Ladies and gentlemen, thank you for standing by, and welcome to the Amerant Bancorp fourth quarter 2019 earnings conference call. At this time, all participant lines are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star then one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star then zero. I would now like to hand the conference over to your speaker today, Laura Rossi, Investor Relations Officer at Amerant Bancorp. Please go ahead.
Thank you, operator. Good morning to everyone on the call, and thank you for joining us to review Amerant Bancorp's fourth quarter and full year 2019 results. With me this morning are Millar Wilson, Vice Chairman and Chief Executive Officer, Al Peraza, Co-President and Chief Financial Officer, and Miguel Palacios, Executive Vice President and Chief Business Officer. Before we begin, note that the company's press release, comments made on today's call, and responses to your questions contain forward-looking statements. The company's business and operations are subject to a variety of risks and uncertainties, many of which are beyond its control. Consequently, actual results may differ materially from those expressed or implied. Please refer to the cautionary notices regarding forward-looking statements in the company's press release.
For a more complete description of these and other possible risks, please refer to the company's annual report on form 10-K for the year ended December 31st, 2019, as well as to subsequent filings with the SEC. You can access these filings on the SEC's website or through our investor relations website. Amerant Bancorp Inc. is referred to herein as the company or Amerant Bancorp. Please note that Amerant Bancorp has no obligation and makes no commitment to update or publicly release any revisions to forward-looking statements in order to reflect new information or subsequent events, circumstances, or changes in expectations, except as required by law. You should also note that the company's press release, earnings presentation, and today's call include references to certain adjusted financial measures, also known as non-GAAP financial measures.
Please refer to appendix one of the company's earnings presentation for a reconciliation of each non-financial measure to its most comparable GAAP financial measure. I will now turn the call over to Mr. Wilson.
Good morning. Thank you for joining Amerant Bancorp's fourth quarter and full year 2019 earnings call. Today, we'll discuss Amerant Bancorp's quarterly and annual results. We will also highlight the progress we've made on our transformation. We will finish by giving some color on what we expect for 2020. I'll begin with our fourth quarter 2019 highlights, and then Al will review our financial performance in greater detail. After our prepared remarks, Al, Miguel, and I will address any questions. Starting on slide three and slide four, we have a summary of our performance for the quarter. In Amerant Bancorp's first full year as a publicly traded company, we executed key elements on our previously outlined strategy, providing value to our shareholders. Net income grew 12.0% year-over-year, and ROA and ROE both saw improvements during the year, driven by strong non-interest income and successful operational efficiency and expense reduction initiatives.
During the year, we reduced 82 full-time equivalent positions as a result of our efficiency efforts. We also prioritized relationship-driven and low-risk domestic loans, finalized the exit from foreign financial institution loans and non-relationship secured national credits, maintained strong asset quality, and optimized our funding costs. In the fourth quarter, we saw significant growth in non-interest income when compared to the prior quarter. Notably, we realized significant income from derivative sales to our borrowers and a large gain on the sale of vacant land adjacent to our Beacon operations center. On the loan side, our owner-occupied and one to four residential portfolios grew in line with our relationship-driven strategy. Demand for residential and small business loans grew in the fourth quarter, resulting from a higher number of applications.
While these only partially offset the prepayments in our CRE loan portfolio, they do point to strong loan demand and the expectation of favorable economic conditions in 2020. On the deposit side, we rolled out several strategies, which we will discuss later, to capture a larger portion of our customers' deposits and provide a quality best-in-class banking experience for our customers. We also strengthened our footprint in South Florida through the opening of two new banking centers in the fourth quarter, one in Miami Lakes and the other in Boca Raton, totaling three new banking centers in 2019. We expect to open one more in the first quarter of 2020 in Delray Beach, Florida.
These new locations embody Amerant Bancorp's vision of the banking centers of the future, featuring smaller square footage, enhanced technology, and a more focused customer service approach. Lastly, we embarked on our digital evolution and started taking actions related to the use of technology to support our business strategies. In December 2019, we engaged Salesforce for its customer relationship management system and nCino for its loan origination solution and started implementation early this month. These two platforms will help us improve and streamline marketing, sales, onboarding, and service processes, reduce turnaround times, facilitate collaboration amongst groups, and provide access to relevant information to boost relations and improve customer experience. In addition, the implementation of nCino in particular will generate additional savings from platform consolidations. Moving to slide four, our net income for the quarter was down 6.6% over the same quarter last year.
On an adjusted basis, the decline over the same quarter last year was 42.8%, as the year-ago quarter experienced add backs from restructuring and spin-off costs, and this year we had the gain on the sale of land. During this quarter, compared to the same quarter last year, the drivers of decline in net income were lower net interest income due to lower average loan balances at lower rates and higher time deposit costs, lower provision reversal, and this year we had a gain on the sale of land. Our return on assets was 0.68%, or 0.57% on an adjusted basis, and our diluted earnings per share was $0.31 per share or $0.26 on an adjusted basis, in line with market expectations. Al will explain the non-GAAP adjustments and provide more detail on the results shortly.
Our credit and asset quality remained strong this quarter, leading to a release from the allowance for loan losses of $300,000. The release was mainly due to certain recoveries and releases that compensated the increase of specific reserves. Now I will turn the call over to Al, who will go over the quarter and year performance in more detail.
Thank you, Millar. Good morning, everyone. Before we move on to slide five, I would like to touch on the highlights in our balance sheet this quarter. On the asset side, as of December 2019, total loans decreased 3% compared to December 2018, primarily driven by the completion, faster than anticipated, of our strategic runoff of foreign FI and non-relationship SNC loans throughout the year. This resulted in a total asset decline of 1.7% for the year. On the funding side, our domestic customer deposits grew 4% year-over-year due to an increase as we focused on expanding our deposit gathering outside our natural footprint. We also increased our broker deposits, but expect to decrease our usage in 2020 as our online product gains momentum.
Offsetting the domestic growth, our international deposits continued to decline this quarter as our Venezuelan customers continued to draw down their accounts to fund living expenses or purchase homes abroad. Our stockholders' equity increased by $87 million or 11.7% compared to 2018. Mostly due to the net income and the growth in accumulated other comprehensive income, primarily stemming from the higher market valuations in our available-for-sale investment portfolio. Moving on to slide five, I'd like to review our investment portfolio. Our fourth quarter investment securities balance increased slightly to $1.7 billion from $1.6 billion at the end of the third quarter and stayed relatively flat when compared to the same period last year. We continue to actively manage our investment portfolio to ensure adequate liquidity, especially given the decline in foreign deposits.
The increase in the investment portfolio during the quarter was primarily driven by strategic purchases oriented to protect our NIM in a declining rate scenario. Along this line, this quarter, we continued to decrease our floating rate portfolio, which now comprises approximately 14% of our investment portfolio, down from 23.4% at the end of 2018. The average duration of the portfolio increased from 3.4 years at the end of 2018 to 3.8 years at December 2019, as we added 20-year US Treasuries and CMOs with prepayment protection to hedge earnings against further interest rate declines. Finally, our adoption of a new accounting standard applicable to marketable equity securities led to a gain of $700,000 this quarter. Moving on to slide six, we can see some of the movements across our loan portfolio. During the year, total loans decreased $176 million or 3%.
This decline was primarily due to the completion of our strategic exit from non-relationship SNCs and foreign FI loans in the first three quarters of 2019, totaling $325.6 million from year-end 2018. CRE loans declined $73 million, mainly on a high level of prepayments, especially in the fourth quarter. These declines were partially offset by a $117 million increase in owner-occupied loans. It is important to mention that during the year, our domestic loans, excluding the impact of the runoff of non-relationship SNCs, grew 3.7%, primarily from relationship loans. Compared to the third quarter, total loans experienced a slight decline as CRE prepayments exceeded new production. Our residential loan portfolio experienced a higher level of applications in the second half of 2019, which led to a $12 million increase in the fourth quarter.
In line with our strong commitment to our relationship-focused strategy, we estimate our relationship loan production was approximately $1.2 billion in 2019, up approximately 14% from last year. Moving on to slide seven. We continued to experience strong credit quality during the fourth quarter, which drove a release of $300,000 from the allowance for loan losses this quarter. This release was largely driven by a lower loan balance and a commercial loan recovery, partially offset by loan factor adjustments and an increase in the specific reserves related to the $11.9 million impaired relationship I will elaborate on shortly. I want to quickly touch on the phase-out of our credit card products, which we discussed briefly last year. We stopped all charge privileges to existing cardholders, charged off uncollectible balances, and are requiring complete repayment of remaining accounts by January 2020.
At the end of 2019, the outstanding balance on credit cards totaled $11.1 million, with an allowance of $1.8 million, down from almost $34 million outstanding and an allowance of $5.4 million at the end of last year. We continue to monitor this balance closely and are reassessing the required reserve amount until the balance is completely repaid. Going forward, our international and domestic customers may still enjoy credit card products through our referral programs with some of the US's leading card issuers, namely First Bankcard and American Express. Non-performing assets increased to $14.8 million during the year and totaled $33 million at December 31st, 2019. Non-performing assets to total assets were 0.41%, up from 0.22% at the end of 2018.
This increase, as mentioned last quarter, is primarily due to an $11.9 million loan relationship with a South Florida wholesale customer affected by the 2017 hurricanes, and four other unrelated loans totaling $6.7 million placed in non-accrual status. Compared to the end of the third quarter of 2019, non-performing assets to total assets remained flat. Special mention loans increased by $13.5 million during the year, primarily due to the same $10 million condo construction relationship SNC loan in New York we discussed last quarter, along with nine unrelated loans totaling $17.8 million. These were partially offset by $14.7 million downgraded, mainly represented by the food wholesale borrower I just mentioned, and the upgrade of a $2.2 million owner-occupied loan, previously classified special mention. Turning to slide eight.
You can see that our loan yield has decreased this quarter by 17 basis points compared to the prior quarter, and by 27 basis points compared to the fourth quarter of 2018, primarily due to lower interest rates. Compounding the effect of lower interest rates was a higher rate of prepayments, particularly in our CRE portfolio, partially offset by prepayment penalties. Our investment securities yield declined by seven basis points from the previous quarter, mainly due to the purchase of $100 million in 20-year US Treasuries as a hedge for rate declines. The yield on these securities was approximately 60 basis points below the average investment portfolio yield. Year-over-year, the investment portfolio yield declined 21 basis points, primarily due to the repricing of floating rate instruments and SBAs. In slide nine, we highlight Amerant's evolving wholesale funding strategy.
We continue to take advantage of yield curve opportunities by replacing maturing advances and selective early termination of higher cost FHLB advances at a net cost of $1.4 million during the year with lower fixed rate advances with callable features. This resulted in a 40 basis point saving in funding cost in the fourth quarter, or approximately $700,000. We expect to continue to utilize wholesale funding as needed with short durations or optionality in order to further drive down our funding cost. Moving on to slide 10. Total deposits at the end of the year were $5.8 billion, down 4.6% compared to the close of 2018, and down 1.1% compared to the third quarter of this year. As we have stated previously, these declines result primarily from lower foreign deposits, which declined by 13.1% during 2019.
The fourth quarter annualized foreign deposit runoff rate was 8.6%, down from 16% in the third quarter as we continue our efforts to gain greater share of wallet from our higher net worth foreign customers. Foreign deposits have fallen at a 12% compounded annual rate since 2015 as our customers draw on their accounts to fund living expenses and increasingly purchase homes abroad. As this trend continues, we are intently focused on increasing our core domestic deposits, which despite having a higher cost, present higher growth potential and better cross-selling opportunities for our other products and services. Accordingly, much like the rewards program we announced in the third quarter, in the fourth quarter, we rolled out new services and offerings that provide a better banking experience for our customers.
We started providing access to Zelle, a popular digital payment platform that makes it easier for our personal banking clients to quickly send and receive small sums. We ramped up our efforts to raise online deposits outside our footprint, which has contributed $86 million to our deposit base in 2019, and we expect this to continue to grow in 2020. As a result of our efforts, we closed the year with 54% in domestic deposits, up from 50% at the end of 2018. As expected, our cost of deposits increased 19 basis points from the same quarter a year ago, and 1.39% primarily due to this shifting mix. Turning to slide 11.
Fourth quarter 2019 net interest income was $51.3 million, down 9.7% compared to the fourth quarter of 2018 due to lower loan volumes resulting from the strategic runoff of the foreign FI and non-relationship select loans, as well as lower rates on both repricing and new loans. The higher cost of deposits as a result of less expensive foreign deposits being replaced by higher cost domestic deposits, including online and brokered CDs. These were partially offset by the lower cost of our wholesale funding, given the early termination of more expensive FHLB advances, the utilization of lower fixed-rate advances with callable features, and cost savings realized via the TruPS redemptions. The NIM for the quarter was 2.74, a decrease of 21 basis points compared to the fourth quarter of 2018.
This decrease was due to the increased deposit costs, the lower interest rate environment, which also led to higher prepayments on fixed-rate loans and heightened competition on C&I loans, and the higher prepayments on SBA and CMBS securities in our investment portfolio. The 2.5% decrease in net interest income and the six basis point decrease in the NIM we saw in the fourth quarter compared to the third quarter of this year is attributable to the same low rate environment, which was partially offset by a lower cost of professional funding from the strategies I mentioned, and lower deposit costs, especially in relationship money market and tier products, which costs we continue working to drive down.
We continue to take actions to drive up the net interest margin, such as optimizing our FHLB funding costs, and have redeemed, inclusive of today's redemption, all of the $52 million of high-cost fixed-rate TruPS that we had. We also entered into interest rate swaps on the remaining floating rate debentures, taking advantage of the yield curve inversion to effectively fix a lower rate for three years. The combined effect of the TruPS optimization efforts will produce an annual pre-tax interest expense reduction of approximately $5.2 million. Other actions taken include cutting rates on deposits while focusing on growing low-cost demand deposits to reduce utilization of broker deposits and more actively requiring rate floors on new loan originations. Net interest income for the full year 2019 was $213.1 million, down 2.7% compared to $219 million in the full year 2018.
This decrease was mainly driven by higher deposit costs, mostly related to time and money market deposits, partially offset by higher income on interest-earning assets due to higher rates in the earlier part of the year, and a $2.1 million reduction in interest expense on our FHLB advances due to the callable structures explained earlier. Importantly, our NIM for the full year 2019 increased seven basis points to 2.85% as a result of higher average rates on our interest-earning assets generated in the first half of 2019, and our focus on growing higher-yielding domestic relationship-based loans. Slide 12 shows that non-interest income in the fourth quarter was $16 million, up 33% year-over-year and up 15% from the previous quarter.
Several factors drove this improvement, including the fourth quarter's income of $2.5 million from the sale of derivative contracts to loan customers, a $2.8 million gain on the sale of the vacant Beacon land, and finally, an approximately $700,000 benefit from the newly adopted accounting standard applicable to marketable equity securities. These improvements in the fourth quarter were partially offset by $1.4 million in net penalties on the early termination of the Federal Home Loan Bank advances during the year, as we replaced expensive medium-term advances with long-term callable structures, $500,000 lower income from credit card fees as we continued phasing out our legacy credit card product, and $500,000 less income from the discontinuation of services provided to the company's former parent and its affiliates.
With the culmination in the fourth quarter of 2019 of the previously announced acquisition of Cayman Bank , the company no longer offers any services to its former parent or its affiliates. Non-interest income in 2019 of $57.1 million was up 6% compared to 2018. The drivers for the year include an increase of $3.7 million in derivative contracts sold to borrowers, the fourth quarter sale of the vacant Beacon land, the $1.9 million gain on the sale of municipal bonds and floating rate corporate securities from earlier this year, and the recently adopted marketable equity securities value adjustments. Partially offset by the FHLB early return penalty, the decline in brokerage fees as a result of lower fixed income trading volume by our customers, lower income from the discontinuation of services to the company's former parent and its affiliates, and lower wire transfer and credit card fees.
Amerant Bancorp assets under management and custody increased $223.6 million or 14% to $1.82 billion at year-end, compared to $1.59 billion at the end of 2018, primarily due to market appreciation and the completion of the Cayman Bank purchase. Moving on to slide 13. Fourth quarter non-interest expense was $51.7 million, down 5.3% year-over-year and down 1.9% from the third quarter. These decreases were largely the result of lower employee salary and benefit costs as a result of our 2019 workforce streamlining efforts. Compared to the third quarter, marketing expenses were lower, contributing to the decrease in the non-interest expense in the period, among other incremental cost savings.
Partially offsetting these savings was a $2 million increase in long-term incentive compensation plan costs tied to the performance against strategic targets established for the year 2016-2019, and $1.9 million higher professional and other service fees resulting from provision adjustments recorded in the fourth quarter of 2018 after the final spin-off costs were determined. Non-interest expense for fiscal year 2019 was down 2.6% compared to 2018. This was largely due to the same salary and benefits cost savings mentioned, in addition to lower legal, accounting, and consulting fees, FDIC credits, and a favorable adjustment to depreciation expense on our operations center. These savings were partially offset by higher long-term compensation costs and the $5.9 million compensation expense associated with the 2018 IPO grant. Restructuring expenses in the full year 2019 were $5 million, consisting of $3.6 million in rebranding costs and $1.5 million of staff realignment expenses.
We are pleased with our progress on the implementation of our transformation strategy in 2019. We'll continue to look further for operational efficiencies in 2020 and beyond. Turning to slide 14, the primary purpose of this slide is to show a normalized non-interest expense for fourth quarter 2018, since that quarter included significant restructuring costs. The adjusted increase of 7.8% from the same quarter last year is primarily attributed to the $1.5 million in compensation expense associated with the 2018 IPO, the $2 million in the long-term incentive program adjustments previously mentioned, and staff cost of living increases. These increases were partially offset by the significant reduction in staffing during the year. Regarding other operating expenses, the increase was attributed to higher professional legal fees, including legal and marketing expenses.
Adjusted non-interest expense for fiscal year 2019 was $204 million, relatively flat compared to the year ago period as a result of the 9% headcount reduction in 2019 offsetting the other drivers I just mentioned. On slide 15, we can see that Amerant Bancorp remains asset sensitive as over half of our loan portfolio is floating rate or matures or reprices in less than one year. With the potential of interest rates continuing to decline or remain low, we have taken concrete steps to reduce this sensitivity with the goal of driving our NIM higher. One of these steps was increasing the duration of our overall investment portfolio, ending the year with 3.8-year duration, up from 2.6 years at the end of the third quarter. We achieved this by the purchase of the 20-year US Treasuries and US government-sponsored CMOs with prepayment protection.
We estimate that an instantaneous and parallel 25 basis point decline in interest rates on a static balance sheet will reduce our net interest income by approximately $5 million or 2.3% over the following one year period, which is slightly more than what we had in our model shown in prior quarters. A 25 basis point increase would benefit our net interest income by approximately $3 million. I will now hand it over back to Millar to conclude our prepared remarks.
Thank you, Al. Moving to our last slide. In 2020, we expect to build on much of the momentum we achieved in 2019. Our goals remain largely unchanged, and we continue to focus on improving profitability through growing loan yields and expanding wealth management and fee-based products while driving down funding costs and maintaining strong credit quality and underwriting standards. Targeted growth of Amerant Bancorp's core deposits and domestic loans across all our markets. Increasing our operational efficiency by continuing our 2019 rationalization efforts through the adoption of new technologies as well as improving the quality of our customer service. Continue to accrete earnings to our capital to support future activities. Lastly, before we open the call to questions, I want to provide an update to our initial ROA target from the IPO.
As you know, we originally laid out several initiatives which would help us reach a 1% ROA by the end of 2020. We are halfway on this two-year journey and have successfully executed on all the initiatives that were under our direct control. With today's trust redemption transaction, we are completing the redemption of our third most expensive trust preferred security, concluding the three redemptions we had planned. We have made significant staff reductions, many in back office positions, and opened new banking centers with a smaller footprint and enhanced technology. We continued to improve our loan mix as we ran off international loans and shifted towards higher yielding domestic relationship based loans. Additionally, we generated substantially higher fee income from derivatives sold to customers and treasury management products and continued to grow our wealth management business.
To no one's surprise, however, our results have been significantly impacted by a declining rate environment. Instead of the rising rate scenario we had forecasted, or even flat rates, we experienced three rate cuts in 2019. This significantly impacted 2019 results and will have an effect on 2020. Given the forecasted flat rate scenario and tightening credit spreads, we no longer anticipate to hit our 1% ROA target by the end of 2020. However, we still view this as a reachable medium term target as we continue to make significant progress on the diversification of our loan portfolio, fee income, deposit cost reductions, and efficiency initiatives. I want to thank the entire Amerant Bancorp team for the great work each and every one has done this year. As we complete our first full year as a public company, 2019 was defined by important and necessary change, coupled with careful execution.
I am proud of the progress we have made on our transformation strategy and look forward to another year of strong growth, generation of value for shareholders, and most importantly, delivering quality best in class products and banking services to our customers. With that, we'll be happy to take any of your questions. Operator, please open the line for Q&A.
Thank you. As a reminder, to ask a question, you will need to press star, then one on your telephone. To withdraw your question, please press the pound key. Please stand by while we compile the Q&A roster. Our first question comes from the line of Michael Young with SunTrust. Your line is now open.
Hey, good morning.
Morning.
Good morning , Michael.
Thanks for the outlook there, Millar, on the 1% ROA target. I did want to just follow up high level on that. I think originally the guidance included around 20 basis points-25 basis points of ROA improvement from higher rates. Is the right way to think of the target for this year is kind of just removing that piece, or is it actually a detriment, so we should actually think of maybe 30 basis points or so of ROA pressure from the lower rate environment?
Well, Michael, what's important to mention is, and to rehash as Millar mentioned, we've achieved almost all of the other targets that we set out to. The fee income, cost reductions, the remixing of the portfolio. All that's missing is the rates. If you recall, when we did the ROA walk initially in the IPO, minus any rate changes, our two year outlook was to be soundly in the 90s. We always said back then that we felt that just a bump in the rates would carry us over to that 1%. Remember the sensitivity that we've been saying all along in our asset sensitivity that we've been saying all along has always been roughly the 25 basis point decline would translate in $4 billion-$5 billion decrease in our net interest income.
When you have the compounded effect, remember, we were looking at a two year target, so there were still a lot of drivers that have to be done and will continue to be executed during year two other than the net interest income. If you compound the effect of that volume that we put in year one of the transformation, and as well as the new volumes that we could be putting in year two, that essentially is why we're having to push back that outlook. It's essentially basically the way we see it is rates. The only reason we're not meeting this is rates, because we feel very comfortable with what we've achieved in all of the other elements of the ROA walk during the first year.
We still got another year to go on those same initiatives to make even incremental improvement in all of those other measures.
Right. Completely understand that. That was why I was just trying to hone in on the rate piece of the ROA walk, because I do agree all the rest of the pieces have moved forward and progressed. That piece, I was just trying to understand if that should be how we think about the ROA target, maybe more for 2020 is just kind of everything X rates as it was in the ROA walk initially, or if rates have actually become even a detriment to the benefit that there potentially was from higher rates just because rates have gone so low and inverted at times, et cetera.
Yeah. Well, as I said before, our ROA walk put us soundly in the 90s. It was somewhere between 90 basis points and 95 basis points without the rates. That's kind of the starting point that we should be looking at. We thought, and I know that we weren't given credit for it because obviously we can't control rates. At that point, we said, "Look, this is getting us very close in the low 90s, and just blip in rates is going to carry us the rest of the way." Quite contrary, it's been very depressed. Keep in mind that we've had three rate decreases, but we also had a significant dip in rates during the year, more so than the effect that just three rate decreases. We had an inverted yield curve for a period of time this year.
Anything that we were booking at that time was also impacted. The rates on what we were booking during an inverted yield curve situation is affecting this year, and will also affect us into the next year.
Right. Maybe just switching over to expenses. I know there's a few benefits from lower IPO grant costs next year, and you guys have got the CRM system up and some other systems in place. Is there kind of a step function down in expenses at any point, or is it kind of just a slow grind lower from maybe the 4Q level throughout 2020?
Yeah. If we exclude the costs of the digital project that we're embarking on right now or that we've started already, we would see a decline in our run rate. We would still see a decline of probably $1 million-$2 million in our run rate. Some granularity in terms of when some of those expenses come in during the quarter. There may be some granularity within the quarters. All in all, we expect a lower operating expense if we exclude, probably flat if we consider the important investment that we're making in this digital evolution. Excluding that, we would expect a reduction, and we're continuing to work with it. In terms of, you saw the significant reduction that we've at the end done for 2019 in terms of FTEs.
By the end of next year, we expect to remain relatively flat in our FTEs, but there's going to be some bumps and valleys along the way because we're going to be adding some teams of lenders in Florida. We're going to be adding a team of lenders in Texas. We're adding another team to further advance on our domestic wealth management strategy. We expect to remain probably flattish in terms of FTEs with some granularity within the quarters as we are successful in onboarding those teams. Certainly, those teams will then help us with our production targets and fee income generation after they're in.
Okay. Should we kind of think of starting the year in the first quarter kind of similar but maybe slightly down from the fourth quarter run rate? Is that kind of the right messaging?
Yeah. The first quarter will certainly have that immediate drop from the amortization of the IPO grant, remember? That was like $1.5 million every quarter in 2019. I believe that goes down to about $700,000 per quarter in 2020. Right off the bat, you have a pretty significant decrease to nearly $1 million in the run rate. We'll have to see how successful we are and how quickly we can onboard those teams. So that may be. Also the expenses that we incur as we implement the digital tools that Millar mentioned will also have some granularity within the year and the different quarters.
Okay. Thanks.
Thank you. As a reminder, to ask a question, you need to press star then one on your telephone. Our next question comes from the line of Michael Rose with Raymond James. Your line is now open.
Hey, good morning, guys. How are you?
Good morning.
Morning, Michael.
Hey, just wanted to go back to expenses. Al, I think last quarter you talked about a sub-$50 million per quarter kind of run rate. I know there'll be some puts and takes. This quarter you had another benefit from the FDIC charge reversal. I know looking forward, obviously the TruPS costs or excuse me, the restricted stock costs will come out. Can you just give an update there and maybe touch on some of the hiring efforts that you have? I know you guys are actively seeking to build out the Texas market. Thanks.
Well, we expect the run rate roughly excluding the investments in digital, we expect it to be somewhere in the area of $48 million-$49 million. That would be definitely a reduction in cost. I'll let Miguel talk a little bit about the efforts to hire those teams. Generally, the focus in terms of the lending, the two lending teams, is probably going to be to bump up our C&I, our efforts to increase further C&I and probably have less reliance on CRE. I'll let Miguel speak a little bit about that.
Hi, Michael. How are you? It's Miguel. Definitely. Going back to maybe expanding a little on the production side and the lending teams. Last year, we dedicated the whole year to delivering products and improving through the strategy, the transformation from Amerant Bancorp to lenders. This year, we will add some additional tools, but more for the second half of the year with the CRM and the nCino platform. Definitely, we believe that now it's time to start investing and attracting additional team because the incremental production that we have had in the last three years has been without increasing and as a C&I team. We do believe that that will help a lot on the process of increasing production. Maybe we can see some stabilization on the payoff side. Definitely, we are cautiously optimistic on that sense.
In the case of the Texas team, we have some hiccups on the LPO. We have some talent acquisition that came in, but didn't stay during the year. Definitely we're going to be doing this part of dedicating more time to the talent acquisition. With the new tools that we're going to be having, it's going to be great.
Okay, putting that all together, Al, I think what you're saying is the kind of the $50 million with the technology and digitization costs is probably still the right way to think about it.
Yeah.
Okay
those teams, which are an incremental-
Correct. Yep
cost. Definitely.
Correct. Just wanted to talk about switching the margin. That obviously on hold. Deposit costs were essentially flat. You guys had good domestic growth, obviously offset by the continued Venezuelan runoff. How should we think about the trajectory of margin from here? Should we think about it being relatively flat given some net loan growth this year? Just any thoughts would be helpful.
Sure. Our outlook is that if you look at 2020 as a whole, we would expect to be probably flat to maybe a small pickup from where we are sitting now in Q4. We do expect probably Q1 to take another dip. I think there essentially, we'll be feeling the full effect of the more recent rate cuts, which weren't really, they weren't cooked in totally into the Q4 numbers. I think after Q1, we expect that to return to an improving trend. We're probably looking at a NIM by Q4 somewhere in the 280s, is kind of our outlook. We'll end somewhere on average about the same place we are today.
Okay. What's driving that big uptick? I know part of it's going to be the TruPS cost. Besides that, what else is driving that kind of 280 number that you're talking about?
Sure. Of course, the TruPS, as you mentioned, but also a full quarter effect as well of a lot of the strategies that we've been implementing in treasury to try to control our institutional funding costs. We're also doing a lot of work on increasing our core deposits, our domestic core deposits. We're certainly starting to lower our rates, even our promotional rates, our bundled product rates. All those rates are starting to come down. We're going to also be doing a lot, continuing to do a lot of work on our out-of-footprint deposit captures, online deposits which give us an opportunity to be selective, go in and out of certain different markets that we're not physically in without the danger of contaminating the cost of our domestic base. We also have loan growth, which we expect loan growth probably in the mid-single digits.
We expect as a result of the acquisition of some of these teams to also start ramping up a bit our C&I production. That sort of mid-single digit loan growth could maybe even be expanded a little bit if we're successful in getting these teams on early enough in the year.
Okay, maybe finally for me. Looks like you had some growth in your assets under management. Can you give an update there on where we stand with the build-out of kind of the domestic platform as we go forward? Thanks.
Yeah. I probably should let Miguel speak at more detail about the expansion of the domestic wealth management. We're making incremental progress on that. The increase in the AUMs has been essentially just market valuation. I think it's very important. Remember that that's still 90+% foreign customers, Venezuelan customers, actually. The fact you saw the decay that we had in the foreign deposits, which was 12% in year. That shows you that the potential that our higher net worth Venezuelan customers have, where the only change has really been the market appreciation. We haven't had a decline. I think that shows the resiliency of that higher level of Venezuelan customers where we've been able to essentially keep the same amount of assets under management, and they're growing. They're not depleting it any faster than they're growing.
Regarding the wealth management teams, I think that we're optimistic. We hire at the head of Broward and Palm Beach. We recruit a very good talent from a top producer institution on the wealth management side. We have completed our Dade County RM, and we're in the process of hiring also the same structure for Houston. We're starting to see the progress that having the talent so the C&I team and the commercial team can start referring owners to this group. We have seen a very interesting increase on relationship and share of wallet.
Hey, guys. Thanks for all the color. Appreciate it.
You're welcome.
Thank you. As a reminder, to ask a question, you will need to press star then one on your telephone. We do have a follow-up question from the line of Michael Young with SunTrust. Your line is now open.
Welcome back.
Too much coffee, Michael.
Hello?
Michael Young, your line is now open. Please unmute your line.
Thanks. Sorry, was on mute. On the foreign deposits, saw sort of a deceleration in the runoff. You specifically mentioned that you were seeing more of them being used for foreign home purchases. Should we think of sort of more seasonality around that heading into 2020? Maybe with slower decay kind of in the first part of the year, and then accelerating into the purchase months.
Hi, Michael. We are starting to see some interesting trend on the positive side. That is a reflection on the fourth quarter. We implemented Zelle platform payments. Also we're starting to provide to this group the same type of products and bundles that we gave to the domestic market during the last year. We have seen a smaller amount of accounts closing. We are implementing programs to refer a program for this year. We believe that we could be on around a 9%-10% attrition. Definitely the team is working very hard on how to increase the share of wallet. Basically we're driving that through our wealth management group.
Okay. I guess just holistically, maybe Al, just on the deposit costs, we've kind of gone to flat quarter-over-quarter. I know you guys had termed out some deposits over the last year or two. Is there a point at which we should expect that to start really sliding lower at some point in 2020? Or any way to think about that?
Yeah. Michael, our domestic deposit costs are already declining. We've lowered our transactional, even our bundle like money market accounts, we've lowered the rates on those. Even the top-notch customers, we've lowered the rates on those. Increasingly, we're seeing time deposits that were probably put on the books, say a year ago, a little over a year ago. They're coming due soon, they're going to be at significantly lower, or let's just say, even if you look at the promotional rate that is out there, they're coming down from significantly higher rates before. The issue remains that 9%, as Miguel mentioned, attrition in the Venezuelan deposits is kind of, to a certain extent, maybe masking that effect. We are already seeing our domestic deposit costs declining. I think we hit that inflection point sometime in Q4 where our new domestic deposit costs are starting to decline.
Again, a lot of the efforts that Miguel and his team are working on to increase our commercial deposits. The branches are working on more core deposits. I think that'll all help us to contain any decline in the NIM or actually improve the NIM as the year goes on.
Okay. That was it for me. Thanks.
Thank you. This concludes today's question and answer session. I would now like to turn the call back to Mr. Millar Wilson, CEO, for closing remarks.
Thank you for joining our fourth quarter and fiscal year 2019 earnings conference call. I'm proud to say that Amerant Bancorp has the right strategy in place, and we have reached important milestones in its execution over the course of 2019. Our team has already hit the ground running for 2020, and we look forward to continuing to create value for all our stakeholders. Thank you very much.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.