the presentation order and we've added some additional slides that we believe will be helpful and add further transparency. So, I'm going to cover key highlights and actions taken in 2Q, along with deposits, liquidity, and capital. And then Sherry's going to cover other balance sheet items and our performance for the quarter in detail. So now we'll turn to slide three. And here we provide a summary of our second quarter highlights. Net income attributable to the company was $7.3 million compared to $20.2 million in 1-2-23. This decrease was primarily driven by the higher provision for credit losses in the period. The net interest margin was 3.83% compared to the 3.9% we reported last quarter, but in line with our previous guidance for the quarter of a 10 basis point margin reduction from 1Q levels. Our assets increased $24 million compared to 1Q23. Total gross loans were $7.22 billion compared to $7.12 billion last quarter, an increase of $102 million, and total deposits were $7.58 billion, up $293 million compared to the $7.29 billion last quarter. The company's capital levels continue to be strong and well in excess of minimum regulatory requirements to be considered well capitalized at June 30, 2023. Our tangible common equity ratio remains strong at 7.34% as of June 30, 2023. As we classify the vast majority of our investment portfolio as available for sale, the mark to market on the portfolio is deducted from TCE. In an upcoming slide, we'll also show TCE if you deducted the market value adjustment related to the held to maturity portfolio, which would result in TCE of 7.16%. Lastly, during the quarter, we also paid out the previously announced cash quarterly dividend of $0.09 per share on May 31st. So now we'll turn to slide four. And here you can see the core PPNR was $39.2 million, compared to the $37.1 million reported in the previous quarter. We recorded a total of $13.4 million in non-routine non-interest expense, mostly offset by total non-routine non-interest income of $12.4 million, which includes $13.4 million in gains on early extinguishment of Federal Home Loan Bank advances. Non-routine non-interest expense items recorded into are listed here in detail. And substantially, all of these were previously furnished in the Form 8K we filed in mid-June in conjunction with our virtual non-deal roadshow. The impact of these non-routine items overall was a net negative of $1 million. We'll turn now to Slide 5 and cover key actions taken during the second quarter. So again, loans, we reported growth year-to-date of $297 million, or 4.3%, and $102 million, or 1.4%, in 2Q. Regarding deposits, we've had growth year-to-date of $535 million or 7.6% and $293 million or 4% in 2Q. Our loan-to-deposit ratio is now 95.2% compared to the 97.6% for 1Q and 98.2% for 4Q of 22. As noted earlier, we're focused on organic deposit growth and reducing reliance on other funding sources except for asset liability needs. We're also working on improving the deposit mix to generate even more core deposits. More on that shortly. Next, our banking center rationalization continues. We've listed here details regarding additions. Our Key Biscayne, Florida location opened in June as planned, and we already have over 16 million in deposits. Our downtown Miami, Tampa, and Fort Lauderdale locations are still in process to open by year end and new in 2Q23. We're under LOI for a private banking location in the River Oaks section of Houston, Texas, and the agreement is in final stages. Approval has already been received from the OCC. On the consolidation side, we closed our FM1960 location in Houston, Texas, and merged it into our Champions Banking Center. And we intend to close our Edgewater location in Miami, Florida, to coincide with the downtown Miami opening. Turning now to the stock repurchase program, We have a $25 million Class A common stock share repurchase program in place, and in May and June, we repurchased 95,262 shares for $1.7 million, so at an average price of $17.42 per share or at .8 price-to-book value. We are prudently balancing between cash on hand, capital levels, and price levels. Availability remaining under this program was $22 million as of quarter end. Next regarding people, we finalized all the expected executive team moves and further optimize our org structure. We're delighted to have these changes behind us to welcome the new people on board and to be totally focused now on the business. And I'm happy to say these changes are already having a significant impact on our results. Our new head of commercial banking and our new Houston market president were on board during the quarter. We merged retail and business banking into one unit to gain synergies between the two lines of business under one leader. resulting in significant go-forward savings. We did the analysis to rationalize the organization and several other support areas, which will also result in future period efficiency and personnel expense savings. These changes also improve the ratio of customer-facing to support positions to be close to 50-50, and we intend to further improve this ratio as we go ahead. And finally, we continue to selectively add key business development personnel in the three markets we serve. including as I mentioned the hiring of the new private banking leader in Houston who starts in early August. And we've added three new key commercial business development officers here in South Florida, all of whom start next week. So now we'll turn to slide six and I'll provide an overview regarding deposits as of June 30th. This is one of the new slides I referenced earlier. So again, total deposits at the end of the second quarter were $7.6 billion, up $293 million from the prior quarter. You can see here the increase was primarily in commercial, retail, and private banking, as well as international. Organic growth was even higher for the quarter than the $293 million we just referenced, as we reduced institutional and broker deposits by $136 million and $52 million, respectively. We remain committed to maintaining our current ratio of loans to deposit with a target of 95% and the intent not to exceed 100%. So we'll turn now to slide seven, and here you can see we continue to have a well-diversified deposit mix composed of domestic and international customers. The growth this quarter was primarily driven by increased transaction and time deposits. Domestic deposits now account for 67% of total deposits, totaling $5.1 billion as of the end of the quarter, and that's up $222 million, or 4.5%, compared to the previous quarter. And international deposits, which account for 33% of total deposits, totaled $2.5 billion, and that was up 71 million or 3% compared to the prior quarter. We intend to continue to emphasize international deposit gathering as a source of funds, given favorable pricing, and to take advantage of our infrastructure and capabilities. We believe this is essential to do as it provides additional diversification to our funding base. Domestic deposits include over 50,000 accounts with an average size of $100,000, while international deposits include approximately 58,000 accounts with an average size of $45,000. Our core deposits, defined as total deposits excluding all time, were $5.5 billion as of the end of the second quarter, an increase of $141 million, or 2.6%, compared to the previous quarter. The $5.5 billion in core deposits included $2.8 billion in interest-bearing deposits, up $284 million, or 11.4%, versus previous quarter. $1.4 billion in savings and money market, which was down $76 million, or 5%, versus the prior quarter. And $1.3 million in non-interest-bearing demand deposits, down $67 million, or 4.9%, versus the previous quarter. We'll now move to slide eight, and here we've again included this table to provide additional data regarding deposit insurance coverage. 71% of our deposits are FDIC-insured, and additionally, we carry $275 million in qualified public deposits in the state of Florida as of the second quarter, which are subject to collateral requirements by the state of Florida. Reciprocal deposits, which are 100% insured by the FDIC through the Intrified Network, grew to 1 billion at over 200 counts as of the end of 2Q23. We are proactively marketing this to our customers, and it's branded as Amerit Protect to existing as well as potential customers. And we intend to continue to proactively promote this to protect our customers on an ongoing basis. Additionally, our large fund providers, defined as those with balances above 20 million, are approximately 15% of total funding as of the end of the second quarter. We'll move now to slide nine regarding liquidity risk management. We're going to provide some details, not only on our practices, but on additional actions we've taken to strengthen our funding and capital position. So, our standard liquidity management practice includes such things as regular testing of the lines of credit, daily monitoring of our Federal Reserve account, as well as large fund providers, daily analysis of our lending and deposit gathering pipelines, limits on liquidity ratios, active collateral management, and as shown here, 79% of the $1.26 billion in the investment portfolio have direct or indirect U.S. government guarantees. So in terms of credit availability, total advances from the FHLB were $770 million as of June 30, 23. We have an additional $2.1 billion of remaining credit availability from this source. Based on current collateral availability, our open borrowing capacity with the FHLB is $1.34 billion. Please note that no funds have been needed from emergency funding facilities or from the discount window from the Federal Reserve Bank. Regarding additional actions taken to increase our liquidity position, we have a strong cash position of $381 million at the Federal Reserve Bank. As we just mentioned, we're continuing to work with our large deposit clients to promote AmeriProtect. to ensure all of their deposits are 100% FDIC insured. We increased volumes under this product by $454 million and added 127 accounts to coverage in 2Q. And we continue to include deposit covenants with minimum balance requirements for any new financing relationship. So in terms of liquidity at the holding company, we carry $60.5 million in liquidity on hand, which covers approximately four times our annual OpEx and debt service as of 2Q23. The dividend just declared by our Board will use only $3.1 million of this cash on hand. We'll turn now to slide 10. Here we provide an update on share repurchases and shares outstanding. So, after having elected to pause on repurchases in March, given industry events, we began to prudently use our $25 million share repurchase program again during the quarter. We believe the current market price does not reflect the true valuation of our stock, so this presents an opportunity to repurchase. In 2Q, as I referenced before, we repurchased 95,262 shares of common stock. And I've said this before and I'll say it again today. When done right, in a measured, prudent way, there's nothing better than buying back part of your own business. It shows you believe in what you are doing and the value you can and will create. So we'll turn now to slide 11, and we'll show our capital position relative to regulatory minimums. So at the end of 2Q23, our total capital ratio ended at 12.41%, and our CET1 was 10.02%. Our tangible common equity ratio, which includes $87 million of AOCI, resulting from the after-tax change in valuation on the AFS investment portfolio, was 7.34%. Regarding our tangible common equity ratio, here we show the impact of the 18.5 million in unrealized losses from our held to maturity investment portfolio and what that would have on our TCE, which results in an adjusted TCE ratio of 7.16%. Remember that this is not required, but we show this here to emphasize the relatively small impact this would have if included. And our tangible book value per share, also adjusted for the held to maturity valuation, stood at $20.11 as of quarter end. So with all that said, I'll turn things over to Sherry now. She'll go over key metrics, other balance sheet items, and the results for the quarter in more detail. Sherry?