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spk03: Good day, and thank you for standing by. Welcome to the Ameren Bank Corp Third Quarter 2021 Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded, and if you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Laura Rossi, Head of Investor Relations. Please go ahead.
spk01: Thank you, Victor. Good morning, everyone, and thank you for joining us to review Ameran Bancorp's third quarter 2021 results. Also on today's call are Jerry Plush, our Vice Chairman, President, and Chief Executive Officer, and Carlos Yafiliola, our Executive Vice President and Chief Financial Officer. As we begin today's 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 31st, 2020, in our quarterly report on Form 10-Q for the quarter ended June 30th, 2021, and in our other filings with the SEC. You can access these filings on the SEC's website. Amerint 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 2 and Appendix 1 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 our CEO, Jerry Plush.
spk08: Thank you, Laura, and good morning, everyone, and thank you for joining Ameren's third quarter 2021 earnings call. I am pleased to be here today to report on our results for the quarter and and the progress our team has made focusing on the key priorities we set out during our first quarter 2021 earnings call. I will also comment later on this morning on some significant issues that we have underway to further improve our future results and set the company up for growth in the coming years. But before going to the results, I want to first thank all of my Ameren colleagues for their dedication and effort again this quarter and for their continued support in the pursuit of even better results in the future. So, I will now provide a brief overview of our performance in the third quarter, and then Carlos will go over the details. So, let's turn to slide three. So, here you can see a summary of our third quarter highlights. We're pleased to report further improvement in our results compared to the second quarter. Of note, net income attributable to the company of $17 million is up 6.7 percent quarter over quarter. primarily driven by higher net interest income and lower non-interest expense. Our total loans were $5.5 billion, and total deposits were $5.6 billion. They're both down slightly from last quarter. Nonetheless, we're happy to report continued improvement in the deposit mix. As core deposits increased, we had solid growth in non-interest-bearing deposits this quarter. Our capital levels continue to remain very strong. We recently announced our intention to effect a cleanup merger in order to have one class of common stock going forward. And we are looking forward to having our shareholders approve this in mid-November. In addition, our board has approved a new repurchase program for up to $50 million, which we expect will commence here in the fourth quarter. So let's move to the core PPNR slide number four. We're pleased to show continued growth in core PPNR of 18.3 million, an 8% increase compared to the 16.9 million reported last quarter. We believe this reconciliation is essential to show the true net revenue growth of the company. We want all of our investors to easily see our results, excluding any one-time gains or losses or severance or other restructuring charges, so they can see what is really happening regarding core earnings power. If we turn now to slide five, our key actions, here we list them out for what has taken place during the third quarter. You'll note that a number of these strategic measures were focused on driving lower future funding costs and operating expenses, as well as set the stage for future growth. So first, our non-performing classified and special mention loans decreased 31.7%, 31.3%, and 16.4%. compared to last quarter, respectively. We are diligently working on further reductions here in the fourth quarter. We have instituted weekly sessions of key personnel to focus on driving to resolution on as many credits as possible to get the non-earning assets off of our books and the proceeds reinvested into earning assets. We continued downward repricing of customer time deposits, further lowering the cost of such funding by approximately seven basis points which translates into annualized savings of approximately $2.2 million, and we prioritized core deposit growth, which totaled $141.7 million in the quarter. We closed one branch located in Wellington, Florida, as of October 15, 2021, and we've announced a new downtown Miami branch that we anticipate opening late in 2022. The comment period regarding this branch expires next week. We also significantly reduced our future space needs, as illustrated by our announcement regarding our new 56,000 square foot operations center in Miramar, Florida, that will take occupancy in the fourth quarter of 2022. This will reduce our operations center by over 40,000 square feet and our annual rental expense by nearly $1 million. We continue to build out our treasury management team and have completed adding team members to both sales and service in Florida as well as in Texas. We recently completed the business transformation initiative with a well-known third party to improve customer experience and drive additional efficiency. We're finalizing the next steps, and we expect to announce this outcome in the very near future. As we continue on our digital transformation and efficiency efforts, We're excited about our recent announcements regarding leading technology platforms Alloy and ClickSwitch. Alloy's leading identity decision platform will allow us to automate the identity verification process when onboarding deposit accounts for both business and individual customers. ClickSwitch, on the other hand, will improve the customer experience by simplifying the conversion of consumer and small business accounts as they transition direct deposits and automatic payments to Emirates. We're confident that these new platforms can help improve our customer experience overall and grow stronger banking relationships. We also launched our new brand awareness campaign based on the tagline, Imagine a Bank, via billboard and social media, and also announced a new branding partnership with the Florida Panthers and the NHL for the 2021-2022 season. And our soon-to-be-released investor deck this quarter will provide examples of the brand and marketing campaigns for your information. And then lastly, we recently appointed our Chief Diversity and Inclusion Officer in September as just one more step in demonstrating our commitment to ESG. I'll have some more comments on this initiative in a few minutes. So if we turn to slide six, here we've outlined our key performance metrics, which show improvement across the board this quarter. These results are reflective of our continued focus on core deposit growth and improving the net interest margin which helps drive higher operating profitability. We also maintained a robust capital position and very strong credit coverage, which, while it's lower than prior quarter, is at a very healthy 1.59% of total loans. Slide 7 is new this quarter. We wanted to add this to focus solely on Amerit Mortgage, outlining the growth in people, applications, and show the increasing revenue quarter over quarter. As a reminder, we started taking applications in late May of this year, and we've recently been focused on adding additional sales personnel to the team. And we are currently in the process of onboarding an even greater number of experienced personnel this quarter to drive future results. So with all that said, I'll now turn it over to Carlos, who will walk through the results for the quarter in more detail.
spk04: Carlos? Thank you, Jerry, and good morning, everyone. So turning to slide eight, I'll begin by discussing our investment portfolio. The third quarter investment securities balance was $1.4 billion, slightly off from the $1.3 billion in the previous quarter, and flat compared to the third quarter of 2020. The duration of the investment portfolio has extended to 3.7 years due to lower expected prepayments in light of higher long-term interest rates. We continue to select investments to mitigate the impact of a prepayment risk over the portfolio. The floating portion of our investment portfolio continued to decrease, representing 11% as of the end of the third quarter. Continuing on slide nine, let's talk about the loan portfolio. At the end of the third quarter, total gross loans were $5.5 billion, down 2.3% compared to the end of the last quarter. The decline was primarily due to approximately $320 million in prepayments received in both CRE and CNI plus a portion of the CNI closings having been moved to the fourth quarter. Consumer losses of September 30 were 360 million, an increase of 48 million or 15% quarter over quarter. During the third quarter of 2021, we purchased an additional 80 million of higher yielding indirect loans for a total of 263 million on that specific portfolio. Turning to slide 10, will provide updates on the New York loan portfolio. As we announced during the second quarter call, the New York City Loan Production Office has officially been closed. At the close of the third quarter, 30 loans totaling 220 million were classified as available for sale, and little over 400 million still remain in the New York portfolio. We have elected to mark the position of this portfolio now classified as available for sale, in order to shorten duration and significantly reduce the number of loans being serviced as we sell them. We have accepted a proposal to sublease our New York office and subtenant expect to start in the fourth quarter of 2021. Turning to slide 11, let's talk about the credit quality of our loan portfolio. Credit quality remains sound and reserve coverage strong. The allowance for loan losses at the end of the third quarter was $83 million, down 20% from the 104 at the close of the previous quarter. We released $5 million from the allowance for loan losses in the third quarter, in which the release of approximately $2 million was a result of upgrades, payoffs, and paydowns of non-performing loans and special mention loans. A release of the remaining $3 million was due to the loan portfolio reduction and the classification of the loans as available for sale. Charge-off for this quarter was $17 million from which $5.7 million were in connection with the coffee trader relationship to account for delays as allocation of liquidation proceeds has been subject to objection from certain lenders. We continue to monitor this process and have been in close contact with liquidation agents regarding the collection process and prospective distribution. We will continue to report the development in this relationship as we move along through this process. Non-performing assets totaled 93 million at the end of the third quarter of 2021, a decrease of almost 30 million, or 24%, compared to the second quarter of 2021, an increase of 6 million, or 7%, compared to the third quarter of 2020. The ratio of non-performing assets to total assets was 124 basic points, down 37 basic points from the second quarter of 2021, and up 16 basic points from the third quarter of 2020. In the third quarter of 2020, the ratio of reserves to non-performing loans increased to 1.1% from 86% in the second quarter of 2021, and it decreased from 135% at the close of the third quarter of 2020. As we have done since the declaration of the COVID-19 pandemic, there is detailed information on the supplement section of this deck regarding deferrals for Barron's portfolio under escalated monitoring. Given the continued credit quality improvements in our portfolio, we may discontinue some of the slides for future quarters to streamline the earnings deck. Continuing to slide 12, total deposits at the end of the third quarter were $5.6 billion, down 0.9% from the end of the second quarter. While domestic deposits were slightly down by $50 million compared to the second quarter, international deposits went up slightly by $1.4 million, showing continuing continued evidence of stabilization in this portfolio. Deposits, including customer CDs and broker deposits, increased $185 million during the quarter. This increase partially offset an 11% reduction in customer CDs compared to the previous quarter, as we continue to lower CD rates, focus on increasing core deposits, and emphasize multi-product relationship instead of a single-product, high-cost CDs. We're encouraged to see our deposit mix continuous improvement towards higher percentage of core deposits. During the third quarter of this year, broker deposits decreased $98 million, or 18.5%, out of which 55 million came from time and 43 million from side deposits. The decrease in total customer CDs and broker deposits were partially offset by an increase of 185 million, or 5%, in customer transactional accounts. Core deposits, which consist of total deposits excluding all time deposits, were $4.2 billion as of the end of the third quarter, an increase of $142 million, or 3.5%, compared to the previous quarter. This amount includes non-interest varying of $1.2 billion, or 21.5% of deposits as of the end of the third quarter, which also includes increase from $107 billion, or 19%, from the previous quarter. Now, I will discuss the net interest income slide 13, and net interest margin. During the third quarter, net interest income was $52 million, up 3.7% quarter over quarter and 14% year over year. The quarter over quarter increase can be primarily attributed to the following key factors. First, lower overall cost of deposits resulting from decline in average CD balances, downward repricing of CDs, and increasing the average non-interest-bearing deposit balances. Second, higher average loan and investment yields with the loan yield increase due to a higher amount of consumer loans. Third, higher investment portfolio average balance due to the company's redeployment of excess cash and cash equivalents. Fourth, lower cost and average balances on FHLB advances and other borrowing following the company's repayment and rate modifications of FHLB done during May 2021. Lower loan balances during the quarter were due to high prepayment activity in both CRE and CNI, while loans closing some delays at the quarter end, thus not offsetting the prepayment activity. Moving on the margin, the third quarter interest margin was 2.94%, up 13 basic points quarter over quarter, and up 55 basic points year over year. As in the previous quarter, we continued to focus on offsetting ongoing mean pressure by decreasing the cost of funds through strategic repricing of customer time and commercial relationship money market, as well as proactively seeking to increase spread in loan origination. Continue to non-interest income, slide 14. The third quarter was $13.4 million, down 14.6% from the second quarter. The decrease during the third quarter was primarily the result of non-recurring items recorded in the second quarter, such as $3.8 million in net gain in connection with the sale of $95 million in PPP loans, $2.5 million net loss on early extinguishment of FHLB advances, and $1.3 million net gain on sale of securities. Also contributing to the lower non-interest income was a decrease of $0.8 million in customer derivative income in the third quarter of 2021. The decrease in non-interest income was partially offset by an increase in $0.2 million in fees from brokerage, advisory, and other fiduciary activities, and mortgage banking income from $0.7 million. Amaranth assets under management totaled $2.2 billion as of the end of the third quarter, up 56 million, or 2.6%, from the end of the second quarter, predominantly from increasing net new assets. Our team remains focused in growing assets under management, both domestically and internationally. In addition, we're excited to announce as a quarter end, we are up and live with the new digital wealth platform powered by Marston. Turning to slide 15, third quarter non-interest expense was $48.4 million, down $2.7 million or 5.3% from the second quarter and up $2.9 million year over year. The quarter over quarter decrease was primarily driven by the lower salaries and employee benefit expenses resulting from the second quarter, including the non-recurring $3.3 million in severance expenses we did last quarter. We also had lower occupancy and equipment expenses resulting from the non-recurring $0.8 million leasing permit charged in connection with the closing of the New York LPO last quarter. Lastly, there were lower consulting, legal, and other professional fees as well as various other non-interest expenses. The efficiency ratio was 74.2% in the third quarter of 2021, compared to almost 78% in the previous quarter and 69.3% in the third quarter of last year. The quarter-over-quarter decrease was driven by the significantly lower severance expenses incurred during the third quarter of 2021. The year-over-year increase in efficiency ratio was primarily attributed to higher salaries and employee benefits in connection with the mortgage business. Core efficiency ratio would adjust for non-recurring items was 73% in the third quarter of 2021 compared to 74.5% in the second quarter of 2021 and 76.5 last year. Lastly, as we previously announced, we have closed the Wellington branch as of October 15 this month with the goal of optimizing our branch network performance and better aligning our desired footprint with strategic objectives. We have announced an addition of a new branch in downtown Miami, which we anticipate will open in late 2022. Moving on to interest rate sensitivity on slide 16, our balance sheet continues to be asset sensitive. As of the end of September, over half of our loans either floating rate structures or mature within a year. To manage this sensitivity and mitigate the impact on our financial margin, we continue to actively manage our loan and investment portfolios. These include implementation of floor rates on our loans and capitalizing on higher yielding securities and longer durations. I will now turn it back to Jerry to talk about hammering progress on the near and long-term initiatives.
spk08: Thank you, Carlos. On slides 17 and 18, this quarter we've provided some details on each of the six key priorities this quarter. Rather than going into a lot of discussion on the call as we did in the last two quarters, We felt providing this detail on these slides would be helpful. Needless to say, what is shown here confirms that we continue to make progress on all key initiatives. Regarding deposits first, we continue to move closer toward achieving our stated targets and, as previously noted, have added key personnel in treasury management, and all of our business areas are focused on continuing to grow low-cost deposits. Regarding brand awareness, Our new CMO, along with Zimmerman Advertising, our new advertising agency, are hard at work on creative and branding ideas, including the recently launched out-of-home and other advertising using our new tagline of Imagine a Bank, and a new limited-time-only checking campaign, among other initiatives. We're also very excited about our recently announced partnership with the Florida Panthers, who are proving to be terrific to work with. Regarding rationalizing our business lines and geographies, We continue to find new FinTechs to partner with. As we previously stated, we announced new deals with Alloy and ClickSwitch, and then we also applied for approval of our new downtown Miami location. Moving on the path to 60% efficiency, we continue to downward reprice maturing time deposits and emphasize growing core deposits, improving the mix and lowering the cost of funding. We're not replacing maturing brokered time deposits and we continue to right-size certain support areas. And as previously mentioned, I'll provide some additional comments on the business transformation initiative we've been working on in just a few minutes. Now for capital optimization. Again, as we previously referenced, we announced the cleanup merger to convert our existing Class B shares at a fixed conversion rate to Class A shares in order to simplify our capital structure. This is on track and subject to vote, to approve the cleanup merger at a special shareholders meeting on November 15th this year. We also announced that our board approved a new buyback program for $50 million of the common stock as well. And finally, regarding ESG, we announced our chief diversity officer, we developed our new governance structure and implementation plans, and we're actively working to publicly share our new corporate social responsibility report. In addition, we expect to release our first ESG report in early 2022. So before we go to Q&A, I thought I'd provide a few comments on several significant items we're currently working on, or that with work recently concluded will happen in the fourth quarter. So let's talk about growth first. We continue to build for the future. We're looking to significantly add to our business banking team, both in South Florida and in Houston. We're in the process of hiring six additional business bankers here in South Florida, and we're currently looking to add three more in Houston. We'll report on our progress next quarter end. In mid-November, we will be adding six private bankers to our team here in South Florida. We believe this is another area of significant opportunity for us to start to build in this business vertical, as the opportunity here for concierge-type service to mass affluent to high net worth customers is significant. This builds on the team of three people we added this quarter in Houston who are already making an impact on deposit growth. We also recently signed a sublease in Tampa, Florida. We have our first team member there who will be focused on CRE opportunity and already is in the market generating leads. We intend to add other commercial personnel in 2022. So, in summary, please know we are continuously looking to add more business development talent to our organization. Regarding non-earning assets, this quarter's results showed a reduction in non-performing loans. Some of the decline is definitely from write-downs against reserves we already held against these problem credits and others from resolutions. We are focused on driving the remaining non-performing loans to resolution as soon as practical, as we want to get them off our books and get the cash reinvested back into performing credits. So also in that vein, we're currently in discussions regarding the sale and leaseback of our corporate headquarters here at 220 Alhambra. We think it is appropriate to explore such an opportunity and to get cash in hand and reinvest versus holding this fixed asset long-term or to take such proceeds and consider utilization in more of a buyback of stock. We're looking to have this transaction completed before the end of the fourth quarter and to announce the results at that time. And finally, we're in the process of wrapping up the final stage of our business transformation initiative. We intend to announce the results of this initiative no later than mid-November. So as you can see, we'll have more to brief you on shortly, giving these in-process items that are going on as we speak. So in summary, the progress we are making and the results being reported really do speak for themselves. We're excited about updating everyone on even more progress in the coming days, as I just previously noted. It's an exciting time for all of us here at Ameren, as we are working diligently to continue to improve our future results even more in the coming quarters. So with that, we'll be happy to take your questions. Victor, please open the line for Q&A.
spk03: Sure. As a reminder to ask a question, you will need to press star one on your telephone. And to withdraw your question, just press the pound key. One moment while we compile the Q&A roster. Our first question comes from Michael Rose from Raymond James. You may begin.
spk09: Hey, good morning, and thanks for taking my questions. Hey, Michael. Hey, how are you? Just wanted to start on the loan side. Appreciate the color on the New York wind down and moving some of those loans to help for sale. So I see the contractual maturities. That's super helpful. But it's a plan to do a best efforts sale for each of those loans. And if you can just remind us how big that portfolio is, number of loans at this point. Just trying to get a sense for you know, when we could see an inflection in the loan balance now that PVP is just about gone. And, you know, you're quickly accelerating some of those efforts to wind down New York. Thanks.
spk08: Yeah, Michael, thank you for your question. It's Sherry. I think Carlos and I will tag team the response on this one. First, I'd like to just say that the thought process behind the classification of roughly half the credits is to reduce basically, and the majority of those are longer term. If you note, they're 2023 and beyond maturities. And it's also roughly half the number of credits. So the thought process was to really focus on those. And we do expect in the fourth quarter to be announcing a move on a number of these. In terms of the portfolio, I think it's no surprise to everyone that the minute we announce a wind down of New York operations, that we're going to be subletting the office space. We're down to, you know, our key player who is in that particular office, you know, overseeing, you know, the wind down that you would expect that customers would be actively looking to refinance away. And we're starting to see that. And so I think just in terms of, you know, Carlos will give a couple of comments on the specifics on the loan portfolio. But I believe we're roughly down to about 600, slightly above $600 million in current receivables. I think the number is 627.
spk04: Right. Yeah, it's about 630. That's right. So we classified this 220 as available for sale as we intended to be actively marketing this part of the portfolio. And as you can see, those are The objective was to decrease the loan count as much as possible because we will start serving those loans from Miami. So that was one of the reasons and maturity as well.
spk08: Yeah, and Michael, in fairness, I'd like to just add, I think the steps forward of the sublet is great news for us. And I think the step forward for everyone from the analyst and investor community recognizing that we're trying to bring this to resolution for clarity, you know, so that we can move forward. We've got greater growth opportunities in our other markets, as we've talked about before, and we're continuing to look to add business personnel, you know, customer-facing personnel in both markets. So we're excited to be working hard at the replacement, and our pipeline is pretty robust at this stage, both in the CRE and the CNI space.
spk09: Okay. That's helpful. And then, you know, Jerry, you've outlined some targets to get to an efficiency and ROA and ROE target by the end of next year. Um, it seems like you're, you're making really good progress, uh, on that. Um, any thoughts on, you know, maybe achieving that sooner than the fourth quarter of next year, just with some of the additional, you know, moves that you announced, including, you know, potential sale, the headquarters, things like that, that, uh, potentially get you there a little bit sooner. Thanks.
spk08: Sure. Great question. What I would say is we're continuing to build the operating income side, as you can see. We just had a slight decrease this quarter over quarter on the fee side, but very strong net interest income growth, and we expect that to continue. So Clearly, on that trajectory, the ROA, ROE will continue to improve, assuming we continue to execute the way we believe we will. The issue is, can we do something, you know, with the transformation project that we just referenced that could help us potentially get there sooner or certainly help assure getting there by the stated date that we had of getting to 60% no later than the fourth quarter of next year. So more to come on that, but I would say that we feel confident that getting closer to the ROA and ROE targets in the interim certainly appears more likely. The efficiency is still something that's a work in progress.
spk09: Very helpful. Maybe just to... quick ones before I wrap up. Just on the Amerit mortgage, when would you expect that to hit profitability? And then separately, I noticed that on the foreign deposits, while Venezuela continues to decline, the other deposits have actually increased pretty nicely over the past two quarters. So if you could just give us some color on what's driving that. Thanks.
spk08: Yeah, let's talk about the deposit side first, and then we'll go back. You know, on the international deposits, we see great opportunity. We're in two markets that there's significant potential for international business. And so both out of Miami and South Florida in general, as well as in Houston, It's definitely going to be an area where we'll see opportunity to grow. We feel comfortable in the space, and we'll continue to look for opportunities to expand there. You know, in terms of the original core base, I think one comment Carlos has made in the past that I think is really important to note is that is really stabilized in comparison to prior periods where we saw a more significant decline in We think the fact that those customers now have the opportunity to utilize Zelle has been a real game changer in terms of how useful the account is for paying in dollars. And so we think that we'll continue to see that start to level off more and more over time.
spk04: Yeah, and there is another important trend that we have been seeing is on the commercial international side. There is, since we implemented also the Zelle for commercial, we also have seen an improved traction on the commercial accounts on the international side. And as you said, there is also the increase in other countries due to the operations in Houston that we have been gathering deposits from other countries.
spk08: Hey, Michael, and forgive me, what was the first part of your question? I got a little excited there to answer the question. I think in terms of Amerit Mortgage, one of the things we've elected to do and the thought here is be opportunistic. The team identified a group of folks that can really contribute to future earnings and And so when I gave the reference of adding a team, the impact is we're going to bring a team of over 22 people on in the fourth quarter. We've got eight already on board with 22 in total that we expect to be here. So I would tell you fourth quarter will continue to be an investment in terms of making 2022 possible. you know, the beginning of breakeven and then contribution to profitability. But, you know, in this particular space, we're excited. You know, we're a little behind where we wanted to be when we didn't get to open until late May. But I think at this stage, we're very excited about, you know, all the work that's gone into the infrastructure build. And we want to just continue to be opportunistic where we can build this out, you know, effectively and efficiently for the future. Yeah, that's right.
spk09: Appreciate all the colors.
spk04: Okay.
spk03: Thanks. Next question, I'm calling from Steven Scotton from Piper Sandler. You may begin.
spk02: Hi, good morning, everyone. Hey, Steven. I wanted to follow up maybe on kind of loan growth trends. I know you noted some of those CRE and CNI payoffs. I'm just kind of curious if you have any data around what those payoffs have been in previous quarters to kind of give us a feel for that on a relative basis, as well as maybe any data on quarter-over-quarter pipeline trends. I know you noted particular strength in your pipeline.
spk04: Yeah, so the quarter was particularly high in prepayments. We recorded more than $300 million in prepayments. But at the same time, the pipeline was very promising, pretty much We had a lot of closings before quarter end, but then there were others that were delayed until October and November, actually were closing, as we speak, more loans that were initially on the pipeline. So it looks very robust in general.
spk08: Hey, Stephen, I would just add to that that one of the things the team here is doing, and I'm proud to say, is we're staying pretty disciplined on our pricing. as well as on structure. We're not increasing LTVs in Cree. We're not matching some of the low pricing that we're seeing competitively. And we're looking for folks that want to bank with us, want a relationship with us. And I think that there's a lot of competition out there, which is why I think you're seeing some pop in the prepayments. But that doesn't mean, I would say, though, that our team is not generating a significant growth quarter over quarter in the pipe. And so our feeling is, you know, look, we've got the headwinds of New York, right, and a little bit on this prepayment side. But that's why we're doing the investment we're doing in new personnel. We're going to continue to look to add basically in all our verticals where we can find good people that can help us. You know, a lot of the work, I just have to say one of the reasons I made the comments I did in my closing remarks on growth is a lot of what we've been focused on is around restructure, has been around right-sizing, about, you know, transformation, all these other words. We're really focusing on building the company for future success. And so the investment that we're making in frontline personnel that we're also going to make in select areas in order to improve our customer service experience. That's really sort of the transformation next steps that we're doing here at Ameren.
spk02: Got it. Okay. And do you have any data to frame up that kind of $300 million plus in prepayments? I'm just trying to figure out if that was double what you've seen in previous quarters and that was really the driver of the loan decline or if it was a mix of somewhat elevated prepayments and somewhat Lower production levels.
spk04: No, it was a mix in general. It came from the CRE and CNI, but mostly CRE. And also accounting on those 300 were a couple of New York prepayments as well that came in, and the intention was not to renew them. So that was another item against the production.
spk02: Okay. And, Jerry, you kind of answered this question, I think, to a degree just a second ago, but I'm curious how you guys think about this kind of push-pull of investing in the future growth of the franchise but still trying to hit this kind of sub-60% efficiency ratio target you've set out. I guess my question is really would you guys be fine with maybe missing that target in the near term if there were really good opportunities to hire new talent and invest in the long-term success of the franchise?
spk08: Yeah, absolutely. I think the investing in the long-term value, you know, view value of the franchise is absolutely essential. That said, we're still laser-focused. I think you'll know more, as I mentioned, within the next couple of weeks on business transformation and what that will mean for us on a go-forward basis on the efficiency side and also on the effectiveness side. But I would just say... that we're turning the ship toward, you know, trying to really invest to get the personnel we know we need in order to be a higher growth company. And so, you know, we're overcoming a lot of headwinds, obviously. You know, we're pulling out, you know, hundreds of millions of dollars that we're sitting on this balance sheet that were related to New York. And then we're also coming out of COVID, where basically the pipeline at the beginning of the year was pretty bare. And so I think the build that's happened quarter over quarter, adding more people, you know, we need to add revenue. I think, Stephen, maybe the best way I could sum it up is achieving efficiency is a combination of revenue growth, as well as us looking at the efficiency and effectiveness of our operations. And so You know, this wasn't just going to be a cost-cutting exercise. This is a, you know, and again, I think people use right-sizing a little bit too much, but I think it's adjusting the franchise to set ourselves up for success that we can leverage, you know, the foundation and really grow without having to add to the back office and be able to grow production. And so that's really the way I'm thinking about it. So, you know, again, this gets back to the earlier question. We're focused on getting the ROA, ROE in a really good place, and the efficiency might lag. But, again, remember, we've laid that efficiency out for the end of 2022 because we know it's going to take some time to continue, you know, progress in that. And we hope to report continued progress each quarter, you know, so that you'll see that we're marching our way there.
spk02: Definitely, definitely. Okay, that's a great color. Thank you guys for the time. I appreciate it.
spk08: Absolutely. Take care.
spk03: Our next question is from Freddie Strickland from Janie Montgomery. You may begin.
spk06: Hey, good morning. Good morning, Freddie. I was just curious. It was great to see some of the reduction in classified and special mentions. Did the coffee trader relationship drive a decent portion of that, or was that kind of just a general improvement across the board, maybe some other credits?
spk08: No, we took a charge in the quarter. Basically, we've been carrying a specific reserve against that relationship, and we've got it now to the stage where we think this is the most likely outcome for us. You know, the issue that's happened in that particular one is, as you know, it's part of a bank group that's involved in this particular situation, and trying to get everyone aligned on distribution is critical. I think we've talked before on a previously $200 million exposure, there's cash sitting to the tune of almost $100 million, and so all of us are anxiously awaiting to try and see how much of these distributions in various phases can come. And we were hopeful that more would be coming Q3, Q4. It looks like it could be potentially delayed into 2022. So our view was take the right down now on the specific reserve. We're roughly at 14 million. 14 total exposure. In terms of remaining exposure. And we feel comfortable with our position in terms of getting paid on that. And we're going to continue to monitor it, right? I mean, obviously, in these situations, everything gets in front of a judge in terms of determining who gets distributed and how much at what period of time. But we think it's the right way to be looking at this one.
spk04: And those 14 million carry 6.5 in specific reserves. Got it.
spk06: So then that's right. I remember you guys discussing that. So the classified and special mention improvement was independent of this coffee relationship, but you'd already kind of set aside everything. That's what you're saying. You got it.
spk08: Yep. And, you know, Patty, one of the things that I referenced in my comments was I think as a team, we're laser focused. This is why I think the comment when you think about the sale-leaseback, this is the fixed asset investment that we've got here in our corporate headquarters. You sort of look at that. You look at all the non-earning assets that are sitting on the books. We've got to get those numbers driven down. Back to some of the earlier questions about how do we continue to improve the efficiency ratio, It's all of these little things that are critically important to execute on that are going to add earnings back into the organization going forward. So the more we can get deployed to maintain adequate liquidity, but also to get as much possible into earning asset categories, that's critically important for getting to that 60%.
spk06: Got it. And I apologize if you covered this earlier. I was having a little bit of technical difficulties. But are you guys seeing any kind of – the same wage inflation stuff we've been hearing about, especially – I think I've heard it more from the bigger banks than smaller banks. But are you seeing any of that on the front line or back office or even when you're hiring lenders?
spk08: Yeah, no, it's a great question. I think there's lots of market competition for quality people. I think this is a time of year where it probably gets even more challenging to try and add folks because they've earned wherever they are today based on some of the production. Unless they've been getting paid out quarterly, it gets to be a little bit pricier to try and add people this time of year. Look, we're in the, candidly, in two of the hottest markets in the country. We've talked about this before. Demand for people is high. I think what is good for the Amaranth story is people know that we're streamlining our processes. I think our business development people would tell you that, you know, we've given the pen to our credit people. If things are in accordance with our policies, we're executing much quicker. on credit decisioning. I think also our story of continuing to improve and catching, you know, and being part of an organization at our size and not having to deal with the layers of management and oversight that are very common at much larger institutions. You know, clearly, I hope it's clear to everyone that we're decisive, we move quickly, you know, and that's part of what we want to maintain and actually become even better known for. And I think that's really attractive to folks. So I think we have positives that, you know, again, as we've mentioned, look at the teams of people that are coming our way. You know, I think it's important to note that I think people are excited about all the things that are going on here and wanting to be part of it. So I would say certainly there's been a couple of times where we've looked and marveled and we move on. It's just like the way some banks are willing to do higher LTVs in Cray or lower pricing in Cray. We're finding very good people that want to be part of our story. And so I would say that while it's very competitive out there, we're definitely having success in attracting people.
spk04: Hey, Perry, to complement, I believe it's, and going to your question, cost of living is something that is definitely impacting our jurisdiction. That's, you can tell by the residents in general, the housing market, it's been increasing and affordability is decreasing in our market. So that's That's a point that we definitely are seeing around and something to report to you based on your question.
spk06: Got it. Thanks for the color, guys, and appreciate the time. Sure. Thank you.
spk03: Our next question comes from Will Jones from KBW. You may begin. Hey, good morning, guys.
spk09: Morning, Will.
spk05: So, you know, it's great to see the announcement into quarter on the cleanup of those Class B shares. You know, you've got your shareholder vote coming up here in about three weeks. Assuming that approval comes through, could you just walk us through the timeline of conversion, I guess, just more so as a modeling question on the share count?
spk04: Sure. So, the shareholders meeting will be held on the 15th of November. So the voting process will be done on that meeting.
spk08: November 15th at 4.30.
spk04: Correct. So to be specific. And so once everything gets approved and through the right channels of approval, we will get the conversion completed early December. So we expect or anticipate that if everything goes as planned, we'll have a reduction of probably close to 525,000 maybe shares once the Bs are converted into As, and then we'll have a fraction of going into A and onboarding as we described on the AK.
spk05: Great. That's super helpful. You know, I know the cash payout is probably not going to be a huge number, but any preliminary estimate of what that may be for those who aren't receiving the Class A shares?
spk08: So, Will, just to clarify, you're talking about the small... Yeah, all the guys, you know, the fractional shares or the sub-100.
spk04: Yeah, good question. So that amount, it wouldn't exceed the $8 million. So the small shareholders or the rounding will be around $8 million. So it's not significant.
spk05: Gotcha, gotcha. Okay, that's super helpful. And then just moving on, thinking about the buyback, you know, you know, You guys announced that alongside the Class B share cleanup. It's great to see, you know, your Class A shares are not as cheap as they've been, trading at about 1.3 times tangible. And, you know, they're not as cheap as they were when you repurchased shares in the past. Still fairly attractive, though. With these levels, do you feel like the buyback still makes sense for Amerit, you know, once that program commences in December? Or is the thought really just to hold the cash and continue to reinvest internally?
spk08: Look, I think buyback programs are critical for us to be opportunistic. And I think if you just look at what's happened in volatility in the last quarter, that there's opportunity for us to execute there. But it's a good question. As our valuation continues to improve, it gets to be a little bit more challenging as it relates to the higher that's getting as to what we would do. But I'm firmly committed. I think our board's firmly committed. I can say comfortably that we all believe it's very important for us to have it on the shelf and to be able to use as consistently as we possibly can to be opportunistic.
spk04: Even if ahead of par, compared to some peers who are still undervalued at $125,000 or so, So just to keep that in mind as a reference for buybacks.
spk05: Great. That totally makes sense. Maybe the last one is housekeeping. Is there any PPP loans left? I know you guys sold quite a few malls.
spk04: Probably less than $5 million, very little. Got it.
spk05: Great. Thanks, guys. Thanks, Will.
spk04: Thanks, Will.
spk03: Next question will come from Brody Preston from Stevens. Your line is open.
spk07: Good morning, everyone. Good morning, Brody. I just want to say thanks again for all the disclosure in the deck. I really appreciate it, especially on the mortgage and the New York City portfolio. A couple of housekeeping questions real quick. Just the tax rate. I wanted to get a sense for why it popped up this quarter and what we should expect for an effective rate moving forward?
spk04: Yeah, great question. So there is probably three components that impacted the effective tax rate. One of them was related to executives earning more than a million dollars. Remember that we have our During the last quarter that was released, the chief operating officer retired from the institution. So the incremental portion north of the million dollar wasn't excluded from the, it's not part of the expenses for tax purposes. So that was one. We captured that in this quarter in particular. And then the other two components were a New York state and city tax. recalculation that we had based on some adjustments on previous periods. So it was expensed this quarter. So those are the main components. So structural basis, we continue to manage the effective tax rate with the usage of our REIT portfolio that it consolidates with the bank. So we're planning to enhance that. So it should be stabilized on the on the 22.5% approximately effective tax rate for the full year.
spk07: Okay, 22.5% you said for the full year? Yeah. Okay, so that's like what, like 21% on a go-forward basis? That's exactly.
spk04: Okay. Okay.
spk07: And then just do you happen to, you know, you repurchased a little bit of shares this quarter, it looked like. So could you just give us the number of what the number of Class B shares outstanding is currently?
spk04: It's about 8.5 million Class B shares. We bought on the – remember that once we announced the conversion – of the Bs into As, we just halved the buyback of the Bs. So probably we reached a total of 9.5 million approximately in total purchases, dollars. And that would be close to a 17, 16.5 maybe average price on the purchase. So those were approximately the numbers. But this quarter we didn't buy that much because we announced the conversion.
spk08: Well, we announced at the same time we were doing the AB cleanup. We terminated the B buyback and announced a new one that will commence on the reconstituted one class.
spk07: Right. Yeah. Okay. And then my remaining questions are just on the New York City portfolio. You know, Jerry, I heard you earlier say that you've it sounds like you have a decent amount of sales that are going to come through in the fourth quarter. So just from a modeling perspective, as I think about the size of that HFS portfolio, you know, through next quarter, should I expect the bulk of the 219 to be sold, or how should we be thinking about that?
spk08: Yeah, I think you could easily say that maybe it's a half-and-half, you know, quarter-to-quarter portfolio. Look, you know, the reality is, as we speak, some of those very relationships are seeking to pay off too, right? So it's a combination, I think, that will happen in those reductions of sales that will take place coupled with payoffs.
spk07: Okay. Okay, and what's the yield on that portfolio?
spk04: Yeah. So the average for the New York portfolio was close to the 3.7% approximately. There is a combination between fixed and floating. The floating portion reprised with livers, so there may be single items that are soup 2%, but generally speaking, the weighted is at 3.7%.
spk07: Okay, great. And I like the move to AFS just because it kind of accelerates the cleanup on it, but As you think about kind of the short-term negative implications of bulk sailing the 219 and potentially doing more, Jerry, how do you think about sort of the short-term kind of earnings headwinds that would create and as it relates to the ROE, the ROA, and the efficiency ratio targets? There's sort of a fine line to walk between cleaning it up and then creating a little bit of a near-term hole that might catch people by surprise. So how do you kind of thread that needle?
spk08: Yeah, and I actually think that's a great question, and I think that's why you're seeing it's half the number of credits, but it's only $200 million that's actually moved into AFS. Our expectation is there will be a combination on that balance that you'll start to see some prepayment activity on that over the course of 2022. But I mean, you know, our expectation was, you know, Brody, and I think we referenced this a little bit earlier in the comments, the majority on that 219 that was classified are the longer-term credits. And so, you know, our expectation is somewhere between 22 and 23. is really what we were aiming for to see that portfolio either in a combination of either sale activity or payoff activity run off. It could obviously be sooner. Look, every borrower's got the right to initiate a payoff on their credit or refinance away from us, but our view is this was a prudent way to look to reduce the servicing of that portfolio and keep the focus since we're now down to one key person overseeing there and some key personnel here in South Florida being involved with those relationships to actively manage the wind down over time.
spk04: The other item that you should also think about is the fact that typically the settlement of a loan, it takes a little bit longer And so even though we committed to sell a portion of it, maybe the proceeds will come later. So from the point of view of earnings generation, we still will have the impact of this portfolio income-wise for the rest of the quarter.
spk07: Got it. All right. Well, those are all my questions, everyone. Thank you very much for the time.
spk08: Awesome. Thank you. Have a good day.
spk03: And we have one other question from the line of Michael Young from Truist. Your line is open.
spk10: Hey, good morning. Thanks for the question. I wanted to just ask on the reserve or allowance, you know, I think, you know, one-time coverage of MPLs seems, you know, maybe a little bit lower relative to kind of the industry as a whole right now. Obviously you've kind of been doing some credit cleanup and had some pretty significant charge-offs this quarter. Should we expect some other sizable charge-offs? And do you have any color on what may be remaining in that reserve in terms of specific reserves on credits?
spk08: Yeah, look, I think what you see in the NPLs right now is that we've done a thorough review. That, Michael, a great question, by the way. That's why we're doing these weekly reviews to continue to monitor that as it relates to working that portfolio off our books as quickly as possible. But, I mean, we're not taking haircuts. We're trying to just, you know, speed up the resolution on these things. You know, our expectation is that we can continue to significantly lower that in Q4, you know, with a goal towards, you know, reporting on continued improvement without additional charge-offs. Because we think from a valuation standpoint, you know, that we've done a good job in that. In addition, we're still holding in our reserves about $15 million that we'll call a sort of COVID-related reserve that in the event that we've got any type of potential exposure that pops up, that we're in a good position to cover it off.
spk10: Okay. And then just switching gears quickly on deposit costs, those have come down nicely, I think 44 basis points. Obviously, there's still some room for those to come lower, but where do you kind of envision those bottoming out? Is it sort of the mid-30s or, you know, any color there would be helpful?
spk04: Yeah, that's accurate. So we're projecting being closer to the 40 basic points for cost of deposits for Q4 and And, yeah, you're totally right. As we continue to reprice more and more time deposits, the trend is right. It's approximately the number you're mentioning.
spk08: Yeah, and, Michael, great question. And I think one thing we'll add disclosure-wise is what our maturities look like for quarters going forward so that you guys can see both on the brokered and the time deposit side. you know, what the opportunity there is for continued downward repricing in that portfolio.
spk10: Okay, great. That's all for me. Thanks.
spk09: Sure thing.
spk10: Thank you.
spk09: Have a great day.
spk03: Thank you. I'm not showing any further questions in the queue at this moment.
spk08: Okay. Well, thank you, everyone, for joining our third quarter earnings call. We're very excited to be able to share our progress today and about the bright future ahead for Amerit. Hope you have a great day, and thank you again for your continued support and interest in our organization.
spk03: This concludes today's conference call. Thank you for participating. You may now disconnect.
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