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Amerant Bancorp (NASDAQ:AMTB)
Q3 2021 Earnings Call
Oct 21, 2021, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, and thank you for standing by. Welcome to the Amerant Bancorp Third Quarter 2021 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]

I would now like to hand the conference over to your speaker today, Laura Rossi, Head of Investor Relations. Please go ahead.

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

Thank you, Victor. Good morning everyone, and thank you for joining us to review Amerant Bancorp's third quarter 2021 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.

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. Please refer to the cautionary notices regarding forward-looking statements in the company's earnings release and presentation. For a more complete description of these and other possible risks, please refer to the company's Annual Report on Form 10-K for the year ended December 31, 2020, in our quarterly report on Form 10-Q for the quarter ended June 30th, 2021 and in our other filings with the SEC. You can access these filings on the SEC's website. Amerant has no obligation and makes no commitment to update or publicly release any revisions to forward-looking statements in order to reflect new information or subsequent events, circumstances or changes in expectations, except as required by law.

Please also note that the company's press release, earnings presentation and todays call include references to certain adjusted financial measures, also known as non-GAAP financial measures. Exhibit two and Appendix one of the company's press release and earnings presentation respectively contain a reconciliation of each non-GAAP financial measure to its most comparable GAAP financial measure.

I will now turn it over to our CEO, Jerry Plush.

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

Thank you Laura, and good morning everyone, and thank you for joining Amerant's third quarter 2021 earnings call. 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 first quarter 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 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.

So let's turn to Slide 3. So here you can see a summary of our third quarter highlights. We're pleased to report further improvement in our results compared to the second quarter. Of note, net income attributable to the company of $17 million is up 6.7% quarter-over-quarter, primarily driven by higher net interest income and lower non-interest expense. Our total loans were $5.5 billion and total deposits were $5.6 billion. They 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. 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 $50 million, which we expect will commence here in the fourth quarter.

So let's move to the core PPNR slide, number 4. We're pleased to show continued growth in core PPNR of $18.3 million, an 8% increase compared to the $16.9 million reported last quarter. We believe this reconciliation is essential to show the true net revenue growth of the company. We want all of our investors to easily see our results, excluding any one-time gains or losses or severance or other restructuring charges, so they can see what is really happening regarding core earnings power.

If we turn now to Slide 5, our key actions. Here we list them out for 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. So first, our non performing classified and special mention loans decreased 31.7%, 31.3% and 16.4% compared to last quarter, respectively. We are diligently working on further reductions here in the fourth quarter. We have instituted weekly sessions of key personnel to focus on driving to resolution on as many credits as possible to get the non-earning asset off of our books and the proceeds reinvested into earning assets. We continued downward repricing of customer time deposits, further lowering the cost of such funding by approximately seven basis points, which translates into annualized savings of approximately $2.2 million, and we prioritize core deposit growth, which totaled $141.7 million in the quarter.

We closed one branch located in Wellington, Florida, as of October 15, 2021 and we've announced a new downtown Miami branch that we anticipate opening late in 2022. The comment period regarding this branch expires next week. We also significantly reduced our future space needs, as illustrated by our announcement regarding our new 56,000 square foot operation center in Miramar, Florida, that will take occupancy in the fourth quarter of 2022. This will reduce our operations center by over 40,000 square feet and our annual rental expense by nearly $1 million. We continue to build out our treasury management team and have completed adding team members to both sales and service in Florida as well as in Texas. We recently completed the business transformation 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.

As we continue on our digital transformation and efficiency efforts, we're excited about our recent announcements regarding leading technology platforms, Alloy and ClickSWITCH. Alloy's leading identity decision platform will allow us to automate the identity verification process, when onboarding deposit accounts for both business and individual customers. ClickSWITCH on the other hand, will improve the customer experience by simplifying the conversion of consumer and small business 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. We also launched our new brand awareness campaign based on the tag line Imagine a Bank via billboard and social media, and also announced a new branding partnership with the Florida Panthers in the NHL for the 2021-2022 season. And our soon to be released investor deck this quarter will provide examples of the brand and marketing campaigns for your information. And then lastly, we recently appointed our Chief Diversity and Inclusion Officer in September, as just one more step in demonstrating our commitment to ESG. I'll have some more comments on this initiative in a few minutes.

So if we turn to Slide 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% of total loans.

Slide 7 is new to 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.

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?

Carlos Iafigliola -- Executive Vice President and Chief Financial Officer

Thank you, Jerry, and good morning, everyone. So turning to Slide 8, I'll begin by discussing our investment portfolio. The third quarter investment securities balance was $1.4 billion, slightly off [Phonetic] from the $1.3 billion in the previous quarter and flat compared to the third quarter of 2020. The duration of the investment portfolio has extended to 3.7 years due to lower expected repayments 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 continue to decrease [Indecipherable] as of the end of the third quarter.

Continuing on Slide 9, let's talk about the loan portfolio. At the end of the third quarter, total gross loans were $5.5 billion, down 2.3% compared to the end of the last quarter. The decline was primarily due to approximately $320 million in prepayments received in both CRE and C&I, plus a portion of the C&I closings having been moved to the fourth quarter. Consumer loans, as of September 30 were $360 million, an increase of $48 million or 15% quarter-over-quarter. During the third quarter of 2021, we purchased an additional $80 million of higher-yielding indirect loans for a total of $263 million on that specific portfolio.

Turning to Slide 10, 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, 30 loans totaling $220 million were classified as available for sale and little over $400 million still remains in the New York portfolio. We have elected to mark the position of this portfolio now classified as available for sale, in order to shorten duration and significantly reduce the number of loans being serviced as we sell them. We have accepted a proposal to sub-lease our New York office and [Indecipherable] and expect to start in the fourth quarter 2021.

Turning to Slide 11, let's talk about the credit quality of our loan portfolio. Credit quality remains sound and reserve coverage strong. The allowance for loan losses at the end of the third quarter was $83 million, down 20% from the 104 [Phonetic] at the close of the previous quarter. We released $5 million from the allowance from the losses in the third quarter, in which the release of approximately $2 million was a result of upgrades, payoffs and pay downs of non-performing loans and special mention loans. A release of the remaining $3 million was due to the loan portfolio reduction and the classification of the loans, as available for sale. Charge-offs for this quarter were $17 million from which $5.7 million were in connection with the Coffee Trader relationship to account for delays, as allocation of liquidation proceeds has been subject to objection from certain lenders. We continue to monitor this process and have been in close contact with liquidation 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.

Non-performing assets totaled $93 million at the end of the third quarter of 2021, a decrease of almost $30 million or 24% compared to the second quarter of 2021, an increase of $6 million or 7% compared to the third quarter of 2020. The ratio of non-performing asset to total asset was 124 basic points, down 37 basic points from the second quarter of 2021 and up 16 basic points from the third quarter of 2020. In the third quarter of 2020, the ratio of reserves to non-performing loans increased to [Indecipherable] from 86% in the second quarter of 2021, and a decrease from 135% at the close of the third quarter of 2020. As we have done since the declaration of the COVID-19 pandemic, there is 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.

Continue to Slide 12, total deposits at the end of the third quarter were $5.6 billion, down 0.9% from the end of the second quarter. While domestic deposits were slightly down by $50 million compared to the second quarter, international deposits went up slightly by $1.4 million showing continued -- continued evidence for stabilization in this portfolio. Deposits excluding customer CDs and brokered deposits increased $185 million during the quarter. This increase partially offset an 11% reduction in customer CDs compared to the previous quarter, as we continue to lower CD rates, focus on increasing core deposit and emphasize multi-product relationship instead of a single product, high-cost CDs. We're encouraged to see our deposit mix continuous improvement toward higher percentage of core deposits.

During the third quarter of this year, brokered deposits decreased $98 million or 18.5%, out of which $55 million came from time and $43 million from side deposits. The decrease in total customer CDs and brokered deposits were partially offset by an increase of $185 million or 5% in customer transaction accounts. Core deposits, which consist of total deposits excluding all time deposits were $4.2 billion, as of the end of the third quarter, an increase of $142 million or 3.5% compared to the previous quarter. This amount includes non-interest bearing of $1.2 billion or 21.5% of deposits, as of the end of the third quarter, which also include increase from 107 [Phonetic] billion or 19% from the previous quarter.

Now, I will discuss the net interest income on Slide 13 and net interest margin. During the third quarter, net interest income was $52 million, up 3.7% quarter-over-quarter and 14% year-over-year. The quarter-over-quarter increase can be primarily attributed to the following key factors. First, lower overall cost of deposits resulting from decline in average CD balances, downward repricing of CDs, and increasing the average non-interest bearing deposit balances. Second, higher average loan and investment yields with the loan yield increase due to a higher amount of consumer loans. Third, higher investment portfolio average balance due to the company's redeployment of excess cash and cash equivalents. Fourth, lower cost and average balances on FHLB advances and other borrowing -- following the company's repayment and rate modifications of FHLB done during the May 2021. Lower loan balances during the quarter were due to higher prepayment activity in both CRE and C&I, while loans closing some -- some delays at the quarter end does not offsetting the prepayment activity.

Moving on to margin, the third quarter interest margin was 2.94%, up 13 basic points quarter-over-quarter and up 55 basic points year-over-year. As in the previous quarter, we continued to focus on offsetting ongoing NIM pressure by decreasing the cost of funds for strategic repricing of customer time and commercial relationship money market, as well as proactively seeking to increase spreads in loan origination.

Continue to non-interest income, Slide 14. The third quarter was $13.4 million, down 14.6% from the second quarter. The decrease during the third quarter was primarily the result of non-recurring items recorded in the second quarter, such as $3.8 million in net gain in connection with the sale of $95 million in PPP loans, $2.5 million net loss on early extinguishment of FHLB advances and $1.3 million net gain on sale of securities. Also contributing to the lower non-interest income was a decrease of $0.8 million in customer derivative income in the third quarter of 2021. The decrease in noninterest income was partially offset by an increase in $0.2 million in fees from brokerage, advisory and other fiduciary activities and mortgage banking income from $0.7 million. Amerant assets under management totaled $2.2 billion, as of the end of the third quarter, up $56 million or 2.6% from the end of the second quarter, predominantly from 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.

Turning to Slide 15, third quarter non-interest expense was $48.4 million, down $2.7 million or 5.3% from the second quarter and up $2.9 million year-over-year. The quarter-over-quarter decrease was primarily driven by lower salaries and employee benefit expenses resulting from the second quarter, including the non-recurring $3.3 million in severance expenses we did last quarter. We also had lower occupancy and equipment expenses, resulting from the non-recurring $0.8 million 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 third quarter of 2021, compared to almost 78% in the previous quarter and 69.3% in the third quarter of last year. The quarter-over-quarter decrease was driven by the significantly lower severance expenses incurred during the third quarter of 2021. The year-over-year increase in efficiency ratio was primarily attributed to higher salaries and employee benefits in connection with the mortgage business. Core efficiency ratio would adjust for non-recurring items was 73% in the third quarter of 2021 compared to 74.5% in the second quarter of 2021 and 76.5% last year. Lastly, as we previously announced, we have closed the Wellington branch, as of October 15 this month, with the goal of optimizing our branch network performance and better aligning our desired footprint with strategic objectives. We have announced an addition of a new branch in downtown Miami, which we anticipate would open in late 2022.

Moving onto interest rate sensitivity on Slide 16. Our balance sheet continues to be asset sensitive. As of the end of September, over half of our loans either floating, rate 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.

I will now turn it back to Jerry to talk about Amerant progress on the near and long-term initiatives.

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

Thank you, Carlos. On Slides 17 and 18, this quarter we've provided some details on each of the six key priorities this quarter. Rather than going into a lot of discussion on the call, as we did in the last two quarters, we felt providing this detail on these slides would be helpful. Needless to say what is shown here confirms that we continue to make progress on all key initiatives. Regarding deposits first, we continue to move closer toward achieving our stated 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.

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 tag line of Imagine a Bank and a new limited time only checking campaign among other initiatives. We're also very excited about our recently announced partnership with the Florida Panthers, who are proving to be terrific to work with.

Regarding rationalizing our business lines and geographies, we continue to find new fintechs to partner with. As we previously stated, we announced new deals with Alloy and ClickSWITCH, and then we also applied for approval of our new downtown Miami location.

Moving on to path to 60% 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.

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 -- the clean-up merger at a special shareholders meeting on November 15 this year. We also announced that our Board approved a new buyback program for $50 million of the common stock as well.

And finally, regarding ESG, we announced our Chief Diversity Officer, we developed our new governance structure and implementation plans, and we're actively working to publicly share our new corporate social responsibility report. In addition, we expect to release our first ESG report in early 2022.

So before we go to Q&A, I thought I'd provide a few comments on several significant items we're currently working on or that was 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. In mid-November, we will be adding six private bankers to our team here in South Florida. We believe this is another area of significant opportunity for us to start to build in this business vertical, as the opportunity here for concierge-type service to mass affluent, to high net worth customers is significant. This builds on the team of three people we added this quarter in Houston, who are already making an impact on deposit growth. We also recently signed a sub-lease 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 performing credits. So also in that vein, we're currently in discussions regarding the sale and leaseback of our corporate headquarters here at 220 Alhambra. We think it is appropriate to explore such an opportunity and to get cash in hand and reinvest versus holding this fixed asset long-term or to take such proceeds and consider utilization 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.

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 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.

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

Questions and Answers:

Operator

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

Michael Rose -- Raymond James -- Analyst

Hey, good morning, and thanks for taking my questions -- 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.

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

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 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 fourth quarter to be announcing a move on a number of these. In terms of the portfolio, I think it's, no surprise to everyone that the minute we announce a wind down of New York operations that we're going to be 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 600 -- slightly above $600 million in current receivables. I think the number is $627 million.

Carlos Iafigliola -- Executive Vice President and Chief Financial Officer

Right. Yeah, it's about [Indecipherable] that's right and is -- so we classified this 220 [Phonetic] 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.

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

Yeah. 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.

Michael Rose -- Raymond James -- Analyst

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.

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

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 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.

Michael Rose -- Raymond James -- Analyst

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.

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

Yeah. 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 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. 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, that we will continue to see that start to level off more and more over time.

Carlos Iafigliola -- Executive Vice President and Chief Financial Officer

Yeah. And there is another important trend that we have been seeing is on the commercial international side, there is -- since we implemented also the Zelle for commercial, we also have seen an improved traction on the commercial accounts on the international side. And as you said, there is also -- the increase in other countries due to the -- our operations in Houston that we have been gathering deposits from other countries.

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

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

Michael Rose -- Raymond James -- Analyst

Amerant Mortgage.

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

[Speech Overlap] I got too excited -- I got little excited here 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. And so when I gave the reference of adding a team, the impact is, we're going to bring a team of over 22 people on -- in the fourth quarter. We've got eight already on board with 22 in total that we expect to be here. So I would tell you, fourth quarter will continue to be an investment in terms of making 2022 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.

Carlos Iafigliola -- Executive Vice President and Chief Financial Officer

Yeah. That's right.

Michael Rose -- Raymond James -- Analyst

Appreciate all the colors. Thanks.

Operator

The next question will come from the line of Stephen Scouten from Piper Sandler. You may begin.

Stephen Scouten -- Piper Sandler -- Analyst

Hi, good morning, everyone.

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

Hey, Stephen.

Stephen Scouten -- Piper Sandler -- Analyst

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.

Carlos Iafigliola -- Executive Vice President and Chief Financial Officer

Yeah. So the quarter was particularly high in prepayments. We recorded more than $300 million in prepayments. But at the same time, the pipeline was, 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 and November, actually we are closing as we speak more loans that were initially on the pipeline. So it looks very robust in general.

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

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.

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.

Stephen Scouten -- Piper Sandler -- Analyst

Got it. Okay. And do you have any data to frame up that kind of $300 million plus in prepayments. I'm just trying to figure out if that was double what you've seen in previous quarters and that was really the driver of the loan decline or if it was a mix of somewhat elevated prepayments and somewhat lower production levels.

Carlos Iafigliola -- Executive Vice President and Chief Financial Officer

No. It was a mix in general. They -- it came from the CRE and C&I, but mostly CRE. And also accounting on those $300 million 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 that -- the production.

Stephen Scouten -- Piper Sandler -- Analyst

Okay. And Jerry, you kind of answered this question, I think to a degree just a second ago. But I'm curious how you guys think about this kind of push pull of investing in the future growth of the franchise, but still trying to hit this kind of sub 60% efficiency ratio target you've set out. I guess, my question is really would you guys be fine with maybe missing that target in the near term if there were really good opportunities to hire new talent and invest in the long-term success of the franchise?

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

Yeah. Absolutely. I think if you're investing in the long-term value -- view -- 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. And so we're overcoming a lot of headwinds, obviously, where we're pulling out hundreds of millions 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 happening 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 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. 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 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 you'll see that we're marching our way there.

Stephen Scouten -- Piper Sandler -- Analyst

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

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

Absolutely. Take care.

Operator

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

Feddie Strickland -- Janney Montgomery -- Analyst

Hi. Good morning.

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

Good morning, Feddie.

Feddie Strickland -- Janney Montgomery -- Analyst

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?

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

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. I think we've talked before on a previously $200 million exposure, there is cash sitting to the tune of almost $100 million. 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 2022. So our view was take the write-down now on the specific reserve were roughly $14 million [Speech Overlap] in terms of remaining exposure, and we feel comfortable with our position in terms of getting paid on that.

Feddie Strickland -- Janney Montgomery -- Analyst

And those 14 --.

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

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.

Carlos Iafigliola -- Executive Vice President and Chief Financial Officer

Hey, Feddie and those carry -- those 14 [Phonetic] million carry 6.5 [Phonetic] in specific reserves.

Feddie Strickland -- Janney Montgomery -- Analyst

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?

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

Yes. You got it. Yeah. 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 60%.

Feddie Strickland -- Janney Montgomery -- Analyst

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?

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

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. 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 [Indecipherable] who are credit people. If things are in accordance with our policies, we are executing much quicker on credit decisioning.

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. 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, 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.

Carlos Iafigliola -- Executive Vice President and Chief Financial Officer

Hey, Feddie I -- to complement I believe it's -- 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 [Phonetic] in our markets. So that's a point that we definitely are seeing around and something to report to you based on your question.

Feddie Strickland -- Janney Montgomery -- Analyst

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

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

Sure. Thank you.

Operator

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

Will Jones -- KBW -- Analyst

Hey, good morning, guys.

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

Good morning, Will.

Will Jones -- KBW -- Analyst

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.

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

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

Carlos Iafigliola -- Executive Vice President and Chief Financial Officer

November 15th at 4:30.

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

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 500 -- close to 525,000 maybe shares once the Bs are converted into As. And then, we'll have a fraction of going into A and onboarding, as we describe on the 8-K.

Will Jones -- KBW -- Analyst

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?

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

So -- so Will, just to clarify, you're talking about the small [Speech Overlap]

Will Jones -- KBW -- Analyst

[Speech Overlap] yeah, the fraction shares of the sub 100.

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

Yeah, good question. So those that amount it wouldn't exceed the $8 million. So the small shareholders have to round in will be around $8 million. So it's not significant.

Will Jones -- KBW -- Analyst

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 1.3 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.

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

Look I think buyback programs are critical to have -- it's -- 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.

Carlos Iafigliola -- Executive Vice President and Chief Financial Officer

Even if I ahead of par the -- compared to some peers were still under valued at 125 or so. So just to keep that in mind as a reference for buybacks.

Will Jones -- KBW -- Analyst

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 --?

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

Probably less than $5 million, very little.

Will Jones -- KBW -- Analyst

Got it. Great. Thanks, guys.

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

Thanks, Will.

Operator

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

Brody Preston -- Stephens -- Analyst

Yeah. Good morning, everyone.

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

Good morning.

Brody Preston -- Stephens -- Analyst

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?

Carlos Iafigliola -- Executive Vice President and Chief Financial Officer

Yeah. 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 $1 million. Remember that we have our -- during the last quarter and there was released the Chief Operating Officer retire from institution. So the incremental portion north of the million dollar wasn't excluded from the -- it's not part of the expenses for tax purposes. So that was one. We captured that in this quarter in particular. And then the other two components were 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. 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 20% to 23% -- 22.5% approximately effective tax rate for the full year.

Brody Preston -- Stephens -- Analyst

Okay. 22.5%, you said for the full year.

Carlos Iafigliola -- Executive Vice President and Chief Financial Officer

Yeah.

Brody Preston -- Stephens -- Analyst

Okay. So that's like -- what like 21% on a go-forward basis?

Carlos Iafigliola -- Executive Vice President and Chief Financial Officer

That -- exactly.

Brody Preston -- Stephens -- Analyst

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.

Carlos Iafigliola -- Executive Vice President and Chief Financial Officer

It's about 8.5 million Class B shares. We bought on the -- remember that once we announced the conversion of the Bs into As, we just halved the buyback of the B. So probably, we will reach a total of $9.5 million approximately in total purchases dollars and would be close to a 17 -- 16.5 maybe average price on the purchase. So those were approximately the numbers. But this quarter we didn't buy that much because we announced --.

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

We announced, at the same time, we were doing the -- the A, B cleanup. We terminated the B buyback and announced a new one that will commence on the reconstituted one class.

Carlos Iafigliola -- Executive Vice President and Chief Financial Officer

Right.

Brody Preston -- Stephens -- Analyst

Yeah. 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 HFS portfolio through next quarter, should I expect the bulk of the 219 [Phonetic] to be sold or how should we be thinking about that?

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

Yeah. I think that -- 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.

Brody Preston -- Stephens -- Analyst

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

Carlos Iafigliola -- Executive Vice President and Chief Financial Officer

So the average for the -- for the New York portfolio was close to the 3.7% approximately. There is a combination between fixed and floating. The floating portion reprice with LIBOR. So there may be single items that are 2%, but generally speaking the way that is 3.7%.

Brody Preston -- Stephens -- Analyst

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 219 [Phonetic] 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?

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

Yeah. And I actually think -- that's a great question, and I think that's why you're seeing, it's half the number of credits, but it's only $200 [Phonetic] million 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've referenced this a little bit earlier in the comment, the majority on that 219 [Phonetic] that was classified are the longer-term credits. And so our expectation is somewhere between '22 and '23 is really what we were aiming for to see that portfolio either in a combination of either sale activity or 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.

Carlos Iafigliola -- Executive Vice President and Chief Financial Officer

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.

Brody Preston -- Stephens -- Analyst

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

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

Awesome. Thank you. Have a good day.

Operator

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

Michael Young -- Truist -- Analyst

Hey, 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?

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

Yeah. 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. Our expectation is that we can continue to significantly lower that in Q4 with the goal toward 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 $15 million 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.

Michael Young -- Truist -- Analyst

Okay. And then just switching gears quickly on deposit costs, those come down nicely, I think 44 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-30s or any color there would be helpful?

Carlos Iafigliola -- Executive Vice President and Chief Financial Officer

Yeah. That's accurate. So we're projecting being on the -- the -- closer to the 40 basic 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.

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

Yeah. 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.

Michael Young -- Truist -- Analyst

Okay. Great. That's all from me. Thanks.

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

Sure. Thanks. Have a great day.

Operator

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

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

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.

Operator

[Operator Closing Remarks]

Duration: 65 minutes

Call participants:

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

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

Carlos Iafigliola -- Executive Vice President and Chief Financial Officer

Michael Rose -- Raymond James -- Analyst

Stephen Scouten -- Piper Sandler -- Analyst

Feddie Strickland -- Janney Montgomery -- Analyst

Will Jones -- KBW -- Analyst

Brody Preston -- Stephens -- Analyst

Michael Young -- Truist -- Analyst

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