Good day, and thank you for standing by. Welcome to the Amerant First Quarter 2021 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Laura Rossi, Investor Relations Officer at Amerant Bank. Thank you. Please go ahead.

Thank you, Raquel. Good morning to everyone on the call, and thank you for joining us to review Amerant Bancorp's First Quarter 2021 Results. With me this morning are Jerry Plush, Chief Executive Officer; and Carlos Iafigliola, Chief Financial 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 earnings release and presentation. For a more complete description of these and other possible risks, please refer to the company's annual report on Form 10-K for the year ended December 31, 2020, and in other 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 information or subsequent events, circumstances or changes in expectations, except as required by law. You should also note that the company's press release, earnings presentation and today's call include references to certain adjusted financial measures, also note 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 Jerry.

Thank you, Laura, and good morning, and thank you for joining Amerant's First Quarter 2021 Earnings Call. I'm pleased to join you today as Amerant's new CEO. Before I begin, I'd like to take a moment to recognize my predecessor, Millar Wilson. Over the course of his more than 40-year tenure, Millar oversaw Amerant's growth from $6 billion in assets to $8 billion and the expansion from 15 branches to 25. He spearheaded the spin-off and subsequent listing, and among other things, most recently navigated Amerant through the COVID pandemic. A well-deserved thank you to Millar for his time and service to the company. On another note, I'd like to announce that starting next quarter, we're planning to release earnings on the third Thursday of the following month. So the dates would be July 22, October 21 and January 20 for the balance of this year. We want to do this for several reasons, primarily to have more time each quarter to be focused on completing initiatives and generating growth and to also have the window open for insiders an additional week each quarter. So today, I'll be providing details about a number of new strategic initiatives and objectives that were referenced in our press release. We will share more detail about each one as these are essential to improving Amerant's performance and growth and achieving the growth objectives that we have. But first, I'd like to briefly talk about our performance in the first quarter, and then Carlos will provide some more details. So if you turn to Slide 3, you'll see our first quarter highlights. We're pleased to report improved results in the first quarter compared to the prior quarter. Our net income was up 70.7% quarter-over-quarter, primarily driven by higher noninterest income and lower expenses. In addition,…

Thank you, Jerry, and thank you, everyone, for joining us today. Turning to Slide 5, I'll begin by discussing our investment portfolio. Our first quarter investment securities balance was $1.3 billion, unchanged from the previous quarter and down from the $1.7 billion in the first quarter of 2020. For this quarter, we continued our strategy to insulate investment portfolio from prepayment risk. Floating portion represents only 14%, and recomposition towards high duration and the natural extension of the mortgage portfolio has increased the overall duration for the end of the Q1 to 3.4 years. Moving on to Slide 6. We would like to provide an overview of our loan portfolio. At the end of the first quarter, total loans were $5.8 billion, slightly down by $88 million compared to the end of the fourth quarter. The decline was primarily driven due to prepayments across our commercial loan portfolio, inclusive those from PPP loans, coupled with challenged loan production due to the continuous depressed economic activity as a result of the pandemic. In the first quarter, approximately half of prepayments were related to PPP loan forgiveness. We remain committed to our communities by originating over $80 million in PPP loans during the first quarter. Additionally, we received $111 million principal forgiven by the SBA. After all this, we have $165 million less outstanding on PPP loans as of the end of the first quarter. Before I move on, I wanted to talk about some positive signals we see in our loan portfolio this quarter. We continue to see strong performance across our owner-occupied and consumer loan portfolios. Specifically, consumer loans increased approximately $32 million quarter-over-quarter, primarily driven by our participation in indirect lending. We expect to continue purchasing this high-yield indirect loans in efforts to mitigate NIM pressures in the future…

Thank you, Carlos. I'd like to address how we are positioning Amerant for immediate and long-term success and walk through some of the specific initiatives we are focusing on. As you can see on Slide 13, there are a handful of initiatives that serve as the foundation for our long-term growth strategy. Our goal is simple: Improve our performance and drive sustainable, profitable growth. Importantly, we want to do this with the best interest of our investors, team members, customers and the communities in which we operate. So first, it's clear to me from experience and from peer comparisons that Amerant needs to become, and will become, a deposits-first-focused bank. Core deposits are the lifeblood of a strong banking franchise, and growing core deposits is critical to our near- and long-term success and profitability. We have opportunities in the markets we serve to increase our share in consumer and small business and commercial to achieve a lower cost of funds, reduce the reliance on brokered funds and other high cost sources. We've identified a number of ways to better target and attract these core deposits, including implementing and enhancing a digital onboarding platform; the build-out of our treasury management sales force and adding additional treasury management capabilities; focusing our marketing to drive additional digital and in-branch traffic; and gathering other sources of deposits, such as municipal accounts and private banking. So with these efforts, we're targeting a reduced reliance on brokered deposits so the target not to exceed 5% of total deposits, and increasing our core deposits to make up over 20% of total deposits within the next 6 quarters. But please know, our goal will be to exceed that target and keep going. Additionally, we're focused on achieving a target loan-to-deposit ratio of 95%. All of which means to…

[Operator Instructions] Our first question comes from the line of Michael Rose with Raymond James.

Jerry, how are you? So maybe we could start with just a little bit more on the specifics of maybe what you plan to do on the expense side. So obviously, there's been a few voluntary and involuntary retirement programs. You talked about adding some FTEs this quarter. Would you expect to be able to fund some of the investments that you're going to need to be able to grow the revenue piece of the business with further trimming and expense cuts? Just trying to get a sense for basically at this expense level that we saw in the first quarter, which had some benefits from those voluntary and involuntary retirement programs, should we expect that to remain relatively stable as some of those investments are funded by additional attrition and cost cuts in other areas?

Yes. Look, I think great question. The timing on that is going to really be probably the bigger issue, which you could see, and I would say, Carlos will give more perspective on this around guidance, but our expenses, as he referenced, will go up in the second quarter, just from adding the adds to staff that we made, plus we're bringing more folks on at Amerant Mortgage as well. And as I referenced in my remarks, we're looking for additional treasury sales folks, we also are looking for additions in the wealth area. One thing we will be doing, anyone who's customer-facing that can add profitable growth to our organization, we're going to evaluate those additions along the way. Now how do we pay for it? That's absolutely one of the things that we will do is looking at each and every area, again, from a span and layer perspective from how many of those functions, we think we need to continue to do the way we are today. And really making sure that we rationalize the number of folks in every given area. That's not an issue as it relates to, look, we're going to do another executive retirement plan but what it is, is that we're looking to make sure that we get as many people on a customer-facing, revenue-producing as possible. And so we'll look at every single expense line as ways to offset that.

Okay. That's really helpful. And then just on the balance sheet, I heard the commentary about bringing the loan-to-deposit ratio down to kind of the mid-90s. As I look at the securities portfolio, we've seen many other banks begin to grow that. Your duration is around 3.5 years. With the expectation, as you grow the deposit base from here, would be to increase the size of the investment portfolio, maybe take some of that rate sensitivity off the table just given a lower-for-longer environment, assuming that's what's going to be in the card? Just trying to get a sense for kind of the size of the balance sheet as we move forward and what you could do on the security side.

Yes. I'm going to say that, first and foremost, while I said we're a deposits-first organization, we certainly are going to be equally focused on continuing to generate loans. And again, as I've mentioned, not only in our footprint. And I think a lot of it is what I've said on the call is brand awareness. We've got really good people here. I think we just need to provide more support around them. And so I think raising the awareness that we're out, we're going to be active, I would say in the time that I've been here, we've seen some great interest in people wanting to do business with us. And so I would expect that we should see some good loan growth. So -- and frankly, not just in commercial real estate, but in C&I and on the business side. So I think there -- that's something I think you should take into account. Regarding the size of the securities portfolio, I would say, just generally speaking, I think the securities portfolio is a terrific way for, obviously, for managing rate risk. It's an asset liability tool. But what we get paid for is organic loan growth and organic deposit growth. And you supplement that with certain areas that you need to manage your asset liability mix, right, and for interest rate risk. So whether we grow that portfolio specifically or not at this stage, I think it's fairly sizable to be candid. And I think if anything, you'll look at us continuously looking for ways to restructure that portfolio. We did a little bit of an optimization in the first quarter that resulted in a gain. We're continuing to have conversations about ways to further optimize the portfolio positioning wise.

It should be to complement. It should be fairly stable. As we gather more deposits, there should be a way to potentially increase a little bit. But in the long term, it's pretty sizable for the size of the balance sheet. So in the long term, it should be dropping.

Okay. Very helpful. And maybe finally for me, just on the credit front, you guys have a really stout reserve. I think I calculate, almost 2% ex PPP loans at the end of the quarter, no provision 2 quarters a row. Any reason to think based on kind of line of sight and what you see, would you expect to have really any material provisions as we kind of move over the next couple of quarters? It doesn't seem like you would just given that reserve coverage and where you stand today.

Yes. I think great question. Clearly, it's going to depend on loan production and the composition of the loan production as to what we'll need to either add to the allowance, or as we see opportunities to free up parts of the allowance over the next several quarters, it will get offset by the production that we intend to put on the books. So in terms of large provisioning, I would say that, again, we feel really confident with the level of -- or excuse me, the level of the allowance where it is right now. And I do think that over the next several quarters, you'll either see some level of significant growth eating up any excess that we have or, of course, if it's not there, that's going to be a problem. But I'm looking at my head of business development on that one, by the way, just for the benefit of the group. But I would tell you that really, I think it will get sopped up, so to speak, by growth as opposed to any type of release. I think it will be -- but there will be opportunities for us to basically say there's a swap between why we need a reserve on certain parts of the portfolio, and that can get freed up and offset against the growth we expect in coming quarters.

Michael, also important to mention that we keep out of the total reserve, about $10 million, that is related to COVID that we created in institutional side of the loan loss provision. So taking into account Jerry's comments, that should be helpful for any potential growth. It could be reallocated to potential growth and so on.

Our next question comes from the line of Brady Gailey with KBW.

So I wanted to start with the 60% efficiency ratio goal. I mean, bigger picture, there's 2 ways to get there. You can cut expenses or you can grow revenue. And I'm sure you'll be looking at both. But is there 1 side of that equation that you think is the real opportunity to get that efficiency ratio down?

Yes. Thanks for the question, Brady. Yes, I think that we've got opportunity to expand both the NIM and then also on the fee side, right? So as you start to think about us on a go-forward basis, the launch of the mortgage venture that we have at Amerant Mortgage, that will start producing for us in Q -- really producing for full quarter Q3, Q4. And I would expect that all the deposit initiatives that we're undertaking will also be able to help, right, as it relates to widening out that net interest margin. I'd also expect that the growth on the top side in the portfolio would be helpful. But there's no avoiding that you have to optimize your expense structure, and we have to have real justification from a return on investment standpoint of where every dollar is being spent. But I would share that we're looking to optimize so that we have more dollars to put back into production, right? I mean, so I think it's important to note, on one hand, we're going to do a lot of cost rationalization. On the other hand, we are going to be looking to put more dollars to work to drive more revenue. So as I said, we're going to turn over every rock. We're looking at absolutely everything. It's all on the table. And we'll give you guys more clarity on that, obviously, in the quarters to come.

All right. And then I think we all understand your plan for New York. But I wanted to ask about the Houston market. I mean, that's also a market that is obviously not core Florida. So any thoughts on your presence in Houston, Texas?

Look, I think the big difference is that Texas is a deposit-gathering franchise for us. We actually see opportunities there. Yes, it's highly competitive. But I would tell you that right now, what we're more focused on is the opportunities, as we just said, to redeploy resources and focus on the core market here. We think there's enormous opportunity. So I would consider that sort of our first step. But please know, we do see that in the Houston marketplace, that there's a lot of opportunity to expand both on the deposit and loan side. And we're actually evaluating opportunities there even to expand more on the wealth side.

To complement your answer, Jerry, important to mention that Texas is not by any means New York. It's a more balanced vehicle or jurisdiction with almost $1 billion in the loan portfolio and $600 million on the depository side. So it's more balanced.

All right. And then you might not want to answer this next question yet, Jerry. But when you look at the profitability of Amerant, outside of last year with COVID, where things were all over the place. But Amerant had been running kind of a 65 to 70 basis point ROA. You have a lot of initiatives here, which is great to hear about. But any idea, longer term, what you think the profitability profile could look like at Amerant in terms of ROA or ROE or however you want to look at it?

Yes. I would respond by saying we need to be at 1% or greater on ROA and 10% or greater on ROE. Our objective is to be a top performer. We have to build that brick by brick, so to speak. But I clearly am focused on getting to those type of numbers with this organization. And I think with the team that we have here, we can achieve that.

Okay. Great. It's great to hear about your plan here.

Thank you. Appreciate the questions.

Your next question comes from the line of Stephen Scouten with Piper Sandler.

I'm curious to how you're thinking about loan growth maybe over the next 12 to 18 months, if you talked about that New York City book repricing or maturing over that same duration of time? And kind of if you could remind us what the size of that loan book in New York City is today, I think the case, there was about 24% of CRE loans. So just trying to think about the size of potential runoff there.

Yes. It's a $730-or-so million prebook with about $35 million in associated deposits. In terms of as you start to think about what we said was 12 to 18 months, we'd expect half the portfolio to mature, well that's the state of maturity. So -- and obviously, there's lots of competition if people come and solicit into some of those customers, which I'm sure will happen. Our view is that in our markets here and also we see opportunity in Houston for continued growth, I have to say that here, if we add -- if we continue to add the type of revenue producers we're currently chatting with, I think we'll be in great shape to be easily replacing that -- any runoff that happens out in New York.

Okay. Great. And maybe thinking about the consumer loan growth briefly. I think you guys have said maybe 10% would be the long-term max there. But can you remind us if there are any new relationships? I know it's primarily SoFi, but did you -- you think you were close to adding another relationship there, and then maybe the average yield on that new production as well?

On that end -- Stephen, how's it going? It has been, for the most part, SoFi. We have roughly $200 million in that portfolio. Contractual, it's close to the 10% yield, more or less. Effective, it tends to be closer to the 7.5%, more or less. And at this point, we are evaluating potentially other sources, but this has been the strongest one so far. So it's SoFi for the most part.

Good. And maybe along with that, so those yields coming on at 7.5%. And what's kind of -- do you have anything that's near like a blended yield for your total production and where that's been coming on relative to your average yields?

So this one is not the biggest portion of the production. The blended rate for the U.S. is coming between the 3.5% to 4.25% more or less on a marginal basis.

Great. Great. Okay. And then maybe just last thing for me. You talked -- Jerry, you talked about optimizing capital. What does that, I guess, look like for you in the near term? I mean, is there a target capital ratio? I know you talked about competition as well and lowering the cost of capital. But just wondering if you could give some more color on what that could potentially look like here in the next, I don't know, 6 to 12 months?

Yes, Stephen, I think we're obviously planning to execute on as much as we can in that buyback program. But as we grow, but -- and also as we evaluate the best places, we'll continue to look at does it make sense for even continued buybacks or replacement in the structure with what we'll call lower cost capital sources. Obviously, market conditions right now are excellent. We're seeing pricing that -- we thought the pricing last year was good. Clearly, we think as we continue to show improvement in terms of profitability that we too will be able to look and take advantage of some of these lower cost sources that others are getting to -- you're seeing the announcements on a daily basis right now. So that would be what we'd like to try and do.

Okay. Great. Great. And congrats on the initiatives and the progress you've made.

Thank you. Appreciate it.

There are no further questions. Mr. Plush, the floor is yours for any closing remarks.

Thank you, Raquel. I just want to say thank you to everyone for joining our first quarter earnings conference call. We're really excited about the future here at Amerant. And we look forward to updating you on our progress toward becoming a higher-performing bank. Hope everyone has a great day. Take care.

Thank you, ladies and gentlemen. This concludes today's conference call. Thank you for participating. You may now disconnect.