Q2 2021 Amerant Bancorp Inc Earnings Call

July 22, 2021

[music].

Good day, and thank you for standing by.

Welcome to the Amarin second quarter 2021 on your earnings conference call at.

At this time all participants are in a listen only mode.

After the Speakers' presentation, there will be a question and answer session.

And to ask a question during the session you will need to press star 1 on your telephone.

Please be advised that today's conference is being recorded.

If you require any further assistance you May press Star zero.

I would now like to hand, the conference over to your Speaker today, Ms. Laura Rossi head of Investor Relations. Thank you. Please go ahead.

Thank you Myra.

Good morning, everyone and thank you for joining us to review or on the Bancorp second quarter 2021 result.

Joining me this morning to lead today's call are Jerry flush Vice Chairman and Chief Executive Officer, and Carlos Your affiliate <unk> Executive Vice President and Chief Financial Officer.

As we begin please note that the company's press release, our discussion on today's call on our responses to your questions contain forward looking statements.

<unk> business on operations are subject to a variety of risks and uncertainties, which many many of which are beyond its control and 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 earnings release and presentation.

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 31, 2020, I mean, they're older filings with the SEC.

Can access these filings on the SEC's website I'm.

Amarin 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. Please also note that the company's press release earnings.

For some patients on today's call include references to certain adjusted financial measures also known as non-GAAP financial measures exhibit 2 on appendix 1 of the company's press release on earnings presentation, respectively contained a reconciliation of each non-GAAP financial measure to its most.

Both GAAP financial measure.

I will now turn it over to Gerry.

Thank you Laura and good morning, everyone and thank you for joining average second quarter 2021 earnings call them.

I am pleased to report Amyris earnings for the second quarter and to provide you with an update on the progress we have made regarding the new strategic initiatives and objectives I've shared in the last quarter's earnings call. I'm also happy to note that we recently implemented returned to office plans, where ameren team members either have a fully on site.

We're hybrid schedule, depending on their job function.

I'd like to take this opportunity to thank the entire ameren team for their dedication and efforts during this past year.

And note that we are all looking forward to moving ahead and focusing on average profitable growth.

Let me now provide a brief overview of our performance in the second quarter, and then I'll hand, it over to Carlos to get into the details.

So turning to slide 3 here you can see a summary of our second quarter highlights.

We're pleased to report further improved results compared to Q1 of note net income attributable to the company of $16 million is up 10, 4% quarter over quarter, and it's primarily driven by higher net interest income and non interest income as well as the release of $5 million from the allowance on loan losses.

Yes.

Total loans were $5.6 billion and total deposits from 5.7 billion, both slightly down from last quarter. Nonetheless, we are happy to report increased core deposits, including growth in noninterest bearing deposits as a result of our efforts to prioritize this type of funding.

Our progress on class B share purchases continues having repurchased over 565000 shares for a total of $9.6 million as of July 20th.

Turning now to the core <unk> slide 4 we're happy to report core <unk> of $17 million, an 8% increase compared to last quarter. We felt adding this slide would be helpful to show the core net revenue growth, excluding the onetime gains and nonrecurring charges such as the <unk> prepayment.

Penalties, the severance and other restructuring costs and show all of that for each quarter.

We'll turn now to slide 5 and look at the key actions, which we've outlined here for the second quarter. You'll note that a number of these strategic measures, we're focused on driving lower future funding costs and lower operating expenses.

We recorded a $3.8 million gain on the sale of $95.1 million in PPP loans, we reduced the allowance for loan losses by $5 million, given improved macroeconomic conditions and credit indicators in our markets.

We launched operations at Ameren mortgage at the end of May after acquiring a business, which enabled us to access the license to operate nationally.

We modified the rate on $285 million of F. Hlv advances and we paid off an additional $235 million, taking a $2.5 million charge in Q2.

Both of these actions represent $3.6 million in annualized savings.

We also continued strategic repricing of customer time deposits further lowering the cost of funding by approximately 3 basis points, which translates into annualized savings of approximately $1.5 million, we outsource the internal audit function, which we expect will result in savings of $1 million annually starting in.

2022.

We proceeded with the closing of our loan production office in New York City recording <unk> 8 million in charges there.

In addition to our former president and COO stepping down we executed work force reductions based on our spans and layers review and the closing of the New York City loan production office, while still making select additions in business development, primarily in Ameren mortgage.

And we launched a process improvement initiative with a well known third party to improve customer experience and drive additional efficiency.

Additionally, we are excited about our recent partnerships with leading Fintech numerator growth technologies Edmar Stone, Inc.

<unk> award winning platform will significantly improve the business on account opening process, making it easier and faster for both bank employees and customers.

It's clear that small businesses will need financing and we're confident that our new partnership with numerous will enable us to meet existing and new customer financing needs quickly and efficiently.

Regarding marched on there on the online wealth management platform will help empower ameren investment customers to fully understand their financial position plans and outlook.

While benefiting from the high touch relationship management Ameren is known for.

As part of the agreement Ameren will leverage milestone and 2 being capacities as a sub advisor and as a technological partner.

Through the sub advisor offering we'll be able to expand our reach in the mass affluent segment by offering a fully digital advisory experience with much lower minimums than we can do today.

Through the technological partnership Ameren investments, we'll be able to digitalize its existing advisory offering and leverage new tools to scale, our business and we're excited to be in a position to launch additional capabilities later in the year to bring financial planning and savings goal capabilities to all of our customers.

Lastly, we recently announced our partnership with Zimmerman advertising as our new marketing agency of record.

<unk> is 1 of the top agencies in the U S and theyre going to help us elevate the Ameren brand and drive even greater business growth as I noted previously we've just begun that 8 week process with a well known firm to drive additional efficiency and enhance the customer experience.

All with the goal of making banking with us easier. We're confident that these new partnerships and initiatives will help us drive greater brand recognition and profitable growth all with an eye toward improved enhanced results in the coming quarters.

So we'll turn to the key metrics on slide 6.

Here, we've outlined key performance metrics, which show improvement across the board this quarter with the exception of the efficiency ratio, we attribute the increase in the efficiency ratio to the nonrecurring costs associated with all the key actions. We just covered during this past quarter, such as severance and New York loan production office closure among.

Others. These.

These results are reflective of our focus on core deposits and higher operating profitability, while maintaining a robust capital position and credit coverage.

So with that said I'll turn things over to Carlos who will walk through the results for the quarter in more detail.

Thank you Gerry on thank you all of you to join US today, turning to slide 7 I'll begin by discussing our investment portfolio.

Our second quarter investment Securities balance was $1.3 billion unchanged from the previous quarter and down from $1.6 billion in the second quarter of 2020.

The duration of the investment portfolio continues to reflect changes due to dropping interest rates. During this quarter. We recorded a decrease in duration of 4 years as expected prepayment speeds increased we continue to select investments to mitigate the impact on prepayment risk over the portfolio.

As of June 30 on the floating portion of our investment portfolio represented only 14%.

Moving to slide 8 we provide an overview of our loan portfolio.

At the end of the second quarter total loans were $5.6 billion down 2.5% compared to the end of the last quarter. The decline was primarily due to prepayments received in both CRE and CNI loans, the sale of PPP loans and me on the processing on PPP loan forgiveness. All of this while non demand continues to recover.

Yes, not able to offset prepayments on pricing competition intensified.

Total PPP loans outstanding were $24 million down significantly compared to the 165 million of outstanding PPP loans as of the end of Q1, we processed $60 million forgiveness applications on sold 95, I said previously as I previously mentioned.

It is important to note that we continued to see strong performance in our consumer loan portfolio, which at the end of the second quarter, including 221 million of higher yielding indirect loans. During this quarter, we purchased an additional $62 million of these loans.

Turning to slide 9 let's take a closer look at the credit quantity.

Overall credit quality remained sound and reserve coverage strong the allowance for loan losses as of the end of the Q2 was $1.4 million down 6% from day 111 million on the close of the last quarter.

We released 5 million from the allowance for loan losses in Q2, primarily as a result of improving macroeconomic conditions on indicators as Florida, and Texas economies continue to recover.

Classified loans of $123 million at the end of the second quarter compared to 91 million in the first quarter of 2021 day.

The quarter over quarter increase was primarily driven by the downgrade of 3 commercial real estate loans totaling $40 million, mainly New York due to increased vacancies and retail spaces and once more commercial loans. These increases were partially offset by upgrades for $6.2 million.

Important to note that early this week, we were notified that appropriate to guarantee on a 12 million on in New York, which was on their non performing will be transferred to Oreo as a result, $2.7 million previously Richard will charge off in the third quarter of 2021.

The year over year increase was primarily due to loans I just mentioned as well as the specific loan downgrades disclosed in the previous quarter.

These loans included $40 million of the coffee trader loans out of which 19 million were charged off we didnt standing balance of $20 million as of now as well as downgrades of 30 million loans through our food wholesaler credit exposure on.

CRE multifamily loans totaling 10 needed.

Got into coffee trader case, we have been in close contact with the liquidation agent regarding the collection process on prospective distribution.

So far cash collected by liquidation agent is approximately 95 million.

Timing for distribution are pending to be defined as allocation of proceeds may be subject to objection from lenders.

We'll continue to monitor this process on reported as needed.

Nonperforming assets total $122 million at the end of Q2 of 35% quarter over quarter on so change was attributed by the increases I just explained during.

During the second quarter of 2021, the company update on independent third party collateral evaluations on most of the nonperforming loans, which supported the level of our loan loss provision.

Worth to mention debt only 1% of the loans were still under forbearance during the second quarter of 2021 down from 1.1 so at the end of Q1 on significantly down from the almost 20% debt. When we started the pandemic on this.

No mitigation programs.

As a reminder, on 100% of the loans under deferral on forbearance.

Commendations, where real estate collateral loans.

So as of now all the loans that went out of forbearance have resume payments railroad.

Our team remains committed to closely monitor the performance of the remaining loans in deferral.

On the debt terms of the temporary relief granted.

Continuing to slide 10 total deposits at the end of the second quarter were $5.7 billion down 1% from the end of the first quarter.

While domestic deposits were slightly down by 35 million compared to Q1 foreign deposits went up by $32 million, which is encouraging considering previous runoff rate of this portfolio.

Deposits, excluding customer Cds, and brokered deposits increased by $164 million during the quarter. This increase partially offset on 11% reduction in customer Cds compared to the prior quarter as we continued to lower CD rates and keep a focus on corporate on core deposits on emphasize multi product relationship instead.

On a single product high cost Cds.

During the second quarter of this year brokered deposits decreased $22 million on 4% broker on on time interest bearing accounts.

Decrease by $146 million on a combined basis. These figures were upset by a $124 million increase in brokered money market deposits.

Broker interest bearing deposits are included in our core deposits definition.

Core deposits, which consist of total deposits. Excluding all time deposits were 4 billion assets at the end of the second quarter on increase of $246 million or 7% compared to the prior quarter. This amount includes noninterest bearing deposits of 1 billion or 19% of total deposits as of the end of the <unk>.

From Florida, which also increased from the 17% recorded on the previous 1.

Next I will discuss on slide 11 day net interest margin.

2021 second quarter net interest income was $50 million up 5% quarter over quarter on 8% year over year.

The quarter over quarter increase can be primarily attributed to the following key factors improved composition between time on core deposits favoring non interest bearing accounts on lower time deposits on brokerage Cds.

Average loan yields as a result of lower amortization of net deferred loan origination costs due to PPP loans on an increasing higher yielding consumer loans.

Lower cost on average balances on average will be advances as part of the repayments on modifications previously discussed moving.

Moving on our attention to margin Q2, net interest margin was 281 of 15 basis points quarter over quarter on of 37 basis points year over year as in previous quarter. We continue to focus on offsetting ongoing NIM pressures by improving our deposit composition on proactively increasing the spreads in loan originations.

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Continuing to slide 12, noninterest income in the second quarter was $16 million up 11% from Q1. The increase during Q2 was primarily driven by $3.8 million in other income, resulting from the sale of the 95 million of the PPP loans and $1.3 million in derivative income the increase was partially offset by a <unk>.

$2.5 million net loss in early extinguishment of average you'll get benefits as we repaid 235 million of debt borrowings and a $1.2 million decrease in securities sold compared to Q1.

<unk> assets under management totaled $2.1 billion as at the end of the June of $114 million or 6% from the end of the last quarter predominantly due to an increasing market volume.

We remain firmly focused on growing assets under management, both domestically and internationally.

In an effort to expand our company's feed driven business on <unk> buildup at the franchise during the second quarter of 2021, Ameren has partnered with leading digital wealth management technology firm Marsden as previously previously announced by Jeremy will cover in more detail shortly.

Turning to slide 13.

Second quarter non interest expense was $50.458 million.

$52 million up $8 million or 18% from the first quarter and up $50 million year over year.

Over quarter increase was primarily driven by higher salaries and employee benefit costs, mostly as a result of escalated severance expenses incurred in Q2 in connection with restructuring activities on events at Jeremy previously covered on this.

During the second quarter, we had increased recruitment fees. The majority of which were growing business line that camera on mortgage and greater advertising expenses, primarily in connection with our HELOC campaign on support brand awareness initiatives for future profitability.

Core non interest expenses, which adjust for the $4.2 million of nonrecurring items was 47 million in the second quarter of 2021.

$4 million or 8% from the 43 million, we reported in the first quarter of 2021.

And up $12 million or 33% from the 35 million that we reported in the second quarter of 2020.

Efficiency ratio was 77, 8% in the second quarter of 2021.

From 71% in the previous quarter and up from the $55.6 in the second quarter of last year.

The quarter over quarter increase was driven by severance expenses incurred in Q2 in connection with restructuring activities and events I just mentioned previously.

The year over year increase in the efficiency ratio can be primarily attributed by higher salaries and employee compensation due to the absence of the $7.8 million in deferred expenses directly related to the origination of the PPP loans that we originated in the second quarter.

Core efficiency ratios, we had adjusted for nonrecurring items was 74, 5% in the second quarter of 2021 compared to 73% in the first quarter of 2021 on 61% in the second quarter of 2020.

Lastly, we announced the closure of our banking center in Washington, Florida to be completed in the third quarter with the goal of optimizing our branch network and better align our desired footprint with the strategic objectives. We are currently evaluating other locations to open banking centers with access to on that customer base in our <unk>.

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Moving on to interest rate sensitivity on slide 14, our business continues to be assets sensitive on as of the end of June over half of our loans either have floating rate structure or mature within a year.

To manage these sensitivity and mitigate the impact of our our financial margin. We continue to actively manage our long on investment portfolios. This.

This includes implementation of flow rates on our loans and capitalize on higher yielding securities on longer duration.

Turning it back to Jerry to talk about the Amarin progress on the near and long term activities.

Thank you Carlos now I'd like to provide a brief update regarding some of the specific initiatives. We outlined in Q1. We've included them here on slide 15 for ease of reference.

As a reminder, our goal is simple improve profitability and drive sustainable profitable growth and do this responsibly with the best interest of our investors employees customers and the communities in which we operate.

So first regarding deposits first as previously noted we have opportunities in the markets, we serve to increase our share of consumer small business and commercial core deposits.

And to achieve a lower cost of funds reduce our reliance on other sources.

Blake brokered funds and federal home loan Bank advances, we've continued work on implementing and enhancing a completely digital onboarding platform. We've added talent to our Treasury management sales force and support team and we've added additional treasury management capabilities and we've seen improvement in the quarter and all 3.

Key measures when compared Q2 to Q1.

Our loan to deposit ratio is now 98, 8% versus 101, 4% last quarter. Please recall, we set a target of 95%.

We increased the percentage of noninterest bearing deposits to total deposits of 18, 8% versus 17, 2% last quarter here as a reminder, we set a target of 25%.

At a reduced level of brokered deposits to total deposits of 9.4% to 9.7% the prior quarter our targets 5%.

We will seek further improvement over the second half of the year as Cds and brokered Cds continue to mature and we add new customer relationships and as a result, we should continue to see NIM expansion.

Regarding digital transformation, we announced several key partnerships this quarter that we outlined earlier in the call with numerator to automate our small business lending and deliver a superior experience for our customers and with Marsh stoning to power our digital wealth platform.

We expect full implementation for both by Q4.

There are more opportunities to work with Fintech and other areas of the bank such as BSA AML and we expect to announce additional partnerships in the coming quarters rigs.

Regarding brand awareness on our Q1 call. We noted the importance of breath of dramatically improving average brand awareness. Many improvements have taken place or underway easy to implement items, such as improved branch and ATM signage.

Landing items and significantly increased public relations and media relations. Most importantly, we just announced the recent hire of our new Chief marketing Officer, and just after that the engagement of Zimmer and then advertising as our new marketing agency of record.

We're excited about what was accomplished over the past 90 days and we're seeing the and seeing the upside from all of these efforts translating into incremental business opportunities for us.

Regarding rationalizing the lines of business and geographies. In addition to closing the New York City long production office as Carlos referenced we did a branch assessment and we will be closing 1 branch. This October.

We've determined 9 others that need to be refreshed and another relocated to a higher profile location.

Going to be doing all of this over the next 24 to 36 months to achieve a common look and feel across all locations.

As I noted our Treasury management Buildout is underway.

We've added team members to the sales and service teams in both Florida and Texas.

Mortgage commenced operations in May and they continued to build out the team there, which now is at 38 members.

We continue to believe that adding to our specialty finance capabilities makes sense and we're actively looking at opportunities to do so.

I am excited to see the build in our loan pipeline on both Florida, and Texas and the outlook for the second half of 2021 and beyond.

Regarding the path to 60% efficiency.

On the last call. We stated we've been evaluating new ways to drive cost efficiencies across the business with a target goal to improve <unk> efficiency ratio to 60% within the next 6 quarters.

Here's what was accomplished during the quarter, we significantly improve the margin from restructuring federal on the bank advances paying down advances and continued reductions in time deposit pricing on it.

The expense side, we outsourced our internal audit function the transition is in process.

An annual savings of $1 million of expected starting in 2022.

Personnel reductions in Q2, including the decision to not replace the COO position the reduction in New York City staff certain risk in other roles estimated annual savings of approximately $5 million over sold.

We just kicked off an 8 week process improvement initiative with a well known firm all designed to improve customer experience.

We will be launching a procurement initiative in Q3.2021 to drive even more annual savings from the expense base yet.

As part of the New York City Office closing, we're looking to sublease space and we've engaged in commercial real estate firm to actively market, we announced the Wellington branch closure.

By mid October as part of the branch rationalization assessment I previously referenced.

We've established a business transformation continuous improvement function. This is something critical that we need people continuously focused on finding ways to make banking with us easier.

And there'll be more to come in the next calls we continue to work through a number of additional reviews.

Regarding the App optimization of capital structure, we continue to repurchase shares as part of our class B share buyback program and as I noted 565000 shares and $9.6 billion as of July 22021.

We're going to continue to evaluate alternatives regarding our capital structure I'd note that our board voted yesterday to dividend $40 million up to the holding company, giving us more capacity and flexibility there.

And finally, a brief update regarding ESG and corporate responsibility, we have been working diligently developed an ESG strategy and program and yesterday, our board approved the framework, we will use going forward.

We look forward, we look forward to formally sharing the material tenants of the program and the progress we are making in each area as part of an annual corporate social responsibility report going forward.

As I stated last quarter, there isn't anything we wont consider to make banking with us easier and to drive better results for our shareholders and that's our commitment to all of you our investors our customers the communities, we serve and to our team members as well. We hope you can clearly see that we are providing the increased transparency. We said we would provide.

And we look forward to continuing to update you as we execute on our strategy.

And I look forward to continuing to share our progress on upcoming calls so with that we'll be happy to take your questions. Myra. Please open the line for Q&A.

Thank you at this time I would like to take any questions from the conference today and as a reminder to ask a question you will need to press Star then the number 1 on your comments on coupon. It once again to ask a question. Please press star 1 can.

Can we draw on your request you mean from the pound.

We'll pause for a moment to compile the Q&A.

We have on first question comes from the line of will Jones from K VW. Your line is open. Please go ahead.

Hey, great. Good morning, Thanks for taking my questions.

Good morning.

Hey, So I just wanted to start on the credit from <unk>.

Guys called out the $40 million on.

CRE loans in New York moved to the classified bucket. This quarter I was just hoping to get a little more context around those loans just in terms of.

Ltvs collateral on whether or not you guys have any specific reserves set aside from those loans at this time.

Yes.

Hi, Good morning, Yeah, I will give you some color on those on those loans. So they work for in total that were added into the nonperforming list.

The 2 from New York are.

There are commercial.

Real estate.

They had.

We had a recent appraisal on them and the recent appraisal that we obtained confirm the level of loan loss provision.

Debt, we have already so it's on combining those 2 loans there is about $30 million that we're at it and we have.

Close to the $10 million loan loss provision between those 2 loans.

They were.

The great properties in very good location.

1 of them is the 1 that I mentioned that it will be transferred to Oreo for about 12 million in book value and debt on that specific 1 we have close to the 3 million loan loss provision already baked in so all the values that we obtained were consistent with the level.

Provisions that we already have so we feel like they're very well provision so from now.

Okay, Great very helpful. And then maybe just on the topic of credit.

Are there any other.

Credit so you can see coming up on horizon, or maybe specifically credits on that New York market.

I'll give you guys on the concern at this time or do you Cook.

General and next day bucket with.

All the moves that were made this quarter.

We keep we keep analyzing the portfolio overtime on checking on the performance on each individual case and on looking into the health of the on.

The different Ah Ah Ah projects or properties and as of now there is no particular concern.

On the portfolio in general we feel like our level of loan loss provision is significant and.

Level of Covid related loan loss provision, which would keep us $15 million, which is on the institutional side at our steel.

Sufficient to cover any potential issue also we keep monitoring the level of activity on the CD, primarily in New York on.

We are starting to see very good positive signs in the.

Interest on the new tenants et cetera. So if signs are positive as of now.

Okay Awesome, that's great and then just kind of switching gears thinking on the buyback. It's really good you guys start working through that class B share program.

And I just wanted to confirm that the plan is to continue chipping away at that program that haven't really.

Change there.

Just curious if you guys could give us an update on how many b shares are still outstanding.

Yes thereabout.

Good point.

Thanks a million.

So off.

$8.6 million shares on the beside the average steel outstanding AR as Jerry mentioned, we bought 565000, so far roughly $9.6 million already executed.

It took it's very liquid as you could imagine if you look into the into the time series of your Bloomberg It's very.

Trade almost by appointment it's very liquid.

So we keep the program alive, so far until now and.

And that's pretty much it so it's a we keep going.

Yes, well its Jerry I think as Carlos was referencing there is a liquidity issue I think with those shares more so than though we've been chipping away at it typically the purchases has only been a couple of thousand shares here and there and then there's the occasional block but.

I think.

As he referenced it's really going to be just a function of the progress that we've made to date, we're actually pleased it it wasn't something where we were out to try and get everything immediately just because we knew that wasn't going to be that.

The liquidity that there is obviously in our 8 class versus the B.

They're not on us.

Total assembled totally get that and then maybe just thinking about the whole loss share class longer term.

I realize it could take a while.

Fully working on ways through the authorization, we have out there, but on the longer term would you consider just collapsing the b share structure as a whole.

Maybe as you're continuing to wind down some of the Outstandings thus far.

Yeah, well get it is gerry.

I think we're looking at everything we can do in optimizing the capital stack and also providing additional clarity certainly that's something that we.

We will be evaluating and have been evaluating I should say.

Great.

That's it from me I'll hop back in the queue. Thanks for taking my questions.

Thank you. Thank you have a good 1.

We have our next question comes from the line of Michael <unk> from Raymond James Your line is now open. Please go ahead.

Hey, good morning, everyone. Thanks for taking my questions I just wanted to start on the day.

Expense side. So clearly you guys are doing a lot of things here.

You really come in in <unk>.

And announced a lot of initiatives here to begin with so just yeah. Obviously I think we're all trying to figure out the timing as to when you think you can get to that 60% efficiency ratio, but I guess on the nearer term can you just walk through some of the puts and takes as we as we think about the expense base.

The next couple of quarters interest based on maybe some 1 time costs that might come through things that are.

Got to come out of the run rate things that might come into the run rate can you just give us a sense for what what a nice what a good base to start off would be thanks.

Yeah, Michael It's Gerry let me.

Take first crack at that line I think it's fair to say that over the last 2 quarters, we've been investing in ameren mortgage for share and you can see that in the head count number which is up substantially quarter over quarter.

On the expectation and I believe Carlos commented on this in the in the last call is that there'll be additions continued additions to that team and we'd probably be somewhere in the 50 to 60 head count range by the end of the year. So you can expect that we will continue to invest there heavily as well.

We really believe in the team.

And what we're looking.

Looking to generate on a fee revenue perspective going into 2022.

Thank you also probably you can tell that we're investing in areas like our Treasury management team. We've added people in the sales force we've added people on the support side.

I've given.

Miguel and his team the green light to continuously look for top quality folks to add to what I think is already a top quality team here and when we can make smart additions whether thats in the Houston marketplace are here.

In the Florida market.

We're absolutely going to do it so I think 1 of the things you hear with the reductions that we've been doing.

As we have been taking out back.

Back office and support.

And we're trying to put more of the dollars going towards a business generation.

I think it's just a continuation sort.

Sorta transformation wise.

I know that the quarter had a lot of.

Puts and takes hopefully you can pick that out of the out of what we said was going to be add this into the 2020 to add this in.

We will start to see some immediate results most of the actions that we've taken right around the NIM you can see it reflected immediately.

The actions, we're taking around people I think youre going to see some ins and outs because I think in this third quarter youre going to continue to see as we go through finishing up the.

On the reviews that we've been doing on all of our areas and the way we look at things from a process improvement standpoint.

I would expect there'll be additional changes so that might not be as granular in answer as you'd love, but I would tell you directionally.

Our goal for us is to and the noise I think that we've had.

Certainly this quarter and a little bit last quarter.

And be able to transition into what we showed as core <unk> growth continue that growth through NIM expansion continue through net.

Through non interest income expansion, but I would say for right. Now you have to think about the expenses that we're actually investing in the business and so that's all this is a long answer to what you asked which is youre going to continue to see a couple of million dollars being spend quarter over quarter because of marketing.

As we push for our brand and we go out and actively market, which we did not do in Q1, and we started to do in Q2, and you'll see us continue to add to where we know that we can put revenue producers on our books, we're absolutely going to do that and we will continue to optimize the infrastructure side of the company. So I would.

Expect that that work is all completed.

Through this third quarter and youll be able to see a much clearer picture going into Q4.

Jerry that's that's really helpful.

Caller I guess that begs the question.

Is there any more large scale initiatives.

See on the horizon, whether it's tech investments process improvement in.

In terms of what would drive.

Those dollars materially higher because I think.

Again outside of the efficiency ratio I think what we're all trying to figure out is is 2023 of the year, where you can get total.

Those minimum return targets that you talked about a plus 1% ROA and plus 10% RTC.

<unk>, Yeah, obviously the day the shape of the yield curve is going to impact that but is that is that the way, we should just broadly and holistically be thinking about the measurable progress as we move forward. Thanks, Mike.

That's a great question I think when I gave that initial guidance of give us the I call. It the 6 quarter horizon to to get to 60.

Is really that's.

That's a really important.

Sort of goal of ours I think the 1 in the 10, we're going to be much closer to the attainment of those.

In a shorter period of time.

Our expectations are that we should have.

Continued improvement in the NIM as I've had continued improvement in noninterest income.

And we're looking for you saw the initiatives, we've laid out I would expect that absent.

Our ability to maintain our assets side or even if we grow it.

The expectation is that we'll have greater revenue growth going into these next 2 couple of quarters and that's really what we've been working toward is making the right investments, making the right adjustments in the base here people wise systems lives et cetera.

I do think it's important to note on the.

Review, that's going on from a process improvement side.

That project literally just kicked off and I think the same thing about the procurement initiative that projects just going to kick off here.

Towards the end of Q3 and into full force in Q4, So youll start to see the results of that of those initiatives probably coming through later in the year, but more likely 2022.

Okay. Thanks, and maybe just last 1 from me. So it looks like you guys. Obviously have a very strong capital profile at this point and it looks like that's going to continue to build.

As the balance sheet goes through.

Restructure with.

On the New York loans coming off and growing other parts of the portfolio.

That will impact.

The RPC. So I guess my question is would you consider other capital deployment options like a dividend.

I know, which is important to some investors and then any strategic.

Acquisitions non bank, obviously that you would look to deploy some of that excess capital.

Yes, no absolutely.

I think that kind of goes into everything's on the table, we're going to look to.

Different ways to deploy that capital.

Obviously the.

The reference that I made at the board approving the dividend from the bank up to the holding company is to give us that kind of optionality and make sure that we have plenty of liquidity there.

To be able to execute a few things I think at this stage.

Doing deals if we could find something that made sense for us in the specialty finance area and add to our I'll call. It our Arsenal our capabilities. We are absolutely actively looking at those right now.

Okay. Thanks for taking all my questions.

Thank you have a good 1.

Sure.

Yeah.

We have our next question comes from the line of signings Checkmark from Janney Montgomery. Your line is now open. Please go ahead.

Hey, good morning, Hey.

Hey, good morning on it.

So it was great to see all the positive dynamics with respect to the margin this quarter.

Especially the rising loan yields.

Just kind of a clarification point I think I heard in the prepared remarks on.

That's a result of the reduction in PPP in indirect consumer loans purchase right or is there some.

New loans coming on the books that you guys are.

Getting on a higher growth organically.

Yes, that's a good question so.

If you recall there was a.

Wheat carries PPP into the balance sheet into first quarter of 2021 that were originated in 2020. So we had a deferral of the expenses from the origination of this loans being on more ties and.

As you probably recall from the previous year, we defer about $7.8 million on on those loans origination in some cases there were.

A mismatch between the fee and on the <unk>.

On the origination costs, so all of those or the majority of them were on the forgiveness.

During the first quarter of the year, so pretty much. The Q2 story has the cleanup of the old those loans have debt, we no longer carry into the balance sheet. So that that's 1 of the reasons have increased the second 1 is that we have been very well, we keep the discipline and the origination of.

C&I and CRE.

On a very attractive spreads compare to other transactions that we have been seen in the market.

Also adding floors to floating transactions and the fact that we now have $220 million in indirect lending.

At a very attractive yield compared to the rest of the portfolio. So those have been pretty much at critical items to explain the increase in the yield of the on the loan portfolio for the quarter.

Got it and kind of along that same line is the path to further expansion more from the asset side, the liability side or is that kind of a mix of both.

Liability has contributed a lot to the NIM this quarter.

If you've got a break it down between the.

The impact of the assets on the liabilities. The liability is definitely were a key factor this quarter the drop in the cost of funds.

Help us significantly to reduce the interest expenses and that was 1 of the biggest item. So it was.

I think this way it was coming from.

Time deposits coming down on at the same time, we were increasing transaction on the accounts. So when debt that had been happens your blended cost of funds improved by about 10 basis points quarter over quarter.

Which is a <unk>.

Significantly on them.

Prove the overall performance of the of the balance sheet.

Hey, Fatima, it's Gerry let me just add.

Think the opportunity that's apparent here it has been maturing brokered Cds maturing time deposits and the ability to either not renew in the case, obviously the broker.

But to try and retain those customers at much lower cost.

Is pretty critical for us and the nice part is you'll see the balance shifts that we were talking about right for much greater focus on noninterest bearing acquisition.

Much greater focus on on.

US trying to as a company look at that not just on the consumer side, but also the small business and the corporate side of things.

I think it's fair to say, you'll continue to see very nice NIM expansion for us.

All things being equal in Q3 and Q4.

It's a lot of it is going to be driven from the liability side Thats, where there is just great opportunity for us.

Yeah, I mean, if you wanted to break it down between what was the impact of the assets from the liability specifically for the quarter. The improvement the name about a third came from the assets and 2 thirds came from the liability that would be a good explanation of the quarter over quarter NIM improvement.

Got it I appreciate all the color guys and just 1 more from me.

Just curious.

Kind of what the reopening on return to normalcy, what's you're hearing from some of your hotel and retail customers.

Q2 2021 Amerant Bancorp Inc Earnings Call

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