Amerant Bancorp Inc.

Greetings. Welcome to AMRAD's second quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. The 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 will now turn the conference over to Laura Rossi, SVP, Head of Investor Relations. Thank you. You may begin.

Thank you, Darryl. Good morning, everyone, and thank you for joining us to review AMRAD Bancorp's second quarter 2025 results. On today's call are Jerry Posh, Chairman and CEO, and Shari Marca Alderon, Senior Executive Vice President and CFO. As we begin, please note that discussions on today's call contain forward-looking statements within the name of the Securities Exchange Act. In addition, references will also be made to non-GAP financial measures. Please refer to the company's earnings release or statement regarding forward-looking statements, as well as for information and reconciliation of non-GAP financial measures to GAP measures. I will now turn it over to our Chairman and CEO, Jerry Posh.

Thank you, Laura, and good morning, everyone, and thank you for joining us today to discuss AMRAD's second quarter 2025 results. You will notice we continue to evolve our approach to these calls, including refining the slides we will cover today. So Shari is going to take the lead in commenting on results and asset quality, and I'll wrap up our prepared remarks with some strategic updates in order to allow ample time for Q&A. As I noted in our press release, we are pleased to be reporting improved results this quarter, which are driven by higher quarter pre-permission net revenue, along with a lower provision for credit losses. A lot of time and effort this quarter was focused on asset quality, and that will continue to be a top priority for us. Low growth in QQ was offset by payoffs and paydowns, and the number of deals we closed in QQ have yet to fund. We saw solid customer deposit growth in light of stiff competition for market share, which we utilized to grow our investment portfolio this quarter. Our new banking centers continue to grow nicely, and we've included the details by banking center in the supplemental slides. And we continue to selectively add key personnel to our team, which I'll comment on later in this presentation. So with that, let me turn it over to Shari now to cover two QQ results in detail.

Thank you, Jerry, and good morning, Eric. Let's turn to slide three. Here, you will see the highlights of our balance sheet. Total assets reached $10.3 billion as of the close of the second quarter. As we guided in the first quarter, we temporarily supplemented loan originations with purchases of investment securities. Total investment securities were $2 billion, up by $209.2 million. Of note, $120 million of these securities are mortgage-backed securities, which the company classified as trading securities, and $87 million are available for sale. The gross loans were down by $30 million to $7.2 billion, primarily driven by increased repayments, which offset loan production in the fourth, as well as some loans originated that are yet to fund. On the deposit side, total deposits were up by $151.6 million to $8.3 billion, during my growth in core deposits. Customer deposits grew by $202.3 million, partially offset by a planned reduction of $51 million in broker deposits. Our assets under management increased $132.42 million to $3.1 billion, primarily driven by higher market valuations and net new assets. We continue to see this as an area of opportunity for us to grow the income going forward. Looking at the income statement on slide four, you will see that we have strong preprovisioned net revenue, driven by higher than previously projected net interest income and net interest margin. Our net was higher than projected at .81% due to recovery of interest on commercial loans, including a non-approval loan that was fully paid off and another loan that had been fully charged off, lower cost of time deposits resulting from lower average balances and repricing rates, and lower cost of senior loans as these were fully repaid in April 2025. Net increases were partially offset by higher average balances of interest bearing demand and money market deposits, by free payment, which offset loan production in Q25, as well as higher average balances in the investment securities portfolio. Net interest income was $90.5 million, up $4.6 million, primarily driven by higher average balances of securities and lower average balances and rates on time deposits. Permission for credit losses was $6.1 million, down $12.4 million, from $18.4 million in the first quarter. Non-interest income was $19.8 million, while non-interest expense was $74.4 million. Looking back at the guidance provided for non-interest expense for the second quarter, we have guided to $71.5 million. The various two actual results were primarily driven by non-core expenses of $1.2 million. Additionally, we incurred $1.1 million in expenses on customer derivatives and increased of $700,000 when compared to the prior quarter. Pre-provision and revenue was higher at $35.9 million in Q25 compared to $33.9 million in Q25, and core PPNR was $37.1 million, an increase of $5.6 million or .7% compared to $31.5 million in Q25. A reconciliation of core PPNR and the impact on Q ratio is shown in Appendix 1, included in this presentation. To use this slide 5, you can see improvement across all capital metrics. We paid our quarterly cash dividend of $0.09 per share of common stock on May 30, 2025, and our Board of Directors just approved a quarterly dividend of $0.09 per share payable on August 30 of this year. During the second quarter, we also repurchased 275,666 shares at a weighted average price of $18.14 per share.

Jerry

will cover some additional notes on buybacks and part of his remarks later in this call. Next up in slide 6, you can see we made significant improvement in our ROA and ROE disorder at .90% and .1% compared to .48% and .3% respectively. Both of these metrics reflect the improved profitability disorder. This order, we had $1.2 million in non-routine, non-interest expenses, which included an $800,000 net loss on the sale of two-order property and approximately $400,000 in salaries and employee benefit expenses in connection with a downside deogamera mortgage. Our core efficiency ratio was 66.35%, core ROA was .94%, and core ROE was 10.49%. Turning to slide 8, here you can see the roll forward of classified loans from the first quarter to the second quarter, showing a net increase of 9.3 million or .5% to 216.4 million, primarily due to two theory loans and a net increase totaling 21 million downgraded to substandard due to the loss of a tenant and the length in repositioned funds, as well as two commercial loans totaling ,000,000 downgraded from special mention and two commercial loans totaling $18.3 million downgraded from PAS. These downgrades were based on receipts of year-end 2024 and 1-25 financials. These increases were partially offset by approximately $50 million in charge-offs, pay-offs, and loan sold. Classified loans include nine loans totaling $134 million that remain in accruing steps. Let's move on to slide 9, where we included the roll forward of non-performing loans from the first quarter to the second quarter of 2025, showing a significant net decrease of $41 million mainly driven by a combination of pay-offs, loan solds, pay-downs, and charge-offs. It is important to note that the charge-offs included three commercial loans totaling $16 million with $12 million previously in specific reserves. From an NPA standpoint, in addition to the reduction in NPL, two out of four order properties were sold during the quarter, therefore reducing our order balance to $15 million. Turning to slide 10, we showed the roll forward of special mention loans from the first quarter to the second quarter and provide color on the main drivers of these changes. Special mention loans increased by $33 million, primarily driven by three CRA loans totaling $36 million that missed certain milestones. However, there are acceptable mitigants in place, such as adequate -to-value, interest reserves, personal guarantees, or other structural enhancements. The increase in special mention loans was also due to four commercial loans in multiple industries, totaling $57 million of rated basement receipts of year-end 2024 and year-end 2015, and the increase in special mention loans was due to the increase in the first quarter 2025 financials. These increases were partially offset by $22 million in pay-offs and further down rates declassified previously mentioned. Now moving on to slide 11, which shows the drivers of the $11.7 million decrease in the allowance for credit losses. The provision for credit losses was $6.1 million in the second quarter. Excluding reserves for commitments, the provision was $3.6 million and was comprised of $6 million to cover net charge-off, $2.2 million due to macroeconomic factors offset by releases of $1.4 million due to loan growth, and $3.3 million due to recovery. During the second quarter of 2025, there were gross charge-offs of $18.6 million related to three commercial loans, totaling $16 million, with $12 million previously in visited reserves, $1.7 million related to purchase consumer loans, and $1.1 million related to certain smaller retail and business bank accounts. This was offset by $3.3 million in recovery, primarily due to the recovery of $1.9 million related to a commercial loan previously charged off. Lastly, the coverage of the allowance for credit losses to total loans decreased to 1.2%, compared to .37% in the first quarter, primarily due to the charge-offs in specific reserves. Otherwise, net of specific reserves, the ratio remained unchanged at 1.17%. Turning now to slide 12, I'd like to provide some details on our expectations for the third quarter of 2025. Starting with the deposit side, we continue to expect -15% annual growth by year-end 2025, even if this is not linear during the third and fourth quarters. Also note that we plan to further reduce brokerage deposits by at least $100 million, and replace with either official B-Advances or incremental organic deposits. On the lending side, we expect to evidence loan production and growth of approximately 5% annualized by year-end. In 3Q, we project an increase in investment security similar to what we saw in 2Q. Looking at profitability, we project our net interest margin to be approximately .75% for the third quarter. We project non-interest income to be at $17.5 million in 3Q and $18.5 million in 4Q. Regarding expenses, we expect them to be in line with what we reported as 4 non-interest expenses for 2Q of $73 million, based on recent key additions to the team and investment in continued expansion in Florida. This is expected to be partially offset by the investment inflows. And as previously stated, we are prioritizing ROA over all other metrics and continue to expect to reach 1% in the second half of 2025, confident of any significant macroeconomic updates to be captured by the allowance model in the last quarter of 2025. And with that, I pass it back to Jerry for additional comments and closing remarks.

Thanks, Jerry. Finally, turning to the final slide we'll cover, I'm going to provide some color on the topics that we've listed here. So first, regarding Amric Mortgage, as we reported last quarter, we've been executing on a plan to reduce the size and scope of our mortgage business, transitioning from being a national mortgage or rich-hater to focusing solely on input-print mortgage lending to support our retail and private banking customer base. We've been progressively reducing the FDE account toward our stated goal of under $20 million, and we're in the process of transferring loans owned into our core platform. We expect everything to be completed no later than early 4Q. Next, regarding where we stand with the opening of new banking centers, we anticipate opening the first of our two new Miami Beach offices in the third quarter, with the second office in Miami Beach, plus our downtown Tampa Banking Center to be open in the fourth quarter. Please note we've also recently entered into an agreement on a highly visible location in St. Petersburg, and we anticipate a second quarter 2026 opening there. While we continue to look for opportunities in the greater Tampa marketplace, you should note this new St. Pete location gives us three of the original six offices that we initially contemplated. But at this point, we're now looking at a longer time horizon than trying to complete the rest of this expansion in 2026. Let's talk a little bit about new people that we added in the quarter to risk and business development. So, on our first quarter call, we announced several key additions to our leadership team, both in risk and business development. And we noted we were going to continue to add talented individuals in both areas again in the coming months. So, in the second quarter, we've added a new head of special assets, and just this week, our new head of credit for CNI started. And both of these talented individuals have strong experience from larger commercial organizations. And on the business development side, we recently announced the addition of Elliott Schaefer, who joined us from Huntington, to head up our business development efforts out of our recently opened West Palm Beach Regional Office. And joining us in August is our new head of loan syndications and sales, who has a demonstrated proven track record of success at several well-known institutions. He will definitely assist us immediately with our loan broke agenda as we continue to see new large relationship opportunities that, for crude risk management, we need to participate in these deals with other banks. But wrapping up my comments on talent additions, we have and will continue to selectively look for additions to build to our team, or add to our team, I should say. Our loan strategy going forward. So, on our first quarter call, we noted that reduced loan growth may result in temporary increases in merged-back securities to offset any shortfalls. And we saw that happen in the second quarter. So, for the second quarter in a row, we were basically flat in loans, outstanding quarter over quarter. Despite the fact there was a significant amount of activity. A couple of things are happening here. Please note, asset quality is our top focus. Booking a number of construction deals here today that have not flooded yet, and higher paydowns in a projected have all contributed basically to having flat numbers quarter over quarter. So, it's fair to say that rebuilding our momentum will need to come in the second half of 2025. And a big part of that will be boosted from recent talent additions we've made, like I mentioned, and there are more in almost all of our regions. So, the new head of business development, the new head of loans, indications and sales, along with other additions, RMs, each of our locations, will continue to help rebuild and boost our pipeline. Let's talk about the continued efforts we're putting on improving asset quality and reducing non-performing assets. So, regarding asset quality, I think needless to say, further MPL reductions are a top priority for us right now. And the need to continue to proactively address credit quality is paramount. It's important to recognize that work is also underway on further strengthening our risk culture now, that we're a regional bank with the heightened scrutiny that comes with that. The new additions to our team are already contributing and having an impact there. And last, on improving capital management and specifically on buybacks. So, with respect to capital management, our intention remains the same as we've previously stated. We're going to take a prudent approach, which involves carefully balancing the need between retaining capital to support our growth objectives, compared with buybacks and dividends to enhance returns. As Sherry mentioned in the second quarter, we utilized the -5-1 plan to purchase shares up to $5 million in the quarter. We expect to continue to crudely repurchase shares, depending on trading volume and the price in the third quarter under the current remaining amount authorized. Any conclusion, please know that we continue to be steadfast in our focus of continuing to execute on our strategy to be the bank of choice in the markets we serve. So, with that, I'll stop all our prepared remarks and we'll look forward to, Sherry and I will look forward to answering any questions you have. So, Operator, if you would, please open the line.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. The confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for your question. Our first questions come from the line of Russell Gunther with Stevens. Please proceed with your question.

Hey, good morning, guys. Thanks for taking the question. I wanted to start on the loan growth discussion. I appreciate the color you shared and the prepared remarks. Maybe just a bigger picture and thinking maybe into 2016. Should we be thinking about you guys more in the mid- to mid-growth range going forward? And is this reflective of a strategic refocus or is it more just market driven?

Yeah. Hey, Russell, thanks for the question. No, I think you should expect us to be back in double-digit growth. You know, we've talked about, you know, very consistently that our deposits first focus is our number one priority. I want to continue to emphasize the quality, the organic growth that we're seeing on the deposit side. And I think as Sherry referenced, we're well into the mid-teens, you know, on that side. And so that's enabling us to be able or I should say affording us the opportunity to also grow equally on the loan side. You know, our expectation is a rebuild of the pipeline and, you know, with some of the new additions. And again, I'm not going to elaborate on the number of additions on the RM level that we've made. But I think our focus, and I said this on the call right now, our focus has been solely, you know, as a top priority on asset quality. But our expectations are there are significant growth opportunities in the markets we serve. And we should be back into higher loan growth in coming quarters and certainly in 2026. But we're going to continue to be very prudent and selective in the additions that we're going to make on the loan side.

Okay, great. Thank you, Sherry. And then just one more for me, switching gears on to the asset quality discussion. So nice to see the NPAs come down this quarter. Charge-offs were a bit higher than at least I was expecting. So we also saw a build back in classified and special mention. Would just be helpful to get a sense for how you guys are thinking about realized losses in the back half of this year. I think we kind of talked about the 30 to 40 basis point range prior and I guess just what's embedded in that 1% ROA expectation in the back half of 25.

Yeah, Ralph, I think the key thing, and Sherry referenced it a couple of times in her remarks,

we had

already provisioned for the uptick that we took this quarter in charge-offs. So again, the 12 of the 18 million was already in specific reserves. So if you subtract that and then do the comparison from a charge-off rate, we were relatively flat quarter over quarter. I think we were probably in the five and a half range last quarter. So roughly six and change this quarter. And that's still the core of continuing to see a good consumer, indirect consumer charge-offs, and some of the business banking charge-offs is primarily the key drivers there.

And Jerry, to add to that, also in the 1% ROA that includes the probation number, we do still expect some long-runs occurring in the second half of the year. So that is built within the probation expectation because we would have to set up reserves on day one.

Thank you, guys, for taking my questions.

Thank you. Our next questions come from the line of Steven Skowin with Piper Sandler. Please proceed with your questions.

Great. Thanks. Good morning, y'all. With extending on that conversation with, as you mentioned, some of the loans at charge-off already having specific reserves, would this 120 loan loss reserve kind of be the right way to think about how you need to reserve for the loan book currently? Yeah, look,

Steven, great question. I think that's right in the range. Allowance is always going to depend on what asset classes you're growing in, right? And so, you know, I think thinking around the 120-125 range is probably a good way to think about us level-wise. But, you know, we'll record and we'll certainly be talking about where we're growing and what the reserve requirements are. I mean, you know, part of this quarter with growth coming from, you know, the quarter definitely benefited, you know, when you think about the flat from a low-growth standpoint, you know, that obviously is actually a positive. And the growth that we did book came in the investment side, right? But as Sherri just referenced, you know, the way we look at it is you book the provision alongside with, you know, when you record the growth. So, you know, our expectation is, you know, and as she's mentioned, the provisional will tip off a little bit because we expect the low-growth to start to come back in. And

then one thing also to add is that we have, as you were able to see, the provisions does have a component of a funding commitment. So, as we move into funding those, you know, you will see our re-op, it's not going to be a provision, but you're going to see our re-op into the funded portion. So that will impact you.

Sure. That makes sense. And then as you guys in the third quarter outlook looks like the margin is projected to be down a touch, can you walk me through some of the dynamics there? I mean, given where the -to-deposit ratio has moved down and the expectation for growth to kind of resume, I would actually kind of theoretically thought there'd be incremental upside to the NIMM on a positive remix. But maybe you can help me think through those dynamics or where you think the NIMM will trend beyond third quarter?

Sure. So I think the first step, Stephen, is to normalize the NIMM because this quarter we had a component related to our recovery and we also had a component related to collection of an NPO. So if we normalize the NIMM and we think about what would be different in the third quarter, the first thing I would say is we're expecting to have slightly higher average balances on the wholesale side based on the timing of the maturities within the quarter and the replenishing of that wholesale funding. But the second thing is related to the securities portfolio where we're going to see a full quarter effect of a higher securities balance that while it definitely is a contribution to NII, it's slightly lower than the average of the NIMM. So once we see that full effect in the third quarter, it takes us to the 375. With that said, we're also working in terms of NPO resolution. So if we do see collection of those items, then it will certainly impact NIMMs like it did this quarter. So the 375 is guidance towards a normalizing NIMM.

Okay. And what does that compare to this quarter? I forget if I missed that, but relative to the 381, what's the kind of normalized NIMM would have been this quarter?

I would say four basis points less, more or less.

Okay, great. And then lastly for me, Jerry, you noted higher around the loan syndications and sales head. I'm kind of curious how you guys are thinking about that component moving forward. If that is something where you're desiring to move up market and do some larger loans and kind of if there's maybe a limit of where you'd say, hey, at this dollar amount, we want to syndicate everything out above this dollar amount or just kind of how we can think about that from a business

perspective? Yeah, no, I really appreciate that question so we can clarify. Right. I think the sense, Steve, and one of the nice things I think that we see in terms of opportunities is we're getting a chance at a lot of significant size deals. And to me, I think that you have to look at this as number one, it's really prudent risk management if we go to look at a larger size credit. Let's just use for illustration, if you get a $50 million opportunity, it's a great credit, it's really good, really well underwritten. We want to hold 25 of that, right? And that's kind of where I want to make sure people understand. We're not really looking at this by having this position and eventually building probably some support around Irving and it's very prudent for us to be participating in these deals with a second or even a third bank, right? And so I think this is part of a natural evolution of becoming a true regional bank. We've had in the past, and I know we've talked about this on calls, have had several large exposures in the portfolio. And our view is just, we've got customers that are growing. It's just another opportunity for us to continue to grow with them as opposed to they outgrow us, right? So while we're both growing, this just gives us that letter of where we can continue to maintain great relationships that we've seen from the very beginning. And I just think it's, like I said, I'll say this one more time, it's just really prudent from a risk management standpoint for a bank our size. We look at things from a capital perspective, it's still true of us.

Yeah, I appreciate that. That's a great color, allowing you to grow and still managing the risk and the concentration. I appreciate all the time. Okay, thank you.

Thank you. Our next questions come from the line of Michael Rose with Raymond James. Please proceed with your questions.

Hey, good morning, everyone. Thanks for taking my questions. Maybe I'll just kind of ask the same question that I asked last quarter. Jerry, where do you think you are in terms of the evolution of asset quality? Maybe we'll use hockey analogy this time since the Panthers just won, but what period do you think we're in? Do you think, I know it's hard to make definitive statements, but do you think we've already reached the peak in criticized classified? And we should expect continued progression from here, just given what seems to be an improving macro backdrop, just from trade deals being struck, everything macro that's seemingly off the worst case. Just wanted to get your view on where we are and how this plays out over the next year or so. Thanks.

Yeah, no, Michael. Thanks for the question. Look, I think we put ourselves in a position with the talent we've added to the organization and the approach. And I reference this around heightened scrutiny that you go through as a regional. You know, I think from our perspective, you know, I wouldn't refer to it as innings or periods as much as I think this is just part of the natural transition for us as an organization. You know, around credit quality,

we are

recognizing any concerns that are out there as proactively as we can and addressing them. And I think, you know, when you hire and have the talent around special assets that we've talked about the additions in terms of leadership and the credit side, you know, we're working on this on both sides, right? We're looking to always, you know, look at ways to strengthen credit culture, the risk culture in the organization at the same point in time. And, you know, we recognize that, you know, it's critically important to make sure that we can get consistency, you know, from the results and we don't want the credit bonds coming for us. So, you know, I'm not really ready to tell you one way or another where we are on something. I would take it that the good news is the non-performing loans continue to come down. We've put the right people in the right seats. And I think that, you know, we're proactively and transparently, you know, we're in a better position today than we were the last quarter and where we've been in the past. And I think that's the really important takeaway that it should happen.

Okay, helpful. And then just maybe tagging onto that, I mean, you obviously brought in some people from some larger organizations last quarter. It's been 90 days. I know then it was kind of too early to, you know, lessons learned and maybe some policies, procedures put into place. But if you can just share with us anything that, you know, has kind of materially changed, you know, from a underwriting or grading or just new production standpoint, that would be helpful just to get more comfortable on the go-forward and what you're putting on the books today. Thanks.

Yeah, I mean, we are looking, you know, I would call it sort of a anything that's coming on the books today. And I'll give you a great example. We're making sure, you know, that comes back to the syndications comments, you know, from the last set of series of questions, making sure that we don't get into a situation where we can't retain credits, right? Or that, you know, we're in a position where, you know, taking such a forward look on our underwriting. I think we're in a better place than we were in the past there. But I also would tell you that, you know, look, I think the key asset quality ratios that everyone should be looking at with us are non-performing loans, because if we dictate that a loan has to go on non-approval in NPL, I think that's the leading indicator. And I would also say that, you know, one of the things we did not talk about and highlight, and I know that past quarters people were concerned, right? You know, I think we do think that the allowance as it relates to non-performers is a really critical ratio and we're happy to be back over, you know, 100% coverage there. So early identification, you know, really, you know, I would say that strengthening, and by the way, we just talked about adding, you know, a new head of CNI to the team comes from a larger organization, larger organizations in her background. We're excited, you know, for continuing to build, you know, we don't want the growth for growth's sake. We want to make sure that we're putting the right growth on. And we think these are all been prudent steps to do at this point, again, because of the transition we're making from being a community organization to being a regional bank.

I appreciate the color, Jerry. Maybe just one more, switching gears. You know, the last couple quarters have been fairly heavy in terms of hiring. Do you expect the pace to kind of slow, at least on some of the back office non-revenue producing efforts as we move into the fourth quarter? And as we think about kind of the intermediate term, you know, where do you think from an efficiency standpoint you guys can operate? I'm not trying to ask for kind of, you know, longer term targets necessarily, but, you know, I think, you know, everyone wants to obviously see these revenue hires, you know, be accretive to the efficiency ratio, but kind of intermediate term, you know, where do you think the company should and can continue to run just with obviously the pickup and growth, but obviously continue to support, you know, revenue growth efforts with additional hires? I just wanted to get a sense for kind of where we're going and kind of what the efficiency could look like kind of intermediate to longer term. Thanks.

Yeah, look, I think, no, it's a very fair question. You know, our projections are from, you know, let's call it from an earning asset perspective. If you would look at it sort of on a total asset side, we know that with the hires that we've made, we want to be in the, you know, 11 billion plus range. So, I mean, 11 billion pretty much gets us and, you know, from an earning asset standpoint, much closer to being a 60% efficiency organization. So, you know, our expectations and, you know, when Sherry referenced in her comments, right, we're focused on getting to a one ROA, getting to, you know, the 11 and a half, 12% ROE type of numbers. The efficiency is going to come with that with just increased size. So, you know, I want to go back and address it head on though. Your specific question is we think that the selective hires that we've made are absolutely going to be agreed to us, you know, as part of getting to that 11 plus billion dollars, right? And so, you know, I think the other thing, Michael, I take away from the comments that we made this morning, really important is, you know, we're looking at ways to adopt artificial intelligence to make ourselves more efficient. I also signaled to everyone that, you know, we're going to have a slowdown as it relates to, you know, the physical expansion here because, you know, we've had it a lot. And, you know, that's already reflected in the numbers. Sherry likes to remind me every day, you know, the second we sign a new lease, we're incurring the expense, you know, it's only the incremental expense. It's actually the expense of the people in running the office. And so, you know, we're sort of doing a balancing act here of, hey, it's, we expect more deposit growth, more loan opportunities, more relationship opportunities from these new locations. You know, our expansion is pretty significant, right? And so, I think that's what we've done so far. And by the way, I highly encourage people to look into the supplemental slides and see the growth that's coming from these new locations. They are already, you know, not only meeting but exceeding expectations, all of them, and we're very excited about that. And our expectations are that's going to come from these, you know, what I referenced is the four additions, the three that will come this year between the third and the fourth quarter and the one we expect open in the first quarter. But if you take a combination of all my remarks there, we're looking at ways to become more efficient. We're scrutinizing expenses to get that efficiency ratio to the 60, and, you know, the expectations are a combination of incremental asset growth, you know, the hires we've already made, opening the locations we have, you know, we feel confident that that is, you know, something that is going to be easily achieved with those components all coming together.

Jerry, I appreciate all the color. Thanks for taking my questions. I'll step back. Absolutely. Thanks, Michael.

Thank you. Our next questions come from the line of Will Jones with KBW. Please proceed with your questions.

Hey, guys. Good morning. Morning. Hey, Sherry, I wanted to circle back on the margin discussion. I know you called out some interest recovery that happened in the quarter, just to help us, you know, normalize that margin. Do you have that dollar amount of recoveries? And then just a follow on to that. I appreciate all the helpful color around the guidance and where the margin could be ahead in the third quarter. But could you just remind us from an asset sensitivity standpoint, you know, where you guys kind of stand today and, you know, what maybe a cut or two would do to the margin as well? Sure.

So, in terms of the normalization of the NIM, I think we should be close to $1.2 million, adding both the recovery and the collection from the NPL, so between $1.2 and $1.3 million. And then in regards to the second question about the NIM for the third quarter, I guess the question would be the components towards the $3.75, just to make sure I addressed the question.

Or it was really just help us sensitize the margin. If we do get a few cuts in the back half of the year, what does that do to the margin? And just, you know, any general commentary on your asset sensitivity? Sure.

So, at least for forecast purposes, we're modeling one cut occurring in September and one in December. So, third quarter wouldn't receive much of an impact from that cut. It would be more seen in the fourth quarter. Typically, a rate cut, assuming a full quarter impact, would be around $1.4 to $1.5 million to NII.

Okay, that's great. That's helpful. And then just, could you maybe talk us a little bit through the decision to kind of see the securities balances build here? And how you weigh that decision as opposed to maybe paying down some of your broker deposits or wholesale borrowings? Just the decision, I guess, to build the balance sheet as opposed to shrink it and make it a little more efficient. Thanks. Yeah,

I think it's not an either or. I think we're looking at multiple options. We are considering in the third quarter a reduction of broker deposits. Depending on the timing of the loan funding, we would either replace it with some wholesale funding or we would actually pay it down and not renew. So, it is a possibility. However, we do see that through the investment portfolio, we're getting a very decent yield from the portfolio. Still, from a risk weighted asset perspective, it's helpful as well. And you can see that through metrics like CET1. So, I do believe that we're getting optionality through the securities portfolio. We have cash flow optionality so that we can fund the portfolio as the pipeline materializes.

Yeah, well, I think it's not an either or. I think Sherry just described it perfectly.

We're looking

at all options there. I think we signaled that our intent is to reduce brokerage and we're going to continue to look at that as whether that gets replaced with organic, whether we need to take advantage, just given where we are. We're looking at options around taking additional advances to offset. I mean, obviously, we have a lot of collateral, billions of dollars, obviously, at this point. But I think we've signaled again that we view the increases in investments as temporary. Obviously, we want to run the company in the 90 plus range on most of the deposits. We've been very consistent about saying 95% is sort of the optimal target. We're running in the mid to upper 80s right now. I think we're at around 86 or so. And we obviously strongly prefer to be funding long growth right now. And that's our expectation is that we'll continue to build back up as we move forward.

Okay, that's great. I appreciate that. And then, Sherry, just to highlight for you, I know that you're very much an organic focused story right now. You're very much focused on building density in the state of Florida. You know, but at the same time, there's quite a bit of optimism out there regarding just M&A and what's happened and maybe more of a deregulatory environment. Could you just help us recall where M&A stands in terms of your priority list and whether you feel like that could be an opportunity for you guys down the road here and maybe whether you consider either upstream or downstream M&A.

Yeah, look, I think that we've said, you know, and as you just referenced, you know, organic growth is sort of the top priority and focus for the company. And, you know, I think that will continue to be but that doesn't mean that as our currency improves. I think that's probably been and again, we've had so many significant projects, right, you know, between system conversions, the additions, the expansion. That's kind of been the focus. But certainly, as we look at the playing field, everything you just referenced, you know, the regulatory environment, you know, our hope for us, you know, there's higher returns from us that our currency gets better. Of course, we'll look at it as an option, but that is not the top focus. Our top focus is continuing to grow and continuing to be the bank of choice in the markets that we serve, right? So if you think about the opportunities we believe we have, you know, in greater Tampa Bay, St. Pete, if you look at, you know, the expansion we've done in Palm Beach, you know, our view in Palm Beach County, I should say, I think there's just lots of opportunities for us, you know.

Yeah, that's very helpful. Thanks for all the color, guys. Okay.

Thank you. Thank you. This now concludes our question and answer session. Now, we now would like to turn the floor back over to Jerry Plush for a closing comment.

First of all, let me just say thank you to everyone for joining today. We appreciate it, given the opportunity to share some of our comments and provide some color on second quarter results. Greatly appreciate everyone's interest in AMRIT and your continued support. Have a great day and thanks again.

Thank you. This does now conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.