Good day and thank you for standing by. Welcome to the Amarin Bancorp 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 Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Laura Rossi, Head of Investor Relations.
Please go ahead.
Thank you, Victor. Good morning, everyone, and thank you for joining us to review Amaran Bancorp's Q3 2021 results. Also on today's call are Jerry Plosch, Our Vice Chairman, President and Chief Executive Officer and Carlos Yafiliola, our 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, 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, In our quarterly report on Form 10 Q for the quarter ended June 30, 2021, and in our other filings with the SEC. You can access these filings on the SEC's website. Amarant 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, I will now turn it over to our CEO, Jerry Plush.
Thank you, Laura, and good morning, everyone, and thank you for joining Amarin's 3rd quarter I am pleased to be here today to report on our results for the quarter and the progress our team has made focusing on the key priorities we set out during our Q1 2021 earnings call. I will also comment later on this morning on some significant initiatives 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 Amarin 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 3rd quarter And then Carlos will go over the details. So let's turn to slide 3.
So here you can see a summary of our Q3 highlights. We're pleased to report further improvement in our results compared to the Q2. Of note, net income attributable to the company of $17,000,000 is up 6.7% quarter over quarter, primarily driven by higher net interest income and lower non interest expense. Our total loans were $5,500,000,000 and total deposits were $5,600,000,000 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, 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 $50,000,000 which we expect will commence here in the 4th quarter. So let's move to the core PPNR slide number 4.
We're pleased to show continued growth in core PPNR of 18,300,000 an 8% increase compared to the $16,900,000 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 5, our key actions. Here we list them out for what has taken place during the Q3.
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 mentioned loans decreased 31.7%, 31.3% and 16.4% compared to last quarter respectively. We are diligently working on further reductions here in the Q4. 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 7 basis points, which translates into annualized savings of approximately $2,200,000 and we prioritized core deposit growth, which totaled $141,700,000 in the quarter.
We closed one branch located in Wellington, Florida as of October 15, 2021 and we've announced the 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 Q4 of 2022. This will reduce our operations center by over 40,000 square feet and our annual rental expense by nearly $1,000,000 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 We're excited about our recent announcements regarding leading technology platforms outlined in 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 Amarin. 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 the new branding partnership with the Florida Panthers and the NHL for the 2021 2022 season. In our soon to be released investor deck this quarter, we'll 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 6, 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 Slide 7 is new this quarter. We wanted to add this to focus solely on Amarin 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 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. Carlos?
Thank you, Jerry, and good morning, everyone. So turning to Slide 8, I'll begin by discussing our investment portfolio. The 3rd quarter investment securities balance was $1,400,000,000 slightly off from the $1,300,000,000 in the previous quarter And flat compared to the Q3 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 9, let's talk about the loan portfolio. At the end of the Q3, total gross loans were 5,500,000,000 down 2.3% compared to the end of the last quarter. The decline was primarily due to approximately $320,000,000 in prepayments received In both CRE and C and I, plus a portion of the C and I closings having been moved to the 4th quarter. Consumer losses of September 30 were $360,000,000 an increase of $48,000,000 or 15% quarter over quarter. During the Q3 of 2021, purchased an additional $80,000,000 of higher yielding indirect loans for a total of $263,000,000 on that specific portfolio.
Turning to Slide 10, we'll provide updates on the New York loan portfolio. As we announced during the Q2 call, The New York City loan production office has officially been closed. At the close of the Q3, 30 loans totaling $220,000,000 were classified available for sale and little over $400,000,000 still remains in the New York portfolio. We have elected to mark the position of this portfolio Now classify 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 soup tenant expect to start in the Q4 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 3rd quarter was $83,000,000 down 20% from the $104,000,000 at the close of the previous quarter. We released $5,000,000 from the allowance from loan losses in the Q3 in which the release of approximately $2,000,000 was a result of upgrades, Payoffs and pay downs of non performing loans and special mentioned loans. A release of the remaining $3,000,000 was due to The loan portfolio reduction and the classification of the loans as available for sale.
Charge off for this quarter were $70,000,000 from which $5,700,000 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 agent 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 $93,000,000 at the end of the Q3 of 2021, a decrease of almost $30,000,000 or 24% compared to the Q2 of 2021, an increase of $6,000,000 or 7% compared to the Q3 of 2020. The ratio of non performing assets to total assets was 124 basic points, down 37 basic points from the Q2 of 2021 and up 16 basic points from the Q3 of 2020.
In the Q3 of 2020, the ratio of reserves The non performing loans increased to 1% from 86% in the Q2 of 2021 and a decrease from 135% at the close of the Q3 of 2020. As we have done since the declaration of the COVID-nineteen pandemic, There is a 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. Continue to Slide 12, total deposits at the end of the 3rd quarter were $5,600,000,000 down 0.9% from the end of the second quarter. While domestic deposits were slightly down by $50,000,000 compared to the 2nd quarter, International deposits went up slightly by $1,400,000 showing continued evidence of stabilization in this portfolio.
Deposits including customer CDs and broker deposits increased $185,000,000 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, focused on increasing core deposits and emphasize multi product relationship instead of a single product high cost CD. We're encouraged to see our deposit mix continuous improvement towards higher percentage of core deposits. During the Q3 of this year, broker Deposits decreased $98,000,000 or 18.5 percent, out of which $55,000,000 came from time and $43,000,000 from side deposits. The decrease in total customer CDs and broker deposits were partially offset by an increase of $185,000,000 or 5% in customer transactional accounts.
Core deposits, which consist of total deposits excluding all time deposits were $4,200,000,000 as of the end of the 3rd quarter, an increase of $142,000,000 or 3.5 percent compared to the previous quarter. This amount includes non interest bearing of $1,200,000,000 or 20 1.5% of deposits as of the end of the third quarter, which also include increased from $107,000,000,000 or 19% from the previous quarter. Now I will discuss the net interest income Slide 13 and net interest margin. During the Q3, net interest income was $52,000,000 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.
1st, 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. 2nd, Higher average loan and investment yields with the loan yield increase due to a higher amount of consumer loans. 3rd, higher investment portfolio average balance due to the company's redeployment of excess cash and cash equivalents. 4th, 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 C and I, While loans closing some delays at the quarter end does not offsetting the prepayment activity.
Moving on the margin, The 3rd quarter interest margin was 2.94 percent, up 13 basis points quarter over quarter and up 55 basis points year over year. As in the previous quarter, we continue 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. Continued to non interest income on Slide 14, the 3rd quarter was $13,400,000 down 14.6% from the 2nd quarter. The decrease during the Q3 was primarily the result of non recurring items recorded in the 2nd quarter, such as $3,800,000 in net gain in connection with the sale of $95,000,000 in PPP loans, dollars 2,500,000 net loss on early extinguishment of FHLB advances and $1,300,000 net gain on sale of securities. Also contributing to the lower non interest income was a decrease of $800,000 in customer derivative income in the Q3 of 2021.
The decrease in non interest income was partially offset by an increase in $200,000 In fees from brokerage advisory and other fiduciary activities and mortgage banking income from $700,000 Amarant assets under management totaled $2,200,000,000 as of the end of the third quarter, up $56,000,000 or 2.6 percent 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 of quarter end, we are up and live with the new digital wealth platform powered by Marston. Turning to Slide 15, 3rd quarter non interest expense was $48,400,000 down $2,700,000 or 5.3 percent from the 2nd quarter $2,900,000 year over year. The quarter over quarter decrease was primarily driven by the lower salaries and employee benefit expenses resulting from the 2nd quarter, including the non recurring $3,300,000 in severance expenses we did last quarter. We also had lower occupancy and equipment Expenses resulting from a non recurring $800,000 lease impairment charge 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 Q3 of 2021 compared to almost 78% in the previous quarter And 69.3% in the Q3 of last year. The quarter over quarter decrease was driven by the significantly lower severance expenses incurred during the Q3 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 Q3 of 2021 compared to 74.5 percent in the Q2 of 2021 and 76.5 percent 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 The pay would 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, rated structures or mature within a year. To manage the sensitivity and mitigate the impact on our financial margin, we continue to actively manage our loan and investment portfolio.
This include implementation of flow rates on our loans and capitalizing on higher yielding securities and longer durations. I will now turn it back to Jerry to talk about Amarin's progress on the near and long term initiatives.
Thank you, Carlos. On Slide 1718, This quarter we provided some details on each of the 6 key priorities this quarter. Rather than going into a lot of discussion on the call as we did in the last 2 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 Aloying Click switch and then we also applied for approval of our new Downtown Miami location.
Moving on to 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 15 this year.
We also announced that our Board approved a new buyback program for $50,000,000 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 and 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 Q4.
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 6 additional business bankers here in South Florida and we're currently looking to add 3 more in Houston. We'll report on our progress next quarter end.
In mid November, we will be adding 6 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 3 people we added this quarter in Houston We 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 note 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 resolution. 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 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 4th 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 that I just previously noted. It's an exciting time for all of us here at Amarin 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 and A.
Sure. Our first question will come from the line of Michael Rose from Raymond James. You may begin.
Hey, good morning and thanks for taking my questions.
Hey, Mike.
Maybe we just start on the 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. There'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 when we could see an inflection in the loan balance Now that PVP is just about gone and you're quickly accelerating some of those efforts to wind down New York. Thanks.
Yes. 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 so 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 Q4 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 the wind down of New York operations that we're going to be subletting the office space.
We're down to our key player who is in that particular office overseeing 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 Carlos will give a couple of comments on the specifics on the loan portfolio, But I believe we're roughly down to about $600,000,000
Correct.
Slightly above $600,000,000 in current receivables. I think the number is 627.
Right. Yes, it's about $630,000,000 that's right. And it's so we classified this $220,000,000 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. So because We will start serving those loans from Miami. So that was one of the reasons and maturity as well.
Yes. 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 of for everyone from the analyst and investor community recognizing that we're trying To bring this to resolution for clarity, 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, 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 C and I space.
Okay, that's helpful. And Jerry, you've outlined some targets to get to an efficiency and ROA and ROE target by the end of next year. It seems like you're making really good progress on that. Any thoughts on maybe achieving that Sooner than the Q4 of next year, just for some of the additional moves that you announced, including potential sale of the headquarters, things like that, that Yes, I could potentially get you there a little bit sooner. Thanks.
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 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 Q4 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.
Very helpful. Maybe just 2 Quick ones before I wrap up. Just on the Ameren 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 2 quarters. So if you could just give us some color on what's driving that?
Thanks.
Yes. Let's talk about the deposit side first and then we'll go back. On The international deposits, we see great opportunity. We're in 2 markets that there's significant Potential for international business. And so both out of Miami, as in 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 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, 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.
Yes. 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.
Hey, Michael, and forgive me, what was The first part of your question? Mortgage.
Yes. I got
to it. Sorry, I got a little excited there to answer the deposit question. I think in terms of Ameren Mortgage, one of the things we've elected to do and if you know The thought here is be opportunistic. The team identified a group of folks that can really contribute to Future earnings. 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 Q4, we've got 8 already on board with 22 in total that we expect to be here.
So I would tell you Q4 will continue to be an investment in terms of making 2022 The beginning of breakeven and then contribution to profitability. But in this particular space, We're excited. We're a little behind where we were wanted to be when we didn't get to open until late May. But I think at this stage, we're very excited about 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 effectively and efficiently for the future.
Yes, that's right. Appreciate all the colors.
Yes. Okay.
Thanks.
Our next question will come from the line of Stephen Scouten from Piper Sandler. You may begin.
Hi, good morning everyone.
Hey, Stephen.
I wanted to follow-up maybe on Kind of loan growth trends, I know you noted some of those CRE and C and I 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? You noted particular strength in your pipeline.
Yes. So the quarter was particularly high in prepayments. We recorded more than $300,000,000 in prepayments, but at the same time, the pipeline was It's very promising. Pretty much we had a lot of closings before quarter end, But then there were orders that were delayed until October November actually were closing As we speak, more loans that were initially on the pipeline. So it looks very robust in general.
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 CRE, 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 and want a relationship with us. And I think that that's a 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, look, we've got the headwinds of New York, right, and a little bit on this prepayment side, So 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. 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 There's a lot of what we've been focused on is around restructure, has been around rightsizing, about transformation, all these other words. We're really focusing on building the company, for future success. And so the investment that we're making And 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.
Got it. Okay. And do you have any data to frame up that kind of $300,000,000 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.
No, it was a mix in general. It came from the CRE and C and I, but mostly CRE. And also, accounting on those 300 were a couple of New York prepayments as well that came in And those the intention were not to renew them. So that was another item against the production.
Okay. And Gary, 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 Push pull of investing in the future growth of the franchise, but still trying to hit this kind of sub-sixty percent 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?
Yes. Absolutely. I think it's the investing in the long term value 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 trying to really invest to get the personnel we know we can We need in order to be a higher growth company.
And so we're overcoming a lot of headwinds obviously. We're pulling out 100 of 1,000,000 of dollars that were 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, 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 This wasn't just going to be a cost cutting exercise. This is a and again, I think people use rightsizing a little bit too much, but I think it's Adjusting the franchise to set ourselves up for success that we can leverage 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 again, it 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 Progress in that.
And we hope to report continued progress each quarter, so that you'll see that we're marching our way there.
Definitely, definitely. Okay, that's great color. Thank you guys for the time. I appreciate it.
Absolutely. Take care.
Our next question comes from
the line of Freddie Strickland from Janney Montgomery. You may begin.
Hey, good morning.
Good morning, Kelly.
I was just curious, it was great to see some of the reduction in classified and special mention. 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?
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. 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 The situation and trying to get everyone aligned on distribution is critical. Think we've talked before on a previously $200,000,000 exposure.
There's cash sitting to the tune of almost $100,000,000 And so All of us are anxiously awaiting to try and see how much of this, 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 write down now on the specific reserve, we're roughly 14,000,000 14 total exposure. In terms of remaining exposure and we feel comfortable with our position In terms of getting paid on that.
And those were And
we're going to continue to monitor
it, right? I mean, obviously, in these situations, everything It's 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.
And those carry those $14,000,000 carry 6 0.5 in specific reserves.
Got it. So then, that's right. I remember You guys discussion that. So the classified special mention improvement was independent of this coffee relationship, which you'd already kind of set aside everything is what you're saying. Yes.
You got it. Yes.
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 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%.
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?
Yes. 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 2 of the hottest markets in the country. We've talked about this before. Demand for people is Hi. I think what is good for the Amarin story is people know that We're streamlining our processes. I think our business development people would tell you that we've gotten And 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 and being part of an organization Our size and not having to deal with the layers of management and oversight that are very common at much larger institutions. Clearly, I hope it's clear to everyone that we're decisive, we move quickly And that's part of what we want to maintain and actually become even better known for. And I think that's really attractive So I think we have positives that again, as we've mentioned, look at the teams, the people that are coming our way. 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, right.
It's just like The way some banks are willing to do higher LTVs in Cray or lower pricing in Cray, right? 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.
Hey, Perry, to compliment, 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 a point that we definitely are seeing around and something to report to you based on your question.
Got it. Thanks for the color guys and appreciate the time.
Sure. Thank you.
Our next question will come from
the line of Will Jones from KBW. You may begin.
Hey, good morning guys.
Good morning Will.
Hey, so it's great to see the announcement intra quarter on the cleanup of those Class B Darrin, you've got your shareholder vote coming up here in about 3 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?
Sure. So the shareholders Meeting will be held on the 15 November. So the voting process will be done On that November
15 at 4:30.
Correct. So to be specific. And so once Everything, if it gets approved and through the right channels and 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 non boarding as we described on the 8 ks.
Great. That's super helpful. And I know the cash payout is not probably not going to be a huge number, but any preliminary estimate of what that may be Those who aren't receiving the Class A shares?
So Will, just to clarify, you're talking about The small
Yes, all the guys, the fraction of shares are still behind.
Yes, good question. So those That amount, it wouldn't exceed the $8,000,000 So the small shareholders or the rand in will be around $8,000,000 So it's not significant.
Got you. Got you. Okay. That's super helpful.
And then just moving on, thinking about the buyback, You guys announced that alongside the Class B share cleanup. It's great to see your Class A shares are not as cheap as they've been trading at about 1.3 times tangible, anything that is 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 Ameren't once that program commences in December? Or is it thought really just to Hold the cash and continue to reinvest internally.
Look, I think buyback programs are critical To have for us to be opportunistic, and I think if you just look 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 is to what we would do. But I'm firmly committed. I think our Board is 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 To be opportunistic.
Even if ahead of par, the compared to some peers was still Under value at $125,000,000 or so. So just to keep that in mind as a reference for buybacks.
Great. That totally makes sense. Maybe last one, just housekeeping. Is there any PPP loans left? I know you guys sold quite a few malls, but
Probably less than $5,000,000 very little.
Got it. Great. Thanks guys. Thanks Will.
Your next Question will come from the line of Brody Preston from Stephens.
Good morning, Brad. Good morning.
I just wanted to say thanks again for all the disclosure on 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, wanted to get a sense for Why it popped up this quarter and, what should we should expect for an effective rate moving forward?
Yes, great question. So there is probably 3 components that impacted the effective tax rate. One of them was related to executives earning more than $1,000,000 Remember that we have our During the last quarter that was released, the Chief Operating Officer retired from institution. So the incremental portion north of the $1,000,000 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 the And some adjustments on previous periods, so it was expensed this quarter. So those are the main components. So, on a structural basis, we continue to manage the effective tax rate with the usage of our REIT portfolio That it consolidates with the bank. So it's we're planning to enhance that.
So it should be stabilized On the 22.5 percent approximately effective tax rate for the full year.
Okay. 22.5 percent you said for the full year? Yes. Okay. So that's like what like 21% on a go forward basis?
That is exactly.
Okay. And then just do you happen to you repurchased a little bit of shares This quarter it looked like, but so could you just give us the number of what the number of Class B shares outstanding is currently?
It's about 8,500,000 Class B Shares. We bought on the remember that once we announced the conversion Of the Bs into As, we just halt the buyback of the Bs. So probably we reach a total of $9,500,000 approximately in total purchases dollars and that would be close to 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 merger.
We announced at the
same time we were doing Correct. The AB cleanup. We terminated the buyback and announced a new one, that will commence on the reconstituted 1 class. Right.
Yes. Okay. And then my remaining questions are just on the New York City portfolio. Jerry, I heard you earlier say that you it sounds like you have some a decent amount of sales that are going to come through In the Q4, so just from a modeling perspective, as I think about the size of that HFS portfolio through next Should I expect the bulk of the 2019 to be sold or how should we be thinking about that?
Yes, I think that's I think you could easily say that maybe it's a half and half quarter to quarter. Look, 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. Okay.
Okay. And what are the what's the yield on that portfolio?
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 repriced with LIBOR. So there may be single items that are sup 2%, but generally speaking, the weighted is at 3.7.
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 2019 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's by surprise. So How do you kind of thread that needle?
Yes. 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 $200,000,000 that's actually moved into AFS. Our expectation is There'll 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, our expectation was, Brody and I think we referenced this a little bit earlier in the comments, The majority on that 2.19 that was classified are the longer term Credits.
And so our expectation is somewhere between 2022 and 2023 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 has 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.
The other item that you should also think about Is the fact that once you typically the settlement of a loan, it takes a little bit longer than 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 have the impact of this portfolio income wise for the rest of the quarter.
Got it. All right. Well, those are all my questions everyone. Thank you very much for the time.
Awesome. Thank you. Have a good day.
And we have one other question from the line of Michael Young from Truist. Your line is open. Good morning.
Hey, good morning. Thank you for good morning. Thanks for the question. I wanted to just ask on the reserve or allowance. I think One times coverage of NPLs seems 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 You have any color on what may be remaining in that reserve in terms of specific reserves on credits?
Yes. Look, I think what you see in the NPLs Right now, is that we've done a thorough review. That Michael, 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 speed up the resolution on these things. Our expectation is that we can continue to significantly lower that In Q4, with a goal towards reporting on continued improvement without additional charge offs, As we think from a valuation standpoint that we've done a good job in that. In addition, we're still holding in our reserves about $15,000,000 that we'll call a sort of a 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.
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 any color there would be helpful?
Yes, that's accurate. So we're projecting being on the closer to the 40 basis points for Cost of deposits for Q4. And yes, you're totally right. As we continue to reprice more and more time deposits, the trend It's right. It's approximately the number you're mentioning.
Yes. 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, What the opportunity there is for continued downward repricing in that portfolio.
Okay, great. That's all for me. Thanks.
Sure. Thanks. Have a great day.
Thank you. And I'm not showing any further questions in the queue at this moment.
Okay. Well, thank you everyone for joining our Q3 earnings call. We're very excited to be able to share our progress Today and about the bright future ahead for Amyrith. Hope you have a great day and thank you again for your continued support and interest in our organization.
This concludes today's conference call. Thank you for participating. You may now disconnect.