Earnings Call Transcript - AMTB Q4 2021

Operator, Operator

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

Laura Rossi, Head of Investor Relations

Thank you, Victor. Good morning, everyone, and thank you for joining us to review Amerant Bancorp's Fourth Quarter 2021 results. Also on today's call are Jerry Plush, our Vice Chairman, President, and Chief Executive Officer; and Carlos Lafigliola, our Executive Vice President and Chief Financial Officer. As we begin, please note that the company's press release, our discussion on today's call, and our responses to your questions contain forward-looking statements. Amerant's business and operations are subject to a variety of risks and uncertainties, many of which are beyond its control; and consequently, actual results may differ materially from those expressed or implied. Please refer to the cautionary notices regarding forward-looking statements in the Company's earnings release and presentation. For a more complete description of these and other possible risks, please refer to the Company's Annual Report on Form 10-K for the year ended December 31, 2020, in our quarterly report on Form 10-Q for the quarter ended June 30, 2021, and in our other filings with the SEC. You can access these filings on the SEC's website. Amerant has no obligation and makes no commitment to update or publicly release any revisions to forward-looking statements 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.

Jerry Plush, CEO

Thank you, Laura, and good morning, everyone. Thank you for joining Amerant's Fourth Quarter 2021 Earnings Call. I'm pleased to be here today to report on our results for the quarter and the year, and to talk about the continued progress that occurred in the fourth quarter to best position the company for success now and in future periods. We have maintained our focus on the key priorities we set earlier this year, 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 execute on our strategy throughout next year. We're also pleased to report that our Board of Directors voted yesterday to approve a $0.09 per share dividend. At this time, the intention is to consider the declaration of payment of dividends on a quarterly basis; and of course, it's subject to company results. As part of our quest to provide greater value to our shareholders, we believe this demonstrates our commitment to do so. I do want to take a minute here and thank all of my Amerant colleagues for their dedication and effort again this quarter. We have a great team, and we're excited about the strong additions to the Amerant family that happened this past quarter. They will play an essential role in our growth in 2022 and beyond. Now, I'll provide a brief overview of our performance in the fourth quarter and year, and then Carlos will go over the details. So turning to Slide 3, you can see a summary of our fourth quarter highlights. We're pleased to report record results for this quarter. Of note, net income attributable to the company was $65.5 million. That's up 284% quarter-over-quarter. This was primarily driven by a one-time gain on the sale of our headquarters building, higher average yields and balances on loans, and lower average balances on customer CDs and brokered time deposits also contributed to improved core results. Our total gross loans were $5.6 billion, up from $5.5 billion last quarter even with $337 million received in loan prepayments and the sale of $49.4 million from New York City loans classified as available for sale. Our total deposits were $5.6 billion, flat to last quarter, though core deposits increased by a $109.4 million this quarter compared to the third quarter. The Company's capital continued to be strong and well in excess of the minimum regulatory requirements to be considered well-capitalized at December 31, 2021. As previously announced, we completed the clean-up merger, which eliminated the shares of Class B common stock and simplified our capital structure. We also declared and have paid our first cash dividend of $0.06 per share, which was paid out here in the first quarter of 2022. As a result of these actions, there was an increase of 12% in tangible book value over the same period. Additionally, we're pleased to announce that we’ve repurchased 27.9 million of the 50 million share buyback program that was approved in the third quarter of 2021. In total, 893,394 shares of Class A common stock were repurchased as of December 31, 2021. We intend to continue to be opportunistic and repurchase shares, dependent of course on availability and pricing. Now, we'll move to Slide 4. We thought it would be helpful to provide you with a reconciliation of shares as of year-end after having completed the clean-up merger and the share repurchases I just mentioned. Here, you can see the impact each of these had in reducing the number of shares issued and outstanding, which as of December 31, 2021, totaled 35,883,320 shares of Class A common stock. Turning now to Slide 5, our core PPNR increased to $18.9 million or 3.4% compared to the $18.3 million we reported in the previous quarter. As we previously stated, we believe it is essential to show the net revenue growth of the Company, excluding any one-time gains or losses or other non-recurring items in order to show Amerant's core earnings power. We'll go over key actions on Slide 6 now. Here’s a number of key actions taken during the fourth quarter. We are continuing to focus on driving efficiency as well as setting the stage for future growth. Our non-performing loans decreased to 0.89% of total loans, a substantial decline compared to Q3 '21. As part of our stated commitment to reduce the level of non-earning assets on our balance sheet, we are diligently working to further reduce this level of non-performers here in the first quarter of 2022. We closed our Wellington branch in the fourth quarter of '21 and announced a new branch in downtown Miami, which we expect to open in the fourth quarter of this year. The new location will be within Met Square; it’s in the heart of Miami and one of the nation's fastest-growing urban centers. The new banking center will deliver full banking services, so consumer, business banking, private banking, commercial, and wealth management will all have a presence here. Amerant Mortgage continues to expand. In this quarter, we added 20 FTEs focused on the wholesale business. We also hired a terrific South Florida-based domestic private banking team to focus on large private banking relationships, including professionals, law practitioners, and medical officers, among others. We also hired a new Head of Procurement as part of our ongoing efforts to look for additional cost savings as well as a new head of loan syndication to enable us to onboard large business opportunities in the markets we serve and to effectively manage risks. We executed an agreement with JAM FINTOP to become a strategic investor in their blockchain funds. 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 estimate an annual savings of approximately $12 million from this partnership while achieving greater operational efficiencies and delivering advanced solutions and services to our customers. Our new Imagine a Bank campaign was launched during the fourth quarter of '21, and a significant expansion to it went live on January 3, 2022. There are now over 20 billboards throughout South Florida, including two high-impact boards in the Miami downtown area that are delivering more than 125 million impressions in the South Florida market. We also continue to leverage our partnership with the Atlantic Division leading Florida Panthers to drive brand awareness.

Carlos Lafigliola, CFO

Thank you, Jerry. And good morning, everyone. So turning to Slide 9, I'll begin by discussing our investment portfolio. Our fourth quarter investment securities balance was $1.3 billion, out of which $240 million was cash, slightly down from the $1.4 billion in the previous quarter and flat compared to the fourth quarter of 2020. When compared to the prior year, the duration of the investment portfolio was extended to 3.6 years due to the lower prepayment speeds recorded in our mortgage-backed securities portfolio. Given the extension, we will focus our investment strategy on assets with lower duration, on a 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 increasing total loans were primarily due to higher loan balances which resulted in an increase in loan production despite having received $337 million in prepayments primarily from the portfolio. 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 of 2021. During the fourth quarter, 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 credit quality. Overall, credit quality remains sound and reserve coverage is strong. The allowance for loan losses at the end of the fourth quarter was almost $70 million, down 16.2% from $83.4 million at the close of the previous quarter. We released $6.5 million from the allowance for loan losses in the fourth quarter, compared to our release of $5 million in the previous quarter. That release was primarily driven by $6.1 million due to upgrades, payoffs, or pay-downs of non-performing loans and the special mentioned loans. A release of $5.4 million was as a result of improved macroeconomic conditions and $0.5 million due to recoveries. All of this was offset by $4.2 million in additional reserve requirements for charge-offs on $1.3 million due to loan growth. Additionally, the allowance for loan losses associated with the 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 pre-loans, and $1.4 million mainly in consumer loans, offset by $0.5 million in recoveries. We collected $4.8 million in connection with the Coffee Trader relationship, which contributed to a release of $2.3 million in specific reserves assigned to these relationships. The current outstanding is $9.1 million with a specific reserve of $4.2 million. Non-performing assets totaled $59.5 million at the end of the quarter, a decrease of $33 million or almost 36% compared to the third quarter, and a decrease of almost $29 million or 33% compared to the fourth quarter of 2020. The ratio of non-performing assets to total assets was 78 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 reserves to non-performing loans increased to 140% from 101% in the previous quarter and an increase from 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 with the end of the third quarter. Domestic deposits totaled $3.1 billion, up $46.7 million or 1.5% compared to the previous quarter, while foreign deposits totaled $2.5 billion, down $43 million compared to the previous quarter. Core deposits, which consist of total deposits excluding time deposits, were $4.3 billion as of the end of the fourth quarter, an increase of $109 million or 2.6% compared to the previous quarter. This amount includes interest-bearing deposits of $3.1 billion and non-interest-bearing demand deposits from $1.2 billion, as of the end of December. Of note, during the fourth quarter of 2021, the company commenced a new relationship to capture municipal funds. Offsetting the increase in total deposits was a reduction of $1.5 million or 7.3% in time deposits. Customer CDs compared to the prior quarter decreased $59 million or 5.3% as the company continues to lower CD rates. We're focused on increasing core deposits and emphasizing multi-product relationships versus single product, higher-cost CDs. Broker-type deposits decreased $46 million or 13.7% compared to September 2021. We continue to de-emphasize these funding sources.

Jerry Plush, CEO

Thank you, Carlos. Here, you can see on slides 18 and 19, that we've provided some details on what has been done in connection with each of the key initiatives during the fourth quarter. So let's start with deposits first. We continued to reduce 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 rather 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 placed continued emphasis on being active in both public relations and social media. 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. We continue to leverage the popularity and exposure of our Florida Panthers partnership, both at the arena and in our marketing efforts. Before we turn to Q&A, there are a number of key actions underway in 2022 I thought it would be helpful to share. 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. We also intend to continue to look for financial technology as a way to most efficiently attract and serve our customers. As we continue to drive operational efficiencies and effective growth, we'll update you as we make progress.

Operator, Operator

As a reminder, to ask a question, please press star one. Our first question will come from the line of Michael Rose from Raymond James.

Michael Rose, Analyst

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

Jerry Plush, CEO

We're still committed, as we stated before, to a 60% efficiency ratio by the end of these four quarters upcoming in 2022. 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. In terms of where we will be over the course of the year, we think the growth that we showed in the fourth quarter is something that our intent is to execute and continue to build on that each and every quarter throughout the year so that you'll see the positive effects of that certainly by the fourth quarter.

Michael Rose, Analyst

That's really helpful, Jerry. Thank you. And then maybe just shifting back to loan growth, obviously, very strong despite the continued run-off at the New York City LPO, which is really good to see. Do you have any sense for what loan growth ex-PPP might look like as we move through the year?

Jerry Plush, CEO

There's some repayment activity that is scheduled just based on maturities for the remaining New York portfolio, and there's definitely interest in those receivables that are there. When you look at the rest of the business, the pipeline is strong. We've got a lot of strength across the board. Our intent is to execute on this pipeline, which is increasing. If we keep going down that path, I think we're in a good place for single-digit growth over the course of the year.

Michael Rose, Analyst

The loan-to-deposit ratio is creeping up a little bit higher, and obviously, there's a mix shift going on. What strategies are you implementing to grow core customer deposits?

Jerry Plush, CEO

That's one of the positives of adding the private banking capabilities in addition to all the investments we've already made in treasury management. Our focus is on being a self-funder in all our areas. You'll see more campaigns for business checking and consumer checking that I think will complement the growth in the core side. With potential rate increases, we are balancing our strategy to take advantage of rates and keep the cost of funds on everything other than core in check as best as we can.

Stephen Scouten, Analyst

I know you, Carlos, noted the asset sensitivity has declined a little bit lately. What initiatives are you considering to benefit from higher rates in the coming year?

Carlos Lafigliola, CFO

There was a significant drop in time deposits that we designed to allow for decreased rates, providing flexibility in the balance sheet. The duration of the investment portfolio has been increasing a little, which has contributed to our diminished profile in the interest rate sensitivity, but we're working to add it back.

Stephen Scouten, Analyst

I'm curious about the loan syndication desk you're adding. How will that impact your overall shift for the bank?

Jerry Plush, CEO

I think it's essential to have the loan syndication desk to manage larger opportunities that we can't handle alone. It's invaluable for identifying larger transactions, while efficiently managing risk and not limiting ourselves to smaller loans.

Brody Preston, Analyst

Can you provide the dollar amount of prepayment fees that impacted quarter-over-quarter loan yields?

Carlos Lafigliola, CFO

It was approximately 4 basis points that incurred on the NIM due to prepayments. We also had additional purchases that improved the yield of the overall loan portfolio.

Michael Young, Analyst

I wanted to ask just on the deposit side, what factors are driving the stabilization of international deposits?

Jerry Plush, CEO

The improved utility of those international accounts, especially with the introduction of Zelle, has stabilized those deposits. We've also been diversifying our international client base beyond Venezuela. Thank you, everyone, for joining us today. We greatly appreciate your interest in our company. We're very excited about the progress we've made throughout 2021 toward becoming a higher performing bank. As we continue into 2022, we know we must remain focused and execute on our strategy to achieve even stronger performance. Have a great day and thank you again for your continued support.

Operator, Operator

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