Amerant Bancorp Inc. (AMTB) Q4 2021 Earnings Report, Transcript and Summary

Good day and thank you for standing by. Welcome to the Amerant Bancorp Fourth Quarter 2021 Earnings Conference Call. [Operator Instructions] Today's conference is being recorded. [Operator Instructions] I will now hand the conference over to your speaker today, Laura Rossi, head of Investor Relations. Please go ahead.

Thank you, Victor. Good morning, everyone, and thank you for joining us to review Amerant Bancorp 's Fourth Quarter 2021 results. Also on today's call are Jerry Plush, our Vice Chairman, President, and Chief Executive Officer; and Carlos Lafigliola, our Executive Vice President and Chief Financial Officer. As we begin, please note that the company's press release, our discussion on today's call, and our responses to your questions, contain forward-looking statements. Amerant's business and operations are subject to a variety of risks and uncertainties, many of which are beyond its control, and consequently, actual results may differ materially from those expressed or implied. Please refer to the cautionary notices regarding forward-looking statements in the Company's earnings release and presentation. For a more complete description of these and other possible risks, please refer to the Company's Annual Report on Form 10-K for the year ended December 31, 2020 in our quarterly report on Form 10-Q for the quarter ended June 30, 2021. and in our other filings with the SEC. You can access these filings on the SEC's website. Amerant has no obligation and makes no commitment to update or publicly release any revisions to forward-looking statements in order to reflect new information or subsequent events, circumstances, or changes in expectations, except as required by law. Please also note that the company's press release, earnings presentation, and today's call include references to certain adjusted financial measures, also known as non-GAAP financial measures. Exhibit 2 and Appendix 1 of the company's press release and earnings presentation, respectively, contain a reconciliation of each non-GAAP financial measure to its most comparable GAAP financial measure. I will now turn it over to our CEO, Jerry Plush.

Thank you, Laura. And good morning, everyone. Thank you for joining Amerant's Fourth-Quarter 2021 Earnings Call. I'm pleased to be here today to report on our results for the quarter and the year, and to talk about the continued progress that occurred in the fourth quarter to best position the company for success now and in future periods. We have maintained our focus on the key priorities we set earlier this year, for earlier -- earlier this year, excuse me, and the results reflect the good things that are coming to fruition. While we have much more work to do in 2022, we remain committed to continue to execute on our strategy throughout next year. We're also pleased to report that our Board of Directors voted yesterday to approve a $0.09 per share dividend. At this time, the intention is to consider the declaration of payment of dividends on a quarterly basis; and of course, it's subject to company results. As part of our quest to provide greater value to our shareholders, we believe this demonstrates our commitment to do so. I do want to take a minute here and thank all of my Amerant colleagues for their dedication and effort, again this quarter. We have a great team and we're excited about the strong additions to the Amerant family that happened this past quarter. They will play an essential role in our growth in 2022 and beyond. So, I will now provide a brief overview of our performance in the fourth quarter and year, and then Carlos will go over the details. So turning to Slide 3, you can see a summary of our fourth quarter highlights. We're pleased to report record results for this quarter. Of note, net income attributable to the company was $65.5 million. That's up 284% quarter-over-quarter. This was primarily driven by a one-time gain on the sale of our headquarters building, higher average yields and balances on loans, and lower average balances on customer CDs and brokered time deposits also contributed to improved core results. Our total gross loans were $5.6 billion, up from $5.5 billion last quarter even with $337 million received in loan prepayments and the sale of $49.4 million from New York City loans classified as available for sale. Our total deposits were $5.6 billion, flat to last quarter, though core deposits increased by a $109.4 million this quarter compared to the third quarter. The Company's capital continued to be strong and well in excess of the minimum regulatory requirements to be considered well capitalized at December 31, 2021. As previously announced, we completed the clean-up merger, which eliminated the shares of Class B common stock and simplified our capital structure. We also declared and have paid our first cash dividend of $0.06 per share, which was paid out here in the first quarter of 2022. As a result of these actions, there was an increase of 12% in tangible book value over the same period. Additionally, we're pleased to announce that we’ve repurchased 27.9 million of the 50 million share buyback program that was approved in the third quarter of 2021. In total, 893,394 shares of Class A common stock were repurchased as of December 31, 2021. We intend to continue to be opportunistic and repurchase shares, dependent of course on availability and pricing. So now, we'll move to Slide 4. We thought it would be helpful to provide you with a reconciliation of shares as of year-end after having completed the clean-up merger and the share repurchases I just mentioned. Here, you can see the impact each of these had in reducing the number of shares issued and outstanding, which as of December 31, 2021, totaled 35,883,320 shares of Class A common stock. Turning now to Slide 5, our core PPNR increased to 18.9 million or 3.4% compared to the 18.3 million we reported in the previous quarter. As we previously stated, we believe it is essential to show the net revenue growth of the Company, excluding any one-time gains or losses or other non-recurring items in order to show Amerant's core earnings power. We'll go over key actions on Slide 6 now. Here’s a number of key actions taken during the fourth quarter. We are continuing to focus on driving efficiency as well as set the stage for future growth. So, our non-performing loans decreased to 0.89% of total loans, a substantial decline compared to 3Q '21. As part of our stated commitment to reduce the level of non-earning assets on our balance sheet, we are diligently working to further reduce this level of non-performers here in the first quarter of 2022. We closed our Wellington branch in the fourth quarter of '21 and announced a new branch in downtown Miami, which we expect to open in the fourth quarter of next year -- of this year. The new location will be within Met Square, it’s in the heart of Miami and one of the nation's fastest-growing urban centers. The new banking center will deliver full banking services, so consumer, business banking, private banking, commercial, and wealth management will all have a presence here. Amerant Mortgage continues to expand. In this quarter, we added 20 FTEs focused on the wholesale business. We also hired a terrific South Florida-based domestic private banking team to focus on large private banking relationships, including professionals, law practitioners, and medical officers, among others. We also hired a new Head of Procurement as part of our ongoing efforts to look for additional cost savings as well as a new head of loan syndication to enable us to onboard large business opportunities in the markets we serve and to effectively manage risks. We executed an agreement with JAM FINTOP to become a strategic investor in their block chain funds. We like the folks at JAM FINTOP, and I'm sure this is true at a lot of well-known banks across the country that also committed to invest. We believe block chain will eventually come -- become the dominant operating infrastructure of the financial system. We're excited about the potential here to potentially become an early adopter of this transformational technology. As we previously announced, we entered into a multi-year outsourcing agreement with financial technology leader FIS to assume full responsibility over a significant number of the bank’s support functions and staff, including certain back-office operations. Effective January 1, 80 full-time equivalents were transferred reducing our total full-time equivalents to $683 inclusive of Amerant Mortgage. We have an estimated annual savings of approximately $12 million from this partnership, while achieving greater operational efficiencies and delivering advanced solutions and services to our customers. Our new Imagine a Bank campaign was launched during the fourth quarter of '21, and a significant expansion to it went live on January 3, 2022. There are now over 20 billboards throughout South Florida, including two high-impact boards in the Miami downtown area, that are delivering more than 125 million impressions in the South Florida market. We also continue to leverage our partnership with the Atlantic Division leading Florida Panthers to drive brand awareness. Please note the front cover these earnings that is a great example of the Imagine a Bank branding we are now using. We'll now turn to Slide 7. Here we've outlined our key performance metrics, which continue to show improvement with the exception of the slight decrease in non-interest bearing deposits over total deposits. Please note that the large improvements and efficiency ratio, ROA and ROE of the charts include the one-time gain on the sale of the headquarters building. For ease of reference, we showed the same 3 core metrics, excluding this one-time game -- gain and one-time -- other one-timers in the footnotes to this slide. Here you can see the efficiency ratio was relatively flat quarter-to-quarter, given the investment we are making in revenue producers. Regarding the efficiency ratio, please note we will continue our focus on rationalizing our cost structure to improve profitability, as well as offset our reinvesting in the business. I will comment more on this later in the call. If we turn to Slide 8, as we did last quarter, this focuses solely on Amerant Mortgage. Since we started taking applications in May of 2021 AMTM has received 299 applications and closed on 109 loans totaling $52.6 million. 61 of those loans were funded in the fourth quarter, totaling $32.04 million. As we mentioned earlier, AMTM added additional experienced personnel this quarter to focus solely on its wholesale business. So with that said, I'll now turn things over to Carlos, who will walk through our results for the quarter and year in more detail.

Thank you, Jerry. And good morning, everyone. So turning to Slide 9, I'll begin by discussing our investment portfolio. Our fourth quarter investment securities balance was $1.3 billion out of which $240 were cash, slightly down from the $1.4 billion in the previous quarter and flat compared to the fourth quarter of 2020. When compared to the prior year, the duration of the investment portfolio was extended to 3.6 years due to the lower prepayment speeds recorded in our mortgage-backed securities portfolio. Given the extension, we will focus our investment strategy on assets with lower duration, on better repricing profile in anticipation of Pinterest hikes in 2022. The floating portion of our investment portfolio reached 10.6% as of the end of the year. Continuing to Slide 10, let's talk about the loan portfolio. At the end of the fourth quarter, total gross loans were $5.6 billion up 1.6% compared to the end of the last quarter. The increasing total launch was primarily due to higher loan balances which resulted to an increase in loan production despite having received $337 million in prepayments primarily from the pre -portfolio. And so almost $50 million from the New York portfolio. Consumer loans as of December 2021 were $423 million. An increase of $65 million or 18% quarter-over-quarter. During the 4th quarter of 2021, the company purchased approximately $86 million of higher-yielding indirect consumer loans, loans held-for-sale totaled $158 million as of December 21, which includes $50 million in mortgage loans in connection with the activities of Amerant Mortgage and a $143 million in loans for our New York CRE portfolio. On Slide 11, we provide an update on the New York loan portfolio. Total loans outstanding from the former LPO have declined to $491 million in the fourth quarter of 2021 from $627 million in the third quarter, 2021. During the fourth quarter, and as I just mentioned, we sold $49.4 million in loans held for sale at par. Also, in the four quarter, we sublet our former office in New York. Turning to Slide 12, let's make a closer look to the credit quality. Overall, credit quality remains sound and reserve coverage is strong. The allowance for loan losses at the end of the fourth quarter was almost $70 million, down 16.2% from $83.4 million at the close of the previous quarter. We released $6.5 million from the allowance for loan losses in the fourth quarter, compared to our release of $5 million in the previous one. That release was primarily driven by $6.1 million due to upgrades, payoffs, or pay-downs of non-performing loans and special mentioned loans. A release of $5.4 million as a result of improved microeconomic conditions and $0.5 million due to recoveries. All this was offset by $4.2 million in additional reserve requirements for charge-offs on $1.3 million due to loan growth. Additionally, the allowance for loan losses associated with COVID-19 pandemic decreased slightly to approximately $14 million in the fourth quarter of 2021. Net charge-offs totaled $7 million in the fourth quarter, compared to almost 16 in the third quarter. Charge-off during the period were primarily due to $3.9 million in commercial loans, $1.8 million in pre -loans, and $1.4 million mainly in consumer loans, offset by $0.5 million in recoveries. In connection with the Coffee Trader relationship, we collected $4.8 million, which contributed to a release of $2.3 million in specific reserves assigned to these relationships. The current outstanding is $9.1 million with a specific reserve of $4.2 million. Non-performing assets totaled $59.5 million at the end of the quarter. A decrease of $33 million or almost 36% compared to the third quarter, and a decrease of almost $29 million or 33% compared to the fourth quarter of 2020. The ratio of non-performing assets to total assets was 78 basic points, down 46 basic points from the third quarter of 2021, and down 35 basis points from the fourth quarter of 2020. In the fourth quarter of 2021, the coverage provided by loan loss reserves to non-performing loans increased to a 140% from 101% in the previous quarter, and an increase front of a 127% we reported in the fourth quarter of 2020. Continuing to Slide 13, total deposits at the end of the fourth quarter were $5.6 billion consistent from the end of the third quarter. Domestic deposits totaled $3.1 billion up $46.7 million or 1.5% compared to previous quarter, while foreign deposits totaled $2.5 billion or $43 million down compared to the previous quarter. Core deposits, which consist of total deposits excluding time deposits, were $4.3 billion as of the end of the fourth quarter, an increase of $109 million or 2.6% compared to the previous quarter. This amount includes interest-bearing deposits of $3.1 billion, and non-interest-bearing demand deposits from $1.2 billion, as of the end of December. Of note, during the four quarter of 2021, the company commenced a new relationship which allows to capture municipal funds. Offsetting the increase in total deposits was a reduction of $1.5 million or 7.3% in time deposits. Customer CDs, compared to private quarter decreased $59 million or 5.3% as the company continues to lower CD rates. I'm focused on increasing core deposits and emphasizing on multi product relationships versus single product, higher-cost CDs. Broker-type deposits decreased $46 million or 13.7% compared to September 2021. We continue to de -emphasize these funding source. Next, on Slide 14, I will discuss the net interest income and net interest margin. 2021 Q4, net interest income was almost $56 million up 7.6% quarter-over-quarter, and up almost 15% year-over-year. The quarter-over-quarter increase was primarily attributed to the higher average yields, including prepayment fees and balances on loan s, as well as lower average balances from customer CDs and brokered time deposits. There were no significant offsets to the increase in the net interest income during the fourth quarter. Moving to the financial margin, Q4, net interest margin was 3.17%, up 23 basic points quarter-over-quarter, and up 56 basis points year-over-year. The change in non-interest -- in net interest income and mean was formally driven by increase in the yield of our loan portfolio, which is now at 4.10%, an increase of 18 basis points versus the third quarter. We continue to focus on improving our NIM by proactively seeking incremental spread and volumes in our loan originations. Continuing to Slide 15, non-interest income, in the fourth quarter we had $77.3 million versus $13.4 million in the previous quarter. The increase in the fourth quarter was primarily due to $62.4 million on non-recurring gain on the sale of our company headquarters and higher income from client derivatives, brokerage and advisory services, mortgage banking and services fees. There were no significant offsets through non-interest income during the fourth quarter. Amerant assets under management totaled $2.2 billion as of the end of the fourth quarter, up almost $33 million or 1.5% from the end of the third quarter, predominantly from net new assets. As we continue to execute our relationship focuses strategy, an increased share of wallet. Turning to Slide 16. Fourth quarter non-interest expenses were $55.1 million up $6.7 million or almost 14% from the third quarter. And up 3.5% and $3.5 million year-over-year. The quarter-over-quarter increase was primarily due to the following Higher consulting, legal, and professional fees related to the clean-up merger, and expenses related to consulting services received for NFIS. Higher salaries and employee benefits due to new highs in number of mortgage and private banking teams, and higher variable compensation expenses, higher occupancy and equipment costs, in connection with the termination of our lease of Fort Lauderdale branch, which was closed in 2020. Higher marketing expenses as multiple brand awareness initiatives were deployed during Q4. These increases were partially offset by lower depreciation and amortization expenses, which includes the effect of the sale of the company headquarters ideally, and lower FDIC assessment and insurance expenses. We consider that $1.9 million of non-interest expenses were non-recurring items. Core non-interest expenses was $53.2 million in the fourth quarter of 2021. The efficiency ratio was 41.4 in the fourth quarter of 2021 compared to 74.2 in the previous quarter and 85.8 in the fourth quarter of last year, both the quarter-over-quarter and the year-over-year improvements were primarily driven by the gain on the sale of the company headquartered. Core efficiency ratio, which adjust for non-recurring items was 75% in the 4th quarter compared to 72% in the 3rd quarter of 2021, and 71% in the 4th quarter of 2020. The increase was primarily driven by non-interest expenses describable, though partially offset by higher loan average yields, including prepayment fees, and balance. Moving to interest rate sensitivity on Slide 17, our balance sheet continues to be asset sensitive, however, less than it used to be. As of the end of December 2021, half of our loans, either have floating rate structure or mature within a year. We're now looking to gain back some of that sensitivity by decreasing the duration of our investment portfolio and by focusing on assets with lower duration and better repricing profile as I previously mentioned. Order initiatives include increased duration of our liabilities. I will now turn back to Jerry to talk about Amerant progress and the near and long-term initiatives.

Thank you, Carlos. Here, you can see on slides 18 and 19, that we've provided some details on what has been done in connection with each of the key initiatives during the fourth quarter. So let's start with deposits first. We continued reducing broker deposits to total deposits towards our target of 5%. Our loan to deposit ratio came in just under 100%. As previously mentioned, we added an experienced private banking team that will help us drive an incremental deposit growth. We continue to work on enhancing a completely digital on-boarding platform and we also implemented Zelle commercial, being rather first community banks to implement this P2P payment platform. And finally, we tested a new digital promotion campaign with a cash bonus for opening value checking accounts. This short-term offer raised over $9 million in new deposits. Regarding brand awareness, we placed continued emphasis being active in both public relations and social media. And of note, we just passed 10,000 followers on LinkedIn. Our Imagine a Bank campaign went live in the fourth quarter, and on January 3rd, we put up 20 billboards and two high impact boards in the Miami downtown area. And there's examples that we can share on Slide 20. And as I noted, we continue to leverage the popularity and exposure of our Florida Panthers partnership, both at the arena, as well as in our marketing efforts. Regarding the rationalization of business lines and geographies, we completed the sub-lease of our New York loan office space. As I previously announced, we are closed -- we closed one branch in the fourth quarter and then we announced our new branch in downtown Miami. And Amerant Mortgage continues to add to their team. And as we noted, there are 20 additions to the wholesale team here in the fourth quarter. Regarding the pathway to 60, we previously mentioned the multiyear outsourcing agreement with FIS. We also on boarded our new Procurement Officer to drive incremental cost savings. Regarding our capital structure optimization, we completed the previously announced clean-up merger to simplify our capital structure. The board authorized on September 10th, a new share repurchase program under which the company may purchase from time-to-time up to $50 million of Class A stock. We purchased -- repurchased $27.9 million through December 31st post the completion of the clean-up merger. And then on December 9th, the company declared its first cash dividend as a public company for $0.06 per share. And then finally, an update on ESG. We started to implement our diversity and inclusion program to improve and maintain an authentic, inclusive culture. We've executed on several initiatives to consider the environmental impact of our direct operations. We developed the governance structure for our ESG program. So the framework is now in place and we still intend to share our first ESG report in the early second -- early part of the second quarter of '22. In addition, we installed charging stations for electric vehicles in our headquarters building location, and we invested $3 million in green bonds. That investment was in an energy company called NextEra, which demonstrates our commitment in all phases of the company to this important initiative. On Slide 20, as I noted earlier, there's some examples that you can look at on the brand awareness reviewing both at our downtown branch, as well as with the Florida Panthers near downtown Miami. So before we turn to Q&A, there are a number of key actions underway in 2022 I thought it would be helpful to share. So first, we think as a community bank, it's imperative for us to expand our SBA efforts, given our build out of our business banking area this past year. As well as the additional in-branch and online capabilities we now have with Numerated. We'll provide more information as we finalize our plans during the first quarter of this year. We intend to continue to look for financial technology as a way to most efficiently attract and serve our customers. The investments we made in Marstone and raised down, for example, will begin to show on our growth and results in 2022. We're currently evaluating other providers with the intent of enabling us to deliver existing products more effectively or adding to our current products suite. So as an example of this, we have just entered into a letter of intent with a top-notch weight label provider to enable us to provide equipment financing both to our existing customers as well as to new customers. We believe it's essential for us to have equipment finance in the commercial bank as a complementary offering to the working capital and asset-based lending we currently provide. We intend to have representatives to generate direct business in the Houston, Tampa in South Florida markets starting in the second quarter of this year. So speaking of Tampa, we've sub-let space. We've already started with one pre -officer who has begun generating commercial real estate opportunities for us, and we're actively recruiting 2 C&I focused officers to add to the team. Adding a treasury management sales and support team there is essential and will be our next hiring priority. Regarding work underway to improve the efficiency of the company and thoughts to the efficiency ratio. The steps we took in 2021, like the outsourcing of internal audit and the FIS initiative, will reduce costs starting in 2022, while improving quality and efficiency. We know more work is necessary to achieve our stated goals and are taking multiple steps for organization wide control and further reduce costs where practical. The addition of our new procurement officer and placing further reliance on new technology versus cumbersome processes, they're just two of the ways we intend to pay for the additional investment in business development personnel that we'll continue to make. And we will also look at ways to reduce unnecessary expenses. And as we did throughout 2021, we intend to update you as we continue to make progress. We're also re-evaluating parts of our organization structure, where we've not made changes to date to become more efficient and more effective. Process improvement is another area of focus across the company throughout 2022. We've also initiated work on how we report on our quarterly results. We're evaluating reporting our results split out into 2 businesses segments, consumer and commercial, each which show domestic and international components. We believe it's important as we grow and with our intent to expand, to have razor-like focus on each of these critically important segments which serve completely different customer bases. Where we invest, why we invest, how capital is allocated to each of these segments, is essential information for our board, our management and investors to understand, as we continue our transformation here at Amerant. So as this project progresses, we'll keep you posted each quarter. Everything we are doing continues to be with an eye towards being able to profitably grow and produce the kind of consistent returns we intend to achieve for our shareholders. So, with that, I'll stop and Carlos and I will look to answer any questions you have. Victor, please open the line for Q&A.

Sure. As a reminder, to ask a question, [Operator Instructions]. Our first question will come from the line of Michael Rose from Raymond James. You may begin.

Good morning everyone. Thanks for taking my questions. It's really nice to see you guys. Good morning. It was really nice to see you guys hit the ROE and ROCE target this quarter. As we think about moving forward with potential rate hikes and such and counterbalancing all the investments and all the other projects that you all are working on, which is obviously significant, continues along the path that you're on, how should we think about sustainability of those profitability metrics, and maybe it might be too soon, but do you have any intermediate term, aspirational targets profitability-wise that you might be willing to share at this point? Thanks.

Yeah, Michael. It's Jerry. We're still committed, as we stated before, to a 60% efficiency ratio by the end of these four-quarters upcoming in 2022. I think it's clear -- it should be clear that that's going to come from a combination of profitable growth. Clearly, we've done some substantial investments in business development personnel and in technology, and we're going to continue to look for people that are revenue producers that are additive to the growth story here. And I think it's -- we're still on track in my mind for the achieving of a 1 to 10 in a 60, and that's what we stated. And frankly, how we laid out our plans for this year. So, by the fourth quarter -- I think you'll see two -- which is typical for, for everyone in the industry, the first quarter expenses will be a little elevated, of course, because you have the restart with payroll taxes, etc. But I think just in terms of where we will be over the course of the year, we think the growth that we showed here in the fourth quarter is something that our intent is to execute and continue to build on that each and every quarter throughout the year so that you'll see the positive effects of that certainly by the fourth quarter.

That's really helpful, Jerry. Thank you. And then maybe just shifting back to loan growth, obviously, very strong despite the continued run off at the New York City, LPO, which is really good to see. Kind of as you look into your crystal ball and think about the puts and takes of what you all are trying to do, do you have any sense for what loan growth ex-PPP, well, you don’t really have any PPP, but what loan growth can kind of look like as we move through the course of the year? Thanks.

Yeah. No, I think we still feel that -- look, there's some repayment activity that is scheduled just based on maturities for the remaining New York portfolio, and there's definitely interest in those receivables that are there. So, that's a little bit of a headwind for us but when you look at the rest of the business, the pipeline is strong. We're -- we've got a lot of strength really across the board. The private banking team, the business banking team, the CRE team, the C&I team, I mean it is very consistent. One thing that's happened throughout the year is that the pipeline has just continued to build, and we're executing on our fair share of what's in the pipeline. Those percentages are increasing. So, if we keep going down that path, I think we're in a good place for, I'll call it something in the single digits growth over the course of the year.

All right. Very helpful. And then maybe just one final one for me. So, the loan-to-deposit ratio is creeping up a little bit higher. Obviously, there's a mix shift going on, which is very positive I think for franchise value longer-term. At what point though does -- with loan growth seemingly accelerating, does that become a larger issue and what are the strategies to grow core customer deposits? Thanks.

Yeah, great question. And I think that's one of the real positives that -- of adding the private bank capabilities in addition to all the investments we've already made in treasury management. I think you can see a big change in the company when some of the first comments we're making about expansion into Tampa is to have twice the number of C&I personnel and to add treasury sales and support almost immediately. And so, we're looking to be a self- funder in all our areas at this point. I think in terms of -- and we're going to -- obviously, you'll see and learn more about over the course of 2022 the campaigns that we will be running both for things like business checking, for consumer checking that I think will be very complementary in terms of the growth in the core side. I think it's very safe to say with the potential of these -- number of rate increases can be debated. But as Carlos mentioned in his comments, we're obviously also at the same time looking at the changes we need to make in the balance sheet to also extend duration on a fair bit of liability. So, as things mature throughout the year, we're also going to be doing some extension here to take advantage of the rates and keep the cost of funds on everything other than core in check as best as we can.

Very helpful. Thanks for taking my questions and good to see the continued progress.

Thank you.

Thank you.

All right -- comes from the line of Stephen Scouten from Piper Sandler. You may begin.

Hey, good morning, everyone.

Hey, good morning, Stephen.

I'm curious. I know you, Carlos, noted the asset sensitivity has declined a little bit lately. I wasn't sure what was driving that explicitly. I don’t know if you could kind of give some more color on what's created some of that shift downward, and if there are any specific kind of initiatives to benefit further from higher rates in the coming year?

Sure. So, if you recall on -- if you compare year-over-year, there was a significant drop in the time deposits and that was by design, pretty much. So, there was a runoff of time deposits that we considered they were a single product based on the analysis that we produced. Therefore, we took advantage of decreased rates, so we had the flexibility in the balance sheet to decrease time deposits, so we did it. We did it with the broker as well. Those were items that all use. On a renewal basis, it would have added duration to the liabilities, therefore, decreased sensitivity or better to say, improved sensitivity to interest rate up. Those items were primarily and additionally to that, with the interest rate environment, duration of the investment portfolio had been increasing a little bit, so So those two items, I would say the drop in the duration of the liabilities and increase in duration and investment portfolio have created that diminished profile in the interest rate sensitivity, but we're working to add it back in some sensitivity to interest rate up.

Okay. Great. Helpful.

[Indiscernible] Which by the way was that creative because you see the NIM the way it is.

Sure.

That helps with the customer front. Yeah.

Yes. Definitely. Okay. Good. Thinking about some of these new additions you made the head of loan syndications. I know one of the big pushes for you guys have been making the loan book maybe a little more granular and getting some higher-yielding loans. So I'm wondering how to think about that versus that overall shift for the bank and if you might see a little bit of a reversal, if you guys are going to look to book some larger loans here with that syndication desk.

Yeah, Stephen. It's Jerry. Look, I think it's a must-have as part of our arsenal to have the loan syndication desk. We get presented with some larger opportunities. That is not something that we can handle. But if we can syndicate part of that out, and obviously, it is very, very helpful for us for part of our growth story. And look, the way that process works, we'll obviously, by having a desk, also potentially see paper from other institutions as well. So I think it's a win-win for us. It's something that our team is very good at unearthing opportunities. And what we don't want to do is limit ourselves. We obviously want to manage the risk properly, and I think that that's another part of this where we don't want to have large single exposures. And so, we're excited about having this area as another part of our arsenal, as I call it, for business development in 2022.

Okay. Fantastic. And then maybe last thing for me, just you guys have made some pretty significant improvements here on the non-performing loans. And they said you are going to focus more on that in the first quarter, but we still have a pretty big chunk of the COVID-related reserves. I think a little over $14 million. So I'm just kind of wondering how you guys are thinking about that today, and what could be the pace of potentially running those excess reserves off over time?

Yeah. Look, I think you'd take each quarter as it comes. We're -- as we said, very, very focused on reducing the non-earning asset load off our books. Trying to get every dollar into an earning asset category is critically important and so you should expect to see us working hard to get more down this quarter, too early to comment further on that but the team is all-in and trying to drive that number down substantially again. With that being said, clearly by doing that, and I think when you think about our net charge-offs that have been happening during the quarter, it's all the stuff that we had previously reserved. And so it's a harbinger of what I would say is as we work our way through, obviously there will be some reserves that possibly can be freed up if we don't need them in order to liquidate those positions. But so far so good and clearly, I think it's a big philosophical shift for us as an organization that we're trying to -- if we have to onboard something, we're trying to resolve it as quickly and expeditiously as possible

Great. Okay. Great. Very helpful. Appreciate the time guys and congrats on the quarter.

Thanks too.

Thank you.

All right. Next question comes from the line of Brody Preston from Stephens. You may begin.

Yeah. Good morning, everyone. Can you hear me okay?

Yeah, we're good, Brody, how are you?

I'm doing well, thank you. I hope you are as well.

Yes, thanks.

I wanted just -- I just wanted to circle back real quick and I hopped on a bit late. I was coming from another call, so I apologize if I missed it, but you had the $337 million of prepayment that occurred from CRE. But how -- I guess I'm looking at the loan yields and it was up like 18 basis points in the quarter, but I'm wondering what the dollar amount of prepayment fees were and what that impact on quarter-over-quarter loan yields was?

So on the -- I can give you in terms of the NIM. It was approximately 4 basic points that incurred on the NIM due to prepayments. So I guess if you want to take a normalized, it will be like a 313 the -- without the special prepayment that we collected over the quarter that will be a fair number.

Okay. So that's like $700 000. Does that sound right?

More or less, that's right. That's precisely the case.

so what else was it that drove the linked-quarter increase in loan yields?

So there were additional purchases that were done on the Indirect Lending Program, which improves the yield of the overall loan portfolio. And also the new transactions that came in and the C&I space. So as you'll recall, we always being talking about selling [Indiscernible] and being -- and trying to price new transactions with good spreads. So we have been passing on transactions that didn't provide a good yield and jumping in the ones that we consider, they have a good credit profile and a good credit spread. So kind of a combination between those items were the ones explaining the increase, aside of the prepayment penalties.

Got it. Okay. And then just maybe on the expense front, you-all added like 30 plus FTEs. The biggest chunk within the mortgage segment. And you're starting to see your mortgage revenue trajectory improved. But obviously with all the new hires and the front loading of expenses, the losses on that business line have increased. And so I guess I wanted to ask, could you remind me what the current number of FTEs in the mortgage business is and do you think you kind of reached a point of critical mass from your employee side where now it's about maintaining the employee base you have and getting the production you need to turn that into a profitable business on?

Yes. I definitely think that we've reached the critical mass stage in terms of personnel bringing on this team, who with lots of experience, demonstrated performance, we think was a very opportunistic move for us. But I think in terms of -- we'll continue to look if we can add quality people, we will, but I think this team is very experienced and we'll manage at this stage their compensation and number of FTEs carefully to make sure that their focus is really on growing the top line going forward. I think we're at a good place where we sort of won't see these big increases that we've obviously done quarter-over-quarter in 2021, and really see that be flattish, if not even potentially down, just depending on volumes, right?

Right. The -- this point that we reached number mortgage with 72 FTEs, we consider is reflective of what their structural FTE account would be. Maybe there is very little additions that need to be added. So the structural sold that -- the expenses that you see in Q1 because there's new team that Jerry was mentioning was just hired in Q4. So when you look into the Q1 Amerant Mortgage cost structure that will be reflective of what the long-term or the structural costs it would be for this company. So we believe that it'll reach a point in time that is already all set and with right staff and with the right platform and infrastructure to go.

Got it. And I guess as I think about the expense trajectory going forward, and I try to normalize, this quarter, you're at 53.2 OPECs, and then you've got the efficiency plan that kicks in next quarter. And so kind of stripping that out, you're at about $50 million or so proforma, kind of setting that efficiency plan aside. And so, how should we be thinking of growth off of that $50 million number for 2022?

So yeah, the -- so for run rate on the total non-interest expenses, they would be probably in the $52.5 million to $53 million approximately. That includes the impact of Amerant Mortgage as well. So all-in, including the savings from the FTEs that were outsourced through FIS and including the full quarter of the new things that were just higher, it will take us probably to the $53 million run rate --

On the first-quarter?

Correct. For the first quarter operating expenses.

Okay, are there any -- are there any seasonal items in the first quarter like incentive comp or --

[Indiscernible]

Okay. And so I guess --

[Indiscernible]

Okay. So I guess as we think about like maybe in the second quarter comes down a little bit, but I guess maybe that 52.5 to 53 would be a good number to use on average throughout 2022.

For the run rate, yes.

Okay.

Yes. And I think Brody, to the comments that I was making is there's further things that obviously we intend to be doing to make sure that the expense dollars are optimized. There is -- as Carlos mentioned in his comments, you have to take into account the push that we're doing with marketing, obviously to drive our business development

efforts, as well as we obviously have the increase on the red side.

Right.

That has come from the building. We know by just doing those two things, it would be natural for you guys to assume higher expense of what we've been doing in the last couple of quarters.

But then you will have the positive effects of more NIM because of a non-earning asset was converted in earning asset on the fee income of the mortgage company, etc. So that's the order component of the efficiency that will give you the overall picture and how do we plan to get to the 60%.

Yeah. And I think the best way to think about this is we recognize there was an inflection point where we need to invest and heavily invest in certain areas in order to get the kind of top line growth we need to support the infrastructure here. But I do want to just reiterate, in no way, shape or form should folks think of us as we're not going to continue to look for ways to make sure that every dollar is towards generating revenue and where we can, we will continue to reduce.

Understood. Understood. And I just had two couple of quick last ones. I guess just on the NIM, you all have a decent percentage of the loan portfolio that's floating rate. At the same time, you're seeing that in your cost of deposits, those have been coming down nicely, but you still have a decent amount of higher cost CDs. I know the CD costs kind of stalled this quarter. And so I guess just help me think about -- is there an opportunity as we think about rate hikes where -- are there still opportunities to re-price down the CD book at the same time that the loaner -- book is re-pricing upward because of a potential rate hike?

Yes. There would be, I guess, the biggest re-pricing down was already obtained during 2021, during Q1. I particularly feel that with the recent news on inflation and Fed moves or potential moves, there would be less opportunities to keep going down with the cost of funds. There may be specific opportunities

in the CD portfolio to drop certain cases. But particularly, I don't think there would be significant costs or opportunities to drop furthermore the cost of funds. It may also, because if you are trying to hedge your balance sheet to interest rate off and trying to increase duration, that will come along with liabilities that will cost more and that will start to add up. But the opportunities are on the assets being repriced at higher rate. And that was precisely our objective of having a significant portion of our loan portfolio being floating.

Yeah, and that's why, Brody, there's such an emphasis as I was describing the campaigns that we're going to be doing, consumer business banking on the checking side, as well as all the efforts we're doing in treasury management with all the C&I growth that we expect to bring on its -- just keep in mind that we're deposits first. And so the view is that we're going to continue to progress on how much we can get in core deposit growth. I think Carlos is spot on, we'll be opportunistic as the CD maturities continue to come through, we may elect to do some extensions on that. So while that may not be the same type of health that it's been as we've allowed that to either run off for downward reprice, we'll certainly protect ourselves on the cost of funds better by extending in the stuff that's maturing.

Got it. And then just on the securities portfolio, you guys have ticked up the held-to-maturity growth. It's still only like 9% or 10% of total securities, at least as of the third quarter. But is there any thought given to maybe as you continue to grow securities allocating more to the held-to-maturity portfolio, just as we think about rising rates and the potential for further negative impacts, the OCI?

So we typically keep our biggest portion in AFS. There is a significant portion of the portfolio that is -- that doesn't have a credit risk component. So probably like $700 million out of the 1.1just in securities are -- don't have a credit risk. So we may opportunistically at something, but we never go further ahead of 15% to 20% of the total portfolio going to HDM. So we really like to keep our -- as a secondary source of liquidity into the AFS portfolio.

Got it. And is that 3.6 years effective duration that is in the deck, is that similar -- a similar mix between their AFS and the HTM or is that AFS portion of the book shorter duration?

HTM since we have a little bit of a higher duration, but since it weights not that much, so it's reflected pretty much of what is in the AFS. Yeah.

Awesome. Thank you very much for taking my questions, everyone. I really appreciate it.

Sure.

Sure. Thank you.

Thanks.

Our next question will come from the line of Michael Young from Truist Securities. You may begin.

Hey, good morning. Thanks for taking my question. I apologize I did hop on a bit late, so if I asked anything that's already been covered, feel free to just pass. But on the deposit side, I wanted to ask just on the international deposits. Those have really stabilized over the past couple of years. Just curious if you could give any additional color on if that's more related to your proactive calling efforts on those customers’ stability in Venezuela, interest rates, kind of what are the factors that are driving that and what should we kind of expect going forward.

Yeah, Michael. Good question. We attribute the vast majority of it to the improved utility of those accounts. When we introduced Zelle, these accounts become -- obviously increased functionality, the ability to pay in dollars. And so I think that's probably the single biggest factor in stabilizing. And then clearly there continues to be some growth that happens in new customers over the -- over time, right?

Right.

And I think you can see we've got some diversification coming from other international sources other than Venezuela.

Yes, we actually added Michael, we added a new -- well it's not a new, we have a couple of quarters that we have been publishing Exhibit 8 on our earnings release that has the contribution of other countries. And year-over-year, you can see that that component actually added almost $70, $75 million in all the countries, which is a strategy that we have been deploying in 2021 due to specific teams that we're hiring Texas that are bringing over deposits from order Latin American jurisdictions.

Okay. That's very helpful. And Jerry, you -- I think you kind of started to touch on this a bit, but would love to just get sort of higher level thoughts on as you achieve sort of the goals that you've laid out in this sort of more quick sprint to get there with a lot of work, a lot of heavy lifting on everyone's part to get there. On the heels of that, there's kind of this need probably to continue to reinvest for growth. So should we expect sort of things to kind of stabilize for a period of time until sort of that revenue growth really kicks in. So should we kind of expect performance kind of to stabilize or flat -line a little bit more or less for a year or two following the achievement of the goals?

I would expect to be reporting every quarter where we've been opportunistic to continue to add, Michael. I think we've done the majority of hiring that we've talked about. We have some RMs to add in Texas and in Tampa as we noted on the call, but I would tell you that I think in terms of if we can get positive operating leverage from an action, we're going to do it because the focus for the organization at this stage -- again, we've got a lot of heavy lifting to do this year as it relates to the continuous improvement efforts we talked about the transition through some of the applications as part of this FIS initiative, et cetera. But at the same point in time, it's about growing the company. And I think our view right now is that we're really well-positioned to do that. I think that was part of what's been demonstrated in the fourth quarter overcoming the heavy level of --

Prepayments.

Prepayment activity that took place. And I think we feel good about the size of our pipeline and the ability of our people to execute. So I would tell you, I think our trajectory is to be one as a growth model, as part of yes, there is still some transformation efforts to take place during the course of this year. I called it there's certain pockets in the company we just hadn't -- as with all the activity we did in 2021, we haven't really had a chance to do a few of the other areas, but our intent is to do that quickly and really be focused on growth and driving as much organic growth as we possibly can to add to that.

Okay. And then just the last one for me, maybe on capital kind of allocation in deaccessioning stocks up at almost 1.6x tangible book value now. You've done a lot of sort of the capital unlocking actions, maybe within the balance sheet and in various different places. So should we really think about go-forward? It's really just capital generation to support organic growth. And then maybe dividend would be a priority over buyback now, or how do you think about that at this point?

Yeah. Look, I think it's safe to say our intent is to be consistent with the dividend. I think we've established what people could assume is trying to hit at least a 1% yield. And then I think if you look at where we are with the depth of capital that we have, clearly we have the capacity to be able to return to shareholders. Michael, what my comments in the call were we're going to continue to be opportunistic on the stock. I think that's one of the things you have to be as it relates to share buyback. But to your point, we're getting to evaluation where it's not as simple as it was not that long ago. But our intent is we still have about little over $20 million or so capacity left, and with leverage, our intent is to continue to use it and be opportunistic where we can.

Okay. Thank you so much. Appreciate it.

Sure. Have a good one.

Thank you.

Thank you. And I'm not showing any further questions in the queue. I'll turn the call over to Jerry for any closing remarks.

Sure. Thank you. Thank you, everyone, for joining us today. We greatly appreciate your interest in our company. I think you can see we're very excited about the progress that we've made throughout 2021 toward becoming a higher performing bank. And again, to reiterate, we know we must remain focused and continue to execute on our strategy to achieve the even stronger performance that we want in 2022. So have a great day and thank you again for your continued support and your interest in Amerant.

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