Amerant Bancorp Inc. (NASDAQ:AMTB) Q3 2023 Earnings Call Transcript

Amerant Bancorp Inc. (NASDAQ:AMTB) Q3 2023 Earnings Call Transcript October 20, 2023

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

Laura Rossi: Thank you, Liz. Good morning, everyone and thank you for joining us to review Amerant Bancorp’s third quarter 2023 results. On today’s call are Jerry Plush, our Chairman and Chief Executive Officer; and Sharymar Calderon, our Executive Vice President and Chief Financial Officer. As we begin, please note that discussions on today’s call contain forward-looking statements within the meaning of the Securities Exchange Act. In addition, references will also be made to non-GAAP financial measures. Please refer to the company’s earnings release for a statement regarding forward-looking statements as well as for information and reconciliation of non-GAAP financial measures to GAAP measures. I will now turn over to our Chairman and CEO, Jerry Plush.

Jerry Plush: Thank you, Laura. Good morning, everyone, and thank you for joining Amerant’s third quarter 2023 earnings call. We’re happy to be here today to update everyone on the continued progress we made during the period. So during the third quarter, we focused on improving balance sheet composition, which included the continued prioritization of organic deposit growth, which enabled us to reduce higher cost institutional deposits which are highly rate sensitive and therefore subject to flight risk. We provided more granular information on the sources and type of deposits in today’s earnings presentation, and I’ll go into that in detail very shortly. We also entered into an agreement to sell the single largest credit exposure in our discontinued New York City portfolio and you’ll see that in loans held for sale, and that closing is scheduled to take place today.

We continue to work on further reductions in non-performing assets and we’ve now reached the marketing stage with a real estate owned. We also spent considerable time and energy on the upcoming core conversion in November and I’ll provide more information on that shortly as well. So while this was not an asset size growth quarter like recent periods, as loans and deposits overall were relatively flat quarter to quarter; and in fact, the key driver of our asset size decreased this quarter was from our using $100 million in excess cash on hand to pay down advances. We made a lot of progress on many fronts which we will cover as we review the upcoming slides. And as an aside, which Sherry will cover later in her remarks. The loan and deposit pipelines for the fourth quarter are very strong and we expect to be back in growth mode in 4Q.

And in fact, we’ve already booked $90 million in loan production month-to-date which has resulted in $71 million net increase in loans as of yesterday. So let’s turn to Slide 3, and here we provide a summary of our third quarter highlights. Net income attributable to the company was $22.1 million compared to the $7.3 million in 2Q 2023. This increase was primarily driven by lower provision for credit losses in 3Q as the provision recorded into 2Q was substantially higher. The net interest margin was 3.57% compared to the 3.83% we reported last quarter, a few basis points lower than we originally expected. This was driven primarily then higher than expected funding costs and lower loan originations as we continue to prioritize relationship centric originations and not renew or pursued non-depository financing.

So again, back to asset size; we decreased $174 million compared to 2Q 2023. Our gross loans for $7.1 billion compared to $7.2 billion last quarter, a decrease of $74 million; and our total deposits for $7.5 billion, relatively flat to the $7.6 billion last quarter. Federal Home Loan Bank advances were $595 million, a decrease of $175 million or 23% compared to the $770 million in 2Q due to prepayments we made in 3Q 2023 as part of our asset and liability management. The company’s capital levels continue to be strong and well in excess of the minimum regulatory requirements to be considered well capitalized as of September 30, 2023. Our tangible common equity ratio remains strong at 7.44% as of September 30. As we classify the majority of our investment portfolio is available for sale; the mark-to-market on this portfolio is deducted from tangible common equity.

We’ll get into more detail regarding capital and capital ratio shortly. Also during the quarter, we paid out the previously announced cash quarterly dividend of $0.09 per share on August 31, 2023. And then lastly, regarding stock repurchases, as you know, we have a $25 million Class A common stock share repurchase program in place, and year to date, we repurchase 260,000 shares for $5 million at an average price of $19 per share, or at 0.9 times price to book value. Availability remaining under this program was $20 million as of quarter-end. So let’s turn to Slide 4 and take a look at what happened in shares outstanding during the quarter. And here you can see that during 3Q, we continue to prudently use our $25 million share repurchase program, and we’ve repurchased 142,000 shares of common stock at an average price of $19.

We can transition now to Slide 5 that will show you our capital position relative to regulatory minimums. As of 3Q 2023, our total capital ratio ended at 12.7% and our CET1 was 10.3%. Our tangible common equity ratio which includes $106 million of AOCI resulting from the after tax change in the valuation of our portfolio was 7.44%. Regarding our tangible common equity ratio, we also show here for reference purposes the impact of adding the $26 million in unrealized losses from our held to maturity portfolio and what that does to TCE, which would result in an adjusted tangible capital ratio of 7.2%; a relatively small impact, if included. And tangible book value per share, also adjusted for held to maturity stood at 19.9% as a quarter rent. We will now take a look at on Slide 6 on deposits and give you an overview of the deposit base.

Our total deposits at the end of the third quarter were $7.5 billion, and that’s down $33 million from the previous quarter. This very slight decrease was driven primarily by reductions in the higher cost institutional deposits of $292 million, which was partially enabled by organic deposit growth of $208 million. Off note, the non-interest bearing deposits increased by $77 million and time deposits increased by $220 million, and as of course, customers continue to seek higher returns on their deposits. Note that this increase in time deposits, however, includes broker time deposits in the amount of $92 million, which was a strategic move to obtain 2-year to 5-year funding, again, as part of asset liability management. And at the same time, as I just mentioned, we reduced Federal Home Loan Bank advances by $175 million, which we’re down to $595 million a quarter-end.

Please note, we remain committed to maintaining our current ratio of loan-to-deposit with a target of 95% and not to exceed 100%. So we’ll turn to Slide 7 and look at our deposit diversification, and we’ll look at the stability we have in this portfolio. And as you can see, it’s composed of domestic and international customers. Our domestic deposits now account for 67% of total deposits totalling $5.1 billion as of the end of the third quarter, and that’s down $46 million or 1% compared to the previous quarter, and international deposits which account for 33% of our total deposits totalled $2.5 billion [ph], up $13 million or 0.5% compared to the previous quarter. Our domestic deposits include over 48,000 accounts with an average size of $100,000, while our international deposits are approximately $57,000 accounts with an average size of $40,000, which reflects the granularity of our deposit base and stability of this funding source.

And as I’ve shared in previous calls, we intend to take advantage of our infrastructure and capabilities and emphasize international deposit gathering as a source of funds given more favorable pricing, while also adding more diversification to our funding base. Our core deposits defined as total deposits excluding all time deposits were $5.2 billion as of the end of the third quarter, a decrease of $254 million or 5% compared to the previous quarter. The $5.2 billion in core deposits included $1.4 billion in non-interest bearing demand, upto $77 million previously referenced or 6% compared to the prior quarter, despite customer demand for higher rated products and in line with our continued efforts to prioritize deep customer relationships.

$2.4 billion in interest-bearing deposits down $356 million or 13% versus the previous quarter, primarily driven by the previously referenced reduction in institutional deposits and $1.5 billion in savings and money market deposits, up 26% or 2% versus the previous quarter. So at this point, I’m going to turn things over to Sherry who will go over the key metrics, other balance sheet items and results for the third quarter in more detail.

Sharymar Calderon: Thank you, Jerry, and good morning, everyone. As part of today’s presentation, I will share more color on our financial position and performance. So turning to slide 8, I’ll begin by discussing our key performance metrics and the changes compared to last quarter. Non-interest bearing deposits to total deposits increased to 18% in 3Q compared to 17% in the previous quarter; this reflects our deposit first focus and our efforts to increase demand deposit accounts. This positive trend also speaks to the value of building relationships and all the efforts in our market despite the challenges of customer seeking higher interest rates and the market competition. Our efficiency ratio was 64.1% compared to 65.6% last quarter, and ROA and ROE were higher this quarter at 0.92% and 11.93% respectively as a result of the lower provision and one-time charges during the period.

With consistency and transparency we show the three core metrics of ROA, ROE and operating efficiency excluding non-routine items, so you can more easily see underlying performance for the quarter. As an example, core efficiency is 62.1% compared to 60.3% in 2Q 2023 which excludes non-routine charges. These results include certain cost of new applications and services to be used after conversion in parallel with current applications in place. This parallel use of publications will also occur for the full fourth quarter of 2023 until we complete the commissioning applications in early 2024, and therefore reduce these costs. Due to this, we expect a higher efficiency ratio temporarily until early 2024. Lastly, the coverage of the allowance for credit losses to total loans decreased to 1.40% compared to 1.48% in 2Q as a result of charge-offs previously reserved [ph].

However, excluding reserved for loans individually evaluated, the coverage remained stable at 1.28%, unchanged from 2Q. Continuing onto Slide 9, I’ll discuss our investment portfolio. Our third quarter investment securities balance was at $1.3 billion which remains unchanged compared to the previous quarter. When compared to the prior quarter, the duration of the investment portfolio has extended to 5.3 years as the model anticipates longer duration due to higher mortgage rates and therefore slower prepayments. As we did last quarter, I would like to discuss the impact of interest rates on the valuation of debt securities available for sale. As of the end of this September, the market value of this portfolio decreased approximately $19 million after-tax, compared to a decrease of $13.5 million in 2Q 2023.

This decrease was driven by rising rates during the third quarter. It is important to note that 75% of our available for sale portfolio has government guarantees while most of the remaining securities are rated investment grade. Also, as of the third quarter, our corporate debt portfolio had $124 million in subordinated debt securities issued by financial institutions compared $121 million in 2Q as a result of higher market valuations. Our available for sale portfolio represents 79% of the total investment portfolio, while held to maturity securities represent 17.5%. Continuing on to Slide 10, let’s talk about the loan portfolio. At the end of the third quarter, total gross loans were $7.1 billion, down slightly 1% compared to $7.2 billion at the end of 2Q.

The decrease was primarily driven by reduced originations given tighter credit quality requirements and relationship focused origination. This was noticeable in the commercial loan portfolio which decreased $124 million to $1.45 billion compared to $1.6 billion in 2Q 2023. The single family residential portfolio was $1.39 billion, an increase of $58 million compared to $1.16 billion in 2Q 2023. This amount includes $82.5 million in loans originated and purchased during the quarter, primarily done with private banking customers and other strategic relationships. Consumers loans as of 3Q 2023 were $439 million, a decrease of $64 million or 13% quarter-over-quarter. This includes approximately $255 million in higher yielding indirect loans, which were a technical move for us to increase yields in prior periods.

As we mentioned last quarter, we are focusing on organic growth and have not been purchasing any new production since the end of 2022. We estimate that at current prepayment speeds this portfolio will run-off over the next few years. During 3Q we also continue to run-off our New York City theory portfolio. We transferred our single highest exposure in our New York City theory portfolio to held for sale and recorded valuation allowance of $5.6 million upon transfer. This loan had a $43.3 million balance net of allowance at the end of 3Q, and we have scheduled the sale of this facility for later today. The resulting New York City theory portfolio held for investment was $240 million as of 3Q and consisted of 23 facilities. We also had $26 million in loans held for sale in connection with Amerant Mortgage, compared to $50 million in the previous quarter.

Given recent industry events in connection with shared national credit portfolio, it is important to note that our exposure to these loans is limited. As of 3Q we had $177 million in shared national credit, 2.5% of the total loan portfolio; this amount includes the theory loan held for sale I just mentioned. Also, it is important to note that approximately half of these borrowers have relationships with us. Turning to Slide 11, let’s take a closer look at credit quality. Our credit quality remains sound and reserve coverage is strong. The allowance for credit losses at the end of the third quarter was $99 million, a decrease of 6.8% from $106 million at the close of the previous quarters. We recorded a provision for credit losses of $8 million in the third quarter, which comprised of $7.6 million to cover charge-offs, $1.4 million due to loan competition and volume changes, and $600,000 added to the provision for credit contingency which is recorded in other liabilities.

These provision requirements were offset by $400,000 released due to credit quality and [indiscernible] updates, and $1.2 million released due to recovery. It is important to mention that consistent with previous quarterly disclosures in 2023, the quarterly 2022 provision for credit losses now reflects the segregated impact of people implementation for those specific periods. During the third quarter of 2023, there were net charge-offs of $14.6 million, of which $6.4 million were related to indirect consumer loans, and $9.3 million were related to multiple smaller commercial loans of which $5.7 million had already been reserved in a prior period; this was offset by $1.2 million in recoveries. Our non-performing loans to total loans are down to 46 basis points compared to 65 basis points last quarter.

This was primarily due to charge-off mentioned, $8.4 million due to loan, sold $2.6 million due to pay down, and $0.4 million due to upgrades. Non-performing assets total $53.4 million at the end of the third quarter, a decrease of $14 million compared to 2Q 2023, primarily due to the decrease in NPAs [ph]. The ratio of non-performing assets to total assets was 57 basis points, down 14 basis points from the second quarter of 2023. In the third quarter of 2023, the coverage ratio of loan loss reserves to non-performing loans closed at 3x, up from 2.2x at the end of last quarter and down from 4.1x at the close of the third quarter of last year. As we did last quarter, we [indiscernible] from our loan supplement section to discuss our theory portfolio in further detail.

We have a conservative weighted average loan to value of 59%, and debt service coverage of 1.4%, as well as strong sponsorship tier profile based on AUM, net worth and years of experience for a sponsor. As of the end of 3Q 2023, we have 30% of our theory portfolio in top tier borrowers. We have no significant tenant concentration in our theory retail loan portfolio as the Top 15 tenants represented 22% of the total. Major tenants include recognized national and regional grocery stores, pharmacy, food and clothing retailers and banks. Our underwriting methodology for theory include sensitivity analysis for a variety of key risk factors like interest rates and their impact over debt coverage — debt service coverage ratio, vacancy and tenant retention.

Please note that 49% of our theory portfolio has been hedged by the borrower’s via interest rate capital swaps, which in turn protects them against rising rate environments. Next, I’ll discuss net interest income and net interest margin on Slide 13. Net interest income for the third quarter was $79 million, down $5 million or 6% compared to the previous quarter. The decrease was primarily driven by higher average rates on total interest bearing liabilities for both, total deposits and official advances, and higher average balances of customer time deposits. As rates continue to increase during the quarter, we experienced higher beta via the combined effect of rate increases in transactional deposits, repricing of time deposits that had not repriced at current market rates, as well as higher balances and time deposits at current market rates.

As you can see in the graph, we have served a beta of approximately 43 basis points on a cumulative basis since the beginning of the interest rate cycle, but around 104 basis points quarter-on-quarter compared to 196 basis points in the previous quarter. Moving on to the net interest margin; as Jerry mentioned, NIM for the third quarter was 3.57%, down by 26 basis points quarter-over-quarter. This was slightly higher than we had originally guided as we saw lower than expected loan closings during the quarter based on our deposits first and relationship focused lending practices. We expect the margin to continue to be pressured given substantial market competition for domestic deposits and demand for higher rates. I’ll provide some additional color in NIM in my final remarks.

Moving on to interest rate sensitivity on Slide 14; you can see the asset sensitivity of our balance sheet with 53% over loans having floating rate structures and 52% repricing within a year. As we have said in previous calls, we continue to position our portfolio for our change in rate cycle by incorporating rate floors when originating adjustable loans. So we currently have 51% over our adjustable loan portfolio with floor rates. Additionally, you can see here that within the variable rate loans, 37% are indexed to SOFR. Our NIM sensitivity profile remains stable compared to the previous quarter. We include the sensitivity of our AFS portfolio to showcase our ability to extend additional negative valuation changes. I would like to take a moment to discuss the change in organic improvement in AOCI which is lower than discussed in previous quarters.

The smaller amounts results from revised market expectations regarding easing monetary policy not taking place in the short-term as had been expected earlier in the year. We will continue to actively manage our balance sheet to best position our bank for the remainder of 2023 and looking into 2024. Continuing to Slide 15, non-interest income in the third quarter was $22 million, down by $4.7 million or 18% from $27 million in the second quarter of 2023. As referenced earlier, $7 million of non-interest income were non-routine items. The decrease was primarily driven by lowered gains on the early extinguishment of FHLB advances and lower mortgage banking income. This decrease in non-interest income was partially offset by higher loan level derivative income due to higher volume of derivative transactions with clients, and the absence of the $1.2 million loss in connection with the sale of one corporate debt security available for sale.

Amerant’s assets under management totalled $2.1 billion as of the end of the third quarter, down $55 million or 2.6% from the second quarter. This decrease was primarily driven by lower net new assets and market valuations. When compared to the same quarter a year ago, we saw an increase of $281 million or 15.5%, primarily driven by net new assets which were $162 million and higher market valuations. Of note, this week the company approved a restructuring of its bank owned life insurance program as we surrendered and reinvest in higher yielding policies while also increasing team member participation. We expect improved earnings of approximately $2 million per year in future periods. Turning to Slide 16; third quarter non-interest expenses were $64.4 million, down $8 million or 11% from the second quarter.

As Jerry covered earlier, we consider $6.3 million of other [ph] expenses this quarter as non-routine expense items. Excluding these items, core non-interest expenses were $15 million in the third quarter of 2023. The quarter-over-quarter decrease was primarily driven by the absence of many of the items that were included in 2Q that were no longer in this quarter, as well as lower advertising expenses resulting from campaigns in connection with our partnerships with professional sporting teams, and lower professional fees in connection with call center services that are no longer needed, as a result of the engagement with FIFA [ph], and the absence of additional consulting expenses in 2Q 2023. The decrease in non-interest expense was partially offset primarily by evaluation expenses related to the transfer of t New York based theory loans from loan held for investment to loan held for sale.

In terms of our team wins in quarter with 700 FTEs, slightly lower from 710 we had in 2Q. Out of the 700 members, 602 are employed by the bank and 98 by Amerant Mortgage. On that note, let’s turn to Slide 17 which focuses on Amerant Mortgage. On a standalone basis, Amerant Mortgage had a negative PPNR of $1.6 million in 3Q 2023, which was consistent with 2Q results. Our efficiency ratio excluding the activities from Amerant Mortgage improved from 64.7% to under 62%. During the third quarter, the company originated and purchased approximately $84 million in loans through Amerant Mortgage. And as noted on the slide, these are related to the bank’s customers and relationships. The current pipeline shows 107 million in process or 266 applications as of October 18, 2023, with 84 million in [indiscernible] and to provide some color on our expectations for next quarter.

Regarding growth, we estimate our balance sheet to grow between $250 million and $300 million. We foresee deposit growth to continue to be strong. We will use any excess over net loan growth to further reduce higher cost institutional deposits and wholesale funding, including our renewing maturities in 4Q. Given competition for deposits, we expect the name to continue to decrease in the fourth quarter, but clearly through lesser degree than in 3Q. While there are significant maturities of customer time deposits and 4Q, the gap to cover between the average previous rate and the current one is lower. Also, there was a significant emphasis on non-interest bearing products as noted in this quarter’s results, and we intend to continue to pursue additional growth as we onboard new relationships.

Regarding non-interest income, we expect it to be similar to three key levels. We expect operating expenses to include non-recurring expenses related to the upcoming conversion while we finalize the commissioning services currently utilized after conversion. Note that there are services that must run in parallel with the new FIS system that will be discontinued throughout 4Q and in 1Q of 2024. Finally, we expect provision for credit losses to be in around $8 million to $10 million next quarter as we do expect asset growth as I previously mentioned. I’ll now pass it back to Jerry.

Jerry Plush: Thanks, Sherry. So before I conclude the presentation this morning, I thought first, we should give you an update on the upcoming conversion that we mentioned earlier in the call. So here on Slide 18, we start with the first thing and most important, we’re still on-track for our conversion to FIS which will take place in early November. Our primary objective is to move to a state-of-the -art core system in modern stack. And this hidden course will create a simplified and fully integrated ecosystem of applications and will result in a significant strengthening of cybersecurity and information security infrastructure. We’re very confident in partnering with a well-known and recognized provider in financial services that recently rededicate themselves to focus solely on financial services.

And above all things, even though I’ve listed a couple other items here. We believe that the transition will provide the technological platform that will adequately and exceed the expectation supporting our company’s growth. We’ll turn to physical transformation and give a quick update here on the efforts going on. We’ve completed the refresh of five branches year to date, and have two more to be completed before year-end. And this will complete our entire network which is essential for our team members and customers to have the common look and feel of the Amerant experience in all locations. We have several new locations in the works in downtown Miami and Los Angeles, which is downtown Fort Lauderdale, and Tampa, and in San Felipe and River Oaks [ph] in the Houston marketplace.

The consolidation of our Edgewater Florida location will occur here in the fourth quarter and it will coincide with the opening of our downtown Miami branch. And as we previously announced we have new regional headquarters currently in process, both in Broward County [ph], so plantation Florida, and in Tampa, Florida. And then, we’ll turn to give an update on brand awareness. So on this slide, we show the key partnerships we have in place to support and enhance our brand awareness. During the quarter, we announced we entered into a multi-year extension of our partnership with the University of Miami Hurricanes which comes with significant additional branding opportunities. We also build on our already strong partnership with the Florida Panthers, as we are now the naming rights partner of Amerant Banc Arena in Broward County.

We traded back the helmet sponsor rights which gave us national exposure for much improved regional focus with naming rights. We also view the naming rights of the Broward County owned arena as a strategic step as part of our recently announced expansion plans there. And please note, that we do not expect to increase marketing expense as a result of any of these Partnership Agreement or the new deals. We believe that these and our other partnerships position Amerant for unmatched brand recognition and business growth in the markets we serve. So, I’ll give a couple of closing remarks on where we are today. So if turned to the last slide, here you can see we’re nearing the end of our transformation phase. We’re excited to have the Executive Leadership team set we remained focused on attracting the right people to complement our existing team to achieve our strategic objectives.

And of note, we’ve continued to add more experienced commercial business development team members here in the fourth quarter. As I just mentioned, we’re going to be completing the transition to FIS which will provide the technological platform to support our growth initiatives. And as I also just mentioned, our plan new locations are nearing completion. So banking centers in downtown Miami, Fort Lauderdale, River Oaks, Tampa, our new regional headquarters, much of which will happen either in the fourth quarter of 2023 or early in the first quarter of next year. But at the same time, please know that we will be reducing square footage and other corporate locations by subleasing or exiting space as an offset. And lastly, we’re very proud to say that for the second consecutive year, Emery bank was recognized as one of Newsweek’s top 100 most loved workplaces.

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

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Q&A Session

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

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

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

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

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

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

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

Jerry Plush: And you know, Michael, I mean, just to add to that, you know, Sherry and I, and obviously, the Treasury team and our AICO Committee, our Asset Liability Committee, I should have said, meet and we talk about things you know, that it shouldn’t be lost on anyone that the comment I made earlier about a reduction in excess cash, you know, being used, whether it’s virtual, virtually no spread, we’re continuously looking at ways to in you know, given the right pressures to competitive pressures on the deposit side, look for offsets. You know, one of the really encouraging signs though, that that I think hopefully everyone has as a takeaway is the jump up at non-interest bearing and our teams are absolutely intended and are actually, you know, starting to deliver more than more of non-interest bearing relationships as part of your relationships.

And obviously, we’re going back and existing relationships and trying to see where we can also gain additional share there. So, you know, we’re very cognizant, I think, as Sherry said that loan yields at this stage look like they’ve, they’ve somewhat peaked, or certainly near the peak and so it’s really incumbent on us on the deposit cost side. And as you can tell, you know, we’re we’ve only added brokers and you know, for duration and liabilities, and frankly, those rates are cheaper than even the shorter term stuff that people are paying right now. So that’s not as much of a drag as one might think, you know, as you think about him going forward.

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

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

You know, so how we pay a dividend how we utilize the buyback authorization, how we manage and what our expectations are for growth. And by the way, we’re not going to grow for growth’s sake, it’s profitable growth, right? It is not going to be that, you know, obviously, this is a nice quarter to add back to capital at $22 million, you know, our view is we need to be riding in those levels, going forward to support you know, the growth plans that we have, but, I mean, I just want you to know, we sort of don’t look at one of these things. Stand alone, we look at all of them. Needless to say, we do agree completely that when you’re below book value that provides the opportunity to buy back.