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Edited Transcript of AMTB.OQ earnings conference call or presentation 26-Jul-19 1:30pm GMT

Q2 2019 Amerant Bancorp Inc Earnings Call

Aug 10, 2019 (Thomson StreetEvents) -- Edited Transcript of Amerant Bancorp Inc earnings conference call or presentation Friday, July 26, 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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* 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 day, ladies and gentlemen, and welcome to Amerant Second Quarter 2019 Earnings Conference Call. (Operator Instructions) As a reminder, this conference call is being recorded. I would now introduce your host for today's call, Ms. Laura Rossi, Investor Relations Officer. You may begin.

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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 second 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. 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 informations 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 disclosures financial measures. Please refer to the back of the company's recent earnings presentation to see the 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 Second Quarter 2019 Earnings Call, our second earnings call since the IPO. On today's call, we will discuss Amerant's results for the first half of the year and then touch upon our business strategies and what we are looking forward to in the second half of 2019. I'll begin with our second 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 4, we have a summary of our performance for the quarter. We made significant progress this quarter on our new strategy as a stand-alone company. We continued our efforts to drive shareholder value, reporting a 23.4% increase in net income over the second quarter of 2018. This quarter, we continued executing on our relationship-focused strategy, remixing our loan portfolio towards higher-yielding, lower-risk domestic loans while maintaining asset quality and increasing our domestic funding from core deposits. We will continue to execute on these strategies with a goal of obtaining a greater share of wallet for new and existing customers by delivering the high-touch service that we want our customers to associate with the Amerant brand.

Speaking of our brand, in April, after many months of hard work and preparation, we successfully launched Amerant as our new brand across all our markets. Our buildings and branches as well as digital platforms now bear Amerant's new vibrant logo and customers-centric Meant for You tagline. We will continue to build brand awareness in this coming quarters.

Most notably, we achieved a number of operational efficiencies that will drive profitability in the coming months. After many months of streamlining our operations and shifting away from noncore businesses, we will migrate to a single segment in our financial reporting, which will be reflected in our quarterly report on Form 10-Q. This is a direct result of our efforts to simplify how we manage our business.

On the profitability front, earlier this month, we announced the redemption of $25 million of our 2 most expensive tranches of trust preferred securities, which is expected to occur during the third quarter.

These redemptions will reduce our annual interest expense by approximately $2.6 million and improve net interest margin by approximately 3 basis points in the months following the redemption. Our remaining $26.8 million of the 8.9% fixed-rate trust preferred securities is callable in whole or in part, which may be an opportunity for capital deployment.

Furthermore, Amerant was added to the Russell 2000 Index in June, which will bolster our recognition in the capital markets and among investors, including those tracking this index.

On Slide 4, our net income for the quarter was relatively flat from the first quarter, but 23.4% over the same quarter last year. On an adjusted basis, excluding the spinoff cost incurred in the second quarter of last year and the restructuring cost incurred this quarter, the improvement over the same quarter last year was 6.4% and from the prior quarter was 8.7%.

Our return on assets reached 0.66% or 0.77% on an adjusted basis, and our earnings per share of $0.30 or $0.35 on an adjusted basis, outperforming market expectations. Al will explain the non-GAAP adjustments and provide more detail on the results shortly.

Our credit and asset quality remained strong this quarter, leading to a release from the allowance of -- for loan losses of $1.4 million, primarily due to improving quantitative factors in our portfolio. Nonperforming assets as a percentage of total assets remain consistent year-over-year, but increased by 15 basis points from the first quarter due to one relationship totaling $11.6 million being placed in nonaccrual status in June of 2019.

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 the loan portfolio slide, Slide 4, I would like to discuss the highlights in our balance sheet this quarter.

On the assets side, total loans this quarter grew by $71.3 million or 1.3%, partially funded by the investment portfolio reduction of $50.7 million or 3%.

This resulted in asset growth of $24.5 million or just 0.3%.

As far as our funding, we were able to grow domestic deposits by $51 million this quarter. This was offset by the decline in international deposits of $120 million with the remainder being funded by the increase in Federal Home Loan Bank advances of $55 million or 5.1% increase.

Our stockholders' equity increased by $27.6 million or 3.5%. Net income contributed $12.9 million of this increase with the balance attributed to comprehensive income stemming from higher market valuations in our available-for-sale investment portfolio.

So if we now move on to Slide 5, we can see some of the movements above in greater detail. In the second quarter, loans grew $78.3 million or 1.4% to close at $5.8 billion. We experienced net growth this quarter in the Texas and New York markets of $67 million and $37 million, respectively.

In Florida, we experienced a net decline of $36 million, primarily due to the planned runoff of our nonrelationship Shared National Credits, or SNCs, and Latin American Financial Institution loans, FIs. Total loan production this quarter was approximately $600 million. Compared to the second quarter of 2018, our loan portfolio decreased 6.5%. This decline was caused by the above-mentioned planned reductions. Since June 30, 2018, we have reduced the nonrelationship SNCs and foreign FI loans by $420 million and $347 million, respectively. The lower interest rates this year allowed us to sell many of these loans at favorable market prices as demand was strong for assets tied to 3-month LIBOR.

In this line, I am pleased to announce that presently Amerant does not have a meaningful exposure in foreign FI or nonrelationship SNCs with only $5 million and $64 million, respectively.

On the other hand, as part of our strategy to focus on domestic loans, our -- excluding nonrelationship SNCs grew 8% over the last 12 months. As we discussed last quarter, these reductions and run-offs align with our broader strategy to prioritize profitability from core relationships. From a product standpoint, the reductions were partially offset with higher-yielding, lower-risk domestic loans.

Owner-occupied commercial and multifamily residential commercial real estate loans saw a year-over-year growth of $182 million or 28% and $110 million or 13%, respectively.

Domestic loans now comprise 96% of Amerant's current total loan portfolio. Finally, as we continue to execute on the relationship-driven business model, our teams are also working to capture a greater share of our borrowing customers' deposits and wealth management businesses.

Moving on to Slide 6, we continued to experience strong credit quality. And the company was able to release $1.4 million from its allowance for loan losses this quarter. This release was largely driven by continued improvements in the quantitative factors of our commercial real estate and commercial loan portfolios, which were partially offset by additional reserve requirements from one relationship, additional provisions associated with the sunset of the company's credit card product and loan growth.

Nonperforming assets increased $12 million in the latest quarter and totaled $33 million at June 30 of this year. Nonperforming assets to total assets were 41 basis points, up from 26 basis points at March 31 and flat year-over-year. This resulted primarily from the downgrade to substandard and nonaccrual of $11.6 million of mostly special mention loans to a South Florida borrower. These loans are current on their payments and secured by residential, owner-occupied commercial property and CRE in South Florida and business receivables. Management proactively placed these in nonaccrual as the customer's business cash flows from sales in Puerto Rico continued to be adversely affected by the effects of hurricanes Maria and Irma in 2017. Despite this downgrade, the ratio of nonperforming assets to total assets remained flat year-over-year.

Furthermore, several unrelated loans consisting of 2 commercial loans totaling $3.1 million and 2 owner-occupied commercial real estate loans totaling $2.2 million were added to special mention as part of our regular credit reviews in June. As a result, special mention credits declined by a net of $4 million in the second quarter and stand at $21 million.

Turning to Slide 7. You can see that our loan yield expansion continued into this quarter, driven by the replacement of the previously mentioned nonrelationship SNCs and foreign FI loans with higher-yielding domestic loans. The average yield also increased notably year-on-year due to the loan mix and higher market rates during 2018. While our loan yields have improved considerably over the past year, we will continue to build on this momentum.

Our investment securities yield declined by 13 basis points from the previous quarter, primarily as a result of increased paydowns in the SBA portfolio. Investments were slightly down from $1.7 billion at the end of the first quarter to $1.65 billion in the second quarter, primarily due to the sale of $91 million of municipal securities and the aforementioned SBA paydowns.

Moving on to Slide 8. Total deposits at the end of this quarter were $5.8 billion, down 1.2% compared to the prior quarter and down 8.5% compared to the end of the second quarter of 2018. This year-over-year decline was driven by the decrease in international core deposits, which dropped 4.1% and 13.7%, respectively, compared to March 31 of this year and June 30 of 2018. As living conditions in Venezuela remain difficult, our Venezuelan resident customers continue to rely on their savings to fund daily living expenses.

Our annualized international deposit runoff rate was 15% this quarter. As we expect this runoff to continue into the next few quarters, we are actively working to increase our share of wallet of select high net worth international customers with whom we maintain strong long-term relationships.

We continue to shift our focus to lower-cost funding and more precisely to growing Amerant's domestic relationship accounts and core deposits. While domestic demand deposits are more expensive than international demand deposits, these domestic customers have higher growth potential and present better opportunities for growth for cross-selling Amerant's other products and services, especially wealth management. At the end of this quarter, 52% of our deposits consisted of domestic accounts, up from 49% a year ago.

One of our main focuses in our efforts to increase core deposits is our commercial customer base. Year-on-year, the total deposits from our real estate and commercial businesses increased by $88 million or 22.5%. This quarter's decrease in customer CDs and our relatively flat domestic deposits resulted from our strategic decision to decrease the promotional interest rates we paid. We continue to focus our efforts to retain customers with higher probabilities of renewal at lower-than-market rates. As a result, we were able to renew approximately $34 million, about 27% of our total renewals, in the second quarter at rates that were lower than the highest rates paid in our markets.

Turning to Slide 9. Net interest income was $54 million in the second quarter, down 3% from the last quarter and down 0.4% from the year-ago period. This quarter's lower net interest income was primarily due to the lower average loan balances resulting from the reduction in nonrelationship SNCs as well as higher domestic deposit costs.

The international deposit runoff caused our cost of funding to increase, as we replaced those funds with domestic relationship money market deposits at rates competitive with peers. In the second quarter of 2019, $234 million of our relationship money market deposits as well as $121 million of time deposits, which were booked in 2018 or earlier at lower rates, repriced at a higher cost.

Second quarter NIM declined by 4 basis points compared to the first quarter, primarily driven by higher funding costs. We have been taking steps to control NIM compression in the coming quarters by: establishing floors on term sheets on new loan originations, decreasing rates on time deposits and increasingly relying on pricing intelligence, focusing on relationship accounts to stabilize cost of funds, rationalizing special rates paid to top customers and shifting towards shorter-term professional funding.

Earlier this month, we took an important step towards improving our NIM when we announced the redemption of the coming weeks of the $25 million of our 2 most expensive TruPs with an average cost of 10.4%. When completed, their redemptions will reduce our annual interest expense by approximately $2.6 million and improve our NIM by approximately 3 basis points.

From a longer-term view, our second quarter net interest margin has improved significantly from the year-ago quarter, up 15 basis points, primarily due to our continued efforts to shift towards higher-yielding domestic loans. And while we are pleased with the steady progress we've made to drive net interest income and margin improvement over the past year, market pricing pressure and compression will remain a headwind if interest rates continue to decline.

Now turning to Slide 10. Net interest income of $14 million was up nearly 7% from the prior quarter. However, it was down almost 6% from the prior year's second quarter. The second quarter increase was driven by a $979,000 gain on the sale of municipal bonds in the quarter, as well as a $255,000 increase in deposit and service fees due to higher wire transfer and treasury management fees. This quarter, as a result of the spinoff, we also recognized significantly higher debit card interchange fees as we are no longer subject to the Durbin Amendment's limit. We now expect an annualized increase in debit card fees of approximately $870,000. Fees for services provided to our former parent and its subsidiaries declined by approximately $600,000 in the first half of the year and the services have been largely terminated.

Our foreign customers' trading in certain Venezuelan securities were halted by U.S. government sanctions imposed in February 2019. This contributed to the year-over-year decrease in noninterest income as brokerage and management fees of $3.7 million were down almost $690,000 from the second quarter of 2018. Additionally, the second quarter of 2018 benefited from a gain of $882,000 from the early termination of Federal Home Loan Bank advances.

Amerant's total assets under management increased to $1.8 billion in the second quarter, up from $1.7 billion at the end of the first quarter, primarily on improved market values. We also continue to focus on leveraging our wealth management platform to grow this side of our domestic business.

On Slide 11, second quarter noninterest expense was $53 million, a slight increase over the prior quarter and flat year-over-year. Second quarter 2019 noninterest expense included $2.7 million of restructuring expenses, which consisted of $1.8 million in costs associated with the rebranding to Amerant and $900,000 of severance costs associated with workforce reduction during the quarter in connection with our transformation efforts.

As we have discussed in previous quarters, we continued to focus on rationalizing our personnel expenses as reflected in the reduction of 50 FTEs this quarter for a total reduction of 101 FTEs or 11% in the last 12 months. Each of the first 2 quarters of 2019 included amortization costs of the restricted stock granted to select management and staff in December 2018 in connection with our IPO.

The total amortization for 2019 is approximately $6 million or $1.5 million per quarter through 2019, declining to an estimated cost of $2.7 million in 2020 and $1.1 million in 2021. This amortization cost largely offset the personnel cost savings we have achieved this year, resulting from the workforce reductions announced in December 2018 and additional reductions during the first and second quarter. Moreover, the cost savings from the reduction of 50 FTEs in the second quarter is not yet reflected in the results as most of the terminations took place later in the quarter.

On the rebranding, we expect to incur approximately $1.8 million in additional rebranding expenses in the remainder of 2019. In addition, we spent approximately $1.2 million in rebranding CapEx, which will be amortized in future periods.

On Slide 12, we see that noninterest expense adjusted for the 2018 spinoff and 2019 transformation costs was $50.2 million, down almost 1.6% from the prior quarter and up 1.6% from the second quarter of 2018. Again, the first and second quarters of this year include the aforementioned IPO grant amortization cost.

Turning to Slide 13. While we continue to be asset sensitive, our asset sensitivity will be reduced by the decrease in long-term brokered CD fundings as well as from our strategic exit from nonrelationship SNCs and our focus on increasing core deposits. We have modeled that a rate drop of 25 basis points, which management believes is likely to take place during the third quarter, will impact our net interest income by approximately $5 million or 2% over the following one year period.

Now I 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 on to our last slide. Our goals for 2019 are largely unchanged from what we shared last quarter. We remain totally committed to executing our strategy, strengthening our relationship-driven business model, building on our rebranding to Amerant and an unwavering focus on improving profitability and capital returns. With that, we'll be happy to take any of your 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) First question comes from Michael Rose from 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 can start on expenses. I know the 50 FTEs kind of came off towards the end of the quarter. How should we think about the savings from the net reduction there that related to the retirement programs? And outside of that, what other levers do you have to pull on the cost side to offset some of the expected margin pressure from rate TruPs?

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

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Yes. Well, I think as we explained, Michael, I mean the full effect of our expense reductions is not clearly evident yet because of some of the expenses -- restructuring costs. In the case of the personnel costs, I mean, if we excluded the severance cost and we can see a savings of $500,000 even though we have that IPO amortization of $1.5 million. So you can already see essentially a $2 million saving if you compare this quarter versus the fourth quarter of last year when we embarked in the reduction. And as you rightly pointed, the reductions, the 50 FTEs took place basically in the month of June. So that's not baked into the numbers yet.

So we expect that the full effect of staffing reductions in this calendar year from -- basically the 101 that we've already mentioned have taken place already. We expect that savings to be roughly $10 million. But then again, the $6 million of the amortization is going to eat into that. And we have, to a certain extent, even though we kind of reduced our cost of living adjustments that we made to our staff, that's going to eat into it a little bit and insurance costs are always something that can also eat into it somewhat.

What we expect is that really that full amount of savings, especially when you see the amortization of the IPO grant going down to less than half of what it is this year, we expect to then start seeing a significant reduction in personnel costs next year, net personnel cost, as well as a total of other operating expenses. So we really expect -- we don't really expect a significant change in the operating expense run rate. The rest of the -- there are some things that we're looking at, but we don't expect a significant reduction this year, but we'll start seeing that in Q1 of next year as the effect of the amortization and the full effect of the reductions takes place in that year.

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Millar Wilson, Amerant Bancorp Inc. - Vice-Chairman & CEO [4]

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Michael, I'd like to add. The staff reductions that we show are 50 in this quarter. Looking forward, we are still in the process of reviewing our operations, the activities that we do in trying to simplify as we do this transformation of the bank. So we expect the number of FTEs to continue to decrease. We don't know the final number because we're still working through these processes. But we're not done yet in the transformation of our operation process.

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Alberto Peraza, Amerant Bancorp Inc. - Co-President & CFO [5]

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Yes. For instance in the fourth quarter, and we've said this before many times, there is going to be bumpiness along this road in terms of being able to see the savings materialize. We will have 4 new branches coming in line, we've said that before, at the end of the year. So we will have some staffing increases associated with those branches, but probably, largely, the effect of those additional staffing for the branches will probably be offset by some of the additional reductions that we're working on presently. And then again, the branches will also start helping us with the domestic core deposits attraction.

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Michael Edward Rose, Raymond James & Associates, Inc., Research Division - MD of Equity Research [6]

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That's great color. So I guess, to sum it all up, I mean, maybe we should think about expenses as kind of flattish in the back half of the year from second quarter run rate, maybe down a little bit, but we'll really see the net reductions start to come in next year. Is that a good way to sum it up?

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Alberto Peraza, Amerant Bancorp Inc. - Co-President & CFO [7]

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That's fair.

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

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Okay. And then, maybe just moving to the balance sheet, understanding that the foreign loans are essentially down to nothing at this point, you produced SNCs -- nonrelationship SNCs pretty significantly, could we actually begin to start to see net loan growth at some point over the next couple of quarters?

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Miguel Palacios, Amerant Bancorp Inc. - Executive VP & Chief Business Officer [9]

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Michael, it's Miguel. As you can see, the production has been there between core loans. We have a fairly modest second quarter. We believe we're going to still see some payoff on third and fourth quarter. And also we're seeing the pipeline to start to increase as is typical in this time of the year, but we'll see the curve more pronounced to the fourth quarter. So the trend should be similar to what we've done on the first semester with a slight increase to the end of the year.

Next years then -- we have cleaned out the house with those foreign and SNCs. Our main focus on development of relationship will help us increase the loan production and the net growth during the first semester of 2020.

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Michael Edward Rose, Raymond James & Associates, Inc., Research Division - MD of Equity Research [10]

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Okay. That's very helpful. And then maybe just finally for me. The forward curve is obviously pricing in more than the 25 basis points. I see the -- on the slides the sensitivity for 50 basis points, but if we get more than that, what does the sensitivity curve look like? And maybe if you can give some color on what you're assuming for deposit attrition, costs, et cetera?

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Alberto Peraza, Amerant Bancorp Inc. - Co-President & CFO [11]

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I mean, there is no doubt that the new rate outlook is going to be a headwind. I mean, we've made a lot of improvement in our NIM over last 3, 4 quarters, and we had originally set our target to reach to 3%.

But this quarter, we saw a reduction in the NIM of 4 basis points from 2.96% to 2.92%. And most of that was really from having to replace our foreign deposits with more expensive domestic deposits. But I think it's still early. I mean, we see -- we probably see the rate decline this month. We're still unsure if something else happens this year. I mean, some people think it's going to happen perhaps at the end of the year, but in any event, what we modeled, and it's in one of the slides, what we modeled is roughly a $5 million reduction in net interest income for every 25 bps of reduction. But as we mentioned before, there are some bright sides in our balance sheet with this -- the TruPs redemption we're going to do shortly. And we also have the opportunity for the other TruPs redemption sometime in the future because, again, if we're not growing significantly and we start -- continue to have strong results and we continue to accrete capital, we're going to have some currency to pay that off. So -- I mean, we're not throwing in the towel again in terms of the NIM. We're doing a lot of things to try to combat that compression.

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Operator [12]

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(Operator Instructions) Our next question comes from Michael Young from SunTrust.

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Michael Masters Young, SunTrust Robinson Humphrey, Inc., Research Division - VP and Analyst [13]

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I wanted to ask maybe another question just on the deposit side and deposit pricing. It looks like the CD book is at about 2.2% now in terms of effective cost. When do you think that, that will start to repricing lower? I would just think that the market rates would be there or lower at this point, so there may be some leverage there and then that being offset by something else, maybe money market. Is there something else moving higher?

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

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Yes. A lot of that increase in the cost of the CDs this quarter is really the renewals of longer-term CDs that were maturing this quarter. We were -- remember, we've always said we were somewhat asset sensitive. And a lot of that came from the fact that we were attracting some longer-term money. So as some of that longer-term money which was put on before several years ago at lower rates is repricing, but we're actually -- we have actually decreased the rates that we're paying. We're trying to no longer be the price leader in terms of our CD rates. So we've -- but nonetheless, some of what we're dragging from several years ago maybe repricing at a higher rate. And we're using also -- as we mentioned, we're using a lot of pricing intelligence. We got a crew of people looking at customer behavior, probability of renewal. And we're calling the right customers, the customers that we think will renew at less than the prevailing rates. We're also, which is very important, we're also making a lot of headway in attracting some of our deposits from our commercial customers. I think we cited some figures, and I think that's a huge success. We think that -- I almost want to say that that's a low-hanging fruit that we are seizing on at the moment. And the same customer that we're trying to get more deposits from, hey, we're also trying to get his wealth management. So it's really in line with that relationship banking that we're focusing on today.

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Michael Masters Young, SunTrust Robinson Humphrey, Inc., Research Division - VP and Analyst [15]

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Okay. So is there a specific maybe quarter or a time line to when you think you'll start to sort of lap some of the upward pressure on the CD book and would start to see some kind of pricing benefits, I guess? Whether that be in 2019 or 2020?

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

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Yes. It's probably towards the latter part of the year. And I think it'll be next year. But as we also have more core deposits, I think that's the key. I think that's -- a lot of our focus is on trying to increase the core deposits. We're also trying to increase market share from our higher net worth Venezuelan customers, which we know many of them have relationships with other financial institutions. So we think that's also another low-hanging fruit that we're working on. We can't probably stem that steady decline in our average mass market foreign accounts, but I think we can make some inroads in increasing core deposits from the higher net worth individuals. It's a lot of moving parts to it, for sure.

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Michael Masters Young, SunTrust Robinson Humphrey, Inc., Research Division - VP and Analyst [17]

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Certainly, yes, I understand that. And it sounds like generally on the foreign deposits, kind of expect the same sort of maybe high single-digit pace of decline there?

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

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Mid, mid, mid. I mean, mid-teens is what we've been experiencing.

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Michael Masters Young, SunTrust Robinson Humphrey, Inc., Research Division - VP and Analyst [19]

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Okay. So no real change based on anything in the macro environment there?

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Alberto Peraza, Amerant Bancorp Inc. - Co-President & CFO [20]

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No. In terms of macro environment in the country, not really. If anything, we had always thought that it would be in the high single digits, the decay, and it's a little bit higher because since the situation has become protracted down there. The country is increasingly becoming dollarized. So a lot more food, services, living expenses are being incurred in dollars. So that's really -- before there was exchanges that needed to take place, now individuals are transacting in dollars. And many of them are doing that through like virtual channels, like a lot of customers are using products such as Zelle and things like that.

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Michael Masters Young, SunTrust Robinson Humphrey, Inc., Research Division - VP and Analyst [21]

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Got you. And then maybe just lastly on kind of the credit card exit. I know that's pretty small, but you just had a little bit of an increase in the provision related to reserving for that. Do you feel like that's kind of fully captured what you expect in terms of potential shortfalls and kind of payoff some on that book of business?

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Alberto Peraza, Amerant Bancorp Inc. - Co-President & CFO [22]

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Yes. We -- I have to say, we're micromanaging that exit. So we're not just looking at it on a quarterly basis. We're probably looking at it on a weekly, daily basis practically. So you're sunsetting a product, then you are asking for repayments. So we're being very, very cautious. And I think we're being very conservative. And that's why we increased the reserve for it, about $1 million this quarter, and we continued to monitor it.

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Miguel Palacios, Amerant Bancorp Inc. - Executive VP & Chief Business Officer [23]

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And also adding some colors to what Al is saying. I think that we've seen good results by offering of alternative product to those wealth management groups. We have seen some deposit growing on the segments that we want to deep our relationship.

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Alberto Peraza, Amerant Bancorp Inc. - Co-President & CFO [24]

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Yes. We kind of told customers that we would be able to provide them an alternative credit card with a partnership if they had a certain dollar balance in deposits. So as what Miguel was alluding to is, a lot of customers were actually going up to that minimum amount so that they could then avail themselves of that alternative credit card. Credit card is -- again, as I mentioned before, the country is becoming dollarized, they're using plastic in many cases as well to live in Venezuela from the U.S. saving. So it's very important for them to have a credit card, so we see they're taking steps and actually increasing their deposits.

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Operator [25]

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(Operator Instructions) I'm showing no further questions at this time. I'd now like to turn the call over to Millar Wilson, CEO, for closing remarks.

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Millar Wilson, Amerant Bancorp Inc. - Vice-Chairman & CEO [26]

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Thank you, operator. As you know, this is our second earnings call after the IPO. But more importantly, it is only the second quarter in our journey to becoming a highly profitable, customer-centric, high-touch community bank. All of us at Amerant look forward to a bright future ahead. Thank you all for your time this morning, and have a nice day. Operator?

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Operator [27]

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Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may disconnect, and have a wonderful day.