Amerant Bancorp Inc. Q3 FY2023 Earnings Call

Good day and thank you for standing by. Welcome to Amerant Bancorp Third Quarter 2023 Earnings Conference Call. Please be advised that today's conference is being recorded. I'd now like to hand over the conference to your host today, Laura Rossi, Head of Investor Relations and Sustainability. Please go ahead.

Thank you, Liz. Good morning, everyone and thank you for joining us to review Amerant Bancorp's third quarter 2023 results. On today's call are Jerry Plush, our Chairman and Chief Executive Officer; and Sharymar 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. Good morning, everyone, and thank you for joining Amerant's third quarter 2023 earnings call. We're happy to be here today to update everyone on the continued progress we made during the period. So during the third quarter, we focused on improving balance sheet composition, which included the continued prioritization of organic deposit growth, which enabled us to reduce higher-cost institutional deposits that are highly rate-sensitive and therefore subject to flight risk. We provided more granular information on the sources and types of deposits in today's earnings presentation, and I'll go into that in detail very shortly. We also entered into an agreement to sell the single largest credit exposure in our discontinued New York City portfolio, and you'll see that in loans held for sale. The closing is scheduled to take place today. We continue to work on further reductions in non-performing assets, and we've now reached the marketing stage with real estate owned. We also spent considerable time and energy on the upcoming core conversion in November, and I'll provide more information on that shortly as well. So while this was not an asset size growth quarter like recent periods, as loans and deposits overall were relatively flat quarter to quarter; in fact, the key driver of our asset size decreased this quarter was from our using $100 million in excess cash on hand to pay down advances. We made a lot of progress on many fronts, which we will cover as we review the upcoming slides. As an aside, which Sharymar will cover later in her remarks, the loan and deposit pipelines for the fourth quarter are very strong and we expect to be back in growth mode in 4Q. In fact, we've already booked $90 million in loan production month-to-date, which has resulted in a $71 million net increase in loans as of yesterday. So let's turn to Slide 3, and here we provide a summary of our third-quarter highlights. Net income attributable to the company was $22.1 million compared to the $7.3 million in 2Q 2023. This increase was primarily driven by lower provision for credit losses in 3Q as the provision recorded in 2Q was substantially higher. The net interest margin was 3.57% compared to the 3.83% we reported last quarter, a few basis points lower than we originally expected. This was driven primarily by higher-than-expected funding costs and lower loan originations as we continue to prioritize relationship-centric originations and not renew or pursue non-depository financing. So again, back to asset size; we decreased $174 million compared to 2Q 2023. Our gross loans were $7.1 billion compared to $7.2 billion last quarter, a decrease of $74 million; and our total deposits were $7.5 billion, relatively flat to the $7.6 billion last quarter. Federal Home Loan Bank advances were $595 million, a decrease of $175 million or 23% compared to the $770 million in 2Q due to prepayments we made in 3Q 2023 as part of our asset and liability management. The company's capital levels continue to be strong and well in excess of the minimum regulatory requirements to be considered well-capitalized as of September 30, 2023. Our tangible common equity ratio remains strong at 7.44% as of September 30. As we classify the majority of our investment portfolio as available for sale, the mark-to-market on this portfolio is deducted from tangible common equity. We'll get into more detail regarding capital and capital ratio shortly. Also, during the quarter, we paid out the previously announced cash quarterly dividend of $0.09 per share on August 31, 2023. Lastly, regarding stock repurchases, we have a $25 million Class A common stock share repurchase program in place, and year to date, we repurchased 260,000 shares for $5 million at an average price of $19 per share, or at 0.9 times price to book value. The availability remaining under this program was $20 million as of quarter-end. Let's transition now to Slide 4 and take a look at what happened in shares outstanding during the quarter. Here you can see that during 3Q, we continued to prudently use our $25 million share repurchase program, and we’ve repurchased 142,000 shares of common stock at an average price of $19. We can now turn to Slide 5 that will show you our capital position relative to regulatory minimums. As of 3Q 2023, our total capital ratio ended at 12.7% and our CET1 was 10.3%. Our tangible common equity ratio, which includes $106 million of AOCI resulting from the after-tax change in the valuation of our portfolio, was 7.44%. Regarding our tangible common equity ratio, we also show here for reference purposes the impact of adding the $26 million in unrealized losses from our held-to-maturity portfolio and what that does to TCE, which would result in an adjusted tangible capital ratio of 7.2%; a relatively small impact, if included. Tangible book value per share, also adjusted for held-to-maturity, stood at 19.9% as of the quarter-end. We will now take a look at Slide 6 on deposits and give you an overview of the deposit base. Our total deposits at the end of the third quarter were $7.5 billion, and that's down $33 million from the previous quarter. This very slight decrease was driven primarily by reductions in the higher-cost institutional deposits of $292 million, which was partially enabled by organic deposit growth of $208 million. Notably, the non-interest bearing deposits increased by $77 million, and time deposits increased by $220 million, as customers continue to seek higher returns on their deposits. Note that this increase in time deposits, includes broker time deposits in the amount of $92 million, which was a strategic move to obtain 2-year to 5-year funding, as part of asset-liability management. At the same time, as I just mentioned, we reduced Federal Home Loan Bank advances by $175 million, which brought us down to $595 million at quarter-end. We remain committed to maintaining our current ratio of loan-to-deposit with a target of 95% and not exceeding 100%. Let's turn to Slide 7 to look at our deposit diversification and evaluate the stability of this portfolio. As you can see, it’s composed of domestic and international customers. Our domestic deposits now account for 67% of total deposits, totaling $5.1 billion as of the end of the third quarter, and that's down $46 million or 1% compared to the previous quarter, while international deposits account for 33% of our total deposits, totaling $2.5 billion, up $13 million or 0.5% compared to the previous quarter. Our domestic deposits include over 48,000 accounts with an average size of $100,000, while our international deposits are approximately 57,000 accounts with an average size of $40,000, reflecting the granularity of our deposit base and the stability of this funding source. We intend to leverage our infrastructure and capabilities to emphasize international deposit gathering as a source of funds given more favorable pricing, while also adding more diversification to our funding base. Our core deposits, defined as total deposits excluding all time deposits, were $5.2 billion as of the end of the third quarter, a decrease of $254 million or 5% compared to the prior quarter. The $5.2 billion in core deposits included $1.4 billion in non-interest bearing demand, up $77 million previously referenced, or 6% compared to the prior quarter, despite customer demand for higher-rated products, in line with our continued efforts to prioritize deep customer relationships. $2.4 billion in interest-bearing deposits were down $356 million or 13% versus the previous quarter, primarily driven by the previously referenced reduction in institutional deposits and $1.5 billion in savings and money market deposits, which were up 26% or 2% versus the previous quarter. At this point, I'm going to turn things over to Sharry who will go over the key metrics, other balance sheet items, and the results for the third quarter in more detail.

Thank you, Jerry, and good morning, everyone. As part of today's presentation, I will share more color on our financial position and performance. Turning to slide 8, I'll begin by discussing our key performance metrics and the changes compared to last quarter. Non-interest bearing deposits to total deposits increased to 18% in 3Q compared to 17% in the previous quarter; this reflects our deposit-first focus and our efforts to increase demand deposit accounts. This positive trend also speaks to the value of building relationships and all the efforts in our market despite the challenges of customers seeking higher interest rates and market competition. Our efficiency ratio was 64.1% compared to 65.6% last quarter, and ROA and ROE were higher this quarter at 0.92% and 11.93% respectively, as a result of the lower provision and one-time charges during the period. With consistency and transparency, we show the three core metrics of ROA, ROE, and operating efficiency excluding non-routine items so you can more easily see underlying performance for the quarter. As an example, core efficiency is 62.1% compared to 60.3% in 2Q 2023, which excludes non-routine charges. These results include certain costs of new applications and services to be used after conversion in parallel with current applications in place. This parallel use of applications will also occur for the full fourth quarter of 2023 until we complete the commissioning applications in early 2024, and therefore reduce these costs. Due to this, we expect a higher efficiency ratio temporarily until early 2024. Lastly, the coverage of the allowance for credit losses to total loans decreased to 1.40% compared to 1.48% in 2Q as a result of charge-offs previously reserved. However, excluding reserves for loans individually evaluated, the coverage remained stable at 1.28%, unchanged from 2Q. Continuing onto Slide 9, I'll discuss our investment portfolio. Our third quarter investment securities balance was at $1.3 billion, which remains unchanged compared to the previous quarter. When compared to the prior quarter, the duration of the investment portfolio has extended to 5.3 years as the model anticipates longer duration due to higher mortgage rates and therefore slower prepayments. As we did last quarter, I would like to discuss the impact of interest rates on the valuation of debt securities available for sale. As of the end of September, the market value of this portfolio decreased approximately $19 million after-tax, compared to a decrease of $13.5 million in 2Q 2023. This decrease was driven by rising rates during the third quarter. It is important to note that 75% of our available-for-sale portfolio has government guarantees while most of the remaining securities are rated investment grade. As of the third quarter, our corporate debt portfolio had $124 million in subordinated debt securities issued by financial institutions compared to $121 million in 2Q as a result of higher market valuations. Our available-for-sale portfolio represents 79% of the total investment portfolio, while held-to-maturity securities represent 17.5%. Continuing on Slide 10, let's talk about the loan portfolio. At the end of the third quarter, total gross loans were $7.1 billion, down slightly 1% compared to $7.2 billion at the end of 2Q. The decrease was primarily driven by reduced originations given tighter credit quality requirements and relationship-focused origination. This was noticeable in the commercial loan portfolio, which decreased $124 million to $1.45 billion compared to $1.6 billion in 2Q 2023. The single-family residential portfolio was $1.39 billion, an increase of $58 million compared to $1.16 billion in 2Q 2023. This amount includes $82.5 million in loans originated and purchased during the quarter, primarily done with private banking customers and other strategic relationships. Consumer loans as of 3Q 2023 were $439 million, a decrease of $64 million or 13% quarter-over-quarter. This includes approximately $255 million in higher-yielding indirect loans, which were a technical move for us to increase yields in prior periods. As we mentioned last quarter, we are focusing on organic growth and have not been purchasing any new production since the end of 2022. We estimate that at current prepayment speeds, this portfolio will run-off over the next few years. During 3Q, we also continued to run-off our New York City theory portfolio. We transferred our single highest exposure in our New York City theory portfolio to held for sale and recorded a valuation allowance of $5.6 million upon transfer. This loan had a $43.3 million balance net of allowance at the end of 3Q, and we have scheduled the sale of this facility for later today. The resulting New York City theory portfolio held for investment was $240 million as of 3Q and consisted of 23 facilities. We also had $26 million in loans held for sale in connection with Amerant Mortgage, compared to $50 million in the previous quarter. Given recent industry events in connection with shared national credit portfolios, it is important to note that our exposure to these loans is limited. As of 3Q, we had $177 million in shared national credit, 2.5% of the total loan portfolio; this amount includes the theory loan held for sale I just mentioned. It is important to note that approximately half of these borrowers have relationships with us. Turning to Slide 11, let's take a closer look at credit quality. Our credit quality remains sound and reserve coverage is strong. The allowance for credit losses at the end of the third quarter was $99 million, a decrease of 6.8% from $106 million at the close of the previous quarters. We recorded a provision for credit losses of $8 million in the third quarter, which comprised of $7.6 million to cover charge-offs, $1.4 million due to loan competition and volume changes, and $600,000 added to the provision for credit contingency which is recorded in other liabilities. These provision requirements were offset by $400,000 released due to credit quality updates and $1.2 million released due to recovery. It is important to mention that consistent with previous quarterly disclosures in 2023, the quarterly 2022 provision for credit losses now reflects the segregated impact of loan implementations for those specific periods. During the third quarter of 2023, there were net charge-offs of $14.6 million, of which $6.4 million were related to indirect consumer loans, and $9.3 million were related to multiple smaller commercial loans, of which $5.7 million had already been reserved in a prior period; this was offset by $1.2 million in recoveries. Our non-performing loans to total loans are down to 46 basis points compared to 65 basis points last quarter. This was primarily due to the charge-offs mentioned, $8.4 million due to loan sales, $2.6 million due to paydowns, and $0.4 million due to upgrades. Non-performing assets totaled $53.4 million at the end of the third quarter, a decrease of $14 million compared to 2Q 2023, primarily due to the decrease in NPAs. The ratio of non-performing assets to total assets was 57 basis points, down 14 basis points from the second quarter of 2023. In the third quarter of 2023, the coverage ratio of loan loss reserves to non-performing loans closed at 3x, up from 2.2x at the end of the last quarter and down from 4.1x at the close of the third quarter of last year. As we did last quarter, we’ll focus on our theory portfolio in further detail. We have a conservative weighted average loan-to-value of 59%, and a debt service coverage of 1.4%, as well as a strong sponsorship tier profile based on AUM, net worth, and years of experience for a sponsor. As of the end of 3Q 2023, we have 30% of our theory portfolio in top-tier borrowers. We have no significant tenant concentration in our theory retail loan portfolio as the top 15 tenants represented 22% of the total. Major tenants include recognized national and regional grocery stores, pharmacy, food and clothing retailers, and banks. Our underwriting methodology for theory includes sensitivity analysis for a variety of key risk factors like interest rates and their impact on the debt service coverage ratio, vacancy, and tenant retention. Please note that 49% of our theory portfolio has been hedged by the borrowers via interest rate capital swaps, which protect them against rising rate environments. Next, I'll discuss net interest income and net interest margin on Slide 13. Net interest income for the third quarter was $79 million, down $5 million or 6% compared to the previous quarter. The decrease was primarily driven by higher average rates on total interest-bearing liabilities for both total deposits and official advances, and higher average balances of customer time deposits. As rates continue to increase during the quarter, we experienced higher beta via the combined effect of rate increases in transactional deposits, repricing of time deposits that had not repriced at current market rates, as well as higher balances in time deposits at current market rates. You can see in the graph that we observed a beta of approximately 43 basis points on a cumulative basis since the beginning of the interest rate cycle, but around 104 basis points quarter-on-quarter compared to 196 basis points in the previous quarter. Moving on to the net interest margin; as Jerry mentioned, NIM for the third quarter was 3.57%, down by 26 basis points quarter-over-quarter. This was slightly higher than we had originally guided as we saw lower than expected loan closings during the quarter based on our deposits-first and relationship-focused lending practices. We expect the margin to continue to be pressured given substantial market competition for domestic deposits and demand for higher rates. I'll provide some additional clarity on NIM in my final remarks. Moving on to interest rate sensitivity on Slide 14; you can see the asset sensitivity of our balance sheet with 53% of our loans having floating rate structures and 52% repricing within a year. As we have said in previous calls, we continue to position our portfolio for a change in rate cycle by incorporating rate floors when originating adjustable loans. Currently, we have 51% of our adjustable loan portfolio with floor rates. Additionally, you can see here that within the variable-rate loans, 37% are indexed to SOFR. Our NIM sensitivity profile remains stable compared to the previous quarter. We include the sensitivity of our AFS portfolio to showcase our ability to extend additional negative valuation changes. I would like to take a moment to discuss the change in organic improvement in AOCI, which is lower than discussed in previous quarters. The smaller amounts result from revised market expectations regarding easing monetary policy not taking place in the short term as had been expected earlier in the year. We will continue to actively manage our balance sheet to best position our bank for the remainder of 2023 and looking into 2024. Continuing to Slide 15, non-interest income in the third quarter was $22 million, down by $4.7 million or 18% from $27 million in the second quarter of 2023. As referenced earlier, $7 million of non-interest income were non-routine items. The decrease was primarily driven by lowered gains on the early extinguishment of FHLB advances and lower mortgage banking income. This decrease in non-interest income was partially offset by higher loan-level derivative income due to a higher volume of derivative transactions with clients and the absence of the $1.2 million loss in connection with the sale of one corporate debt security available for sale. Amerant’s assets under management totaled $2.1 billion as of the end of the third quarter, down $55 million or 2.6% from the second quarter. This decrease was primarily driven by lower net new assets and market valuations. When compared to the same quarter a year ago, we saw an increase of $281 million or 15.5%, primarily driven by net new assets which were $162 million and higher market valuations. Of note, this week the company approved a restructuring of its bank-owned life insurance program as we surrendered and reinvested in higher-yielding policies while also increasing team member participation. We expect improved earnings of approximately $2 million per year in future periods. Turning to Slide 16; third-quarter non-interest expenses were $64.4 million, down $8 million or 11% from the second quarter. As Jerry covered earlier, we consider $6.3 million of other expenses this quarter as non-routine expense items. Excluding these items, core non-interest expenses were $15 million in the third quarter of 2023. The quarter-over-quarter decrease was primarily driven by the absence of many of the items that were included in 2Q that were no longer in this quarter, lower advertising expenses resulting from campaigns in connection with our partnerships with professional sporting teams, and lower professional fees in connection with call center services that are no longer needed as a result of the engagement with FIFA, and the absence of additional consulting expenses in 2Q 2023. The decrease in non-interest expense was partially offset primarily by evaluation expenses related to the transfer of New York-based theory loans from loan held for investment to loan held for sale. In terms of our team wins in the quarter, we had 700 FTEs, slightly lower than the 710 we had in 2Q. Out of the 700 members, 602 are employed by the bank and 98 by Amerant Mortgage. On that note, let's turn to Slide 17 which focuses on Amerant Mortgage. On a standalone basis, Amerant Mortgage had a negative PPNR of $1.6 million in 3Q 2023, which was consistent with 2Q results. Our efficiency ratio excluding the activities from Amerant Mortgage improved from 64.7% to under 62%. During the third quarter, the company originated and purchased approximately $84 million in loans through Amerant Mortgage. As noted on the slide, these are related to the bank's customers and relationships. The current pipeline shows $107 million in process or 266 applications as of October 18, 2023, with $84 million in applications. To provide some color on our expectations for next quarter regarding growth, we estimate our balance sheet to grow between $250 million and $300 million. We foresee deposit growth to continue to be strong. We will use any excess over net loan growth to further reduce higher-cost institutional deposits and wholesale funding, including our renewing maturities in 4Q. Given competition for deposits, we expect net interest margin to continue to decrease in the fourth quarter, but clearly through a lesser degree than in 3Q. While there are significant maturities of customer time deposits in 4Q, the gap to cover between the average previous rate and the current one is lower. Additionally, there is a significant emphasis on non-interest-bearing products as noted in this quarter's results, and we intend to continue to pursue additional growth as we onboard new relationships. Regarding non-interest income, we expect it to be similar to the levels we have seen. We expect operating expenses to include non-recurring expenses related to the upcoming conversion while we finalize the commissioning services currently utilized after the conversion. Note that there are services that must run in parallel with the new FIS system, which will be discontinued throughout 4Q and in 1Q of 2024. Finally, we expect the provision for credit losses to be around $8 million to $10 million next quarter, as we do expect asset growth, as I previously mentioned. I'll now pass it back to Jerry.

Thanks, Shary. Before I conclude the presentation this morning, I thought we should give you an update on the upcoming conversion that we mentioned earlier in the call. Here on Slide 18, we start with the most important point; we're still on track for our conversion to FIS, which will take place in early November. Our primary objective is to move to a state-of-the-art core system in a modern stack. This core will create a simplified and fully integrated ecosystem of applications and will result in a significant strengthening of cybersecurity and information security infrastructure. We're very confident in partnering with a well-known and recognized provider in financial services that recently rededicated themselves to focus solely on financial services. Above all things, even though I've listed a few other items here, we believe that the transition will provide the technological platform that will adequately and exceed the expectations supporting our company's growth. We'll turn to physical transformation and provide a quick update on the efforts going on. We've completed the refresh of five branches year to date, and have two more to be completed before year-end. This will complete our entire network, which is essential for our team members and customers to have the common look and feel of the Amerant experience in all locations. We have several new locations in the works in downtown Miami and Los Angeles, which is downtown Fort Lauderdale, and Tampa, and in San Felipe and River Oaks in the Houston marketplace. The consolidation of our Edgewater Florida location will occur in the fourth quarter and coincide with the opening of our downtown Miami branch. As previously announced, we have new regional headquarters currently in process, both in Broward County, so Plantation Florida, and in Tampa, Florida. Let's now turn to an update on brand awareness. On this slide, we show the key partnerships we have in place to support and enhance our brand awareness. During the quarter, we announced a multi-year extension of our partnership with the University of Miami Hurricanes, which comes with significant additional branding opportunities. We also built on our already strong partnership with the Florida Panthers, as we are now the naming rights partner of Amerant Banc Arena in Broward County. We traded back the helmet sponsor rights, which gave us national exposure for a much improved regional focus with naming rights. We also view the naming rights of the Broward County-owned arena as a strategic step as part of our recently announced expansion plans there. Please note that we do not expect to increase marketing expense as a result of any of these partnership agreements or the new deals. We believe that these and our other partnerships position Amerant for unmatched brand recognition and business growth in the markets we serve. I'll provide a couple of closing remarks on where we are today. If you turn to the last slide, you can see we're nearing the end of our transformation phase. We're excited to have the Executive Leadership team set, and we remain focused on attracting the right people to complement our existing team to achieve our strategic objectives. Notably, we've continued to add more experienced commercial business development team members here in the fourth quarter. As I mentioned earlier, we're completing the transition to FIS, which will provide the technological platform to support our growth initiatives. Our planned new locations are nearing completion. Banking centers in downtown Miami, Fort Lauderdale, River Oaks, and Tampa will be completed either in the fourth quarter of 2023 or early in the first quarter of next year. Simultaneously, we will be reducing square footage and other corporate locations by subleasing or exiting space as an offset. Lastly, we're proud to say that for the second consecutive year, Amerant Bank was recognized as one of Newsweek's top 100 most loved workplaces. Before we move to Q&A, I want to take a moment and express my gratitude to all of my Amerant team members for their dedication, energy, and effort once again this quarter. With that, I'll stop sharing, and I will look to answer any questions you may have. Operator, please open the line.

Please stand by while we compile the Q&A roster. Our first question on the line is from Michael Rose with Raymond James.

Hey, good morning, everyone. Hope you're doing well. The step down in core expenses was better than we were kind of looking for, but can you help us think about expenses near term and as we think about next year, given that the transformation efforts are kind of winding down and you'll begin to reap more rewards from the work that's been done over the past couple of years?

Yes, Michael. It's important to know that our expense base will be elevated. The bulk of that is due to the fact that we're going to be running parallel systems; both the new and existing will be operational for the quarter. That is something we expect for the fourth quarter, and certainly into the first quarter. This will dissipate starting no later than the second quarter of next year. Expenses are something we will continuously work on. I hope you could tell with some of my comments that we are looking to offset these new expenses. For example, in our marketing expense, the initiatives we're putting in place and other things we're planning to eliminate, are not expected to result in increased costs. Our team is working tirelessly to pare back expenses while ensuring we have the necessary resources to support growth. Our view is to gain efficiencies throughout 2024 as we start to see the benefits from a more integrated technology stack.

That’s helpful. As we move through the year, is it fair to assume we will start to see positive operating leverage? Is that a realistic goal as we think about the back half of the year?

It is, Michael. When we think about the environment right now, I think there's consensus that we're either at the peak or close to it. The maturity we have and the pricing gap we need to cover on those subject to repricing will lead to a reduction in net interest margin pressure in the upcoming quarters, especially noticeable starting in 2024.

To add onto that, our team is continuously looking for offsets to the pressures of funding costs. There are encouraging signs in our non-interest bearing deposits, and our teams are delivering more of these relationships as part of their ongoing efforts.

Very helpful. It's good to see TCE improve a little bit this quarter. You're utilizing the buyback, and you're still trading below tangible book. What are your near-term thoughts on the usage of the buyback from here?

We talk about capital levels all the time. You need to look at all tools in our toolkit; buybacks are one of those. Our board has approved to continue paying the dividend, and we like our capital position. We certainly don't like our current valuations. We need some capital for growth, so this will be a balancing act.

Your next question comes from a line of Brady Gailey with KBW.

Thanks so much, guys. The net interest margin guidance for 4Q being down less than 3Q is a pretty wide range. Can you tighten that range for 4Q? Do you think that 4Q will see the bottom in NIM, and will you see some expansion next year? Or do you expect further downside in 2024?

Yes, Brady. I think 4Q is the quarter where asset yields will likely top out. There will still be pressure on funding costs, but as noted, we will aim to drive efficiencies in bank operations.

Understood. I want to ensure I heard your comment about loan yields correctly. There’s a chance continued repricing, especially for CRE loans, could push yields higher, or do you expect the loan yield to remain flat from here?

Look, we believe our loan yields have somewhat peaked, and while there could be improvements, we think they're likely to remain flattish for now but should see some pop if we can aggressively pursue new production.

Can you clarify about the surrender on the bank-owned life insurance program and the $2 million benefit you mentioned?

The $2 million benefit will be expected to materialize fully in 2024 going forward, with some steps needed to implement the restructure.

Perfect, thank you for taking my questions.

Your next question comes from the line of Steven with Piper Sandler.

Hey, good morning, everyone. Could you give a view on how you think credit costs might stabilize from here and any specifics on the expected pace of charge-offs from your consumer portfolio?

Regarding consumer charge-offs, we expect to see improvement in the upcoming quarters. Our team has tightened criteria and our focus on relationship management is producing positive watch-list results.

That makes sense. And regarding deposit growth, what changes in strategy can you point to that would allow for an increase in that growth?

Our focus has been on new business while ensuring we have robust KYC and AML controls in place. We expect to see growth and more confidence moving forward as we ramp up our efforts.

Thanks. What about CD maturities? Any that could help reduce funding cost pressure?

Yes, we expect significant maturities of customer time deposits in 4Q, but the retention and gap coverage will yield manageable results.

It sounds like growth is picking back up, which is great to hear. Can you speak to what gives you confidence in the pipeline for the growth moving forward?

We've made key team additions that are starting to deliver as we're expanding our business development team. Additionally, our encouraging brand awareness has been positively received across markets.

I appreciate the time. Thank you.

Your next question comes from the line of Freddy Strickland with Janney Montgomery Scott.

Good morning. Just want to start by clarifying on expenses. Is the core expense rate you're guiding to the fourth quarter similar to the $58 million core that we saw this quarter? And are these FIS charges a one-time item on top of that?

Yes, we expect core expenses similar to the $58 million figure noted. Additional charges related to FIS will be one-time items which we expect to see reflected.

Got it. So over time, you think you can hold them a little more flat as you redeploy some of those costs if you quit running things in parallel?

Yes, as we streamline our operations and focus on efficiencies for 2024, we anticipate seeing a clearer alignment of costs with productivity improvements.

Understood. Thank you for the color.

Your next question comes from the line of Matt Olney with Stephens.

Good morning. Can you provide some clarity about the NYC loan sale happening today and any expected losses associated given its fair value?

We took a mark on that at the end of the previous quarter. I'll let Shary share additional details.

Yes, we took a valuation adjustment at the point of transfer, which was $5.6 million. In the actual sale today, we expect a loss on sale between $1.8 million to $2 million to be recorded.

Thanks for clarifying. What about offsets that could affect income next quarter?

No additional offsets for the $2 million benefit; though it will take some time to implement fully as we work through the restructure from administrative perspectives.

Is it safe to say that 2024 fee income will be higher than the current levels?

Yes, that's the expectation. Thank you for taking my questions.

That concludes today's question-and-answer session. I'd like to turn the call back to Jerry Plush for closing remarks.

Thank you everyone for listening to today's call. We greatly appreciate your interest in Amerant. Again, thank you very much, and have a great day.

This concludes today's conference call. Thank you for participating. You may now disconnect.