Amerant Bancorp (AMTB) Q2 2021 Earnings Call Transcript

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Amerant Bancorp (AMTB -2.82%)
Q2 2021 Earnings Call
Jul 22, 2021, 9:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, and thank you for standing by. Welcome to the Amerant Second 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, Ms. Laura Rossi, Head of Investor Relations. Thank you and please go ahead.

Laura Rossi -- Senior Vice President, Head of Investor Relations

Thank you, Mira. Good morning everyone and thank you for joining us to review Amerant Bancorp's second quarter 2021 results. Joining me this morning to lead today's call are Jerry Plush, Vice Chairman and Chief Executive Officer; and Carlos Iafigliola, Executive Vice President and Chief Financial Officer. As we begin, please note that the Company's press release, our discussion on today's call, and our responses to your questions contain forward-looking statements. Ameren'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. 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. Please also note that the Company's press release, earnings presentation, and today's call include references to certain adjusted financial measures, also known as non-GAAP financial measures. Exhibit two and Appendix one of the Company's press release and earnings presentation respectively contain a reconciliation of each non-GAAP financial measure to its most comparable GAAP financial measure. I will now turn it over to Jerry.

Jerry Plush -- Vice Chairman, President and Chief Executive Officer

Thank you, Laura, and good morning everyone and thank you for joining Amerant's second quarter 2021 earnings call. I'm pleased to report Amerant's earnings for the second quarter and to provide you with an update on the progress we have made regarding the new strategic initiatives and objectives I shared in the last quarter's earnings call, I'm also happy to note that we recently implemented return to office plans where Amerant team members either have a fully on-site were hybrid schedule depending on their job function.

I'd like to take this opportunity to thank the entire Amerant team for their dedication and effort during this past year and note that we are all looking forward to moving ahead and focusing on Amerant's profitable growth. Let me now provide a brief overview of our performance in the second quarter and then I'll hand it over to Carlos to get into the details.

So turning to Slide 3, here you can see a summary of our second quarter highlights. We are pleased to report further improved results compared to Q1 of note. Net income attributable to the company of $16 million is up 10.4% quarter-over-quarter and it's primarily driven by higher net interest income and non-interest income as well as a release of $5 million from the allowance of loan losses, total loans were $5.6 billion and total deposits were $5.7 billion, both slightly down from last quarter. Nonetheless, we're happy to report increased core deposits, including growth in non-interest-bearing deposits, as a result of our efforts to prioritize this type of funding. Our progress on Class B share purchases continues having repurchased over 565,000 shares for a total of $9.6 million as of July 20.

Turning now to the Core PPNR, Slide 4, we're happy to report Core PPNR of $17 million, an 8% increase compared to last quarter, we felt adding this slide would be helpful to show the core net revenue growth excluding the one-time gains in non-recurring charges, such as the FHLB prepayment penalties, the severance, and other restructuring costs and show all of that for each quarter.

We'll turn now to Slide 5, and look at the key actions, which we've outlined here for the second quarter. You will note that a number of these strategic measures were focused on driving lower future funding costs and lower operating expenses. We recorded a $3.8 million gain on the sale of $95.1 million in PPP loans, we reduced the allowance for Loan Losses by $5 million given improved macro-economic conditions and credit indicators in our markets. We launched operations at Amerant Mortgage at the end of May after acquiring a business, which enabled us to access a license to operate nationally.

We modified the rate on $285 million of FHLB advances and we paid off an additional $235 million, taking a $2.5 million charge in Q2. Both of these actions represent $3.6 million in annualized savings. We also continued strategic repricing of customer time deposits further lowering the cost of funding by approximately 3 basis points, which translates into annualized savings of approximately $1.5 million. We outsourced the internal audit function, which we expect will result in savings of $1 million annually, starting in 2022.

We proceeded with the closing of our loan production Office in New York City recording $0.8 million in charges there. In addition to our former President and COO stepping down, we executed workforce reductions based on the spans and layers review and the closing of the New York City loan production Office, while still making select additions in business development, primarily in Amerant Mortgage and we launched process improvement initiative with a well-known third party to improve customer experience and drive additional efficiency.

Additionally, we are excited about our recent partnerships with leading fintech Numerated Growth Technologies and Marstone, Inc. Numerated's award-winning platform will significantly improve the business on account opening process, making it easier and faster for both bank employees and customers, It's clear that small businesses will need financing and we're confident that our new partnership with Numerated will enable us to meet existing and new customer financing needs quickly and efficiently. Regarding Marstone they were on online wealth management platform will help empowered Amerant investment customers to fully understand their financial position, plans, and outlooks while benefiting from the high-touch relationship management Amerant is known for.

As part of the agreement, Amerant will leverage Marstone in two main [Phonetic] capacities as a sub-advisor and as a technological partner. Through the sub-advisor offering, we'll be able to expand our reach in the mass affluent segment by offering a fully digital advisory experience with much lower minimums, then we can do today through the technological partnership Amerant investments will be able to digitalize its existing advisory offering and leverage new tools to scale our business and we're excited to be in a position to launch additional capabilities later in the year to bring financial planning and savings goal capabilities to all of our customers.

Lastly, we recently announced our partnership with Zimmerman Advertising as our new marketing agency of record. Zimmerman, is one of the top agencies in the U.S. and they're going to help us elevate the Amerant brand and drive even greater business growth. As I noted previously, we've just begun that eight-week process with a well-known firm to drive additional efficiency and enhance the customer experience, all with the goal of making banking with us easier. We're confident that these new partnerships and initiatives will help us drive greater brand recognition and profitable growth. All with an eye toward improved enhanced results in the coming quarters.

So, we'll turn to the key metrics on Slide 6. Here, we've outlined key performance metrics, which show improvement across the board, this quarter with the exception of the efficiency ratio, we attribute the increase in the efficiency ratio to the non-recurring costs associated with all the key actions we just covered during this past quarter such as severance in the New York loan production Office closure among others. These results are reflective of our focus on core deposits and higher operating profitability while maintaining a robust capital position and credit coverage. So with that said, I'll turn things over to Carlos, who walk through the results for the quarter in more detail.

Carlos Iafigliola -- Executive Vice President and Chief Financial Officer

Thank you, Jerry. And thank you, all of you to join us today. Turning to Slide 7, I'll begin by discussing our investment portfolio, our second quarter investment securities balance was $1.3 billion, unchanged from the previous quarter and down from $1.6 billion in the second quarter of 2020. The duration of the investment portfolio continues to reflect changes due to dropping interest rates. During this quarter, we recorded a decrease in duration of 0.4 years as expected prepayment fees increase. We continue to select investments to mitigate the impact of prepayment risk cover the portfolio. As of June 30, the floating portion of our investment portfolio represented only 14%.

Moving to Slide 8, we provide an overview of our loan portfolio. At the end of the second quarter, total loans were $5.6 billion, down 2.5% compared to the end of the last quarter, the decline was primarily due to prepayments received in both CRE and C&I loans, the sale of PPP loans in May and the processing of PPP loan forgiveness all this while loan demand continues to recover, yet not able to offset prepayments and pricing competition intensified. Total PPP loans outstanding were $24 million, down significantly compared to the $165 million of outstanding PPP loans as of the end of Q1. We processed $60 million in forgiveness applications and sold $95 million as I previously mentioned. It's important to know that we continue to see strong performance in our consumer loan portfolio, which at the end of the second quarter, including $221 million of higher-yielding indirect loans. During this quarter, we purchased an additional $62 million of these loans.

Turning to Slide 9. Let's take a closer look at the credit quality, overall credit quality remained sound and reserve coverage strong. The allowance for loan losses as of the end of the Q2, was $14 million, down 6% from the $111 million at the close of the last quarter. We released $5 million from the allowance for loan losses in Q2, primarily as a result of improving macro-economic conditions and indicators as Florida and Texas economies continue to recover. Classified loans, $123 million at the end of the second quarter compared to $91 million in the first quarter of 2021. The quarter-over-quarter increase was primarily driven by the downgrade of three Commercial Real Estate loans totaling $40 million, mainly in New York due to increased vacancies in retail spaces and one more commercial loan.

These increases were partially offset by upgrades for $6.2 million, important to note that early this week we were notified that a property guaranteeing [Phonetic] a $12 million in New York, which was on their nonperforming will be transferred to OREO. As a result $2.7 million previously reserved will charge-off in the third quarter of 2021, the year-over-year increase was primarily due to loans, I just mentioned, as well as, the specific loan downgrades disclosed in the previous quarter.

These loans included $40 million of the Coffee Trader Loan, out of which $19 million were charged-off with an outstanding balance of $20 million as of now, as well as downgrades of $13 million loan to a food wholesaler credit exposure, two CRE multifamily loans totaling $10 million. Regarding the Coffee Trader case, we have been in close contact with the Liquidation Agent, regarding the collection process on perspective distribution, so far cash collected by Liquidation Agent is approximately $95 million. Timing for distribution are pending to be defined as allocation of proceeds may be subject to objection from lenders. We will continue to monitor this process and report as needed.

Nonperforming assets totaled $122 million as of the end of Q2 of 35% quarter-over-quarter and so change was attributed by the increases, I just explained. During the second quarter of 2021, the Company obtained independent third-party collateral valuations on most of the non-performing loans, which supported the level of our loan loss provision. Word to mention that only 1% of the loans were still under forbearance during the second quarter of 2021, down from 1.1% so at the end of Q1 and significantly down from the almost 20% that when we started the pandemic and this loan mitigation programs. As a reminder, 100% of the loans under deferral and/or forbearance accommodations [Phonetic] were real estate collateral loans. As of now, all the loans that went out of forbearance have resumed payments regularly. Our team remains committed to closely monitor the performance of the remaining loans in deferral under the terms of the temporary relief granted.

Continue to Slide 10, total deposits at the end of the second quarter were $5.7 billion, down 0.1% from the end of the first quarter while domestic deposits were slightly down by $35 million compared to Q1. Foreign deposits went up by $32 million, which is encouraging consider in previous run-off rates of this portfolio. Deposits excluding customer CDs and brokered deposits increased by $164 million during the quarter. This increase partially offset an 11% reduction in customer CDs compared to the prior quarter as we continue to lower CD rates and keep our focus on core deposits and emphasize multi-product relationships instead of single product high-cost CDs.

During the second quarter of this year, brokered deposits decreased $22 million or 4%. Brokered time, interest-bearing accounts decreased by $146 million on a combined basis. These figures were offset by $124 million increase in brokered money market deposits. Brokered interest-bearing deposits are included in our core deposit definition. Core deposits, which consist of total deposits excluding all time deposits were $4 billion as of the end of the second quarter, an increase of $246 million or 7% compared to the prior quarter. This amount includes non-interest-bearing deposits of $1 billion or 19% of total deposits as of the end of the second quarter, which also increased from the 17% recorded on the previous one.

Next, I will discuss on Slide 11, the net interest margin. 2021 second quarter, net interest income was $50 million of 5% quarter-over-quarter and 8% year-over-year. The quarter-over-quarter increase can be primarily attributed to the following key factors, improved composition between time and core deposits, favoring non-interest bearing accounts and lower time deposits, and brokered CDs. Higher average loan yields, as a result of lower net amortization of net deferred loan origination costs due to PPP loans and an increasing higher-yielding consumer loans, lower cost and average balances on FHLB advances as part of the repayments and modifications previously discussed.

Moving our attention to margin Q2, net interest margin was 281 of 15 basis points quarter-over-quarter and of 37 basis points year-over-year. As in previous quarter, we continued to focus on offsetting ongoing NIM pressures by improving our deposit composition and proactively increase in spreads in loan origination.

Continuing to Slide 12, noninterest income in the second quarter was $16 million, up 11% from Q1. The increase during Q2 was primarily driven by $3.8 million in other [Phonetic] income resulting from the sale of the $95 million of the PPP loans and $1.3 million in derivative income. The increase was partially offset by a $2.5 million net loss in early extinguishment of FHLB advances as we repaid $235 million of these borrowings and a $1.2 million decrease in securities sold compared to Q1.

Amerant assets under management totaled $2.1 billion as of the end of June, of $114 million or 6% from the end of the last quarter. Predominantly due to an increase in market value, we remain firmly focused on growing assets under management, both domestically and internationally. In an effort to expand our Company's fee-driven business, unfolded buildup, its franchise. During the second quarter of 2021, Amerant partner with leading digital wealth management technology for Marstone as previously announced by Jerry, I will cover in more detail shortly.

Turning to Slide 13, second quarter noninterest expense was $52 million, up $8 million, or 18% from the first quarter and, up $50 million year-over-year. The quarter-over-quarter increase was primarily driven by higher salaries and employee benefit costs. Mostly as a result of fiscal aided severance expenses incurred in Q2 in connection with restructuring activities and events that Jerry previously covered. Additionally, during the second quarter, we had increased recruitment fees, the majority of which were growing business lines like Amerant Mortgage and greater advertising expenses primarily in connection with our HELOC campaign and support brand awareness initiative for future profitability.

Core noninterest expenses, which adjust for the $4.2 million of non-recurring items was $47 million in the second quarter of 2021, up $4 million or 8% from the $43 million we reported into in the first quarter of 2021, and up $12 million or 33% from the $35 million that we reported in the second quarter of 2020. Efficiency ratio was 77.8% in the second quarter of 2021, up from 71% in the previous quarter and up from 55.6 in the second quarter of last year. The quarter-over-quarter increase was driven by severance expenses incurred in Q2 in connection with restructuring activities and events I just mentioned previously. The year-over-year increase in the efficiency ratio can be primarily attributed by higher salaries and employee compensation due to the absence of the $7.8 million in deferred expenses directly related to the origination of the PPP loans that we originated in the second quarter [Technical Issues].

Core efficiency ratios will adjust for non-recurring items was 74.5% in the second quarter of 2021 compared to 73% in the first quarter of 2021% and 61% in the second quarter of 2020. Lastly, we announced the closure of our banking center in Wellington Florida to be completed in the third quarter with the goal of optimizing our branch network and better align our desired footprint with the strategic objectives. We are currently evaluating other locations to open banking centers with access to a long-term customer base in our markets.

Moving into interest rate sensitivity on Slide 14, our business continue to be asset sensitive and as of the end of June over half of our loans either have a floating rate structure or mature within a year. To manage the sensitivity and mitigate the impact of our--in our financial margin. We continue to actively manage our loan and investment portfolios, this includes implementation of flow rates on our loans and capitalized in higher-yielding securities on longer durations. Turning it back to Jerry to talk about Amerant progress on the near and long-term activities.

Jerry Plush -- Vice Chairman, President and Chief Executive Officer

Thank you, Carlos. Now, I'd like to provide a brief update regarding some of the specific initiatives we outlined in Q1. We've included them here on Slide 15 for ease of reference. As a reminder, our goal is simple, improve profitability, and drive sustainable profitable growth and do this responsibly with the best interests of our investors, employees, customers, and the communities in which we operate.

So, first regarding deposits first, as previously noted, we have opportunities in the markets we serve to increase our share, consumer small business and commercial core deposits and to achieve a lower cost of funds, reduce our reliance on other sources of it like brokered funds and Federal Home Loan Bank advances. We've continued work on implementing and enhancing a completely digital onboarding platform. We've added talent to our treasury management sales force and support team and we've added additional treasury management capabilities and we've seen improvement in the quarter in all three key measures when compared Q2 to Q1. Our loan to deposit ratio is now 98.8% versus 101.4% last quarter. Please recall we set a target of 95%, we increased the percentage of non-interest-bearing deposits to total deposits of 18.8% versus 17.2% last quarter here as a reminder, we set a target of 25% and a reduced level of brokered deposits to total deposits of 9.4% to 9.7% the prior quarter our target is 5%. We will seek further improvement over the second half of the year as CDs and brokered CDs continue to mature and we had new customer relationships and as a result, we should continue to see NIM expansion.

Regarding digital transformation, we announced several key partnerships this quarter that we outlined earlier in the call with Numerated to Automate our small business lending and deliver a superior experience for our customers and with Marstone Inc., however a digital wealth platform. We expect full implementation for both by Q4. There are more opportunities to work with fintech in other areas of the bank such as BSA, AML and we expect to announce additional partnerships in the coming quarters. Regarding brand awareness on our Q1 call, we noted the importance of breadth of dramatically improving Amerant's brand awareness. Many improvements have taken place are underway, easy that implement items such as improved branch in ATM signage, branding items, and significantly increased Public Relations and Media Relations.

Most importantly, we just announced the recent hire of our new Chief Marketing Officer and just after that the engagement of Zimmerman Advertising as our new marketing agency of record. We are excited about what was accomplished over the past 90 days and we are seeing and seeing the upside from all of these efforts and translating into incremental business opportunities for us.

Regarding rationalizing the lines of business and geographies. In addition to closing the New York City loan production Office as Carlos referenced, we did a branch assessment and we will be closing one branch this October and we've determined nine others that need to be refreshed and another relocated to a higher profile location. We're going to be doing all this over the next 24 to 36 months to achieve a common look and feel across all the locations. As I noted, our treasury management build-out is underway. We've added team members to the sales and service teams in both Florida and Texas.

Amerant Mortgage commenced operations in May and they continue to build up the team there, which now is at 38 members, we continue to believe that adding to our specialty finance capabilities makes sense and we're actively looking at opportunities to do so. I'm excited to see the build in our loan pipeline in both Florida and Texas and the outlook for the second half of 2021 and beyond.

Regarding the path to 60% efficiency, on the last call, we stated, we've been evaluating new ways to drive cost efficiencies across the business with a target goal to improve Amerant's efficiency ratio to 60% within the next six quarters. So here's what was accomplished during the quarter we significantly improved the margin from restructuring Federal Home Loan Bank advances paying down advances and continued reductions in time deposit pricing.

On the expense side, we outsourced our internal audit function, the transition is in process, an annual savings of $1 million are expected starting in 2022, personnel reductions in Q2 including the decision to not replace the COO position. The reduction in New York City staff certain risk and other roles estimated annual savings of approximately $5 million will result.

We just kicked off and we process an improvement initiative with a well-known firm all designed to improve customer experience. We will be launching a procurement initiative in Q3 2021 to drive even more annual savings from the expense base review. As part of the New York City office closing, we're looking to sublease the space and we've engaged the commercial real estate firm to actively market. We announced the Wellington branch closure by mid-October as part of the branch rationalization assessment had previously referenced.

We've established a business transformation continuous improvement function. This is something critical that we need, people continuously focused on finding ways to make banking with us easier and there'll be more to come in the next calls, we continue to work through a number of additional reviews. Regarding the optimization of capital structure, we continue to repurchase shares as part of our Class B share buyback program, and as I noted 565,000 shares in $9.6 billion as of July 2021. We're going to continue to evaluate alternatives regarding our capital structure. I know that our Board voted yesterday to dividend $40 million up to the holding company giving us more capacity and flexibility there.

And finally a brief update regarding ESG and corporate responsibility. We've been working diligently developed in the ESG strategy and program and yesterday, our Board approved the framework we will use going forward. We look forward to formally sharing the material tenants of the program and the progress we are making in each area, as part of an annual corporate social responsibility report going forward.

As I stated last quarter, there isn't anything we won't consider to make banking with us easier and to drive better results for our shareholders. And that's our commitment to all of you, our investors, our customers, the communities we serve and to our team members as well. We hope you can clearly see that we are providing the increased transparency we said we would provide, and we look forward to continuing to update you as we execute on our strategy. And I look forward to continuing to share our progress on upcoming calls.

So with that, we will be happy to take your questions. Myra, please open the line for Q&A.

Questions and Answers:

Operator

Thank you. [Operator Instructions]. We have our first question comes from the line of Will Jones from KBW. Your line is open. Please go ahead.

Will Jones -- KBW -- Analyst

Hey, great. Good morning. Thanks for taking my questions.

Jerry Plush -- Vice Chairman, President and Chief Executive Officer

Good morning.

Carlos Iafigliola -- Executive Vice President and Chief Financial Officer

Good morning.

Will Jones -- KBW -- Analyst

Hey, so I just wanted to start on the credit front. I know you guys called out the $40 million of CRE loans in New York moved to the classified bucket this quarter. Just hoping to get a little more context around those loans, just in terms of LCDs, collateral and whether or not you guys have any specific reserves set aside for those loans at this time?

Carlos Iafigliola -- Executive Vice President and Chief Financial Officer

Yes. Hi, good morning. Yeah, we will give you some color on those loans. So there were four in total that were added into the non-performing leases. The two from New York are -- they are commercial real estate. They had a -- we had a recent appraisal on them, and the recent appraisal that we obtained confirmed the level of loan loss provision that we had already.

So it's on -- combining those two loans there is about $30 million that were added, and we have close to the $10 million loan loss provision between those two loans. They were -- there are great properties in very good location. One of them is the one that I mentioned that it will be transferred to OREO for about $12 million in book value and that -- on that specific one, we have close to the $3 million loan loss provision already baked in.

So, all the values that we obtained were consistent with the level of provisions that we already have. So we feel like they are very well provisioned as of now.

Will Jones -- KBW -- Analyst

Okay, great. Super helpful. And then maybe just on the topic of credit. Are there any other credits that you could see coming up on horizon or maybe specifically credits in that New York market that give you guys any concern at this time? Or do you feel like you kind of really mixed the bucket with all the moves that were made this quarter?

Carlos Iafigliola -- Executive Vice President and Chief Financial Officer

We keep analyzing the portfolio all the time and checking on the performance on each individual case and looking into the health of the different projects or properties. And as of now, there is no particular concern on the portfolio in general. We feel like our level of loans provision is significant and level of COVID-related loan loss provision, which we keep at $15 million, which is on the institutional side are still sufficient to cover any potential issue. Also, we keep monitoring the level of activity of the city, primarily in New York and we started to see very good positive signs in the interest on the new tenants, etc. So signs are positive as of now.

Will Jones -- KBW -- Analyst

Okay, awesome. That's great. And then just kind of switching gears, taking on the buyback. It's really good to see you guys start working through that Class B share program. And I just wanted to confirm that the plan is to continue chipping away at that program. Your appetite hasn't really changed there. And I was just curious if you guys could give us an update on how many B shares are still outstanding?

Carlos Iafigliola -- Executive Vice President and Chief Financial Officer

Yeah, there are about $8.6 million of -- 8.6 million shares on the B side that are still outstanding. As Jerry mentioned, we bought 565,000 so far, roughly $9.6 million already executed. It's very liquid, as you could imagine. And if you look into the time series of your Bloomberg, it's very -- it trades almost by a point [Phonetic]. It's very liquid. So we keep the program alive so far until now, and that's pretty much it. So it's -- we keep going.

Jerry Plush -- Vice Chairman, President and Chief Executive Officer

Yeah. Will, it's Jerry. I think as Carlos is referencing, there is a liquidity issue, I think, with those shares more or so. And though we've been chipping away typically the purchases has only been a couple of thousand shares here and there, and then there is the occasional block. But I think as he referenced, it's really going to be just a function of the progress that we've made to date. We're actually pleased it wasn't something where we were out trying, get everything immediately, just because we knew there wasn't going to be that the liquidity that there is, obviously, in our A class versus the B.

Will Jones -- KBW -- Analyst

Yeah. No, no, no, that's totally understandable. I totally get that. And then maybe just thinking about that whole steer class longer term, I realize it could take a while, fully working your way through the authorization you have out there. But I mean, longer term would you consider just collapsing the B share structure as a whole, maybe as you continue to wind down some of the outstanding thus far?

Jerry Plush -- Vice Chairman, President and Chief Executive Officer

Yeah, Will, again, it's Jerry. I think we're looking at everything we can do in optimizing the capital stack and also providing additional clarity. Certainly, that's something that we will be evaluating and have been evaluating, I should say.

Will Jones -- KBW -- Analyst

Great. That's it from me. I will hop back in queue. Thanks for taking my questions.

Jerry Plush -- Vice Chairman, President and Chief Executive Officer

Thank you.

Carlos Iafigliola -- Executive Vice President and Chief Financial Officer

Thank you, have a good one.

Operator

We have our next question comes from the line of Michael Rose from Raymond James. Your line is open. Please go ahead.

Michael Rose -- Raymond James Financial, Inc. -- Analyst

Hey, good morning everyone. Thanks for taking my questions. I just wanted to start on the expense side. So clearly, you guys are doing a lot of things here. You've really come in and announced a lot of initiatives here to begin with. So just -- obviously, I think we're all trying to figure out the timing as to when you think you can get to that 60% efficiency ratio. But I guess in the nearer term, can you just walk through some of the puts and takes as we think about the expense base over the next couple of quarters just based on maybe some one-time costs that might come through, things that are going to come out of the run rate, things that might come into the run rate? Can you just give us a sense for what a nice or what a good base to start off would be? Thanks.

Jerry Plush -- Vice Chairman, President and Chief Executive Officer

Yeah, Michael, it's Jerry. Let me take the first crack at that one. I think it's fair to say that over the last two quarters, we've been investing in Amerant Mortgage, for sure. And you can see that in the headcount number, which is up substantially quarter-over-quarter. And the expectation, and I believe Carlos commented on this in the last call, is that there will be additions -- continued additions to that team, and we'd probably be somewhere in the 50 to 60 headcount range by the end of the year.

So you can expect that we will continue to invest there heavily as we really believe in the team and what we're looking to generate on a fee revenue perspective going into 2022. I think you're also -- probably you can tell that we're investing in areas like our treasury management team. We've added people in the sales force, we've added people on the support side. I've given Miguel and his team the green light to continuously look for top quality folks to add to what I think is already a top quality team here.

And when we can make smart additions, whether that's in the Houston marketplace or here in the Florida market, we're absolutely going to do it. So I think one of the things you hear with the reductions that we've been doing is we've been taking out back office and support, and we're trying to put more of the dollars going toward a business generation. And I think it's just the continuation sort of transformation wise.

I know that the quarter had a lot of puts and takes. Hopefully, you can tick that out of the -- out of what we said was going to be add this into the 2022, add this in -- we will start to see some immediate results. Most of the actions that we've taken, right, around the NIM, you can see is reflected immediately. The actions we're taking around people, I think you're going to see some ins and outs because I think in this third quarter, you're going to continue to see as we go through finishing up the reviews that we've been doing on all of our areas and the way we look at things from a process improvement standpoint, I would expect there will be additional changes.

So that might not be as granular an answer as you'd love, but I would tell you directionally, the goal for us is to end the noise. I think that we've had certainly this quarter and a little bit last quarter and be able to transition into what we showed as core PPNR growth, continue that growth through NIM expansion, continue through net -- through non-interest income expansion. But I would say, for right now, you have to think about the expenses that we're actually investing in the business. And so that's -- this is a long answer to what you asked, which is you're going to continue to see a couple of million dollars being spent quarter-over-quarter because of marketing, right, as we push for brand and we go out and actively market, which we did not do in Q1 and we started to do in Q2.

And you'll see us continue to add to where we know that we can put revenue producers on our books we are absolutely going to do that. And we will continue to optimize the infrastructure side of the Company. So I would expect that, that work is all completed through this third quarter, and you'll be able to see a much clearer picture going into Q4.

Michael Rose -- Raymond James Financial, Inc. -- Analyst

Jerry, that's really a helpful color. I guess that begs a question. Is there any more large-scale initiatives that you see on the horizon, whether it's tech investments, process improvement in terms of what would drive those dollars materially higher? Because I think, again, outside of the efficiency ratio, I think what we're all trying to figure out is, is 2023 the year where you can get to those minimum return targets that you talked about a plus 1% ROA and plus 10% ROTCE?

Obviously, the shape of the yield curve is going to impact that. But is that the way we should just broadly and holistically be thinking about the measurable progress as we move forward? Thanks.

Jerry Plush -- Vice Chairman, President and Chief Executive Officer

Yeah. Mike, that's a great question. I think when I gave the initial guidance of give us the -- I'd call it the six-quarter horizon to get to 60% is really -- that's a really important sort of goal of ours. I think the one in the ten, we're going to be much closer to the attainment of those in a shorter period of time. Our expectations are that we should have continued improvement in the NIM, as I said, continued improvement in non-interest income. And we're looking for -- you saw all the initiatives we've laid out. I would expect that absent our ability to maintain our asset size or even if we grow it, my expectation is that we will have greater revenue growth going into these next couple of quarters. And that's really what we've been working toward is making the right investments, making the right adjustments in the base here, people-wise, systems-wise, etc.

I do think it's important to note on the review that's going on from a process improvement side. That project literally just kicked off. And I think the same thing about the procurement initiative, that project is just going to kick off here toward the end of Q3 and into full force into Q4.

So you'll start to see the results of that -- of those initiatives probably coming through later in the year, but more likely 2022.

Michael Rose -- Raymond James Financial, Inc. -- Analyst

Okay, thanks. And maybe just last one for me. So looks like you guys obviously have a very strong capital profile at this point, and it looks like that's going to continue to build just as the balance sheet goes through a restructure with the New York loans coming off and growing other parts of the portfolio. That will impact the ROTCE. So I guess my question is, would you consider other capital deployment options like a dividend, I know which is important to some investors, and then any strategic acquisitions, non-bank, obviously, that you would look to deploy some of that excess capital? Thanks.

Jerry Plush -- Vice Chairman, President and Chief Executive Officer

Yeah. No, absolutely. I think that kind of goes into everything is on the table. We're going to look to different ways to deploy that capital. Obviously, the reference that I made of the Board, approving the dividend from the bank up to the holding company is to give us that kind of optionality and make sure that we have plenty of liquidity there to be able to execute a few things. I think at this stage, doing deals, if we could find something that made sense for us in the specialty finance area, add to our -- I'll call it, our arsenal, our capabilities, we're absolutely actively looking at those right now.

Michael Rose -- Raymond James Financial, Inc. -- Analyst

Okay, thanks for taking all my questions.

Jerry Plush -- Vice Chairman, President and Chief Executive Officer

Sure. Thank you. Have a good one.

Operator

We have our next question comes from the line of Feddie Strickland from Janney Montgomery. Your line is open. Please go ahead.

Feddie Strickland -- Janney Montgomery -- Analyst

Hi, good morning.

Jerry Plush -- Vice Chairman, President and Chief Executive Officer

Hi, good morning, Feddie.

Feddie Strickland -- Janney Montgomery -- Analyst

So, it's great to see all the positive dynamics with respect to the margin this quarter, especially the rising loan yields. Just kind of a clarification point, I think I heard in the prepared remarks that's a result of the reduction in PPP and indirect consumer loans purchased, right or is there some more new loans coming on the books that you guys are getting at a higher yield organically?

Carlos Iafigliola -- Executive Vice President and Chief Financial Officer

Yeah, that's a good question. So the -- if you recall, there was a weak carries PPP into the balance sheet in the first quarter of 2021 that were originated in 2020. So we had a deferral of the expenses from the origination of these loans being amortized. And as you probably recall from the previous year, we defer about $7.8 million on those loans origination.

In some cases, there was a mismatch between the fee and the origination costs. So, all those or the majority of them were under forgiveness during the first quarter of the year. So, pretty much the Q2 story has the cleanup of all those loans that we no longer carry into the balance sheet. So, that's one of the reasons of increase. The second one is that we have been very -- we keep the discipline in the origination of C&I and CRE at a very attractive spread compared to other transactions that we have been seeing in the market, also adding floors to floating transactions, and the fact that we now have $220 million in indirect lending at a very attractive yield compared to the rest of the portfolio.

So, those have been pretty much critical items to explain the increase in the yield of the loan portfolio for the quarter.

Feddie Strickland -- Janney Montgomery -- Analyst

Got it. And kind of along that same line, is the path to further expansion more from the asset side, the liability side, or is it kind of a mix of both?

Carlos Iafigliola -- Executive Vice President and Chief Financial Officer

So liability has contributed a lot to the NIM this quarter. If you got to break it down between the impact of the assets and the liabilities, the liabilities definitely were a key factor this quarter. The drop in the cost of funds, help us significantly to reduce the interest expenses. That was one of the biggest items. So, it was -- think this way, it was coming from time deposits coming down, and at the same time, we were increasing transactional accounts. So when that event happens, your blended cost of funds improved by about 10 basis points quarter-over-quarter, which has significantly improved the overall performance of the balance sheet.

Jerry Plush -- Vice Chairman, President and Chief Executive Officer

Yeah. Hey Feddie, it's Jerry, let me just add. I think the opportunity that's apparent here is the maturing brokered CDs, the maturing time deposits and the ability to either not renew in the case, obviously, the broker, but to try and retain those customers at much lower cost is pretty critical for us. And the nice part is, you will see the balance shift that we were talking about, right, for much greater focus on non-interest bearing acquisition, much greater focus on us trying to as a Company look at that, not just on the consumer side, but also the small business and the corporate side of things. I think it's fair to say, you will continue to see very nice NIM expansion for us, all things being equal in Q3 and Q4. And it's -- a lot of it is going to be driven from the liability side. That's where there is just great opportunity for us.

Carlos Iafigliola -- Executive Vice President and Chief Financial Officer

Yeah, and if you want to break it down between what was the impact of the assets or the liability specifically for the quarter, the improve in the NIM about a third came from the asset and two-thirds came from the liability. That would be a good explanation of the quarter-over-quarter NIM improvement.

Feddie Strickland -- Janney Montgomery -- Analyst

Got it. Appreciate all the color guys. And just one more from me, I was just curious kind of with the reopening return to normalcy, what's your hearing from some of your hotel and retail customers more in your core Florida footprint as well as kind of the Texas footprint out there?

Jerry Plush -- Vice Chairman, President and Chief Executive Officer

Yeah. I think it's safe to say that we are seeing increased occupancy across the board, notwithstanding like this slight spike that we are seeing all across slight [Phonetic]. I mean the spike that we are seeing in COVID cases, but both of the markets that we operate in have been very open. And so we are seeing, I will call it, 75-plus kind of occupancy numbers and even closer to 80% in that range across the portfolio.

Feddie Strickland -- Janney Montgomery -- Analyst

Got it. Thanks for taking all my questions guys and congrats on a great quarter.

Jerry Plush -- Vice Chairman, President and Chief Executive Officer

Thank you.

Carlos Iafigliola -- Executive Vice President and Chief Financial Officer

Thank you.

Operator

We have our next question comes from the line of Brody Preston from Stephens. Your line is open. Please go ahead.

Brody Preston -- Stephens -- Analyst

Hey, good morning everyone.

Jerry Plush -- Vice Chairman, President and Chief Executive Officer

Good morning.

Brody Preston -- Stephens -- Analyst

Hey, yeah, I just wanted to follow-up maybe on a couple of Bill's questions from earlier, real quick. I appreciate the detail you gave on those New York City loans regarding the specific reserves. But I wanted to ask just a point of clarification, Jerry. Were those the two retail loans that got called out on Slide 22, were those included in the $40 million that got the updated appraisals?

Carlos Iafigliola -- Executive Vice President and Chief Financial Officer

Yeah. Those are -- yeah, those are included in the list of updated appraisals. That's right.

Brody Preston -- Stephens -- Analyst

And Carlos, do you happen to know what the percentage change in the newly appraised value was relative to the previously appraised value?

Carlos Iafigliola -- Executive Vice President and Chief Financial Officer

So, pretty much they were in the 60%, 65% LTV approximately, and they went up to 145% or something like that.

Brody Preston -- Stephens -- Analyst

Okay. Alright. Thank you for that. And then, Jerry, just on -- I guess on the capital deployment, just given how strong the capital ratios are and understanding that the Class B shares are a little bit illiquid, how do you weigh -- in your mind, how do you weigh kind of deploying that capital via another kind of Dutch tender or something like that to maybe drive EPS upside versus kind of saving that drypowder to make more meaningful investments in the business and drive actual bottom line improvements, sort of, how do you think about the trade-offs between those two?

Jerry Plush -- Vice Chairman, President and Chief Executive Officer

No, that's a great question. And I would tell you that that's exactly what we are working on right now. I think that the one thing we are obviously need to focus on is, we either need to deploy it or we need to return it, right. And I think that that's literally the conversation we had yesterday during our Board meeting. And I would say, stay tuned to see. I do think there is an opportunity for us as we referenced strategically to add, I think I called it add to the arsenal, that's really add to our capabilities and deploy some there. But I think all other options are on the table for us. And I hope to be able to come back here in Q3 with a definitive strategy on what we are going to do around capital.

Brody Preston -- Stephens -- Analyst

Awesome. I appreciate that. And then -- just was looking for some more color on the prepayment activity in the CRE portfolio, particularly as it relates to Florida and Texas, within the multifamily buckets, I think there is some prepayments. Was there anything specific that drove that or is that just kind of consistent with what we have been seeing across the industry?

Carlos Iafigliola -- Executive Vice President and Chief Financial Officer

They were in the -- during the quarter, we have almost $330 million in prepayments, and they came pretty much from all the sectors. There was a significant competition, in general. So, there has been deals that we have been taking a look at the refi that came in front of us from the customer and the spreads were just at a size that we wouldn't be able to play. There has been spreads. I will give you a couple of examples like LIBOR plus 150 basis points, 160 basis points that have been refi in front of us, and we just pretty much cannot participate as of now.

Brody Preston -- Stephens -- Analyst

Okay. And then just I have a modeling question. At what point in the quarter did you pay off those FHLB advances? I think it was $235 million.

Carlos Iafigliola -- Executive Vice President and Chief Financial Officer

They were done during the... [Speech Overlap]

Jerry Plush -- Vice Chairman, President and Chief Executive Officer

It was mid-quarter.

Carlos Iafigliola -- Executive Vice President and Chief Financial Officer

Yeah, around May. You will see the complete effect of the savings in the third quarter. That would be a clean picture from the interest expense perspective.

Brody Preston -- Stephens -- Analyst

Okay, great. And then the last one from me is just could you give some details on how the build-out of Amerant Mortgage is going? I know you made hires, but just want to get a sense for how quickly you will be able to more effectively ramp on the revenue side? And then secondly, how is the operation structured? Is it going to -- I guess are the revenues and expenses going to flow through the fee income and expense line items for you all or is it kind of a below those items through a minority interest? Just trying to get a sense for the model.

Carlos Iafigliola -- Executive Vice President and Chief Financial Officer

Yeah, good question. So the -- we started taking applications from May 24. The infrastructure of the Company, it's ready to go, it's set up. We had the core engine of the Company being installed at a very fast pace because it was a de novo Company. So it came up very, very swiftly and at very good pace. So as of now, we have received approximately 60 applications for mortgage, and it has been a very good experience so far. They have close to 40 people already hired. So, when you see our headcount, and we did a breakdown on one of the slides, you see that there is a combination between Amerant Mortgage and on the bank itself.

So, our expectation is toward the end of the third quarter and the full fourth quarter, we will be in breakeven and positive territory for the Company. As you can imagine, this first two quarters were formation phase, there was a lot of hiring, there was a lot of systems, etc. So, the infrastructure buildup was definitely the driver of the cost.

Going to your second question, we are doing line-by-line consolidation. We own 51% of the Company. So, you will see impact on the non-interest income and non-interest expense from the Company. And then you will see the impact of the minority interest flowing toward the bottom line with the portion that doesn't belong to the bank, that's the accounting treatment that we have selected for the Company. So, you will see when we speak about the run rate of the expenses and the run rate of the order income, the assumptions of the mortgage Company will be baked in into those numbers.

Brody Preston -- Stephens -- Analyst

Awesome. Thank you very much for taking my question everyone. I appreciate it.

Carlos Iafigliola -- Executive Vice President and Chief Financial Officer

Sure. Have a good one.

Operator

We have our last question comes from the line of Michael Young from Truist Securities. Your line is open. Please go ahead.

Michael Young -- Truist Securities -- Analyst

Hey, thank you for taking the questions. I wanted to maybe just start with kind of balance sheet size and dynamics moving forward. Obviously, you have got kind of the profitability targets out there. But you can kind of shrink to achieve those or grow and scale to as I am sure the latter would be the preference. But can you maybe just talk about given kind of the pandemic and everything that's been going on, the internal kind of shifts in personnel, etc, just kind of how you see that playing out relative to balance sheet growth and deposit growth, especially on the hills of this marketing campaign?

Jerry Plush -- Vice Chairman, President and Chief Executive Officer

Yeah, I think it's important to note that as we begin sort of this transition to do more business banking to focus more on treasury management, to look to expand equipment finance, as an example, capabilities you are going to see a big composition change start to take place, right, over the next couple of quarters. We are really focused more on trying to really offset as New York begins to pay down to be in position with new production in our current markets coupled with these additional capabilities offsetting that.

So, if I were to think about balance sheet size over the next couple of quarters, I would say trying to stay in that 7.5 quarters to 7.3 quarters sort of range is probably where we would be targeting. If we have opportunities to expand that, we are certainly going to do that, but I -- back to the question of having plenty of capital to support that. But I think right now, we are really in a transformation, transition phase because of New York, and what's happening with the portfolio there. Because I think we hadn't seen any significant payoffs in that portfolio in this past quarter, and we will begin to see that taking place in this quarter, for sure, and in the fourth quarter.

Michael Young -- Truist Securities -- Analyst

Okay. And maybe you guys had higher kind of CRE payoffs, we have seen the 10-year treasury rate drop down again pretty significantly here over the last week. Could you just talk about outside of New York, maybe additional CRE payoffs that you kind of see in pipeline and then how that compares to maybe the production outlook with Texas and Florida pretty fully reopened, etc. Are you seeing increased demand at this point?

Carlos Iafigliola -- Executive Vice President and Chief Financial Officer

Yeah, as I mentioned on a previous question, there was a lot of competition, in particularly Florida and Texas. As you know, they -- we actually haven't been closed completely. It was just two months of last year that we had the most of the restrictions. So, for the rest of the year, there has been economic activity going on, which creates further incentives to lenders to go into these areas. So, we have had a significant competition. We -- as I mentioned before, we have seen deals coming in front of us for pricing that we wouldn't be able to participate given the low spread. And we foresee that we may have more prepayments coming our way.

However, we are working a lot on the C&I side and more granular loans to try to offset those type of impacts in the future. So, our pipeline looks fine, from that perspective, it looks like we will be able to offset potential prepayments. And the question mark will be pretty much New York, and how does that evolve over time and how fast those loans may end up prepaying.

Jerry Plush -- Vice Chairman, President and Chief Executive Officer

Yeah, I think it's important to note that things have really opened up for us, I think, in terms of the size of the opportunities that are entering the pipeline that were twice what we were just a quarter ago. And so, I think that reflects the efforts of the team and the opportunities that are out there in the market. So again, I think with the comments Carlos made, New York is really the X factor as it relates to where our loan portfolio size will be at a point in time. But I feel good that we see very strong demand both in the Houston and in the South Florida marketplace.

Michael Young -- Truist Securities -- Analyst

Okay. And my last question, maybe just on the deposit side. Obviously, you still got some runoff of higher CDs and the international deposits. But generally, I guess, domestically, the industry kind of writ large has been washing deposits and everyone's got up plenty and they are growing them fairly quickly. So, is there any desire to go ahead and get out in front of loan growth and kind of move the pivot on the deposit side along while obviously, deposits are just very cheap and readily available?

Jerry Plush -- Vice Chairman, President and Chief Executive Officer

Yeah. No, that's actually the focus for us here in the second half of the year. So, with the new CMO, the new marketing agency, the turn of the team's focus on having a deposits first sort of mentality. It's -- I think you will continue to see not just the benefit of downward repricing as time deposits and broker CDs run off. But from us, making a very concerted effort that in every customer interaction, we want the full relationship from as many customers as possible.

What's running away from us were single-product customers. And we want people that want a broader relationship with the organization. And I think that's just a shift in focus from the past to where we are going to head as a Company.

Carlos Iafigliola -- Executive Vice President and Chief Financial Officer

To complement that point, Jerry, it's important also to mention that from the balance sheet composition perspective, the relative size of liquidity for us have been very low compared to other institutions and compared with the general liquidity situation on the market is -- I believe it's remarkable that we just carry less than $100 million of the Federal Reserve with such a level of liquidity available in the market. I believe that the opportunity that we have to do recomposition was great over the past few quarters and that allow us to improve the overall composition of deposits.

Michael Young -- Truist Securities -- Analyst

Okay. Thanks. It's all from me.

Jerry Plush -- Vice Chairman, President and Chief Executive Officer

Okay. Thank you.

Carlos Iafigliola -- Executive Vice President and Chief Financial Officer

Have a good day.

Operator

There are no phone questions at this time. I will turn by the call over to our CEO, Jerry Plush.

Jerry Plush -- Vice Chairman, President and Chief Executive Officer

Thank you, Myra. We appreciate that. I would like to just thank everyone for joining the second quarter earnings call. We are very excited about the bright future ahead for Amerant. I hope all of you are, too, and that you have a great day.

Operator

[Operator Closing Remarks].

Duration: 65 minutes

Call participants:

Laura Rossi -- Senior Vice President, Head of Investor Relations

Jerry Plush -- Vice Chairman, President and Chief Executive Officer

Carlos Iafigliola -- Executive Vice President and Chief Financial Officer

Will Jones -- KBW -- Analyst

Michael Rose -- Raymond James Financial, Inc. -- Analyst

Feddie Strickland -- Janney Montgomery -- Analyst

Brody Preston -- Stephens -- Analyst

Michael Young -- Truist Securities -- Analyst

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