Call Start: 09:00 January 1, 0000 10:07 AM ET

Amerant Bancorp Inc. (NYSE:AMTB)

Q3 2023 Earnings Conference Call

October 20, 2023 09:00 ET

Company Participants

Laura Rossi - Head of Investor Relations & Sustainability

Jerry Plush - Chairman & Chief Executive Officer

Sharymar Calderon - Executive Vice President & Chief Financial Officer

Conference Call Participants

Michael Rose - Raymond James

Brady Gailey - KBW

Feddie Strickland - Janney Montgomery Scott

Matt Olney - Stephens

Operator

Good day and thank you for standing by. Welcome to Amerant Bancorp Third Quarter 2023 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I'd now like to hand over conference over to your host today, Laura Rossi, Head of Investor Relations and Sustainability. Please go ahead.

Laura Rossi

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.

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 which are highly rate sensitive and therefore subject to flight risk. We provided more granular information on the sources and type 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, and that 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 a 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; and 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. And as an aside, which Sherry 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. And in fact, we've already booked $90 million in loan production month-to-date which has resulted in $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 into 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 then higher than expected funding costs and lower loan originations as we continue to prioritize relationship centric originations and not renew or pursued non-depository financing.

So again, back to asset size; we decreased $174 million compared to 2Q 2023. Our gross loans for $7.1 billion compared to $7.2 billion last quarter, a decrease of $74 million; and our total deposits for $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 is 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. And then lastly, regarding stock repurchases, as you know, we have a $25 million Class A common stock share repurchase program in place, and year to date, we repurchase 260,000 shares for $5 million at an average price of $19 per share, or at 0.9 times price to book value. Availability remaining under this program was $20 million as of quarter-end.

So let's turn to Slide 4 and take a look at what happened in shares outstanding during the quarter. And here you can see that during 3Q, we continue 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 transition now 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. And tangible book value per share, also adjusted for held to maturity stood at 19.9% as a quarter rent.

We will now take a look at on 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. Off note, the non-interest bearing deposits increased by $77 million and time deposits increased by $220 million, and as of course, customers continue to seek higher returns on their deposits. Note that this increase in time deposits, however, includes broker time deposits in the amount of $92 million, which was a strategic move to obtain 2-year to 5-year funding, again, as part of asset liability management. And at the same time, as I just mentioned, we reduced Federal Home Loan Bank advances by $175 million, which we're down to $595 million a quarter-end. Please note, we remain committed to maintaining our current ratio of loan-to-deposit with a target of 95% and not to exceed 100%.

So we'll turn to Slide 7 and look at our deposit diversification, and we'll look at the stability we have in this portfolio. And as you can see, it’s composed of domestic and international customers. Our domestic deposits now account for 67% of total deposits totalling $5.1 billion as of the end of the third quarter, and that's down $46 million or 1% compared to the previous quarter, and international deposits which account for 33% of our total deposits totalled $2.5 billion [ph], 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, which reflects the granularity of our deposit base and stability of this funding source. And as I've shared in previous calls, we intend to take advantage of our infrastructure and capabilities and 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 previous quarter. The $5.2 billion in core deposits included $1.4 billion in non-interest bearing demand, upto $77 million previously referenced or 6% compared to the prior quarter, despite customer demand for higher rated products and in line with our continued efforts to prioritize deep customer relationships. $2.4 billion in interest-bearing deposits 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, up 26% or 2% versus the previous quarter.

So at this point, I'm going to turn things over to Sherry who will go over the key metrics, other balance sheet items and results for the third quarter in more detail.

Sharymar Calderon

Thank you, Jerry, and good morning, everyone. As part of today's presentation, I will share more color on our financial position and performance. So 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 customer seeking higher interest rates and the 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 cost of new applications and services to be used after conversion in parallel with current applications in place. This parallel use of publications 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 [ph]. However, excluding reserved 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 this 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. Also, as of the third quarter, our corporate debt portfolio had $124 million in subordinated debt securities issued by financial institutions compared $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 to 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.

Consumers 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 continue 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 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 portfolio, 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. Also, 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 and [indiscernible] 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 people implementation 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 charge-off mentioned, $8.4 million due to loan, sold $2.6 million due to pay down, and $0.4 million due to upgrades. Non-performing assets total $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 [ph]. 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 last quarter and down from 4.1x at the close of the third quarter of last year.

As we did last quarter, we [indiscernible] from our loan supplement section to discuss our theory portfolio in further detail. We have a conservative weighted average loan to value of 59%, and debt service coverage of 1.4%, as well as 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 include sensitivity analysis for a variety of key risk factors like interest rates and their impact over debt coverage -- debt service coverage ratio, vacancy and tenant retention. Please note that 49% of our theory portfolio has been hedged by the borrower's via interest rate capital swaps, which in turn protects 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 and time deposits at current market rates. As you can see in the graph, we have served 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 color in 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% over 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 our change in rate cycle by incorporating rate floors when originating adjustable loans. So we currently have 51% over 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 results 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 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 totalled $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 reinvest 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 [ph] 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, as well as 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 [ph], 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 t New York based theory loans from loan held for investment to loan held for sale. In terms of our team wins in quarter with 700 FTEs, slightly lower from 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. And 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 [indiscernible] and 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 the name to continue to decrease in the fourth quarter, but clearly through lesser degree than in 3Q. While there are significant maturities of customer time deposits and 4Q, the gap to cover between the average previous rate and the current one is lower. Also, there was 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 three key levels. We expect operating expenses to include non-recurring expenses related to the upcoming conversion while we finalize the commissioning services currently utilized after conversion. Note that there are services that must run in parallel with the new FIS system that will be discontinued throughout 4Q and in 1Q of 2024.

Finally, we expect provision for credit losses to be in 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.

Jerry Plush

Thanks, Sherry. So before I conclude the presentation this morning, I thought first, we should give you an update on the upcoming conversion that we mentioned earlier in the call.

So here on Slide 18, we start with the first thing and most important, 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 modern stack. And this hidden course 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 rededicate themselves to focus solely on financial services. And above all things, even though I've listed a couple other items here. We believe that the transition will provide the technological platform that will adequately and exceed the expectation supporting our company's growth.

We'll turn to physical transformation and give a quick update here 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. And 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 [ph] in the Houston marketplace. The consolidation of our Edgewater Florida location will occur here in the fourth quarter and it will coincide with the opening of our downtown Miami branch. And as we previously announced we have new regional headquarters currently in process, both in Broward County [ph], so plantation Florida, and in Tampa, Florida.

And then, we'll turn to give an update on brand awareness. So on this slide, we show the key partnerships we have in place to support and enhance our brand awareness. During the quarter, we announced we entered into a multi-year extension of our partnership with the University of Miami Hurricanes which comes with significant additional branding opportunities. We also build 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 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. And please note, that we do not expect to increase marketing expense as a result of any of these Partnership Agreement 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.

So, I'll give a couple of closing remarks on where we are today. So if turned to the last slide, here you can see we're nearing the end of our transformation phase. We're excited to have the Executive Leadership team set we remained focused on attracting the right people to complement our existing team to achieve our strategic objectives. And of note, we've continued to add more experienced commercial business development team members here in the fourth quarter. As I just mentioned, we're going to be completing the transition to FIS which will provide the technological platform to support our growth initiatives. And as I also just mentioned, our plan new locations are nearing completion.

So banking centers in downtown Miami, Fort Lauderdale, River Oaks, Tampa, our new regional headquarters, much of which will happen either in the fourth quarter of 2023 or early in the first quarter of next year. But at the same time, please know that we will be reducing square footage and other corporate locations by subleasing or exiting space as an offset. And lastly, we're very proud to say that for the second consecutive year, Emery bank was recognized as one of Newsweek's top 100 most loved workplaces.

So, before we move to Q&A, I just want to take a moment and say thank you again to all of my Amerant team members for their dedication, energy and effort once again this quarter. So with that I'll stop and sharing, I will look to answer any questions you have. Operator, please open the line.

Question-and-Answer Session

Operator

[Operator Instructions] Please stand by while we compile the Q&A roster. Our first question on the line of Michael rose with Raymond James.

Michael Rose

Hey, good morning, everyone. Hope you're doing well. So, the step down in core expenses was better than we were kind of looking for by annualized that it. It obviously sets a pretty good tone as we think about next year just as we think about expenses and understanding the FIS conversion will happen in the fourth quarter. So maybe a little bit of elevation there but just help us think about expensive near term and as we think about next year, just given that the transformation efforts are kind of winding down and you're going to begin to reap, I think, more of the rewards from the work that's been done over the past couple of years. Thanks.

Jerry Plush

Yes, Michael. You know, the thing that's really important to know is that our expense base will be elevated. Again, the bulk of that is related to the fact that we're going to be running parallel, right. So I mean, both sets of applications -- both the new and existing will be for the quarter. And so in a lot of respects, that is, you know, from our perspective, something that's been for the fourth quarter, and certainly a part of the first quarter will dissipate starting no later than the second quarter of next year. So, you know, I think Sherry's comments were around, you're going to see an elevation and you know, in our mind, you know, they're not really going to be part of the core expense base going forward, as you'll see the bump up and the decline.

Look, I think expenses are something you know, I'm going to give an overall remark is something that we are going to be continuously working on. And certainly, I hope you could tell with some of the comments that I've made that the things that we're doing that are new, we are looking to offset them. So when you think about the marketing expense, you know, doing some of those initiatives and there's other things that we're swapping out are not going to do going forward not expecting any creases, you know, the same thing to be sad about the facilities expands. You know, Carlos is working tirelessly with his team on looking at opportunities to pare back, you know, we've talked about things like Hoteling which, you know, frankly fits really well with, you know, the mostly hybrid work model that we've been using here at Amazon.

So I would tell you, there's a lot of moving parts in it, and in around expenses, that you know, we're going to continue as we know, there's an increase and there will be an increase in technology expense. There's no ifs, ands or buts. But there are other things we're looking to do to reduce that and we expect to gain additional efficiencies throughout 2024 As we start to see the benefit of having you know, what I think is a much better integrated technology stack.

Michael Rose

Okay, that's helpful. And then I guess, just putting it all together. Obviously, some headwind still here on race but, you know, I think as we move through the year as it moves through next year is it fair to assume that we'll hit a point where we start to kind of achieve positive operating leverage is that kind of a realistic goal as we think about the back half of the year? Thanks.

Sharymar Calderon

It is, Michael. So when we think about the environment right now, I think there's consensus that we're either at the peak or close to it. So although there can be different views as to the timing of an inflection point or the speed of a downward trend, irrespective of that when we think about the maturity that we have, and the gap of pricing that we would cover on those that are subject to repricing I think it's going to I think it's fair to say that the impact of pressures on the net will be lower in the in the upcoming quarters, even more noticeable starting 2024.

Jerry Plush

And you know, Michael, I mean, just to add to that, you know, Sherry and I, and obviously, the Treasury team and our AICO Committee, our Asset Liability Committee, I should have said, meet and we talk about things you know, that it shouldn't be lost on anyone that the comment I made earlier about a reduction in excess cash, you know, being used, whether it's virtual, virtually no spread, we're continuously looking at ways to in you know, given the right pressures to competitive pressures on the deposit side, look for offsets. You know, one of the really encouraging signs though, that that I think hopefully everyone has as a takeaway is the jump up at non-interest bearing and our teams are absolutely intended and are actually, you know, starting to deliver more than more of non-interest bearing relationships as part of your relationships. And obviously, we're going back and existing relationships and trying to see where we can also gain additional share there. So, you know, we're very cognizant, I think, as Sherry said that loan yields at this stage look like they've, they've somewhat peaked, or certainly near the peak and so it's really incumbent on us on the deposit cost side. And as you can tell, you know, we're we've only added brokers and you know, for duration and liabilities, and frankly, those rates are cheaper than even the shorter term stuff that people are paying right now. So that's not as much of a drag as one might think, you know, as you think about him going forward.

Michael Rose

Very helpful. And, you know, it's good to see just finally, for me, just it's good to see, you know, TCF a little bit, you know, capital up a little bit. This quarter, you continue to utilize the buyback, you're still trading below tangible book. So of authorization, just wanted to get your kind of near term thoughts on usage of the buyback from here and just balancing some of the headwinds that are out there from a capital perspective. Thanks.

Jerry Plush

Yeah, you know, we talk about capital levels all the time, of course, like others do. And our view is that you know, you need to look at all the tools in the toolkit, certainly buybacks are one of those obviously, we've continued you know, our board approved, continuing to pay the dividend, and we like where we are capital wise, we certainly don't like where we are valuation wise. I'm sure that that is agreed upon by everyone. But our view is that, you know, we do need some of this capital, you know, from a growth standpoint, and so it's going to be a balancing act. And I think, again, that's what's nice about having the full set of tools and not being restricted to just one or the other, right, that we're going to use it all for growth through that we, you know, our view is it's a combination of these things, right. You know, so how we pay a dividend how we utilize the buyback authorization, how we manage and what our expectations are for growth. And by the way, we're not going to grow for growth's sake, it's profitable growth, right?

It is not going to be that, you know, obviously, this is a nice quarter to add back to capital at $22 million, you know, our view is we need to be riding in those levels, going forward to support you know, the growth plans that we have, but, I mean, I just want you to know, we sort of don't look at one of these things. Stand alone, we look at all of them. Needless to say, we do agree completely that when you're below book value that provides the opportunity to buy back.

Operator

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

Brady Gailey

Thanks so much, guys. So the net interest margin guidance for 4Q as far as being down less than 3Q and that's a pretty, you know, wide range just given 3Q is down about 25 basis points. Is there any way to type that range for 4Q and then how -- do you think that 4Q will be the bottom in the NIM? And you could see some expansion next year? Do you think there could be more downside in 2024?

Jerry Plush

Yes, Brady. Look, I think this is the quarter right where asset yields kind of topped out. I think deposit costs. Continue just for competitive purposes. Look, everyone I'd like to say we're putting on the right kind of deposits. You know, we've talked a lot about not just putting on, you know, and we've run down all that institutional stuff that comes from aggregators. Our view is that yeah, of course, there's going to continue to be pressure on funding costs. You know, that we certainly think between what we need to offer and what consumers are demanding Are you know, is going to result in pressure, you know, whether that remains to be seen is that, you know, somewhere within the range of, you know, much lower to mid-way you know, I would tell you right now, expectations are that it's really going to depend on us and our ability to generate more non-interest bearing and frankly, even more lower cost International to supplement you know, what we're doing domestically. So, I think it's, it's really going to be something that you know, could be a wide range on that.

And I think that's why sharing is not giving you something very specific. I would just say it's certainly not going to be as dramatic. The flip side is, is there's definitely going to be some so yes, I know it's a wide range, but I think that everyone in the marketplace, this is the period where we'll level in 2024? Absolutely, that's our expectation. I think we have another quarter of where there's going to be some compression and just it’s inevitable just given market conditions.

Brady Gailey

All right, yes, that's fair. And then, I want to make sure I heard you write your comment about the loan yield. There's a low yield was flat link quarter, and I know your loan yield is 6.8%. I mean, that's above average and a great loan yield, but I just wanted to make sure I understand that dynamic well that the loan yield has peaked, because I would have thought there would have been maybe some continued, especially CRE loan repricing higher and you could see that yield trip higher but you're saying you think it's flat from here?

Jerry Plush

Look, I think our view is the biggest driver in increasing loan yields, right has been the fact that we've been an asset sensitive organization. And so the positive has been that that's been the bigger driver versus higher rate new production. You're absolutely asking the right question which is yes, we will have higher rate of new production in the fourth quarter. I don't know that that'll be as meaningful enough to make it more than just give you the view of hey, it's flattish maybe is a better way to say it, as opposed to we think we are going to continue to see improvement in the fourth quarter. Do I believe if we can book $300 million to $400 million [ph] in production net new production that there'll be some pop? There should be for sure. But I still think that the way we're looking at things, there's also some other stuff that will come off that you know, may have been you know, really part of that asset sensitive, repriced portfolio, right. So, you know, that's that it's really it's really a mix issue. That'll come into play there. But my view is, I think, you know, we're better off telling you flattish and give you the positive upside you know, depending on production.

Brady Gailey

All right. And then, the surrendered volley [ph] and the $2 million benefit. What was any of that in the 3Q run rate or is that all a positive kind of looking forward?

Sharymar Calderon

It's a positive looking forward, we expect that yield to materialize fully in 2024 going forward.

Brady Gailey

Okay. And then, finally for me, just a bigger picture question. I know we have to -- you know, 1% ROA target out there. You guys were pretty much at that level last year. But you know, not near that level. Here tonight this year. And I mean, maybe the industry is not even there either. I know profitability is under pressure everywhere. But if any updated thoughts on time timing as far as when you can hit that one ROA?

Jerry Plush

Yes. Look, we absolutely expect to be back on track in 2024. I think with the great additions we've been getting on the team with the all the other initiatives we've been talking about. You know, I do want to just comment, you know, as an organization, we've had considerable time, energy and expense around this core conversion. You know, there's a lot of additional support that is going into this and you know, our view is getting this done, is going to really clear the runway for us, you know, as we go into 2024 So I think you have the positive of all these great people that have joined in my opinion and are a great team. And you know, you get the production that's going to come from that you get the conversion passes, to get the halo effect of you know, all this great new branding as you know, and it's much more targeted branding, I expect a much stronger 2024.

Look, the reality is that also you have to caveat that is that also depends on the economic conditions that go forward and 24 but we are doing all the things we can within our control. To drive towards making sure that we're back in track and that one 1% plus 12% You know, type of metrics that we talked about, and as Sherry mentioned in her comments, but we're going to have a bumpy fourth quarter first quarter just if you looked at a pure efficiency ratio just from you know, and we're giving you that without trying to exclude those things like their one time or non-recurring. We're just saying look, efficiency is going to be higher because we have to incur these expenses. So but the expectation is absolutely to get this place back on track and get back in that 60% [ph] range.

We, I think we've had, you know, and then unfortunately have had the bounce back up. But I also would tell you, Brady, look, we've had a choppy year, and I think you know, because obviously there's been some more time items there in the higher provision we reported last quarter you know, we think that we've done a really good job of assessing risk in the portfolio and getting you know, which is why our reserve coverage is higher, you know, and in this quarter in particular, you know, I do just want to know, we had some elevated charge offs, but we're accelerating our efforts to try and get the NPL MPAs offer books. And so that created some additional noise. I know you commented on that in your write up but, you know, our view is it's better to get this stuff done and off the books as fast as possible and get back into earning status get that money back in earning status; that's going to help too.

Brady Gailey

Okay, great. Thanks.

Operator

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

Unidentified Analyst

Hey, good morning, everyone. I guess I'd love to kind of touch on credit if we could and kind of maybe if you could give a view for how you think credit costs could kind of stabilize from here and what you would kind of say to investor to investors to give them some confidence around that. Then obviously, choppy for the last four quarters and maybe specifically the pace of charge offs you might expect from the Consumer Direct portfolio at this point?

Jerry Plush

Yeah, I think, let me go in backwards. We expect that to improve indirect consumer charge offs on a go forward basis. I think Sherry made a comment, that portfolio the expectation duration wise, you know, it's getting smaller and smaller every quarter and you know, maximum two years out before it's completely run off; so that would be the view. Yes, that will improve as we move forward. We think we saw an acceleration and now it's, it's coming to the right direction for us. You know, we've had a couple million dollars’ worth of charges that related, you know, from small business, you know, our view is, you know, that's been a business we've really tightened our credit criteria. It's not actually something we've done is anywhere near the emphasis that had been done in the past. And you know, the expectation is there the summit, we're going to continue to closely monitor but the big thing has been these, you know, of you just saying in the last several quarters, there have been a bunch of legacy credit. Yes, there was one that was a South Florida credit in the first quarter, no question, but there have been a bunch of these legacy credit. And it's one of the reasons why we stepped up and accelerated you know, made the decision to take the haircut on selling this New York Creek property. It was the single largest exposure left in the portfolio.

Frankly, it's one of the largest single exposures we had in the entire portfolio. And our view was better to take that haircut now and get that off the books. And as you can see, we've reduced our exposure down to 20 to 40 million as a result of that sale and the view is we've got a good line of sight into performance on the rest of that portfolio. So all that being said, you know, look at the crystal ball you have with this, we think our teams are doing a really good job of staying on top of relationships you know, following through with know your customer, you know, because there'll be an unexpected, of course, but the view right now is we think we've done a really good job of looking certainly at the largest ones which have created the most noise. But again, you know, that's there's been a lot unfortunately, we have had some significant events. Around that year, create portfolio and, you know, that's no surprise and I think we we've, you know, played even more and more attention on that one.

Unidentified Analyst

Yes, that makes sense. And so I guess, it may sound like you feel like maybe you're past the lion's share the immediate risks. I mean, obviously, like you said, we don't have a crystal ball. We don't know what's coming next year, but I mean, 60 some basis points in that charge up so far this year 32 basis points [ph]. Last year, if you had to pick a number for 2024, kind of somewhere in the middle, or I mean, I guess how do we think about the ability for that the normal estimate?

Jerry Plush

Yeah, look, our expectation again, these have been the lumpy credits; the ones that we had the most will say placed the most time and energy to watch and had concerned with. You've now seen come through right. And if you look at what's in MPLS and NPAs, in the in the real estate on portfolio, the two largest pieces of that are based off in New York. And so the view Yeah, I mean, to the extent we can continue to see paid ads in New York, we continue to see, you know, closely monitor that portfolio, I think the lumpiness that's created those charges, will come down pretty significantly, probably to the levels that you talked about 13.3% range.

Sharymar Calderon

And Jerry I’d like to add a little bit more color off late [ph]. If we look at the charge-off compensation for the quarter, and reduction of eight basis points of the coverage of the reserve is related to charge-offs previously reserved; so that takes the new charge of closer to 30% [ph]. And when we look into that competition itself, and we specifically look into the indirect portfolio, we are seeing the behaviour of a reduction of charges starting to take place this quarter, a little bit later within the quarter than what we were expecting but definitely behaviour showing improvement.

Unidentified Analyst

Got it. Helpful in many minutes and the deposit side, generally known as international deposit growth, the focus you have for a bit now but eBooks been relatively flat what kind of changes course there what would allow you to grow it and any CD maturity coming on that will help on the deposit side at all.

Jerry Plush

Yeah, look, I think the team you know, it's taken us a couple quarters to get the synergy to grow to sort of get our footing and refocusing on this. Remember, we had prior to this year, it really been in maintenance mode there, you know, combination of stabilizing it, you know, back, you know, two years ago to you know, coming through the other side of COVID so travel is just resumed. We want to be very cautious and make sure that what we are growing we have very good KYC, BSA-AML [ph] in place. And so I think we've been gaining more and more confidence there. Have to remember that the bulk of that portfolio is customers are using those accounts. So, really the net growth we need to get for this to grow was exactly your question; which is we have to book more new business and our expectation is that is in the process of ramping up.

And Steven I apologize and think your second question was around CD maturities in the quarter?

Unidentified Analyst

Yeah, just curious if there was any anything coming that would allow some of the funding cost pressure to abate at all? Not that CD costs are going down yet but just kind of wondering if there's [indiscernible].

Jerry Plush

I was going to say, you know, I think what Sherry's remarks were, is that we look at the Delta what is maturing as to be much closer, right? So these were fairly higher cost maturities this fourth quarter. So even if we did a retention, we didn't expect significant incremental expense as a result of that.

Unidentified Analyst

Okay, that's very helpful. And then maybe just last thing for me. Sounds like growth is picking back up already this quarter. You can the pipeline's are strong. I know. For most of the banks, we look at growth, it's kind of getting pulled back and people seem a bit more cautious. What kind of gave you confidence in the growth you guys are putting on is it new market expansion primarily. That gives you that confidence or can you speak to that a little bit?

Jerry Plush

I have to tell you, I think it shouldn't be lost. We made a big transition in in the team and some of the composition is a team particularly on the commercial side this year. And I think that that team is really gaining even more and more footing at this point. We're also expanding that team. I can tell you that we've got five new strong business development officers that have either started or we'll be starting frankly next week. Here at the organization we expect we've added in Broward we've added in Miami Dade [ph], I think we've had another additional person you know in the on the other side in Houston you know, and so we feel good about what the new team members are going to be able to bring in addition, right and so every time I talk about another person coming on board, you have to kind of think about that as a scorecard of their set of goals both on the loan and deposit side that are added to the core base of people that we have and so look I'm of the belief that you know, this is a this is a time it's a wonderful opportunity. People like our story they want to come here they believe that what we're doing, the execs have done a great job of you know attracting some of these folks as well.

And so, that to me is what gives confidence around our ability, you know, and of course, I have to say, you know, we talked about awareness, the awareness levels for this organization, just continue to escalate and get lots of compliments about it. You know what, I'm out in the marketplace and talking with people and I think that halo effect that comes from that is also extremely helpful in the consideration set. And look, we take every single interaction. You know, I don't want to beat the drum on this one very personally. I think that you know, one of the advantages of banking with a company like ours is the personal interaction you can get with all levels of management, the attention to quicker turnaround times. And so your reputation builds as a result of that and that's what gives me confidence that you're going to see growth out of our organization in the fourth quarter.

Unidentified Analyst

Right. That's really good girl. Appreciate the time.

Operator

Our next question comes from a line Feddie Strickland with Janney Montgomery, Scott.

Feddie Strickland

Hey, good morning. Just want to start by clarifying on expenses. Is the court expense rate your guiding to the fourth quarter is that going to be similar to the $58 million core that we saw this quarter? And then are these FIS [ph] charges being a one-time item on top of that?

Jerry Plush

Yes, no. We expect but we had -- I think Sherry and I had talked in prior quarters had a that, you know the targeting was anywhere between sort of -- I'll call it $59.5 million to $61-ish million range, and then you're going to see the elevated expense that takes place. Now that's before we do anything of some of these other additional expense initiatives that I was mentioning earlier. You know, I'd love to give you more color but I would prefer to just say that once you're going to see for to write of, you know, we'll call it, you know, five $6 million expense of running everything at the same time. Is it more of an anomaly for the period than it is you know, so that's why when we started to talk about this where, yeah, if you peel it back, we still think our run rate is in and around that range. But let's, let's be clear, we are going to have in 2024, elevated technology related expense, as part of this process that will then was we decommission things over time, that's going to be a continuous improvement exercise for us as an organization. So it will probably, as we said, certainly stay elevated in q1 at a minimum, sharing a few when added code completely right. It's going to be effective running these applications and technology efforts in parallel.

Feddie Strickland

Got it so that it sounds like over time. You think you can kind of hold them a little more flat as you redeploy some of those costs as you get as you as you quit running things and parallel into other technology initiatives [indiscernible]?

Jerry Plush

Yes. And setting in fairness, you know, just based on the comments I was making from the last set of questions. You have to take into account with us, you know, our expectation counter to a lot of other people is that we're expecting to continue to grow and it's a combination of, we just see a good opportunities in the marketplace. And so you're going to have, you know, a higher poet earnings base as well that comes into play. So some of that is a direct result of some of these other investments that we're making in people. But I will tell you, we're continuously evaluating how as this technology gets deployed, that we can better assess our ratio of business development and support, understand expectation as you're going to see us go into a true continuous improvement mode in 2024.

You know, frankly, in 2023, it's been all about bringing in some new team members to add additional growth but the vast majority of efforts you know, again under the refer to it as unnoticed and under the surface, there's just been an incredible amount of energy and effort by this team focused on this FIS conversion, and it's a massive undertaking, you know, sometimes people may not quite remember but we're converting everything. I mean, when I mean everything, everything and so this is a major, major undertaking for our company, and we could not be more excited for that date in early November to come and finally get to the point where yes, we'll start to see that you know, the pressure will be on making sure our customers are okay, we're onboarding new, new business, okay. And we can get back to really focusing more and more on you know, as I said, continuous improvement efforts.

Feddie Strickland

Understood, that's helpful. Thanks for the color on that Jerry. And just -- switching gear from moment here. I appreciate the detail rate sensitivity on Slide 15 of the deck. I'm trying to understand that second circle chart is that saying 52% of all loans, repriced within a year, or that 52% of fixed rate loans, and the reason I asked is I'm just trying to understand both the dollar amount of the loan three pricing and the average picked up you could potentially see in spread as those loans are renewed kind of going into 2024.

Sharymar Calderon

Sorry. I am going back to the slide; so 52% -- 47% over fixed or our fixed rate loan. One quick second.

Feddie Strickland

Sure. I'm talking about that second circle chart by repricing term.

Sharymar Calderon

Yes. So that's 100% of the portfolio. A 100% of the portfolio will be repricing within less than one year. But 40% to 52% of the portfolio will be reflected within less than one year.

Feddie Strickland

Do you have the amount of the fixed portfolio that's repricing over the next year? If you don't, that's fine. I can follow up later.

Sharymar Calderon

We will be able to provide lager [ph].

Feddie Strickland

Great. Thanks for taking my questions, guys.

Operator

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

Unidentified Analyst

Hey, good morning. This is Jordan [ph] on for Matt. I wanted to get a clarifying question on that NYC loan sale that's going to be taking place today that I just wanted to get a question or about the additional loss if there is going to be any given at that fair value. Could just give any color on that that'd be great.

Jerry Plush

Yes. Look, our view was we took a mark in that on that, as well -- as obviously quarter ended what we saw but I'll let Sherry go ahead. I know it was in her comment.

Sharymar Calderon

Yes. So we did take evaluation adjustment as a point of transfer. This was prior to balance sheet of $5.6 million. In the actual sale that will take place later today, we do expect some loss on sale between $1.8 million to $2 million to be recorded.

Unidentified Analyst

Sorry. What was that number; $1.8 million?

Jerry Plush

Yes. It's a non-recurring charge and we expect we have an offset you know in mind as well. So you know our view was local. This was a great move to reduce a the highest single point exposure we had left. I think it's in a highly volatile segment, you know, of commercial real estate in New York. And our view was we need to move on this because just given market conditions there, it's better to move on and not take the risk. Particularly I think there's refinance risk that would come with some of these deals, not just necessarily this one all deals. And so our view is this was a very proactive move by us to get this done and over with.

Unidentified Analyst

Understood, thank you. And then maybe one more question, talked about that bully restructure and having a $2 million benefit. Then you also talked about the income kind of staying flat at the $50 million level. Is there anything that can be offsetting that $2 million benefit? Any line items that we should be aware of?

Sharymar Calderon

No. The benefit of $2 million, and we're expecting out of their structure is moving forward fully 2024. We're not capturing 100% of that benefited fourth quarter because there's some steps so from an admin perspective that has to take place on the restructure; that's why we're providing guidance closer to the results of the $15 million we had in 3Q. But no additional offsets that we're seeing over that.

Q - Unidentified Analyst

So the 2024 fee income is going to be a bit higher than the current $15 million level?

Sharymar Calderon

That’s the appreciation [ph]. Yes.

Q - Unidentified Analyst

Okay. Perfect. Thank you for taking my questions. I appreciate it.

Operator

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

Jerry Plush

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

Operator

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