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Edited Transcript of AMTB.OQ earnings conference call or presentation 29-Oct-19 1:30pm GMT

Q3 2019 Amerant Bancorp Inc Earnings Call

Nov 11, 2019 (Thomson StreetEvents) -- Edited Transcript of Amerant Bancorp Inc earnings conference call or presentation Tuesday, October 29, 2019 at 1:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Alberto Peraza

Amerant Bancorp Inc. - Co-President & CFO

* Laura Rossi

Amerant Bancorp Inc. - Head of IR

* Miguel Palacios

Amerant Bancorp Inc. - Executive VP & Chief Business Officer

* Millar Wilson

Amerant Bancorp Inc. - Vice-Chairman & CEO

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Conference Call Participants

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* Brady Matthew Gailey

Keefe, Bruyette, & Woods, Inc., Research Division - MD

* Michael Edward Rose

Raymond James & Associates, Inc., Research Division - MD of Equity Research

* Michael Masters Young

SunTrust Robinson Humphrey, Inc., Research Division - VP and Analyst

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen, and welcome to the Amerant Bancorp Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Ms. Laura Rossi, Investor Relations Officer. Please, go ahead.

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Laura Rossi, Amerant Bancorp Inc. - Head of IR [2]

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Thank you, operator. Good morning to everyone on the call, and thank you for joining us to review Amerant Bancorp's Third Quarter 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, 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 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 31, 2018, as well as to subsequent filings with the SEC, which you can access these filings on the SEC's website.

Please note that Amerant 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. 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 1 of the company's earnings presentation for a reconciliation of each non-GAAP financial measure to its most comparable GAAP financial measure.

I will now turn the call over to Mr. Wilson.

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Millar Wilson, Amerant Bancorp Inc. - Vice-Chairman & CEO [3]

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Good morning, and thank you for joining Amerant's Third Quarter 2019 Earnings Call. Today, we'll discuss Amerant's results for the first 9 months of the year and provide progress updates on some of the initiatives we have outlined previously. We will finish by giving some color on what we expect for the last quarter of 2019. I will begin with our third 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 3 and Slide 4, we have a summary of our performance for the quarter. In the first 9 months of the year, Amerant continued to drive forward our relationship-focused strategy to create value for shareholders, with net income growth of 20.6% and return on assets and return on equity both up in the first 9 months of 2019 compared to the prior year.

As a reminder, our strategy centers on prioritizing relationship-driven and lower-risk domestic loans while maintaining asset quality and increasing our domestic funding from core deposits. Over the last few quarters, we have also rolled out our restructuring efforts, which include rebranding and seeking efficiencies that allow us to reduce the size of our workforce. In the third quarter, we made solid progress on our strategy. Notably, our Texas and New York loans increased year-over-year, and we completed our strategic run-offs of foreign financial institution, or FI loans, and the exit from nonrelationship shared national credits, or SNCs. Also, we executed our first commercial real estate, CRE, loan syndication, as lead agent this quarter and are excited about the opportunity this creates to service larger clients.

Additionally, we recently opened 2 banking centers in our core South Florida markets: one in Davie and the other in Miami Lakes. This strengthens our footprint in Broward County, which has always been a strategic goal of ours, and also complements our presence in Miami-Dade County. These new branches are the future, as we call them, will enable Amerant to continue to provide its growing customers, quality banking products and services that meet their needs. Also, of note, this quarter, Amerant celebrated its 40th anniversary. I couldn't be prouder of a strong, independent community bank that our team has worked so hard to build.

Moving to Slide 4. Our net income for the quarter was up 3.3% over the same quarter last year. On an adjusted basis, excluding the restructuring and rebranding costs incurred in the most recent quarter, the improvement over the same quarter last year was 8%. Our return on assets was 0.60% or 0.65% on an adjusted basis. And our earnings per share was $0.28 per share or $0.30 on an adjusted basis in line with market expectations.

Al will explain the non-GAAP adjustments and provide more details on the result shortly. Our credit and asset quality remained strong this quarter, leading to a release from the allowance for loan losses of $1.5 million, primarily due to improving quantitative factors in our CRE and domestic commercial loan portfolios. Nonperforming assets, as a percentage of total assets, increased by 7 basis points from the third quarter of 2018.

And now I will turn the call over to Al, who will go over the quarter in more detail.

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Alberto Peraza, Amerant Bancorp Inc. - Co-President & CFO [4]

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Thank you, Millar. Good morning, everyone. Before we move on to Slide 5, I would like to start by discussing the highlights in our balance sheet this quarter. On the asset side, total loans this quarter decreased 6.6%, primarily driven by the completion of the strategic run-off of foreign FI and nonrelationship SNC loans. This resulted in a total asset decline of 6.8%. As far as our funding, our domestic customer deposits, that is, excluding brokered CDs, grew year-over-year, primarily in commercial relationship accounts. However, total domestic deposits declined slightly due to the $77 million decrease in broker CDs.

International deposits declined 14.6% year-over-year as living conditions in Venezuela continue to be challenging, and increasingly, goods and services are acquired with dollars. Our stockholders' equity increased by $98 million or 13.5% compared to the third quarter of 2018. Net income contributed $52 million of this increase with the balance attributed to comprehensive income, primarily stemming from higher market valuations in our available-for-sale investment portfolio.

Moving on to Slide 5. I'd like to review our investment portfolio. Our third quarter investment securities balance decreased slightly to $1.6 billion from $1.7 billion at the end of the second quarter and from $1.8 billion the same period last year or 9%. While keeping a healthy liquidity position, we continue to actively manage our investment portfolio as a source of liquidity to support the international deposit run-off. An additional source of funding came from the run-off of the nonrelationship SNC and foreign FI loans.

The decrease in the investment portfolio was primarily accomplished by the sale of municipal and corporate securities as well as high levels of prepayments. This quarter, we continued to decrease our floating rate investment securities as interest rates are expected to continue to decline. Floating rate investments comprised approximately 15% of our investment portfolio at the end of September 2019, down from almost 25% in the year ago quarter.

Lower interest rates also led higher prepayment speeds in the mortgage securities portfolio, driving down the effective duration of the portfolio to 2.6 years from 3.2 years. We continued to sell municipal bonds due to the lower associated tax benefits and to purchase securities with prepayment protection.

Moving on to Slide 6. We can see some of the movements and drivers of our loan portfolio previously mentioned. In the third quarter, loans decreased $406 million or 6.6% year-over-year to close at almost $5.8 billion. We experienced year-over-year growth in the Texas and New York markets of $72 million and $46 million, respectively. The growth was mainly due to $103 million and $115 million increase in CRE and owner-occupied loans, respectively. This growth was offset by the continued strategic exit from nonrelationship SNCs and foreign FI loans.

Since September 30, 2018, we have reduced these loans by $415 million and $290 million, respectively. To replace these foreign FI and nonrelationship SNC loans, we continue to focus on growing our domestic relationship loans. Amerant domestic loans, excluding the foreign FI and nonrelationship SNCs, grew 6.5% over the last 12 months. Specifically, commercial real estate, single-family residential and owner-occupied loans saw year-over-year growth of 3.4%, 11.2% and 16.3%, respectively.

Total loan production from core relationship businesses this quarter was approximately $240 million. During the first 9 months of 2019, production reached approximately $943 million compared to approximately $764 million during the same period last year, evidencing our strategic transformation efforts into core relationships. Our CRE and C&I segments continue to dominate production across our markets, and Florida continues to lead followed by Texas and New York. Higher-yielding, lower-risk domestic loans now comprise 96% of Amerant's total loan portfolio, in line with our broader strategy to prioritize profitability from our core relationships.

Moving on to Slide 7. We continue to experience strong credit quality, and the company was able to release $1.5 million from its allowance for loan losses this quarter. This release was largely driven by a lower-ending loan balance this quarter as well as continued improvements in the quantitative factors of our commercial real estate and domestic commercial loan portfolios and lower reserve requirements on credit cards due to better-than-anticipated repayments as we phase out our previous products. Nonperforming assets increased $3.1 million year-over-year in the latest quarter and totaled $32.8 million at September 30 of this year. Nonperforming assets to total assets were 42 basis points, up from 35 basis points at September 30, last year. This increase is mostly due to the $12 million loan relationship with a South Florida customer whose sales in Puerto Rico has not recovered from the impact of hurricanes and which were placed in nonaccrual in the previous quarter.

Additionally, special mention loans increased by $13 million during the quarter, primarily due to a $10 million condo construction loan in New York experiencing a longer projected sell-out period. This project, which has been completed, has a very low loan to value and is a relationship SNC loan with a Tier 1 sponsor.

Turning to Slide 8. You can see that our loan yield has decreased slightly this quarter compared to the second quarter driven by lower average yields in the commercial loan portfolio. Loan yields were still up 13 basis points compared to third quarter last year, primarily due to improved loan mix and generally higher market rates on production during the first half of this year. Our investment securities yield declined by 12 basis points from the previous quarter as a result of increased paydowns in the SBA portfolio and repricing of floating investment securities at lower rates. Year-over-year, the yield of the investment portfolio is all flat.

Looking at Slide 9, I want to provide some color around Amerant's wholesale funding strategies, particularly in light of the current rates-down environment. Over the past few years, we have modified our wholesale funding in an effort to decrease our NIM sensitivity to declining interest rates. We replaced maturing advances with longer-term fixed-rate advances with callable options from the Federal Home Loan Bank, taking advantage of the yield curve inversion. Additionally, to reduce our funding costs, we entered into interest rate swaps on our variable rate junior subordinated debt or trust. We will continue to utilize wholesale funding as needed with advantageous durations or using structures to bring down our funding cost.

Moving on to Slide 10. Total deposits at the end of this quarter were $5.7 billion, down 8% compared to the end of the third quarter of 2018. This year-over-year decline was driven by international core deposits, which dropped 4% and 14.6%, respectively, compared to the prior quarter and 1 year ago. As political and economic conditions in Venezuela remain difficult and the country's economy becomes increasingly dollarized, many of our Venezuelan resident customers must withdraw their U.S. dollar deposits to fund living expenses.

Our annualized international deposit run-off rate was approximately 16% this quarter. We expect this run-off to continue. And as we have commented previously, we are working hard to grow other low-cost funding opportunities through improved core domestic deposit products and better delivery channels. This quarter, to support these efforts, the bank implemented rewards programs to drive core deposit growth. To improve our customers' experience, we also streamed -- streamlined our online account-opening process. Competitive online offerings are key to achieving our funding goals, evidenced by our online CD balances having more than doubled compared to the end of the third quarter of last year.

In August, the U.S. imposed additional sanctions on Venezuela, which prompted Amerant to block the accounts of persons who currently work in any capacity for the Venezuelan government or its political subdivisions or agencies. These sanctions affected a small number of customers. We believe that one of the key elements to mitigating our international deposit decline is to grow Amerant's customers' share of wallet and the number of domestic relationship accounts. Domestic deposits have higher costs than international deposits, but they also have higher growth potential and present better cross-selling opportunities for Amerant's other products and services.

We are delivering on our strategic goal to cross-sell deposit products to our domestic commercial borrowers, resulting in a 21% growth in these deposits so far this year. At the end of this quarter, 53% of our deposits are domestic, up from 49% a year ago. And our cost of deposits, as expected, has increased 28 basis points year-over-year to 140 due to the shift. Compared to the second quarter of 2019, the cost of our domestic deposits began to decrease. However, the total cost of interest-bearing deposits increased 4 basis points, primarily due to the replacement of the less expensive international deposits with domestic deposits.

Turning to our P&L items on Slide 11. Third quarter 2019 net interest income was $52.6 million, down 5.5% compared to the third quarter of 2018. This decrease was primarily due to the reduction in the loan portfolio from the strategic run-off of foreign FI and nonrelationship SNCs and the decline in the average balance of investment securities, which helped partially fund the international deposit run-off. Additionally, both the higher cost of time deposits, which up to this quarter we're repricing at higher levels than previously carried, and the replacement of the less expensive international deposits with domestic deposits, contributed to a higher cost of funds. These factors were partially offset by better yields on the loan portfolio and a lower balance of adverse interest-bearing liabilities.

The net interest margin for the third quarter of this year was 2.8%, a decrease of 3 basis points compared to the third quarter of 2018, driven primarily by the higher time deposit cost and the replacement of the international deposits with the domestic deposits. Net interest income for the first 9 months of 2019 was $162 million, down slightly compared to the year ago period, mainly due to the aforementioned higher time deposit cost and the shift in deposits.

The net interest margin for the first 9 months of 2019 was 2.89%, an increase of 15 basis points from the comparable period last year. This improvement was driven by higher average rates and a favorable shift in loan mix towards higher-yielding domestic relationship-based loans as international loans were run off. We are working hard to protect our NIM in a falling interest-rate environment. This quarter, we redeemed $25 million of our 2 most expensive TruPs, which will reduce annual interest expense by $2.6 million, proactively decrease the cost of Amerant's variable rate TruPs by executing interest rate swaps that took advantage of the yield curve inversion. We focused on relationship accounts to enhance demand deposit account balances, and we took $200 million of Federal Home Loan Bank callable fixed-rate advances that decrease our overall cost of wholesale funding.

Now turning to Slide 12. Noninterest income of $13.8 million was up nearly 7% from the prior year quarter. Noninterest income in the third quarter included $1.3 million from derivative contracts sold to borrowing customers and a $900,000 net gain on the sale of approximately $24 million of municipal bonds and $12 million of floating-rate corporate securities. These increases were partially offset by a 12% year-over-year decline in brokerage fees driven by lower fees on foreign customers' trading of Venezuelan securities restricted by U.S. sanctions. Amerant also saw lower fee income this quarter due to the ongoing phase-out of operational support services provided to our former parent and its affiliates as well as lower wire transfer activity and card fees.

For the first 9 months of this year, noninterest income decreased almost 2% to $41 million compared to the year ago period driven largely by the aforementioned factors: Net interest income in this period included $2.7 million of fees from derivative transactions, a $1.9 million gain on the sale of municipal and floating rate securities and a $600,000 gain on the early termination of Federal Home Loan Bank advances earlier this year. Amerant's total assets under management and custody increased to $1.71 billion in the third quarter, up from $1.69 billion at the end of the year ago quarter, due primarily to net new assets.

Moving on to Slide 13. Third quarter noninterest expense was $52.7 million, a 1.3% increase over the third quarter of last year. Third quarter 2019 noninterest expense included $800,000 of costs associated with rebranding to Amerant, $500,000 of severance costs associated with workforce reductions and $300,000 related to the early redemption of the 2 most expensive TruPs, partially offsetting these increases this quarter with an FDIC assessment credit as well as lower salaries and employee benefits.

Noninterest expense for the 9 quarters ended September 30, 2019, decreased 1.7% to $157 million compared to the same period in 2018. This decline was mainly driven by lower professional and other fees related to the spin-off in 2018; lower salaries and employee benefit costs due to staff reductions; lower compensation associated with long-term cash incentive programs; and lower FDIC assessments. The 9 months ended September 30 included $4.9 million of restructuring costs, including rebranding and staff reduction expenses in connection with our transformation efforts and $4.4 million of stock-based compensation expense. All 3 quarters of 2019 included amortization costs of the restricted stock granted to select management and staff, largely in 2018, in connection with our IPO. The total amortization for 2019 is approximately $6 million or $1.5 million per quarter, declining to an estimated annual expense of $2.7 million in 2020 and $1.1 million in 2021. We remain focused on completing our transformation efforts, which include our rebranding and optimizing our workforce. These restructuring expenses totaled $4.9 million in the first 9 months of this year, and we expect to incur additional related expenses in the last quarter of this year.

On Slide 14, we see the third quarter noninterest expense adjusted for the 2018 spin-off, and 2019 transformation costs was $51.5 million, slightly down compared to the third quarter of last year. Adjusted noninterest expense was $152.7 million for the first 9 months of this year, down almost 1% compared to the year ago period. Note again that the first 3 quarters of this year includes the $1.5 million quarterly IPO grant amortization. We also incurred $300,000 in TruPs termination expense this quarter.

On Slide 15, we see that our floating rate loans and loans maturing in less than 1 year continue to keep Amerant asset-sensitive. We have been taking actions to reduce our sensitivity to interest rate declines, including our strategic exit from foreign FI and nonrelationships SNC loans and a renewed focus on domestic commercial relationship deposits. That said, this quarter, the duration of our investment portfolio decreased to 2.6 years driven by projected faster prepayments in mortgage securities and the sales of munis.

Please note that our model results have not changed materially since last quarter, and we continue to believe that an instantaneous 25 basis point decline in interest rates, on a static balance sheet, will reduce our net interest income by approximately $4 million or 2% over the following 1 year period.

Now I will hand it over back to Millar to conclude our prepared remarks.

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Millar Wilson, Amerant Bancorp Inc. - Vice-Chairman & CEO [5]

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Thank you, Al. Moving to our last slide. Our goals remain largely unchanged, and we continue to focus on our relationship-based strategy to increase core deposits; higher-return, lower-risk domestic loans; and increasing our operational efficiency; and the quality of our customer service. While this quarter has not -- was not without its challenges, I am proud of the progress we made on our strategy, including the opening of our 2 new banking centers in our core South Florida market. Our strategy is working and driving value generation for our shareholders every day.

With that, we will be happy to take any questions. Operator, please open the line for Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question, line of Michael Rose with Raymond James.

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Michael Edward Rose, Raymond James & Associates, Inc., Research Division - MD of Equity Research [2]

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Maybe we could just start on the deposit side. And really, my question is getting back to the margin. So it's good to see the domestic costs seem to have -- seem to have leveled off at least on some of the higher cost stuff. Do you think we're at a point now for the overall portfolio where deposit costs have peaked? Obviously, we're going to have some pressures on the loan and the asset side as we move forward. And maybe if you can just comment on thoughts there and how we should think about the margin juxtaposed with some of the assets, some of the steps that you took to redeem the TruPs and other things to reduce costs.

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Alberto Peraza, Amerant Bancorp Inc. - Co-President & CFO [3]

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Yes, sure, Michael. Certainly, as we said, the cost of our domestic deposits has started -- we reset inflection point and they have started to decrease. To a certain extent, that's just the dynamics of our portfolio as deposits that were -- had higher rates are now repricing in a declining-rate environment. We've also been doing a lot of intelligent pricing. We've been doing a lot of work in terms of not renewing our domestic deposit straight off the bat at our rate sheet but rather using some intelligence to shave some basis points off of that, anywhere from 10, 15, 20 basis points off of that. And increasingly, we're retaining a lot more of those deposits. Obviously, they have a very high -- there's always a very high acquisition cost. So the more that we could retain those repricing deposits the better. But the big headwind that we're experiencing is the continued decline of our international deposits. Our international deposits are very cheap in terms of the interest cost. Last year, we were experiencing a 9% annual decline rate. So far this year, it's been pretty steady in the mid-teens. And probably for the next quarter, we would anticipate a similar decline in our -- or annualized decline in our international deposits.

And we would hope to have that start to taper off sometime next year because we are also doing a lot of -- we're working on lot of efforts to get a greater share of wallet from those customers, particularly our higher net worth international customers, which are not declining at that annualized clip of 16%. What we find, and it's not dissimilar that we were experiencing last year, is that the decline comes more from our retail-type of customer, the smaller balances that are essentially living off their funds, but we feel there's a lot more potential from those. So we expect that to continue to put a lot of pressure on our NIM, at least we'll have relief on the cost of the domestic, but the international, we'll continue to put pressure on the overall deposit cost in the near future.

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Michael Edward Rose, Raymond James & Associates, Inc., Research Division - MD of Equity Research [4]

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Okay. That's helpful. And then maybe just thinking about deposits now that the nonrelationship SNCs and the foreign run-off of loans was essentially done. Do you think we've hit an inflection point in the loan portfolio? Obviously, understanding that the domestic deposits is the key to balance sheet growth, but should we begin to start to see the balance sheet growth start to accelerate here in the next couple of quarters or at least hit an inflection point?

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Miguel Palacios, Amerant Bancorp Inc. - Executive VP & Chief Business Officer [5]

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Michael, it's Miguel. We have seen them on the production side. We are on track of what we have done previous year. I think that we are 20% above in production. Nonetheless, we have seen also a real estate portfolio, which is pretty good, have received a lot of payoff. We are at the point that production of '19 -- of 2016 and 2017 on construction loans and some repositions, we're starting to see payoff. We -- I mentioned that in the previous call for this quarter, and we believe we will see some of those still on the fourth quarter, but we have a strong pipeline. We believe we're going to continue the same production level of previous year. And we also have production of discount receivables that we might bring into the production side. And we hope that if we can contain those payoff that we will see additional growth for the last quarter of the year.

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Alberto Peraza, Amerant Bancorp Inc. - Co-President & CFO [6]

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We -- as we mentioned in the remarks, Michael, we also are seeing quite a pickup in our commercial deposit generation.

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Miguel Palacios, Amerant Bancorp Inc. - Executive VP & Chief Business Officer [7]

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Yes, that is important, Al, because we have being seeing a 20s -- let's say, 25%, 24% increase on commercial deposits, which is mainly -- we're starting to see the quick wins of the strategy, the conversion of lenders to RM and starting to improve our deposit carrying on our commercial, as we mentioned in the past. And we are also starting to deepen our focus in the new verticals that we didn't try before. And when we talk about deposit, we're starting to see on the retail side, for the first time, if you take out the run-off from the expenses time deposits and all the DDAs that went out of those deposits, we saw, for the first time, a positive increase on core deposits on retail for the month of September. It's a slow process. With the new opening of these 2 branches, it's going to help our core deposit growth. And even though it's not easy to see because of the attrition of international, we believe that our transformation on our new initiatives is going to pay back. And not to mention that we're also including a new initiative to at least slow down the attrition or decay of the international deposits. We're working on different products, on those products, we have a peer-to-peer product that we're testing now, and we're seeing positive net inflows regarding that particular side.

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Michael Edward Rose, Raymond James & Associates, Inc., Research Division - MD of Equity Research [8]

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That's very helpful color. And maybe just one more for me. Just switching gears a little bit to noninterest expenses. So I think, Al, last quarter, you guys had talked about back half of the year expenses being similar to the second quarter on an adjusted basis, even if I take out the 2 items called out this quarter and add back the FDIC benefit that you had realized this quarter, that run rate was a little bit higher. So I wanted to see if there were any other costs in any of the line items that may not recur in future quarters? And maybe how we should think about the fourth quarter run rate?

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Alberto Peraza, Amerant Bancorp Inc. - Co-President & CFO [9]

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Yes. Well, we did have -- I'm not sure if you backed out or would back out, we did have about $300,000 also in some of the repayment costs on the 2 TruPs that we redeemed. So that's something else that's affecting the third quarter. I mean, remember, we always said it would be rather bumpy, especially the first year in our pivot, but you have to keep in mind that we would expect a significant reduction starting next year in our operating expenses, especially as a result of that IPO amortization that's going to go down by $3.3 million. So right off the bat, that's going to bring us probably to the 50 or hopefully somewhere under the 50 quarterly mark as far as our run rate.

And we -- again, we -- we're only 3 quarters into this pivot. And a lot of the reductions that we've experienced in our staffing have been from restructuring, merging areas, some efficiencies, but we would expect in the coming quarters, as we continue to streamlining our back office or operations, that there's just naturally going to be efficiencies that are going to be arising out of that. So we would expect to probably start the year sort of with a run rate around the 50 or slightly under the 50. It's pretty clear based on what we've done in the third quarter and if we back out some of the unusual items from the third quarter. And then we need to continue to improve upon that.

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Operator [10]

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Your next question, line of Brady Gailey with KBW.

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Brady Matthew Gailey, Keefe, Bruyette, & Woods, Inc., Research Division - MD [11]

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Maybe one more on the expense side. Is there any additional credit left from the FDIC assessment credit? Or was all of that realized in the third quarter?

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Alberto Peraza, Amerant Bancorp Inc. - Co-President & CFO [12]

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There's more. So if the BIF stays at the target level, we probably expect another quarter or 2 of credits, but it's got to remain there. And I guess with a benign market, I guess, I don't see any bank failure -- imminent bank failures out there compressing the BIF.

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Millar Wilson, Amerant Bancorp Inc. - Vice-Chairman & CEO [13]

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There were 2 last week.

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Alberto Peraza, Amerant Bancorp Inc. - Co-President & CFO [14]

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There were 2 last week?

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Millar Wilson, Amerant Bancorp Inc. - Vice-Chairman & CEO [15]

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Yes.

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Alberto Peraza, Amerant Bancorp Inc. - Co-President & CFO [16]

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Were they small?

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Millar Wilson, Amerant Bancorp Inc. - Vice-Chairman & CEO [17]

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Small banks.

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Alberto Peraza, Amerant Bancorp Inc. - Co-President & CFO [18]

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Small banks. So probably another quarter or 2, we hope.

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Brady Matthew Gailey, Keefe, Bruyette, & Woods, Inc., Research Division - MD [19]

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Okay. And then one more on loan growth...

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Millar Wilson, Amerant Bancorp Inc. - Vice-Chairman & CEO [20]

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Brady, if I could just -- we talked about the run rate, but I think we also need to be aware that we do look to hiring teams where there is an opportunistic event for us and that may increase a little these expenses. But those are things we're looking at. We haven't got anything that we could tell you just now, "Hey, we're about to hire a team here or a team there," but those are things that we are actively looking for.

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Brady Matthew Gailey, Keefe, Bruyette, & Woods, Inc., Research Division - MD [21]

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All right. And then back to loan growth. As the nonrelationship SNCs are gone and the foreign institution loans are gone, do you think that on a net basis, you should be able to achieve kind of a mid-single-digit level loan growth from here? Or could it be higher or lower than that?

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Miguel Palacios, Amerant Bancorp Inc. - Executive VP & Chief Business Officer [22]

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I think that, that should be a target that we're heading at. And that's what has been during this year if you remove the effect of the SNC and FI.

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Alberto Peraza, Amerant Bancorp Inc. - Co-President & CFO [23]

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Yes, there was about -- as we mentioned, there was about 6.5%, I think, in the last annualized increase. And that's excluding anything that we may do on the side as far as receivable financing or whatever. We're talking about mid-6s from core lending relationships. There will be some --

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Miguel Palacios, Amerant Bancorp Inc. - Executive VP & Chief Business Officer [24]

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And like always, like it happened in the previous quarter, we -- normally, you don't see in C&I payoff, and we got a -- around $60 million out of the blue of 2 companies that were sold. Those are things that we don't control. But definitely, there is a lot of activity on the CRE portfolio, which for us is good. It demonstrates the quality of our portfolio. We do have some expected payoff -- announced payoff coming, which are high amounts, where we continue to have good production during the rest of the year.

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Brady Matthew Gailey, Keefe, Bruyette, & Woods, Inc., Research Division - MD [25]

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All right. And so the nonrelationship SNCs are gone. What's the balance of relationship SNCs that are left at Amerant?

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Alberto Peraza, Amerant Bancorp Inc. - Co-President & CFO [26]

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Give us a second. $560 million.

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Miguel Palacios, Amerant Bancorp Inc. - Executive VP & Chief Business Officer [27]

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$560 million, oh, including...

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Brady Matthew Gailey, Keefe, Bruyette, & Woods, Inc., Research Division - MD [28]

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What was that again? $560 million?

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Miguel Palacios, Amerant Bancorp Inc. - Executive VP & Chief Business Officer [29]

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$560 million, that include club deals. And when we say those are relationships, it's because we also have deposits of our other transaction with them.

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Brady Matthew Gailey, Keefe, Bruyette, & Woods, Inc., Research Division - MD [30]

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Okay. So $560 million of SNCs and club deals left. All right. And then my last question is just, I know when we did the IPO, you guys were talking about hitting a 1% ROA within the next 6 to 8 quarters. You're almost a year past that. Your ROA year-to-date is running a little under 70 basis points. What's the update on when you guys think you can hit that 1% ROA target?

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Alberto Peraza, Amerant Bancorp Inc. - Co-President & CFO [31]

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Yes. It's -- well, we're really only 3 quarters into kind of into this exercise and into the pivot. And when we set out the 1%, we said that, with all the drivers, the asset reallocation, the full TruPs, additional fee income, et cetera, we would be reaching -- we would probably be, roughly, in the 90s. We gave ranges. We would be in the 90s and at that point, we said, "Well, if there's any rate increases, that would bump us over from the 90s." Had we -- the reality has been totally the opposite as opposed to having any rate increases or not even having rates be flat. We've had significant rate declines, both in Fed funds and in LIBOR, especially rate declines in LIBOR.

If rates would have remained flattish, we probably would've been somewhere in the 80s, but that's because we also had some headwinds. We've mentioned some of them. I mean we've only prepaid thus far 2 of the most expensive TruPs. We have the third to go. We've really exited -- it's both a good thing, but it has a little bit of an effect on the NIM. We exited the FI and the SNCs probably faster than we had anticipated. So as a result of that, we're significantly faster than we had anticipated. So as a result of that, we also did some receivable financing. We did other things that were probably not as high yielding, but we really wanted to get out of those and not concentrate any more on those sectors.

The loss of the trading commissions on the Venezuelan bonds, it was a significant headwind for us as well. And more importantly, the decay, the higher run-off on the international deposits, we were looking at 9. We were looking probably at 9 this year, and we're in the mid-teens. So those were really significant headwinds. But have we had a flat yield curve, we probably would have been probably in the 80s or probably in the low 80s. But we still have -- we delivered on a lot of the things and a lot of the drivers that we set out to do. I mean the staffing reduction has been significant. We hadn't yet seen the full effect of it in the run rate. And we are doing exceptionally well in terms of domestic fee income, especially from derivatives being sold to borrowing customers. That was an increase of $1.7 million year-on-year. Year-to-date, we've done $2.7 million as opposed to $1 million year-to-date last year.

So we had some wins, then we've had some headwinds as well. So in terms of reaching the 1%, we're not at this point prepared to say when we would reach that 1%. But we still have levers that we're working on to try to get to that number. Notwithstanding that, what's going to happen later this week with rates or what continue to happen is going to be a significant -- I think it's a moving target. I think everybody has a moving target out there. Everybody has been affected similarly by the rate decline.

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Operator [32]

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(Operator Instructions) Your next question, line of Michael Young with SunTrust.

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Michael Masters Young, SunTrust Robinson Humphrey, Inc., Research Division - VP and Analyst [33]

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Al, I wanted to start just on the foreign deposits again. Have you guys done any sort of analysis? I mean it sounds like you've got a pretty good view of the different accounts that are moving and it's the granular ones that are coming down. But have you done an analysis maybe to estimate when this whole portfolio might sort of bottom out or the rate of decay would kind of decelerate maybe?

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Alberto Peraza, Amerant Bancorp Inc. - Co-President & CFO [34]

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Minus any of the efforts that we said that we're working on, the greater share of wallet and things of that nature, we feel that there's probably a bottom. We've, I think, said that before. In the worst case, in our opinion, I should say, would be essentially that we would still probably retain a good deal of our higher network customers. Those aren't decaying at any significant pace. So those customers roughly have $600 million, $700 million in deposits. We also have anywhere -- it fluctuates significantly, but let's say, mid-200s in commercial, $400 million -- actually, correct it, $400 million in international commercial deposits. That also, on the bright side, if Venezuela continues to dollarize, we're starting to see a little bit of economic activity in our deposit -- international deposit customers. So we see a little bit more generation of wealth in terms of their -- it's not significant yet, but it continues.

So between those 2, there's sort of a ball of about $1 billion in international deposits, which we would not expect to really go any further than that amount. But again, I think, in our opinion, that's kind of a worst-case scenario in terms of how low could this thing go.

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Michael Masters Young, SunTrust Robinson Humphrey, Inc., Research Division - VP and Analyst [35]

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Okay. So maybe the pace of decline kind of decelerates as we approach that ability of loans?

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Alberto Peraza, Amerant Bancorp Inc. - Co-President & CFO [36]

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Yes, we'll -- just as a result of the math, as the decline continues, the amount may be similar or may hopefully decline but the percent of the remaining balance will also be greater. So we'll have to be careful that we explain that noise because the rate -- if we continue to have the same decline from the retail-type customers, that's -- could become a larger and larger percentage of the remaining balance.

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Michael Masters Young, SunTrust Robinson Humphrey, Inc., Research Division - VP and Analyst [37]

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Sure. Yes, that makes sense. And then can you maybe just talk about what kind of the new add-on rates are on deposits? It sounds like you guys are having some success in the commercial area. But maybe just help us understand kind of the different buckets that you're getting deposits from? And what the kind of costs are at this point, so we know what the spread is between the foreign deposits and the new add-on deposit rates?

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Miguel Palacios, Amerant Bancorp Inc. - Executive VP & Chief Business Officer [38]

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Yes. When we talk about core deposits that had been showing more quick wins is the commercial. Normally, we see that from our commercial companies, revenue between $5 million to $25 million, and also in our middle market segment. We have seen a significant improvement on depositing, borrowing and also in lowering interest-bearing accounts. We believe that we just started the process, even though we improved by 20% to 25% on those segments. We foresee to continue that improvement during next year. And also, as the run-off on time deposits on the retail side touch bottom, which we believe we're getting close to that, and as we are starting to see a growth from core deposits with a new branch opening, we believe that we should start seeing an improvement in retail, too.

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Michael Masters Young, SunTrust Robinson Humphrey, Inc., Research Division - VP and Analyst [39]

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Is there a way to think about the blended cost, kind of, all that coming on, I mean, even in just broad terms? Just between the retail CDs and the commercial deposits, I'm just trying to get an understanding of what the differential is between the cost of the foreign deposits and kind of the new deposits...?

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Miguel Palacios, Amerant Bancorp Inc. - Executive VP & Chief Business Officer [40]

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The marginal cost between the retail and the commercial would be between 1.5% and 2%.

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Alberto Peraza, Amerant Bancorp Inc. - Co-President & CFO [41]

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Our blended, sort of, our blended deposit cost, Q3, is roughly around $190 million, 190s. That's our deposit cost. But as the rate -- with the rate declines and the repricing of the CDs and as we do better on --

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Miguel Palacios, Amerant Bancorp Inc. - Executive VP & Chief Business Officer [42]

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On core deposit.

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Alberto Peraza, Amerant Bancorp Inc. - Co-President & CFO [43]

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On terms of core deposit costs, in terms of commercial deposits. And then the blended rate on our international is very similar to what it was, say, a year ago, is roughly in the mid-40s. However, the one that is running off, which is mostly the retail, the lower bottom of accounts, are probably under 10 basis points. So that's why you have kind of that significant effect that we mentioned before, where our other banks' deposit costs are starting to decline. Our domestic are declining and will be declining, but we have that headwind of replacing deposits anywhere from a few bps to 40 bps with money in the high 1.

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Michael Masters Young, SunTrust Robinson Humphrey, Inc., Research Division - VP and Analyst [44]

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Okay. That's helpful. And then maybe just one last one on -- switching gears to expenses. You guys had originally earmarked, I think, it was around $7 million to $10 million of technology expenses that you plan to make as part of the kind of repositioning of the bank. Can you give us a sense as how much of that maybe is already in the run rate? Or how much of that is still yet to come?

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Alberto Peraza, Amerant Bancorp Inc. - Co-President & CFO [45]

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We have very little of that. It was more -- I think it was more like $10 million to $15 million that we've said that we would be spending. We've probably spent a few million of that. We've had some consulting in some certain key areas as a result of the efforts to streamline areas, add more technology. But very little of that is cooked into the numbers thus far. And it's important to note that despite the fact that we have yet to make any of those investments, we were able to achieve that significant reduction in our workforce. And I feel that as -- again, we mentioned before, with additional technology, additional streamlining and the efforts to become more of a digital bank in the coming years, that we would be able to achieve additional efficiencies.

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Michael Masters Young, SunTrust Robinson Humphrey, Inc., Research Division - VP and Analyst [46]

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Okay. And last one for me, just on the market as a whole, security in Miami. Are you seeing increased competition there that's making new growth challenging or credit terms being stretched at all that make you guys any more hesitant about do loan origination?

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Miguel Palacios, Amerant Bancorp Inc. - Executive VP & Chief Business Officer [47]

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Well, competition has always been tough in South Florida, particularly in Miami. Yes, we see a lot of new competitors. We believe that we have a strong knowledge on the market. And with all of that, we have been able to continue our production levels. We will continue, as I said, seen some CRE payoff, which at the end is part of the business. As we try, as Millar mentioned, as we try to bring new talent, we will be able to improve our, I will say, our production levels on the Broward/Palm Beach, which should be our main focus on the next 2 years. And -- but definitely, with the new acquisition of community banks and -- we will see a lot of pressure on deals.

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Operator [48]

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And I'm showing no further questions at this time. I would like to turn the conference back to Millar Wilson, CEO.

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Millar Wilson, Amerant Bancorp Inc. - Vice-Chairman & CEO [49]

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Thank you for joining our third quarter conference call. Amerant's last 40 years have been filled with numerous successes, but nothing excites me more than our potential in the coming years. Together with the rest of our management team, I am confident in the strategy that we have in place, and look forward to continued progress in the fourth quarter and beyond. Thank you very much for participating in this call. Operator?

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Operator [50]

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Ladies and gentlemen, this concludes today's conference. Thank you for your participation, and have a wonderful day. You may all disconnect.