Amerant Bancorp Inc. (AMTB) on Q2 2021 Results - Earnings Call Transcript
Operator: Good day and thank you for standing by. Welcome to the Amerant Second Quarter 2021 Earnings Conference Call. I would now like to hand the conference over to your speaker today, Ms. Laura Rossi, Head of Investor Relations. Thank you and please go ahead.
Laura Rossi: Thank you, Myra. Good morning, everyone and thank you for joining us to review Amerant Bancorp’s second quarter 2021 results. Joining me this morning to lead today’s call are Jerry Plush, Vice Chairman and Chief Executive Officer and Carlos Iafigliola, Executive Vice President and Chief Financial Officer.
Jerry Plush: Thank you, Laura and good morning everyone and thank you for joining Amerant’s second quarter 2021 earnings call. I am pleased to report Amerant’s 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 shared in last quarter’s earnings call. I am also happy to note that we have recently implemented return to office plans where Amerant team members either have a fully onsite or hybrid schedule, depending on their job function. I would like to take this opportunity to thank the entire Amerant team for their dedication and effort during this past year and note that we are all looking forward to moving ahead and focusing on Amerant’s profitable growth. Let me now provide a brief overview of our performance in the second quarter and then I will 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 are 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 a release of $5 million from the allowance of loan losses. Total loans were $5.6 billion and total deposits were $5.7 billion, both slightly down from last quarter. Nonetheless, we are happy to report increased core deposits, including growth in non-interest bearing deposits as a result of our efforts to prioritize this type of funding. Our progress on Class B share repurchases continues, having repurchased over 565,000 shares for a total of $9.6 million as of July 20.
Carlos Iafigliola: Thank you, Jerry and thank you all of you to join us today. Turning to Slide 7, I will 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 drop in interest rates. During this quarter, we recorded a decrease in duration of 0.4 years as expected prepayment speeds increased. We continue to select investments to mitigate the impact of prepayment risk over the portfolio. As of June 30, the floating portion of our investment portfolio represented only 14%.
Jerry Plush: Thank you, Carlos. Now I’d like to provide a brief update regarding some of the specific initiatives we outlined in Q1. We have 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 achieve a lower cost of funds, reduce our reliance on other sources, like brokered funds and Federal Home Loan Bank advances. We have continued work on implementing and enhancing a completely digital onboarding platform. We have added talent to our treasury management sales force and support team and we have added additional treasury management capabilities, and we have seen improvement in the quarter in all three 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 non-interest-bearing deposits to total deposits of 18.8% versus 17.2% last quarter. Here as a reminder, we set a target of 25% and a reduced level of brokered deposits to total deposits of 9.4% to 9.7% to prior quarter, our target is 5%. We will see 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 Numerated to automate our small business lending and deliver a superior experience for our customers and with Marstone Inc. to power our digital wealth platform. We expect full implementation for both by Q4. There are more opportunities to work with fin-techs in other areas of the bank, such as BSA/AML and we expect to announce additional partnerships in the coming quarters. Regarding brand awareness, on our Q1 call, we noted the importance of dramatically improving Amerant’s brand awareness. Many improvements have taken place or are underway, easy-to-implement items such as improved branch and ATM signage, branding 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 Zimmerman Advertising as our new marketing agency of record. We are excited about what was accomplished over the past 90 days and we are seeing the – and we are 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 loan production office, as Carlos referenced, we did a branch assessment and we will be closing 1 branch this October and we have determined 9 others that need to be refreshed and another relocated to a higher profile location. We are going to be doing all this over the next 24 to 36 months to achieve a common look and feel across all locations. As I noted, our treasury management build-out is underway. We have added team members to the sales and service teams in both Florida and Texas. Amerant Mortgage commenced operations in May and they continue 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’m excited to see the build in our loan pipeline in 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 Amerant’s efficiency ratio to 60% within the next 6 quarters. So here’s what was accomplished during the quarter. We significantly improved the margin from restructuring Federal Home Loan Bank advances, paying down advances and continued reductions in time deposit pricing. On the expense side, we outsourced our internal audit function, the transition is in process and annual savings of $1 million are expected starting in 2022. Personnel reductions in Q2, including the decision to not replace the COO position, the reduction in the New York City staff, certain risks and other roles, estimated annual savings of approximately $5 million will result. 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 review. As part of the New York City office closing, we’re looking to sublease the space, and we’ve engaged a 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 will be more to come in the next call as we continue to work through a number of additional reviews. Regarding the optimization of capital structure, we continue to repurchase shares as part of our Class B share buyback program. And as I noted, 565,000 shares and $9.6 billion as of July 20, 2021, we are going to continue to evaluate alternatives regarding our capital structure. I 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 to develop an ESG strategy and program, and yesterday, our Board approved the framework we will use going forward. We look forward to formally sharing the material tenets 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 won’t 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 will be happy to take your questions. Myra, please open the line for Q&A.
Operator: Thank you. We have our first question comes from the line of Will Jones from KBW. Your line is open. Please go ahead.
Will Jones: Hey, great. Good morning. Thanks for taking my questions.
Jerry Plush: Good morning.
Carlos Iafigliola: Good morning.
Will Jones: So I just wanted to start on the credit front. I know you guys called out the $40 million of CRE loans in New York moved to the classified bucket this quarter. Just hoping to get a little more context around those loans, just in terms of LCDs, collateral and whether or not you guys have any specific reserves set aside for those loans at this time?
Carlos Iafigliola: Yes. Hi, good morning. Yes, we will give you some color on those loans. So there were four in total that were added into the non-performing leases. The two from New York are – they are commercial real estate. They had – we had a recent appraisal on them, and the recent appraisal that we obtained confirmed the level of loan loss provision that we had already. So it’s on – combining those two loans there is about $30 million that were added, and we have close to the $10 million loan loss provision between those two loans. They were there great properties in very good location. One of them is the one that I mentioned that it will be transferred to OREO for about $12 million in book value and that – on that specific one, 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 of provisions that we already have. So we feel like they are very well provisioned as of now.
Will Jones: Okay, great. It’s very helpful. And then maybe just on the topic of credit. Are there any other credits that you could see come up on horizon or maybe specifically credits in that New York market that give you guys any concern at this time? Or do you feel like you kind of really mix the bucket with all the moves that were made this quarter?
Carlos Iafigliola: We keep analyzing the portfolio all the time and checking on the performance on each individual case and looking into the health of the different projects or properties. And as of now, there is no particular concern on the portfolio, in general. We feel like our level of loans provision is significant and level of COVID-related loan loss provision, which we keep at $15 million, which is on the institutional side, are still sufficient to cover any potential issue. Also, we keep monitoring the level of activity of the city, primarily in New York and we started to see very good positive signs in the interest on the new tenants, etcetera. So signs are positive as of now.
Will Jones: Okay, awesome. That’s great. And then just kind of switching gears, taking on the buyback. It’s really good to see 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. Your appetite hasn’t really changed there. And I was just curious if you guys could give us an update on how many B shares are still outstanding?
Carlos Iafigliola: Yes. There are about $8.6 million of – 8.6 million shares on the B side that are still outstanding. As Jerry mentioned, we bought 565,000 so far, roughly $9.6 million already executed. It’s very liquid, as you could imagine. And if you look into the time series of your Bloomberg. It’s very – it trades almost by a point. It’s very liquid. So we keep the program alive so far until now, and that’s pretty much it. So it’s – we keep going.
Jerry Plush: Yes. Will, it’s Jerry. I think as Carlos is referencing, there is a liquidity issue, I think, with those shares more or so. And though we’ve been chipping away typically, the purchases has only been a couple of thousand shares here and there, and then there is 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 wasn’t something where we were out trying and get everything immediately, just because we knew there wasn’t going to be that the liquidity that there is, obviously, in our A class versus the B.
Will Jones: Yes. No, no, no, that’s totally understandable. I totally get that. And then maybe just thinking about that whole steer class longer term, I realize it could take a while, fully working your way through the authorization you have out there. But I mean longer term would you consider just collapsing the B share structure as a whole, maybe as you continue to wind down some of the outstanding thus far?
Jerry Plush: Yes. Will, again, it’s Jerry. 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 will be evaluating and have been evaluating, I should say
Will Jones: Great. That’s it for me. I will hop back in queue. Thanks for taking my questions.
Jerry Plush: Thank you.
Carlos Iafigliola: Thank you, have a good one.
Operator: We have our next question comes from the line of Michael Rose from Raymond James. Your line is open. Please go ahead.
Michael Rose: Hi, good morning everyone. Thanks for taking my questions. Just wanted to start on the expense side, so clearly, you guys are doing a lot of things here. You’ve really come in and announced a lot of initiatives here to begin with. So just – 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 in the nearer term, can you just walk through some of the puts and takes as we think about the expense base over the next couple of quarters just based on maybe some one-time costs that might come through, things that are going to come out of the run rate things that might come into the run rate? Can you just give us a sense for what a nice or what a good base to start off would be? Thanks.
Jerry Plush: Yes, Michael, it’s Jerry. Let me take first crack at that one. I think it’s fair to say that over the last two quarters, we’ve been investing in Amerant Mortgage, for sure. And you can see that in the headcount number, which is up substantially quarter-over-quarter. And the expectation, and I believe Carlos commented on this in the last call, is that there will be additions – continued additions to that team, and we’d probably be somewhere in the 50 to 60 headcount range by the end of the year. So you can expect that we will continue to invest there heavily as we really believe in the team and what we’re looking to generate on a fee revenue perspective going into 2022. I think you’re 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 that’s in the Houston marketplace or here in the Florida market, we’re absolutely going to do it. So I think one of the things you hear with the reductions that we’ve been doing, is we’ve been taking out back office and support and we’re trying to put more of the dollars going towards a business generation. And I think it’s just the continuation sort of 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 2022, 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 is reflected immediately. The actions we’re taking around people, I think you’re going to see some ins and outs because I think in this third quarter, you’re going to continue to see as we go through finishing up 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 will be additional changes. So that might not be as granular an answer as you’d love, but I would tell you directionally, the goal for us is to end 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 PPNR 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 – this is a long answer to what you asked, which is you’re going to continue to see a couple of million dollars being spent quarter-over-quarter because of marketing, right, as we push for 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 are 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 you’ll be able to see a much clearer picture going into Q4.
Michael Rose: Jerry, that’s really helpful color. I guess that begs a question. Is there any more large-scale initiatives that you see on the horizon, whether it’s tech investments, process improvement 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 to those minimum return targets that you talked about a plus 1% ROA and plus 10% ROTCE? Obviously, the shape of the yield curve is going to impact that. But is that the way we should just broadly and holistically be thinking about the measurable progress as we move forward? Thanks.
Jerry Plush: Yes. Mike, that’s a great question. I think when I gave the initial guidance of give us the, I’d call it, the six-quarter horizon to get to 60% is really – 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 said, continued improvement in non-interest income. And we’re looking for – you saw all the initiatives we’ve laid out. I would expect that absent our ability to maintain our asset size or even if we grow it, my expectation is that we will have greater revenue growth going into these next 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-wise, etcetera. 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 project is just going to kick off here towards the end of Q3 and into full force in Q4. So you’ll start to see the results of that – of those initiatives probably coming through later in the year, but more likely 2022.
Michael Rose: Okay, thanks. And maybe just last one for me. So 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 just as the balance sheet goes through a restructure with the New York loans coming off and growing other parts of the portfolio. That will impact the ROTCE. 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? Thanks.
Jerry Plush: Yes. No, absolutely. I think that kind of goes into everything is on the table. We’re going to look to different ways to deploy that capital. Obviously, the reference that I made of 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, add to our, I’ll call it, our arsenal, our capabilities, we’re absolutely actively looking at those right now.
Michael Rose: Okay, thanks for taking all my questions.
Jerry Plush: Sure. Thank you. Have a good one.
Operator: We have our next question comes from the line of Feddie Strickland from Janney Montgomery. Your line is open. Please go ahead.
Feddie Strickland: Hi, good morning.
Jerry Plush: Hi, good morning, Feddie.
Feddie Strickland: So it’s 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 that’s a result of the reduction in PPP and indirect consumer loans purchased, right or is there some more new loans coming on the books that you guys are getting at a higher yield organically?
Carlos Iafigliola: Yes, that’s a good question. So the – if you recall, there was a weak carries PPP into the balance sheet in the first quarter of 2021 that we originated in 2020. So we had a deferral of the expenses from the origination of these loans being amortized. And as you probably recall from the previous year, we defer about $7.8 million on those loans origination. In some cases, there was a mismatch between the fee and the origination costs. So, all those or the majority of them were under forgiveness during the first quarter of the year. So, pretty much the Q2 story has the cleanup of all those loans that we no longer carry into the balance sheet. So, that’s one of the reasons of increase. The second one is that we have been very – we keep the discipline in the origination of C&I and CRE at a very attractive spread compared to other transactions that we have been seeing 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 critical items to explain the increase in the yield of the loan portfolio for the quarter.
Feddie Strickland: 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 it kind of a mix of both?
Carlos Iafigliola: So, liability has contributed a lot to the NIM this quarter. If you got to break it down between the impact of the assets and the liabilities, the liabilities definitely were a key factor this quarter. The drop in the cost of funds, help us significantly to reduce the interest expenses. That was one of the biggest items. So, it was – think this way, it was coming from time deposits coming down, and at the same time, we were increasing transactional accounts. So when that event happens, your blended cost of funds improved by about 10 basis points quarter-over-quarter, which has significantly improved the overall performance of the balance sheet.
Jerry Plush: Yes. Hey Feddie, it’s Jerry. Let me just add. I think the opportunity that’s apparent here is the maturing brokered CDs, the 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 will see the balance shift that we were talking about, right, for much greater focus on non-interest bearing acquisition, much greater focus 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 will continue to see very nice NIM expansion for us, all things being equal in Q3 and Q4. And it’s – a lot of it is going to be driven from the liability side. That’s where there is just great opportunity for us.
Carlos Iafigliola: Yes. And if you want to break it down between what was the impact of the assets or the liability specifically for the quarter to improve in the NIM about a third came from the asset and two-thirds came from the liability. That would be a good explanation of the quarter-over-quarter NIM improvement.
Feddie Strickland: Got it. Appreciate all the color guys. And just one more from me, I was just curious kind of with the reopening return to normalcy, what you are hearing from some of your hotel and retail customers more in your core Florida footprint as well as kind of the Texas footprint out there?
Jerry Plush: Yes. I think it’s safe to say that we are seeing increased occupancy across the board, notwithstanding like this slight spike that we are seeing all across slight. I mean the spike that we are seeing in COVID cases, but both of the markets that we operate in have been very open. And so we are seeing, I will call it, 75 plus kind of occupancy numbers and even closer to 80% in that range across the portfolio.
Feddie Strickland: Got it. Thanks for taking all my questions guys and congrats on a great quarter.
Jerry Plush: Thank you.
Carlos Iafigliola: Thank you.
Operator: We have our next question comes from the line of Brody Preston from Stephens. Your line is open. Please go ahead.
Brody Preston: Hi, good morning everyone.
Jerry Plush: Good morning.
Brody Preston: Hi, I just wanted to follow-up maybe on a couple of Bill’s questions from earlier, real quick. I appreciate the detail you gave on those New York City loans regarding the specific reserves. But I wanted to ask just a point of clarification, Jerry. Were those the two retail loans that got called out on Slide 22, were those included in the $40 million that got the updated appraisals?
Carlos Iafigliola: Yes. Those are – yes, those are included in the list of updated appraisals. That’s right.
Brody Preston: And Carlos, do you happen to know what the percentage change in the newly appraised value was relative to the appraised value?
Carlos Iafigliola: So, pretty much they were in the 60%, 65% LTV approximately, and they went up to 145% or something like that.
Brody Preston: Okay. Alright. Thank you for that. And then, Jerry, just on – I guess on the capital deployment, just given how strong the capital ratios are and understanding that the Class B shares are a little bit illiquid, how do you weigh – in your mind, how do you weigh kind of deploying that capital via another kind of Dutch tender or something like that to maybe drive EPS upside versus kind of saving that drypowder to make more meaningful investments in the business and drive actual bottom line improvements, sort of, how do you think about the trade-offs between those two?
Jerry Plush: No, that’s a great question. And I would tell you that that’s exactly what we are working on right now. I think that the one thing we are obviously need to focus on is we either need to deploy it or we need to return it, right. And I think that that’s literally the conversation we had yesterday during our Board meeting. And I would say, stay tuned to see. I do think there is an opportunity for us as we referenced strategically to add I think I called it add to the arsenal is really add to our capabilities and deploy some there. But I think all other options are on the table for us. And I hope to be able to come back here in Q3 with a definitive strategy on what we are going to do around capital.
Brody Preston: Awesome. I appreciate that. And then – just was looking for some more color on the prepayment activity in the CRE portfolio, particularly as it relates Florida and Texas within the multifamily buckets, I think there were some prepayments. Was there anything specific that drove that or is that just kind of consistent with what we have been seeing across the industry?
Carlos Iafigliola: They were in the – during the quarter, we have almost $330 million in prepayments, and they came pretty much from all the sectors. There was a significant competition, in general. So, there has been deals that we have been taking a look at the refi that came in front of us from the customer and the spreads were just at a size that we wouldn’t be able to play. There has been spreads. I will give you a couple of examples like LIBOR plus 150 basis points, 160 basis points that have been refi in front of us, and we just pretty much cannot participate as of now.
Brody Preston: Okay. And then just I have a modeling question. At what point in the quarter did you pay off those FHLB advances? I think it was $235 million.
Carlos Iafigliola: They were done during the…
Jerry Plush: It was mid-quarter.
Carlos Iafigliola: Yes. Yes, around May. You will see the complete effect of the savings in the third quarter. That would be a clean picture from the interest expense perspective.
Brody Preston: Okay, great. And then the last one for me is just could you give some details on how the build-out of Amerant Mortgage is going? I know you made hires, but just want to get a sense for how quickly you will be able to more effectively ramp on the revenue side? And then secondly, how is the operation structured? Is it going to – I guess are the revenues and expenses going to flow through the fee income and expense line items for you all or is it kind of a below those items through a minority interest? Just trying to get a sense for the model.
Carlos Iafigliola: Yes, good question. So the – we started taking applications on May 24. The infrastructure of the company, it’s ready to go. It’s set up. We had the core engine of the company being installed at a very fast pace because it was a de novo company. So it came up very, very swiftly and at very good pace. So as of now, we have received approximately 60 applications for mortgage, and it has been a very good experience so far. They have close to 40 people already hired. So, when you see our headcount, and we did a breakdown on one of the slides, you see that there is a combination between Amerant Mortgage and on the bank itself. So, our expectation is towards the end of the third quarter and the full fourth quarter, we will be in breakeven and positive territory for the company. As you can imagine, this first two quarters were formation phase. There was a lot of hiring. There was a lot of systems, etcetera. So, the infrastructure buildup was definitely the driver of the cost. Going to your second question, we are doing line-by-line consolidation. We own 51% of the company. So, you will see impact on the non-interest income and non-interest expense from the company. And then you will see the impact of the minority interest flowing towards the bottom line with the portion that doesn’t belong to the bank, that’s the accounting treatment that we have selected for the company. So, you will see when we speak about the run rate of the expenses and the run rate of the order income, the assumptions of the mortgage company will be baked in into those numbers.
Brody Preston: Awesome. Thank you very much for taking my question everyone. I appreciate it.
Carlos Iafigliola: Sure.
Operator: Our last question comes from the line of Michael Young from Truist Securities. Your line is open. Please go ahead.
Michael Young: Hi. Thank you for taking the questions. I wanted to maybe just start with kind of balance sheet size and dynamics moving forward. Obviously, you have got kind of the profitability targets out there. But you can kind of shrink to achieve those or grow and scale to as I am sure the latter would be the preference. But can you maybe just talk about given kind of the pandemic and everything that’s been going on, the internal kind of shifts in personnel, etcetera, just kind of how you see that playing out relative to balance sheet growth and deposit growth, especially on the hills of this marketing campaign?
Jerry Plush: Yes. I think it’s important to note that as we begin sort of this transition to do more business banking to focus more on treasury management, to look to expand equipment finance, as an example, capabilities you are going to see a big composition change start to take place, right, over the next couple of quarters. We are really focused more on trying to really offset as New York begins to pay down to be in position with new production in our current markets coupled with these additional capabilities offsetting that. So, if I were to think about balance sheet size over the next couple of quarters, I would say trying to stay in that 7.5 quarters to 7.3 quarters sort of range is probably where we would be targeting. If we have opportunities to expand that, we are certainly going to do that, but I – back to the question of having plenty of capital to support that. But I think right now, we are really in a transformation, transition phase because in New York and what’s happening with the portfolio there. Because I think we hadn’t seen any significant payoffs in that portfolio in this past quarter, and we will begin to see that taking place in this quarter, for sure, and in the fourth quarter.
Michael Young: Okay. And maybe you guys had higher kind of CRE payoffs, we have seen the 10-year treasury rate dropped down again pretty significantly here over the last week. Could you just talk about outside of New York, maybe additional CRE payoffs that you kind of see in pipeline and then how that compares to maybe the production outlook with Texas and Florida pretty fully reopened, etcetera. Are you seeing increased demand at this point?
Carlos Iafigliola: Yes. As I mentioned on a previous question, there was a lot of competition, particularly Florida and Texas. As you know, they – we actually haven’t been closed completely. It was just two months of last year that we had the most of the restrictions. So, for the rest of the year, there has been economic activity going on, which creates further incentives to lenders to go into these areas. So, we have had a significant competition. We – as I mentioned before, we have seen deals coming in front of us for pricing that we wouldn’t be able to participate given the low spread. And we foresee that we may have more prepayments coming our way. However, we are working a lot on the C&I side and more granular loans to try to offset those type of impacts in the future. So, our pipeline looks fine, from that perspective, it looks like we will be able to offset potential prepayments. And the question mark will be pretty much New York and how does that evolve over time and how fast those loans may end up prepaying.
Jerry Plush: Yes. I think it’s important to note that things have really opened up for us, I think, in terms of the size of the opportunities that are entering the pipeline that were twice what we were just a quarter ago. And so I think that reflects the efforts of the team and the opportunities that are out there in the market. So again, I think with the comments Carlos made, New York is really the X factor as it relates to where our loan portfolio size will be at a point in time. But I feel good that we see very strong demand both in the Houston and in the South Florida marketplace.
Michael Young: Okay. And my last question, maybe just on the deposit side. Obviously, you have still got some runoff of higher CDs and the international deposits. But generally, I guess, domestically, the industry kind of writ large has been washing deposits and everyone’s got up plenty and they are growing them fairly quickly. So, is there any desire to go ahead and get out in front of loan growth and kind of move the pivot on the deposit side along while obviously, deposits are just very cheap and readily available?
Jerry Plush: Yes. No, that’s actually the focus for us here in the second half of the year. So, with the new CMO, the new marketing agency, the turn of the teams focus on having a deposits first sort of mentality. It’s – I think you will continue to see not just the benefit of downward re-pricing as time deposits, broker CDs run off. But from us, making a very concerted effort that in every customer interaction, we want the full relationship from as many customers as possible. What’s running away from us were single-product customers. And we want people that want a broader relationship with the organization. And I think that’s just a shift in focus from the past to where we are going to head as a company.
Carlos Iafigliola: To complement that point, Jerry, it’s important also to mention that from the balance sheet composition perspective, the relative size of liquidity for us have been very low compared to other institutions and compared with the general liquidity situation on the market is – I believe it’s remarkable that we just carry less than $100 million of the Federal Reserve with such a level of liquidity available in the market. I believe that the opportunity that we have to do re-composition was great over the past few quarters, and that allow us to improve the overall composition of deposits.
Michael Young: Okay. Thanks. It’s all for me.
Jerry Plush: Okay. Thank you.
Operator: There are no phone questions at this time. I will turn the call over to our CEO, Jerry Plush.
Jerry Plush: Thank you, Myra. We appreciate that. I would like to just thank everyone for joining the second quarter earnings call. We are very excited about the bright future ahead for Amerant. I hope all of you are, too, and that you have a great day.
Operator: This concludes today’s conference call. Thank you all for participating. You may now disconnect. Have a great day.
