Q4 2023 Amerant Bancorp Inc Earnings Call

Presentation

Operator

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

Thank you, Daryl, and good morning, everyone, and thank you for joining us to review Amerant Bancorp's Fourth Quarter and Full Year 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 for information and reconciliation of non-GAAP financial measures to GAAP measures and I will now turn it over to our Chairman and CEO, Jerry Plush.

Thank you, Laura. Good morning, everyone, and thank you for joining today's call. Today we will cover our performance for the fourth quarter and full year. But before we do this, I would like to acknowledge and thank all of my Amerant colleagues for their dedication and effort this quarter as we completed our conversion to new core systems. This project, which required a significant amount of planning and effort, was a huge undertaking, and the team was up to the challenge. Please know that work continues in a number of areas post conversion as more enhancements are on the way.
So moving on to what we will cover on today's call, there are clearly a significant number of items to touch on, including the commercial real estate sale and a number of additional actions we took this quarter to best position our company for 2024, given an expected decline in interest rates. For reference, we filed a Form 8-K covering these on January 16, 2024, but it's important to give some additional context on today's call, which we will do. While these actions created additional non-routine gains or charges this quarter, we expect this to be behind us for 2024, and as I mentioned best position us to execute on our growth strategy.
I also want to note here that we will cover credit in detail, and we've added a number of new slides to the presentation with more detail on credit components, which Sheri will be covering shortly.
So we'll turn now to cover Slide 3. And here we've outlined a number of key items that took place in the fourth quarter. First, deposits grew by $326 million, reflective of our deposits first organic relationship-based approach, while total loans grew $132 million. As previously reported, we made the decision to reclassify $401 million of Houston-based multifamily loans as held for sale, and we recorded a noncash charge of $30 million before taxes in the fourth quarter. This sale is expected to be completed sometime this month. As $370 million of these loans were variable rate and at an average yield of 6.7%, this sale protects the company and the projected declining rate environment. Also, this strategic asset liability move together with our projected increase in earning assets is expected to create a net positive on margin after the first quarter as we plan to use the proceeds of the transaction to reduce higher costing non-relationship institutional deposits at an average cost of 5.6%.
Finally, this repositioning also reduces credit exposure. It's important to note that this sale also rightsizes our operations in Houston, where loans prior to the sale exceeded deposits. So we'll turn now to New York. And here we reduced higher risk assets as we complete the sale of the highest in New York City exposure and we exited the non-performing loan relationship in New York City. We discussed on our third quarter call, and it's all part of our strategy to exit the remaining New York City loan portfolio.
Speaking of the portfolio, what remains is performing and totals $217 million and consists of 21 properties and 12 relationships. We do have one small credit, which is under $2.5 million that is being watched. We repaid $585 million in Federal Home Loan Bank advances, recording a $6.5 million gain for the early repayment and the replacement funding provides for a lower cost of funds going forward. e rationalized certain organizational components such as acquiring the remaining ownership interest in Amerant Mortgage and rightsize staffing.
Given the current rate environment and we approved the plan for the dissolution of the land bank and trust, our Cayman subsidiary, we wrote off goodwill from $1 million related to the mortgage company and $700,000 in goodwill intangibles related to align with expected annualized savings of $300,000 from closing a loan. We also rationalized headcount across multiple units, resulting in expected annual savings of $1 million after having recorded severance expenses of $1 million.
And as noted, we completed the core system conversion and were actively managing post conversion items. We recorded $1.6 million in final conversion costs related to FIS and software expenses in the fourth quarter of '23. We also restructured bank-owned life insurance to include more current team members in the plan and to provide for an enhanced yield going forward with an earn-back period of approximately two years. This resulted in income tax expenses and other charges totaling $4.6 million.
I'll now provide a brief overview of our financial position in the fourth quarter and year and then turn it to Shary to go over the details. So then turn it back to me for some comments regarding 2024. As part of my closing remarks.
So let's turn to slide 4 now for financial highlights for the fourth quarter. Looking at the income statement, diluted loss per share for the fourth quarter was $0.51, primarily due to the net impact of those nonroutine items we recorded during the period that I just covered.
The net interest margin increased to 3.72% from 3.57% in the third quarter, which includes interest collected along with the loan principal recovery, which Shary will go into further detail in a few minutes.
Exclusive exclusive of this recovery, we would have been relatively even with the third quarter, although we like others continue to experience the challenges of a sustained high interest rate environment meant along with market competition and as a result of the higher cost of funds this quarter, we reached an inflection point in margin compression. Credit quality events continue to be an area of focus and reserve levels are carefully monitored to provide sufficient coverage.
Our provision for credit losses was $12.5 million, up $4.5 million from the $8 million in the third quarter and again, as I mentioned, Shary will be covering the credit components in detail shortly.
Noninterest income was $19.6 million, down from $21.9 million in the third quarter, while noninterest expense was $109.7 million, up $45.3 million from the third quarter. Both non-interest income and non-interest expense contain non-routine items this quarter that I've already commented on. Total assets reached a record high of $9.7 billion, up from $9.3 billion as of the close of the third quarter total deposits also increased to $7.9 billion compared to $7.5 million in the third quarter.
While total loans increased $132 million, gross loans held for investments actually decreased to $6.9 million from the $7.1 billion in 3Q. Our total securities portfolio was $1.5 billion, and that's up $183 million from the third quarter, while cash and cash equivalents increased $12 million to $321 million at the end of the fourth quarter. The additional securities purchased were fixed rate and they were all part of our ALM actions, given an expected decline in rates in 2024.
And moving on now to capital. Our total capital ratio as of 4Q ended at 12.19% compared to 12.7% as of 3Q. And our CET one was 9.84% compared to 10.3%. Our tangible equity ratio was 7.33%, which includes $70.8 million in ALCI resulting from the after-tax change in the valuation of our AFS investment portfolio and which substantially improved in the fourth quarter from $97 million that we saw in the third quarter of '23.
Lastly, as of as of fourth quarter, our Tier one capital ratio was 10.6% compared to 11.08% as of 3Q, and it's also worthy to note that on January 17, our Board of Directors approved a dividend of $0.09 per share payable on February 29, 2024.
So we'll move now to slide 5, and I'll provide an overview regarding our deposit base. As I mentioned earlier, total deposits at the end of the fourth quarter were $7.9 billion, up $326 million from the third quarter. This increase was mainly driven by an increase in relationship deposits of $365 million, while institutional deposits declined by $40 million.
Speaking of institutional deposits, as I briefly mentioned earlier, we anticipate the balance of this higher-cost non-relationship source of funds to be run off by mid-first quarter 2024. Our ratio of loans to deposits decreased this quarter to 92.4%. As we've referenced in prior calls, our goal is to manage that to a target of 95% and not to exceed 100%. We have a strong loan pipeline in the first quarter, so we expect to be back in this range soon.
We'll turn now to slide 6, and here we show a well-diversified deposit mix composed of domestic and international customers. Our domestic deposits account for 69% of total deposits totaling $5.4 billion as of the end of the fourth quarter. That's up $340 million or 6.7% compared to the third quarter. And international deposits, which now account for 31% of total deposits totaled $2.5 billion, down slightly 0.6% compared to the third quarter. Domestic deposit accounts have an average balance of $110,000, while international deposit accounts have an average balance of $43,000, and that reflects the granularity of our deposit base and the stability of this funding source.
As I've shared in previous calls, we intend to take advantage of our infrastructure and capabilities and begin to further emphasize international deposit gathering going forward as a source of funds given the favorable pricing while continuing to add diversification to our funding base. Our core deposits, defined as total deposits, excluding all-time total deposits, excluding all-time deposits excuse me, were $5.6 billion as of the end of the fourth quarter, an increase of $332 million or 6.3% compared to the third quarter. Included in core deposits are $1.4 billion in non-interest bearing demand, up $35 million or 2.5% versus third quarter, $2.6 billion in interest-bearing deposits up $144 million or 6% versus the third quarter. And that's primarily the result of continued customer demand for higher rate products and $1.6 billion in savings and money market deposits, up $153 million or 10.5% versus the third quarter. So at this point, I'm going to turn things over to Shary to go over key metrics from other balance sheet items, credit quality and the results in the third quarter in more detail.

Thank you, Jerry, and good morning, everyone. As part of today's presentation, I will share more color on our financial position and performance.
So turning to slide 7, I'll begin by discussing our key metrics for the quarter. Non-interest bearing deposits to total deposits decreased to 17.8% from 18.2%. Despite the challenges of customers seeking higher interest rates and the market competition. We continue to work hard on our deposits. First focus and increasing demand deposit accounts by building relationships in our markets. While the ratio slightly decreased, total non-interest bearing balance, in fact increased, although not at the same speed as interest bearing deposits. Net interest margin improved to 3.72% compared to 3.57% in the third quarter. This includes 16 basis points in connection with a one-time loan recovery. We will cover details of name changes quarter over quarter shortly.
Our efficiency ratio was 108.3% compared to 64.1% in the third quarter as a result of the $43 million of nonroutine noninterest expense items Jerry just covered. ROA and ROE in the fourth quarter were at negative 0.71% and negative 9.22%, respectively, as a result of the one-time charges and higher provision for credit losses during the period for consistency and transparency, we show the three core metrics of ROA, ROE and operating efficiency, excluding non-routine items.
So you can better see our underlying performance for the fourth quarter as an example, core efficiency for the fourth quarter was 69.7% compared to 62.1% in the third quarter, which excludes non-routine charges. As I mentioned last quarter. These results also includes certain costs of new applications and services being used in parallel after the conversion with previous applications in place, this strong use of applications will appear until we complete the commissioning applications in the first quarter of 2024 and therefore, reduce these costs.
Moving on to slide 8, I'll discuss our investment portfolio. Our fourth quarter. Fixed income investment balance was $1.4 billion, slightly up from both the third quarter and the same period from last year. When compared to the prior quarter, the duration of the investment portfolio decreased to five years due to market rates decreasing. During the quarter, we added a new chart to show the expected repayments and maturities of our investment portfolio for 2024, which represents the liquidity available to support growth and higher interest earning assets.
Moving on to the right composition of our portfolio, you can see that the floating portion decreased to 13% compared to 15% in the third quarter. This reflects our efforts to position the balance sheet for a decreasing rate environment and achieve the right balance between yield and duration will maintain a high credit quality of the portfolio. As we have done in previous quarters, I would like to reference the impact of the interest rate on the valuation of the securities available for sale.
As of the end of the fourth quarter, the market value of this portfolio had improved $35 million after-tax compared to the decrease of $19 million in the third quarter. The quarter-over-quarter improvement was primarily driven by market rate move, and it's consistent with our interest rate sensitivity analysis for down 100 basis point shock. We had an increase of $9.4 million after-tax for the full year of 2023. It is also important to comment that our tangible common equity ratio ended at a solid 7.3% after considering the impact of changes in valuation of our AFS portfolio, know that 82% of the total portfolio has government guarantee while the remainder is rated investment grade.
Continuing on slide 9, let's talk about our loan portfolio. At the end of the first quarter, total gross loans were $7.3 billion, up 1.9% compared to the end of the third quarter. The increases were primarily driven by increases in single-family residential loans, land development, commercial loans as well as construction loans. Consumer loans as of the end of 4Q '23 were $403 million, a decrease of $36 million or 8.2% quarter over quarter. This includes $211 million in higher yielding indirect consumer loans compared to $255 million in the third quarter, which were a tactical 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 by the first quarter of 2026.
As Jerry mentioned, during the fourth quarter, we completed the sale of the high CRE exposure and exited the nonperforming loan relationship holding York as part of the company's strategy to exit its remaining York City loan portfolio. The CRE loan sale resulted in a loss on sale of approximately $2 million for Q2 and Q3. And the nonperforming loan with modified and paid off our loan portfolio had a yield of 7.09% in 4Q '23. This includes some recovery recorded during the period. You provide a more comparable figure figure the yield of the loan portfolio, excluding this recovery was 6.93%.
Moving on to slide 10, here we show our CRE portfolio in further detail. We have a conservative weighted average loan to value of 58% and debt service coverage of 1.3 times as well as strong sponsorship tiered profile based on AUM net worth and years of experience for a sponsor. As of the end of 4Q 23, we had 31% of our CRE portfolio and top tier borrowers. We have no significant tenant concentration in our CRE retail loan portfolio as the top 50 tenants represent 22% of the total major tenants include recognized national and regional grocery stores, pharmacies, food and clothing, retailers and banks. Our underwriting methodology for theory sensitivity analysis for multiple risk factors like interest rates and their impact over debt service coverage ratio, vacancy and tenant retention.
As Jerry mentioned, during the fourth quarter, we classified $401 million of our multi-family loans in Houston as held for sale. The transaction is expected to close later this month and had an impact to tangible common equity of a reduction of approximately 23 basis points on day one into common equity Tier one of an improvement by approximately 12 basis points. With the proceeds of the sale, we expect to reduce in 1Q 24 higher cost, non-relationship institutional funding of $260 million at an average rate of 5.6% and invest the remaining proceeds in Victory earning assets.
Now turning to slide 11, let's take a closer look at credit quality. Overall, credit quality remains sound and reserve coverage is strong, despite charges recorded during the quarter. Nonperforming assets totaled $54.6 million at the end of the fourth quarter of 2023, an increase of $1.2 million compared to the third quarter and an increase of $17 million compared to the fourth quarter of 2022. The increase in the fourth quarter was primarily due to the recent approval of two commercial Texas loans loans totaling $12.3 million with $4.1 million in allocated reserve and one commercial Florida loan totaling $7 million with $3.9 million in allocated reserves, offset by the exit of the serious loans totaling $23.3 million with an associated charge of $10.3 million, of which $8.5 million wasn't specific reserves in previous quarters. The ratio of nonperforming assets to total assets was 56 basis points, down one basis point from the third quarter of 2023. And up 15 basis points from the fourth quarter of 2022.
Our nonperforming loans to total loans or 47 basis points compared to 46 basis points in the third quarter. In the fourth quarter of 2023, the coverage ratio of loan loss reserves to nonperforming loans close at three times, consistent with three times at the end of the third quarter, an increase from two times at the close of the fourth quarter of 2020.
Now moving on to slide 12, which is a new slide. We added this quarter to better show the drivers of the allowance for credit losses. At the end of the fourth quarter, the allowance was $95.5 million, a decrease of $3.3 million or 3.3% compared to $98.8 million at the close of the third quarter. The drivers of the allowance movement this quarter were $20.6 million in charge-offs out of which $12.1 million are incremental charges in the quarter and are primarily related to the indirect consumer portfolio. The exit of the New York City nonperforming loan and some smaller balance business loans and $4.5 million relief due to the transfer of the Houston multifamily loans to held for sale.
These are often by $2.6 million related to credit quality and macroeconomic sector update, $1.8 million due to net loan growth and $5.3 million in recoveries, primarily related to a premier commercial upon loan that was charged off back in 2017. We recorded a provision for credit losses of $12.5 million in the fourth quarter compared to an $8 million provision in the third quarter. The provision included $0.5 million for reserves for contingencies.
Slide 13 is also new and provides a closer look on this topic to illustrate what the incremental charges in the quarter were excluding previously reserved items. In that line, the $20.6 million in charge-offs include a $10.3 million from the theory New York nonperforming loan that we exited in 4Q for which we had recorded specific reserves of $8.5 million in 3Q. Therefore, the impact for this quarter was only $1.8 million in additional provision expense related to this loan. Additionally, we charged off $7 million related to the indirect purchase consumer loans and $3.3 million due to multiple smaller balance banking loans. The impact of provision due to these incremental charge-offs was $12.1 million this quarter.
We introduced slide 14 this quarter to provide more color regarding criticized loans. Special mention loans increased by $16.4 million or 55.8%. The increase is primarily due to five commercial loans totaling $34.8 million downgraded to special mention during the quarter, consisting of one commercial Florida ABL loan totaling $18.7 million, three owner occupied loans totaling $13 million, and one commercial, Texas unsecured loan totaling $3.1 million. The increases were offset by two commercial loans totaling $17 million that were further downgraded to nonaccrual during the quarter. As mentioned in the previous and feel discussion.
Next, I'll discuss net interest income and net interest margin on slide 15. Net interest income for the fourth quarter was $81.7 million, up 4% quarter over quarter and down 0.6% year over year. Quarter over quarter increase was primarily attributed to higher average rates on total interest earning assets, primarily loans increased average loan balances and lower average balance in official B advances.
The increase in net interest income was partially offset by higher average balances and rates in money market deposits in customer CDs as well as lower average balances and deposits with banks. Given there were no market rate increases during the quarter, there is no beta population for this period. However, we observed a beta of approximately 47 basis points on a cumulative basis since the beginning of the interest rate upcycle as a result of the combined effect of rate increases in transactional deposits repricing of time deposits that had not repriced at higher rates as well as higher balances in deposits at higher market rates.
Moving on to the net interest margin, we added slide 16 this quarter to show the contribution to name from each of its components. As Jerry mentioned, name for the fourth quarter was 3.72%, up by 15 basis points quarter over quarter. The change in the name was primarily driven by the increase in the yield of our loan portfolio, which is now at 7.09%, an increase of 32 basis points compared to the third quarter. Interest income for 4Q 23 includes $3.6 million in connection with the loan recovery previously charged-off as I mentioned earlier. Excluding the positive impact of this loan than it would be at 3.56%, which is stable when compared with the 3Q '23 NIM at 3.57%. The NIM reflect the higher yield of our earning assets, offset by the higher cost of funds. We expect the margin to be stable through the second quarter, more on them in my closing remarks.
Moving on to interest rate sensitivity on slide 17, you can see the asset sensitivity of our balance sheet with 52% of our loans having floating rate structures and 56% repricing within a year. We also continue to execute a balanced strategy, including hedging interest rate risk as we expect a downward trend in interest rates starting in 2024. As we have said in previous calls, we continue to position our portfolio for a change in rate cycle by incorporating resource when originating adjustable loans. We currently have 49% of our adjustable loan portfolio with a floor rate.
Additionally, you can see here that within the variable rate loans, 36% are indexed to sulfur. Our net interest income sensitivity profile remains stable compared to the third quarter. We also include the sensitivity of our AFS portfolio to showcase our positioning to benefit from a restart scenario. As I've done in the past calls, during this interest rate cycle, I would like to mention the change. In this case, the improvement in LTL volume expectations for easing monetary policy in 2024. We will continue to actively manage our balance sheet to best position our bank for success in 2024 and beyond.
Continuing to slide 18, non-interest income in the fourth quarter was $19.6 million, a decrease of $2.3 million from the third quarter, primarily due to lower mortgage banking income reduction adjustment of $0.7 million in connection with the enhancement of Buly during the quarter. Lower fees on customer deposits in the fourth quarter in connection with the FIS. conversion, lower gains on the early termination of FHLB advances and lower loan level derivative income due to less new swap contracts during the quarter. Offsetting the decrease in noninterest income were higher concentrate financing trade finance servicing fees, we consider $5.7 million of noninterest income as nonrecurring items, a decrease compared to $6.9 million in the third quarter. Core noninterest income was $14 million in the fourth quarter compared to $15 million in the third quarter. Amerant's assets under management and custody totaled $2.3 billion at the end of the fourth quarter, up $197 million or 9.4% from the end of the third quarter. This increase was primarily driven by increased market valuations following the market rally we saw in the fourth quarter.
Turning to slide 19, fourth quarter noninterest expense was $109.7 million, up $45 million or 70% from the third quarter and up $47 million year over year. We consider $43 million of our expenses this quarter as non-routine expense items as previously mentioned.
The quarter-over-quarter increase was primarily due to the following previously discussed charge in connection to the transfer of the Houston CRE loan portfolio from loans held for investment to loans held for sale higher professional fees at fourth quarter expenses included the recurrent expenses for FIES for the full quarter, whereas 3Q '23 only included expensive for a portion of September, higher salaries and severance expenses driven by restructuring of business lines and other restructuring activity, goodwill impairment due to the consolidation of Amerant Mortgage and dissolution plan of the land bank and trust and payments as well as other expenses in connection with the bully restructure. The increase in noninterest expense was partially offset by lower occupancy and equipment expenses because there were no expenses associated with fresh closures during the quarter.
In terms of our team, we ended the quarter with 682 FTEs, out of which 65 are an Amerant mortgage, lower from the 700 we had in the third quarter following strategic reductions in headcount across multiple levers.
Moving on to slide 20. Reported fourth quarter diluted loss per share of negative $0.51 on net loss of $17.1 million. We recorded an income tax benefit which impacted our diluted EPS favorably. As we have mentioned earlier, noninterest expense was higher during the fourth quarter, which resulted from the significant net impact of non-routine items on EPS.
I'll now give some color overall outlook for the first quarter of 2024 and 2024 overall.
So in summary, in the next slide, we would say the following regarding financial expectations, we expect annual loan growth of approximately 15%. Our projected annual deposit growth will match loan growth. We intend to focus on improving the ratio of noninterest-bearing to total deposits. Having a new treasury management platform, a new digital account opening tool should help in this regard, our loan to deposit target will remain at 95%. The net interest margin is expected to be stable compared to the normalized for 4Q 20 results at the 350 to 360 level in the first half of 2024 and improved over the second half of the year.
We expect higher expenses in the first half of 2024, given investment in continued expansion, predicting to achieve 60% efficiency in the second half of 2024 as we grow. We intend to continue executing our prudent capital management balance, balancing between retaining capital for growth and buybacks and dividends to enhance returns.
And with that, I'll pass it back to Jerry for 2024 overview and closing remarks.

Thanks, Shary. So on our last slide today, I'm going to give some comments on how we see 2024. So starting off, we view this year is very significant as we transition from what has been a multiyear transformation phase over to execution and profitable growth with the FAS conversion and much of the physical infrastructure changes nearly complete along with the executive leadership team now in place, this allows for our primary focus to be all about execution.
The first two quarters of 2024 will reflect increased investment in business development personnel to drive incremental growth in both the commercial and consumer banks. There are considerable opportunities for solid relationship growth in the markets we serve, and we're seeing a lot of interest from quality people wanting to join our team.
The first half of 2024 will also reflect the incremental expense post-conversion as we decommission from previous systems and now the emphasis shifts from the conversion to accelerating our digital transformation efforts. We have a great team onboard driving our efforts and the utilization of AI as part of this will be something we'll update everyone on throughout the year. We are focused on improved sales efficiencies as well as front and back office efficiencies as our top priorities. And as far as an update on physical distribution. We're finally opening our new locations in downtown Miami, Fort Lauderdale and Tampa in the first quarter of 2024. And also our new regional offices in Tampa and plantation.
So now we'll shift and talk a little bit about the second half of 2024. We expect to show the growth and profitability that results from the execution of our plan. And in closing, we're reaffirming our commitment to be the bank of choice in the markets we serve. We have been retooling and building for some time to have something very special here, and we believe this is our year to show how it all comes together.
So with that, I'll stop and sharing, I will look to answer any questions you have. Gerald, please open the line for Q&A.

Question and Answer Session

Operator

(Operator Instructions) Michael Rose, Raymond James.

And good morning, everyone. Thanks for taking my questions this morning, Jerry, good morning, or maybe we could just start with the loan sale in Houston. I think when it was announced, it was a pretty large percentage of what was there. And just given what we've seen you do in New York in terms of kind of pulling out of that market. I just wanted to get a sense for what the what the strategy for Texas is this a market that you're going to look to continue to be in? Or is the focus going to be to just focus on core South Florida operations at this point would just love some overarching thoughts? Thanks.

So Michael, we emphasize that this portfolio of loans were really sort of we'll call it noncore on. They were not broad relationship based on.
We don't have full relationships with the sponsors. The ending portfolio that we do have associated with Houston is, and we believe that there's that's the solid and makes sense for us in terms of the operations there.
I would also make the remark that I covered earlier again that we felt that choosing Houston was, you know, in terms of loans versus deposits, not really self-funding and we think this gets us much closer to rightsizing the operations there.
Look, we have great opportunities we think in all of the markets we serve on. Clearly, we get far more brand recognition right now because of all the steps we've taken in South Florida on. But that doesn't mean that we're not looking at opportunities across of the entire footprint that's helpful.

And then maybe for Shary, just kind of a modeling question. Certainly a lot of moving parts on the expense side, and I appreciate the color on the slides to get them closer to a 60% efficiency ratio by year-end. But can you just help us from a run rate perspective in the first quarter, just given that there was so many moving parts on what we should be kind of be using as a base? And just given that you guys have some additional investments, looks like in the first half of the year. How should we think about at least expenses over the next quarter or two?

Sure. So what we're seeing in terms of forecast for 2024 is that we should be, I would say, either stable or even slightly higher or closer to the 68 in the first a few quarters of the year. And this has driven you're going to see some drop-off of some technology costs or a recomposition of the expenses and higher investments on the people side as we work towards growth on later on in the year. So I think using a 67 to a 69 should be a good range for expectations in the first half of the year.

Okay. Very helpful. And then maybe just finally for me, just Jerry stepping back. I mean, you guys have done a lot over the past couple of years, really since you kind of took the reins and are we done with the majority of the large moves in, hey, could we start to see some some cleaner results once we get past the first couple of quarters of the year and I think when I put the pieces together, just given what is shaping up to be, your expectations are for a pretty strong balance sheet growth this year, both loans and deposits and it looks like you're going to have a fair amount of positive operating leverage beginning as we get into the back half of this year and really into 2025 So just wanted to comment where you think you are with those efforts and then it looks like you should be able to get the efficiency ratio kind of sub 60% driving ROA above 1% and drive pretty good kind of returns that not asking for explicit guidance, but it does seem like the path forward here, especially once we get into 2025. This is pretty powerful from an earnings perspective and just wanted to get some color and thoughts from you.

Yes, no, thank you, Michael. I would respond by saying, again, we have the right executive leadership in place. We've got the physical distribution, the vast majority, yes, we'll do some additions here and there, but it won't be anywhere near as significant in terms of the amount of different retail facilities and the regional hubs I just went over on also having the conversion behind us. I think it's safe to say that, you know, in terms of trying to shake out, is there anything else on the non-routine side.
We certainly believe that, you know, our best days are ahead it's going to be all about executing our plan. We think we've got the right people. We think we're adding even more quality people, and that's all going to drive incremental growth and profitability. So we're excited.
I think that it's been quite a journey here. And I do think it's important to say that we really do believe that there's this transformation phase we've got to go full steam ahead on our growth and just execute.

Operator

Feddie Strickland, Janney Montgomery Scott.

I just wanted to step back to the expense discussion again, real quick. Yes, just trying to understand in the second half of the year as we get to that 60% efficiency is part of that. I guess our expenses are flat from the second quarter? Or do they come back down just as some of these on the dual systems turning to single systems?
I guess my question is, does it go back towards like a $60 million level? Or do they just stay relatively flat in the back half of the year?

Yes, in we do expect that in the second half of the year, expenses will stay pretty flat to what we've seen earlier in the year. I think the one you're going to see in terms of the improvement on the efficiency ratio will be driven by the growth, the growth component.

Got it. So be on the revenue side that makes sense. And then moving over to the charge-off piece, I think I heard you say that did most of that this quarter was driven by on the movement in the newer portfolio, getting that one NPL out of there? And does that mean we should expect charge-offs to kind of step down a bit from here and primarily be driven by that consumer portfolio than any other one-off items that might come up couple quarters?

Yes, from a charge-off perspective, you're right. The drivers of the charge-offs this quarter were into nonperforming loan, and we also had some charge-offs related to the indirect consumer portfolio. We are not expecting a similar level of charge-offs coming from the New York portfolio in the next quarters.

And Freddie to add to that, that's why we gave those comments around the $217 million that's left on the portfolio is 21 properties, 12 sponsors. It's all performing. We've got a small credit that we've got on our watch list based on payment history. But I would tell you that, you know, in terms of the size issue, some of the issues that we've had, we've got it already either in NPA right, because that's the one big REO that we still have, which, by the way, just making a comment, we're making a lot of progress there. We did get the permits to be able to open the accessibility on that one. I just think we're on is it in a little better place as it relates to what's going to happen there and being able to get that thing moved on hopefully here in 2024.

That's helpful. And one last thing, just want to make sure I heard name guide correct, and I know it was flat in the first half of the year in the 2024 outlook, I think I heard you say that that was going to step down step back down actually to the 350, 360 range because of that on the loan recovery piece, did I write that down correctly?

Yeah, we are expecting to stay within the 350, 360 range in the first half of the year?

And Freddie, I think we hit the inflection point, right. I think if you now look at which originally we were thinking wouldn't come until 2024. We obviously, with a bunch of different moves we've made on got there quicker, and that's actually one of the real positives out of the fourth quarter.

Well, that makes sense. Our electrode what Michael said, it sounds like you definitely have some profitability growth in the future. So I'll step back. Thanks for taking my questions.

Operator

Russell Gunther, Stephens.

Just quick follow-up on the margin discussion, can you guys share what your interest rate assumptions are that are underlying that guide?

So from from a name perspective, what we're expecting at least in the first in the first half of the year is for the loan portfolio to stay pretty flat or loan production that's coming on to the portfolio attrition to be in the higher end. And from the expense standpoint, we're seeing that the overall we got to that to the point where pretty much everything has reset to the current rate level. So we're expecting cost of funds to stay pretty flat. On what you're going to see, Russell, is that in the first the first quarter we have a timing component on we have a timing component related to the reallocation of the funds that come from the multifamily portfolio. So some of those will be placed in liquid assets as we're able to redeploy them into the loan portfolio, which will be able to take us to the higher end of the range that we provided guidance on by the end of the second quarter.

Thank you, Shary and then I guess in terms of your expectations for Fed rate cuts or staying stable and just what is baked into the the margin guide for '24?

For the first half of the year, we have a rate pretty stable. We are incorporating some rate cuts in the second half of the year. We have modeled from flight haircuts up to six of haircuts comes six cuts and rate sorry, through the end of the fourth quarter.

So then my margin guide includes six Fed rates cuts?

Shary's given you, Russell, is we've looked at a sensitivity of none to up to that. Many of our projection is that there will be several in the second half of the year.

The guidance that was shared with through now into the second quarter, for which our assumption is no cuts.

Okay, understood. Thank you, guys, for clarifying that. And I guess I would ask then on the beta assumptions. So cumulative 47% on the way, and how do you expect that to trend on the way down as you guys are thinking about those three cuts in the back half of the year?

So if we think about our current portfolio and we think about the senior average maturities on customer deposits. And we think about our interest bearing products resetting faster, and we should be thinking of with a rate -- cut of 25 basis points we're thinking of a beta closer to 40%.

That's great, Shary, thank you. And then just switching gears Final question for me guys. The really strong expectation. Any color you could share in terms of loan mix drivers? And then I think sharing your expense comments, you mentioned additional cost around hiring folks, if that is related to any loan growth expectations as well?

Yeah, look, I think on both sides of you know, as I said, I've referred to it as consumer income and corporate. And in our consumer, it's predominantly additions. We'll continue to make in private banking. We have an already strong team that's done a great job. And we believe and there, as I mentioned, we have a lot of people that have a strong interest in and working with us. I think, you know, the reputation of building through we've been on with it some of the ups and downs we've had in the financial results, the underlying performance of the company, the growth trajectory, people, all the branding we've been doing seeing us in the community. We had a lot of people that have a strong interest in being part of our team.
Same thing's true on the corporate side. We've added some great folks on to an already good team, a very solid team for sure and we are getting strong interest there. So it's a combination of remember last year we built throughout the year and now you're going to layer even more personnel and basically to put more folks in markets where we think there's great opportunities where we've got strong presence already throughout Miami Dade, we know that we can add incrementally to a great team we've got in Broward and to build even further and in Palm Beach, right? So just here alone in South Florida. And you know, as we've talked about, we put a new regional headquarters that will be opening. We also have the new Tampa on our first facility branch facility going in there. There's going to be additional wins there as well. So we did see that we're taking advantage of a lot of market recognition and a lot of people talking about us to add quality folks in both sides.

Operator

Will Jones, KBW.

So I just wanted to stick on the growth discussion for a second. Jerry, the outlook, it really is a strong, particularly on the deposit side. I know a lot of your peers would for Rogers being able to grow deposits at that pace. But what do you have to pay on new deposits to attract that kind of growth in this upcoming year?

I don't know that it's as much to pay on the deposits. It's asking for the business. I think you know, this is a shift, a cultural shift in our company where we've really emphasized and we've I've been talking about I know from the previous quarters about deposits. First is job one and I just think asking for the business, right, we had been very siloed in approach on, you know, two years ago and you know the change culturally in the company.
It's coming through in the numbers. I actually think Shary made a great observation in her comments that we've almost got to an incredible opportunity. Not almost we have an incredible opportunity because of the new treasury management platform, coupled with, you know, a much smoother account opening process on the Consumer and Private Bank side where it's only a couple of steps and I'm really excited to see the change I think we can make in noninterest growth where as opposed to it having to be, hey, we're growing because, you know, we're are they issuing time deposits or high rate money market.

Yeah, that makes total sense. And are you seeing any green shoots in the international deposit base? I know you guys have been really excited about maybe trying to see an inflection point in the growth of deposits. There is any of the guidance in the factoring of growth within that international deposit base?

It's an area where that strategy is evolving. We think we've got the right marketing, the right Intel that we're developing on, and we're going to give you guys, you know, as we come into, I'll call it conference season, probably more and more of you know, from the investor presentations. More details on on how that's evolving so I would tell you it's an area where the team is working hard. They are definitely getting new business. We have some areas where we want to sort of I'll call it fine tune and focus on.
And so that's one where I would say maybe by the mid February, you know, later first quarter we'll be able to give even more color about how that's going to play out for 2024.

And then last one for me, this is maybe more technical and I think I might have some dumb answer in the slides, but with the multi-family loan sale within that $30 million charge you guys took out, I'm assuming that was mostly if not all rate related, what was there a credit related piece on to the idea that you know that they made to charge off with the loan sale? Or or could you just kind of give us a break there?

No, they were all performing. They are all high quality. There's low loan to values on those. No, no issues on those properties.

Yes. Okay. And any other larger chunkier pieces of the portfolio that you may look to do a similar strategy with? Or was this really just kind of a one-time opportunistic?

I mean, yes, this is definitely a one-time opportunistic evaluating again, I think we we've kind of hammer around this a lot hammered this home that we want to be a relationship based organization you know, and while there's others that may not take that same approach as us, that's one of the biggest drivers of why we identified that portfolio in particular. And as one that made sense for us to exit and to basically replace it with, you know, knowing the sponsors and having a much broader relationship with those sponsors.

Operator

Stephen Scouten, Piper Sandler.

Hey, good morning, everyone. I'm just firstly I was curious if you had an update on the consumer balances. I don't think I saw that in the slide deck anymore, the indirect consumer. Just kind of curious where that calls what the pace of runoff you think is from?

Yes, around the indirect consumer. Just declare clarify there you're talking about --?

(multiple speakers) Maybe $250 million or something?

Yeah, it's about $220 million, you know, and I think Sherry commented the expectation is based on current payment rates, it will be off the crossover to the first. So that's, I guess the best way to say it is by the end of '25, maybe a little bit residual in the first quarter of '26.

And I know there was kind of a question around that book with charge-offs in a sense, but obviously, you know, charge-offs have been elevated kind of the last couple of years. What do you think a normalized level of net charge-offs is for you guys in this kind of environment with the book you have today after kind of clearing the decks a bit from your?

Yes, if we remove it, these are charge-offs from the indirect consumer and we look at a more normalized charge-off level we're seeing at close of 30 basis points.

Okay. 30 bps ex the indirect consumer. And then that will just kind of be piecemeal over that two years as that book runs, right?

Yeah. So look, I think what's happening, Steven, in that portfolio is, you know, you remember these are consumer debt consolidation loans. You know, it's some it's a pretty granular portfolio. It's not concentrated in any one state, but it does do think it reflects, you know, the consumer debt load and the pressure that's on the consumer and so we're seeing that. I think the up one portfolio because of the different vintages is actually starting to show signs of of, you know, the charge-off levels improving. We're I guess I should say declining. So we're hopeful that we'll continue to see that, yes.

Okay. And then just kind of last question around the NIM. So it sounds like, so we're not taking a 372, I guess if we take the 372 minus the loan recoveries, so kind of starting from 356 and then kind of flattish from there? And then even with if you could just repeat what you have in there from a Fed cut perspective, but how do we think about the ability to expand them with the asset sensitivity there. I would have expected in a with it down 100 basis points, I think you showed down 3.1%. So kind of wondering how that plays out in a down rate environment that we think we might see moving forward.

Right. So going back to the first part of the question, when we think about the name for the first quarter of 2024, we are expecting to see a slight reduction on average balance sheet size because we're going to use a portion of the proceeds to pay off institutional funds. And that should pick up once we continue with the loan pipeline materializing, right? So that's what's going to make us go from the lower to the higher end of the range of the guidance we provided through the end of the second quarter. As we think about the names more prospectively and how we're managing the rate on or protecting the balance sheet from a downward trend.
We can there are a couple of things we're thinking about for the first one is from the investment portfolio the purchases we have made and that we're looking forward from an expectation are fixed rate securities, but also looking at the quality of those securities and characteristics that flow down the level of prepayments in a typical prepayment speed environment that we would have in a downward trend.
The second piece is on the loan side, and I think I mentioned something of this in my in my comments, it's the four that we are using for our variable rate loan production and also looking into fixed rate loan production as well that together with the reset of our liability side and seeing an increase in interest bearing products versus CDs are positioning our balance sheet in a better spot for a downward trend.

And just last thing, I guess, is the core spread you're seeing today. What are you seeing kind of on new loan production versus where as new deposits are coming on I guess as we think about this, maybe 15% loan and deposit growth next year, kind of what that core spread?

I think the spread is pretty similar to what we're seeing in the fourth quarter production, I think we got to a point where the deposit side already maxed out the rate level and the loan production is already at a high level as well. So I think if we were going to think about projections for the first half, I would see a pretty stable level versus the fourth quarter 2023.

Operator

Thank you. We have reached the end of our question-and-answer session. I would now like to turn the floor back over to Mr. Jerry Plush for any closing remarks.

Thank you, everyone, for joining our Fourth Quarter and Full Year Earnings Call. We're excited about the foundational progress we made throughout 2023 toward becoming a stronger, higher performing bank. As I noted earlier, we're now focused on executing on our strategy to show how it all comes together.
Thank you again for your continued support and interest in Amerant and have a great day.

Operator

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