Amerant Bancorp Inc.

Greetings, welcome to the Amerit Bancorp fourth quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I would now like to turn the conference over to Laura Rossi, Head of Investor Relations and Sustainability. Thank you, you may begin.

Thank you, Daryl. Good morning, everyone, and thank you for joining us to review Ameren Bancorp's four-quarter and full-year 2023 results. On today's call are Jerry Plush, our Chairman and Chief Executive Officer, and Shalimar 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 it over to our chairman and CEO, Jerry Plush.

Thank you, Laura. Good morning, everyone, and thank you for joining today's call. Today, we will cover our performance for the fourth quarter and full year. But before we do this, I would like to acknowledge and thank all of my Ameren colleagues for their dedication and effort this quarter as we completed our conversion to new core systems. This project, which required a significant amount of planning and effort, was a huge undertaking, and the team was up to the challenge. Please know that work continues in a number of areas post-conversion as more enhancements are on the way. So, moving on to what we will cover on today's call. There are clearly a significant number of items to touch on, including the commercial real estate sale and a number of additional actions we took this quarter to best position our company for 2024, given an expected decline in interest rates. For reference, we filed a Form 8 covering these on January 16, 2024, but it's important to give some additional context on today's call, which we will do. While these actions created additional non-routine gains or charges this quarter, We expect this to be behind us for 2024, and as I mentioned, best position us to execute on our growth strategy. I also want to note here that we will cover credit in detail, and we've added a number of new slides to the presentation with more detail on credit components, which Sherry will be covering shortly. So we'll turn now to cover slide three, and here we've outlined a number of key items that took place in fourth quarter. First, deposits grew by $326 million, reflective of our deposits-first organic relationship-based approach, while total loans grew $132 million. As previously reported, we made the decision to reclassify $401 million of Houston-based multifamily loans as held for sale, and we recorded a non-cast charge of $30 million before taxes in the fourth quarter. This sale is expected to be completed sometime this month. As $370 million of these loans were variable rate and at an average yield of 6.7%, This sale protects the company in a projected declining rate environment. Also, this strategic asset liability move, together with our projected increase in earning assets, is expected to create a net positive on margin after the first quarter, as we plan to use the proceeds of the transaction to reduce higher-costing non-relationship institutional deposits at an average cost of 5.6%. Finally, this repositioning also reduces CRE exposure. It's important to note that this sale also right-sizes our operations in Houston, where loans prior to this sale exceeded deposits. So we'll turn now to New York. And here we reduced higher risk assets as we completed the sale of the highest New York City CREA exposure, and we exited the non-performing loan relationship in New York City we discussed on our third quarter call. And it's all part of our strategy to exit the remaining New York City loan portfolio. Speaking of the portfolio, what remains is performing in totals $217 million and consists of 21 properties and 12 relationships. We do have one small credit, which is under $2.5 million, that is being watched. We repaid $585 million in federal home loan bank advances, recording a $6.5 million gain for the early repayment, and the replacement funding provides for a lower cost of funds going forward. We rationalized certain organizational components, such as acquiring the remaining ownership interest in Amarant Mortgage and right-side staffing, given the current rate environment. And we approved a plan for the dissolution of the Lawn Bank and Trust, our Cayman subsidiary. We wrote off goodwill for $1 million related to the mortgage company and $700,000 in goodwill intangibles related to a lawn, with expected annualized savings of $300,000 from closing a lawn. We also rationalized headcount across multiple units resulting in expected annual savings of a million after having recorded severance expenses of a million. And as noted, we completed the core system conversion and we're actively managing post-conversion items. We've recorded 1.6 million in final conversion costs related to FIS and software expenses in the fourth quarter of 23. We also restructured banked-owned life insurance to include more current team members in the plan and to provide for an enhanced yield going forward with an earned back period of approximately two years. This resulted in income tax expenses and other charges totaling $4.6 million. I'll now provide a brief overview of our financial position in the fourth quarter and year and then turn it to Sherry to go over the details. She'll then turn it back to me for some comments regarding 2024 as part of my closing remarks. So let's turn to slide four now for financial highlights for the fourth quarter. Looking at the income statement, diluted loss per share for the fourth quarter was 51 cents. It's primarily due to the net impact of those non-routine items we recorded during the period that I just covered. The net interest margin increased to 3.72% from 3.57% in the third quarter, which includes interest collected along with a loan principal recovery, which Sherry will go into further detail in a few minutes. Exclusive of this recovery, we would have been relatively even with the third quarter. Although we, like others, continue to experience the challenges of a sustained high interest rate environment along with market competition, and as a result, a higher cost of funds, this quarter we reached an inflection point in margin compression. Credit quality events continue to be an area of focus, and reserve levels are carefully monitored to provide sufficient coverage. Our provision for credit losses was $12.5 million, up $48.5 million from the $8 million in the third quarter. And again, as I mentioned, Sherry will be covering the credit components in detail shortly. Non-interest income was $19.6 million, down from $21.9 million in the third quarter, while non-interest expense was $109.7 million, up $45.3 million from the third quarter. Both non-interest income and non-interest expense contain non-routine items this quarter that I've already commented on. Total assets reached a record high of $9.7 billion, up from $9.3 billion as of the close of the third quarter. Total deposits also increased to $7.9 billion compared to $7.5 billion in the third quarter. While total loans increased $132 million, gross loans held for investments actually decreased to $6.9 from the $7.1 billion in 3Q. Our total securities portfolio was $1.5 billion, and that's up $183 million from the third quarter, while cash and cash equivalents increased $12 million to $321 million at the end of the fourth quarter. The additional securities purchased were fixed rate and they were all part of our ALM actions given an expected decline in rates in 2024. And moving on now to capital, our total capital ratio as of 4Q ended at 12.19% compared to 12.7% as of 3Q. And our CET1 was 9.84% compared to 10.3%. Our tangible equity ratio was 7.33%. which includes $70.8 million in AOCI resulting from the after-tax change in the valuation of our AFS investment portfolio, and which substantially improved in the fourth quarter from $97 million that we saw in the third quarter of 23. Lastly, as of fourth quarter, our Tier 1 capital ratio was 10.6% compared to 11.08% as of 3Q. And it's also worthy to note that on January 17th, our Board of Directors approved a dividend of $0.09 per share payable on February 29th, 2024. So we'll move now to slide five, and I'll provide an overview regarding our deposit base. As I mentioned earlier, total deposits at the end of the fourth quarter were $7.9 billion, up $326 million from the third quarter. This increase was mainly driven by an increase in relationship deposits of $365 million, while institutional deposits declined by $40 million. Speaking of institutional deposits, as I briefly mentioned earlier, we anticipate the balance of this higher cost non-relationship source of funds to be run off by mid-first quarter 2024. Our ratio of loans and deposits decreased this quarter to 92.4%. As we've referenced in prior calls, our goal is to manage it to a target of 95% and not to exceed 100%. We have a strong loan pipeline in the first quarter, so we expect to be back in this range soon. We'll turn now to slide six, and here we show a well-diversified deposit mix composed of domestic and international customers. Our domestic deposits account for 69% of total deposits, totaling $5.4 billion as of the end of the fourth quarter. That's up $340 million, or 6.7%, compared to the third quarter. And international deposits, which now account for 31% of total deposits, total $2.5 billion, down slightly, 0.6%, compared to the third quarter. Domestic deposit accounts have an average balance of $110,000, while international deposit accounts have an average balance of $43,000, and that reflects the granularity of our deposit base and the stability of this funding source. You know, as I've shared in previous calls, we intend to take advantage of our infrastructure and capabilities and begin to further emphasize international deposit gathering going forward as a source of funds given favorable pricing while continuing to add diversification to our funding base. Our core deposits defined as total deposits excluding all-time, total deposits excluding all-time deposits, excuse me, were $5.6 billion as of the end of the fourth quarter, an increase of $332 million, or 6.3%, compared to the third quarter. Included in core deposits are $1.4 billion in non-interest-bearing demand, up $35 million, or 2.5%, versus the third quarter, $2.6 billion in interest-bearing deposits, up $144 million, or 6%, versus the third quarter, and that's primarily the result of continued customer demand for higher-rate products, and $1.6 million in savings and money market deposits, up $153 million, or 10.5%, versus the third quarter. So at this point, I'm going to turn things over to Sherry. She'll go over key metrics, some other balance sheet items, credit quality, and the results in the third quarter in more detail.