Q1 2021 SmartFinancial Inc Earnings Call
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Good morning, and welcome to the smartfinancial first-quarter 20-21 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a contract specialist by pressing the star key followed by zero after today's presentation. There will be an opportunity to ask questions to ask a question. You may press * then 1 please note this event is being recorded. I would now like to turn the conference over to Miller Welborn, please go ahead.
Thanks.
Garrett good morning, and thanks to everyone for joining us this morning for our q1 earnings call. We do always loved visiting with this group each quarter talk about our progress and our company gave me this morning on the call or Billy Carroll. I present CEO John Krasinski our CFO Rhett. Jordan are chief credit officer and Nate's for all our corporate strategist month before we get started. I'd like to ask everyone to please refer to page two of Our Deck that we file this morning for the normal and customary disclaimers and forward-looking statements comments. Please take a minute to review these off the 2021 is starting to start it off in a mighty fast paced our company the bank has grown rapidly over the past couple of years and in particular the past twelve months we've grown up by more than a billion dollars and only about four hundred million of them were acquisition-related are organic Paces of growth has been impressive and we see nothing is slowing down nothing slowing us down.
Over the months ahead four major points of focus for our team this year to date have been strong tangible Book value growth Roa growth r o e growth and EPS growth and we do feel very confident very proud of the progress. We've made in all four of these areas to date we talked often about how excited we are wage and the company and the can't stress enough about how we feel this company is positioned for the quarters ahead with that. I'm going to hand it off to Billy to talk about a few of the points. Thanks Miller. We thought we did kick off the year and great way is Miller said with a very solid first three months are company continues to take the steps necessary to become a key player in the Southeastern Bank landscape and you have a great value for shareholders. I'm going to hit on a couple of highlights and I'm going to turn it over to run to dive into the financials a little bit and then on the Reps touch on credit, but but first name.
If we do believe the pandemic is is clearly in our rearview mirror, although still operating cautious and safely in our markets. Um, our markets entertained are back to normal for the most part our sales team for back playing offense and we're seeing great opportunities and all of our zones. We've had a couple of newsworthy items of late. So I wanted to start by highlighting those last week. We announced the South but definitive agreement to acquire security bancshares and their subsidiaries Sevier County Bank a deal. We're very excited about and our Legacy Market where we can achieve some great synergies with the combination box TB is a $460 Billion Dollar Bank for the very complimentary book of business. We anticipate our our cost savings to be over 60% on this deal and it is it is a huge window. We've included some additional details on the deal on pages five and six of Our Deck, but an excellent density play that will add nicely to a metrics.
next detailed on
Page seven of the day, you'll see some information on some great additions to our smartbank team over the last few weeks. We've completed a lift out and our Gulf Coast region to add some muscle in South Alabama and the 15 handle another huge win for a bank with this team coming from a solid Regional player. This booth will will be adding one office in Mobile Alabama along with their new age president make summer with the other members of the team expanding our existing presence in Fairhope, Alabama, Pensacola, Florida and Destin, Florida.
A lot of the quarter was spent on those two initiatives. It has not impacted are continue to prove another Financial front a few of those highlights earnings very solid at eight point nine million from both the Gap and an operating Samsung coming in at $0.65 per share a note in another non interest income record quarter.
We have strong loaded deposit for the quarter. We organically grew Corleone's over sixty million or 10% annualized and deposits grew over $240 billion 34% of July's outstanding results on both fronts. We're continuing to see clients hold hold larger than normal amounts of liquidity and that does create some Nim headwind, but we are taking the approach to these positions through the PCC payoff cycle to gauge how sticky that access will be this quarter also included participation in the most recent round of the paycheck Protection Program. We saw strong man, and we were very glad to be able to offer our clients and Prospects this service originating over 1,200 loans in this most recent round totaling over $119 in loans. Also generating over five million dollars in projected revenues rest going to provide additional details on this and the moment, I guess what the comments as to what I expect is we move forward in time.
Twenty-One, but again nice results from our company this quarter. Let me turn it over to Ron now for financials and then wrap we'll touch on portfolio credit and then I'll close to those comments Ron. Thanks billion. Good morning every month. I'll be starting on slide eleven focusing on the top graph. We continue to improve our Roa metrics as seen by the continued and consistent steady ramp and profitability. We bought a portion of the slide our operating return on average tangible common Equity of 14.5% continues to be a bright spot for us. We have done an excellent job of managing Capital levels wage Depend demek and didn't rush to raise Capital turning to slide twelve as milord indicated. We have continued our consistent trends of increasing our tangible Book value with a 10.5% increase on a linked quarter annualized basis and year-over-year. We have increases of over 12%
On the lower portion of the graph are operating efficiency ratio represented by the green line has been steadily improving. We are proud of our SMB K team for the continuous efforts on improving our system levels for the current quarter. We are still hovering at that 60% level.
Turning to slide thirteen that interesting, we reported net interest income. Excuse me reported net interest margin of 3.48% a decline of 9 basis points from the prior quarter off our net interest income fde was 26.4 Million for the quarter very consistent with the prior quarters 26.7 million. We did very well considering the headwinds of days of Interest lower loan rates and continued repricing at the balance sheet all being partially offset by a continued benefit from our decreasing deposit costs during the course of our loan yields less Long discount accretion a ptpp fees have declined 23 basis points from the prior quarter, but the prior quarter did include 7878 basis points of escalation from an elevated amount of loan prepayment fees as well as our participation in the
PPP program which which negatively impacted our loan yields by approximately 67 basis points over all the decrease in loan yields were offset by 27000 points or one point, six million dollars of Loans Discount accretion and 40 basis points or 2.4 million of PPP accretion.
More interest bearing deposits. We had to decrease the funding cost of six basis points 2.44% with our cost of total deposits for the quarter at 3%
For the second quarter of 2021. We will have almost ninety percent of our time deposits maturing and repricing so we still have an opportunity to further reduce our deposit cost thinking maybe another two or three basis points.
Overall when removing loan discount accretion a p p v accretion We believe our name has bottomed our expectations for them is to hold steady then slowly rise during the month of 2021 and Beyond over the past several quarters. We've been maintaining elevated cash balances. Our average cash balance is increased almost $68 for the quarter with a balance of 417 million. This elevated position of excess liquidity has negatively impacted our margin roll over twenty basis points, as we have mentioned previously Thursday. We have taken the conservative approach and have been patient in the deployment of our excess cash since we don't now how permanent our liquidity Position will be going forward. This patients may have benefited us back if this page is may have benefit us because if the forward interest rate curve materializes, we would be in a good position for deployment. We anticipate that you some over excess funds to fund projected loan dead.
And we anticipate on lowering in more Bond purchases over the next several quarters to get our Securities to asset ratio closer to the 10% level.
Looking forward we are forecasting a second quarter margin around 3.20% We're estimating to have loan accretion of 9 basis points or approximately $546 an estimated ptpp alone. Creation of 31 basis points, approximately 1.9 million anything on the slide fourteen operating on fixed-income.
We had a great quarter for operating on interest income as we continued Armament and and growing this category for the quarter. We reported 5.7 million of operating on interest income. And in fact have almost 1.2 million from the prior link quarter our service charge interchange fee income remain stable. We had 124,000 increase Investment Services from the continued name. It's under management for more Advantage team. We had another great quarter as expected arqule and income was a little softer than the previous quarter but still had revenues reaching over 1.1 million wage as our pipeline remain strong coming into Q2. We are seeing some headwinds with increased building prices delaying some projects decreased inventory as well as an uptick in interest rates, but that's just said we're still expecting some good things for a mortgage team for 20 21 as we continue to grow this division. We also had a outstanding quarter from our insurance division looking forward into the second quarter dead.
We expect to gain some traction with additional fee income from our newly hired director of capital markets. In addition. We have recently executed a branding agreement which will provide increase interchange fee income wage in the second half of the year are for
To ask for the second quarter is having non-interest income of 5.1 million.
Continuing on this like 15 again. We want to take the opportunity. Once again introduce our family of Revenue generators during the quarter. We started to see some positive attraction with our new internal referral system that's providing many leads directly to our Revenue generators. We are highly optimistic that our continued Focus. We're driving increases in our non-interest income category moving forward with Teresa, like 16 to find our operating down just expenses as you can see on the slide. We are maintaining a level expenses and are continuing to bring remain focused on expense control during the week or no expenses had increased slightly sum of the variances were our salaries and employee benefits expense decreased slightly for the quarter primarily related to salary cost referrals for the PPP alone. No nations are data processing and Technology expense increases were related to tier pricing adjustments from our core processor and other technology related expenditures are other expense categories.
An increase of $578,000 with the majority of this increase related to our Strategic investment and a startup fintech company focusing on technology and the digital saving app space off of setting these increases or decreases above. Professional fees and amortization of intangibles where the previous quarter had a higher level of expenditures.
Looking forward or forecast for the second quarter is having non-interest expenses around the $20 area with salary and benefit expense around 12 million dollar range. The reason for the increase from a recorded guidance is primarily attributable to the salary and expense run rate for the eight person. Gulf Coast lived out team and additional expenses related to the companies house insurance premiums and technology-related spends.
Before we move to the next slide. Let's touch base on taxes are income taxes for the current quarter reported an effective tax rate of twenty 1.5% which includes tax benefits derived continued involvement with the state of Tennessee Community fiscal Loan program and to a lesser extent the benefit from adding additional bully income. We are forecasting our techs are effective tax rate of 21.5% for the second quarter of 2020 $1.
Moving on to our moving out the slide Seventeen when we got our deposits we have as we proved the indicated you have seen significant growth in our deposits. Our overall positioning deposits have continued to evolve with time deposits currently making up 17% of our deposits. When compared to the same quarter last year. We had our time deposits making up over 30% off mail to deposit footings. We had another fantastic deposit quarter our total deposits continue to accelerate during the first quarter with an increase of almost two hundred forty-three million off the quarter over three billion up over 30% from the same prior-year quarter.
for the current quarter
Sterling deposits ended at seven hundred seventy eight million up over ninety two million and represented almost 26% of total deposits compared to 18% for the same. Same. Quarter last year.
In addition our money market and savings deposits are up over $154 million and a time deposits continue to decrease down $38 at quarter-end are broken deposits to Total deposits drop below fifty percent level, but that said I'm handling over the stocks or Rhett. Jordan are chief credit officer to go over loan and credit related info right? Thank you, Ron beginning of 18 our loan portfolio continues to wage stability and diversification with outstanding balances up approximately 105 million dollars quarter-to-quarter and the overall loan mixed staying similar to previous quarters as mentioned our portfolio. How about just over a hundred million dollars with approximately 60 of that being organic growth across our footprint r c r a portfolio saw a slight uptick has new projects were started coupled with continued strong house. And in our markets open market places across our three-state area have been consistently reducing COVID-19 restrictions and our client base is reaping the benefit of a robust start to 2021 all in all authors.
reporter with continued strong performance in the book
Moving slide nineteen while we saw our loan outstandings realize solid growth in the first quarter our overall credit quality metrics continue to perform very well our NPA ratio saw a Mild improvement 2.29 back from 3 1% at your end 2020 net charge-offs for the quarter or point zero one per-cent and are over 30 day pass due stranded similar to our fourth quarter 2020 results classified loans were 3 9 months of total loans down 4.4% at year end 2020 overall. They continued strong quarter and credit quality metrics. We're also excited to report that our overall portfolio has returned back to near wage normally from COVID-19 related modifications, and we ended the quarter with only point zero seven per-cent of our loan portfolio still in a COVID-19 pide status just a few unique cases with one hundred percent of our hospitality and restaurant portfolio back to a non modified status.
From a peak of nearly 25% of the portfolio in second quarter of 2020. This is an accomplishment. We are very proud of and as a result of tremendous effort Innovation dedication and teamwork on the part of our clients and our Associates wage in navigating never-before-seen Waters during the 2020 operating year overall our asset quality continues to demonstrate solid metrics overall and stay in line with best of class levels are outlook is positive aspect are historically consistent performance to continue in upcoming periods. Ask for our p p p p p loan portfolio. We continue to see expansion of our forgiveness applications during fourth-quarter while also realizing strong and new applications for round two stimulus as noted on slide twenty by quarter end. We had successfully processed and posted forgiveness payoffs on approximately 478 applications for just over eighty two million and balances. We ended the quarter with about 218 million in balance is remaining from round one advances roughly forty 73% of our originated total and expected forgiveness to age.
Continue with a reasonable Pace into the remainder.
2021 especially as funding for round two reaches capacity.
In addition as Billy mentioned we have seen a strong volume of around two-fifty production best for having originated 1231 loans for just over $119 and approximately five and half million in fee generation off. This round has been a little more heavily oriented toward existing applications and round one, but still it reasonable mix with approx 79% of fundings to smartbank clients 21% to prospect of relationships are about 70% of borrowers around to where repeat borrowers having also received funds in the initial p p p issues. They're not as heavy volume of Round 1 round to PPP still has been a very strong exercise and providing continuing to our client base through the pandemic and a solid Revenue production effort for the bank now, I'll turn it back over to Ron to walk you through our allowance positioning for the quarter. Thanks, right. Let's move forward to slide Twenty-One our loaner reserved.
As read it indicated we have continued our great stats for our credit quality for the current quarter. We did not require a provision and had our allowance at adequate levels. We did utilize a month, date organic loan growth, but that was upset by both the improving economic environment within our footprint and other qualitative factors, including having those of our COVID-19 loans going back to regular payment schedules off a quarter in our Lounge originate a loan. So let's ptpp loans was at 93% and our total reserves are total loans less PPP loans. Was that 1.46% going forward? It's just our allowances needed to accommodate the current economic and credit conditions moving on to slide twenty-two Capital position. Our Capital are capital ratios remain strong very consistent with the prior quarter and keeping up with our significant asset growth during the quarter. We had nine hundred thousand of cash dividends paid and we were purchased almost 60,000 shares of common stock for a total dead.
1.2 million. We are recently suspended our share repurchase program due to our recent merger announcement at our current levels. We are well-positioned related to our merger announcement off the summer Capital ratios remain strong and above well capitalized or were not anticipating the need for additional Capital at this time. But that said I'll turn it back over to Billy. Thanks, Ron. Thanks. Really appreciate those comments as you could hear just a just a great quarter for a company is revoluta to our markets are all performing extremely well gross pop lines very equally distributed across our markets and we feel very bullish on growth over the coming quarters. I would Edge our growth trajectory up from previous quarter Guidance the job Market's being very robust been benefiting from strong population and flows that we believe will continue for for some time to come and the new team members that we've added. I think we can move into the high single-digits dead.
Online growth the coming quarters and the remainder of the Year some headwinds with payoffs and paid ounces clients are holding again higher levels of liquidity, but our sales team is doing a nice job of Keeping the Faith.
If you had wins with some of the continued margin pressure, but we have purposely held these higher levels of liquidity in cash. We believe this is the correct approach for a company. Even if it does drag net interest income slash a for a couple of quarters are confident in our ability to grow ones are strong and we do think the marginals will level out in the coming months and allow us to take a look at these levels of liquid and determine eyes the and determine the correct utilization strategy the Sevier County Bank deal when when properly executed and we will properly execute it is going to be a big one for a company the Synergy km coupled with a credit expansion marketing team in Richmond, Virginia has outstanding upside. This transaction is anticipated to close and third quarter with a Q4 conversion. The liftgate discussed earlier is something we would like to do more of or size scale and Running Springs now allow us to do these types of needle moving plays while we continue to explore strategic m&a You Will Smith
Put something out pivot to an even more stronger discipline focus on the organic front. We've always been able to produce nice organic growth, but moving forward. We will look to take more of a deliberate focus on a strategy to the exciting time to be part of your company as an associate and as an investor and we're positioned extremely well to be opportunistic moving forward. So I'll stop there and we'll hook it up for questions.
We will now begin the question-and-answer session to ask a question. You may press * then 1 on your touchtone phone. If you're using a speaker phone, please pick up your handset before pressing the keys to withdraw your question, please press * then two at this time. We will pause momentarily to assemble our roster month.
The first question comes from Steven Skelton with Piper Sandler.
Hey, good morning, everyone. How are you doing?
So I appreciate all the color on the new team list out in the slide in there. That's that's great detail. And I know you said kind of taking up that loan growth guidance to maybe High single-digit there, but I'm wondering with them in particular. If you could frame up for us kind of what was the size of their overall book, um where they're coming from and kind of what you could expect from that team over maybe the next three years or so is the ramp-up. Yeah, you know Arabs are projections for for for these folks are really pretty bullish. I think they're total book the fact that this team managed was somewhere in the $4,500 range. But but we see I think they they had also been hamstrung a little bit with with some some areas that they couldn't pack focus on uh with their with their previous employer. We really feel like that we can get we can kick start over the next couple of quarters really well our Pipelines
They've been with us now.
For just a few weeks and we're already generating rent about pipelines and near forty million dollars. Uh, we are extremely bullish on where we can take this group as far as kind of what month is over the next couple of years. Um, uh, you know, probably yet-to-be-determined. We know it's going to be good. I can't tell you how excited I am to have this team, uh in our life it is it's a perfect fit, uh for for air business model diversifies us into into more cni. They've got a much stronger see and I focused than what we have seen dead in the in the in in some of the the folks that we got in the past, but they also have the ability to do some nice real estate. You know, we did Murphysboro about eighteen months ago and I think our Murphy's were looked Thursday. We got overshadowed a little bit by coded that has that has proven to be extremely beneficial for those folks were added right before really codes. It cranked up. So, yep.
For a little muted in 2020, but we're seeing some of the growth that we're seeing this quarter is directly resulting from from that team as well as others throughout our footprint. So, um, you know, I think you'll be able to start strong again be able to get these folks accreted to income within just a couple of quarters and very bullish on where we can take it from there.
Okay, great. That's helpful. And then maybe kind of two questions around the gym. I'm wondering one what kind of drove the decline in loan yields tvplus accretion wage that was down about 23 basis points and just kind of wondering where new loan yields are coming on for a new production. And then also where you would expect kind of this incremental Securities investment that you were talking about. Come on out from a yield perspective.
Yeah, this is Ron. Yeah, I appreciate that's a good question. The 23 basis points again was was distorted because we had an elevated amount for Q4 rr9 a production. I think we're in wrecked. You can confirm this refer around the 375 area of what we're putting on the the bigger driver the bigger drive off with at this is again is this ptpp participation, uh is weighing down eschewing our our our our loan yields and it's hard just to pull that off and and say what it could be without it because there's so many levels involved with that as far as the bond repurchases. We have not solidified what area they'll be in. This is something that I would just kind of kicking around alcohol right now. So they'll be more to come as as we progress in that area.
Okay, great. And then maybe just one follow-up clarifier on the on the insurance revenues. Is that a is that like a run rate for the item or was that life insurance? Is that kind of a one-time deal within within a insurance line item hold one time Stephen more of a one-time. Although we're looking to do more of more of that product seeing some good opportunities of what probably not not recurring at that level. Got it. Perfect. Very good. Thanks for the color guys and congrats on the holiday exciting news. Thank you.
the next question comes from
Brett Robertson who airport group
good morning. This is been going on for Brett.
Good morning. Good morning. I just wanted to do a quick follow-up the the high single-digit guidance that is inclusive of Gulf Coast but excludes PPP of your account, right? That is correct. Okay, and then if you think about the loan growth itself, it's kind of drilling in a little bit more. Are there any types of loans like loan categories that you are feeling more comfortable with today or that we should expect going forward. I know that construction costs was referenced. So I think that might be a little bit sooner or later in the year, but I was just trying to think of just how your the loan before you book might mix out by the time we get to the end of the year. Yeah, you want to you want to touch on that wage? I don't think we're looking to really take one, you know one sector, uh over another right now still fairly equally distributed, but you want to comment on that. Yeah, I would say we don't anticipate the overall mix to look at Birth.
Different from you know, as we go through the balance of the year, you know, yes construction costs are up. But but we still have strong demand for for for housing. Really. I mean, I'm seeing solid demand for residential housing multi-family. I mean, it's it's it's across the footprint. The other is I would point out is you mentioned the the Gulf Coast looked out. We also between that off our Murfreesboro Marketplace and we're also seeing a lot of good activity in our South East Tennessee Marketplace and see and I so we think that's an area that will begin to see some additional demand that's Chinese kind of get their feedback under on mine are looking to redeploy some of this some of those Capital even though they've accumulated
Yeah, that's really helpful. And then if you look at kind of the PPP balances or know that across the entire banking Spectrum some there's a there's a wide variety pack how how many of them forgiving and how many are still yet on the books in terms of percentage and especially with this to programs? I was wondering how you guys think about the birth giving us of 2020 and then twenty Twenty-One. You think you would you start to see any come off the book in so I can have this here. I know it's not necessarily up to you. So the clients and SBA, but I'll just trying to think how you guys are planning in in looking at that over the next two quarters or so.
Yeah, I'll I'll take that one. We you know, this this forgiveness process has been challenging for modeling as you well know but I think everything everything seem to have combined up and you know for the 2020 vintage we expect that we have about 218 million dollars left and that vintage we expect about 55% of that long to get together and cute to another 35% in Q3 and then remaining ten fifty million. That's their we're probably just going to keep that to the end of the program which is a two year cycle. So and for the 2021 vintage we think it would be a lot more expedient. So we have a hundred nineteen hundred twenty million in that bucket. We kind of model the age of ten percent Q3 of 16% and then Q4 we see I think that's going to be our bigger quarter for about $29 30% of the Forgiveness cycle for that wage.
The trailer will go into 2022.
So we'll have the majority of this forgiving we believe this year for twenty twenty-one.
Yeah, okay. Thanks. And then my last question is a little bit more hypothetical. So it should all the noise going around the the banking space that you guys are kind of kicking up a gear here in terms of Olga Olga Roche. I was wondering how you guys are approaching your loan-to-deposit ratio, especially with this gulf coast and severe coming on before the end of the year. I get liquidity is important but with the positives coming in and out with this massive influx across the banking space, if if you were to kind of strip away all the noise, are there any guardrails that you're using internet? They're kind of managed to
Yeah, I I would say we've got I think those are probably been the ones where we always managed to you know, we we typically like to have loan to deposits. Typically we've been in the 90% off right and and you know, obviously we have we have had success and being able to grow our loan portfolio and and and grow funding at a page to kind of keep it around that 90% give or take level obviously the liquidity the attendant in the markets now, you know, I think we're all trying to figure out how sticky that is as you go through the PPP for business cycle folks get those loans forgiven. Where will that look where to go? Will it be you know, how will it be spent utilized invested? Um, so I think for us that's one of the reasons we're comfortable holding a little extra cash right now. Is that you know, let's see how the next couple of quarters play out and then hopefully we can get back to a little more normal loan-to-deposit level within the next year or so. That's what we'd love to see happen.
Okay, sounds good. Congrats on a great start to the year. I'll sit back and keep.
The next question comes from Kevin Fitzsimmons with d a Davidson.
Hey, good morning, guys. Hey, I'm just curious on the you know, the focusing on organic growth Billy that you you kind of emphasized. There. Is that just a recognition that you've got a deal pending and you're going to be focused on integrating that or just you know, I guess kind of what I'm wondering is why is it a possibility to be open to further m&a while this 1,000 pending or still being integrated? It's it's fairly digestible or is it just acknowledgment that hey, you know that was more of a specialized situation and you don't necessarily have the currency to go out and uh and pay what expectations are right now, or maybe that's not maybe it's not a good assumption that you would have to Green Light to do additional deals while this one is dead.
Going on just curious on the on the thought process on on.
Missing organic, uh-uh, exclusively. Yeah. I'm I'm not really worried about the currency price. We can't control that. We keep performing the currency will take care of itself. But we think we have good regulatory relationships and if not ever been given any challenge there, so we're not really worried about that. I just think that the the size we are now at 4 billion dollars. So roughly when we get stb in here, we don't we don't have to do another deal. We we have got plenty to focus on here internally. We you know, we grew up hard this last couple of quarters on tbv. R o a r o e and EPs and man if we keep focusing on those we will be just fine. I will say that the lift out or I real Focus for us. If we think we can do we have a hyper focus on that and that potential so we will you know, the SE bhi Dil was a great deal process sixty-plus percent wage.
Cost saves if you know God I can't say if somebody gave us another one of those that was a great bit good for us. But you know, we want to be internally focused and and appreciate life and I'll add yeah and and and Kevin to talk about green light. We've not had any we we could definitely integrate another we could do another deal if we wanted to do another dealer teams, very capable of handling that I think it's a couple of things I think it is, you know, when we we've said very clearly over the last several quarters that that you know, we are moving to a much more disciplined phone numbers on our financial metrics, you know, we've gotten it we've gotten a grayscale we built a great platform. Now, we've got a leverage it, you know, for some reason the market just is not get our story. You know, when you see us trading off at the levels that were trading at from a from a monstrous and points crazy. It's absolutely ludicrous, you know, so so that said, you know, we're not going to go out and overpay for a deal we never have yep.
And so I think for us I think the best thing for us to do is just focus on on on making money and grow and ETS and I think you'll see that you'll see that come to fruition over you call Sooner or Later all you analysts you're going to believe our store you buy into it. Well, I believe that's when do you do we know you didn't get we appreciate it? I don't I don't know who these others are. But anyway, thank you, but I but I guess to be fair Billy like like the the focus for yours was getting scale and growing and less about putting up the profitability and now you've got a scale to a point that off now it's time to focus on delivering that higher level of core profitability and maybe everything just takes care of itself with that with the multiple and and and everything. You know, it's going to be less money.
In terms of what the profitability is.
You're delivering versus what it could be I guess is how it's prepared to look at it. Right? I think you're spot-on it is we built a platform. Now, we have to we have to deliver and I think that's kind of what the changes that we've made over the course of the last, you know, twelve months with with upgrades and in finance Talent upgrades and Tech Talent, you know, when you look at our company, we look a lot different than we look 24 months ago, uh in in a great way and and I think a lot of it to kind of going back to the list out, you know that have an already strained that allows you to make the types of Investments to really make these needle moving plays. You know, now we've got that, you know, we can afford to to make an investment in a team that might yeah might have a slight Edge dragged for a couple of quarters. And so, you know, I think the focus their, you know, I would rather take a couple a couple of sense of dilution on that versus versus taking a larger home.
Uh diluted deal even though I think lower always open to strategic opportunities. I think you're going to see us Focus really really hard on execution over the next next little bit off a billion on the subject of the team left out. So I'm just curious if you can share it with this situation. Was it a case of then coming to you or will you really on the hunt for a team to put in place in that market and then looking further out are there other markets? You know, it's it's a fairly broad Geographic Spectrum right now, but looking at the franchise their own markets where you would look for a similar kind of situation definitely. Definitely we're we're we're on the hunt for we're on the hunt for those for those opportunities. Uh, I can and I said even even probably a little more so now coming out of this than we have been I think we've always been open to look for it to have sales talent, but but I think that's a big piece of it off.
This team in particular it was a little bit of both. Um, it was a uh, some folks that we we we had we had met and just great timing from their side and their side but I do think there will be opportunities as you continue to see more consolidation in the space above us. I think it will provide some great opportunities for a bank like ours that is number that's flexible. But can still do larger larger deals. Now at this point is Miller said knocking on the door of four billion post SCV that you know, we can we can deliver a lot to really good teams but want a great place to work. Yeah. It's a success breeds success as you will know and it's a combination of both. We're aggressively searching and wage unfortunate up to build a couple of calls inbound that they are searching us a good combination. Okay, great and one last one for me, and I apologize if you guys have talked about this before birth.
Maybe I'm just don't recall it the fintech start up. Is there can you provide a little color or background is that?
Going to require additional spend or just just any kind of background on that thing. Yeah that that startup is in Chattanooga and it's not going to start a couple of year old company. We don't think they may require any additional spend on our part. Very strong banking team that's running it back operator and CEO. We understand it great opportunities got a good value on it and Thursday and we're learning at time about that space and it has been and will be a good investment for us.
Okay. Thanks guys.
Kevin
the next question comes from feddie Strickland of Janney. Hey, good morning guys.
So I guess I just wanted to round back to it sounds like hospitality and restaurants just broadly not really an issue for you guys. Is that correct? Just Between the panhandle of those, you know Smoky Mountain Area from our discussion last week. Um, it sounds like things are pretty good for you guys relative to what everyone else wants. Absolutely. Uh, I just need more see you. Yeah, come come come to the coast or the or the mountains and you'll see and that's where a lot of that sector is for us and both of us markets have just been absolutely on file. Oh really over the last six to eight months, but in particularly the start of the year.
Gotcha, and then kind of along the same lines. I'm just wondering what you're hearing from customers just in terms of business sentiment incrementally. I'd gather cautiously optimistic is probably the phrase but I am more optimism, I guess than than last quarter. Yeah, how would even drop cautiously right now in in our markets in particular. I know different markets wage geography still a little bit different. But when when you look at Knoxville's and Chattanooga's and murfreesboro's and huntsville's and uh, you know, mobile involved when you look at our zones Tuscaloosa these markets where we've got some some really great team members, you know, we're just seeing a lot of optimism. I mean you're in the markets frequently you want to give any color choice. I would say it's very optimistic Outlook. I mean the the only I would say repetitive Challenger here and it's and it's dead.
Across Industries is is banned in Personnel. That's the only thing that if there's anything that is causing any degree of delay in in customers really being able to just take off like a rocket. Like they think they could it's finding the the team members they need to be able to do it.
Gotcha, interesting. Thanks for the color guys and congrats on a great quarter.
the next question comes from Catherine KBW
Thanks. Good morning. Catherine. Just got a couple of detailed questions at follow-ups. My first is just on the net interest. Margin guide this fax order. I wanted to confirm that the 320 is reported not excluding PPP in a credible yield.
Yes, the 3:20 is all in. You know, the big difference between last quarter and this quarter really we're expecting about one point six million dollars less off of the combined, you know, the accretion and PPP accretion. We were we were elevated the last quarter. So it is it is all in combined.
Okay. Yeah, that makes sense. It was high and then how do we think about I know you give the guidance for a credible yield for this upcoming quarter is this is that a good run rate to use moving forward. Maybe the bigger question is what's the the discount that's remaining and kind of the pace that you think that will come off in the next 2 years old. Yeah old one way. Actually I run rate is is pretty stable over the next few years. I think I don't have that in front of it for about twelve thirteen million dollars left in that in that bucket. Um, we're probably could still going to see four hundred five hundred thousand dollar range. I believe Q3 or Q3 would probably have a little elevated amount just the way uh, some of the loans are are reacting in the model, but pretty much it. It's unless we see three payments and something that happens to the long pools. That's pretty much a consistent run rate for the for the I would say near future. How's that?
Okay. Yeah, it looks great. It's great. And then how about on I know you gave the expense guide within that the data processing moved up this quarter was that just due to the fintech investment in life normalized to kind of half a million to six hundred thousand kind of range. We saw last year or is this a new run rate for data processing this it was kind of a little bit of both we did have expenditures. But you know last year we we indicated that we did enter into a new agreement with our four processor and it was it was done on a tiered approach. So once we get the three billion dollar Mark r r DP costs are to the data processor did go up. So our run rate pretty much to give you an idea. Now. He's category. You're probably looking for a runner to be about one point six million going forward now that changed because we not only have data processing we encourage.
BDO online out and we include a technology spend we decided to kind of re jiggle that that account to include all the data process and technology and software expenses in that because data processing is just off a piece of that puzzle. So it it it will you know, I think what you know, the one point six million will pretty much feed the new run rate going forward in that category in totality.
Great, okay.
Awesome, and then it is last is kind of thinking bigger picture. Think about the Mario. I know there's so many moving Parts with the excess liquidity and wage increase loan growth, but just kind of big picture. How do we think about your asset sensitivity position once they get to a better rate environment? I don't I don't think at this point. I was recently asked sensitive with our with our acquisition of our upcoming acquisition. We don't see that changing that much will get a little bit more but you should bring it down to the neutral position. So honestly, we're not going to see much change or significant change pretty much staying where we're at again. We'll we'll re assist reassess his quarter-by-quarter as we go off when I seeing any wholesale changes in our part for that.
Great. Okay, great. Thank you.
Our next call comes from Jordan Dent Stevens. Hi, good morning. I'm in format. I had a question about the delinquency loans. They picked up a Mammoth Mountain this past quarter. Can you guys give any color on that Banks not touch on that and I'll be happy to do that was related to one transaction. We're making a long story short. We had a loan that matured in our book. It is related to a transaction where the the it's a private entity that has some tax advantages associated with this particular piece of real estate law. They were required to get a approval from a local municipalities Tax Board and due to some issues at the municipality level. They were tremendously delayed wage board to convene and make the election and for our clients benefit. We allow that long to just stay in a matured status. It hit the 90-day Mark that is why it picked up for Thursday.
This is of of a loan approval and hit us a little bit in that capacity, but that will be resolved expected this month. There's no credit risk in that transaction.
Strip steak to the timing of the board meeting strictly time. Perfect. Thank you.
This concludes our question-and-answer session. I would like to turn the conference back over to Miller Welborn for any closing remarks.
Thank you all for joining us as y'all can see we continue the progress. We're happy where we are this quarter and the results were putting out. Thanks for joining us, and I hope you all have a great rest of your week. Have a good day.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.