AMTB - Amerant Bancorp Inc. (AMTB) Q1 2023 Earnings Call Transcript
2023-04-21 13:47:02 ET
Amerant Bancorp Inc. (AMTB)
Q1 2023 Results Conference Call
April 21, 2023 09:00 AM ET
Company Participants
Laura Rossi - Senior Vice President, Head of Investor Relations
Jerry Plush - Chairman, Chief Executive Officer
Carlos Iafigliola - Senior Executive Vice President, Chief Financial Officer
Conference Call Participants
Michael Rose - Raymond James
Stephen Scouten - Piper Sandler
Feddie Strickland - Janney
Matt Olney - Stephens
Will Jones - KBW
Presentation
Operator
Good day and thank you for standing by. Welcome to the Amerant Bancorp, First Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions]. Please be advised, that today's conference is being recorded.
I would now like to hand the conference over to your speaker today, Laura Rossi, Head of Investor Relations and Sustainability. Please go ahead ma’am.
Laura Rossi
Thank you, Michelle. Good morning everyone and thank you for joining us to review Amerant Bancorp's first quarter 2023 results. On today's call are Jerry Plush, our Chairman and Chief Executive Officer, and Carlos Iafigliola, our Senior Executive Vice President and Chief Financial Officer.
As we begin, please note the discussions on today's call contain forward-looking statements within the meaning of the Securities Exchange Act, in addition, references will also be made to non-GAAP financial measures. Please refer to the Company's earnings release for a statement regarding forward-looking statements, as well as for information and reconciliation of non-GAAP financial measures to GAAP measures.
I will now turn it over to our Chairman and CEO, Jerry Plush.
Jerry Plush
Thank you, Laura. Good morning everyone and thank you for joining Amerant's first quarter 2023 earnings call. This morning, we will report on our results for the quarter and we'll make some comments on quarters to come.
It has certainly been quite an eventful last 30 days or so for the industry. Carlos and I will provide some color again on the results of the quarter and how well we believe Amerant is positioned for the rest of 2023 and beyond, given the actions we have been taking not just this quarter but over the past two years.
But before we do that, I'm delighted to announce the promotion of Carlos Iafigliola to Chief Operating Officer. This well-deserved promotion, which is effective immediately, is clearly the result of the significant contributions Carlos has made to Amerant, as our CFO over the past three years. In the interim, he will continue to serve as our CFO as well, until such time that we announced the successor. By Carlos taking on this new role, I will ultimately have greater bandwidth as well to help drive incremental business for the company.
So please join me in wishing Carlos much success here for years to come as he takes on his new responsibilities.
Also, we recently announced the new member to our Board of Directors. Ashaki Rucker, who joins us this week is a consummate professional with extensive human capital management experience. And she truly complements our current group of highly skilled, dedicated and growing number of locally based Board members. We want our Board to eventually be in footprint and involved in the communities we serve and Ashaki joining our Board is another step in that direction.
In addition, this week, we just announced two significant senior executives joining the company, who we believe will be significant contributors towards the achievement of our strategic objectives. We are pleased to welcome Juan Esterripa as our new Head of Commercial Banking and Caroline Verot Moore as our new Houston Market President. Both of whom are replacing individuals who stepped down from these respective positions.
We also announced that the market presidents of Tampa and Houston will now report directly to me. We have significant opportunity for profitable growth in each of these markets, and we're excited about our prospects.
So I'll now provide a brief overview of our performance in the first quarter, and then I'll hand it over to Carlos to get into the details. We've added a significant amount of details in our earnings presentation, including information on our liquidity management practices, and Carlos will describe specific actions we took to strengthen our liquidity position this quarter.
He will also provide detail on specific one-time items and will cover new charts and information we've included, such as showing the impacts of valuation of our AFS portfolio, as well as the unrealized losses from our held to maturity portfolio and what that does impacting our tangible common equity ratio.
While he will also go into greater detail about the following items that impacted the quarter. I wanted to summarize these points upfront.
First, we recorded a provision for credit losses of $11.7 million this quarter, of which $2.2 million was related to loan growth and $2 million reflected updated economic factors. With the balance covering charge offs that took place. The provision was higher than projections for the quarter giving unexpected charge offs late in March 2023 related to a specific transportation industry relationship. The trucks and trailers from this relationship had been fair valued, and they're now held in other repossessed assets.
Non-interest expenses were $64.7 million this quarter, of which $3.4 million were non-routine items. In addition, we elected to continue to invest in business development personnel, specifically in commercial banking and Amerant Mortgage, which resulted in higher than expected routine non-interest expense. But please note, we intend to find efficiencies to offset these recent investments in personnel, we have made in the coming quarters. More on that in a few minutes.
So let's turn to Slide three, where you can see a summary of our first quarter highlights. Net income attributable to the company was $20.2 million, compared to $22 million in 4Q '22. This decrease was primarily driven by lower non-interest income and higher non-interest expenses during the period, partially offset by the lower provision for credit losses in the fourth quarter, compared to the fourth quarter.
As a reminder, we adopted CECL in 4Q '22, which drove the higher 4Q provision. The higher non-interest expenses include a number of one-time items as well as the increased investment and business development personnel, as I just mentioned. Net interest income in the first quarter was virtually unchanged when compared to the prior quarter, as we were able to offset higher average costs and balances on deposits and FHLB advances with higher average yields and balances on earning assets.
As a result, the net interest margin was a strong 3.9%, just slightly below the 3.96% that we've reported last quarter. Our balance sheet grew during the first quarter, with total assets reaching $9.5 billion, compared to $9.1 billion as at the close of fourth quarter. It's important to highlight that this growth includes $200 million and increased liquidity on hand that we elected to maintain in the second half of March, which Carlos will discuss in just a few minutes.
Total gross loans were $7.12 billion compared to $6.92 billion last quarter, an increase of nearly $200 million and total deposits were $7.29 billion, up $242.5 million compared to the $7.04 billion last quarter.
Our capital levels continue to be strong and well in excess of minimum regulatory requirements to be considered well capitalized at March 31, 2023. More now than ever, preservation and growth and tangible book value is a top priority and we achieved that this quarter.
Also of important is we have consistently classified the vast majority of our investment portfolio as available for sale. So the mark-to-market on that portfolio has always been deducted from tangible common equity. So when you see our tangible book value, these have been and continue to be reflected in a number and TVV [ph] remains a strong 7.44% as of March 31st. During the quarter, we also paid out the previously announced cash quarterly dividend of $0.09 per share on Feb 28 of 2023.
So we'll turn now to Slide 4, where you can see the core PPNR, was a solid $37.1 million compared to the $37.8 million reported in the previous quarter. Also outlined on this slide are all the non-recurring items recorded in the quarter. As previously mentioned, including a non-recurring expenses for costs related to severance, a branch closure that we'll cover in a minute, and conversion related one-time expenses.
So we'll turn to Slide 5 and we'll cover some key additional actions that we took during the first quarter. So as I mentioned, we continue to add key personnel in Amerant Mortgage to our business development team here at the bank and to our digital transformation team. As also I previously mentioned, we've recruited two executive for existing open positions. So we have the new Head of Commercial Banking and a new Houston Market President.
Amerant Mortgage grew its national footprint with the addition of a Midwest team, adding business development personnel in the quarter to generate conforming mortgages for the sale in the secondary market. We also reorganized our International banking efforts. We wanted to simplify the structure and drive favorable cost deposit growth. So we brought the three separate groups that were previously reporting under retail private banking and commercial banking to be under one leader dedicated to solely focus on growing international deposits. We believe this is essential as it provides additional diversification for our funding base.
We completed our relocation into our new highly efficient operation center in Miramar, Florida. And we continue to make strategic investments in our bank centers in key locations. We need to complete the branch refresh to finish our common look and feel initiative that we have at all of our facilities. And our expectations, it will be completed with that no later than the end of this year.
We also announced the closing of our location at FM 1960 Road in Houston, Texas in 2Q, '23. We expect that to happen as of May 31st. And as recently announced we signed a five-year lease for our first banking center in Tampa with an estimated opening in the fourth quarter of this year. This location is situated in the West Shore business district, the most central business area in the Tampa Bay area, which is home to more than 4000 businesses both large and small, and near some of the most high-valued residential neighborhoods.
The opening of this branch transitions our Tampa operation from a loan production office to a full service bank with full banking capabilities. Since expanding into the Tampa Bay market, our team has grown significantly. We are now at 17 team members providing commercial banking, commercial real estate, treasury management, private client banking, SBA lending, and we also have in market support personnel from credit portfolio management and other client support positions. We intend to add even more resources to our team in the future to capitalize on the market opportunities available in Tampa and we now have the space to do so.
Other actions include launching our new website, which provides an improved user experience with enhanced navigation and ease of access to information across all device types. We did repurchase 22,403 shares of Class A common stock during the first quarter, under our $25 million share repurchase program. We elected to prudently pause on additional repurchases, given recent industry events impacting liquidity in this sector.
Of note, the FIF conversion date moved from mid-May to mid-July in order to enable us to provide a greater digital experience for our consumers, our consumer and banking efforts and also as previously referenced, we recruited a new Board member, who officially joined our Board effective April 17, 2023.
We will turn now to take a look at the key metrics on Slide 6. Here we have outlined key performance metrics and their changes compared to the last quarter. As I mentioned earlier, our net interest margin was 3.9% in the first quarter. Our efficiency ratio was 63.7% compared to 58.4% last quarter. But the core efficiency for the first quarter was 62.47%.
Both ROA and ROE were slightly lower this quarter, primarily given the one-time charges. And as we have done in the past for consistency and transparency, we show the three core metrics of ROA, ROE and operating efficiency, excluding anything that's non-routine in the foot notes, so you can more easily understand the underlying performance in each quarter.
We will turn now to cover Amerant Mortgage, which is on Slide 7. On a standalone basis, Amerant Mortgage had a negative net PPNR of $1 million in 1Q compared to a negative net PPNR of $1.5 million in 4Q. The improvement resulted from higher revenues, driven by the additions in the business development team.
Our efficiency ratio excluding activities from Amerant Mortgage improves from 63.7% to 61.5%. During the quarter, the company purchased approximately $87.4 million in loans through Amerant Mortgage and as noted on the slide, these are all related to bank customers. The current pipeline shows a growth up to $117.2 million in process of 281 applications as of April 11th with 111 of those being rate locked. We believe the team members we have added will drive increased production of conforming saleable loans into the secondary market, which will positively impact the bottom line in 2Q and future results.
So with all that said, I'll now turn things over to Carlos, who will walk through our results for the quarter in more detail. Carlos?
Carlos Iafigliola
Thank you, Jerry, and good morning, everyone. Turning to Slide 8, I'll begin by discussing our investment portfolio.
Our first quarter investment securities balance was $1.3 billion comparable to the previous quarter. When compared to prior year the duration of investment portfolio has extended to almost five years, due to lower prepayment speeds and contributing to a higher yield of 3.82%.
As I did last quarter, I would like to take a minute to discuss the impact of interest rate increases on the valuation of debt securities available for sale. As of the end of March, the market value of portfolio increased by $6.1 million after tax compared to $3.9 million in the fourth quarter. These changes come as a direct result of decreases in the medium and long-term interest rates and MB spreads compressing during the quarter. 78% of our AFS portfolio has government guaranteed while most of have done remain securities are rated investment grade.
Our corporate debt portfolio includes approximately $128 million in subordinated debt securities issued by financial institutions. Held to maturity securities represent 18% of total investment portfolio. The current mark-to-market of HTM is $15.5 million of unrealized losses after taxes. We will discuss more details shortly.
Continuing to Slide number 9, let's talk about the loan portfolio. At the end of the first quarter total gross loans were at $7.1 billion, up 3%, compared to the $6.9 billion at the end of the previous quarter. This growth was driven by loan originations efforts primarily in specialty finance and single family residential mortgages. Partially offsetting this increase were prepayments of approximately $97 million in commercial loans.
Commercial loans include $557 million in specialty finance loans, compared to $420 million in fourth quarter 2022. Equipment financing under a white label solution, which are part of our specialty finance lending, total $47 million in the first quarter of 2023. Single family residential portfolio were $1.24 billion an increase of $83 million compared to the $1.16 billion we had in the fourth quarter of 2022. This amount includes $87 million in loans originated and purchase through Amerant Mortgage during the quarter, as Jerry referenced earlier, related to our customers mainly.
Consumer loans as of the first quarter of 2023 were $550 million, a decrease of almost $27 million or 4.6% quarter-over-quarter. This includes approximately $372 million in higher yielding indirect loans, which in previous quarters represented a tactical move for us to increase yields. We're not buying any new production and this portfolio is set to run off over time.
Loans held for sale, which were all in connection with Amerant Mortgage and therefore hedged total $65 million as of the end of the previous quarter, compared to $63 million as of the end of 2022.
In line with our business focus in Tampa, we have included this market to show our progress as a percentage of the total loan portfolio, which was almost 4% as of the end of the quarter. Tampa represents a significant source of growth opportunity for us and for a full banking relationship.
Turning to Slide 10, 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 first quarter was $84.4 million, an increase of 1% from the $83.5 million at the close of the previous quarter. We reported a provision for credit losses of $11.7 million in the first quarter, which includes $7.5 million in additional reserve requirements for charge-offs and credit quality. $2.2 million to account for loan growth in the quarter and $2 million to reflect updated economic factors.
It is important to mention that the fourth quarter 2022 provision for credit losses now reflect the disaggregated impact of CECL implementation for that specific period. Net charge-offs totaled $10.8 million in the first quarter of 2023 compared to $9.8 million in the fourth quarter of 2022. Charge-off during the first quarter were primarily due to $6.6 million related to the equipment financing relationship that Jerry referenced before.
$6.3 million in connection with indirect loans purchase, becoming 90 days past due and $1.5 million in several business banking loans. This was offset by $3.5 million in recoveries primarily $2.7 million from the coffee trader relationship charge-off last year.
Non-performing assets totaled $48.7 million at the end of the first quarter, an increase of $11.1 million compared to the fourth quarter of 2022. These include an increase in repossessed assets related to the transportation relationship we just mentioned. The ratio of non-performing assets to total assets was 51 basis points up 10 basis points from the fourth quarter of 2022.
Our non-performing loans to total loans are down to 0.31% compared to 0.54% last quarter. This is primarily due to the transfer of a property to OREO for $20 million related to a CRE New York loan already disclosed last quarter.
In the first quarter of 2023, the coverage ratio for loan loss reserve to non-performing loans close at 3.8 times up from the 2.2 times at the end of the last quarter and from 1.6 times at the close of the first quarter 2022.
We're bringing on the Slide 11 from the supplemental section, discussion of our CRE portfolio to provide further detail. We have a conservative weighted average loan to value of 60% and debt service coverage of 1.5 times as well as a strong sponsorship peer profile based on a AUM net worth and years of experience for each sponsor. As of the end of the first quarter of 2023, we have 32% of our CRE portfolio in top tier borrowers. We have no significant tenant concentration in our CRE retail loan portfolio, as the top 15 tenants represent 22% of the total. Major tenants include recognized national and regional grocery stores pharmacies, food and clothing, among others.
Our underwriting methodology for CRE includes sensitivity analysis for a variety of key risk factors, like interest rates and the impact of their service coverage ratio, vacancy and tenant retention. Please note that 41% of our CRE portfolio has been hedged their interest rate caps or swaps, which in turn protects our borrowers from raising interest rate environments.
On the Slide number 12, we discuss our deposit diversification and stability. In the first quarter, we ended up $7.3 billion up $243 million from the previous quarter. You can see here we continue to have a well-diversified deposit mix composed by domestic and international customers. The growth this quarter was primarily driven by increased time deposits, which totaled $1.9 billion up $200 million or 12% compared to the previous quarter, and broker deposits, which totaled $738 million up $108 million or 17% compared to the previous quarter.
Domestic deposits now account for 67% of our total deposits. Totaling $4.9 billion as of the end of the first quarter up $271 million or 6% compared to the previous quarter. Foreign deposits which account for 33% of the total deposits are primarily international deposits, $2.4 billion and down $28 million or 1.2% compared to the previous quarter.
To provide more granularity on our accounts, domestic deposits included 42,000 customers with an average account size of $116,000 while international deposits included 58,000 customers with an average account size of $41,000 per account.
Our core deposits defined as total deposits, excluding all time deposits were $5.4 billion as of the end of the first quarter, an increase of $41 million or 0.8% compared to the previous quarter. The $5.4 billion in core deposits included $2.5 billion in interest bearing deposits, which increased $343 million versus the previous quarter, $1.5 million in savings and money market accounts, down $229 [ph] versus the previous quarter and $1.4 billion in non-interest bearing demand deposits of $42 million versus the previous quarter.
Moving on to Slide 13. This quarter, we have included a new table to provide further color regarding deposit composition. We believe it's important to show our percentage of insured deposits as well as percentage of large fund providers in our depository base. We estimated that 69% of our deposits are FDA's insurance at the end of the first quarter. Additionally, we carry $280 million in qualified public deposits, which are subject to collateral maintenance requirements by the State of Florida.
Reciprocal deposits, which are 100% insured by the FDIC primarily through IntraFi networks represented $691 million and just over 120 customers as of the end of the first quarter. We are offering this alternative to our high balanced customers. Additionally, our large fund providers, which we consider to be dosed with balances above $20 million represented 15% of the total funding for Amerant.
Moving to Slide 14, in light of the recent changes in liquidity conditions in the financial system, we consider important to provide additional color regarding our liquidity management practices, as well as some additional actions we have taken to mitigate the impact from recent events and strengthened our funding and capital position.
Our standard liquidity management practices include: regular testing of line of credit, daily monitoring of federal reserve bank accounts and large fund providers, daily analysis of lending pipeline and deposit gathering opportunities and their impact on cash flow projections. Targets associated with liquidity stress test scenarios, targets for deposit concentration, limits on liquidity ratios and an active collateral management of both loans and investments with lending facilities at the Federal Home Loan Bank and other market participants.
As of the end of the first quarter of 2023, total advances from the FHLB were $1 billion equivalent to 11% of assets pledged with an additional $1.7 billion availability from this source. No funds were needed from any emergency funding facility or discount window from the Federal Reserve Bank during the period.
Regarding additional actions taken in the later part of Q1 to increase our liquidity position we highlight: increased our cash position at the Federal Reserve Bank by $200 million borrowed from the Federal Home Loan Bank. As of the end of Q1, we held over $485 million in cash and equivalents. And also we have diligently working with our large depositors to enroll them into ICS, Insured Cash Sweep program to ensure that all of their holdings are 100% insured by the FDIC. We increased volumes on this product by 282 million and 93 accounts during the first quarter of 2023.
Turning to Slide 15, I would like to show our relative position in terms of capital ratios. As of the end of the first quarter 2023, our capital ratio -- total capital ratio ended at 12.36% and our CET1 was 10.10%. Our tangible common equity, which includes $74.3 million in the AOCI resulting from the after tax change in the valuation of our AFS investment portfolio, ended at 7.44%.
We would like to enhance our disclosures providing an adjusted tangible capital ratio, which includes the after tax valuation of the HTM portfolio for $15.4 million. Such metrics ended at a strong 7.29%. And we believe this is a key differentiator factor and approval sound risk management.
Given the liquidity and capital position I just discussed, we feel comfortable with our ability to hold and wait for the reversal of these unrealized losses in our investment portfolio.
In terms of liquidity at the holding level, we carry $69 million in liquidity available as a holding company, which covers more than four times of our annual OpEx and debt services as of the end of Q1. The dividend we just declare will only use $3.1 million out of that cash available.
Next, I will discuss the net interest income and the net interest margin on Slide 16. Net interest income for the first quarter of 2023 was $82.3 million almost unchanged compared to the previous quarter. Our asset sensitivity position enabled us to offset the repricing the incremental cost of deposits were recorded during Q1. Also contributing to the offset where higher average balances in the loan portfolio.
As rates continue to increase during this quarter, we experienced higher betas, and the combined effect of the rate increase in money market deposit as well as repricing of the time deposit portfolio that were lacked and had not repriced at current market rates. As you can see in the graph, we observe a beta of approximately 32 basis points on the cumulative basis from the beginning of the interest rate up cycle, but over 100 basis points during the current quarter.
I would like to bring to your attention that two-thirds of our time deposit portfolio have already repriced at current market rates, and only a portion is left to reprice, limiting the impact of our interest expenses in the upcoming quarters.
Moving into the net interest margin, as Jerry mentioned, NIM for the first quarter was 3.9% down 6 basis points quarter-over-quarter. As I said in the fourth quarter, our ability to offset funding cost and content order decreases in NIM is a reflection of our assets sensitive position.
Moving to Slide 17, I would like to take a closer look at the interest rate sensitivity analysis. You can see our balance sheet continues to be asset sensitive with 52% of our loans having floating rate structures and 55% repricing within a year. We also taken a prudent risk approach to best position our portfolio for a change in the interest rate cycle by incorporated interest rate floors when originating adjustable loans.
We currently have over 80% of our adjustable loan portfolio with flow rates. Additionally, you can see how we have progressively transition to softer rates and now we have 26% of our adjustable portfolio index to this rate. Our NIM sensitivity profile remains stable compared to the previous quarter. We added the sensitivity of our AFS portfolio to showcase our ability to withstand additional negative valuation changes.
I would like to remark the organic improvements in the AOCI by $15 million for the rest of 2023 due to the expected runoff of the investment portfolio. We will continue to actively manage our balance sheet to best position our bank for the remainder of 2023.
Moving to non-interest income on the Slide 18. The non-interest income ended up $19 million, down $5 million, or 21% from the 24% we've reported during the last quarter of 2022. The decrease was driven by higher net losses on the sale of securities, including $9.5 million in subordinated debt issued by a financial institution lower gains in derivatives with customers via valuation and volume. The decrease was partially offset by higher net gains on early extinguishment of FHLB advances, higher mortgage banking income driven by higher gains on the sales of loans, higher deposits and service fees and higher brokerage fees resulting from the fixed income trading volumes to improve during the quarter.
Amerant assets under management totaled $2.1 billion as of the end of the first quarter of 2023 up $112 million or 6% from the end of the fourth quarter, driven by $50 million in net new assets. And as we continue to see improve market valuations in some asset classes, additionally $55 million due to this concept.
Moving to Slide 19, the first quarter non-interest expenses were $64.7 million up $2.5 million or 4% from the fourth quarter. We consider $3.4 million as a non-routine item, resulting primarily from the upcoming conversion to FIS in July, in addition to the closure of a banking center in Texas, and some ordering severance expenses. Excluding these items, core non-interest expenses were $61.4 million in the first quarter of 2023.
The quarter-over-quarter increases were primarily driven by higher salaries in connection with business development personnel, and Amerant Mortgage and other lines of businesses, higher consulting and other professional fees in connection with FIS conversion, higher expenses on FDIC assessment and insurance driven an increase in the balance sheet, higher impact in charges related to the closing of a branch in Houston.
The increase in non-interest expenses was partially offset primarily by lower derivative expenses due to lower volume of derivative transactions, lower advertisement expenses and the absence of certain depreciation expenses.
Efficiency ratio was 63.6% in the first quarter of 2023, which was compared to the 58.4% in the previous quarter, but down from 87.3% in the same quarter of last year. Core efficiency ratio increased to 62.5% in the first quarter of 2023, compared to 61.3% in the fourth quarter of 2022.
I will now turn it back to Jerry for closing remarks.
Jerry Plush
Thanks, Carlos. First, I'll make a couple of brief comments regarding the second quarter. So while we anticipate continued loan growth in 2Q, we will not have loan growth exceeds the growth so the same as we did in the first quarter as we remain committed to maintain our current ratio of loans to deposits.
Continuing to have a deposits first focus is job one at Amerant. So a range of $200 million to $300 million in growth for the second quarter is a likely outcome. And just to remind you, that we have previously stated and I'll say repeatedly, our loan-to-deposit ratio target is 95% and our intent is not to exceed 100%. And we have consistently managed between that range.
We expect the margin to continue to be pressured, given substantial market competition for domestic deposits. This will likely result in a 10 basis point margin reduction from current levels, given upcoming lower costs, time deposit maturities in the second quarter and we are assuming market pricing remains comparable to current rates.
As previously noted, we intend to emphasize international deposit gathering, as a source of funds giving more favorable pricing. With recent hires complementing the existing international staff, we should see stronger production here in the second quarter. We do expect a more positive contribution from Amerant Mortgage, evidenced by the pipeline growth we are seeing from additions to the team. Again, this growth is in conforming loans, which should result in opportunities for gains on sale.
And regarding non-interest expense, as I previously referenced, we intend to find offsetting efficiencies to reduce the recent additions to run rate expenses, of which the full impact should be seen in the third and the fourth quarter of this year.
So in summary, while we recognize there are clearly headwinds and there is continued economic uncertainty, we continue to remain focused on prudently executing on our strong initiatives, continuing to selectively build to our team, and add where we can and gaining additional market share. We are excited to see the progress of our two new executives and other recent hires we will make as they begin to contribute this quarter as well.
So in conclusion, our commitment to becoming the bank of choice in the markets we serve remains our primary goal. So with that, I'll stop. And Carlos and I will look to answer any questions you have. So, Michelle, if you would, please open the line for Q&A.
Question-and-Answer Session
Operator
Thank you. [Operator Instructions]. And our first question comes from the line of Michael Rose with Raymond James. Your line is open. Please go ahead.
Michael Rose
Good morning guys. Thanks for taking my questions. Jerry, I appreciate the color there at the end on deposit growth and margin. Maybe we could just start on loan growth, which is another kind of good story this quarter. I think you mentioned that, deposit growth should likely exceed loan growth. But I think previously you talked about 10%. Obviously, there has been a little bit of a change in the market, you are in different markets that are probably going to hold up a lot better, but end user demand likely slows. So just wondering to get a sense if 10% is still kind of in the ballpark? And if not, what are the puts and takes? Thanks.
Jerry Plush
Yes. So Michael, thanks for the question and good morning. I would tell you that, I still think 10% could be the outcome. However, I did want to caveat it with again, we have got to grow the deposit side. And so the emphasis on the team is to get as much share of wallet in our existing customer base and continue to expand and grow new relationships. We think everything we are doing around IntraFi ICS as well as on the international side are going to give us real competitive advantages, just given the way we've added sales personnel really focused in each of those areas. So, I do think at the end of the day, if you were to look at us, sort of back from what we said at the year-end, I think we're still on track in that relative range.
Michael Rose
Okay, that’s helpful. And then maybe just wanted to shift back to expenses. And I appreciate kind of all the color and kind of the puts and takes but just given those, the higher the incentive comp. I would expect some of that higher consulting costs that come out of the run rate, but you probably hired for Amerant Mortgage kind of throughout the quarter. So just trying to get a sense for if the adjusted non-interest expense basis is a good place to start, as we think about the second quarter and the rest of the year. Thanks.
Jerry Plush
Let me give sort of an overview for the rest of the year and I'm sure Carlos will want to chime in too. I believe it's our responsibility to continuously evaluate where we're spending the dollars. And so, we think there are opportunities for efficiency that we can still get out of our expense side. And so rather than getting into the specifics, because the focus, obviously, as you can imagine, has been a lot around liquidity and the volatility in the market, we'll shift our focus now back on, where we can become -- we can basically become a little more effective and efficient, not only on the front side of the company, but on the back side.
And that's why I said, I think you'll see that really more coming through in Q3 and Q4. Because let's face it, we're almost, a third of the way through this quarter. So, I think the big thing I would tell you is the consulting expenses, you see a lot of this one time, my expectation is once we get through the conversion. Again, that's another reason why you'll see that stuff starts to fall off in 3Q and 4Q. Carlos, if you would just thoughts on a few…
Carlos Iafigliola
So, on the, speaking about the run rate and definitely this quarter around the core was $61 million. And we expected the core expenses to be closer to the $60 million approximately, but you should expect on the extraordinary items to boost this to around $62 million. That is the expectation for the upcoming quarters, so $64 million and $62 million.
Jerry Plush
And, so the consulting and others related to conversion will continue in this coming quarter or this quarter that we are now in.
Carlos Iafigliola
Correct.
Michael Rose
Okay. So, drop into the second quarter, but is there additional kind of efficiencies as we move into the back half of the year, you mentioned, as you get through the FIS conversion that $60 million would actually go lower, or are you going to continue to add the headcount and things like that drive that a little bit higher?
Jerry Plush
Yes, Michael. Great question. Because, look, I think we've been saying that we're going to continue to be opportunistic, where we see opportunities to add revenue producers deposit gatherers. What we're not going to do is continue a big infrastructure build. I think we've got some things that are going to wrap up here that I think you'll start to see a smoother course on, we're done with a lot around again, around the conversion.
And I think just in terms of where we should run. I think Carlos and I are in agreement that you know, the 60s probably a good baseline to be using going forward, and will obviously update you guys if not mid, certainly close to quarter end or even at the quarter in 2Q if all the things we're going to do on the expense side.
Michael Rose
Great, maybe just one final one for me. I know we're talking about only a handful of credits, but it seemingly like every quarter there's kind of a larger charge off or two but kind of spice ratios and things like that. I know, from very low levels, and new NPA ratios at very low levels, but it does seem to happen kind of every quarter. And I think that's one of the pushbacks that I get from investors.
How can you help us understand that credit isn't going to be an issue, maybe these are legacy credits, and just give us some comfort that these truly are kind of just a handful of credits, and idiosyncratic in nature not anything systemic? Thanks.
Jerry Plush
Yes, no. And by the way, I can completely understand that. Because certainly for these last several quarters, we've had something of size occur, obviously, this quarter, we got a surprise, close, literally close to the within five working days of the end of the quarter, on the transportation credit. And without, I can't get into a ton of detail right now on this, but I mean, this was a relationship that was very long standing with the bank. It was something where I think it's a particular situation where they grew too fast, and I think that caught in the squeeze of the costs of running that business. I think the biggest challenge for us was I think there were probably some opportunities on this one that we'll certainly not see a repeat of that. I think this was a very unique case in that regard.
Though, Michael, I do want to say, as people think about provision expense, and we've talked about this a lot. You're going to have a couple of things, I think with us to take into account. One, you're going to have loan growth every quarter, right? If so, if we're going to say that we're growing 200 to 300, you're going to pencil in that there's got to be a couple of million in provision in there.
I think, given the economic environment, the uncertainty, you could have factor changes, like we did this quarter that will also drive that. We've discontinued, as Carlos said, this indirect consumer program, it appears that there's some charge-offs that have certainly surged, and come through. And that's been, I think, consistently, sort of this last quarter, and now this quarter, sort of in that 5ish almost $6 million, I think this quarter remains. And so, if you're looking at a baseline, you can easily say, for us that, I think for 2Q, you can forecast at least a $10 million provision, which is not inconsistent with what we've been thinking about internally on a just so everyone is aware of that.
I think, we always have the uncertainty because we still have some remaining exposure in New York and commercial real estate. While we are very, very closely monitoring spending a ton of time, when you think about know your customer, onsite visits consistent conversations with each of these customers, carefully looking screw, who is reprised up and how the credits can withstand, the relationships can withstand higher rates. We're very proactively working with those customers. And I think that's probably the one other area that while we have roughly I want to say about $300 million left in that portfolio that we need just to be very cautious about that.
But again, back to your original question, this was a customer where we knew well that the bigger charge took this quarter. And I just think that, it's something that, it's very unfortunate. And I do think that, it's -- I think you used the word idiosyncratic.
Michael Rose
Idiosyncratic?
Jerry Plush
I think that fits the definition.
Michael Rose
I appreciate all the color and Carlos congratulations. Thanks.
Operator
Thank you. [Operator Instructions]. And our next question comes from the line of Stephen Scouten with Piper Sandler. Your line is open. Please go ahead.
Stephen Scouten
Good morning everyone. I guess maybe if we could start on the foreign deposits, can -- I don't know if I missed this. But can you give a feel for what you are seeing in terms of the betas on those deposits and with this push and focus on those deposits, if you think you can grow absolute balances there?
Carlos Iafigliola
Yes. In terms of the betas for this deposit, it continues to be very well contained. Just to give you a perspective, for the full cycle, it was 0.09, the beta of the international deposits. Just in Q1, we just have a couple of repricing’s of the time deposit portfolio, which obviously search in light of being locked for more than a year, with previous interest rates and that created the search to the 0.53 cost of funds in the international side.
But it continues to be very, very benign. As Jerry mentioned, that team is very -- is being retooled with additional business development team, and with our new set of goals and to growth going forward. As a matter of fact, there has been several wins during the current quarter that have helped us to keep going in that portfolio and to keep dropping the cost of funds. Is that clear, Stephen?
Stephen Scouten
Yes. That's extremely helpful. Thank you.
Jerry Plush
Hey, Stephen. Just let me add a little bit of color. Just to clarify, this group that -- and I think, it's really merit spending the time to make sure everyone understands. We had zero travel. Obviously, in COVID, we had -- we are probably more in what we will call a maintenance mode or customer service mode with that existing portfolio, which has roughly been around $2.45 billion to $2.5 billion consistently over these probably the last six to eight quarters.
Now with the merging of these three units, which as you got to think about it, we are sub units in both in retail and private bank and then also in the commercial bank, having a singular leader, single focus to drive this business, right, as opposed to really just in a maintenance mode. I think there is just significant upside opportunity for us. We already have the infrastructure in place that we must maintain, obviously for where we do business and we have already and always have been a cross border institution.
So, I just think this is something where there is great opportunity for our organization without really having to add a lot of incremental expense at all to do this.
Stephen Scouten
I think that's kind of why after they get the major differentiator for you versus really every other bank in your peer groups. That’s great. Could you speak maybe just I'm curious, just around the overall competitive environment? And I definitely appreciate it, I'm glad to hear you're saying deposits are going to kind of determine what your loan growth will be. But I mean, are people in your markets kind of backing away? I guess, could you get all the growth you want today at the rates you would want if the deposit funding was there?
Carlos Iafigliola
I think there are significant opportunities, the talent that we've added to the company, the contact list that they have, the amount of time they're spending in the market? The answer is there's definitely opportunities for us. And there's also without saying anything other than. There are others that are going into a pullback mode. And so, there's always going to be opportunity for those that we're going to be prudent about it, we're not just going to add growth for growth's sake, we're going to make sure that it meets all of our underwriting standards, that it's a full relationship.
I think Carlos had some references, I think in his notes about, we're insisting on deposit covenants in deals and maintaining minimum average balances, it's the right thing for us to be doing. If you want financing from us, you're going to bank with us. And so, I do think there's great opportunity, and continues to be, and we see it clearly in the Tampa marketplace. We continue to see it in Houston, as well as here in South Florida.
And this is before putting two extremely talented individuals to now drive Houston, and now drive the corporate bank. I feel very, very comfortable in saying that there's not only opportunities, we're going to be able to be very selective on that. And so it's imperative back to the deposit side, that we continue to drive for deposits first.
And I do want to just reiterate, I said on our first earnings call two years ago, that a 95% loan to deposit ratio was always going to be sort of the optimal. And we have strived to continue to just stay right in between sort of, I'll call it the 95% to 99%, maybe it was our match, maybe 98% and change.
So, landing in around 97% or so, what I'd like to lower that a little bit more, sure. But I want to try and also make sure everyone understands. This whole idea of us being very, very focused on we're only going to grow to the extent we grow our funding. That's why being organic doing stopping doing the things that have been indirect. This is all about us, and what we can produce, and I think the value creation of banks should be able to give to its shareholders is to organically generate that value for them. And so that's what we're very, very focused on.
Stephen Scouten
Yes, absolutely. And maybe just one last one for me. Obviously, appreciating the funding pressure that every bank is experiencing, I'm just trying to reconcile the interest rate sensitivity, like kind of as modeled, which shows plus 3%, and a 50 basis point up scenario, versus seeing the NIM go down this quarter and then looking like it's going to go down again next quarter. So, can you help me kind of reconcile what's different in the modeling versus, I guess reality?
Carlos Iafigliola
Sure. Bear in mind at, all this interest rate sensitivity analysis are done over the course of a year. They are not done instantaneous. So, it's an instantaneous shock. But the horizon, it's a year. So that's why it shows up on an upward movement of 3.1%. So that implies the structure of the repricing structure that we have in the balance sheet. But you have that to happen over the course of a year. Evidently, with the interest rate shocks that we're having right now. And measuring quarter-over-quarter, the outcome wouldn't be necessarily a 3.1% increases that will be over the course of a year.
Stephen Scouten
Got it. That makes sense. So, kind of a catch up in some respects, you probably outperform some of these numbers in the past, and now it's catching up to some degree.
Carlos Iafigliola
That is correct.
Stephen Scouten
Yes, that makes sense. Okay, great. Well, thanks for all the color guys, I appreciate it.
Operator
Our next question comes from a line of Feddie Strickland with Janney. Your line is open. Please go ahead.
Feddie Strickland
Good morning. It was great to see the growth in core non-interest income this quarter. What's a good run right there? And should we continue to see that growing with well, I know that the mortgage piece and everything else. But does that have an upward trajectory from here?
Jerry Plush
Yes, hey, Feddie its Jerry. Absolutely. I have to say, and I feel a little remiss, we didn't add more color in our opening remarks about this, we have added some really good talent to an already good and really strong wealth unit. I think this is the same opportunity for us. If you think about us driving the international deposit side, it's going to come with higher net worth customers that are going to want to also place AUM with us.
And so, we really think that there's nice upside for us in, certainly in the wealth management side. In addition, we've just added some additional talent that literally started Monday, we also had another key advisor start, at the beginning of the year. We're starting to really build momentum. And I believe we mentioned previously that we had hired a new head of wealth, a new head of trust, that we feel that we're really well positioned, and it's just at the stage where you'll start to see growth in the coming quarters.
And so, part of our diversification, we could switch talk a little bit to about the mortgage banking side is definitely to grow this non-interest income line. And I think that there's clearly some opportunity, wealth, domestic wealth international, from the activity that we're doing, and from the select highly talented additions we made to the team.
I think, the other part, we didn't really get into it much other than making a few references, the strength of the pipeline and mortgage banking, with our production as conforming saleable, we're generating a lot of volume that is coming from, sort of, we'll call it like a two-prong approach. The team, we continue to need the capabilities of the mortgage banking unit to support our private bank efforts, and other customer relationships we have, but the other side of it is they're generating a lot more volume from the folks that they've picked up.
Particularly, we talked about this as a Midwest hub. They're generating a lot of conforming loans for sale in the secondary market. And so, I think you'll see a significant shift here as we move forward. Contrary to anyone's opinion, there are still the need for mortgages. People are still buying homes. And yes, is it anywhere near the levels that it's been in the last several years, of course not. But here's an opportunity right now for us to really be pushing and adding production in areas, where the loans are saleable is critically important to understand.
And so, we have kind of gone away from where we are in candor, higher cost markets, where the production here is going to result in a lot of jumbo production, which we have actually decided, it makes a lot more sense to be looking at areas to add production, to add producers that are going to bring conforming loans on, and be able to sell those into the secondary.
Carlos Iafigliola
I believe it's the Slide number 7. We added a very good disclosure on the rate logs of the pipeline of Amerant Mortgage. You see how that amount has continued to increase. Now we have or as of the end of Q1 more than $100 million in rate logs. So, all that production is to be sold to agencies, and that's a great accomplishment, getting these teams to work on the qualified mortgage space, and getting into the secondary market has been a great addition, and we expect that to continue to be accretive to other income.
Feddie Strickland
Got it. Now that's really helpful. And just one quick follow-up on that. I know the mortgage is more of a -- it's a national base. But does being in South Florida and in Texas kind of help you, when you are talking to your regular commercial customers or consumer customer, whoever, just given the population inflow, do you think that's a piece of it, when it comes to mortgage?
Jerry Plush
Yes. Say absolutely. I think the private banking team here in South Florida, we have added a producer in private banking in Tampa and frankly looking for more. And we think there is tremendous opportunities now with Caroline in place is our new Market President to add not only strong producers potentially even teams of people there.
For Private banking purposes, I think we think it's really critical to be able to give that concierge level. And I think our team on the Amerant Mortgage side does a really good job supporting our Private Bank team. And remember, they tend to be chunkier mortgages. They tend to be seconds, right vacation homes, et cetera. And so, all of that is definitely a positive by having those capabilities around.
Carlos Iafigliola
I guess a very good way to look into our mortgage platform is the fact that our national footprint helps us to keep the per unit cost of mortgage origination at a lower level, as we continue to expand and that will help us to originate lower cost mortgages to our customers within the bank. So, you don't have a specific unit just to originate loans for private banking, but they leverage on a platform that originates nationwide to have a lower per-cost unit production.
Feddie Strickland
Got it. That's helpful. Thanks for taking my question.
Operator
Our next question comes in a line of Matt Olney with Stephens. Your line is open. Please go ahead.
Matt Olney
Thanks. Good morning. Just want to follow-up on Feddie's question around fees more of a forecasting question. Any numbers you can help put behind the outlook there? I think you said the core fees in the first quarter were around $60 million. It sounds like you got some momentum and mortgage and wealth, any numbers you can put behind that?
Carlos Iafigliola
Yes, we are projecting other income on the 16th for this upcoming quarter. There's more, there actually is a possibility that that would get even better with the new additions that we're getting into the mortgage business and getting more into the other income. So yes, you can definitely see that being under $16 million other income potentially even in the $17 million range, 16 to 17 range.
Jerry Plush
Matt, I would say I think you could see that just ratcheting up each quarter.
Matt Olney
And then mortgage and wealth being the primary drivers, I would assume?
Jerry Plush
Yes. I would tell you that our view on well called the traditional fee sources for banks. We've actually gone through, and we've probably never covered it enough in the past, but we've been very customer friendly, in terms of what we've done with overdrafts, and with our cover me program and not having any of the nuisance ones that are like $100 or less, and we've reduced those charges.
So, we're not relying for fee income off of sort of the I'll call it the nuisance deposit charges as much as we're relying on our build here. As you just said, more around wealth and mortgage banking.
Carlos Iafigliola
And derivatives for customers.
Jerry Plush
Yes, of course technologies. Derivatives are a critical part.
Matt Olney
Okay. And then I guess switching over to the margin, and just kind of following up there. I think I heard you mentioned that the margin could be down up to 10 bps in the second quarter. Did I hear that correctly? And if so, what kind of deposit beta does that assume?
Jerry Plush
Matt, I'm getting we're both jumping on that one. Let me just say yes, it is the projection is that it can be downtown. What Carlos and I have looked at is where the majority of the time deposit that will reprice and we think the biggest piece is coming in the second quarter. And if you just look at the delta, of those rolling over, that's going to create some of that decline there. I think as it relates to the betas. Carlos, you want to?
Carlos Iafigliola
Sure. So, no complementing what Jerry was mentioning out of the time deposit portfolio for customers who already had a significant amount of repricing. When you look at the average cost, its already reflective of the different higher rate than it used to be before. And particularly, we have Q2 and Q3 that we will have a combine of maybe $350 million that they are at a blended rate of 1.6% that they will come and reprice at a higher rate that's factoring into the minus 10 basis points that Jerry was mentioning.
But I don't think you should be able to see this particular quarter a beta as high as the one that we have reported just because of this effect and the case that already most have the money market transactions -- money market accounts, and order different interest-bearing accounts already reflected a higher rate.
So, I will go into specific beta for the second quarter closer to the 0.5 to 0.60, as opposed of the one that we saw in the Q1. So Q1 was a very, I would say it's specific quarter with a lot of repricing and money markets, a lot of maturities in term deposits that created this particular effect of having a beta of one. But in the second quarter, we should diminish that being the 0.5 to 0.60 beta.
Matt Olney
Okay. That is helpful, Carlos thank you for that. And then I guess, kind of related topic around on balance sheet liquidity or call it overnight liquidity. I think you mentioned you carried a higher level at the end of the quarter, like a lot of your peer banks did. I'm just curious, kind of what your thoughts are today, understand that could change. What are your thoughts on kind of carrying, higher liquidity? is it's going to be kind of a permanent change for the bank or is it more temporary?
Jerry Plush
Yes, so no, we are carefully looking into liquidity all the time, we definitely going to carry higher levels of liquidity. We believe it's prudent in terms of this environment. Obviously, the 485 that we reported was significantly higher compared to the structural amounts that we carry, we are typically between the $200 million to $300 million cash in hand. So we progressively should be going that, but we believe we have a very liquidity management infrastructure in place to monitor that.
Carlos Iafigliola
Yes, and I think Matt if you want to use the targeted, it makes sense to think we took what we think were the prudent actions pulled $200 million immediately when the morning that all that volatility started, and kept that throughout the end of the quarter. The expectations are, as Carlos said, I think holding 300 is probably a good target for us, just given our availability. And as we showed, we've just got a lot of ability to go against the Federal Home Loan Bank to borrow there. And then obviously, if we wanted to go to other sources, we still have plenty of capacity. So, I think that's probably the better target to use.
Matt Olney
Okay. And then, you mentioned a few times in the call the FIS conversion was moved back a little way. Not too terribly long but I heard you mentioned this was for just a better customer experience. Any other details you can provide as far as kind of why the timeline is being pushed out a little bit?
Jerry Plush
Yes, to be very specific, we obviously customized a lot of things for both our domestic and international customers. And we want to make sure that the experience is as comparable as possible. And so rather than push to get this done, May 8th, it just made sense to allow for the additional time to get as close to where we should be and then build out any other capabilities that we need thereafter. But I just think that's probably the best way to summarize it.
Matt Olney
Okay guys. Thanks for the help.
Operator
Our next question comes from the line of Will Jones with KBW. Your line is open. Please go ahead.
Will Jones
Great. Good morning, guys. Thanks for the question. I just wanted to continue to follow-up on that the margin discussion. I appreciate all the color and commentary around this next quarter, but as we think about the back half of the year, and you sort of having a conversation around peak rates. Maybe you get a little bit easing of deposit cost pressures on the time deposit side. Do you feel like the margin could stabilize and kind of level out in front line, as we move into the third and fourth quarter of the year?
Jerry Plush
Yes, look. I think we are being very cautious about how we are forecasting that. We are not taking into account really a big ramp-up on international, which we definitely believe comes at more favorable cost for us. We also with the new team members, we have been adding including additions even into our treasury management area. We are going to push even more and more for core DDA as well. I mean, that's an area we know we have to significantly improve in. And so, I just think with the capabilities that we will have post this FIS conversion in TM, coupled with the personnel we have added, there's an upside opportunity there.
We will continuously update you guys, well on as we are making progress on those. I think at this stage, it's the prudent thing to say, look, we have got a good line of sight as to what we expect to happen for the second quarter. I think going into the third and fourth quarters, we will certainly have a better line of sight for the second half of the year and how we can continue to improve on the funding side to keep the costs more in check.
Will Jones
Got you. Very helpful. I know asking you to look into your crystal ball a little bit there. But I guess since switching over one last thing that I talked about is really the buyback. I know you guys kind of prudently and understandably pause that during the quarter. And I know today you guys are really more of a growth-focused bank and buyback is really coming. But with the math looking pretty attractive here with where the shares trade, has your philosophy or thought changed anymore on with the buyback going forward?
Jerry Plush
Yes. Look, I think one of the nice positions that we are in is that we have a very nice level of cash at the holding company. We are well in excess. I mean, I would expect that, we'd love to at least be at 2x to 3x any operating expenses and debt service coverage, at all times. So obviously that gives us some capacity if we elect to be very selective in reinstituting some buybacks. I think we have the capacity.
But at this point, we do think it's really prudent just to stay the course, evaluate how things go forward. And you have to be -- you have to have some sense of balance on here, because obviously I do agree that the stock is incredibly attractive at this level. But at the same point in time, we want to make sure that we are -- I'll call it again, the best word to use is prudent, if we are to go and do something at this point.
Will Jones
Understood. Thanks guys. And thanks Carlos again, congrats on the promotion there.
Carlos Iafigliola
Thank you.
Operator
Thank you. I would like to hand the conference back over to Jerry Plush for any further remarks.
Jerry Plush
Thank you, Michelle. And thank you everyone for joining our first quarter earnings call. We appreciate your interest in our company and your continued support. So, have a great day, and thanks again.
Operator
That concludes today's conference call. Thank you for participating. You may now disconnect.
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Amerant Bancorp Inc. (AMTB) Q1 2023 Earnings Call Transcript