Amerant Bancorp - Earnings Call - Q2 2025

Executive Summary

• Amerant delivered improved profitability in Q2 2025: net income rose to $23.0M and diluted EPS to $0.55, driven by higher NII, NIM expansion to 3.81%, and a materially lower provision for credit losses ($6.1M) versus Q1 2025.
• Versus S&P Global consensus, the quarter was a clear EPS beat (Primary EPS 0.57 vs 0.394*) and a modest revenue beat (Revenue $104.2M vs $103.5M*). Drivers were interest recoveries, lower time deposit costs, and securities balance growth; normalized NIM would have been ~4 bps lower per CFO commentary.
• Asset quality improved: NPAs fell 30.5% q/q to $97.9M, NPLs declined to $82.5M, and ACL coverage of NPLs increased to ~105% (from ~80% in Q1), aided by charge-offs of previously-reserved loans and recoveries.
• Management reiterated an ROA priority with a path to ~1% in 2H 2025, guided Q3 NIM to ~3.75%, and expects deposit growth (14–15% annualized by year-end), brokered deposit reductions (≥$100M), and expenses in line with Q2 core levels (~$73M); $0.09 dividend was declared.

What Went Well and What Went Wrong

What Went Well

• NIM expanded to 3.81% (from 3.75% in Q1) and NII increased by $4.6M q/q, supported by interest recoveries, lower average time deposit balances and rates, and securities portfolio growth.
• Asset quality improved materially: NPAs dropped to $97.9M, NPLs to $82.5M, with ACL/NPL coverage back over 100% and OREO reduced via sales; CEO emphasized proactive credit actions and strengthened risk culture: “further NPL reductions are a top priority… proactively address credit quality is paramount”.
• Core PPNR rose 17.7% q/q to $37.1M and core efficiency ratio improved to 66.35%; management also repurchased 275,666 shares at a $18.14 average price and maintained a $0.09 dividend.

What Went Wrong

• Noninterest expense of $74.4M exceeded prior Q2 guidance of $71.5M (variance driven by $1.2M non-routine items and higher $1.1M loan-level derivative expense).
• Classified and special mention loans increased (special mention +$33M, classified +$9.3M), reflecting certain CRE loans missing milestones and downgrades based on FY24/1Q25 borrower financials—even as NPLs fell.
• Gross charge-offs rose to $18.6M (three commercial loans totaling $16M, $12M of which were previously reserved), with net charge-offs annualized at 0.86% vs 0.22% in Q1; management highlighted this was largely anticipated via specific reserves.

Transcript

Speaker 1

Greetings. Welcome to Amerant Bancorp Inc.'s second quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. The question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to Laura Rossi, Senior Vice President, Head of Investor Relations. Thank you. You may begin.

Speaker 5

Thank you, Gerald. Good morning, everyone, and thank you for joining us to review Amerant Bancorp Inc.'s second quarter 2025 results. On today's call are Jerry Plush, Chairman and CEO, and Sharymar Calderón, Senior Executive Vice President and CFO. As we begin, please note that discussions on today's call contain forward-looking statements within the meaning of the Securities Exchange Act. In addition, references will also be made to non-GAAP financial measures. Please refer to the company's earnings release or statement regarding forward-looking statements, as well as for information on reconciliation of non-GAAP financial measures to GAAP measures. I will now turn it over to our Chairman and CEO, Jerry Plush.

Speaker 4

Thank you, Laura, and good morning, everyone, and thank you for joining us today to discuss Amerant Bancorp Inc.'s second quarter 2025 results. You will notice we continue to evolve our approach to these calls, including refining the slides we will cover today. Sharymar is going to take the lead in commenting on results and asset quality, and I'll wrap up our prepared remarks with some strategic updates in order to allow ample time for Q&A. As I noted in our press release, we are pleased to be reporting improved results this quarter, which were driven by higher quarter pre-provision net revenue, along with a lower provision for credit losses. A lot of time and effort this quarter was focused on asset quality, and that will continue to be a top priority for us.

Loan growth in Q2 was offset by payoffs and paydowns, and the number of deals we closed in Q2 have yet to fund. We saw solid customer deposit growth in light of stiff competition for market share, which we utilized to grow our investment portfolio this quarter. Our new banking centers continue to grow nicely, and we've included the details by banking center in the supplemental slides. We continue to selectively add key personnel to our team, which I'll comment on later in this presentation. With that, let me turn it over to Sharymar now to cover Q2 results in detail.

Speaker 5

Thank you, Jerry, and good morning, everyone. Let's turn to slide three. Here you will see the highlights of our balance sheet. Total assets reached $10.3 billion as of the close of the second quarter. As we guided in the first quarter, we temporarily supplemented loan originations with purchases of investment securities. Total investment securities were $2 billion, up by $209.2 million. Of note, $120 million of these securities are mortgage-backed securities, which the company classified as trading securities, and $87 million are available for sale. The growth loans were down by $30 million to $7.2 billion, primarily driven by increased prepayments, which offset loan production in the quarter, as well as some loans originated better yet months. On the deposit side, total deposits were up by $151.6 million to $8.3 billion, driven by growth in core deposits.

Customer deposits grew by $202.3 million, partially offset by a slight reduction of $51 million in brokered deposits. Our assets under management increased $132.42 million to $3.1 billion, primarily driven by higher market valuations and net new assets. We continue to see this as an area of opportunity for us to grow the income going forward. Looking at the income statement on slide four, you will see that we had strong pre-provision net revenue, driven by higher than previously projected net interest income and net interest margins. Our net interest margin was higher than projected at 3.81% due to recovery of interest on commercial loans, including a non-accrual loan that was fully paid off and another loan that had been fully charged off. Lower costs of time deposits resulting from lower average balances and repricing rates, and lower costs on our notes as these were fully repaid in April 2025.

Demand increases were partially offset by higher average balances of interest-bearing demand and money market deposits, by prepayments, which offset loan production in Q2 2025, as well as higher average balances in the investment securities portfolio. Net interest income was $90.5 million, up $4.6 million, primarily driven by higher average balances of securities and lower average balances and rates on time deposits. Provision for credit losses was $6.1 million, down $12.4 million from $18.4 million in the first quarter. Non-interest income was $19.8 million, while non-interest expense was $74.4 million. Looking back at the guidance provided for non-interest expense for the second quarter, we had guided to $71.5 million. The variance to actual results was primarily driven by non-core expenses of $1.2 million. Additionally, we incurred $1.1 million in expenses on customer derivatives, an increase of $700,000 when compared to the prior quarter.

Pre-provision net revenue was higher at $35.9 million in Q2 2025 compared to $33.9 million in Q1 2025, and core PP&R was $37.1 million, an increase of $5.6 million or 17.7% compared to $31.5 million in Q1 2025. A reconciliation on core PP&R and the impact on Q ratio is shown in appendix one included in this presentation. To read the slide five, you can see improvements across all capital metrics. We paid our quarterly cash dividend of $0.09 per share of common stock on May 30, 2025, and our board of directors just approved a quarterly dividend of $0.09 per share payable on August 30 of this year. During the second quarter, we also repurchased 275,666 shares at a weighted average price of $18.14 per share. Jerry will cover some additional notes on buybacks as part of his remarks later in this call.

Next up in slide six, you can see we made significant improvement in our ROA and ROE this quarter at 0.90% and 10.1% compared to 0.48% and 5.3% respectively. Both of these metrics reflect the improved profitability this quarter. This quarter, we had $1.2 million in non-routine non-interest expenses, which included an $800,000 net loss on the sale of two OREO properties and approximately $400,000 in salaries and employee benefit expenses in connection with the downsizing of our mortgage. Our core efficiency ratio was 66.35%, core ROA was 0.94%, and core ROE was 10.49%.

Turning to slide eight, here you can see the roll forward of classified loans from the first quarter to the second quarter, showing a net increase of $9.3 million or 4.5% to $215.4 million, primarily due to two CRE loans totaling $21 million downgraded to substandard due to the loss of a tenant and the leaked and requisitioned funds, as well as two commercial loans totaling $16.8 million downgraded from special mention and two commercial loans totaling $18.3 million downgraded from pass. These downgrades were based on receipts of the year in 2024 and Q1 2025 financials. These increases were partially offset by approximately $50 million in charge-offs, payoffs, and loan sales. Classified loans include nine loans totaling $134 million that remain in accruing status.

Let's move on to slide nine, where we included the roll forward of non-performing loans from the first quarter to the second quarter of 2025, showing a significant net increase of $41 million, mainly driven by a combination of payoffs, loans sold, paydowns, and charge-offs. It is important to note that the charge-offs included three commercial loans totaling $16 million, with $12 million previously in specific reserves. From an NCA standpoint, in addition to the reduction in NCL, two out of four OREO properties were sold during the quarter, therefore reducing our OREO balance to $15 million. Turning to slide ten, we show the roll forward of special mention loans from the first quarter to the second quarter and provide color on the main drivers of these changes. Special mention loans increased by $33 million, primarily driven by three CRE loans totaling $36 million that missed certain milestones.

However, there are acceptable mitigants in place, such as adequate loan to value, interest reserves, personal guarantees, or other structural enhancements. The increase in special mention loans was also due to four commercial loans in multiple industries, totaling $57 million downgraded based on receipt of year-end 2024 and first quarter 2025 financials. These increases were partially offset by $22 million in payoffs and further downgrades to classified previously mentioned. Now moving on to slide 11, which shows the drivers of the $11.7 million increase in the allowance for credit loss. The provision for credit losses was $6.1 million in the second quarter. Excluding reserves for commitments, the provision was $3.6 million and was comprised of $6 million recorded as charge-offs, $2.2 million due to macroeconomic factors, offset by releases of $1.4 million due to loan growth, and $3.3 million due to recovery.

During the second quarter of 2025, there were gross charge-offs of $18.6 million related to three commercial loans totaling $16 million, with $12 million previously in specific reserves, $1.7 million related to purchased consumer loans, and $1.1 million related to certain smaller retail and business banking loans. This was offset by $3.3 million in recoveries, primarily due to the recovery of $1.9 million related to a commercial loan previously charged off. Lastly, the coverage of the allowance for credit losses to total loans decreased to 1.2% compared to 1.37% in the first quarter, primarily due to the charge-offs in some specific reserves. Otherwise, net of specific reserves, the ratio remained unchanged at 1.17%. Turning now to slide 12, I'd like to provide some details on our expectations for the third quarter of 2025.

Starting with the deposit side, we continue to expect 14% to 15% annual growth by year in 2025, even if this is not linear during the third and fourth quarters. Also note that we plan to further reduce broker deposits by at least $100 million and replace with either FHLB advances or incremental organic deposits. On the lending side, we expect to evidence loan production and growth of approximately 5% annualized by year. In Q3, we project an increase in investment securities similar to what we saw in Q2. Looking at profitability, we project our net interest margin to be approximately 3.75% for the third quarter. We project non-interest income to be at $17.5 million in Q3 and $18.5 million in Q4.

Regarding expenses, we expect them to be in line with what we reported as core non-interest expenses for Q3 of $73 million based on recent key additions to the team and investment in continued expansion in Florida. This is expected to be partially offset by cost reductions in Amerant Mortgage LLC. We expect the efficiency ratio to be in the mid-60s during the investment income. As previously stated, we are prioritizing ROA over all other metrics and continue to expect to reach 1% in the second half of 2025, contingent on any significant macroeconomic updates to be captured by the allowance model in the last quarter of 2025. With that, I pass it back to Jerry Plush for additional comments and closing remarks.

Speaker 4

Thanks, Sharymar. Finally, turning to the final slide we'll cover, I'm going to provide some color on the topics we've listed here. First, regarding Amerant Mortgage LLC, as we've reported last quarter, we've been executing on a plan to reduce the size and scope of our mortgage business, transitioning from being a national mortgage originator to focusing solely on in-footprint mortgage lending to support our retail and private banking customer base. We've been progressively reducing the FTE count toward our stated goal of under 20, and we're in the process of transferring loans owned into our core platform. We expect everything to be completed no later than early Q4.

Next, regarding where we stand with the opening of new banking centers, we anticipate opening the first of our two new Miami Beach offices in the third quarter, with the second office in Miami Beach, plus our downtown Tampa banking center to be open in the fourth quarter. Please note we've also recently entered into an agreement on a highly visible location in St. Petersburg. We anticipate a second quarter of 2026 opening there. While we continue to look for opportunities in the greater Tampa marketplace, you should note this new St. Petersburg location gives us three of the original six offices that we initially contemplated. At this point, we're now looking at a longer time horizon and trying to complete the rest of this expansion in 2026. Let's talk a little bit about new people that we added in the quarter to risk and business development.

On our first quarter call, we announced several key additions to our leadership team, both in risk and business development. We noted we were going to continue to add talented individuals in both areas again in the coming months. In the second quarter, we've added a new Head of Special Assets, and just this week, our new Head of Credit for C&I started. Both of these talented individuals have strong experience from larger commercial organizations. On the business development side, we've recently announced the addition of Elliot Schafer, who joined us from Huntington, Head of our business development efforts out of our recently opened West Palm Beach regional office. Joining us in August is our new Head of Loan Syndications and Sales, who has a demonstrated proven track record of success at several well-known institutions.

He will definitely assist us immediately with our loan growth agenda as we continue to see new large relationship opportunities that recruit risk management. We need to participate in these deals with other banks. Wrapping up my comments on talent additions, we have and will continue to selectively look for additions to build to our team, or add to our team, I should say. Our loan strategy going forward. On our first quarter call, we noted that reduced loan growth may result in temporary increases in mortgage-backed securities to offset any shortfalls, and we saw that happen in the second quarter. For the second quarter in a row, we're basically flat in loans outstanding quarter over quarter, despite the fact there was a significant amount of activity. A couple of things are happening here.

Please note that asset quality is our top focus, looking at a number of construction deals year to date that have not funded yet, and higher paid asset projections have all contributed basically to having flat numbers quarter over quarter. It's fair to say that rebuilding our momentum will need to come in the second half of 2025, and a big part of that will be boosted from recent talent additions we've made. Like I mentioned, there are more of all of our recent. The new Head of Business Development, the new Head of Loan Syndications and Sales, along with other additions, RMs in each of our locations, will continue to help rebuild and boost our pipeline. Let's talk about the continued assets we're putting on, improving asset quality, and reducing non-performing assets.

Regarding asset quality, I think needless to say, further NCL reductions are a top priority for us right now, and the need to continue to proactively address credit quality is paramount. It's important to recognize that work is also underway on further strengthening our risk culture now that we're a regional bank with the heightened scrutiny that comes with that. The new additions to our team are already contributing and having an impact there. Last, on prudent capital management and specifically on buybacks. With respect to capital management, our intention remains the same as we previously stated. We're going to take the prudent approach, which involves carefully balancing the need between retaining capital to support our growth objectives, combined with buybacks and dividends to enhance returns. As Sharymar mentioned, in the second quarter, we utilized the 10B5-1 plan to purchase shares up to $5 million in the quarter.

We expect to continue to prudently repurchase shares, depending on trading volume and the price in the third quarter under the current remaining amount authorized. In conclusion, please note that we continue to be steadfast in our focus, continuing to execute on our strategy to be the bank of choice in the markets we serve. With that, I'll stop all our prepared remarks, and we'll look forward to sharing it out. We'll look forward to answering any questions you have. Operator, if you would, please open the line.

Speaker 1

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for your questions. Our first questions come from the line of Russell Gunther with Stephens Inc. Please proceed with your questions.

Hey, good morning, guys. Thanks for taking the question. I wanted to start on the loan growth discussion, and I appreciate the color you shared in the prepared remarks. Maybe just bigger picture. I'm thinking maybe into 2028. Should we be thinking about these guys more in the mid to mid-growth range going forward? Is this reflective of a strategic refocus, or is it more just market driven?

Speaker 4

Yeah. Hey, Russell, thanks for the question. No, I think you should expect us to be back in double-digit growth. We've talked about, you know, very consistently that our deposits first focus is our number one priority. I want to continue to emphasize the quality of the organic growth that we're seeing on the deposit side, and I think as Sharymar referenced, we're well into the mid-teens, you know, on that side. That's enabling us to be able, or I should say, affording us the opportunity to also grow evenly on the loan side. Our expectation is a rebuild of the pipeline and, you know, with some of the new additions, and again, I'm not going to elaborate on the number of additions on the RM level that we've made.

I think our focus, and I said this on the call right now, our focus has been solely, you know, as a top priority on asset quality. Our expectations are there are significant growth opportunities in the markets we serve, and we should be back into higher loan growth coming quarters, and certainly in 2026. We're going to continue to be very prudent and selective in the additions that we're going to make alongside.

Okay, great. Thank you, Jerry. Just one more for me, switching gears on to the asset quality discussion. Nice to see the NPAs come down this quarter. Charge-offs were a bit higher than at least I was expecting. We also saw a buildback in classified and special mention. It would just be helpful to get a sense for how you guys are thinking about realized losses in the back half of this year. I think we kind of talked about the 30 to 40 bps range prior, and I guess just what's embedded in that 1% ROA expectation in the back half of 2025.

Yeah, Russell, I think the key thing, and Sharymar referenced it a couple of times in her remarks, we had already provisioned for the uptick that we took this quarter in charge-offs. Again, the $12 million of the $18 million was already in specific reserves. If you subtract that and then do the comparison from a charge-off rate, we were relatively flat quarter over quarter. I think we were probably in the 5.5% range last quarter to roughly 6% and change this quarter. That's still the core of, again, continuing to see the consumer, the indirect consumer charge-offs, and some of the business banking charge-offs is primarily the key drivers there.

Speaker 5

Jerry, I'd say to that, Russell, in the 1% ROA, that is the provision number. We do still expect some loan growth currently in the second half of the year. That is available within the provision expectation because we would have to set up reserves on day one.

Thank you, guys, for taking my questions.

Speaker 1

Thank you. Our next questions come from the line of Stephen Scouten with Piper Sandler. Please proceed with your questions.

Great. Thanks. Good morning, y'all. Extending on that conversation, as you mentioned, if someone wants a loan to charge off, already having specific reserves, would this $120 loan loss reserve kind of be the right way to think about how you need to reserve for the loan book currently?

Speaker 4

Yeah, look, Stephen, great question. I think that's right in the range. Allowance is always going to depend on what asset classes you're growing in, right? I think thinking around the $120, $125 range is probably a good way to think about us level-forward basis. We'll record and we'll certainly be talking about where we're growing and what the reserve requirements are. Part of this quarter with growth coming from, the quarter definitely benefited when you think about the flat from a loan growth standpoint. That obviously is actually a positive and the growth we did book came in the investment side, right? As Sharymar just referenced, the way we look at it is you book the provision alongside with when you record the growth. Our expectation is, and as she's mentioned, provision will tick up a little bit because we expect the loan growth to start to come back.

Speaker 5

One thing also to add is that we were able to see the provision does have a component of a funded commitment. As we move into funding those loans, you will see a rehab. It's not going to hit the provision, but you're going to see a rehab into the funded portion. That will impact the NCL.

Sure, that makes sense. Yep. In the third quarter outlook, it looks like the margin is projected to be down a touch. Can you walk me through some of the dynamics there? I mean, given where the loan-to-deposit ratio has moved down and the expectation for growth to kind of resume, I would actually kind of theoretically thought there'd be incremental upside to the NIM on a positive remix. Maybe you can help me think through those dynamics or where you think the NIM will trend beyond third quarter?

Speaker 3

Sure. I think the first step, Steven, is to normalize the NIM because this quarter we had a component related to our recovery, and we also had a component related to collection of an NPL. If we normalize the NIM and we think about what would be different in the third quarter, the first thing I would say is we're expecting to have slightly higher average balances on the wholesale side based on the timing of the maturities within the quarter and the replenishing of that wholesale funding. The second thing is related to the securities portfolio, where we're going to see a full quarter effect of a higher securities balance that while definitely is a contribution to NII, it's slightly lower than the average of the NIM. Once we see that full effect in the third quarter, it takes us to the 3.75%.

With that said, we're also working in terms of NPL resolution. If we do see collection of those items, then it will certainly impact NIMs like it did this quarter. The 3.75% is guidance towards a normalized NIM.

Okay. What does that compare to this quarter? Forgive me if I missed that, but relative to the 381, what the kind of normalized NIM would have been this quarter?

I would say 4 basis points less, more or less.

Okay, great. Lastly for me, Jerry, you noted a higher around loan syndications and sales head. I'm kind of curious how you guys are thinking about that component moving forward. Is that something where you're desiring to move up market and do some larger loans? If there's maybe a limit of where you'd say, "Hey, at this dollar amount, we want to syndicate everything out above this dollar amount," or just kind of how we can think about that from a business perspective?

Speaker 4

Yeah, no, I really appreciate that question so we can clarify. I think the sense, Steven, and one of the nice things I think that we see in terms of opportunities is we're getting a chance at a lot of significant size deals. To me, I think that you have to look at this as, number one, it's really prudent risk management if we go to look at a larger size credit. Let's just use for illustration, if you get a $50 million opportunity, it's a great credit. It's really good, really well underwritten. We want to hold $25 million of that, right? That's kind of where I want to make sure people understand.

We're not really looking at this by having this position and eventually building probably some support around our new buyer as a growth objective, where you'll start to see we're going to bigger and bigger and bigger. It's just our ability to do more transactions and participate in more transactions gets exponential for us. Again, from a risk management standpoint, it's very prudent for us to be participating in these deals with a second or even a third bank, right? I think this is part of the, I'll call it, natural evolution of being a combinator regional bank. We've had in the past, and I know we've talked about this on calls, have had several large exposures in the portfolio. Our view is just we've got customers that are growing. It's just another opportunity for us to continue to grow with them as opposed to they outgrow us, right?

While we're both growing, this just gives us that lever of where we can continue to maintain great relationships that we've seen from the very beginning. I just think it's, like I said, I'll buy it as one more time. It's just really prudent from a risk.

Yeah, I appreciate that. That's great going. Allowing you to grow and still managing the risk and the concentration. I like that. Appreciate it all the time.

Thank you.

Speaker 1

Thank you. Our next questions come from the line of Michael Rose with Raymond James. Please proceed with your questions.

Speaker 0

Hey, good morning, everyone. Thanks for taking my questions. Maybe I'll just kind of ask the same question that I asked last quarter. Jerry, where do you think you are in terms of the evolution of asset quality? Maybe we'll use a hockey analogy this time since the Panthers just won, but what period do you think we're in? Do you think, I know it's hard to make definitive statements, but do you think we've kind of already reached the peak in criticized classified and we should expect continued progression from here, just given what seems to be an improving macro backdrop, just from trade deals being struck, everything macro that's seemingly off the worst case. Just wanted to get your view on where we are and how this plays out over the next year or so. Thanks.

Speaker 4

Yeah, no, Mike, thanks for the question. Look, I think we put ourselves in a position with the talent we've added to the organization and the approach, you know, I referenced this around heightened scrutiny that you go through as a regional, you know, I think from our perspective, I wouldn't refer to it as innings or periods as much as I think this is just part of the natural transition for us as an organization around credit quality. We are recognizing any concerns that are out there as proactively as we can and addressing them. I think when you hire and have the talent around special assets that we've talked about, the additions in terms of leadership and the credit side, we're working on this on both sides, right?

We're looking to always look for ways to strengthen credit culture, the risk culture, and the organization at the same point in time. We recognize that it's critically important to make sure that we can get consistency from the results, and we don't want the credit loss going forward. I'm not really ready to tell you one way or another where we are on something. I would take it that the good news is the non-performing loans continue to come down. We've put the right people in the right seats, and I think that we're proactively and transparently, we're in a better position today than we were the last quarter or we've been in the.

Okay, helpful. Maybe tagging on to that, you obviously brought in some people from some larger organizations last quarter. It's been 90 days. I know then it was kind of too early to, you know, lessons learned and maybe some policies, procedures put into place. If you can just share with us anything that has kind of materially changed from an underwriting or grading or just new production standpoint, that would be helpful just to get more comfortable on the go forward and what you're putting on the books today. Thanks.

Yeah, I mean, we are looking, I would call it sort of anything that's coming on the books today, and I'll give you a great example. We're making sure, and that comes back to the syndications comments from the last series of questions, making sure that we don't get into a situation where we can't retain credits, right? Or that we're in a position where, taking such a forward look on our underwriting, I think we're in a better place than we were in the past there. I also would tell you that, look, I think the key asset quality ratios that everyone should be looking at with us are non-performing loans because if we dictate that a loan has to go on another approval in NPL, I think that's the leading indicator.

I would also say that one of the things we did not talk about as highly, and I know in past quarters people were concerned, I think we do think that the allowance as it relates to non-performers is a really critical ratio, and we're happy to be back over 100% coverage there. Look, early identification, really, I would say the strengthening, and by the way, we just talked about adding a new Head of CNI to the team who comes from a larger organization, larger organizations in America. We're excited for continuing to build. We don't want the growth for growth's sake. We want to make sure that we're putting the right growth on. We think these are all big prudent steps to do at this point, again, because of the transition we're making for being a community organization.

Speaker 0

I appreciate the call, Jerry. Maybe just one more switching gears. The last couple of quarters have been fairly heavy in terms of hiring. Do you expect the pace to kind of slow, at least on some of the back office, non, you know, revenue-producing efforts as we move into the fourth quarter? As we think about kind of the intermediate terms, where do you think from an efficiency standpoint you guys can operate? I'm not trying to ask for kind of longer-term targets necessarily, but I think everyone wants to obviously see these revenue hires be accretive to the efficiency ratio. Kind of the intermediate term, where do you think the company should and can continue to run, just with obviously the pickup in growth, but obviously continue to support revenue growth efforts with additional hires?

Just wanted to get a sense for kind of where we're going and kind of what the efficiency could look like, kind of intermediate to longer term. Thanks.

Speaker 4

Yeah, look, I think, no, and it's a very fair question. You know, our projections are from, you know, let's call it from an earning asset perspective, if you would look at it sort of on a total asset side. We know that with the hires that we've made, we want to be in the, you know, $11 billion plus range, right? I mean, $11 billion pretty much gets us, and you know, from an earning asset standpoint, much closer to being a 60% efficiency organization. You know, our expectations, and you know, when Sharymar referenced in her comments, right, we're focused on getting to a 1% ROA, getting to, you know, the 11.5%, 12% ROE type of numbers. The efficiency is going to come with that, with just increased size. I want to go back and address it head on, though.

Your specific question is, we think that the selective hires that we've made are absolutely going to be accretive to us, you know, as part of getting to that $11 billion plus, right? I think the other thing, Michael, I'd take away from the comments that we made this morning, really important is, you know, we're looking at ways to adopt artificial intelligence to make ourselves more efficient. I also signaled to everyone that, you know, we were going to have a slowdown as it relates to, you know, the physical expansion here because, you know, we've added a lot. That's already reflected in the numbers that Sharymar likes to remind me every day. The second we sign a new lease, we're incurring the expense. It's only the incremental expense. It's actually the expense of the people who run in the office.

We're sort of doing a balancing act here of, hey, we expect more deposit growth, more loan opportunities, more relationship opportunities from these new locations. Our expansion is pretty significant, right? What we've done so far, and by the way, I highly encourage people to look into the supplemental slides and see the growth that's coming from these new locations. They are already, you know, not only meeting but exceeding expectations, all of them, and we're really excited about that. Our expectations are that's going to come from these, you know, what I referenced as the four additions, the three that will come this year between the third and the fourth quarter and the one that we expect to open in the first quarter of 2026. If you take a combination of all my remarks there, we're looking at ways to become more efficient.

We're scrutinizing expenses to get that efficiency ratio to the 60%. The expectations are a combination of incremental asset growth, the hires we've already made, opening the locations we have. We feel confident that that is something that is going to be easily achieved with those components all coming together.

Speaker 0

Jerry, I appreciate all the color. Thanks for taking my questions. I'll step back.

Speaker 4

Absolutely. Thanks, Michael.

Speaker 1

Thank you. Our next questions come from the line of Will Jones with KBW. Please proceed with your questions.

Yeah, hey guys, good morning.

Speaker 4

Good morning.

Hey Sharymar, I wanted to circle back on the margin discussion. I know you called out some interest recoveries that happened in the quarter just to help us, you know, normalize that margin. Do you have that dollar amount of recoveries? I appreciate all the helpful color around the guidance and where the margin could be ahead in the third quarter. Could you just remind us from an asset sensitivity standpoint, you know, where do you guys kind of stand today and, you know, what maybe a cut or two would do to the margin as we think about an exit rate for 2025? Thanks.

Speaker 5

Sure. In terms of the normalization of the NIM, I think we should be close to $1.2 million in both the recovery and the collection from the NPL, so between $1.2 and $1.3 million. In regards to the second question about the NIM for the third quarter, I guess the question would be the components towards the 375, just to make sure I address the question.

It was really to just help us sensitize the margin. If we do get a few cuts in the back half of the year, what does that do to the margin? Any general commentary on your asset sensitivity?

At least for forecast purposes, we're modeling one cut occurring in September and one in December. The third quarter wouldn't receive much of an impact from that cut. It would be more seen in the fourth quarter. Typically, a rate cut, assuming a full quarter impact, would be around $1.4 to $1.5 million to NII.

Okay, that's great. That's helpful. Could you maybe talk us a little bit through the decision to kind of see the securities balances build here? You know, how you weigh that decision as opposed to maybe paying down some of your broker deposits or wholesale borrowing? Just the decision, I guess, to build the balance sheet as opposed to, you know, shrink it and make it a little more efficient. Thanks.

Yeah, I think it's not an either-or. I think we're looking at multiple options. We are considering in the third quarter a reduction of broker deposits depending on the timing of the loan fundings. We would either replace with some wholesale funding, or we would actually pay it down and not renew. It is a possibility. However, we do see that through the investment portfolio, we're getting a very decent yield from the portfolio still from a risk-weighted asset perspective. It's helpful as well, and you can see that through metrics like CET1. I do believe that we're getting optionality through the securities portfolio. We have cash flow optionality so that we can fund the portfolio as the pipeline materializes.

Speaker 4

I think it's not an either-or. I think Sharymar just described it perfectly. We're looking at all options there. I think we signaled that our intent is to reduce brokerage. We're going to continue to look at that as whether that gets replaced with organic, whether we need to take advantage, just given where we are, options around taking additional advances to offset. Obviously, we have a lot of collateral, billions of dollars, obviously, at this point. I think we've signaled again that we view the increases in investments as temporary. Obviously, we want to run the company in the 90+ range on loans to deposits. We've been very consistent about saying 95% is sort of the optimal target. We're running in the mid to upper 80s right now. I think we're right at around 86% or so. We obviously strongly prefer to be funding loan growth right now.

That's our expectation is that we'll continue to build back up as we move forward.

Okay, that's a great call. I appreciate that, Jerry. Jerry, just how will for you, you know, I know that you're, you know, very much an organic focus story right now. You're very much focused on building density in the state of Florida. At the same time, there's quite a bit of optimism out there regarding just M&A and what's happened and maybe more of a deregulatory environment. Could you just help us recall where M&A stands in terms of your priority list and whether you feel like that could be an opportunity for you guys down the road here, and maybe whether you consider either upstream or downstream M&A?

Yeah, look, I think that we've said, you know, and as you just referenced, organic growth is sort of the top priority and focus for the company. I think that will continue to be, but that doesn't mean that as our currency improves, I think that's probably been, we've had so many significant projects, right? Between system conversions, the additions, the expansion, that's kind of been the focus. Certainly, as we look at the playing field, everything you just referenced, the regulatory environment, our hope for, there's higher returns from us that our currency gets better. Of course, we'll look at it as an option, but that is not the top focus. Our top focus is continuing to grow and continuing to be the bank of choice in the markets that we serve, right? If you think about the opportunities we believe we have in greater Tampa, Bay, St.

Pete, if you look at the expansion we've done in Palm Beach, our view in Palm Beach County, I should say, I think there's just lots of opportunities for us.

Yeah, Jerry, that's very helpful. Thanks for all the color, guys.

Speaker 1

Thank you. This now concludes our question and answer session. I would now like to turn the floor back over to Jerry Plush for a closing comment.

Speaker 4

First of all, let me just say thank you to everyone for joining today. We appreciate it, given the opportunity to share some of our comments and provide some color on second quarter results. Greatly appreciate everyone's interest in Amerant Bancorp Inc. and your continued support. Have a great day and thanks again.

Speaker 1

Thank you. This does now conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.