Good day, thank you for standing by. Welcome to the Amerant 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 the session, you will need to press star one. Please be advised that today's conference is being recorded, and if you require any further assistance, please press star zero. 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 Iafigliola, 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. 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 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 two and appendix one of the company's press release and earnings presentation, respectively, contain a reconciliation of each non-GAAP financial measure to its most comparable GAAP financial measure.
I will now turn it over to our CEO, Jerry Plush.
Thank you, Laura. 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. Excuse me. 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 and 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. I will now provide a brief overview of our performance in the fourth quarter and year, and then Carlos will go over the details. 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 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 $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 31, 2021.
We intend to continue to be opportunistic and repurchase shares, dependent, of course, on availability and pricing. 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 and 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 Amerant'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 have continued to focus on driving efficiency as well as set the stage for future growth. Our non-performing loans decreased to 0.89% of total loans, a substantial decline compared to 3Q 2021. 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 nonperformers 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 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 as 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 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 JAM FINTOP to become a strategic investor in their blockchain fund. 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 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 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 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-over-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. If we turn to slide eight, as we did last quarter, this focus is solely on Amerant Mortgage. Since we started taking applications in May 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. 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. Good morning, everyone. 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 million 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 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 increase in loan production, despite having received $337 million in prepayments, primarily from the CRE portfolio and some 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 21, which includes $50 million in mortgage loans in connection with the activities of Amerant 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 2021. During the fourth quarter, 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 take a closer look at 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, payoffs 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-offs totaled $7 million in the fourth quarter, compared to almost $16 million in the third quarter. Charge-offs 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 basis points, down 46 basis 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 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 excluding time deposits, were $4.3 billion as of the end of the fourth quarter, an increase of $100 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 of $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 $15 million or 7.3% in time deposits. Customer CDs compared to previous quarter 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 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 loans, as well as lower average balances on customer CDs and broker time deposits. There were no significant offsets to the increase in the net interest income during the fourth quarter. Moving to the net interest margin, Q4 net interest margin was 3.17%, up 23 basis points quarter-over-quarter and up 56 basis points year-over-year. The change in net interest income and NIM was primarily driven by the 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 spreads 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 during the fourth quarter was primarily due to $62.4 million 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. 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-focused strategy and increase share of wallet. Turning to slide 16.
Fourth 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 Amerant 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 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 Amerant's 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. 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. 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 place continued emphasis being active in both public relations and social media. Of note, we just passed 10,000 followers on LinkedIn. Our Imagine a Bank campaign went live in the fourth quarter. On January 3, we put up 20 billboards and two high-impact boards in the Miami downtown area. There's examples that we can share on slide 20. 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 fourth quarter, and then we announced our new branch in downtown Miami.
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 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 10 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 31 post the completion of the cleanup merger. On December 9, the company declared its first cash dividend as a public company for $0.06 per share. 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. We still intend to share our first ESG report in the early part of the second quarter of 2022. 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. Before we turn to Q&A, there are a number of key actions underway in 2022 I thought it would be helpful to share. 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 [nCino]. 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 Raistone, 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. 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. Speaking of Tampa, we've sublet space.
We've already started with one pre-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. As we did throughout 2021, we intend to update you as we continue to make progress. We're also reevaluating parts of our organizational 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 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 Amerant. 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. 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, you will need to press star one 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.
Hey, good morning, everyone. Thanks for taking my questions. It was really nice to see you guys-
Good morning.
Good morning. It was really nice to see you guys hit the ROE and ROA 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? Maybe it might be too soon, but do you have any sort of, you know, 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, you know, by the end of these four quarters upcoming in 2022. I think it's clear it should be clear that that's gonna come from a combination of profitable growth. You know, clearly, we've done some substantial investments in business development personnel, and in technology, and we're gonna continue to look for people that are revenue producers that are additive, to the growth story here. I think we're still on track, in my mind, for the achieving of a 1%, a 10%, and a 60%. You know, that's what we stated and, you know, 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, the first quarter, you know, expenses will be a little elevated, of course, because, you know, you have the restart with payroll taxes, et cetera. 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.
That's really helpful, Jerry. Thank you. 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. You know, kind of as you look into your crystal ball and, you know, think about the puts and takes of what you all are trying to do you have any sense for, you know, what loan growth ex PPP, well, you don't really have any PPP, but what loan growth could kind of look like, as we move through the course of the year? Thanks.
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 CRE team, the C&I 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.
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.
All right, very helpful. Maybe just one final one for me. 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, you know, with loan growth seemingly accelerating, does that become a larger issue? What are the strategies to grow core customer deposits? Thanks.
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, you know, 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. We're looking to be a self-funder in all our areas at this point. You know, I think in terms of...
We're gonna 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 complementary in terms of the growth in the core side. I think it's very safe to say with the potential of these, you know, the number of rate increases can be debated. 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 liabilities.
As things mature throughout the year, we're also gonna 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.
Very helpful. Thanks for taking my questions, and good to see the continued progress.
Thank you.
Thank you.
All right. Welcome to 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 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.
Sure. If you recall and if you compare year-over-year, there was a significant drop in the time deposits, and that was by design pretty much. There was runoff of time deposits that we considered that were single product based on the analysis that we produced. Therefore, we took advantage of decreased rates. 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 decrease sensitivity or better to say improve sensitivity to interest rate up. Those items were primarily.
Additionally to that, with the interest rate environment, duration of the investment portfolio have been increasing a little bit. Those two items, I would say the drop in the duration of the liabilities and increase in duration and the investment portfolio have created that diminished profile in the interest rate sensitivity. We're working to add it back in some sensitivity to interest rate up.
Okay, great. Great. Helpful.
Which by the way was accretive because you see, I mean, the way it is.
Sure. Sure.
Just that helps with the cost of funds. Yeah.
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 if we might see a little bit of a reversal, if you guys are gonna look to book some larger loans here with that syndication desk.
Yeah. 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 as part of our growth story. 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. I think it's a win-win for us. It's something that our team is very good at unearthing opportunities and, you know, what we don't wanna do is limit ourselves. We obviously wanna manage the risk properly.
I think that that's another part of this where we don't want to have, you know, large single exposures. We're excited about, you know, having this area as another part of our arsenal, as I call it, you know, for business development in 2022.
Okay, fantastic. Maybe last thing for me, just you guys have made some pretty significant improvements here on the non-performing loans. I know you said you're gonna 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. 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 take each quarter as it comes. You know, we're, as we said, 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. You know, 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 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-
Mm-hmm.
You know, during the quarter, it's all stuff that we had previously reserved. You know, it's a harbinger of what I would say is as we work our way through, obviously there'll be some reserves that possibly can be freed up if we don't need them in order to liquidate those positions. You know, so far so good. 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.
Got it. Okay. Great. Very helpful. Appreciate the time, guys, and congrats on the quarter.
Thanks, Stephen.
Thank you.
Our next question will come 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 just wanted to circle back real quick. I hopped on a bit late. I was coming from another call, so I apologize if I missed it. You had the $337 million of prepayments that occurred from CRE. I guess, you know, I'm looking at the loan yield, and it was up, like, 18 basis points linked quarter. I'm wondering what the dollar amount of prepayment fees were and what that impact on quarter-over-quarter loan yields was.
I can give you in terms of the NIM. It was approximately four basis points impact on the NIM due to prepayments. I guess if you want to take it normalized, it would be like a 3.13%, without the special prepayment that we collected over the quarter. That would be a fair number.
Okay. Is that like $700,000? Does that sound right?
More or less. That's right. That's precisely the case.
What else was it that drove the linked-quarter increase in loan yields?
Yeah. 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 C&I space. As you recall, we always been talking about setting floors and trying to price new transactions with the good spread. We have been passing on 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. You know, kind of a combination between those items were the ones explaining the increase aside of the prepayment penalties.
Got it. Okay. Then just maybe on the expense front, y'all added, like, 30+ FTEs, the biggest chunk within the mortgage segment. You're starting to see, you know, your mortgage revenue trajectory improve. Obviously, with all the new hires and the front loading of expenses, the losses on that business line have increased. I guess I wanted to ask, you know, could you remind me what the current number of FTEs within the mortgage business is? Do you think you've kinda 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?
Yeah. I definitely think that we've reached the critical mass stage in terms of personnel. You know, bringing on this team who, you know, with lots of experience, demonstrated performance, we think was a very opportunistic move for us. I think in terms of, you know, we'll continue to look if we can add quality people, we will. 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. 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.
This point that we reached Amerant 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. The expenses that you see in Q1, because this new team that Jerry was mentioning was just hired in Q4. When you look into the Q1 Amerant Mortgage cost structure, that would be reflective of what the long-term or the structural cost it would be for this company. We believe that it reached a point in time that is already all set and with a right staff and with the right platform and infrastructure to go.
Got it. I guess as I think about the expense trajectory going forward, you know, I try to you know, normalize, you know, this quarter you're at $53.2 million OpEx, and then you've got the efficiency plan that kicks in next quarter. 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. How should we be thinking of growth off of that $50 million number for 2022?
For run rate on the total non-interest expenses, they would be probably in the $52.5 million-$53 million, approximately. That includes the impact of Amerant Mortgage as well. 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 on the-
For the first quarter.
Correct. For the first quarter, operating expenses.
Okay. Are there any seasonal items in the first quarter like incentive comp or-
Yeah. That's inclusive.
Okay.
Yeah, that's inclusive.
I guess as we think about like, you know, maybe in the second quarter it comes down a little bit. I guess maybe that 52.5-53 would be a good number to use on average throughout 2022.
For the run rate, yes.
Okay.
Yeah.
Okay.
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, you know, our business development efforts. You know, as well as we obviously have the increase on the rent side-
Right
That has come from the building, right? We know by just doing those two things, it would be natural for-
Yeah
You guys to assume a higher expense than what we've been doing, you know, in the last couple of quarters.
Right.
You will have the positive effects of the more NIM because of
Yeah
A non-earning asset was converted into an earning asset on the fee income of the mortgage company, et cetera. That's the other component of efficiency that will give you the overall picture of how we plan to get to the 60%.
Yeah. I think the best way to think about this is we recognize, you know, 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, you know, to support the infrastructure here. I do wanna just reiterate, in no way, shape, or form should folks think of us, you know, as we're not gonna 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. Then I just had two couple quick last ones. I guess just on the NIM, 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. I guess just help me think about, you know, is there an opportunity as we think about rate hikes where there are 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?
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 the 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. Particularly, I don't think there will be significant cuts or opportunities to drop further more the cost of funds. Maybe 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.
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.
Yeah.
Got it.
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 gonna 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 C&I growth, you know, that we expect to bring on, it's, you know, just keep in mind that we're deposits first. You know, the view is that we're gonna 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.
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. Just on the securities portfolio. You guys have, you know, ticked up the held-to-maturity growth. You know, it's still only like 9% or 10% of total securities, at least as of the third quarter. Has there been any thought given to, you know, maybe as you continue to grow securities, allocating more to the held-to-maturity portfolio just as we think about, you know, rising rates and the potential for further negative impacts to AOCI?
We typically keep our biggest portion in AFS. There is a significant portion of the portfolio that doesn't have a credit risk component. Probably like $700 million out of the $1.1 billion just in securities don't have a credit risk. We may opportunistically add something, but we never go further ahead of 15%-20% of the total portfolio going to HTM. We really like to keep as a secondary source of liquidity into the AFS portfolio.
Got it. 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?
HTM tends to have a little bit of a higher duration. Since it weighs not that much, 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 comes 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 ask anything that's already been covered, feel free to just pass.
No worries.
on the deposit side, I wanted to ask just on the international deposits. You know, those have really stabilized over the past couple years. Just curious if you could give any additional, you know, color on if that's more related to, you know, your proactive calling efforts on those customers, stability in Venezuela, you know, interest rates. You know, kind of what are the factors that are driving that, and what should we kind of expect going forward?
Yeah. Michael, a 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. I think that's probably the single biggest factor in stabilizing. Clearly, there continues to be some growth that happens in new customers over, you know, over time, right?
Right.
I think you can see we've got some diversification coming from other international sources other than Venezuela.
Yeah. We actually added, Michael. Well, it's not a new. We have a couple of quarters that we have been publishing exhibit eight on our earnings release that has the contribution of other countries. Year-over-year, you can see that that component actually added almost $70 million, $75 million 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.
Okay. That's really helpful. Jerry, you, I think you kind of started to touch on this a bit, but would love to just get, you know, sort of higher level thoughts on, you know, as you know, achieve sort of the goals that you've laid out in this sort of more quick sprint, you know, to get there with a lot of work, a lot of heavy lifting 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. 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?
Should we kind of expect performance to kind of stabilize or flatline a little bit more or less, for a year or two following kind of the achievement of the goals?
Yeah, no. I would expect to be reporting every quarter where we've been opportunistic to continue to add, Michael. I think, you know, we've done the majority of hiring that we've you know talked about. We have some RMs to add in Texas and in Tampa, as we you know noted on the call. I would tell you that I think in terms of if we can get positive operating leverage from an action, we're gonna 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 you know the transition through some of the applications, you know, as part of this FIS initiative, et cetera.
At the same point in time, you know, it's about growing the company. I think our view right now is that we're really well positioned to do that. I think, you know, that was part of what's been demonstrated in the fourth quarter, overcoming the heavy, you know, level of.
Prepayments
... you know, prepayment activity that took place. 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, as with all the activity we did in 2021, we haven't really had a chance to do a few of the other areas. 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. 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 x tangible book value now. And you've done a lot of sort of the capital unlocking actions maybe within, you know, the balance sheet and various different places. 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?
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. I think if you look at 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 gonna 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.
To your point, we're getting to a valuation where, you know, it's not as simple as it was, you know, not that long ago. You know, our intent is, we still have about, you know, a little over $20 million or so of capacity left, and our intent is to continue to use it, you know, and be opportunistic where we can.
Okay. Thank you so much. Appreciate it.
Sure. Have a good one.
Thank you.
Thank you. 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 are very excited about the progress that we've made throughout 2021 toward becoming a higher performing bank. 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. Have a great day, and thank you again for your continued support and your interest in Amerant.