Good day and thank you for standing by. Welcome to the Amarant Second Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer Please be advised that today's conference is being recorded. I would now like hand the conference over to your speaker today, Ms.
Dora Rossi, Head of Investor Relations. Thank you, and please go ahead.
Thank you, Myra. Good morning, everyone, and thank you for joining us to review Amaran Bancorp's Q2 2021 results. Joining me this morning to lead today's call are Jerry Plosch, Vice Chairman and Chief Executive Officer and Carlos Iafiliola, 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. Amarin's business and operations are subject to a variety of risks and uncertainties, which 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 ks for the year ended December 31, 2020, and in our other filings with the SEC. You can access these filings on the SEC's website. Amarin 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 Jerry.
Thank you, Laura, and good morning, everyone, and thank you for joining Amarin's Q2 2021 earnings call. I'm pleased to report Amyris earnings for the Q2 and to provide you with an update on the progress we have made regarding the new strategic initiatives and objectives I shared in last quarter's earnings call. I'm also happy to note that we recently implemented return to office plans where Amarin team members either have a fully on-site or hybrid schedule depending on their job function. I'd like to take this opportunity to thank the entire Amarin team for their dedication and effort during this past year. And note that we are all looking forward to moving ahead and focusing on Amarin's profitable growth.
Let me now provide a brief overview of our performance in the Q2 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 2nd quarter highlights. We're pleased to report further improved results compared to Q1. Of note, net income attributable to the company of $16,000,000 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 $5,000,000 from the allowance of loan losses. Total loans were $5,600,000,000 and total deposits were $5,700,000,000 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 point $6,000,000 as of July 20. Turning now to the core PPNR slide 4. We're happy to report core PPNR of $17,000,000 an 8% increase compared to last quarter. We felt adding this slide would be helpful 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 Q2. You'll note that a number of these strategic measures were focused on driving lower future funding costs and lower operating expenses. We recorded a $3,800,000 gain on the sale of $95,100,000 in PPP loans. We reduced the allowance for loan losses by $5,000,000 given improved macroeconomic conditions and credit indicators in our markets. We launched operations at Ameren 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 $285,000,000 of FHLB advances and we paid off an additional $235,000,000 Taking a $2,500,000 charge in Q2. Both of these actions represent $3,600,000 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 $1,500,000 We outsourced the internal audit function, which we expect will result in savings of $1,000,000 annually starting in 2022. We proceeded with the closing of our loan production office in New York City, Recording $800,000 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 Ameren Mortgage.
And we launched a process improvement initiative with a well known third party to improve customer experience and drive additional efficiency. Additionally, we're excited about our recent partnerships with leading Fintechs, Numurator Growth Technologies and Marstone Inc. Numurator's award winning platform will significantly improve the business loan account opening process, Making it easier and faster for both bank employees and customers. It's clear that small businesses will need financing 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, their online wealth management platform will help empower Emeren Investment customers to fully understand their financial position, Plans and outlooks, while benefiting from the high touch relationship management Amarin is known for.
As part of the agreement, Amarin will leverage Marstone in 2 Gain 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 than we can do today. Through the technological partnership, Ameren Investments will be able to its existing advisory offering and leverage new tools to scale our business. And we're excited to be in 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 Amarin brand and drive even greater business growth. As I noted previously, we've just begun that 8 week process with a well known firm to drive additional efficiency and enhance the customer experience, all with a 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 So with that said, I'll turn things over to Carlos, who will walk through the results for the quarter in more detail.
Thank you, Jerry, and thank you all of you for joining us today. Turning to Slide 7, I'll begin by discussing our investment portfolio. Our 2nd quarter investment securities balance was 1 point $3,000,000,000 unchanged from the previous quarter and down from $1,600,000,000 in the Q2 of 2020. The duration of the investment portfolio continues to reflect Changes due to drop in interest rates. During this quarter, we recorded a decrease in duration of 0.4 years as expected prepayment speeds increased.
We continue to select investments to mitigate the impact of prepayment risk cover the portfolio. As of June 30, the floating portion of our 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 $5,600,000,000 down 2.5% compared to the end of the last quarter. The decline was primarily due to prepayments received in both CRE and C and 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 $24,000,000 down significantly compared to the $165,000,000 of outstanding PPP loans as of the end of Q1. We processed $60,000,000 in forgiveness applications and sold $95,000,000 as I previously mentioned. It's important to note that we continue to see strong performance in our consumer loan portfolio, which at the end of the second quarter Including $221,000,000 of higher yielding indirect loans. During this quarter, we purchased an additional $62,000,000 of these loans.
Turning to Slide 9, let's take a closer look at the credit quality. Overall, credit quality remains sound and reserve coverage strong. The allowance for loan losses as of the end of the Q2 was $104,000,000 down 6% from the $111,000,000 at the close of the last quarter. We released $5,000,000 from the allowance for loan losses in Q2, primarily as a result of improving macroeconomic conditions and indicators As Florida and Texas Economies continue to recover, classified loans $123,000,000 at the end of the second quarter compared to $91,000,000 in the Q1 of 2021. The quarter over quarter increase was primarily driven by the downgrade of 3 commercial real estate loans totaling 40,000,000 Mainly New York due to increased vacancies in retail spaces and one small commercial loan.
These increases were partially offset by upgrades for 6,200,000 Important to note that early this week, we were notified that a property guaranteed at $12,000,000 loan in New York, which was under non performing, will be transferred to Orion. As a result, dollars 2,700,000 previously reserved will charge off in the Q3 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 $40,000,000 of the coffee trader loan, out of which $19,000,000 were charged off with an outstanding balance of $20,000,000 as of now, As well as downgrades of $30,000,000 loan to a food wholesaler credit exposure and 2 CRE multifamily loans totaling 10,000,000 Regarding the coffee trader case, we have been in close contact with the liquidation agent regarding the collection process and prospective distribution. So far, cash collected by liquidation agent is approximately $95,000,000 Timing for distribution are pending to be defined as allocation of proceeds maybe Assets totaled $122,000,000 as of the end of Q2, up 35% quarter over quarter and so change was attributed by the increases I just explained.
During the Q2 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. Worth to mention that only 1% of the loans were still under forbearance during the Q2 of 2021, down from 1.1% as of 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 forbearance accommodations We're real estate collateral loans. As of now, all the loans that went out of forbearance have resumed Our team remains committed to closely monitor the performance of the remaining loans in deferral under the terms of the temporary relief granted. Continuing to Slide 10, total deposits at the end of the second quarter were $5,700,000,000 down 0.1% from the end of the first quarter, While domestic deposits were slightly down by $35,000,000 compared to Q1, foreign deposits went up by 32,000,000 Which is encouraging to consider in previous run out rates of this portfolio.
Deposits excluding customer CDs and broker deposits increased by $164,000,000 during the quarter. This increase partially offset an 11% reduction in customer CDs compared to the prior quarter During the Q2 of this year, broker deposits decreased $22,000,000 or 4%. Broker and time interest bearing accounts decreased by $146,000,000 on a combined basis. These figures were offset by $124,000,000 increase in brokered money market deposits. Broker interest bearing deposits are included in our core deposit definition.
Core deposits, which consist of total deposits excluding all time deposits were 4,000,000,000 As of the end of the second quarter, an increase of $246,000,000 or 7% compared to the prior quarter. This amount includes non interest bearing deposits of $1,000,000,000 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 $50,000,000 up 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 broker CDs, higher average loan yields As a result of lower amortization of net deferred loan origination costs due to PPP loans and an increase in higher yielding consumer loans, Lower cost and average balances on FHLB advances as part of the repayment and modifications previously discussed.
Moving our attention to margin. Q2 net interest margin was 2.81, up 15 basis points quarter over quarter And up 37 basis points year over year. As in previous quarter, we continue to focus on offsetting ongoing NIM pressures by improving our deposit composition and proactively increasing the spreads in loan origination. Continuing to Slide 12, Non interest income in the 2nd quarter was $16,000,000 up 11% from Q1. The increase during Q2 was primarily driven by $3,800,000 in other income resulting from the sale of the $95,000,000 of the PPP loans and $1,300,000 in derivative income.
The increase was partially offset by a $2,500,000 net loss in early extinguishment of FHLB advances as we repaid $235,000,000 of this borrowings And a $1,200,000 decrease in securities sold compared to Q1. Amarin's asset under management totaled $2,100,000,000 As of the end of June of $140,000,000 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 And for the build out of its franchise, during the Q2 of 2021, Amarin partnered with leading digital wealth management technology firm, Marston, As previously announced by Jerry, I will cover in more detail shortly. Turning to Slide 13, 2nd quarter non interest expense was $58,000,000 $52,000,000 up $8,000,000 or 18 from the Q1 and up $50,000,000 year over year.
The quarter over quarter increase was primarily driven by higher salaries and employee benefit costs, Mostly as a result of escalated severance expenses incurred in Q2 in connection with restructuring activities and events that Jerry previously covered. Additionally, during the Q2, we had increased recruitment fees, the majority of which were growing business lines like Cameron Mortgage And greater advertising expenses, primarily in connection with our Hilo campaign and support brand awareness initiative for future profitability. Core non interest expenses, which adjust for the $4,200,000 of non recurring items was $47,000,000 in the Q2 of 2021, Up $4,000,000 or 8 percent from the $43,000,000 we reported in the Q1 of 2021 And up $12,000,000 or 33 percent from the $35,000,000 that we reported in the Q2 of 2020. Efficiency ratio was 77.8% in Q2 of 2021, up from 71% in the previous quarter and up from the 55.6% in the Q2 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 7,800,000 In deferred expenses directly related to the origination of the PPP loans that we originated in the Q2 of 2020. Core efficiency ratios will adjust for nonrecurring items was 74.5% in the Q2 of 2021 compared to 73% in the Q1 of 2021 and 61% in the Q2 of 2020. Lastly, We announced the closure of our banking center in Wellington, Florida to be completed in the Q3 with the goal of optimizing our branch network And better align our desired footprint with strategic objectives. We are currently evaluating other locations to open banking centers with access to untapped Customer base in our markets. Moving into interest rate sensitivity on Slide 14, our business continued to be asset sensitive And as of the end of June, over half of our loans either have floating rate structure or mature within a year.
To manage this 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
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 And do this responsibly with the best interest 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 of consumer, small business and commercial core And to achieve a lower cost of funds, reduce our reliance on other sources 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%. At a reduced level of brokered deposits, the 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 add 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 Marstoning to power our digital wealth platform. We expect full implementation for both by Q4. There are more opportunities to work with FinTechs 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 dramatically improving Amarin's brand awareness. Many improvements have taken place or underway.
Easy to implement items such as improved branch and 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're excited about what was accomplished over the past 90 days And we're seeing the and seeing the upside from all of these efforts 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 1 branch this October and we've determined 9 others that need to be refreshed We're going to be doing all this over the next 24 to 36 months to achieve a common look and feel across all 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. Ameren Mortgage commenced operations in May And they continued to build out the team there, which now is at 38 members. We continue to believe that adding to our specialty finance capabilities makes sense 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 twenty twenty one 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 Amarin's efficiency ratio to 60% within the next 6 quarters.
So here's what was accomplished during the quarter. We significantly improved the margin from restructuring Federal and Mobile 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 and annual savings of $1,000,000 are expected starting in 2020 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 $5,000,000 will result. We just kicked off an 8 week process improvement initiative with a well known firm, all designed to improve customer experience 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'll be happy to take your questions.
Myra, please open the line for Q and A.
Thank you. We have our first question comes from the line of Will Jones from KBW. Your line is open. Please go ahead.
Hey, great. Good morning. Thanks for taking my questions.
Good morning. Good morning.
Hey, so I just wanted to start on the credit front. I know you guys called out The $40,000,000 of serial loans in New York had moved to the classified bucket this quarter. Just hoping to get a little more context around those loans just in terms of LTV's collateral and whether or not you guys have any specific reserves set aside for those loans at this time?
Yes. Hi, good morning. Yes, we'll give you
some color on those loans. So there were 4 in total that were added into the non The 2 from New York are they're commercial real estate. They had 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 $30,000,000 that were added And we have close to the $10,000,000 loan loss provision between those two loans. They were they're Great properties in very good location.
One of them is the one that I mentioned that it will be transferring to OREO For about $12,000,000 in book value and that on that specific one, we have close to the $3,000,000 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're very well provisioned as of now.
Okay, great. Super helpful. And then maybe just On the topic of credit, are there any other credits that you can see coming up on Horizon maybe specifically, Curtis in that New York market, give you guys any concern at this time or do you feel like you kind of really mix the bucket with All the moves that were made this quarter?
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 land loss provision is significant And level of COVID related loan loss provision, which we keep at $15,000,000 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 New York, and we're starting to see very good positive signs in the interest on the New tenants, etcetera. So signs are positive as of now.
Okay, awesome. That's great. And then just kind of switching gears, thinking 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 and 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?
Yes. There are about $8,600,000 of 8,600,000 shares on the B side that are still outstanding. As Jerry mentioned, we bought 565,000 So far roughly $9,600,000 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 appointment, 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.
Yes. Will, it's Jerry. I think as Carlos is referencing, there's a liquidity issue, I think, with those shares more so, and though We've been shipping away typically the purchases have only been a couple of 1,000 shares here and there and then there's 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 to try and 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.
Yes. No, no, no. That's totally understandable. Totally get that. And then maybe just thinking about that whole share class longer term.
I realize it could take a while to Hopefully work 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 this far?
Yes, Will. Ken, 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.
Great. That's it for me. I'll hop back in the queue. Thanks for taking my questions.
Thank you. Thank you. Have a good one.
We have our next question comes from the line of Michael Bose from Raymond James. Your line is open. Please go ahead.
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 Yes. 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 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.
Yes. Michael, it's Jerry. Let me Take first crack at that one. I think it's fair to say that over the last two quarters, We've been investing in Ameren 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, we'd probably be somewhere in the 50 to 60 headcount range by the end of the year.
So you can expect that we'll 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 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 towards business generation.
And I think it's just a continuation sort of transformation wise. I know that the quarter had a lot of puts and takes. Hopefully, you can pick that out of what we said was going to be add this into the 2022, add this in, We'll start to see some immediate results. Most of the actions that we've taken right around the NIM, you can see it 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 Q3, 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'll 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. What 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 a This is a long answer to what you asked, which is you're going to continue to see a couple of $1,000,000 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're absolutely going to do that And we'll continue to optimize the infrastructure side of the company.
So I would expect that that work is all completed through this Q3 And you'll be able to see a much clearer picture going into Q4.
Jerry, that's really helpful. Yes, color. I guess that begs the 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, Yes. 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.
Yes. Michael, that's a great question. I think when I gave the initial guidance of give us the I call it the 6 quarter horizon to get to 60 is really that's a really important So the goal of ours, I think the 1 and the 10, 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, 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'll 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, etcetera. 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 towards the end of Q3, you didn't take 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.
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 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? Yes, 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.
Yes. No, absolutely. I think that kind of goes into everything's on the table. We're going to look 2 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 to add to our, I'll call it our arsenal, our capabilities. We're absolutely actively looking at those right now.
Okay. Thanks for taking all my questions.
Sure. Thank you. Have a good one.
We have our next question comes from the line of Eddie Strickland from Janney Montgomery. Your line is open. Please go ahead.
Hey, good morning.
Hey, good morning, Eddie.
So it's great to see all the positive dynamics with respect 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 purchase, right? Or is there some more new loans coming on the books that you guys are Getting at a higher yield organically?
Yes, that's a good question. So if you recall, there was a weak carries PPP into the balance sheet in the Q1 of 2021 that were originated in 2020. So we had deferral of the expenses from the origination of these loans being amortized. And as you probably recall from the previous year, we defer about $7,800,000 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 Q1 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 the increase. The second one is that we have been very we keep the discipline in the origination of C and I and CRE at a very attractive spreads 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 $220,000,000 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.
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?
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 This 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 even happens, your blended cost of funds improved by about 10 basis points quarter over quarter, Which is significantly and improved the overall performance of the balance sheet.
Yes. Hey, Fady, 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 costs is Pretty critical for us. And the nice part is you'll see the balance shift that we were talking about, right, for much greater focus on non interest bearing Much greater focus on us trying to as The 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'll A lot of it's going to be driven from the liability side. That's where there is just great opportunity for us.
Yes. And if you want to break down between what was the impact of the assets for the liability specifically for the quarter, the improvement in the NIM about a third came from the asset And 2 thirds came from the liability. That would be a good explanation of the quarter over quarter NIM improvement.
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 you're 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?
Yes. I think it's Safe to say that we're seeing increased occupancy across the board, notwithstanding like this Slight spike that we're seeing, I'll call it slight, I mean the spike that we're seeing in COVID cases, but Both of the markets that we operate in have been very open. And so we're seeing, I'll call it, 75 plus Out of occupancy numbers and even closer to 80 in that range across the portfolio.
Got it. Thanks for taking all my questions guys and congrats on a great quarter.
Thank you. Thank you.
We have our next question comes from the line of Roddie Preston from Stephens. Your line is open. Please go ahead.
Hey, good morning, everyone.
Good morning.
Hey, I just wanted to follow-up maybe on a couple of Bill's questions from earlier real quick. 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 2 retail loans that got called out On Slide 22, were those included in the $40,000,000 that got the updated appraisals?
Yes, those are included list of updated appraisals, that's right.
And Carlos, do you happen to know what the percentage Change in the newly appraised value was relative to the previously appraised value?
So pretty much they were in the 60s, 65% LTV approximately And they went up to 145 percent or something like that. Okay.
All right. Thank you for that. And then Jerry, just on I guess on the capital deployment, just given how strong the capital Shiosar, 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 Employing that capital via another kind of Dutch tender or something like that to maybe drive EPS upside versus Kind of saving that dry powder to make more meaningful investments in the business and drive actual bottom line improvements. Sort of how do you think about the trade offs
No, it's a great question. And I would tell you that that's exactly what we're working on right now. I think that the one thing we're 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, it'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're going to do around capital.
Awesome. I appreciate that. And then Just 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 were some prepayments. Was there anything specific that drove that? Or is that just kind of consistent with what we've been seeing across the industry?
They were in the during the quarter, we have almost 330 In prepayments, 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 a LIBOR plus 150, 160 basic points that Have been refi in front of us and we just pretty much cannot participate as of now.
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 235,000,000
They were done during the That was mid quarter. Yes, around May. You will see the complete effect Of the savings in the Q3, that would be a clean picture from the interest expense perspective.
Okay, great. And then the last one for me is just could you give some details on how the build out of Amarant 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.
Yes, good question. So, we started taking applications on May 24. The infrastructure of the company is already 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 very good pace.
So as of now, we have received approximately 60 applications For mortgage, Enu has been 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 Ameron Mortgage and the bank itself. So our expectation is Towards the end of the Q3 and the full 4th 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 system, etcetera. So the infrastructure build up That was definitely the driver of the cost. Going to your second question, we're 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 towards 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
Okay. Have a good one.
We have our last question comes from the line of Michael Young from Trist Securities. Your line is open. Please go ahead.
Hey, thank you for taking the questions. Wanted to maybe just start with kind of balance sheet size and dynamics moving forward. Obviously, you've got kind of Profitability targets out there, but you can kind of shrink to achieve those or grow in scale, to I'm sure the latter would be the preference, but can you maybe just talk about given kind of the pandemic, everything that's been going on, the internal kind of Shifts in personnel, etcetera, just kind of how you see that playing out relative to balance sheet growth and deposit growth,
Yes, 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 And equipment finance as an example capabilities, you're going to see a big composition change Start to take place right over the next couple of quarters. We're 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% to 7.75% Sort of range is probably where we would be targeting. If we have opportunities to expand that, we're 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're 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'll begin to see that Taking place in this quarter for sure and in the 4th quarter.
Okay. And maybe you guys had higher kind of CRE payoffs. We've 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, etcetera, are you seeing increased demand at this point?
Yes. As I mentioned on the previous question, there was a lot of competition, in particularly And Texas, as you know, we actually haven't been closed completely. There was just 2 months of last 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.
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 and I side on more granular loans to trying 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?
Yes, 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.
Okay. And my last question, maybe just on the deposit side, obviously, you've still got some runoff IRCDs and the international deposits, but generally, I guess, domestically, the industry kind of writ large has been awash in deposits Everyone's got up to 20 and they're growing them fairly quickly. So is there any desire to go ahead and get out 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.
Yes. 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'll continue to see not just the benefit of downward repricing as time deposits and brokered 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 So where we're going to head as a company?
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 $100,000,000 at 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.
Okay, thanks. That's all for me. Okay. Thank you. Thank you.
Have a
good day. There are no phone questions at this time. I'll turn the call over to our CEO, Jerry Plush.
Thank you, Myra. We appreciate that. I would like to just thank everyone for joining the Q2 earnings call. We're very excited about the bright future ahead for Amarin.
This concludes today's conference call. Thank you all for participating. You may now disconnect. Have a great day.