Greetings, ladies and gentlemen, and welcome to the Amalgamated Financial Corporation Third Quarter twenty twenty-one Earnings Conference Call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions with instruction to follow at that time. As a reminder, this conference call is being recorded. I would now like to turn the call over to Mr. Jason Darby, Chief Financial Officer. Please go ahead, sir.

Thank you, operator. And good morning, everyone. We appreciate your participation in our third quarter twenty twenty-one earnings call. With me today is Priscilla Sims Brown, President and Chief Executive Officer. As a reminder, a telephonic replay of this call will be available on the Investors section of our website for an extended period of time. Additionally, a slide deck to complement today's discussion is also available on the Investors section of our website. Before we begin, let me remind everyone that this call may contain certain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of nineteen ninety-five. We caution investors that actual results may differ from the expectations indicated or implied by any such forward-looking statements or information. Investors should refer to slides two and three of the earnings slide deck, as well as our twenty twenty ten-K filed on March fifteen twenty twenty-one for a list of risk factors that could cause actual results to differ materially from those indicated or implied by such statements. Additionally, during today’s call, we will discuss certain non-GAAP measures, which we believe are useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with the U.S. GAAP. A reconciliation of these non-GAAP measures to the most comparable GAAP measures can be found in our earnings release, as well as on our website. Let me now turn the call over to Priscilla.

Thank you, Jason, and good morning, everyone. We appreciate your time and interest today. This morning, I will share a few highlights of our third quarter twenty twenty-one results but spend the majority of my time providing an update on our strategic plan development, including our recently announced acquisition of Amalgamated Bank of Chicago. Jason will then offer the financial benefits of our acquisition in more detail along with a more in-depth review of our third quarter results. To start, I'm very pleased with our third quarter as we've delivered strong results across the dimensions of revenues, profitability, credit quality, and foundational growth drivers, such as PACE and deposits. Our total net loans, including PACE assessments, grew modestly by thirty-one point four million dollars, marking a linked quarter continuance of net positive growth. Without the effect of the runoff on our residential loan portfolio, which we have strategically decided to allow, growth was eighty-three point seven million dollars or three point two percent. Also importantly, we had net positive growth of nine point four million dollars in commercial and industrial lending and twenty-six point eight million dollars in consumer lending, each driven by solid growth in our sustainability segment, where we believe we have a competitive advantage. While we acknowledge these results must improve, we are encouraged by both a reversal of net loan portfolio declines experienced during the past few quarters and the signs of momentum as we see returns generated from the earliest stages of our lending strategy implementation. Along these lines, I am very happy to report that during the quarter we also hired a new Chief Credit Risk Officer who will report directly to me. He joins us with direct experience in the segments in which we do business and has demonstrated understanding of the connection between production targets and prudent credit risk management. Now, I'd like to update you on the strategic initiatives we've been working on to enhance our growth and better serve our customers. To accomplish this, we have established a four-pillar strategy that focuses on: building our business through mission; focusing on customer segments that share our values; developing and expanding relative product offerings; and improving the management of our data and technology to drive improved efficiency and effectiveness. The first pillar on building our business through the mission as America’s socially responsible bank is one that I'll spend a few minutes on next. Interest in the environment, social causes, and communities have never been greater, and we're committed to being a bold leader in policy and public affairs that impact our customers and employees. Our goal is to live the mission by building an authentic culture of social responsibility and impact. This will drive our existing customers' loyalty and attract many new prospects that share our mission and values. By way of example, I am proud to report that we’ve committed to being net zero by twenty forty-five, and we've established a science-based target system to achieve this goal. We have named a Chief Sustainability Officer to support this process and deliver on our target for the science-based targets initiative. We are promoting our team as thought leaders and are excited to participate in the UN Climate Change Conference being held in Glasgow next week. In addition to organic examples of mission, we certainly look for opportunistic expansion of our mission through partnerships, as well as to plan to fully leverage our mission to accelerate the pace of growth in the Midwest through our acquisition of the Amalgamated Bank of Chicago, which I will say more about in a few minutes. The second pillar is leveraging insights on core customers. Over the years, we have discussed with our customers in the political, not-for-profit, and union sectors as being deposit customers with little demand for loans or other traditional banking services. I believe that within our core deposit-led customer segment, there's a significant opportunity to drive additional revenue streams. To accomplish this, we have begun building on our data infrastructure, examining customer information and behavior to identify demonstrated needs and interests and related profit tracks. Our engineers are now organized around this objective, and we recently augmented their expertise with data science resources. The third pillar focuses on developing and expanding our product expertise. In the same way, the bank added a team of deeply connected relationship managers to grow our successful low-cost deposit franchise we're now focused on assembling talented leaders with the same level of unique specialization in our mission-driven lending segments, adding to our staff of bankers and underwriters with proven acumen and results in the commercial solar, PACE, and sustainability project finance markets. We've also repositioned some of our existing talent, allowing them to use their valuable expertise across our New York City, Boston, DC, San Francisco, and soon-to-be Chicago offices. In tandem with our mission-driven lending segments, staff build-out, we are also revamping our traditional commercial real estate team by recruiting motivated and experienced leaders who have proven track records in this important marketplace. Commercial real estate lending remains our largest asset class on the balance sheet, and we intend to return to pre-pandemic origination levels and be more successful at protecting our existing book of business as we head into twenty twenty-two. We are also connecting our consumer and trust business to our commercial banking business to better serve core customers across offerings. It is essential for Amalgamated to fully identify ourselves as a true ESG institution with a wide array of banking and financial services, moving us beyond the impression of some stakeholders that this is a deposit-only institution. We have added experienced talent in our ESG investments platform, including a leader who will manage our responsive fund suite of ESG investments with a focus on transforming our relationship bankers into referral engines while also ensuring clients are earning appropriate market returns that in turn drive marginal profitability to the bank. The fourth pillar is focused on our infrastructure and digital platform to support our growth. We are working to become a stronger digital bank, offering our customers both commercial and consumer the absolute best of banking experience through the use of enhanced user-friendly technology supported by exemplary in-person support. We offer our commercial customers a great digital experience now, but we want this interaction with all of our services to set us apart as we continue to evolve into becoming an even stronger digital bank. Smart insight-driven investments here will ensure that our customers value their differentiated online experience. It's an exciting time for our bank on many fronts, and most certainly contributing to that is our recent announcement of the acquisition of Amalgamated Bank of Chicago, known as ABOC. One of the many strategic opportunities that the acquisition provides is an established entry into a market we have long desired. ABOC provides us entry into Chicago, which is a far-reaching market that encompasses most of the Midwest. Additionally, we bring to ABOC and its customers and prospects the capability that a significantly larger bank can provide. What we have found is that ABOC has deep relationships with their customers and that their customers are rich referral sources for new prospects. Combined, we have the balance sheet to support ABOC's customers and prospects as they continue to grow and which will provide immediate revenue synergies. The acquisition also gives us a tremendous opportunity to export our multi-segment customer model to the Midwest to capitalize on the segments that exist well beyond ABOC's foundational union customers. We signaled last quarter that we would be exploring smart M&A opportunities, and we will continue to do so. As I also stated on our second quarter call, we will need to make investments into people, products and services, and technology to foster the growth that we are expecting and are actively planning a thoughtful roadmap that considers timing, prioritized investments, net neutral funding decisions, and profitability. Although we have much more work to do, we are evolving and exciting things are happening. I will now turn the call over to Jason, who will fill you in on some of the details of the ABOC deal, as well as the just completed quarter. Jason?

Thank you, Priscilla. I want to reinforce her comments regarding the enthusiasm our team has for the ABOC acquisition and our four strategic pillars aimed at accelerating growth while managing risk and creating value for our stakeholders. Our September press release includes details about the ABOC transaction, but I want to briefly emphasize some of the financial benefits and growth opportunities this acquisition brings to Amalgamated. Firstly, we anticipate significant cost savings by eliminating redundant functions, which should lead to earnings growth of around seventeen percent. Most of the savings will come from SG&A, which we expect to reduce by about twenty-five percent, or eight point one million dollars on a pretax basis. We foresee realizing the full economic benefits from the acquisition in twenty twenty-three, assuming the deal closes in the fourth quarter of twenty twenty-one. Additionally, there are revenue opportunities as we plan to utilize ABOC’s excess liquidity for securities until the first quarter of twenty twenty-two, which will enhance margins and earnings. We also aim to revitalize ABOC’s market approach and reengage with current customers to generate new business and revenue growth. We are collaborating with ABOC’s lending team to take proactive measures to expand their loan business. Lastly, we aim to finalize the deal by the end of this year, pending regulatory approval. We have assigned two senior team members to Chicago to help integrate our new associates and ensure a smooth transition. We are pleased with our progress so far and are excited about the numerous opportunities this acquisition presents. Now, turning to our third quarter results. Net income was fourteen point four million dollars, or zero point four six dollars per diluted share, compared to ten point four million dollars, or zero point three three dollars per diluted share for the second quarter of twenty twenty-one, marking a thirty-nine percent rise in earnings per share. The four million dollar increase was mainly due to a two point three million dollar release of loan loss provisions compared to a one point seven million dollar expense in the previous quarter, alongside a one point four million dollar increase in both net interest income and non-interest income. These gains were partly offset by a one point six million dollar rise in non-interest expenses. As of September thirty, twenty twenty-one, deposits reached six point two billion dollars, an increase of three hundred fourteen point five million dollars or twenty-one point one percent annualized from five point nine billion dollars on June thirty, twenty twenty-one. Non-interest-bearing deposits made up fifty-two percent of average deposits and fifty-one percent of ending deposits for the quarter, leading to an average deposit cost of nine basis points, down one basis point from the prior quarter. Deposits from politically active customers, including campaigns and advocacy organizations, totaled one billion dollars by September thirty, twenty twenty-one, up two hundred twenty-three point five million dollars from seven hundred ninety-one point three million dollars in June. Our total net loans were three point one billion dollars as of September thirty, twenty twenty-one, a decrease of fifty million dollars since June. This decline was largely due to a fifty-two point two million dollar drop in residential loans and a twenty-seven point two million dollar decrease in commercial real estate and multifamily loans driven by refinancing activity. However, our PACE assessments in the held-to-maturity securities portfolio increased by eighty-one point four million dollars in the third quarter to six hundred twenty-seven point two million dollars compared to the second quarter. Despite our strategic decision not to portfolio long-term fixed-rate residential loans, we are encouraged by our overall portfolio growth, which reinforces our confidence in our financial outlook for twenty twenty-one. The yield on our total loans was three point eight-four percent, slightly up from three point eight-two percent in the previous quarter. Adjusting for prepayment penalties, the loan yield rose six basis points compared to the prior quarter. Our net interest margin for the third quarter was two point seven-zero percent, a five basis point decrease from two point seven-five percent in the previous quarter and an eighteen basis point decline from two point eight-eight percent a year ago. We estimate that our excess liquidity this quarter has suppressed our net interest margin by twenty-four basis points. Non-interest income was six point seven million dollars for the third quarter, up from five point three million dollars in the previous quarter and twelve point eight million dollars a year ago. The sequential increase of one point four million dollars is mainly due to expected equity method investment depreciation related to solar initiatives. The year-over-year decrease of six point one million dollars was primarily tied to a decline in equity investments in solar initiatives. In terms of non-interest expense, we recorded thirty-three million dollars for the third quarter, which is an increase of one point six million dollars from the previous quarter but a reduction of four point nine million dollars from the year-ago quarter. The one point six million dollar rise includes point four million dollars in costs related to the ABOC deal, while increases in data processing expenses and employee benefits drove the remaining difference. Our non-performing assets totaled sixty-seven point eight million dollars, or zero point nine-nine percent of total assets at the end of September, down three point two million dollars from seventy-one million dollars in June. This improvement was mainly due to the payoff of four point two million dollars in non-recurring multifamily loans. I’m also pleased to share that we completed the sale of one of our legacy leverage loans early in the fourth quarter as we remain focused on enhancing our nonperforming assets metrics. Provisions for loan losses totaled a recovery of two point three million dollars for the third quarter versus an expense of one point seven million dollars in the previous quarter and three point four million dollars a year ago. The recovery was primarily driven by a decrease in the allowance due to improvements in losses and qualitative factors, alongside better credit quality and lower loan balances. Our GAAP and core return on tangible average common equity for the third quarter were ten point three percent and ten point six percent, respectively. Importantly, we remain well-capitalized to support our future growth strategies. We are maintaining our guidance for the full year twenty twenty-one, projecting core pre-tax pre-provision earnings between sixty-six million dollars and seventy-two million dollars, excluding the impact of solar tax equity income or losses, and net interest income of one hundred sixty-eight million dollars to one hundred seventy-four million dollars, including prepayment penalty income. Now, I'd like to open the line for any questions.

Thank you. Ladies and gentlemen, we will now be conducting a question-and-answer session. The first question comes from the line of Alex Twerdahl with Piper Sandler. Please proceed with your question.

Hey, good morning.

Good morning, Alex.

Good morning.

I appreciate the detailed information about the new strategic vision, which is quite comprehensive and will take time to fully implement. I'm curious if you have any profitability or efficiency metrics, growth targets, or other benchmarks in mind as you roll this out, along with potential timeframes for achieving them.

Jason, I’ll hand it over to you to discuss the financial metrics. I want to emphasize that we see this as a significant aspect of the more effective and efficient way we intend to operate. Along with what Jason will mention shortly, we are currently preparing several non-financial metrics to present to the board next week. These non-financial metrics are important leading indicators that will support our financial metrics. We believe there is a chance to link employee compensation and other behavior drivers to both these non-financial and financial metrics internally. As we hire new employees and assess existing leaders, these metrics will closely relate to their performance. Jason, would you like to discuss the financial metrics?

Yes. I believe that with our growth objectives, we're currently focusing on the loan section of our balance sheet and aiming for mid to upper single digits of annual growth for the AML standalone bank, excluding ABOC for now. I hope to see this metric improve as we gain momentum in our quarterly results through our loan strategy implementation. Starting from this baseline, I acknowledge the loan growth deficiency we've experienced over the past few quarters, but we've begun to see changes in the first two quarters under Priscilla's leadership. On the loan side, regarding core efficiency, we are currently at sixty-five percent, which we view as a benchmark that we don’t want to exceed; our goal is to maintain an efficiency ratio between sixty-five and sixty percent as we progress. For deposits, we aim to sustain a reasonable growth pace similar to this year, while being mindful of its impact on leverage and tier one capital. Overall, these are the key metrics we're managing as we pursue balanced and thoughtful growth, aiming to build momentum in light of positive results in the upcoming quarters.

Great. And something like a sixty-five percent efficiency ratio, is that something that you think is achievable in twenty twenty-two? Obviously, it will include the implications from the Amalgamated Chicago transaction as well?

Sorry, I'm removing that. Are you asking about the one-time charges, Alex, or something more related to the ongoing rate?

More run rate.

Okay. No, I think sixty-five percent is achievable. In fact, I'd like it to be lower. The ABOC charges, we feel a lot of that operational cost is going to be able to be achieved because most of it is coming through the kind of employee resource side of things, so it's a little bit less on inherent operations and other types of costs related that way. So right now, we feel pretty good about what that projection looks like.

Awesome. And then you made a comment about revamping the commercial real estate team and hiring some seasoned lenders. I was just curious where you are in the process of that?

I'd say we were at an early stage on that. So we talked about basically a two-pronged approach with our real estate business. One being protecting what we have on the books today, and showing existing customers and then also pursuing new ones. And to do that, we certainly think that there's an opportunity to bring on new talent. We've begun the process of looking at talent.

Awesome. Thanks for taking my questions.

Thank you.

Thank you. Our next question comes from the line of Janet Lee with JP Morgan. Please proceed with your question.

Hi. Good morning. I would like to ask for clarification regarding the Sustainability segment. As of the second quarter last year, the sustainability portfolio, which includes PACE securities, commercial solar, and residential solar, was just over six hundred million dollars. Currently, the PACE securities alone exceed six hundred million dollars. Can you provide the current portfolio balance and how much it has grown over the past year? Additionally, looking ahead to twenty twenty-two and beyond, what growth do you anticipate for this portfolio? Is this area a key focus within your Lending segment?

Yes. I'll begin with the portfolio. It is close to one billion dollars when you include the C&I portion of sustainability. Currently, CPACE stands at over six hundred million dollars, and consumer solar is around two hundred and forty-five million dollars, showing solid growth in those areas. We see these as key opportunities for continued growth. In this quarter alone, PACE overall increased by eighty-one million dollars, which equates to about a fifteen percent growth rate. The sustainability C&I segment also grew by twenty-five million dollars, which is smaller in comparison but still impactful for our C&I portfolio overall. Consumer solar rose by another thirty million dollars, reflecting a thirteen percent increase quarter-over-quarter. Looking ahead, there is ample room on the balance sheet for us to expand in the CPACE sector. Our pipeline indicates robust growth opportunities for Q4 and into the next year, especially as we concentrate our bankers in this area. On the consumer solar front, we expect continued growth, potentially matching or exceeding the thirty million dollars we've seen this quarter, thanks to new agreements with providers that will enhance our capacity. Additionally, within sustainability, particularly in the C&I segment, there's significant potential for making meaningful improvements. Priscilla has discussed this strategy where we can better position our bankers to leverage their strengths in areas like renewable energy or CDFIs, which presents a substantial growth opportunity for our overall portfolio. Though I don't have specific numbers for the twenty twenty-two outlook, it aligns with an overall mid-to-high single-digit growth rate for the loan portfolio, with most of this growth expected to come from the sustainability segment of C&I and consumer solar.

Okay. That's helpful. And for the PACE purchase target, I believe it was one fifty million dollars for twenty twenty-one. So if you look to twenty twenty-two, how should we think about that new purchase target for the new year? And how does the acquisition of ABOC impact this target versus standalone Amalgamated?

Yes, that's a great question. We are on track to reach the one hundred and fifty million dollars in purchases through our PFG arrangement for R-PACE by the end of the year. We have also gained additional capacity from that relationship. As we approach twenty twenty-two, we have made some adjustments to pricing to enhance flexibility and competitiveness, especially as the consumer unsecured space has become more active this year. We've worked hard to safeguard our flow arrangement for the upcoming year, and their growth looks promising based on their fourth-quarter projections. Additionally, we have an exclusive agreement with PFG to offer a New York program under PACE, which we are excited about, as it could further expand our capacity. I'm anticipating that this offering might launch in the first quarter of next year, though it could extend into the second quarter, potentially increasing the one hundred and fifty million dollar flow. There remains a significant opportunity for that figure to surpass this year's flow. Regarding Chicago, it may not directly correlate because we need to identify legislative opportunities for implementation. Illinois is currently developing legislation around potential R-PACE activities. However, the more intriguing aspect lies within the C-PACE sector, where we can leverage our C-PACE business knowledge in that market. Previously, we were unable to engage there due to an agreement between ABOC and Amalgamated Bank of New York, but now we have the chance to enter those commercial projects and apply our PACE expertise, which is a great opportunity for expansion in that market.

Okay. That’s great color. If I can squeeze just one more question, so on loan growth, apologies if you guys have already talked about this. But is the elevated pay down and prepayment level, like is that largely behind us or is that going to continue impacting loan growth in the fourth quarter or maybe over the next two quarters? And can you also comment on your new loan pipelines and how that compares to, say, the end of the second quarter?

Yes. So really, it's two different pieces within the business that are still experiencing some pay downs and some refinancing. On the residential side, we did see a slowing of still about fifty million dollars of payoffs that occurred in resi in our portfolio in Q3, although that has been slowing. I think we're also getting to the point now where we're starting to contemplate keeping our own production on our books. The refinancing activity is certainly starting to slow down. We saw some of that, Janet, with our whole loan resale agreement coming due, and there's just being a lack of production out there to refill that. So we feel like we're hopefully reaching the end of that on the residential side, and we've got some thoughts around making sure that we get to, hopefully, net neutral with our residential portfolio for this last quarter as we kind of look out a little ways. On the commercial side, though, I think it's a little bit better suited, meaning, Priscilla talked about it a lot on the CRE and multi side, that we want to be much more aggressive in protecting our book from the refinancing that's occurring out there. I think having our new CCRO is going to really help in that matter so that we can be as competitive as the market is dictating relative to our best credits, and really kind of stem the tide there. And then outside of that, we do have some exposure to larger customers that pay off lines fairly quickly. So we had some of that occur again late in the quarter in Q3, but we're happy about that in the sense that there's still existing customers, and we expect them to drop back into their line. So I feel like that would be something that we can count on and to stem some of that tide as well as we head into the fourth quarter and into next year. You had one more part to your question, Janet, forgive me, I lost track of it. What was the second part?

Yes. Just the new production levels and loan pipeline.

It's been an interesting story. We are beginning to see an increase in deal flow due to the engagement of bankers, which started when Priscilla joined us. This isn't something we just started considering in the third quarter; we have been motivating bankers to pursue opportunities. Our new Chief Credit Risk Officer is actively seeking opportunities to evaluate, which I believe is fostering a productive partnership in terms of production. Additionally, we closed some deals in the third quarter, although we experienced some delays in funding that pushed certain transactions into the fourth quarter, which we view positively. The deals we completed are strong, and we believe this positions us to engage in more similar deals as we enter the fourth quarter and the first quarter of next year. We plan to provide updates on this, and the pipeline has been quite encouraging based on what we've observed so far.

Great. Thanks for taking my questions.

Welcome.

Thank you. Our next question comes from the line of Brian Morton with Barclays. Please proceed with your question.

Good morning, everyone. Thank you for taking my questions. I will begin by discussing the implications of the ABOC deal and how you view de novo versus inorganic strategies. As you work on integrating AOCB, do you believe you can continue to pursue de novo strategies, especially concerning the LA office?

The answer to that is, yes. I think we will continue to look at both inorganic and organic ways to expand the expertise that we're building in sort of key areas and take it across the country to other like markets where we see real opportunities and the segments that we're in. So as you know, Boston is a de novo office for us. We're really excited about now sort of accelerating the work that's going on there, and Los Angeles is also continuing to be of interest to us.

Okay. Great. Now that you have some experience with an inorganic strategy, how quickly do you think you could consider additional deals? Or is this more of a one-time event?

Yes. So that's a great question. So I think the ability for us to do additional deals isn't tremendously far off in the future. I think we have a couple of things we want to be able to prove first. Number one is really get an efficient integration done and start to really show the cost savings and the synergies that we've been projecting. I don't think it will take us too long to start to prove that out. I think the other part of that is going to be making sure that we have appropriate levels of capital to deploy against an opportunity. So part of our strategy here is going to be a little bit of a build back of capital, as you would probably expect, because we're going to take on some leverage in order to do the ABOC deal. So as we build back a little bit of capital, that creates a bit more capacity for us. But more importantly, I think for the first time in a while, the phone is ringing on our side for potential partners and then people that are looking to find out more about our story and what we're willing to do. And I think as we kind of listen to those discussions and we see what that footprint might look like, as we kind of look out into the future, it's certainly appealing to us. And so, we'll evaluate capital and we'll evaluate buying power and what some of our levers are to pull in order to see if those opportunities make sense for us in the future.

Could you provide more insight on your capital strategy? I noticed there were no share repurchases recently. What are your thoughts on capital deployment and when you might consider share repurchases going forward?

We did stop share repurchases during the third quarter. We have $7.5 million available from capital approval to buy back shares, but we paused as we were considering the ABOC deal. Our future capital projections include our usual dividend run rate and the use of our remaining capital for share buybacks, which is still part of our capital plan. In terms of the aggressiveness of our buybacks, we won't be overly aggressive. We have a target in mind for buying back our stock that is below tangible book value, and currently, we're trading slightly above that. However, we will keep some capital available to re-enter the market if our shares trade below a level we consider properly valued.

Thanks. And then I guess, one on expenses. I just want to get a little bit more detail on kind of your expense dynamics. It looks like you have some cost saves built in with the ABOC deal. You also have some data and technology investment initiatives, and maybe also some other efficiency initiatives possible. So kind of as you look at twenty twenty-two, kind of how do you think about maybe the overall, like the dollar expense level? Do you think you keep that static? Or you're looking at it from an efficiency ratio basis? And would positive operating leverage for next year kind of be a goal or not necessarily?

Yes. I think the answer is, yes. Yes and yes. So, no, we do think, obviously, about maintaining expense levels, given the bit of an aberration we had to the plan when we started to look at the ABOC opportunity, but we do think that going into next year, we should be able to do that.

I anticipate that our expense run rate will be somewhat higher moving forward. For this quarter, without factoring in ABOC, we expect expenses to be around thirty-two million to thirty-three million dollars in the upcoming quarter. We have made the necessary investments in our outsourced infrastructure model, especially for our trust organization, which will begin to deliver returns as the ABOC trust portfolio transitions to our platform. Salaries have begun to stabilize as our executive compensation normalizes, following the absence of our previous CEO and CFO in recent quarters. I view our current run rate as nearing normalization, and we will actively seek opportunities for neutralizing offsets. In this quarter, we demonstrated this approach by balancing an anticipated increase in expenses with reductions in professional services and other supplementary costs. Looking further ahead, the core efficiency ratio is currently around sixty-five percent, and there are opportunities to lower that figure. However, some of the changes are more challenging due to the unique structure of our bank. Overall, aiming to reduce that ratio below sixty-five percent as we move into twenty twenty-two is our goal, with an expense run rate of approximately thirty-two to thirty-three percent per quarter being our target.

Okay. Great. Well, thank you very much. That’s all for my questions.

Thank you.

Thank you. Our next question comes from the line of Chris O'Connell with KBW. Please proceed with your question.

Good morning. I was hoping to just start off on the balance sheet, and the residential run-off. I guess, when did it become like the strategic decision to not balance sheet any of the residential production and just like the strategic rationale behind that versus keeping it on the balance sheet at this point, given the pace of those pay downs?

Well, we've been trying to keep as much of the production flow as we can in the form of gain on sale. So while we've been allowing it to run-off, and that kind of that trade on profitability, we felt it was still appropriate going through the gain on sale line up through at least this current quarter. I think at this point, right now, it's kind of an open discussion internally here as to whether we start keeping our production. I mean the big thing is, we're still seeing a lot of thirty-year, which is fixed rates long-term, and it's pretty low coupon that's kind of hovering in that two point, two and three-quarter range, which we're not that crazy about given the fact that we can kind of make it up on the non-interest income line right now. But as that starts to slow down and as sort of maybe home prices start to start to exceed what people are able to pay, there's probably going to be opportunities for different types of residential structures, maybe just seven-year or ten-year ARM start to come back into play. When those things start to move in a direction when we feel like we can really count on that, that's probably when we'll start to make the switch flip and really kind of start to balance sheet those assets again. All I can say on that right now is it's an active discussion for us, and we're certainly cognizant of the trade and the balance sheet run-off versus the gain on sale right now.

Got it. Thank you. And then it looked like the loan deferrals ticked up a bit this quarter. I may have missed it, but if you could just provide some color around that? And what was the driver there?

Deferrals relative to like COVID. I'm sorry, because I didn't quite follow on the deferral side.

Yes. The COVID deferrals.

That's encouraging regarding the residential side. There seems to be some waiting period there, but nearly all of our COVID-related deferrals have been accounted for in our criticized asset table. I don’t spend much time worrying about it because we’ve already dealt with the impact by moving those into our substandard classification. The residential sector isn’t something that keeps me up at night, and I’m not particularly concerned about it right now.

Got it. It makes sense. And then as far as the political deposits, it looks like that had a bit of a drop-off post quarter end, although up very strongly on the end-to-period basis for the quarter. If you could just explain some of the dynamics there and then maybe the outlook into Q4 and early next year?

Yes. The political deposits, they sort of behave that way. They sort of reach level points at the end of the quarter, they might get spent subsequent to that. And we like to show that just to show a little bit of the volatility that comes along with the political deposits. I think the more important trend, though, is that on a steady basis quarter-over-quarter we keep building on balances. And I'm expecting those balances to continue to increase as we sort of run up to the midterm elections next year, as we've kind of seen in the kind of the election cycle as almost blended together now, it's almost like one long continuous fundraising cycle, and local elections almost is as prominent in certain cases as some of the national ones. So we do expect to see that to continue to rise. And then obviously, we'll probably see some type of drop as we get into Q4 or Q3 a little bit because that money will get spent. But I think more importantly, we are very conscious of what that looks like from a forecasting point of view, and we're very conscious about what we need on our balance sheet in order to support that because we do feel that while the political deposits take up a little bit of space in terms of capital, at the same time, they're really rich with referral sources. The folks that we're dealing with regard to those political raises really open up a tremendous amount of doors for us for other business relationship opportunities, and so that's something we sort of very carefully manage. But again, I would expect this to continue to rise, as we look towards Q3 of next year.

I was hoping to get some insight into the second pillar of the plan, particularly about strengthening relationships with core customers in the social enterprise and non-profit sectors for our existing customers. Can you provide some details on the opportunity in this area? Are we primarily aiming to convert these customers into loan customers rather than just deposit customers? If so, could you share some examples of how this might be achieved?

I’ll start with that, Jason, and you can add afterwards. One important aspect to consider is that our current model leverages the localized expertise and leadership we have in each of the four cities where we operate. To enhance the platform's value, we plan to share the unique insights we have about certain market segments. For instance, our strong relationships with unions in New York, political organizations in D.C., and sustainable financing in San Francisco will now be developed in other markets like Chicago, the rest of California, and Boston. We believe this approach will provide more depth and breadth across all these areas. Jason made a valid point about how some of these markets may appear to show minimal interest in lending; however, we are discovering specific segments where there is actually demand. More importantly, these segments are valuable as they serve as referral sources for lenders interested in making loans. Therefore, we envision a significant opportunity in adopting a national strategy that covers all cities comprehensively, rather than treating certain areas as isolated confidence zones. Another relevant example, as Jason mentioned earlier, is the corporate trust business thriving in Chicago, which is not something we're currently pursuing in other locations. This highlights specific product opportunities and segment strengths, indicating where we can expand our capabilities.

I'll just add one point about our new entry into the Chicago market through ABOC. Historically, their customer base has been unions. However, as Priscilla mentioned, we've discovered that they have extensive referral sources. By expanding our presence in Chicago and the broader Midwest, we've identified significant opportunities in social advocacy and philanthropy that align well with our lending segments. We believe that leveraging our national expertise, as Priscilla discussed, to connect with ABOC customers and facilitate referrals for social advocacy will present great opportunities to enhance our overall lending platform and deepen our presence in these segments.

That's very helpful. Thank you. Lastly, could you provide any insights on the direction of the net interest margin over the next couple of quarters, excluding the acquisition, considering the various factors at play with the balance sheet, including the ongoing run-off and the Political Deposit segment?

So NIM eroded about five basis points on kind of a straight level, just looking at it quarter-over-quarter. If we factor out prepayments in some of the mark accretion, it was pretty flat, at least between Q2 and Q3. I think it's about a two basis point decline, maybe one basis point decline, something like that. So hopefully, we're reaching a bottoming of what the NIM would look like. I can't always predict what that's going to be because, as you pointed out, there's some noise that rolls through on the deposit-gathering side and maybe some timing issues on the asset generation side. I think what's important for us right now is really developing that origination, that lending origination platform, so that we can have an accountable engine to deploy the liquidity that we have. So that's kind of top of mind for me. The other thing is I try not to manage very, very specifically to NIM, I focus a lot more on NII and making sure that I'm growing that. And I think that the NIM will sort of functionally reflect that as we move along. And so, I was fairly happy with where we came in on Q3 on an NII basis. But that's kind of my prevailing thoughts right now on NIM in terms of where we are and hopefully where it's heading.

Great, that’s helpful. Thank you.

Thank you.

Thank you. Ladies and gentlemen, at this time, there are no further questions. I would like to turn the floor back to management for closing comments.

Well, I just want to say thank you for your questions and for your active engagement over the recent weeks. We've really been guided quite a bit by the thoughts of our investors and analysts in this market. And thank you, operator. So thank you for your time today, and we appreciate your great questions, and the opportunity to interact with you about the bright future of the company going forward. We believe this momentum is building for the opportunities that we just talked about. And I've been speaking with many of you and with our customers about emerging strategies for our loan and trust businesses and the acquisition of ABOC, and I've been met with a lot of enthusiasm and a lot of genuine interest. When we talk about doing good for more customers and developing new customer relationships that we can continue to be proud of we are really, really pleased that you are encouraging in this, and you understand this strategy. We think that the mission-driven services that we provide are going to be exciting for more and more customers in each of the markets we're in. So there's a real energy around where we're headed from here, and I trust that you'll follow us on that journey and partner with us as we go through it. I look forward to coming back to you next quarter and talking to you about the early results of implementing these new strategies and more details on incorporating ABOC into the Amalgamated family, and also about all the other initiatives that we'll be able to share with you at that time. Thank you again for your time, and we look forward to dialogue in the future.

Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.