Amerant Bancorp Inc. (AMTB) Q3 2021 Earnings Report, Transcript and Summary

00:03 Good day, and thank you for standing by. Welcome to the Amerant Bancorp's Third Quarter twenty twenty one Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions]. 00:30 I would now like to hand the conference over to your speaker today, Laura Rossi, Head of Investor Relations. Please go ahead.

00:38 Thank you, Victor. Good morning, everyone, and thank you for joining us to review Amerant Bancorp's third quarter twenty twenty one results. Also on today's call are Jerry Plush, our Vice Chairman, President and Chief Executive Officer; and Carlos Iafigliola, our Executive Vice Chair -- Vice President and Chief Financial Officer. 01:00 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. Amerant'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. 01:25 Please refer to the cautionary notices regarding forward-looking statements in the company's earnings release and presentation. For a more complete description of these and other possible risks, please refer to the company's Annual Report on Form 10-K for the year ended December thirty first, twenty twenty, in our quarterly report on Form 10-Q for the quarter ended June thirty, twenty twenty one, and in our other filings with the SEC. You can access these filings on the SEC's website. Amerant has no obligation and makes no commitment to update or publicly release any revisions to forward-looking statements in order to reflect new information or subsequent events, circumstances or changes in expectations, except as required by law. 02:16 Please also note, that the company's press release, earnings presentation and today's call include references to certain adjusted financial measures, also known as non-GAAP financial measures. Exhibit two and Appendix one of the company's press release and earnings presentation, respectively, contain a reconciliation of each non-GAAP financial measure to its most comparable GAAP financial measure. 02:42 I will now turn it over to our CEO, Jerry Plush.

02:46 Thank you, Laura, and good morning, everyone, and thank you for joining Amerant's third quarter twenty twenty one earnings call. I'm 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 first quarter twenty twenty one 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. 03:16 But before going through the results, I want to first thank all of my Amerant colleagues for their dedication and effort again this quarter and for their continued support in the pursuit of even better results in the future. So, I will now provide a brief overview of our performance in the third quarter, and then Carlos will go over the details. 03:36 So let's turn to slide three. So here you can see a summary of our third quarter highlights. We're pleased to report further improvement in our results compared to the second quarter. Of note, net income attributable to the company of seventeen million dollars is up six point seven percent quarter-over-quarter, primarily driven by higher net interest income and lower non-interest expense. 03:58 Our total loans were five point five billion dollars and total deposits were five point six billion dollars. They are both down slightly from last quarter. Nonetheless, we are happy to report continued improvement in the deposit mix, as core deposits increased we had solid growth in non-interest bearing deposits this quarter. 04:17 Our capital levels continue to remain very strong. We recently announced our intention to effect a clean-up merger in order to have one class of common stock going forward, and we are looking forward to having our shareholders approve this in mid-November. In addition, our Board has approved a new repurchase program for up to fifty million dollars, which we expect will commence here in the fourth quarter. 04:40 So let's move to the core PPNR slide number four. We're pleased to show continued growth in core PPNR of eighteen point three million dollars, an eight percent increase compared to the sixteen point nine million dollars 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. 05:14 If we turn now to slide five, our key actions. Here we list them out through what has taken place during the third quarter. You will 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. 05:33 So first, our non performing classified and special mention loans decreased thirty one point seven percent, thirty one point three percent and sixteen point four percent compared to last quarter, respectively. We are diligently working on further reductions here in the fourth quarter. We have instituted weekly sessions of key personnel to focus on driving to resolution on as many credits as possible to get the non-earning asset off of our books and the proceeds reinvested into earning assets. 06:02 We continued downward repricing of customer time deposits, further lowering the cost of such funding by approximately seven basis points, which translates into annualized savings of approximately two point two million dollars, and we prioritize core deposit growth, which totaled one forty one point seven million dollars in the quarter. 06:22 We closed one branch located in Wellington, Florida, as of October fifteen, twenty twenty one and we've announced a new downtown Miami branch that we anticipate opening late in twenty twenty two. The comment period regarding this branch expires next week. 06:39 We also significantly reduced our future space needs, as illustrated by our announcement regarding our new fifty six thousand square foot operation center in Miramar, Florida, that will take occupancy in the fourth quarter of twenty twenty two. This will reduce our operations center by over forty thousand square feet and our annual rental expense by nearly one million dollars. 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. 07:11 We recently completed the business transformation initiatives 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. 07:27 As we continue on our digital transformation and efficiency efforts, we're excited about our recent announcements regarding leading technology platforms, Alloy and ClickSWITCH. Alloy's leading identity decision platform will allow us to automate the identity verification process, when onboarding deposit accounts for both business and individual customers. 07:49 ClickSWITCH on the other hand, will improve the customer experience by simplifying the conversion of consumer and small business account, as they transition direct deposits and automatic payments to Amerant. We're confident that these new platforms can help improve our customer experience overall and grow stronger banking relationships. 08:09 We also launched our new brand awareness campaign based on the tagline "Imagine a Bank" via billboard and social media, and also announced a new branding partnership with the Florida Panthers in the NHL for the twenty twenty one, twenty twenty two season. And our soon to be released investor deck this quarter will provide examples of the brand and marketing campaigns for your information. 08:32 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. 08:45 So if we turn to slide six, here we've outlined our key performance metrics, which show improvement across the board this quarter. These results are reflective of our continued focus on core deposit growth and improving the net interest margin, which helps drive higher operating profitability. We also maintained a robust capital position and very strong credit coverage, which, while it's lower than prior quarter, is at a very healthy one point five nine percent of total loans. 09:16 Slide seven is new this quarter. We wanted to add this to focus solely on Amerant Mortgage outlining the growth in people, applications and show the increasing revenue quarter-over-quarter. As a reminder, we started taking applications in late May of this year, and we've recently been focused on adding additional sales personnel to the team. And we are currently in the process of onboarding an even greater number of experienced personnel this quarter to drive future results. 09:45 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?

09:52 Thank you, Jerry, and good morning, everyone. So turning to slide eight, I'll begin by discussing our investment portfolio. The third quarter investment securities balance was one point four billion dollars, slightly off from the one point three billion dollars in the previous quarter and flat compared to the third quarter of twenty twenty. The duration of the investment portfolio has extended to three point seven years due to lower expected repayments in light of higher long-term interest rates. 10:17 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 eleven percent as of the end of the third quarter. 10:34 Continuing on slide nine, let's talk about the loan portfolio. At the end of the third quarter, total gross loans were five point five billion dollars, down two point three percent compared to the end of the last quarter. The decline was primarily due to approximately three twenty million dollars in prepayments received in both CRE and C&I, plus a portion of the C&I closings having been moved to the fourth quarter. 10:58 Consumer loans as of September thirty were three sixty million dollars, an increase of forty eight million dollars or fifteen percent quarter-over-quarter. During the third quarter of twenty twenty one, we purchased an additional eighty million dollars of higher-yielding indirect loans for a total of two sixty three million dollars on that specific portfolio. 11:17 Turning to slide ten, we'll provide updates on the New York loan portfolio. As we announced during the second quarter call, the New York City loan production office has officially been closed. At the close of the third quarter, thirty loans totaling two twenty million dollars were classified as available for sale and little over four hundred million dollars still remains in the New York portfolio. 11:41 We have elected to mark the position of this portfolio now classified as available for sale in order to shorten duration and significantly reduce the number of loans being serviced as we sell them. We have accepted a proposal to sub-lease our New York office and [indiscernible] expect to start in the fourth quarter twenty twenty one. 12:02 Turning to slide eleven, let's talk about the credit quality of our loan portfolio. Credit quality remains sound and reserve coverage is strong. The allowance for loan losses at the end of the third quarter was eighty three million dollars, down twenty percent from the one hundred and four million dollar at the close of the previous quarter. We released five million dollars from the allowance from the losses in the third quarter, in which the release of approximately two million dollars was a result of upgrades, payoffs and pay downs of non-performing loans and special mentioned loans. A release of the remaining three million dollars was due to the loan portfolio reduction and the classification of the loans as available for sale. 12:43 Charge-offs for this quarter were seventeen million dollars from which five point seven million dollars 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 on prospective distribution. We will continue to report the development in this relationship as we move along through this process. 13:13 Non-performing assets totaled ninety million dollars at the end of the third quarter of twenty twenty one, a decrease of almost thirty million dollars or twenty four percent compared to the second quarter of twenty twenty one, an increase of six million dollars or seven percent compared to the third quarter of twenty twenty. The ratio of non-performing asset to total asset was one twenty four basic points, down thirty seven basis points from the second quarter of twenty twenty one and up sixteen basic points from the third quarter of twenty twenty. 13:43 In the third quarter of twenty twenty, the ratio of reserves to non-performing loans increased to one hundred and one percent from eighty six percent in the second quarter of twenty twenty one, and a decrease from one thirty five percent at the close of the third quarter of twenty twenty. 13:59 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, forbearance portfolio under escalated monitoring. Given the continued credit quality improvements in our portfolio, we may discontinue some of this slide for future quarters to streamline the earnings deck. 14:19 Continuing to slide twelve, total deposits at the end of the third quarter were five point six billion dollars, down zero point nine percent from the end of the second quarter. While domestic deposits were slightly down by fifty million dollars compared to the second quarter, international deposits went up slightly by one point four million dollars, showing continued -- continued evidence of stabilization in this portfolio. 14:45 Deposits excluding customer CDs and broker deposits increased one hundred and eight five million dollars during the quarter. This increase partially offset an eleven percent reduction in customer CDs compared to the previous quarter as we continue to lower CD rates, focus on increasing core deposit and emphasize multi-product relationship instead of a single product high-cost CDs. We're encouraged to see our deposit mix continuous improvement towards higher percentage of core deposits. 15:16 During the third quarter of this year, broker deposits decreased ninety eight million dollars or eighteen point five percent, out of which fifty five million dollars came from time and forty three million dollars from side deposits. The decrease in total customer CDs and brokered deposits were partially offset by an increase of one hundred and eighty five million dollars or five percent in customer transaction accounts. 15:37 Core deposits, which consist of total deposits excluding all time deposits were four point two billion dollars, as of the end of the third quarter, an increase of one hundred and forty two million dollars or three point five percent compared to the previous quarter. This amount includes non-interest bearing of one point two billion dollars or twenty one point five percent of deposits as of the end of the third quarter, which also include -- include increase from one hundred and seven billion dollars or nineteen percent from the previous quarter. 16:06 Now, I will discuss the net interest income, slide thirteen, our net interest margin. During the third quarter, net interest income was fifty two million dollars, up three point seven percent quarter-over-quarter and fourteen percent year-over-year. The quarter-over-quarter increase can be primarily attributed to the following key factors. 16:25 First, lower overall cost of deposits resulting from decline in average CD balances, downward repricing of CDs, and increasing the average non-interest bearing deposit balances. Second, higher average loan and investment yields with the loan yield increase due to a higher amount of consumer loans. Third, higher investment portfolio average balance due to the company's redeployment of excess cash and cash equivalents. Fourth, lower cost and average balances on FHLB advances and other borrowing following the company's repayment and rate modifications of FHLB done during May twenty twenty one. 17:06 Lower loan balances during the quarter were due to higher prepayment activity in both CRE and C&I, while loans closing some delays at the quarter end does not offsetting the prepayment activity. 17:18 Moving on to margin, the third quarter interest margin was two point nine four percent, up thirteen basic points quarter-over-quarter and up fifty five basic points year-over-year. As in the previous quarter, we continued to focus on offsetting ongoing NIM 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 spreads in loan origination. 17:46 Continue to noninterest income, slide fourteen. The third quarter was thirteen point four million dollars, down fourteen point six percent from the second quarter. The decrease during the third quarter was primarily the result of non-recurring items recorded in the second quarter, such as three point eight million dollars in net gain in connection with the sale of ninety five million dollars in PPP loans, two point five million dollars net loss on early extinguishment of FHLB advances and one point three million dollars net gain on sale of securities. 18:16 Also contributing to the lower noninterest income was a decrease of zero point eight million dollars in customer derivative income in the third quarter of twenty twenty one. The decrease in noninterest income was partially offset by an increase in zero point two million dollars in fees from brokerage, advisory and other fiduciary activities and mortgage banking income from zero point seven million dollars. 18:38 Amerant's assets under management totaled two point two billion dollars as of the end of the third quarter, up fifty six million dollars or two point six percent from the end of the second quarter, predominantly from increase in net new assets. Our team remains focused in growing assets under management, both domestically and internationally. In addition, we are excited to announce as of quarter end, we are up and live with the new digital wealth platform powered by Marstone. 19:06 Turning to slide fifteen, third quarter noninterest expense was forty eight point four million dollars, down two point seven million dollars or five point three percent from the second quarter and up two point nine million dollars year-over-year. The quarter-over-quarter decrease was primarily driven by lower salaries and employee benefit expenses, resulting from the second quarter, including the non-recurring three point three million dollars in severance expenses we did last quarter. We also had lower occupancy and equipment expenses resulting from the non-recurring zero point eight million dollars lease impairment charge in connection with the closing of the New York LPO last quarter. 19:41 Lastly, there were lower consulting legal and other professional fees, as well as various other noninterest expenses. The efficiency ratio was seventy four point two percent in the third quarter of twenty twenty one, compared to almost seventy eight percent in the previous quarter and sixty nine point three percent in the third quarter of last year. The quarter-over-quarter decrease was driven by the significantly lower severance expenses incurred during the third quarter of twenty twenty one. The year-over-year increase in efficiency ratio was primarily attributed to higher salaries and employee benefits in connection with the mortgage business. 20:17 Core efficiency ratio would adjust for non-recurring items was seventy three percent in the third quarter of twenty twenty one compared to seventy four point five percent in the second quarter of twenty twenty one and seventy six point five percent last year. 20:31 Lastly, as we previously announced, we have closed the Wellington branch, as of October fifteen this month, with the goal of optimizing our branch network performance and better aligning our desired footprint with strategic objectives. We have announced an addition of a new branch in downtown Miami, which we anticipate would open in late twenty twenty two. 20:54 Moving onto interest rate sensitivity on slide sixteen. Our balance sheet continues to be asset sensitive. As of the end of September, over half of our loans either floating rate of 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 includes implementation of floor rates on our loans and capitalizing on higher yielding securities and longer durations. 21:22 I will now turn it back to Jerry to talk about Amerant progress on the near and long-term initiatives.

21:28 Thank you, Carlos. On slides seventeen and eighteen, this quarter, we've provided some details on each of the six key priorities this quarter, rather than going into a lot of discussion on the call as we did in the last two quarters, we felt providing this detail on these slides would be helpful. Needless to say what is shown here confirms that we continue to make progress on all key initiatives. 21:54 Regarding deposits first, we continue to move closer toward achieving our stated target, 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. 22:09 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. 22:37 Regarding rationalizing our business lines and geographies, we continue to find new fintechs to partner with. As we previously stated, we announced new deals with Alloy and ClickSWITCH, and then we also applied for approval of our new downtown Miami location. 22:53 Moving on to path to sixty percent efficiency, we continued the downward repricing, 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. 23:18 Now for capital optimization again, as we previously referenced, we announced the clean-up 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 at a clean-up merger at a special shareholders meeting on November fifteen this year. We also announced that our Board approved a new buyback program for fifty million dollars of the common stock as well. 23:46 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 twenty twenty two. 24:07 So before we go to Q&A, I thought I'd provide a few comments on several significant items we're currently working on or that with work recently concluded will happen in the fourth quarter. So let's talk about growth first. We continue to build for the future. We're looking to significantly add to our business banking team both in South Florida and in Houston. We're in the process of hiring six additional business bankers here in South Florida, and we're currently looking to add three more in Houston. We will report on our progress next quarter end. 24:40 In mid-November, we will be adding six private bankers to our team here in South Florida. We believe this is another area of significant opportunity for us to start to build in this business vertical as the opportunity here for [indiscernible] type service to mass affluent to high net worth customers is significant. This builds on the team of three people we added this quarter in Houston, who are already making an impact on deposit growth. 25:08 We also recently signed a sub-lease in Tampa, Florida. We have our first team member there, who will be focused on [indiscernible] opportunity and already is in the market generating leads. We intend to add other commercial personnel in twenty twenty two. So in summary, please note, we are continuously looking to add more business development talent to our organization. 25:31 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 performing credits. 25:55 So also in that vein, we're currently in discussions regarding the sale and leaseback of our corporate headquarters here at two twenty 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 and more of a buyback of stock. We're looking to have this transaction completed before the end of the fourth quarter and to announce the results at that time. 26:24 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. 26:41 So in summary, the progress we are making and the results being reported really do speak for themselves. We are excited about updating everyone on even more progress in the coming days as I just previously noted. It's an exciting time for all of us here at Amerant as we are working diligently to continue to improve our future results even more in the coming quarters. 27:02 So with that, we'll be happy to take your questions. Victor, please open the line for Q&A.

27:08 Sure. [Operator Instructions] Our first question comes from the line of Michael Rose from Raymond James. You may begin.

27:27 Hey, good morning, and thanks for taking my questions.

27:30 Hey, Michael.

27:31 Let me 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 held for sale, so it's either contractual maturities, that's super helpful. But is the plan to do a best effort sale for each of those loans? And if you can just remind us how big that portfolios 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 PPP is just about gone, and you're quickly accelerating some of those efforts to wind down New York? Thanks.

28:13 Yeah. Michael, thank you for your question. It's Jerry. I think Carlos and I will tag team the response on this one. But first, I'd like to just say that the thought process behind the classification of roughly half of the credit is to reduce basically, and the majority of those are longer term, if you note, they were twenty twenty three 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 fourth quarter to be announcing a move on a number of these. 28:52 In terms of the portfolio, I think it's no surprise to everyone that the minute we announced the wind down of New York operations that we're going to be sub-letting 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 six hundred --

29:32 Correct.

29:33 Slightly above six hundred million dollars in current receivables. I think the number is six twenty seven million dollars.

29:38 Right. Yeah, it's about six thirty million dollars, that's right and is -- so we classified this two twenty as available for sale, as we intended to be actively market in 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 the -- one of the reasons and maturity as well.

30:03 Yes. And Michael, in fairness, I would 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 great of -- 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&I space.

30:50 Okay. That's helpful. And then, 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 fourth quarter of next year just with some additional moves that you announced, including potential sale of the headquarters, things like that, that could potentially get you there a little bit sooner? Thanks.

31:23 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. 31:54 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 sixty percent no later than the fourth quarter of next year? So more to come on that. But I would say that we feel confident that getting closer to the ROA and ROE targets in the interim, certainly appears more likely, the efficiency is still something that's a work in progress.

32:32 Very helpful. Maybe just two quick ones before I wrap up. Just on the Amerant 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 few quarters. So if you could just give us some color on what's driving that? Thanks.

33:00 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 two markets that there is a 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 will see opportunity to grow. We feel comfortable in this space, and we'll continue to look for opportunities to expand there. 33:35 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 will continue to see that start to level off more and more over time.

34:15 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 -- our operations in Houston that we have been gathering deposits from other countries.

34:47 Hey, Michael, and forgive me, what was the first part of your question.

34:50 Amerant Mortgage. [Multiple Speakers]

34:54 Sorry, I got little excited there to answer the deposit question. On -- I think in terms of Amerant Mortgage, one of the things we've elected to and you know, the thought here is be opportunistic. The team identified a group of folks that can really contribute to future earnings. 35:17 And so when I gave the reference of adding a team, the impact is, we're going to bring a team of over twenty two people on -- in the fourth quarter. We've got eight already on board with twenty two in total that we expect to be here. So I would tell you, fourth quarter will continue to be an investment in terms of making twenty twenty two 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.

36:12 Yeah. That's right.

36:13 Appreciate all the colors.

36:14 [indiscernible]

36:18 Thanks.

36:21 The next question comes from the line of Stephen Scouten from Piper Sandler. You may begin.

36:28 Hi, good morning, everyone.

36:30 Hey, Stephen.

36:32 I wanted to follow up maybe on kind of loan growth trends, I know you noted some of those CRE and C&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, I know you noted particular strength in your pipeline.

36:57 Yes. So the quarter was particularly high in prepayments. We recorded more than three hundred million dollars in prepayments. But at the same time, the pipeline was -- is very promising. Pretty much we had a lot of closings before quarter end. But then there were orders that were delayed until October and November, actually we are closing as we speak more loans that were initially on the pipeline. So it looks very robust in general

37:31 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 are 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 is 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, but that's why we're doing the investment we're doing in new personnel. We're going to continue to look to add basically in all our verticals, where we can find good people that can help us. 38:36 A lot of the work -- I just have to say one of the reasons I made the comments I did in my closing remarks on growth is, a lot of what we've been focused on is around restructure, has been around 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 in frontline personnel, but 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 Amerant.

39:16 Got it. Okay. And do you have any data to frame up that kind of three hundred million dollars 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?

39:35 No. It was a mix in general. It came from the CRE and C&I, but mostly CRE. And also accounting on those three hundred million dollars were 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.

39:59 Okay. And Jerry, you kind of answered this question, I think to a degree just a second ago. But I'm curious how you guys think about this kind of push pull of investing in the future growth of the franchise, but still trying to hit this kind of sub 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?

40:29 Yes. Absolutely. I think if you're investing in the long-term value -- value of the franchise is absolutely essential. That said, we are still laser focused. I think you will 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 high growth -- higher growth company. 41:13 And so we're overcoming a lot of headwinds, obviously, we're pulling out hundreds of million 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 bear. And so I think the build that's happening quarter-over-quarter, adding more people, we need to add revenue. 41:37 I think, Stephen, maybe, the best way I could sum it up is, achieving efficiency is a combination of revenue growth, as well as, us looking at the efficiency and effectiveness of our operations. And so, this wasn't just going to be a cost cutting exercise. This is a -- and again, I think people use right sizing a little bit too much, but I think its 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. 42:17 So again, it's just 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 twenty twenty two 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 you'll see that we're marching our way there.

42:43 Definitely. Definitely. Okay. That's great color. Thank you guys for the time. I appreciate it.

42:48 Absolutely Take care.

42:51 Our next question comes from the line of Feddie Strickland from Janney Montgomery. You may begin.

42:58 Hey, good morning.

43:00 Good morning, Feddie.

43:03 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?

43:20 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 situation and trying to get everyone aligned on distribution is critical. 43:52 I think we've talked before on a previously two hundred million dollars exposure, there is cash sitting to the tune of almost one hundred million dollars. 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 come in Q3 and Q4, it looks like it could be potentially delayed into twenty twenty two. So our view was take the write-down now on the specific reserve were roughly fourteen million dollars.

44:28 Fourteen total exposure.

44:30 In terms of remaining exposure, and we feel comfortable with our position in terms of getting paid on that.

44:38 And those fourteen –

44:39 And we're going to continue to monitor it, right. I mean obviously in these situations, everything gets in front of a judge in terms of determining, who gets distributed and how much at what period of time. But we think it's the right way to be looking at this one.

44:58 Hey, Feddie and those carry -- those fourteen million dollars carry six point five million dollars in specific reserves.

45:05 Got it. So then -- that's why I think, I remember you guys discussing that. So the classified and special mention improvement was independent of this Coffee relationship, which you've already kind of set aside every year, is what you're saying?

45:16 Yes, You got it. Yes.

45:18 And you know, Feddie, one of the things that, that I referenced in my comment 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 a -- 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 sixty percent.

46:15 Got it. And apologize if you've 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 anything out on the frontline or back office or even when you're hiring lenders?

46:38 Yeah. No, it's a great question. I think there is lots of market competition for quality people. I think you know, this is a time of year, where it probably gets even more challenging to try and add folks because they burned wherever they are today based on some of the production unless they have been getting paid out quarterly. It gets to be a little bit pricier to try and add people this time of year. 47:09 Look, we're in -- candidly in two of the hottest markets in the country, we've talked about this before. Demand for people is high. I think what is good for the Amerant story is, people know that we're streamlining our processes. I think our business development people would tell you that we've got in the [indiscernible], who are credit people. If things are in accordance with our policies, we are executing much quicker on credit decisioning. 47:40 I think also our story of continuing to improve and catching and being part of an organization at our size and not having to deal with the layers of management and oversight that are very common at much larger institutions. 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 to folks. 48:12 So I think we have positives that, again, as we've mentioned, look at the teams of 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 wanted to be part of it. So I would say, certainly there has 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 CRE or lower pricing in CRE, 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.

48:59 48:59 Hey, Feddie I -- to complement I believe it's certaint -- and going to your question. Cost of living is something that is definitely impacting our jurisdiction that you can tell by the residents in general, the housing market, it's been increasing and affordability is decreasing in our markets. So that's a point that we definitely are seeing around and something to report to you based on your question.

49:30 Got it. Thanks for the color, guys, and appreciate the time.

49:34 Sure. Thank you.

49:37 Our next question comes from the line of Will Jones from KBW. You may begin.

49:44 Hey good morning, guys.

49:46 Good morning, Will.

49:48 Hey, so it's great to see the announcement intra-quarter on the cleanup of those Class B shares, you've got your shareholder vote coming up here in about three weeks assuming that approval comes through. Could you just walk us through the timeline of conversion, I guess, just more so as a modeling question on the share count?

50:06 Sure. So the shareholders' meeting will be held on the 15th of November. So the boarding process will be done on that meeting.

50:18 November fifteenth at four thirty.

50:19 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 will have a reduction of probably five hundred -- close to five hundred and twenty five thousand maybe shares once the Bs are converted into As. And then, we'll have a fraction of going into A and onboarding, as we describe on the 8-K.

50:58 Okay. That's super helpful. I know the cash payout is not -- probably not going to be a huge number, but any preliminary estimate of what that may be for the -- those who aren't receiving the Class A shares?

51:11 So -- so Will, just to clarify, you're talking about the small –

51:17 Yes. All guys, yeah, the fraction shares of the sub hundred there.

51:22 Yes, good question. So those that amount it wouldn't exceed the eight million dollars. So the small shareholders have to run in will be around eight million dollars. So it's not significant.

51:35 Got you. Got you. Okay. That's super helpful. And then just moving on and thinking about the buyback. You, you know, you guys announced that alongside the Class B share clean-up. It's great to see your Class A shares are not as cheap, as they've been, trading at about one point three times tangible. Anything -- they are not as cheap, as they were when you repurchased shares in the past. So fairly attracted there. At these levels, do you feel like the buybacks still makes sense for Amerant once that program commences in December or is it thought really just to hold the cash and continue to reinvest internally.

52:11 Look I think buyback programs are critical to have -- for us to be opportunistic. And I think if you just look at what's happened in volatility in the last quarter that there is opportunity for us to execute there. But it's a good question. You know, 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, you know, as consistently, as we possibly can to be opportunistic.

53:01 53:01 Even if I ahead of par the -- compared to some peers were still under valued at one twenty five or so. So just to keep that in mind as a reference for buybacks.

53:17 Great. That probably makes sense. Maybe last one just housekeeping. Is there any PPP loans left? I know, you guys sold a quite a few malls, but –

53:27 Probably less than five million dollars, very little.

53:32 Got it. Great. Thanks, guys.

53:33 Thanks, Will.

53:39 Your next question will come from the line of Brody Preston from Stephens. You maybe -- your line is open.

53:46 Yes. Good morning, everyone.

53:48 Good morning, Brody.

53:50 I just want to say thanks again for all the disclosure in the deck, really appreciate it, especially on the mortgage and the New York City portfolio. 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?

54:13 Yes. Great question. So there is probably three components that impacted the tax effective tax rate, one of them was related to executives earning more than one million dollars. Remember that we have our -- during the last quarter and there was released the Chief Operating Officer retire from institution. So the incremental portion note of the one million dollar wasn't excluded from the -- it's not part of the expenses for tax purposes. So that was one. We captured that in this quarter in particular. And then the other two components were New York State and city tax recalculation that we had based on the -- on some adjustments on previous period. So it was expensed this quarter. So those are the main components. 55:06 So structural basis, we continue to manage the effective tax rate with the usage of our REIT portfolio that it consolidates with the bank. So it's -- we were planning to enhance that. So it should be stabilized on the twenty two percent, twenty three percent -- twenty twenty point five percent approximately effective tax rate for the full year.

55:35 Okay. twenty twenty point five percent, you said for the full year.

55:38 Yes.

55:39 Okay. So that's like -- what like twenty one percent on a go-forward basis?

55:44 That’s exactly.

55:47 Okay. And then, just do you haven't -- you repurchased a little bit of shares this quarter it looked like. But so could you just give us -- could you just give us the number of what the number of Class B shares outstanding is currently.

56:03 It's about eight point fice million dollars Class B shares. We bought on the -- remember that once we announced the conversion of the Bs into As, we just halved the buyback of the B. So probably, we will reach a total of nine point five million dollars approximately in total purchases dollars and would be close to a seventeen -- sixteen point five maybe average price on the purchase. So those were approximately the numbers. But this quarter we didn't buy that much because we announced –

56:39 We announced, at the same time, we were doing the –

56:42 Correct.

56:43 The A, B cleanup. We terminated the B buyback and announced a new one that will commence on the reconstituted one class.

56:56 Right..

56:58 56:56 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 fourth quarter. So just from a modeling perspective, as I think about the size of our AFS portfolio through next quarter, should I expect the bulk of the two nineteen to be sold or how should we be thinking about that.

57:26 Yes. I think that's -- I think you could easily say that may be it's a half and half quarter-to-quarter. Look the reality is, as we speak, some of those very relationships are seeking to payoff too, right. So it's a combination, I think that will happen in those reductions of sales that will take place coupled with payoffs.

57:53 Okay. Okay. And what are the -- what's the yield on that portfolio?

58:00 So the average for the -- for the New York portfolio was close to the three point seven percent approximately. There is a combination between fixed and floating. The floating portion reprice with LIBOR. So there may be single items that are sub two percent, but generally speaking the way that is three point seven percent.

58:19 Okay. Great. And I'd like to move to AFS just because it kind of accelerates the clean-up on it. But as you think about kind of the short term negative implications of bulk selling the two nineteen 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 is 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 -- how do you kind of thread that needle?

59:03 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 two hundred million dollars 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 twenty twenty two. But I mean our expectation was, Brody, and I think we've referenced this a little bit earlier in the comment, the majority on that two nineteen that was classified are the longer-term credits. 59:42 And so our expectation is somewhere between twenty twenty two and twenty twenty three is really what we were aiming for to see that portfolio either in a combination of either sale activity or payout activity run off. It could obviously be sooner. Look every borrowers got the right to initiate a pay off 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.

60:34 The other item that you should also think about is the -- is the -- the fact that once typically the settlement of a loan, it takes a little bit longer. And so even though we committed to sell a portion of it may be the proceeds will come later. So from the point of view of earnings generation, we still -- we will have the impact of this portfolio income wise for the rest of the quarter.

61:05 Got it. All right. Well, those are -- those are all my questions everyone. Thank you very much for the time.

61:11 Awesome. Thank you. Have a good day.

61:16 And we have one other question from the line of Michael Young from Truist. Your line is open.

61:24 Good morning, Michael.

61:25 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 clean-up and had some pretty significant charge-offs this quarter, should we expect some other sizable charge-offs? And do you have any color on what may be remaining in that reserve in terms of specific reserves on credits?

61:54 Yes. Look, I think what you see in the NPLs right now is that we've done a thorough review that, that Michael -- and great question by the way. That -- 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 are trying to just speed up the resolution on these things. 62:25 Our expectation is that we can continue to significantly lower that in Q4 with the goal towards reporting on continued improvement without additional charge-offs because 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 fifteen million dollars that we will call a sort of COVID related reserve that in the event that we've got any type of potential exposure that pops up, that we're in a good position to cover it off.

63:06 Okay. And then just switching gears quickly on deposit costs, those come down nicely, I think forty four basis points, obviously, there is still some room for those to come lower. But where do you kind of envision those bottoming out, is it sort of the mid-thirties or any color there would be helpful?

63:24 Yes. That's accurate. So we're projecting being on the -- closer to the forty basis points for cost of deposits for Q4. And yeah, you're totally right, as we continue to reprice more and more time deposit, the trend is right, is -- the approximately the number you mentioned.

63:45 Yes. And Michael, great question. And I think one thing we will 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.

64:10 Okay. Great. That's all from me. Thanks.

64:12 Sure. Thanks. Have a great day.

64:16 Thank you. And I'm not showing any further questions in the queue at this moment.

64:25 Okay. Well, thank you everyone for joining our third quarter earnings call. We're very excited to be able to share our progress today and about the bright future ahead for Amerant. Hope you have a great day. And thank you again for your continued support and interest in our organization.

64:44 This concludes today's conference call. Thank you for participating. You may now disconnect.