Q3 2020 Amerant Bancorp Inc Earnings Call
[music].
Ladies and gentlemen, thank you for standing by and welcome to the M. <unk> third quarter 2020 earnings conference call. At this time all participant lines are in listen only mode. After speaker's presentation. There will be a question and answer session data question. During the session you'll need to press star one if you acquire any further assistance. Please press star.
As the Euro I would now like to hand, the conference over to your Speaker today, Lower Rossi Investor Relations Officer at Amarin Bank. Thank you.
Thank you operator good.
Good morning to everyone on the call and thank you for joining us to review Ameren Bancorp's third quarter 2020 result.
With me. This morning are Miller Wilson, Chief Executive Officer, Carlos Garcia, Chief Financial Officer Me get Palacios, Chief Business Officer, NPL Fisher credit risk manager.
Before we begin.
The company's press release comments made on today's call and responses to your questions.
Came forward looking statements the Companys 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 notice this 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 Companys annual report on form 10-K for the year ended December 31st 2019.
Quarterly reports on form 10-Q for the quarters ended March 31st 2020, and June Thirtyth 2020, as well as to subsequent filings with the SEC.
You can access these filings on the secs website.
Please note that Amarin has no obligation and makes no commitment to update or publicly release any revisions to forward looking statements in order to reflect new information or subsequent events circumstances or changes in expectations.
Expect as required by law, except as required by law shoot.
Should 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. Please refer to appendix one of the Companys earnings presentation for a reconciliation of each non-GAAP financial measure to its most.
The comparable GAAP financial measure.
I will now turn the call over to Mr. Wilson.
Good morning, and thank you for joining on brands third quarter 2000, Twentys earnings call.
That's I did in the past few quarters I will begin by discussing how amarin continues to navigate the current environment.
Including an update around initiatives to put in place to mitigate the impact of the COVID-19, pandemic and our third quarter highlights.
Carlos will then review our financial performance for the quarter in further detail.
After our prepared remarks Cargos me go till then I will discuss question.
On slide three we.
We continue to support our employees customers and communities throughout the third quarter as we executed against our business continuity plan.
On the operational side, we began to rollout a new face of reintroducing, an increasing number of employees back to the office mix.
Excluding those who face challenges related to the pandemic that would prevent them from return.
To support these efforts, we have ramped up safety protocols, including implementing implementing staggered schedule and then abundance of caution to protect the health and safety of our employees.
Amarin banking centers continued to operate on a regular schedule under strict federal state and local government safety guidelines.
Additionally, we continue.
Many many of the liquidity and risk management practices implemented earlier this year as a result of the pandemic, including proactive careful and frequent credit quality assessment to volte portfolios we.
Weve, particularly focused on loans in the most vulnerable industries has been hardest hit by the pandemic and tightened our underwriting practices to enhance risk mitigation against the challenging market backdrop.
While we continued waiving fees in the third quarter with the exception of late payment fees on loans, we continue to offer low payment relief options to customers.
As of the close of the third quarter Amarin has only received a limited number of requests for additional payment extension, which our team is carefully evaluating.
Notably long tender deferral for and door forbearance decreased significantly to $71.8 million or just 1.2%. Both total loans as of October 23rd from 654.4 million at the end.
The second quarter and $1.1 billion at the beginning of the program in April.
Most importantly, 99.9% of loans added forbearance, so pretty soon regular payment.
A 94% of the loans that remain under a deferral and door for bearings are backed by real estate collateral.
Impressively.
No longer has any deferrals, so forbearance on our hotel loan portfolio, which is one of the most impacted industries by this pandemic. This.
This represents a significant improvement to the outlook of our credit quality for future quarters.
As we head into the fourth quarter, we will continue to focus on monitoring the performance of both segments of the loan portfolio, while providing relief to customers and our communities.
We also plan to leverage our small our new small business relationships as a result of our PPP participation to execute on cross selling opportunities and drive profitability.
Please turn to our third quarter highlights on slide four I.
I would like to start off by discussing the third section on slide credit quality, because I would like to emphasize that our success in managing this aspect of our business. Despite the current macroeconomic environment.
During the quarter, we continued to assess forbearance status and general credit conditions on a daily basis for the entirety of our portfolio.
Closely examining loans enjoyable industries as well as the COVID-19 pandemic.
Our efforts were fruitful.
In the third quarter, our allowance for loan losses was 1.97% down from 2.04% in the second quarter.
Primarily driven by the partial charge offs for long term Miami based U.S. coffee trader, which we referred to as the coffee trader mentioned in our two most recent earnings calls addition.
Additionally, we recorded a provision for loan losses of $18 million, which included 5.8 million related to the coffee trader.
This compares to the 48.6 million provision in the second quarter.
Equally as important our ratio of allowance to nonperforming loans decreased to 1.4 times in the third quarter from 1.5 times in the third in the second quarter.
Moving to other highlights in the third quarter, we recorded net income of $1.7 million compared to a net loss of 15.3 million in the second quarter.
I would also note that our non interest income increased by 2.7% compared to the second quarter driven by gains on debt securities sales.
At the same time, our non interest expenses increased 23.8% quarter over quarter, largely due to higher salaries and employee benefit expenses, which Carlos will explain in more detail.
Regarding our balance sheet total loans were $5.8 billion up slightly quarter over quarter, mainly driven by solid consumer appetite and increased demand for real estate loans total deposits were 5.9 billion down 2.4%.
From 6.0 billion in the previous quarter, mainly driven by a reduction of brokered customer Cds, which declined $101.2 million or 17.2% and $78.9 million or 4.3%.
Expectedly during the third quarter. These.
These declines are due to our continued focus on increasing lower cost sources of funds and aggressively lowering CD rate.
In the quarter, our cash position remains strong maintaining a substantial borrowing capacity with the federal home loan bank and an increase and a large investment securities portfolio that could be used as collateral for borrowings.
Turning to slide five.
As I mentioned before in the quarter, we had net income of $1.7 million compared to a net loss of 15.3 million in the second quarter, primarily driven too low.
Lower provision for loan losses in the third quarter offset by higher non interest expenses and lower net interesting.
Our return on assets with 0.08% or 0.16% on an adjusted as adjusted basis.
And our earnings per share was four cents or eight cents on adjusted basis.
Stockholders' equity was 829.5 million as of September Thirtyth 2020.
Decreasing by zero point $7 million or 0.1% from the prior quarter, mainly due to the lower net unrealized gains on debt securities available sales driven by the sales of debt securities in the quarter, which was partially offset by net income record.
It is in the same period.
Before I, let Carlos take you through the quarter in more detail I want to note that following the close of the third quarter, we announced a voluntary voluntary early retirement program and then in voluntary service.
Severance plan to better align our operating structure and resources with our business environment.
Both plants are to be completed by year end and result in meaningful future cost savings.
I will now hand, the call over to cards.
Thank you Miller and good morning, everyone turning to slide number six our first discuss our investment portfolio.
Our third quarter investment Securities balance was $1.4 billion down from the 1.6 reported last quarter and year over year.
As of the end of the third quarter floating rate investments represented 13% of our portfolio in line with the 13.6 in the year ago period.
Similarly to the last quarter, we continue to purchase higher yielding corporate securities, particularly financial institutions subordinated debt.
Notably in the third quarter corporate debt securities comprised 24% of the available for sale portfolio up from the 16% year over year. In addition, this quarter, we realized a net gain of $8.6 million on the sales of debt securities.
Turning to slide number seven.
We provide an overview of our loan portfolio.
At the end of the third quarter total loans were 5.9 billion slightly up by 52 million, 4.9% compared to the end of the second quarter the.
The decline in economic activity and more stringent credit underwriting standards associated with the pandemic continued to impact our loan production.
That said, we saw a strong consumer loan activity, which does have this asset class increased by $59 million or 45% quarter over quarter, primarily driven by our participation in indirect lending.
We have also seen consumers taking advantage of low interest rate environment be at home equity lines of credit. Additionally, real estate loans increased 43 million or 1% quarter over quarter, mainly use.
Land development and construction multifamily residential loans.
Turning to slide eight I would like to provide some color on amarins credit quality, which Miller highlighted before.
Carefully managing our credit quality continues to be a top priority, particularly in the current macroeconomic environment and in the third quarter our efforts were successful.
First our allow allowance for loan losses reached 117 million at the close of the third quarter compared to 120 million at the end of the second quarter in.
In the third quarter, we recorded a provision for loan losses of $18 million. The LOE was recorded in any quarter of 2029.
Down 63% compared to the second quarter.
This was largely driven by a significant decline of COVID-19 reserve requirements on the lower reserve requirement on the coffee trader.
Also during the quarter, we charge off 19.3 million related to the coffee trader, which as we noted last quarter unexpectedly announced its liquidation plans.
Based on the information obtained during the third quarter, we increased amarin to specific reserves for this launch by an additional $5.8 million.
As of September Thirtyth, Ameren Llanos reserve for this specific coffee trader was $6.5 million compared to the 20 million as of the end of the second quarter we.
We continue to monitor the liquidation process very closely.
Nonperforming assets increased 9.2 million quarter over quarter, and 54 million compared to the year ago period totaling 86.5 million at the end of the third quarter of 2020.
The ratio of nonperforming assets to total assets was 180 basis points up 13 basis points from the second quarter and up 66 basis points year over year as we said we're forecasting the impact of the pandemic on our credit quality is challenging were being proactive and diligent in monitoring the situation we benefit from it.
This efforts in the third quarter with sound credit quality and strong reserve coverage and we will continue to do so moving forward.
Turning to slide number nine you can see that our loan yield decreased 13 basis points compared to the second quarter. This was largely due to the increase in the non performing loans and lower market rates on variable rate loans. Our investment deal also decline largely due to repricing of floating securities prepayment acceleration and.
Investment at a lower market rates, we partially offset this impact by purchase in higher yielding corporate bonds, mostly financial institutions, who debt.
Moving to slide number 10 total deposits at the end of the third quarter were 5.9 billion down 2.4% quarter over quarter. This.
This decrease was primarily driven by a 7.4 combined reduction in broker and customer time deposits distis.
This decline was aligned with our strategy to improve profitability across our businesses in the third quarter, we continue to target lower cost funding by aggressively lowering our CD rates and repricing relationship money market deposits.
As a result, our cost of interest bearing deposits was down 50 basis points in the third quarter of 2020 compared to the second quarter.
Additionally, we have observed an increase in utilization on deposits of Triple B loans.
We expect a similar trend in the upcoming quarters as a small business customers continues in this funds.
Foreign deposits decreased $25 million or 0.9% compared to the prior quarter, representing an annualized decay of 3.8% compared to an annualized growth of 0.5 during the second quarter of 2020.
In the third quarter AMR and saw an increase in the economic activity in Venezuela, our largest international deposit base as the local government relax carbon related restrictions. So while deposits were still modestly down quarter over quarter I'm encouraged by the slower pace of decline as the third quarter 2020 annualized decay.
Rate was only 3.8% in foreign deposits and compares favorably to the annualized rate of 16%. We saw in the same period last year.
Importantly to note, we continue improvements reflect and the hard work from our team to improve engagement with customers cross selling products and services and stressed relationships with our international depositors, Iowa.
I also want to note amiram began to capture interest bearing deposits from select a broker dealers. This quarter deposits reached 22 million by quarter end and represent a less expensive funding source then broker Cds.
I want to highlight Amarins continued execution against our relationship driven and customer centric strategy in the third quarter, we focus have our deepening existing relationships with customers to grow our share of wallet and deploying new strategies to increase profitability such as cross selling the bank's Treasury management profit on reviewing.
Fees being charged.
We also continue to drive customer engagement through targeted Kohl's and ramp up of our daily customer contact.
As a result of this effort we have begun to see positive results materialize first I'm renting bettman capture new assets of approximately 30 million. This quarter made possible by the strong customer engagement of our team members second audience participation in the Triple B program opened the door to a number of new prospects.
Lending and deposit opportunities, which were aggressively pursuing fine.
Finally, we are pleased to announce that more than 80% of our sales teams are now using sales force a great milestone in our digital transformation strategy.
We expect to continue all this efforts to drive our strategy and increase customer share of wallet in the fourth quarter.
Moving to slide 11, I'd like to provide some color around amarins wholesale funding strategy as you may recall in order to manage the low interest rate environment, we modify maturities on 420 million fixed rate FHLB advances during the second quarter 2020.
Which resulted in a 2.4 million cost savings for the rest of the 2024.
For the remainder of the year and into 2021, we will continue to actively leverage opportunities in the wholesale market to decrease funding cost.
Turning to slide 12.
Our BNL items on slide 12, the third quarter 2020, net interest income was $45 million down 2.1% from the second quarter of 2020 and down 14% from the third quarter of 2019.
The modest quarter over quarter decrease was driven by the lower market rates on reprice variable rate loans, and lower average balances and yields on securities available for sale as we reprice and reinvest it at a lower market rates.
This quarter, we also experienced the full quarter impact of interest cost associated with the senior notes we issued back in June.
Partially offsetting this decline were lower overall cost in deposits and balance of broker deposits and time deposits as we explained before and higher CRB and consumer loan volumes.
We were able to save a million dollars in interest expense with with an average rate drop off about 26 basis points from the second quarter of 2020.
This was driven by Amarins continue efforts to proactively repriced customer time deposits and money market deposits at a lower rate.
We also choose not to renew expensive maturing customer Cds as.
As of the end of the quarter, we held approximately $800 million time deposits slots to mature in the next six months, which we expect to reprice at a much lower rates as a result, we expect average cost subsidies to decline approximately 50 basis points, helping us to mitigate margin headwinds.
Now turning to the year over year decrease in net interest income, which was largely driven by factors discussed in the prior quarters.
This quarter's decline was again, primarily due to the meaningful yield decline in interest earning assets as a result of the federal reserve's two emergency recalls despite this past March.
This was partially offset by lower cost of deposits and wholesale borrowings redemptions of our trust preferred and higher average loan volume.
During this quarter, we have seen our NIM almost reached an inflection point dropping only five basis points to 2.39% in the third quarter from two point 44 in the second quarter.
As we approach the end of the year, we continue to implement several actions to offset the impact of the low interest rate, including first minimizing cost of funds, including a strategically on proactively caught in rates on time deposits and relationship money market accounts as well as pursuing lower cost funding opportunities Second Act.
While implementing a managing floor rates in our credit portfolio and increased spreads during extensions and renewals to optimize yield.
This is strategy pretty use an improved trend in the third quarter evidenced by higher spreads in Cnine in our Florida market and third continue to optimize the yield of our investment portfolio and managed balance sheet sensitivity to mitigate the impact on lean via duration.
We remain focused on implementing this action and evaluating order to help us to navigate through the current market environment and build momentum as we enter into 2021.
Moving to slide number 13, noninterest income in the third quarter was $20 million or up 3% quarter over quarter and 47% year over year.
The quarter over quarter increase in noninterest income was largely driven by a higher net gain on sale of securities. We recognized 8.6 million net gain compared to a 7.5 net gain in the second quarter as we continue to sales of sell securities Opportunistically in order to buffer the impact of low interest rate on our debt.
Notably we have recorded $25.4 million in net gains on the sale of securities. So far this year.
Additionally, the profit on order service fees were higher this quarter driven by an increase in why transfers fee due to a surge in transaction volumes as well as higher for in wire transfer rebates.
Partially offsetting this increase was a decline in derivative income and the normalization of brokerage fees that were elevated in the second quarter in connection with the company's bond issuance in the month of June.
Moving on to slide.
Moving on the on the on the on the year over year, 47% increase on non interest income was recorded this meaningful improvement was primarily due to the net gains on the sale of the securities.
An additional brokerage and advisory fees.
Amarins assets under management, and costly increased $47 million to $1.8 billion in the third quarter of 2012. This increase is mainly due to 30 million any nuances.
As we execute against our relationship driven and customer centric strategy by increasing the share of wallet and acquire new customer base.
We remain committed to growing our domestic and international land base going forward.
Moving to slide 14 third quarter non interest expense was $46 million of 20 up 24% quarter over quarter and down 14% year over year.
This quarter over quarter increase is largely due to higher salaries and employee benefits and other operating expenses, resulting from the absence of the differ direct cost associated with the origination of the triple B loans, which consisted of 7.8 million of salaries and other employee benefits on point $7 million of order operating expenses.
Additionally, we incur in higher FDIC expenses as well as marketing cost front RECIUM airports following lower activity due to call. It in the second quarter pardon.
Partially offsetting this increase were declines across professional unaltered services fees insurance static tax expenses and deferred stock compensation expenses.
The year over year decline was largely explained by significantly lower salaries and employee benefit expenses as we realign amarins compensation programs due to the impacts of COVID-19, we.
We also have reduced marketing expenses legal and accounting fees and other non interest expenses, which were related to our transformation efforts part.
Partially offsetting these declines were higher FDIC assessment and insurance costs as well as increased consulting fees in connection with our ongoing digital transformation efforts Luke.
Looking ahead, we remain committed with our efficiency improvements.
While providing the bank Jordan for all our customers ahead.
In particularly we will focus on our digital transformation and expect to continue achieving milestones in the near term. This includes finalizing the rollout of sales force across all business lines as well as in CNO for commercial use by the end of the fourth quarter we.
We didn't see no retail used to be a roll out next year.
I would like to emphasize the importance of sales for as a key element in the Onboarding and servicing of customers sales force will help us to integrate marketing campaigns streamlined the cross selling process.
On the loan origination side Encino will fully integrated with sales force and will generate significant efficiencies in the origination underwriting and portfolio management management's stages.
Also as previously announced effective tomorrow to retail banking centers will be close we will continue to analyze and optimize retail banking centers as part of our efficiency efforts.
In line with Millers early remarks, Im rents board approved a voluntary early retirement plan as well as in voluntary severance plan early this month.
For the voluntary plan eligible employees have 45 days to comprehend or participation.
So we will get an idea of the overall impact of these initiatives later this year.
On the order hand, we expect being voluntary severance plan to impact approximately 37 employees.
And we sold in approximately $1.9 million.
In one time termination costs in the four quarter, we'd over 5.8 million of annual cost savings starting in 2021.
These plans are expected to be completed by year end and we will provide an update during the fourth quarter quarterly earnings call in a few months.
I would like to take a moment to look back on our efficiency efforts since the time of our IPO.
As of the third quarter 2018, we had a total of 948 Sds we continue our efforts and as of the end of 2020, we have reached eight or seven fts, which represented a 15% decline.
If we take into account that do separation plans I, just described and assume a similar acceptance rate for the voluntary plan as the one experience in 2018, we expect to reach approximately 758, fts, which would represent a drop of 21% compared to the third.
Quarter of 2018.
In reference to the adjusted metrics non interest expenses was $44 million up 23% quarter over quarter and down 15% year over year, we had restructuring expenses of 1.8 million this quarter compared to 1.3 million last quarter. This quarter costs include includes 1.2 million in digital.
Transformation expenses and point 6 million of the staff reduction costs.
Restructuring expenses decreased 46.2% year over year.
In the third quarter due to the absence of rebranding costs in color related.
And.
And our transformation efforts in the prior year.
Moving on to slide 15.
We continue to have an asset sensitive position and in order to mitigate the impact on the means from lower interest rate, we actively manage our investment portfolio now I will hand, it back to Miller for to conclude remarks.
Thank you Carlos.
Moving on to our last slide you will see that our goals have not changed than in the third quarter. We remained focused on these goals.
As I said earlier, we are particularly pleased with our proactive approach to manage credit risk.
Wavering commitment to assessing forbearance status.
General credit conditions in loans and vulnerable industries on a daily basis paid off as we recorded the lowest loan loss provisions so far this year.
In the quarter, we also remain focused on generating profitability and growing loans.
We saw significant quarter over quarter increase in net income in addition to strong consumer on real estate loan activity.
Looking forward, we will continue to execute on our goals to drive shareholder value.
We also remain focused on aligning our operating structure and resources with our business activities.
Our steadfast commitment to the profitability credit quality and core deposit and loan growth is more important now than ever.
With our goals at the forefront of everything we do and we are confident that we will continue to successfully navigate the current economic environment.
With that we will happily take your questions. Operator, please open the line for Q and a.
As a reminder to ask the question you'll need to press star one on your telephone. So withdraw your question press the pound key please stand by while we compile the culinary roster.
And our first question comes from Michael Young.
From Jewish your line is now open.
Thank you thanks.
Thanks for taking the question.
Wanted to start just kind of spread income I heard the comment that maybe we're reaching an inflection point there and some of the proactive measures you're taking.
But just on a go forward basis is it better to think of sort of.
$8 from here, moving higher and maybe the margin kind of level.
I have a few puts and takes but overall, we're seeing spread income growth.
So yeah, Hi, Mike how are you has it gone up yes, there is.
Definitely if you look at the quarter. Despite of the fact of having five basis points of a drop in the mean, but.
Particularly the month of September we actually saw a bounce back on the on the NIM on a relative basis. It actually increased two point 47. So our expectation is that we'll keep working on the on the cost of funds of the of the time deposits as as we said.
There is an opportunity there to reprice, our large portion of the of the portfolio that is coming due within the next six months. So that will definitely create a room for the for the cost of funds. So so yes. The answer is we with it feels like it is the compressing them, we reach an inflection point.
Okay, and then just maybe in terms of kind of thinking of the size of the balance sheet on a go forward basis are you guys.
We expect to see kind of a troughing of balance sheet and or net loan growth kind of picking back up here over the near term or do you think thats going to take a little bit of time and then I guess another question would just be on the securities book.
We've taken a lot of those gains can offset the lower interest rate environment or are there more of those that will be taken in the future.
Well as as we we have always expressed the the investment portfolio serves as a tool to manage the overall duration of the balance sheet. So and we have had that impact on the on the realized gains for three consecutive quarters. So.
He has been used on a progressive basis as to manage the overall duration and hedge the low levels of of the Nene. So so yet so it's it's been actively use answering that part of the question in terms of the size of of the balance sheet, we may expire.
Correct sort of a stabilization of the total size of the balance sheet, we may have sort of up and I know that it's a challenge.
When when you sell some securities to reinvest, particularly in this point in time.
In you know, we'll was looking for opportunities and Thats why the corporate side of that the investment portfolio has been increasing alluded to be more so I would expect the balance sheet to see stabilization during the fourth quarter close today billion more or less.
We haven't seen a lot of.
Prepayments coming our way anyways, but.
But you know as as things started to get better and opportunities for certain borrowers started to come across it will probably be looking to re fi and so on so that will create a little bit more pressure on the total size of the of the loan portfolio.
Now on to the profit.
Michael its Miller here.
We have these Cds that are repricing and of course I have to say.
A significant impact on our customers.
Yes, you're dropping the rate significantly and.
You know it when they are a single project type customers, we are not afraid to let them go.
And.
When we believe that they.
There is zero opportunity to cross sell to them.
Frankly.
If it means that they go because we're dropping their rates.
So be it.
And that may cause such that the total deposits don't grow.
Or don't grow significantly.
Next quarters because of that.
Situation, we prefer to have the impact from the Costco down rather than keep it a single product custom with no no potential.
Nation should.
And it looks this time around based on the liquidity levels that though we currently face in the market even.
Even though we may face run offs front from that perspective, our transactional products have have actually come off and have offset song somehow the drop on the on the time deposits. So I believe there is opportunity with the level of liquidity that we have to continue to reprice.
So aggressively the time deposits and keep improving profitability.
Okay and then the last one for me, obviously, yes, 1% ROI target you guys kind of backed off of that.
Out of volatility now so it's kind of hard to model.
See a path forward, but is there sort of a metric or anything that you're managing to.
As you can on you. This time period is that efficiency ratio or something else that we should be thinking about.
As we just kind of look forward.
Well.
Seeing that we.
Burned by having been the Aro a walk to.
No we constantly get referred to the way, we measure ourselves against numerous metrics and we have both objectives in those.
Targets.
I would tell you that given the current environment, it's very difficult to say.
With precision you know, where we expect to be in the next quarters. We are currently working on a.
Our budget and our three year plan.
[music].
Last time, we will be more.
April to express where our targets are at the moment, it's really a flux.
To complement I guess, we keep an eye on and as you get as you can see on the on the on the last actions that we took on the efficiency ratio. That's an area that that we really want it and we give a very good view on the on the presentation.
On the on the change on the fees. So we are definitely given a lot of of weight to that to that metric internally.
Okay. Thanks.
And thank you and our next question comes from Michael Rose from Raymond James.
Your line is now open.
Good morning, everyone. Thanks for taking my questions.
So obviously, a very busy quarter.
Lot of activity going on Im just wanted to drill in a little bit to kind of the expenses.
[music].
How should we think about.
I understand that the voluntary retirement program.
And I understand the example, you gave.
Around potentially getting down to 750.
To use how should we think about some of the offsets in terms of reinvestment I assume there is still some more with encino and some other efforts as you guys have but just trying to get a sense for.
Where you think the expense base will be as we start the year I know, it's a tough question to answer but would just love to hear kind of the puts and takes in where you think we might end up thanks.
Okay. So.
Pretty much the end hi, Michael how are you.
The fourth for the fourth quarter.
We we have so far it's an estimated cost.
Of of the separation plans.
Which you know it it may range between $6 million to $8 million, depending on the acceptance level.
What would we could potentially.
Foresee or or or estimate at this point is that based on the levels of acceptance that we receive in our previous plans that we put together in 2018.
If if we were to happen we were to have the same type of acceptance that we had bank back then.
We may experience roughly.
So we thought that it would be a good idea to diversify away increase the yield of the portfolio by adding more of this type of credits. So we started our partnership in.
Early this year.
We started with some.
Purchases and then.
By by the way it is our consumer loans, there are not student loans or just on the consumer side. So we started to purchase we had passed during the day.
The month of March due.
Due to the Covid situation and so on we wanted to understand.
What changes in underwriting criteria is et cetera, where apply et cetera, and then we resume we are closely monitoring that portfolio on on a frequently basis.
Looking into the the.
Delinquencies looking into the all of the possible metrics and.
And as of now we are close to the $130 million. So it's.
It's so far has been a good experience and it provides a diversification for our portfolio and at the same time he helps with the with the yield of the portfolio.
Okay. So.
Like maybe you're near in near term peak with that and back to the previous questions. It's about the size of the balance sheet, obviously get some PPP forgiveness.
A little bit this core probably the bulk of it.
In the in the first quarter next year as we think about the size of the balance sheet and some of these loan growth efforts, including the sofa I lost that you just mentioned and you've added the security's book a little bit there's some there's some financial subject.
It appears that does it you get the sense that you can actually net grow the balance sheet X.
<unk> run off as we move through 2021.
Yeah, we actually in the process of.
Right in the size that we want to give to this portfolio. We definitely like the fact that is a very granular portfolio.
Average size, it's very little and.
Credit quality has been so far very good great.
Bridge FICO score, it's close to 742.
So we definitely.
We would like to replace some of our order Triple B R ordered asset class by this type of.
London, but but we're trying to frame it on the on the right size for the for the overall portfolio. That's that's kind of the general idea. So I guess.
You have seen the progression of events, it's an asset class that we like it and we feel that we need it in our loan portfolio.
Understood. Thanks for taking all my questions.
Thank you.
And our next question comes from Stephen Scouting from Piper Sandler Your line is now open.
Hey, good morning, everyone.
Steven.
Uhm.
So I guess, maybe I'll I'll start with the exposure to kind of these cobra vulnerable industries, 45%.
Obviously, I think that's a lot higher than most other banks are quoting so I'm kind of wondering if you can bring that up any any further in terms of.
How you are classifying guys coming LTV perspective in terms of what's falling in those categories and then just how you think you can convince the investors to feel differently about your credit profile, because obviously, where the stock trading.
There doesn't seem to be by in there. So I'm just wondering what you feel like definitely comedian missing there in terms of your credit quality.
Hi, Steve. Thank you so much for joining us today.
Great hobbies.
It was.
Very good having.
So.
I am going to give you a little bit off of flavor on this and then I'm going to have Guild Fisher for and I were credit risk theme to give you more color.
The percentage is pretty much related to the portfolio that we use as a reference to assign.
COVID-19 long enough probation.
We do our analysis in terms of which industries, where immediately effected on progressively affected by covert so that part of the portfolio is the one that gave rise to the.
I guess institutional or generic reserves that we set aside for the carpet and and now I am going to have to give them more color on on this.
Hi, So basically what we have been doing this time.
Segregate amplify those industries that are of.
That we are escalating their morning during that we believe are the heightened impacted industry.
So those are the ones that are we providing the supplies that information.
CRE reset.
<unk>.
The CRE also.
Two of industries that we believe are impacted.
And as well as.
And the commercial and on articles by portfolios. Some other industries that we have mentioned before but.
Such as entertainment.
Restaurants.
And some AB.
Other.
Wholesalers that sales that have related.
Sales to industry.
Industry around the impact.
So that's what we classify.
Potential having backdating industries and we have.
Grading so we have high factors and medium impact the industries to try to segregate that what what is behind it and what we what we try to segregate there is.
For example in right there that we are trying to see what portfolio is.
Has the right above 60% in those are weakness weakness here.
Hi, My most importantly, more narrow than the ones that have little lowered about pilates famous for hotels and office office space.
In terms of.
So that.
That's how we segregate and that's what you see that 45% because we're trying to to give you a perspective, all I mean that they call. It has the fact that many industries is not just one one industry individually so so.
That's.
That's what we see.
Segregate of our portfolio.
And so what we what we have been doing is.
We do.
Monty authorities every week off a portfolio of the higher exposures Jose why.
For America that you have seen how we have been having a great success and if we're <unk>.
By reducing.
That's what we have is initially at $1.2 billion, which with almost 20% of our portfolio and right now it's only 1.5%. So so I think thats.
And as we review that portfolio, we have been making the decisions to to classify.
Lone Star that you have seen the immigration of classify that we have had.
Okay got it got it and like you said the deferral trends were positive this quarter and.
Really encouraging to me I guess was that you said, there's no deferrals within your hotel book.
I'm wondering specifically there what you're seeing with your New York City, and Miami Hotel exposure in terms of.
Busy rates.
A bit of exposure that they're very personal television. So they just kind of any detail on how you're thinking about that hotel exposure that.
Sure what we have seen it and we have seen the state strength of what we.
Reported last quarter, we have seen that in the high travel area, though the destination travel areas such as Miami Beach.
We have seen steady over flexi levels that are on the 60 60 something percent the whole beathy.
And what were we have seen the issues or the.
Not that.
Rick already it's been in the corporate type of travel.
Those are in town.
Travel destination area those are the ones who are around the 40%.
So.
Levels.
But when we have seen it.
The sponsors that we have half.
Have.
Put great effort and keeping.
Loans up to date and they they they believe that the the increasing a coupon fee, it's going to take them to the next level.
Go through the travel piece on the.
Sayonara.
Okay Super very helpful. And then I guess last thing for me I'm curious you guys have.
A pretty strong low north deserve here north of 2% you have what.
Well it appears to me to be a lot of capital.
And the stock that's trading below 50% of tangible books and I'm wondering how you're thinking about share buyback today and if that's something that could be on the near term horizon once we get.
Maybe some additional clarity on the path of the virus.
Well, we look at our capital on a frequent basis, we look at the options that we have for usage effect capital.
You are currently working on.
Most recent review of that.
And.
Yes.
Certainly.
Would appear to be a lot of options at the moment producing R capital.
But we don't have anything particular that we could say at the moment.
Got it got it okay. Thanks for the time, everyone I appreciate the color.
And thank you for Ya.
And thank you and our next question comes from Brady Gaily from K B W. Your line is not open.
Yeah. Thanks, good morning, guys.
Good morning or anywhere.
So I wanted to follow up on the buyback question do you all have a buyback authorization that's out there and if if so what's the remaining capacity there.
No we don't have a buyback authorization.
Okay. So why why wouldn't you have a buyback in place.
No. We're certainly exploring that is one of the options.
But up till now we've never had a buyback function approved by the board.
We have done some privacy negotiated buybacks as we announce but.
Certainly it's a discussion that we have with the board.
Yup.
Stocks have have a tangible book value.
And you said he is your nose over 10% of it seems like that would be a great idea.
My next question is on the employee count.
With the actions you've recently analysis, you said, it's going to go down to 750 employees I think thats from a peak of around 950, So you're down you're down 200, if we were actually we were actually over a thousand just before the.
Okay, So you're down 250 employees.
750.
Is that the bottom or do you think that over time, there's more work to be done there.
Well there is C hybrid Hillary there is it's a.
[noise] working process.
As we mentioned we are implemented.
New new technology.
There is simplification on the way to.
Perform processes simply.
Simplification and structures.
Remember that that we came from a different type of organization with more international.
Flavor somehow so we progressively are changing.
And this is part of the of the changes that we need to go through so we're constantly evaluating looking at the branches looking at physical space looking at pretty much everything that is included in the non interest expense. So what I can say to working process.
Okay, and then I think you just answered my last question I was I was going to ask on the branch fraud, I mean, you're close to branches is there more opportunity there as well.
I think that high it's may already.
Like Carlos mention we are constantly analyzing our footprint.
We have encore branches are very important.
You have profitability processing, each and every location.
We are working align with them it to rebuild beliefs.
I am possible relocation uncle civilization, and that's an ongoing concern.
We want to be efficient and profitable an area of our locations.
And I know when we went through the IPR process you were talking about opening so branches are there any additional branches or planned openings that are out there.
Not today.
Okay, Alright, great. Thanks, guys.
And thank you. Thank you.
And ladies and gentlemen, as you have a question that is star one again, if you have a question that is star one and our next question comes from Christopher Meronek from Janey Montgomery.
See.
Your line is now open.
Hey, good morning, Thanks for taking all the questions. This morning. So I had a similar question is Stephen in Brady as it relates to the buyback May do you think about the use of your capital and just balance sheet. Severe me is there a better return than buying stock back it's 49% of the bulk and I'm just curious if this.
Could have a priority as you think about allocating dollars. The next couple of quarters.
Yeah.
You guys keep pressing us the answer is we look at all options with regards to our capital.
We have had discussions recently with our board on the option.
Then.
We expect to be very active with regards to our capital.
Great. Thanks for the additional feedback on that and then just back to.
The third party deposit initiative that was outlined this morning.
How does deposit mix kind of look six nine months from now is it going to be different from what we see or is kind of the 930 deposit mix probably going to be the same.
I think that is.
Seeing a lot as bang the trend away from.
C DS.
Is going to continue I think customers when they see that the the differential between a money market rate and the C. D rate is next to nothing they're going to call.
More short term into.
Money market account and.
But that also fits into our strategy, where we are.
As I said earlier, we are.
Focusing on since we've expressed in several calls on relationships.
Kind of not particularly interested in having customers who just.
CD money with us and have no interest in pain.
Extending that relationship with us.
Two.
Our expectation over time is that we are going to grow our corded pumps. His base. It may include some Cds, but it's it's a relationship it's not just.
Too.
CD customers.
Gotcha, and I guess, you're relative costs deposits can continue to improve as a result of his too right.
We expect significant Maturity's hills within the next.
3225 months Cds, we expect them all to reprice significantly lower.
Great. Thank you very much I appreciate it.
Keith.
And thank you and I'm showing no further questions I would now like to turn the call back to Mister Wilson you May proceed Sir.
Well, thank you for joining our third quarter earnings call.
Every day, we continue to make progress against our customer centric strategy and uncles. We have sent we look forward to providing another update our next.
Cole at the end of the quarter. Thank you again for your time today, we will know disconnect.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating in you may now disconnect.
[music].
<unk>.
[music].
[music].
[music].
[music].
Ladies and gentlemen, thank you for standing by welcome to the <unk> third quarter 2020 earnings Conference call. At this time, all participant lines on a listen only mode. After speaker's presentation. There will be a question and answer session. That's question. During the session you will need to press star one.
If you require any further assistance. Please press star zero I would now like the hand the conference over to your Speaker today, Lower Rossi Investor Relations Officer at <unk> Bank. Thank you.
Thank you operator.
Good morning to everyone on the call and thank you for joining us to review Ameren Corp. third quarter 2020 <unk>.
With me. This morning are Miller Wilson, Chief Executive Officer.
Let's see I feel a lot cheaper.
Chief Financial Officer Me get lots sales Chief business Officer.
Fisher credit risk manager.
Before we begin.
Companys press release comments made on today's call and responses to your questions contain forward looking statements.
The company'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 notice regarding forward looking statements in the company's earnings release I precipitation.
For a more complete description of these and other possible risks. Please refer to the Companys annual report on form 10-K for the year ended December 31st 2019.
<unk> reports on form 10-Q for the quarters ended March 31st 2020, and June Thirtyth 2020, as well as to subsequent filings with the FCC you.
You can access these filings on the FCC its web site.
Please know that Amarin has no obligation and makes no commitment to update or publicly release any revisions to forward looking statements in order to reflect new information or subsequent events circumstances or changes in expectations.
Back as required by law, except as required by law.
Should 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. Please refer to appendix one of the Companys earnings presentation for a reconciliation of each non-GAAP financial measure towards.
Most comparable GAAP financial measure.
I will now turn the call over to Mr. Wilson.
Good morning, and thank you for joining <unk> third quarter 2000, Twentys Urban school that's.
That's I did in the past few quarters I will begin by discussing how amre continues to navigate the current environment incur.
Including an update around initiative to put in place to mitigate the impact to the COVID-19 pandemic and our third quarter highlights.
Carlos will then review our financial performance for the quarter in further detail.
After our prepared remarks, Carlos let me go till then I will discuss question.
On slide three.
We continue to support our employees customers and community throughout the third quarter as we execute it against.