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spk02: Good day, and thank you for standing by. Welcome to the Amaranth Bancorp fourth quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during a session, you will need to press the telephone. Please be advised that today's conference is being recorded, and if you require any further assistance, please press star zero. I want to hand the conference over to your speaker today, Laura Rossi, Head of Investor Relations. Please go ahead.
spk01: Thank you, Victor. Good morning, everyone, and thank you for joining us to review Amer and Bancorp's fourth quarter 2021 results. Also on today's call are Jerry Plosh, our Vice Chairman, President, and Chief Executive Officer. and Carlos Yafiliola, our Executive Vice President and Chief Financial Officer. As we begin, please note that the company's press release, our discussion and today's call, and our responses to your questions contain forward-looking statements. Ameren's business and operations are subject to a variety of risks and uncertainties, many of which are beyond its control, and consequently, Actual results may differ materially from those expressed or implied. Please refer to the cautionary notices regarding forward-looking statements in the company's earnings release and presentation. For a more complete description of these and other possible risks, please refer to the company's annual report on Form 10-K for the year ended December 31, 2020, in our quarterly report on Form 10-Q for the quarter ended June 30th, 2021, and in other filings with the SEC. You can access these filings on the SEC's website. Ameren 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.
spk07: Thank you, Laura, and good morning, everyone. Thank you for joining Ameren'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, Yes, 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 Amerit colleagues for their dedication and effort again this quarter. We have a great team, and we're excited about the strong additions to the Amerit 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 three, 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 buildings. higher average yields and balances on loans, and lower average balances on customer CDs and broker 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 $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 cleanup 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 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 31st, 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 four. We thought it would be helpful to provide you with a reconciliation of shares as of year end after having completed the cleanup 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 in outstanding, which as of December 31, 2021, totaled 35,883,320 shares of Class A common stock. Turning now to slide five, 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 Amarant's core earnings power. We'll go over key actions on slide six 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 3Q21. 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 2021 and announced a new branch in downtown Miami, which we expect to open in the fourth quarter of this year. The new location will be within Metz 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. Amerit Mortgage continues to expand. This quarter, we added 20 FTEs focused on 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 offices, 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 risk. We executed an agreement with Jamfintop to become a strategic investor in their blockchain fund, We, like the folks at Jamfintop, and I'm sure this is true at a lot of well-known banks across the country that also committed to invest, we believe blockchain will eventually 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 1st, 80 full-time equivalents were transferred, reducing our total full-time equivalents to 683, inclusive of Amerit 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 2021, 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 of this earnings deck is a great example of the Imagine a Bank branding we are now using. We'll now turn to slide seven. 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 in efficiency ratio, ROA, and ROE in the charts include the one-time gain on the sale of the headquarters building. For ease of reference, we show the same three core metrics excluding this one-time gain and 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 know we will continue our focus on rationalizing our cost structure to improve profitability as well as offset our reinvesting in the business. I'll comment more on this later in the call. So if we turn to slide E, as we did last quarter, this focuses solely on Amerit Mortgage. Since we started taking applications in May of 2021, AMTM has received 299 applications and closed on 109 loans, totaling $52.6 million. Sixty-one 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.
spk03: Thank you, Jerry, and good morning, everyone. So turning to slide nine, I'll begin by discussing our investment portfolio. Our four-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 and better repricing profile in anticipation of interest rate 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 increase in total loans was primarily due to higher loan balances, which resulted from an increase in loan production. Despite having received 337 million in prepayments, primarily from the CREE portfolio, and sold 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 fourth 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 21st, which includes 15 million in mortgage loans in connection with the activities of AMRAAM Mortgage and 143 million in loans from 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 of 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 fourth 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 a release of $5 million in the previous one. The release was primarily driven by $6.1 million due to upgrades, pay-offs, and pay-downs of non-performing loans and special mention loans, a release of $5.4 million as a result of improved macroeconomic conditions, and $0.5 million due to recoveries. All this was offset by $4.2 million in additional reserve requirements for charge-off and $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-off 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 CRE 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 this relationship. 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 basic points from the fourth quarter of 2020. In the fourth quarter of 2021, The coverage provided by Loan Loss Reserve to non-performing loans increased to 140% from 101% in the previous quarter and an increase from the 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, including 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 fourth 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 105 million or 7.3% in 10 deposits. Customer CDs compared to private quarters decreased $59 million, or 5.3%, as the company continued to lower CD rates and focus on increasing core deposits and emphasizing on multi-product relationships versus single-product higher-cost CDs. Broker time deposits decreased $46 million, or 13.7%, compared to September 2021. We continue to de-emphasize this funding source. Next, on slide 14, I'll discuss the net interest income and net interest margins. 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 loans, as well as lower average balances on customer CDs and broker time deposits. There were no significant upsets 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 basic points year over year. The change in net interest income and mean was primarily driven by the increase in the yield of our loan portfolio, which is now at 4.10%, an increase of 18 basic points versus the third quarter. We continue to focus on improving our NIEM 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 in the previous quarter. The increase during 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 to non-interest income during the fourth quarter. Ameren 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-focused strategy and increased share of wallets. Turning to slide 16, four-quarter non-interest expenses was $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 cleanup merger and expenses related to consulting services received from FIS. Higher salaries and employee benefits due to new hires in number of mortgage and private banking teams, and higher variable compensation expenses. Higher occupancy and equipment costs in connection with the termination of a release 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 headquarter building 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 headquarters. Core efficiency ratio, which adjusts for non-recurring items, was 75% in the fourth quarter compared to 73% in the third quarter of 2021 and 71% in the fourth quarter of 2020. The increase was primarily driven by non-interest expenses described above, 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 are 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. Other initiatives include increased duration of our liabilities. I will now turn back to Jerry to talk about AMRAM progress and the near and long-term initiatives. Thank you, Carlos.
spk07: 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 incremental deposit growth. We continue to work on enhancing a completely digital onboarding platform And we also implemented Zelle Commercial, being one of the 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 sublease of our New York loan office space. As I previously announced, or disclosed, we closed one branch in the fourth quarter, and then we announced our new branch in downtown Miami. And, Amerit 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 multi-year outsourcing agreement with FIS. We also onboarded our new procurement officer to drive incremental cost savings. Regarding our capital structure optimization, we completed the previously announced cleanup 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 repurchased $27.9 million through December 31st post the completion of the cleanup 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 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. Now on slide 20, as I noted earlier, there's some examples that you can look at on the brand awareness we're doing 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 Marston and Raystone, for example, will begin to show in 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 product suite. So, as an example of this, we have just entered into a letter of intent with a top-notch white 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, and South Florida markets starting in the second quarter of this year. So speaking of Tampa, we've sublet space. We've already started with one CRE officer who has begun generating commercial real estate opportunities for us, and we're actively recruiting two 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 thus 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 organization-wide to 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 reevaluating 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 and reporting our results split out into two business segments, consumer and commercial. Each would 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 Emory. 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.
spk02: Sure. As a reminder to ask a question, you need to press star 1 on your telephone. For your question, just press the pound key. Once again, Questions, please stand by. Our first question will come from the line of Michael Rose from Raymond James. You may begin.
spk06: Hey, good morning, everyone. Thanks for taking my questions. It's really nice to see you guys. Good morning. It's really nice to see you guys hit the ROE and ROPSI target, you know, this quarter. You know, 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 and 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 sort of intermediate term aspirational targets profitability-wise that you might be willing to share at this point? Thanks.
spk07: 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 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 we're still on track, in my mind, for the achieving of a 1, a 10, and a 60. That's what we stated and, frankly, how we laid out our plans for this year, so by the fourth quarter. You know, I think you'll see, which is typical for everyone in the industry, that first quarter, you know, expenses will be a little elevated, of course, because now you have the restart with payroll taxes, et cetera. But I think just in terms of, you know, where we'll be over the course of the year, we think the growth that we showed here in the fourth quarter is something that, you know, our intent is to execute and continue to build on that, you know, each and every quarter throughout the year so that you'll see the positive effects of that certainly by the fourth quarter.
spk06: That's really helpful, Jerry. Thank you. And then maybe just shifting back to loan growth, obviously very strong despite the continued runoff 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 of what you all are trying to do. Do you have any sense for, you know, what loan growth, well, you don't really have any PPV, but what loan growth could kind of look like as we move through the course of the year? Thanks.
spk07: Yeah, no, I think we still feel that, you know, look, there's some repayment activity that, you know, is scheduled just based on maturities for the, you know, the remaining New York portfolio, and there's definitely interest in those receivables that are there. So, I mean, you know, that's a little bit of a headwind for us, but when you look at, you know, the rest of the business, the pipeline's strong. I mean, we've got a lot of strength really across the board, you know, the private banking team, the business banking team, the CRETE team, the CNI team. I mean, it's Very consistent. You know, 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. You know, those percentages are increasing. So, you know, if we keep going down that path, I think we're in a good place for, you know, I'll call it something in the single digits growth, you know, over the course of the year.
spk06: 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 one point, though, with loan growth seemingly accelerating, does that become a larger issue? And what are the strategies to grow core customer deposits? Thanks.
spk07: Yeah, great question. And I think That's one of the real positives 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. You know, I think in terms of, and we're going to, obviously you'll see and learn more about, you know, over the course of 2022, the campaigns that we'll be running both for things like business checking, for consumer checking, that I think will be very complimentary in terms of the growth and the core size. I think it's very safe to say with the potential of these, you know, the number of rate increases can be debated. But, you know, 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, you know, 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, you know, and keep the cost of funds on everything other than core in check as best as we can.
spk06: Very helpful. Thanks for taking my questions, and good to see the continued progress.
spk07: Thank you.
spk06: Thank you.
spk02: All right. We'll come to the line of Stephen Skouten from Piper Sandler. You may begin.
spk05: Hey, good morning, everyone. Hey, good morning. Stephen. I'm curious, I know you, Carlos, noted that the asset sensitivity has declined a little bit lately. I wasn't sure what was driving that explicitly. 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.
spk03: Sure. So if you recall, 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 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. So those were items that used 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. So 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 those two items, I would say the drop in the duration of the liabilities and increase in duration of the 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, great. Which, by the way, was that creative because you see the name the way it is? Sure, sure. That helps with the cost of the fund, yeah.
spk05: Yep, definitely. Okay, good. You know, thinking about some of these new additions you made, the head of loan syndications, I know one of the big pushes for you guys has been making the loan book, you know, maybe a little more granular and getting some higher-yielding loans. So I'm wondering how to think about that versus that. you know, overall shift for the bank, and we 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.
spk07: Yes, Stephen, it's Jerry. Look, I think it's, you know, a must-have as part of our arsenal to have a 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, it obviously is very, very helpful for us, you know, for this part of our growth story. And look, you know, the way that process works, you know, we'll obviously by having a desk also potentially see, you know, 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.
spk05: Okay, fantastic. And then maybe last thing for me, just you guys have made some pretty significant improvements here on the non-performing lows. I know you said you're going to focus more on that in the first quarter, but you 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?
spk07: Yeah, look, I think you 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, you know, and I think when you think about our net charge-offs that have been happening, you know, during the quarter, it's all stuff that we had previously reserved. And so, you know, it's a harbinger of, you know, 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, you know, 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.
spk05: Got it. Okay. Great. Very helpful. Appreciate the time, guys, and congrats on the course. Thanks, Steve. Thank you.
spk02: Our next question will come from Brody Preston from Stevens. You may begin.
spk04: Yeah, good morning, everyone. Can you hear me okay?
spk07: Yeah, we're good, Brody. How are you?
spk04: I'm doing well, thank you. Thank you. I hope you are as well.
spk07: Yes, thanks.
spk04: 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 prepayments that occurred from CRE. I guess I'm looking at the loan yield, and it was up like 18 basis points per quarter, but I'm wondering what the dollar amount of prepayment fees were and what that impact on quarter-over-quarter loan yields was.
spk03: So I can give you, in terms of the mean, it was approximately four basic points, the impact on the mean due to prepayments. So I guess if you want to take a normalized, it would be like a 313 without the special prepayment that we collected over the quarter. That would be a fair number.
spk04: Okay. Okay, so... Is that like $700,000? Does that sound right? More or less.
spk03: That's right. That's precisely the case.
spk04: So what else was it that drove the link quarter increase in loan yields?
spk03: Yeah. So there was 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 on the CNI space. So as you recall, we always been talking about setting floors and trying to price new transactions with good spread. So we have been passing the transactions that they don't provide a good yield and jumping into 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.
spk04: Got it. Got it. Okay. Um, and then just maybe on the expense front, um, y'all added like 30 plus, uh, FTE is the biggest chunk within the, within the mortgage, um, segment. And you're starting to see, you know, your, your mortgage revenue, uh, trajectory improve. Um, but obviously with all the new hires and the, and the front loading of expenses, uh, the losses on that business line have increased. And so I guess I wanted to ask, you know, could you remind me what the current, you know, number of FTEs within the mortgage business is? And do you think you've kind of reached a point of critical mass on the employee side where, you know, now it's about maintaining the employee base you have and getting the production you need to turn that into a profitable business line?
spk07: Yeah, 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 will 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. So 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?
spk03: Right. This point that we reach number of mortgage with 72 FTEs, we consider is reflective of what their structural FTE count would be. Maybe there is very little, you know, additions that need to be added. So the structural, so the Expenses that you see in Q1, because this new team that Jerry was mentioning was just hired in Q4. So when you look into the Q1 armor and mortgage cost structure, that would be reflective of what the long-term or the structural cost would be for this company. So we believe that it reached a point in time that is already all set and with the right staff and with the right platform and infrastructure to go. Got it.
spk04: And I guess as I think about the expense trajectory going forward, you know, and I try to, you know, normalize, you know, this quarter you're at 53.2 op-ex, 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, you know, pro forma, you know, kind of setting that efficiency plan aside. And so how should we be thinking of growth off of, off of that 50 million number for 2022?
spk03: So, yeah, so for run rate on the total non-interest expenses, they would be probably in the 52.5 to 53 million dollars approximately. That includes the impact of AMRA 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 teams that were just hired, it will take us probably to the $53 million run rate. For the first quarter. Correct, for the first quarter operating expenses.
spk04: Okay, are there any seasonal items in the first quarter like incentive comp? Okay, and so I guess... Okay, so I guess as we think about, like, you know, maybe in the second quarter it 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.
spk07: Yeah, and I think, Brody, to the comments that I was making is, you know, there's further things that obviously we intend to be doing to make sure that the expense dollars are optimized You know, 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 that has come from the building. So we know by just doing those two things, it would be natural for you guys to assume a higher expense of what we've been doing in the last couple of quarters.
spk03: But then you will have the positive effect of the more neem because a non-earning asset was converted in earning assets. on the fee income of the mortgage company, et cetera. So that's the other component of efficiency that will give you the overall picture and how do we plan to get to the 60%.
spk07: Yeah, and I think the best way to think about this is we recognize, you know, there is 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. you know, to support the infrastructure here. But I do want to just reiterate, in no way, shape, or form should folks think of us, you know, 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.
spk04: Understood. Understood. And then I just had two couple quick last ones. I guess just on the NIMH, Y'all have a decent percentage of the loan portfolio that's floating rate. At the same time, you know, you're seeing it in your cost of deposits. You know, those have been coming down nicely, but you still have a decent amount of, you know, higher cost CDs. I know the CD costs kind of stalled this quarter. And so I guess just help me think about, you know, Is there an opportunity, as we think about rate hikes, where there's still opportunities to reprice down the CD book at the same time that the loan book is repricing upward because of a potential rate hike?
spk03: Yeah, there would be. I guess the biggest repricing 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. Also, because if you are trying to hedge your balance sheet to interest rate up and trying to increase duration, that will come along with the liabilities that will cost more, and that will start to add up. But the opportunities are on the assets being repriced at a higher rate, and that was precisely our objective of having a significant portion of our loan portfolio being floating.
spk07: Yeah, and I guess I would add, that's why, Brody, there's such an emphasis on, you know, as I was describing, the campaigns that we're going to be doing, consumer business banking, you know, on the checking side, as well as all the efforts we're doing in treasury management. You know, with all the CNI growth, you know, that we expect to bring on, it's, you know, just keep in mind that we're deposits first. And, you know, so the view is that we're going to continue to focus on how much we can get in core deposit growth. You know, I think Carlos is spot on. You know, we'll be opportunistic as these 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 help that it's been as we've allowed that to either run off or downward reprice we'll certainly protect ourselves on the cost of funds better by you know extending them in the stuff that's maturing got it and then just on the securities portfolio um you guys have you know ticked up the the held to maturity growth you know it's still only like nine or ten percent of total securities at least as of the third quarter
spk04: But has there been any thought given to, you know, maybe as you continue to grow securities, allocating more to the health to maturity portfolio, just as we think about, you know, rising rates and the potential for further negative impacts to AOCI?
spk03: So we typically keep our biggest portion in AFS. There is a significant portion of the portfolio that doesn't have a credit risk component, so probably like 700 million out of the 1.1 just insecurities don't have a credit risk. So we may opportunistically add something, but we never go further ahead of 15% to 20% of the total portfolio going to HTM. So we really like to keep as a secondary source of liquidity into the AFS portfolio.
spk04: Got it. And is that 3.6 years effective duration that is in the deck, is that a similar mix between the AFS and the HTM, or is the AFS portion of the book shorter duration?
spk03: HTM tends to have a little bit of a higher duration, but since it weighs not that much, so it's reflected pretty much of what is in the AFS.
spk04: Awesome. Thank you very much for taking my questions, everyone. I really appreciate it.
spk03: Sure. Sure. Thank you. Thanks.
spk02: Our next question comes from Michael Young from Truist Securities. You may begin. Hey, good morning.
spk08: Thanks for taking my question. I apologize. I did hop on a bit late, so if I ask 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?
spk07: 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 You know, 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, you know, over time, right? And I think you can see we've got some diversification coming from other international sources other than Venezuelan.
spk03: Yeah, 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 dollars in other countries, which is a strategy that we have been deploying in 2021 due to specific teams that we're hiring in Texas that are bringing over deposits from other Latin American jurisdictions.
spk08: Okay, that's really helpful. And Jerry, 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 on everyone's part to get there, you know, on the heels of that, you know, there's kind of this need probably to continue to reinvest for growth. So should we expect, you know, sort of things to kind of stabilize for a period of time until sort of that revenue growth really kicks in? Um, so, so should we kind of expect performance to kind of stabilize or flatline a little bit more or less, um, for a year or two following kind of the achievement of the goals?
spk07: Yeah, no, I, I would expect, um, 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, you know, again, we've got a lot of heavy lifting to do this year as it relates to, you know, the continued continuous improvement efforts. We talked about the, you know, the transition through some of the applications, you know, as part of this FIS initiative, et cetera. But at the same point in time, you know, 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 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. You know, I would tell you I think our trajectory is to be one as a growth model, you know, as part of, yes, there's still some transformation efforts to take place during the course of this year. You know, I called it sort of there's certain pockets in the company we just hadn't, you know, with all the activity we did in 2021, we haven't really had a chance to do a few of the other areas. But, you know, our intent is to do that quickly and really be focused on, you know, growth. and, you know, driving as much organic growth as we possibly can to add to that. Okay.
spk08: And then just the last one for me, maybe on capital, you know, kind of allocation and decisioning, you know, the stock's up at almost 1.6 times tangible book value now. You've done a lot of sort of the capital unlocking actions, maybe within, you know, the balance sheet and in various different places. So, should we really think about, you know, go forward? It's really just capital generation to support organic growth. And then, you know, maybe dividend would be a priority over buyback now, or how do you kind of think about that at this point?
spk07: Yeah, look, I think it's safe to say our intent is to be consistent with the dividend. You know, I think we've established what people could assume is, you know, trying to hit at least a 1% yield. And then I think if you look at, you know, you know, where we are with the depth of capital that we have, clearly we have the capacity to be able to return to shareholders. You know, Michael, my comments in the call were we're going to continue to be opportunistic, you know, 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 a, you know, we're getting to a valuation where, you know, it's not as simple as, as it was, you know, not that long ago. But, you know, our intent is we still have about, you know, a little over 20 million or so capacity left. And our intent is to continue to use it, you know, and be opportunistic where we can.
spk08: Okay. Thank you so much. Appreciate it.
spk07: Sure. Have a good one.
spk08: Thank you.
spk02: Thank you. I'm not showing any further questions in the queue. I'll turn the call over to Jerry for any closing remarks.
spk07: Sure, thank you. Thank you, everyone, for joining us today. We greatly appreciate your interest in our company. I think you can see we are 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 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 AMRA.
spk02: This concludes today's conference call. Thank you for participating. You may now
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