BankUnited, Inc. Q4 FY2021 Earnings Call

Good day and thank you for standing by. Welcome to the BankUnited 2021 Fourth Quarter and Fiscal Year Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Ms. Susan Greenfield, Corporate Secretary of BankUnited. Ms. Greenfield, the floor is yours.

Thank you, Chris. Good morning, and thank you for joining us today on our fourth quarter and fiscal year 2021 results conference call. On the call this morning are Raj Singh, our Chairman, President and CEO; Leslie Lunak, our Chief Financial Officer; and Tom Cornish, our Chief Operating Officer. Before we start, I'd like to remind everyone that this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that reflect the company's current views with respect to, among other things, future events and financial performance. Any forward-looking statements made during this call are based on the historical performance of the company and its subsidiaries or on the company's current plans, estimates and expectations. The inclusion of this forward-looking information should not be regarded as a representation by the company that the future plans, estimates, or expectations contemplated by the company will be achieved. Such forward-looking statements are subject to various risks and uncertainties, and assumptions, including, without limitations those relating to the company's operations, financial results, financial condition, business prospects, growth strategy, and liquidity including as impacted by the COVID-19 pandemic. The company does not undertake any obligation to publicly update or review any forward-looking statements, whether as a result of new information, future developments or otherwise. A number of important factors could cause actual results to differ materially from those indicated by the forward-looking statements. Information on these factors can be found in the company's Annual Report on Form 10-K for the year ended December 31, 2020 and any subsequent quarterly report on Form 10-Q, our current report on Form 8-K, which are available at the SEC's website. With that, I'd like to turn the call over to Raj.

Thank you, Susan. Welcome, everyone. I appreciate your time as we share our earnings. To summarize last quarter's results in 30 seconds, I would say we achieved $1 billion in loan growth and $1 billion in deposit growth, an 11 basis point expansion in margin, and improving credit trends across the board, with earnings per share at $1.41. This was a strong quarter for us, one we had been anticipating. We mentioned at the start of last year that we expected loan growth to return in the latter half of the year. While it took longer, we are pleased to see it here now, particularly on the left side of the balance sheet. There were several notable items this quarter that I'll leave for Leslie to address in her comments. Tom, Leslie, and I will move through this more quickly than usual because we have a lot to cover today. To get right into it, we saw $1 billion in loan growth, excluding PPP. In the first quarter, we experienced a reduction of $500 million in loans, followed by a slight decline in the second quarter. Then we had a small uptick in the third quarter, and now in the fourth quarter, we are up $1 billion, indicating positive momentum. We are witnessing loan demand return across various industries and regions, broadly across the board, and Tom will delve into the specifics. Our net income for the quarter was $125 million or $1.41 per share, compared to $87 million or $0.94 last quarter. The return on equity for the year was at 13.3%, while return on assets was $1.16. Net interest income rose by $11 million compared to last quarter. We're pleased with that, and our margin expanded from 2.33% to 2.44%. The cost of deposits continues to decline, not as much as we hoped, which Leslie will detail, but we do expect further declines in the coming quarter. The cost of deposits was 19 basis points this quarter, down from 20 basis points in the previous quarter. As of December 31, our cost of funds was 16 basis points, and as we start January 1, we aim to reduce this further. I suspect that at some point, the cost of deposits will stabilize, though I am uncertain if this will happen in the first or second quarter. Deposits increased by $1.3 billion for the quarter, with average non-interest DDA growing by $418 million, followed by a decline of $183 million during the period, showing significant movement in the last quarter. Some of that movement was observed in the last week of the quarter and has somewhat reversed in the first two weeks, but that's typical activity. Credit metrics continue to improve; criticized classified loans decreased by $367 million, and loans deferring or modified under the CARES Act have become quite minimal. The non-performing loan ratio decreased to 87 basis points from 121 basis points last quarter, and excluding guaranteed portions of the SBA loans, it was at 68 basis points. The non-performing asset ratio fell to 58 basis points from 80 basis points. Last year’s charge-offs were at 29 basis points compared to 26 basis points the prior year. Regarding stock buybacks, we mentioned we would act opportunistically in response to stock price weakness, which we did last quarter by repurchasing $182 million of stock, leaving about $27 million remaining in our authorization. Once completed, we plan to return to the Board for additional buyback authorizations due to sufficient excess capital. Our book value per share has reached $35.47, while tangible book value is at $34.56, signifying considerable progress over the last few years. The macroeconomic landscape in our markets is favorable. The last piece we needed was for loan demand to rebound, and it has. Line usage is up, indicating our teams are more active than they've been since prior to the pandemic, which is an encouraging sign. Additionally, the changing rate environment should positively impact banks as rates normalize. Overall, concerning the economy—whether through unemployment rates or collateral values—there is abundant good news. However, challenges remain. We are facing another wave of Omicron, and while its economic impact appears minimal, we must remain mindful that we are still amid a pandemic. This current situation has delayed our plans to return employees to the office once again. Supply chain issues persist, inflationary pressures continue, and the labor market remains tight, which are all well-known challenges. Competition also remains fierce. Despite this, we are optimistic about our position as we move into the new year. Looking ahead to our strategy for 2022 and beyond, our goal is to continue building our commercial bank. Recent years have thrown us some challenges, but we aim to return to our pre-pandemic growth in commercial business. If you analyze our balance sheet, it has become relatively stagnant with lower spreads. This trend is common across the banking industry. In the upcoming year, our strategy will focus on investing in and expanding our higher spread commercial business while gradually reducing lower spread investments, like those in the securities portfolio. We've hinted at market expansion before, and I can specify that one target will be Atlanta. We previously attempted to enter this market just before the pandemic with poor timing, but we believe it is a promising opportunity, and we will approach it comprehensively with a complete suite of offerings. We hope to become operational in that market in the next quarter. Dallas is another market we are considering, and I’ll provide context. While it is not nearby and is competitive, we have had considerable national success in Texas, particularly on the deposit side, accumulating around $0.5 billion from Texas clients. We can no longer grow this business without a local presence. Thus, our plan is to establish a branch with some staff, which I expect will suffice in the short to medium term. This will allow us to serve existing clients and expand that business significantly. Additionally, I'll mention that in the coming weeks, we will announce updates on our overdraft policies. We review these regularly and have made them very customer-friendly. Eliminating consumer overdrafts aligns with our approach, and it won’t materially impact our bottom line. Looking ahead, we expect loan growth to be in the mid to high-single digits next year, primarily from the commercial side, with little to no contribution from residential loans. The aim is not just to grow the balance sheet but to improve its mix while keeping capital available for ongoing buybacks. We were active last year, and there’s no reason we wouldn’t maintain or increase this year’s buybacks. While deposit growth is important, it is not our primary focus since it won’t significantly drive earnings. We will continue to prioritize growing demand deposits while concentrating on the asset side. Regarding net interest margin, we won't speculate on interest rates, as we've stated multiple times. We strive to maintain a neutral and proactive stance. We are currently mildly asset-sensitive, thus as rates rise mid-year and beyond, we anticipate a positive effect on margins. The expense environment remains challenging due to labor market conditions, and we expect expenses to grow in the mid to high-single digits. We foresee an increase in pre-provision net revenue next year. Leslie, if I missed anything, let me know, but for now, I’ll turn it over to you, Tom.

Great. Thanks, Raj. So as Raj said, for the quarter, excluding PPP loans, we grow by over $1 billion. It's the largest loan growth we've had in several years. So, we were very excited about that. We see a lot of positive trends. If you break it down, total commercial loans grew by $500 million, while the residential segment grew by $541 million and $110 million of that $541 million was within the EBO segment. So, on the commercial side, the largest increase was in our C&I businesses, which grew by $566 million for the quarter. I think the thing that's the best about that was not only was it a significant amount of growth, obviously, but it was very broad. If you look at the supplemental information in the deck, you can see it's across a number of industry segments. So we have been talking about strong pipeline in the last earnings call that we did and we really saw it come to fruition in this particular quarter. So that was extremely encouraging. Mortgage warehouse balances grew by $215 million and utilization was up to 56% in that area. Commitments were up over $200 million for the quarter to approximately $2 billion, continued growth in commitments is expected for 2022. The CRE area declined this quarter by $181 million. I would point out that two-thirds of that decline was in some of the weaker asset classes that we see, which were retail and hospitality. And even within retail and hospitality, the two classes that declined the most were non-anchored retail and independent hotel chains. So those are parts of that asset class that we're not putting any emphasis on and we'd like to see increase in exposure to. So generally, we were happy to see that. Most of the other asset classes within CRE were down slightly, but relatively flat. We do expect mid to high-single digit growth in both the CRE and the C&I segments for the year. Franchise portfolio declined in the fourth quarter, as did equipment finance and clinical portfolios. For ‘22, we expect franchise to continue to decline a bit, although we will lend into selected concepts. Growth is expected to resume in both the equipment finance and clinical portfolios in 2022. Utilization, we continue to see positive trends in that area. So, as Raj mentioned, we're seeing growth in the economic scenarios in the markets that we do business in, especially from a C&I perspective, all segments grew, all markets grew. We had a particularly good quarter in New York in the C&I segment. So I think all of that is very encouraging. The operating lease portfolio was down $19 million in this quarter and is expected to be flat to down slightly in 2022 as we continue to deemphasize our exposure in the equipment finance area, especially in the energy area and shift more to equipment leasing products within our end-market clients. Just a quick update on deferrals and CARES Act modifications. On commercial, a total of $172 million in commercial loans were made on modified terms under the CARES Act, compared to $244 million at September 30th. All of the commercial loans that have rolled off modification to date have either been paid off or resumed regular payments. On the residential side, excluding the Ginnie Mae early buyout portfolio, $33 million of loans remained on short-term deferral or had been modified under longer-term CARES Act repayment plans as of December 31st. 96% of the residential loans have rolled off, deferral or modification have resumed regular payments at this time. Just a closing comment on NI-DDA, as Raj said, we did have some fluctuation in larger accounts at the end of the quarter, but we still see strong core DDA growth across all of our core banking teams. If you look at the total year, we grew NI-DDA by 28% for the year and if you look at the shift in composition, we ended the previous year at 25.4%, we ended this year at 30.5%. So very substantial shift in composition and increase in NI-DDA overall for the total year. So with that, I'll turn it over to Leslie for some more detail on the quarter.

Thanks, Tom. I’ll begin with the margin, which rose to 2.44% this quarter from 2.33% in the previous quarter. The yield on loans increased to 3.50% from 3.45% last quarter. Various factors contributed to this rise, not just one single element. The yield on securities also went up to 1.54% from 1.49% last quarter, primarily due to slower prepayment speeds on premium securities. You may remember that we faced challenges with the securities yield being impacted by accelerating prepayments, and that situation seems to have stabilized, which is encouraging. The duration of our portfolio remains short at about 1.5. Total cost of deposits decreased by 1 basis point quarter-over-quarter, while the cost of interest-bearing deposits fell by 2 basis points. I want to point out that in anticipation of rising interest rates, we have extended some duration in our deposit portfolio by issuing callable CDs, which slightly affects that figure. This quarter, we terminated some cash flow hedges with a notional amount of $401 million and a weighted average rate of 3.24%. This action, along with the maturity of other higher-rate hedged advances, lowered the average cost of FHLB borrowings from 2.35% to 1.86%. We incurred a loss of $44.8 million on stopping those hedges but successfully terminated all hedges with pay rates over 3%, which should provide a tailwind to the net interest margin going forward. For the upcoming year, we expect the net interest margin to increase, though the rise will be more pronounced later in the year due to the impact of rising rates. Regarding the provision and the reserve, the provision was $246,000, which is almost negligible this quarter. Slides 10 through 13 of our presentation provide additional details about the reserve. The reserve decreased from 70 basis points of loans at September 30 to 53 basis points at December 31, primarily due to charge-offs taken during the quarter, totaling $34.2 million. A significant portion of those charge-offs, approximately $24 million, was related to a commercial loan we’ve discussed for several quarters. Most of these charge-offs were reserved for at the beginning of the quarter, about $33 million of the $34 million, which led to the reduction in the reserve. Other factors impacting the fourth-quarter provision included a $13 million decrease attributed to economic improvements. Our models indicated we could afford another $13 million decline in the reserve, but we were cautious with the lingering uncertainty around the Omicron variant and fiscal and monetary policy, so we added a qualitative overlay to the reserve amounting to $15.6 million this quarter. In terms of risk rating migration and charge-offs, further details are available in slides 25 through 27 of our presentation. This quarter, total criticized and classified commercial loans decreased by $367 million, leading to a total yearly decline of $1.2 billion. Total non-performing loans dropped by $71 million to $206 million this quarter from $277 million at September 30, with $34 million of that reduction linked to the previously mentioned charge-offs. Looking at other income and expenses for the quarter, we recognized an $18.2 million gain from selling a portfolio of previously covered loans, which was part of a tax planning strategy. For non-interest income, we continue to see a steady increase in deposit service charges, and we anticipate an increase in non-interest income in the mid to high-single digits for 2022. On the expense side, I previously mentioned the $44.8 million charge related to the termination of cash flow hedges. Additionally, in December, we awarded a special bonus of $6.8 million to our employees. Raj, would you like to elaborate on that a bit?

I want to mention that in the last quarter, we received a significant tax refund from the state, something we've worked towards for many years. Looking at what the team has accomplished over the last two years during COVID, we haven't implemented any additional fees. I felt that sharing a portion of this refund was a wise long-term investment in our employees, leading us to provide a $5,000 bonus to every staff member in the company. Traditionally, bonuses are based on performance, with higher earners receiving larger bonuses, but this time, everyone received $5,000, whether they are an entry-level teller or managing a major division. The goodwill generated from this $7 million investment is immense, and although the return on this investment is difficult to quantify over the years, it will be remembered. This initiative positively altered the conversation within the company, especially since it coincided with the fourth quarter and the holiday season. The feedback has been overwhelmingly positive, and I am pleased we could make this happen with our earnings allowing us to fund it. So ultimately, everyone received $5,000.

Okay. We recorded $4.2 million in professional fees in the fourth quarter related to the Florida tax settlement and took a $2.8 million impairment charge on some older sand cars in our railcar fleet due to decreased projected future cash flows. Notable expense items totaled $58.7 million pre-tax for the quarter. Additionally, compensation expenses, including a $7 million special bonus, were elevated this quarter due to adjustments in our variable compensation accruals; we had a strong growth quarter, which led to an increase in our incentive accruals, and we also decided to increase our discretionary bonus pool due to our strong year. These factors together totaled another $4.6 million. Regarding income taxes, we have discussed the Florida tax settlement, with a net benefit of $43.9 million. Additionally, we released some reserves for uncertain tax positions, resulting in tax benefits of $25.2 million related to the exploration of federal and state statutes regarding some tax positions taken when the tax rate was reduced from 35% to 21%. Even after these items, the effective tax rate for the quarter is slightly low due to normal return provisions adjustments. For next year, I expect the effective tax rate, excluding discrete items, to be about 25%. Now, I will turn it over to Raj for any closing comments he may want to make.

I know there's a lot in here, but let us get to the Q&A directly. Let's give it as much time as we can.

Thank you, sir. And our first question comes from Brady Gailey of KBW. Your line is open.

Hey. Great. Thanks. This is Will Jones on for Brady Gailey. How are you guys?

Hey. Good, Will. Nice to hear from you.

Good morning.

I wanted to start by discussing credit. I noticed that net charge-offs were slightly increased. This morning, you mentioned that this was related to a specific equipment distributor loan, indicating that the charge-offs this quarter were particularly linked to that one credit.

No. Well, that was about $24 million of the $34 million. But aside from that, I don't think it was particularly unusual level of charge-offs, but that $24 million of the $34 million was that one.

Got you. That makes sense. I understand you still have a significant amount of that credit remaining as non-performing loans.

Yeah. It was $27 million left on the balance sheet, Will, and there's an $8 million reserve sitting against that. And we feel very comfortable with that $8 million reserve being adequate. So, and net charge-offs, the rest of that $8 million in charge-offs will come over the next couple of quarters at some point, I would imagine.

Okay, great. You beat me to it, that's very helpful, thanks. I'm thinking about the reserve now that you have one and are excluding PPP loans in the mortgage warehouse. It's around 56 basis points, which is on the lower end of your peer range. I'm curious about your thoughts on how comfortable you are with the reserve at these levels. Additionally, how would you approach forward provisioning as we continue to see this strong loan growth?

I feel very comfortable with the reserve. Otherwise, the number would be different. We have invested significant time analyzing reserve levels, especially in comparison to our CECL Day 1 adoption levels, which were a bit higher. One reason for the current lower level is that a larger portion of the residential portfolio is now in the Ginnie Mae EBO segment, which has a zero reserve requirement. Back on Day 1, only 11% of the residential portfolio accounted for EBOs, and now it stands at 23%. Additionally, we observed an increase of over 18% in home price indexes in 2021 alone, and this trend is expected to continue, which has decreased loss given defaults in the residential area. Furthermore, our unemployment forecast has improved since Day 1. In the commercial real estate (CRE) and commercial and industrial (C&I) sectors, a major factor is that the weighted average life of the portfolio has significantly shortened compared to two years ago. Unfortunately, there hasn't been as much commercial production in the last two years as we anticipated, which contributes to the shorter weighted average life. This factor plays a crucial role under CECL in calculating the reserve. We also have a more favorable forecast for commercial properties that impacts the CRE reserve. For the C&I segment, the financial spreads of our borrowers have improved considerably since Day 1. Although the specific reserves remain about the same, the reserve percentage for criticized classified assets is higher than it was on Day 1; the overall reduction in reserve is due to decreased loss rates on the past portfolio. The decrease in these rates can be attributed to more EBOs, better borrower financial spreads, improved economic forecasts, and enhanced property values. We have dedicated considerable time to this analysis.

We also ended up putting a $15 million qualitative reserve on, which our models suggested should be another $13 million lower than it currently is.

Got you. Okay. Yeah. Very helpful. Now you guys are obviously prepared for that one.

I knew it would come.

Yeah. Lastly, for me guys, really, really nice quarter on the buyback. And it was obviously a really cheap cost. The stock is still trading at a similar level today as it was where you guys bought back shares. Any reason to think buybacks slow from here?

I will say what I've been saying for the last year on buyback. This is still a very volatile time in the stock market. For no reason, stock can go up and down 10%. We will continue to use the volatility to our advantage. So we will be opportunistic, to be aggressive, and we think the stock is unnecessarily beaten up and back off when we think it's in the upward direction. So, we did not have that philosophy before the pandemic, we used to just basically let it grow a little bit every day. But in the last year, since we've been back in the buyback again, we've been more opportunistic. So we'll continue to do that, but I fully expect another buyback authorization to come as soon as we get this $26 million done, or $28 million. I forgot what it was. $26 million, $28 million, whatever is left, get that billing them.

Okay. Great. Very good. That's all for me. I'll jump back in the queue.

Thank you. Our next question comes from David Bishop of Seaport Research. Your line is open.

Yeah. Good morning, Raj, Leslie. Hope all is well.

Good morning, David.

Hey, I have a quick question about the Atlanta initiative. It seems like it's going to be fully operational soon. I want to know if the talent there has already been integrated. I'm curious about the source of the new staffing and what the timeline looks like for getting this initiative up and running.

They're not on board yet, but we're close.

And then in terms of the Dallas initiative, it sounds like there's already several hundred million of deposits within the market there. Is that going to be a pure deposit play or would this also sort of encompass loan growth potential as well?

I think in the short term, it will be pure deposit play. And eventually, it'll open up an option for us on the asset side. But we're not going to jump into the asset side, at least this year.

Got it. And then Tom, I appreciate the commentary in terms of commercial real estate. One of your competitors earlier this week talked about being some better pricing, better potential in terms of New York City multifamily commercial real estate. Just maybe update us on what you're seeing in terms of that market on the commercial real estate side.

I agree with those comments. We are definitely observing a significant return to the city, especially in the free market sector. Month-over-month rents compared to last year have increased by about 24%. We have closed and committed to many new transactions in the New York market this December, and we anticipate finalizing another significant deal in the first quarter of this year. Our pipeline in New York looks promising, with opportunities in multifamily, suburban office, and the industrial market. There is notable growth in the city and multifamily sectors, and we are also seeing healthy growth in Long Island, New Jersey, and somewhat in Westchester County.

Got it. Appreciate that color. And then Leslie, maybe one follow-on here. You noted the trigger in terms of the higher incentive comp in the fourth quarter. Just curious what triggered that? Was that related to loan growth, credit quality? Just curious sort of what triggered that $4.6 million, maybe what's the – help it for the –

At a high level, it's a mix of loan growth, improved margins, and our overall operating results for the year. Our discretionary bonus pool isn't strictly tied to earnings, but it is closely related to them, and we had a strong earnings year. So that’s the result of all these factors.

Got it. Any guidance in terms of maybe what the first quarter run rate could return to?

I mean the first quarter is always elevated because of payroll taxes and whatnot, but I would still say probably to be lower than this quarter was because of those adjustments to the variable compensation accrual. So it will come down some in the first quarter.

Got it. And then maybe one final question for you, Leslie. You mentioned that you took advantage of a forward deposit hedge; could you share some specific details about that?

Yeah. Give me a second. I do have this written down. I have to find the page. I think there's about $680 million that we put on in callable CDs. And the nice thing about them is, if rates actually were to go down, we have the option of calling those. Nobody is expecting that right now, but it was a pretty cheap option, and it's nice to have. They're at a weighted average rate of just over 70 basis points in a term of just over three years.

Three years. Great. Appreciate the color.

Thank you. We have a question from Ben Gerlinger of Hovde Group. Your line is open.

Hey. Good morning, guys. I was curious if you could kind of clarify a little bit. I think you guys said mid to high-single digit loan growth, which kind of correlates to NII. And then from there expenses should be up a similar way. I was curious how you guys are thinking about rate hikes and what you have in their curve?

We run our models based on the forward curve. So our expectation is three to four increases this year. And we don't try to be smarter than the collective renewals in the market. So we just go with whatever the curve was. I think we’ve had our numbers as of the first week of January. I'm sorry, what was the question beyond the curve?

I was curious about how it would impact the net interest margin because there is obviously a delayed effect. So even if there is a hike in rates...

It will be more beneficial in the second half of the year compared to the first half because we don't anticipate an immediate start. As I mentioned, we have never heavily relied on interest rates in either direction. Our approach has always been to remain as neutral as possible, which has been the company's philosophy since its inception. We are somewhat asset sensitive, which will provide moderate assistance. However, I understand there are some banks that are significantly more asset sensitive than just relying on rates, but that's not our approach.

Ben, also to your question, we are expecting mid to high-single digit growth in net interest income.

Okay. That's helpful. And then, Leslie, I was curious if you could dig a little bit deeper, you said on the previous question that 1Q expenses are likely lower than 4Q?

Yeah. I was talking specifically about comp because of the special employee bonus that is in there and the adjustments we made in the fourth quarter to the variable compensation accrual. So, I was referring specifically to comp in those comments.

Got you. Okay. Yeah. I was just more looking at the cadence because you typically have 1Q is the highest and it kind of works lower the rest of the year. Is that something we should expect to see in '22 as well?

I don't tend to try to focus too much on what's going to happen quarter-by-quarter. I think Raj gave some overall guidance for the year. There is some hiring that's going to take place during 2022. And we really haven't hired anyone during the pandemic. And so there are a lot of open positions out there that are going to get filled. So I just really don't have in front of me what I expect it to be on a quarter-to-quarter basis.

Okay. That's helpful. Thank you.

Thank you. Our next question comes from Steven Alexopoulos of JP Morgan. Your line is open.

Hi, good morning. This is Alex Lau on for Steve.

Good morning, Alex.

Good morning. One question on the mid to high-single digit expense growth. Can you clarify the base that you're growing off of? Maybe a specific number given that a lot of one-time items? Thank you.

Yes. The 2021 adjustments take into account the list of notable items mentioned in the press release for the fourth quarter of 2021.

Got it. So adjusting for those 4Q items. Okay.

Yeah. Exactly. And it's going to be, Alex, in the comp and tech lines. That's where we're going to see it, in those two lines.

Thank you. With your non-interest bearing deposits now accounting for 30% of total deposit growth, and with the Fed likely to raise rates later this year, do you think you can maintain this concentration throughout the year? Thank you.

We believe there is potential for growth, but we recognize that in a rising interest rate environment, what was once advantageous may become a challenge. It’s difficult for me to predict how all of this will ultimately unfold. I am able to observe our pipeline, which shows we have new customers onboarding, and we are pleased about acquiring new clients, accounts, and relationships. However, we must consider the headwinds that may arise from changing monetary policy and how quickly customers will respond to these changes, which I think could affect us in the latter half of the year. This is challenging to quantify. Overall, I remain optimistic and believe we can grow, but we won't achieve the same 28% growth as last year. Given all I've mentioned, that's not realistic. We are incentivizing our teams to focus on net growth in demand deposit accounts (DDA) this year, and they remain dedicated to that goal. We aren't emphasizing total deposit growth as much because I'd prefer to reduce some low-yielding assets and reallocate those to high-yielding, high-margin assets to optimize our balance sheet while retaining capital for other opportunities, such as buybacks. Total deposit growth isn't a major focus, but we're still concentrating on DDA. While the growth will be less than what we've seen in the previous two years, I admit that it’s quite challenging to predict what will happen.

Understood. Thanks for taking my question.

Thank you. And our next question comes from Samuel Varga of Stephens Inc. Your line is open.

Good morning.

Good morning.

Good morning.

I wanted to ask a question about expenses. I understand the guidance you're providing regarding the one-time items discussed. Could you provide some insight on whether, if we exclude those one-time items, the fourth quarter results are still an improvement over the previous quarter? Specifically, was there anything in the baseline run rate that contributed to this increase?

I think I understand your question, and I'll do my best to answer it. If I'm incorrect, please let me know. The baseline will be the 2021 expenses with those $58 million or $59 million of notable items from the fourth quarter subtracted. That will serve as the basis for our guidance. We have provided all that information in a table in the earnings release.

Yeah. I guess what I'm trying to look at here is, if I look at kind of the operating expenses, then we have a number of around 1.20 for the last fourth quarter, and for this quarter, it's more like 1.30.

I trust your calculations. My focus is not on a quarterly basis, but rather on a year-over-year perspective. As Raj mentioned, we expect mid to high-single digit increases throughout 2022 compared to the baseline, primarily driven by compensation and technology investments. The labor market is tight, we have open positions to fill, and this is a reality not only in the banking sector but across corporate America. You'll notice those increases in the technology expenses due to our investments and in compensation. However, my perspective is more on the annual growth rather than short-term fluctuations.

A lot of the comp line is investments in future growth.

Exactly.

Understood. Thank you. Thanks for clarifying that. Then switching to the securities book, can you give me a couple of numbers? I'm looking for the percentage of floating rate securities of the total securities book?

I can tell you the duration of the book is about 1.5.

Can you provide a breakdown of the available for sale specifically for this duration?

It's all available for sale. It's virtually all available for sale. You can find all of that in our 10-Q, as we only have $10 million worth of HTM securities.

Understood. Thank you. That will be enough for me.

Okay. Great.

Thank you. And I'm seeing no further questions in the queue. I will now hand it over to Mr. Singh for closing comments.

This has been a very solid quarter, and no matter how you look at it, we are excited about what 2022 will bring. My biggest complaint is that we want to return to the office. The last two years have been unusual, but I see significant momentum in the economy and within the company, along with enthusiasm for what lies ahead. We are making investments, as demonstrated by our expansion in Atlanta and Dallas. Given where we are in the business cycle, now is the time to invest aggressively to reap the benefits in the coming years. I will conclude with this hopeful note and look forward to seeing you all in person instead of on Zoom. Thank you for joining us, and we will talk again in three months. Thanks, everyone.

Bye, everybody.

This concludes today's call. Thank you all for participating. You may now disconnect and have a pleasant day.