AMTB - NASDAQ

Greetings. Welcome to the Amerant Bank First Quarter 2024 Earnings Conference Call. {Operator Instructions) Please note, this conference is being recorded. I will now turn the conference over to your host, Laura Rossi, Head of Investor Relations. You may begin.

Thank you, Shamali. Good morning, everyone, and thank you for joining us to review Amarent Bancorp's First Quarter 2024 Results. On today's call are Jerry Plush, our Chairman and CEO; and Sharymar Calderon, our Executive Vice President and CFO. 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 it over to our Chairman and CEO, Jerry Plush.

Thank you, Laura. Good morning, everyone, and thank you for joining Amerant's First Quarter 2024 Earnings Call. We're happy to be here today to update everyone on the continued progress we've made during this first quarter of the year. Before we get to the slides, I'd like to make a brief comment. As previously noted, you can clearly see the shift this quarter from transformation to execution, highlighted by our decision to exit the Houston market with the recently announced sale of our franchise there and to instead focus all of our efforts on growing our Florida franchise. You will also note this quarter, the lack of noise in quotes as many referred to it in previous periods, having numerous nonroutine income and operating expense items in comparison to this first quarter of 2024. Results this quarter also clearly show organic growth from our team member efforts in growing both loans and deposits, the focus on relationship banking. The quality shift in the composition of our deposit portfolio reached another milestone with the runoff of all remaining institutional funds. And please know in advance that we will address credit in detail this morning on the call. Specifically, what happened in 1Q was special mention that continued to perform and the elevated net charge-offs from the discontinued indirect consumer portfolio. Let's now get to the slides, and we'll turn to Slide 3. Here, you can see the total loans decreased by $258.5 million as we completed the sale of the previously announced $401 million multifamily loan portfolio in Houston. Otherwise, we had strong organic loan growth of $142.5 million. Our pipeline is strong for 2Q, and we've already closed on approximately $150 million in the month of April 2024. We had organic deposit growth of $331.8 million during the first quarter, offsetting the planned reduction of $262 million we had in institutional deposits and a decrease of $86.4 million in broker deposits. Please note that the decline in broker deposits was replaced with lower-cost FHLB advances. Our assets under management increased $68.5 million to $2.36 billion, driven primarily by market valuations and net new assets. Regarding our expansion in Florida, we officially opened our banking center in downtown Ft. Lauderdale and our first banking center in Tampa. We also opened a new general headquarters office in Tampa and we announced a multiyear partnership becoming "hometown bank" to the Miami Marlins. We've also had a few subsequent things since quarter end. On April 15, we opened our new regional headquarters office for Broward County. It's located in Plantation, Florida, and this will support our efforts to grow in this market. Also, as announced on April 17, we entered into a definitive purchase and assumption agreement under which MidFirst Bank based in Oklahoma City, will acquire Amerant Bank's banking operations in 6 branches in Houston, Texas. This transaction includes approximately $576 million of deposits and $529 million in loans, and it's expected to close in the second half of 2024. We'll turn now to Slide 4 for financial highlights of the first quarter. Looking at the income statement, diluted income per share for the first quarter was $0.31, an improvement over the prior quarter due to the impact that non-routine items had on operating results during the fourth quarter. The net interest margin was 3.51% in the first quarter compared to 3.72% in the fourth quarter. Note that the fourth quarter included an additional 16 basis points of interest collected from the loan principal recovery in that particular period. The additional decrease in margin comes as a result of the timing difference between the sale of the Houston multifamily portfolio in January 2024 and the repayment of institutional deposits later in the quarter, in addition to the reduction of higher yields in direct consumer loans. Credit quality events continue to be an area of focus and the reserve levels are carefully monitored to provide sufficient coverage. Provision for credit losses was $12.4 million, down $100,000 from $12.5 million in the fourth quarter. Shary will be covering credit in further detail later in the presentation, including an update on nonperforming loans and special mention credits. Noninterest income was $14.5 million, down $5.1 million from $19.6 million in the fourth quarter, while noninterest expense was $66.6 million, also down $43.1 million from $109.7 million in the fourth quarter. 4Q expenses included several non-routine items. Our total assets reached a record high of $9.82 billion as of the close of 1Q, slightly up from $9.72 billion in the prior period. Total deposits decreased slightly by $16.6 million to $7.88 billion compared to $7.89 billion in the fourth quarter. Our total gross loans decreased by $258.5 million to $7 billion, down from $7.26 billion in 4Q. Our total securities were $1.6 billion, up $81.6 million from the fourth quarter, as we purchased fixed-rate securities as part of our asset liability management actions given an expected decline in rates later in '24 and into '25. Cash and cash equivalents increased $337.8 million to $659.7 million at the end of the quarter as a result of the previously mentioned Houston multifamily sale and also from organic deposit growth. Moving on to capital, our total capital ratio as of 1Q ended at 12.5% compared to 12.12% as of 4Q, and our CET1 was 10.11% compared to 9.79%. Our tangible equity ratio was 7.28%, which includes $75.9 million in AOCI, resulting from the after-tax change in the valuation of our AFS investment portfolio. Lastly, as of 1Q, our Tier 1 capital ratio was 10.88% compared to 10.54% as of 4Q. Also of note is that on April 24, our Board of Directors approved a dividend of $0.09 per share payable on May 30, 2024. We'll move now to Slide 5, and we'll provide an overview regarding our deposit base. Total deposits at the end of the quarter were $7.9 billion, down slightly as we mentioned before, $16.6 million from the previous quarter. This slight decrease was driven primarily by the reduction of $262 million in institutional deposits as we used the proceeds from the Houston loan sale and a decrease of $86.4 million of broker. The decrease was mostly offset by increases in relationship deposits of $331.8 million. You will also note that our loan-to-deposit ratio decreased temporarily to 88.9% as a result of the Houston loan sale. This will eventually migrate closer to our stated target of 95% given loan demand. We can turn now to Slide 6, and you can see here that we continue to have a well-diversified deposit mix composed of domestic and international customers. Our domestic deposits, which account for 67% of our total deposits totaled $5.3 billion as of the end of the first quarter, and that's down $141.4 million or 2.6% compared to the prior quarter. International deposits, which account for 33% of total deposits totaled $2.6 billion, up $124.7 million or 5.1% compared to the previous quarter. We continue to take advantage of our infrastructure and capabilities as well as making the Amerant brand more visible through corporate events and partnerships to emphasize international deposit gathering as a source of funds, given more favorable pricing while also adding diversification to our funding base. The decrease in total deposits was driven by reductions in broker deposits and noninterest-bearing deposits, partially offset by increases in interest-bearing deposits and customer CDs. Speaking of CDs, total time deposits for the quarter were $2.2 billion, a decrease of $52 million from the previous quarter due to the decrease in brokered time deposits of $69.3 million, and that was offset by an increase of $17.2 million, or partially offset $17.2 million in customer CDs. Our core deposits, defined as total deposits excluding time deposits, were $5.6 billion as of the end of the first quarter, an increase of $35.4 million or 0.6% compared to the previous quarter. The $5.6 billion in core deposits included $2.6 billion in interest-bearing deposits, and that's up $58.5 million or 2.3% versus the previous quarter, $1.6 billion in savings and money market deposits, that's up $6.5 million or 0.4% versus the previous quarter, and $1.4 billion in noninterest-bearing demand deposits, that's down $29.6 million or 2.1% versus the previous quarter. At this point, I'll turn things over to Shary. She'll go over key metrics, other balance sheet items and results for the first quarter in more detail.

Thank you, Jerry, and good morning, everyone. As part of today's presentation, I will share more color on our financial position and performance. Turning to Slide 7, I'll begin by discussing our key performance metrics and their changes compared to last quarter. Noninterest bearing deposits to total deposits decreased to 17.7% in 1Q compared to 18.1% in the previous quarter as a result of customer interest in higher-yielding accounts. Net interest margin was 3.51% in the first quarter compared to 3.72% in the fourth quarter, which included 15 basis points in connection with a one-time loan recovery. Our efficiency ratio was 72.03% compared to 108.3% last quarter, given the absence of material non-routine items we recorded last quarter. Our ROA and ROE were higher this quarter at 0.44% and 5.69%, respectively. Tier 1 capital ratio increased to 10.88% compared to 10.54% due to the balance sheet improvement as a result of the sale of the CRE multifamily loans in Houston and the income for the period. Lastly, the coverage of the allowance for credit losses to total loans remained stable at 1.38% compared to 1.39% in the previous quarter. Continuing on to Slide 8, I'll discuss our investment portfolio. Our first quarter investment securities balance was $1.5 billion, slightly up from the previous quarter. When compared to the prior quarter, the duration of the investment portfolio has extended to 5.2 years as the model anticipates lower MBS principal prepayments due to higher market rates. The chart on the upper right shows the expected prepayments and maturities of our investment portfolio for the next 12 months, which represents a liquidity source available to support growth and higher interest-earning assets. Moving on to the rate composition of our portfolio, you can see that the floating portion decreased to 12.9% compared to 13.3% in the fourth quarter. As Jerry mentioned before, we purchased mostly fixed rate securities during the quarter to secure higher yields and position the balance sheet for a decreasing rate environment, while maintaining a high credit quality of the portfolio. It is important to note that 80% of our available-for-sale portfolio has government guarantees while the remainder are rated investment grade. Continuing on to Slide 9, let's talk about the loan portfolio. At the end of the first quarter, total gross loans were $7.01 billion, down slightly 3.6% compared to $7.26 billion at the end of 4Q. The decrease was primarily driven by the sale of $401 million in Houston-based multifamily loans as previously disclosed. While we see a decrease of 4 basis points in the loan yield from 7.09% in 4Q to 7.05% in 1Q, there was actually an increase in the normalized yield of the portfolio when excluding the loan recovery recorded during the period and the reduction in the high yielding in direct consumer portfolio. Most notable in this slide is the reduction in our CRE portfolio following the completion of the sale of the $401 million of Houston-based multifamily loans. I will cover this portfolio on the next slide. The single-family residential portfolio was $1.51 billion, an increase of $33.5 million compared to $1.48 billion in 4Q 2023. This amount includes loans originated during the quarter primarily done with private banking customers and commercial clients with residential income-producing properties as collateral. Consumer loans as of 1Q '24 were $337.6 million, a decrease of $101.4 million or 23.1% quarter-over-quarter. This includes $106.3 million in higher yielding indirect loans purchased prior to 2022 as a tactical move to increase yields. We estimate that at current prepayment speed, this portfolio will run off by the first quarter of 2026. As part of the announcement regarding the sale of our Houston franchise, we said we had $230 million in remaining loans that we will manage from Florida until they reach their maturity. As of today, the balance is $187 million, which are primarily larger commercial customers, of which $94 million mature in 2024 and includes $61 million in construction loans. Moving on to Slide 10, here we show our CRE portfolio in greater detail. We have a conservative weighted average loan-to-value of 58% and debt service coverage of 1.3x as well as a strong sponsorship tiered profile based on AUM, net worth, and years of experience for each sponsor. As of the end of 1Q '24, we had 31% 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 23% of the total. Major tenants include recognized national and regional grocery stores, pharmacy, food and clothing retailers, and banks. Our underwriting methodology for CRE includes sensitivity analysis for multiple risk factors like interest rates and their impact over debt service coverage ratio, vacancy, and tenant retention. Turning to Slide 11, let's take a closer look at credit quality. Credit quality events continue to be an area of focus and reserve levels are carefully monitored to provide sufficient coverage. The allowance for credit losses at the end of the first quarter was $96.1 million, an increase of 0.6% from $95.5 million at the close of the previous quarter. We recorded a provision for credit losses of $12.4 million in the first quarter, which was comprised of $11.7 million to cover charge-offs, $2.4 million due to loan composition and volume changes. These provision requirements were offset by $1.6 million released related to credit quality, macroeconomic factors, and backdropping. During the first quarter of 2024, there were net charge-offs of $11.9 million, of which $8.6 million were related to purchased consumer loans, $0.6 million related to our CRE multifamily note sales and $3.9 million were related to multiple retail and business banking loans. This was offset by $1.3 million in recovery. Our nonperforming loans to total loans are down to 43 basis points compared to 47 basis points last quarter. This was primarily due to charge-offs mentioned, $1.8 million due to loans sold, $2 million due to paydowns, and $1.9 million due to operation. Nonperforming assets totaled $50.5 million at the end of the first quarter, a decrease of $4.1 million compared to 4Q '23 primarily due to the decrease in NPL. The ratio of nonperforming assets to total assets was 51 basis points, down 5 basis points from the fourth quarter of 2023. In the first quarter of 2024, the coverage ratio of loan loss reserves to nonperforming loans closed at 3.2x, up from 2.8x at the end of last quarter and down from 3.8x at the close of the first quarter of last year. Now moving on to Slide 12, which is a new slide we added last quarter to better show the drivers of the allowance for credit losses, at the end of the first quarter, the allowance was $96.1 million, an increase of $0.5 million or 0.6% compared to $95.5 million at the close of the fourth quarter. The drivers of the allowance movement this quarter were $3.2 million in charge-offs and were offset by $12.4 million due to provision expense and $1.3 million in recovery. As previously mentioned, the provision for the quarter of $12.4 million was primarily driven by incremental charge-offs of $11.7 million, primarily due to the indirect consumer portfolio. If we exclude this portfolio, the incremental charges for the quarter would have been $3.1 million. We introduced Slide 13 this quarter to provide more color regarding special mention loans. Special mention loans increased by $58 million or 126.1%. The increase is primarily due to 4 commercial loans totaling $60.8 million that although exhibit payment performance were downgraded to special mention during the quarter due to covenant failures. These consist of one commercial loan relationship in Florida in the healthcare industry totaling $32.4 million, and 3 commercial loan relationships in Texas that are not part of the sales agreement. These special loans totaling $28.4 million are in the healthcare, car dealer and industrial materials manufacturing industries. Approximately 40% of these exposures are secured with real estate. These increases were offset by $2.5 million in paydowns. Next, I'll discuss net interest income and net interest margin on Slide 14. Net interest income for the first quarter was $78 million, down $3.7 million or 4.5% compared to the previous quarter. The decrease was primarily driven by lower average balances on total loans following the sale of our Houston-based multifamily portfolio, lower average rates and securities available for sale and placements, higher average volumes and money market accounts as we continue to focus our efforts in relationship deposits, as well as higher rates and interest-bearing demand deposits and time deposits. The decrease in net interest income was partially offset by higher average rates and total loans even after adjusting for the effect of the loan recovery in 4Q, higher average balances in securities and placements as a portion of the funds from the Houston multifamily loan sale were temporarily placed here while they are included in loan production, and lower average rates in money market accounts and official DSMs. In terms of our deposit beta, considering there was no change in Fed funds rate this quarter, there is no beta calculation for this period. However, we observed a beta of approximately 49 basis points on a cumulative basis since the beginning of the interest rate up cycle via the combined effect of rate increases in transactional deposits and repricing of time deposits that had not repriced at current market rates. We also saw that the magnitude of the beta change from quarter-to-quarter as well as the increase in cost of funds is compressing, which is indicative of a flattening trend or the nearing of the inflection point in future periods. Moving on to net interest margin, we show on Slide 15 the contribution to NIM from each of its components. As mentioned, NIM for the first quarter was 3.51%, down by 21 basis points quarter-over-quarter. This change, however, includes 16 basis points in connection with the loan recovery we recorded in 4Q. Excluding the positive impact of this loan in the prior quarter, the net change in NIM quarter-over-quarter is only 5 basis points. This small change in the NIM was primarily driven by the reduced interest income resulting from the Houston multifamily sales while still having the interest expense of the institutional deposits and our cost of funds for an extended part of the quarter. In the short term, we expect the margin to be stable due to higher yielding loan production, partially offset by the reduction of the indirect consumer loan portfolio and deposit costs given market competition for domestic deposits and demand for higher rates. I'll provide some additional color on NIM in my final remarks. Moving on to interest rate sensitivity on Slide 16, you can see the asset sensitivity of our balance sheet with 53% of our loans having floating rate structures and 58% repricing within a year. Also, we continue to position our portfolio for a change in rate cycle by incorporating rate floors when originating adjustable-rate loans. We currently have 50% of our adjustable loan portfolio with floor rates. Additionally, you can see here that within the variable rate loans, 36% are indexed to SOFR. Additionally, we continue to execute asset liability management strategies, including hedging interest rate risk as we expect a downward trend in interest rates starting in the second half of 2024. Our NIM sensitivity profile remained stable compared to the previous quarter. We also show here the sensitivity of our available for sale portfolio to showcase our ability to withstand additional negative valuation changes, although we should start seeing an organic improvement in AOCI as monetary policy changes and interest rates start to decrease later in the year. We will continue to actively manage our balance sheet to best position our bank for the upcoming period. Continuing to Slide 17, noninterest income for the first quarter was $14.5 million, down by $5.1 million or 26.1% from $19.6 million in the fourth quarter of 2023. The decrease was primarily driven by the absence of the gain on the early extinguishment of FSHB advances during the fourth quarter of 2023 and lower loan level derivative income. This decrease in noninterest income was partially offset by higher additional income stemming from the restructuring of BOLI policies that began in the fourth quarter of 2023 and higher mortgage banking income. Amerant's assets under management totaled $2.36 billion as of the end of the first quarter, up $68.5 million or 3% from the fourth quarter. This increase was primarily driven by market valuation and net new assets. Turning to Slide 18, first quarter noninterest expenses were $66.6 million, down $43.1 million or 39.3% from the fourth quarter. The quarter-over-quarter decrease was primarily driven by the absence of non-routine items that were included in 4Q as well as lower professional and other fees compared to 4Q, lower occupancy and equipment expenses due to the absence of software services in the first quarter, and the decrease in non-interest expense was partially offset primarily by higher salaries and employee benefits, and increase in FDIC assessment base during the quarter. In terms of our team, we ended the quarter with 696 FTEs, slightly higher from 682 we had in 4Q. Moving on to Slide 19, we reported first quarter diluted income per share of $0.31 on net income of $17.1 million. As mentioned earlier, we had a decrease in noninterest expense items this quarter, which resulted in a favorable net impact of nonroutine items to our diluted EPS. I'll now give some color on our outlook for 2Q '24 and 2024 overall. Regarding growth, we estimate our balance sheet to grow between $200 million and $250 million. We foresee organic deposit growth to continue to be strong. We will use deposit growth and current liquidity to fund our loan production. We expect the NIM to be stable compared to 4Q with results expected in the range of 350 and 355 as we onboard loan production at higher rates, partially offset by the reduction of the indirect consumer loan portfolio and deposit costs. Regarding noninterest income, we expect it to be in the range of $14.5 million to $15.5 million. We expect operating expenses to be closer to $68 million as we onboard new team members towards our growth plan. Finally, we expect provision for credit losses to be in or around $8 million to $12 million next quarter as we do expect asset growth as I previously mentioned. This amount will reflect the impact of the release as we transferred the Houston portfolio to held for sale following the recently announced Texas franchise sale. I will now pass it back to Jerry for closing remarks.

Thanks, Shary. Before we move on to Q&A, I'd like to briefly comment on some of the initiatives we're working on to accelerate the execution of our growth plans here in Florida. As we previously announced on April 17, we just entered into a letter of intent for a highly visible and accessible space for our new Palm Beach regional office, along with a new banking center. We do have an executive search underway for a new Central Florida market president. We intend to open 3 or more banking centers over the next 24 months in the Greater Tampa area. And we just opened our new Broward County regional headquarter office this week as I just previously mentioned. We also intend to open one additional banking center in Miami for which negotiations are in process, and we're actively recruiting for additional commercial relationship bankers and private banking officers in Broward County, Palm Beach County and the greater Tampa market. During the first quarter, we hired 12 team members who have recently started or are starting in April of 2024. In summary, we remain committed to the execution of our strategic plan to drive profitable growth and to be the bank of choice in the markets we serve. With that, I'll stop and Shary and I will look to answer any questions you have. If you would, Operator, please open the line for Q&A. Thank you.

{Operator Instructions) Our first question comes from the line of Tim Mitchell with Raymond James.

I just want to start on the special mention loans this quarter. I appreciate the color there, Shary, you gave in the prepared remarks. But just any incremental color you could give on kind of what drove the downgrade? What were the covenant breaches? And what do you think the ACL needs to -- is it discussion right now, or do we need to migrate that a little more north to as you kind of think about credit going forward?

Sure. When looking at special mention and specifically the covenant piece, some of them are related to lifetime financial statements being received. The other one is related to metrics like the trailing 12-month leverage. But although we're seeing some deterioration there, we're also monitoring the progress and positive trend on EBITDA, so it's a mix. Some of them are information. Some of them are metrics. But in essence, we are not seeing something pervasive or we are not seeing any indicator right now of a further downgrade.

Awesome, thank you. And then touching on the kind of capital you're going to get from this Houston sale that you guys announced last week, how should we think about the capital deployment from that? You mentioned kind of maybe potential bond restructuring in the slides. Or do you think maybe lean a little bit more into buyback? Just kind of wanted to get a flare for what you think you're going to do with that capital. And maybe is there like a CET1 level you'd like to stay above after you kind of deploy those proceeds?

Yes, it's Jerry. From a CET1 perspective, I think we want to be certainly around the 10% level. We're happy to see that we pop back above that. I think as it relates to how we'll deploy capital, I think there's a combination of things. Certainly, buybacks will be considered. We do have a program in place authorizing us for up to $20 million, and we do need capital for growth. Our expectations are we're on a really good trajectory right now on both sides of the balance sheet. And so, some of it obviously will be needed to -- because we're going to grow through my expectations right now. Even when I gave you guys the numbers for April, I mean doing $150 million in production already month-to-date should give you guys an indication that all these additional people that we've been bringing on are driving in a lot of incremental growth. I think you'll get to see this play out over time, but I think we want to have flexibility. For supporting growth, for buybacks, prudent buybacks, I think also for -- we'll always evaluate based on earnings where we are on the dividend side as well. But at this point, we're holding steady with that. We must see consistency of earnings for sure.

Appreciate it. And then maybe just one last one for me. I think initially in the fourth quarter slides, you guys talked about 15% annualized loan growth for the year. If I just do a quick math on that $250 million for the quarter, that's about like 10%. Do you think maybe -- I think you mentioned a few rate cuts you're expecting in the back half of the year. Do you expect lenders to kind of pick up through the year? Just anything you can add color on.

Absolutely. Absolutely. We do see it ticking up over the course of the year. I think again, with these additions -- yes I think again, factoring in these folks, if you give them 60, 90 days to start hitting stride, our expectation is to get all our hiring done here between now and the end of the second quarter so that we've got positive contributions from all the new folks we've added in the course of the year.

Our next question comes from the line of Freddie Strickland with Janney Montgomery Scott.

I just want to make sure I'm thinking through the charge-offs. Appreciate the comments on that. I mean, did you basically just see a little bit more of an acceleration of the consumer book than you were anticipating here? And should we think about that as maybe some of the charge-offs that we thought were going to come from consumer later, just you went ahead -- some of that already happened in the first quarter, so maybe there's a little less to go later on. Just trying to think about how to think through how that consumer book plays out and how much of a factor it was this quarter?

Sure, Freddy. If we go back to the $13.1 million in charge-offs we had this quarter, and we break it down into 2 components, right, we had $8.6 million that's related to the indirect consumer. Everything else was regarding our portfolio, and that's, more or less, less than 6 basis points. But going back to the $8.6 million on the indirect, if we look at the composition of our vintages, we're going to see that our growth programs and all of our vintages have already reached the peak. You're absolutely right. What we're expecting going forward from charge-offs is not at the sustained loss level that we experienced in the past.

Got it. That's really helpful. And then just wanted to talk about the commercial healthcare relationship as well. Can you be a little more specific on what type of healthcare? Is it like a managed care? Or I was just curious exactly what type of healthcare it is.

Sure. On that particular healthcare relationship, it's a surgical center specialty healthcare relationship.

Got it. And then just last piece here, just thinking through the Houston exit later in the year, I've tried to do some, a preliminary look here doing some of the math myself. I mean do you expect an overall positive impact to the margin? I mean, I know there's probably -- you maybe had yields come down some but you're not going to get the same yield on the short-term instruments that you're going to get on the loans. But on the flipside, I can see that the Houston footprint higher cost of deposits than your overall cost. Just trying to think through later in the year whether that's a bit of a tailwind to the margin.

Sure. At the point in time when the transaction closes, from a margin perspective, we do expect to see some improvement. As you were mentioning, it comes with yield on loans, but it's partially offset by a higher cost of funds. We do expect some improvement on the NIM there. And then from an overall P&L perspective, what we can expect to see is that although we're going to be losing temporarily some of that interest income, it's going to be a wash with the reduction of operating expenses. It's kind of a plus or minus will take us to a net effect of nothing. But the next step with that is that we will be able to redeploy into loan production here. With all of that factored in, we do expect an improved margin.

Yes. I think just to add to Shary's remarks, we're getting better spreads on production we're booking right now. Obviously, we're getting higher pricing and fees on that than that existing portfolio. That will more than compensate if the funding we need to raise is higher cost than that 4% I believe it is in Houston right now.

Got it. And last quick question. Just is the opening of these new offices and the teams and whatnot already kind of implied in that I think you said $68 million expense guide for next quarter? And does that kind of continue to go up throughout the year? Or can it be relatively flat from there ex the Houston transaction?

Yes. We're expecting the $68 million to be a normalized level throughout the year. And yes, that's factoring in the growth of our team members and everything that we have been mentioning in terms of growth.

Our next question comes from the line of Russell Gunther with Stephens.

I just had a couple of follow-ups. The first on the loan growth, very clear momentum is quite strong. We talked around maybe the 15% target year-over-year. Is that still good with the multifamily, or are you kind of talking about that as an overall kind of number?

Russell, if we look at the balance we had the fourth quarter and we compare it to our projection of growth, we could see from a 10% to a 12% growth year-over-year if we exclude the effect of the $400 million. If we add back that reduction of the $400 million, we could see a number closer to the 17% growth. I know it's a little bit of an add back to be able to get to the number, but overall, we are expecting growth in the next quarters to make it to a 17% growth, excluding that piece.

Got it. I appreciate the clarification. That's very helpful. And again, very clear the opportunity is strong, guys. And then on the expense side, so very clear guidance from a core basis going forward. Could you just remind us of what the P&L save will be on expenses from the Houston exit? I think you've quantified the number of folks leaving and maybe expenses there, but sort of all-in on the non-interest expense piece?

Yes. From a P&L perspective, just to confirm, Russell, it's the P&L impact in terms of Houston solely?

The expense solely.

Right. That would be around $4.5 million to $5 million.

Okay. Thanks, Shary. And then guys, last one for me, I noticed international deposits were up this quarter. I think you guys have sort of reengaged an effort to try to grow those balances. If you could just give any update there on the dynamics this quarter and strategic focus on those balances?

Yes. I mean, we continue our efforts on our international deposit gathering. Within the composition we have in commercial accounts that have, that are special mention in nature, where we expect to have an international perspective at more normal levels, we're at the balance right now for the remainder of the year.

Yes. We're actually, and I think we talked about this in the last call, really in a -- continue to be in a fact finding of how exactly we're going to expand even further there. We'll be giving more color either by the end of the second quarter of what the game plan is for the balance of the year to expand there. But we've got a number of initiatives. You'll probably see press releases and appearances and things that we are going to be doing here in the month of May and June, that will give you much more color as to how we're thinking about to expand there.

And we have reached the end of the question-and-answer session. I'll now turn the call back over to CEO Jerry Plush for closing remarks.

Thank you, everyone, for joining our first quarter earnings call. We appreciate your interest in Amerant as always, and your continued support. Have a great day.