Q3 2021 SmartFinancial Inc Earnings Call
[music].
Hello, and welcome to the small financial third quarter 2021 earnings call. My name is Lydia and there'll be your operator today.
You'll have the opportunity to ask a question at the end of the presentation and you may do so by pressing star followed by one on your telephone keypad. It's my pleasure to now hand, you over to a high Miller Welborn.
To begin please go ahead Miller.
Thank you Lydia good.
Morning, and thanks for joining us this morning for our Q3 2021 earnings call.
Always loved Busybodyish group each quarter, we've talked about our progress in that.
Joining me today on the call are Billy Carroll, our president and CEO.
<unk>, our CFO Rhett, Jordan, our Chief Credit Officer, and make sure all our director of corporate strategy.
Before we get started I'd like each of you to please refer to page two of our deck that we filed this morning for the normally customary disclaimers and forward looking statements comments. Please take a minute to review this.
What a fantastic quarter by our team here at the Bank I challenge anyone to find a bank with more energy drive and commitment that our team here at smart bed.
Demonstrating again, our ability to outwork the competition execute our strategic plan, our organic pace of growth has been impressive and we see nothing slowing that down.
What's ahead between very strong markets. In addition of several new sales team members that really will talk about shortly.
Feel we're well positioned to continue on our current pace.
March towards the end of 2021, we're excited about what we have accomplished this year to date.
With that I will turn it over to bill.
And the next Miller and good morning, everyone. This was another extremely solid quarter for our company.
This year has been a very busy one from the final round of PPP to an acquisition to the lift out to several new expansion markets 2021 has been a transformative year.
I'll provide some high level thoughts on our recent accomplishments and then turn it over to Ron for financials have been read for credit first we have some great highlights for the quarter are referring to page three of our slide deck, starting with earnings and tangible book value at very nice income quarter with operating earnings coming in at 99 days.
53 <unk> per share.
Book value has increased to $19 three 7% quarter over quarter increase returns were solid as well with 13% return on tangible common and credit remained pristine with nonperformance at 0.14% of assets.
In addition to our financial performance.
You'll see we've eclipsed the $4 billion asset Mark continuing to add size in a relatively small peer set.
Getting into this $4 to $6 billion range has been a focus where we now have the size and the earnings momentum to better leverage opportunities. We also had outstanding grew.
This quarter net organic loan growth, excluding PPP was over $52 million or approximately 9% annualized our lending teams continue to do a great job and we're seeing growth balanced throughout all of our markets. If we were surprised by anything it continues to be the growth on the deposit side of the balance sheet, we have not been surprised that our bankers.
You need to do a great job in growing our core client base, but that volume coupled with the existing clients continuing to hold and grow their balances hesitant in extremely large liquidity position.
Balances grew 29% annualized during the quarter and we're currently in a cash position of approximately $1 billion.
Rob will go into.
As Ted will detail on this but it does have an impact on them and returns in the near term, but I really believe puts us in a position of strength strategically over the long term.
We completed our acquisition of severe County Bank in September it will be converting and rebranding. This coming weekend. We also made the decision to sell the enrichment piece.
In this first deal this was simply a play to keep our focus in the southeast with the expansion opportunities that were presented to us over the last couple of quarters to build density in our current zones. It made a lot of sense to spend this piece out.
That now done we're excited to get this one integrated the process has gone very well and we are on target if not.
So there is a target with our 60 plus percent cost save estimates.
Segue into some of our recent opportunities. The next couple of slides highlight some of the things we've been working on over the last few months looking at the map on slide audio visually see the recent expansions for our company.
We've taken advantage of this unusual.
Not having the need to bring on a number of outstanding bankers and some great southeastern markets building on the lift out of the banking team in our Gulf Coast region earlier in the year. We now added teams in Montgomery dosing at Auburn, Alabama, as well as Tallahassee, Florida during the last few months.
While we've always had solid organic growth this.
<unk> left out focus represents a pivot for us and our company as we move more strongly to an organic model with a stronger focus on density building in zones, where we operate.
Flipping to slide five and six you will see some detail on these new markets that we better as well as some of our other 2021 achievements.
This recent can previously about our equipment finance acquisition and that team is performing well.
Also started to leverage our footprint to expand our processing prospecting efforts with that group. We're very pleased so far with this new line of business are very bullish on the outlook.
Also of note, we have a new dealer floor client.
I spoke to a lift out that will be based in Birmingham I'm going to let Rick speak to this a little more in a moment, but a nice niche lending area that will yield some great opportunities.
These are all big investments for us and while we know we will have some modest EPS drag over the next few quarters. We feel this is the right investment to make for long term shareholder value. So.
Bruce.
Hand, it over to Ron to jump in the financials.
Thanks, Bill and good morning, everyone, let's start with slide seven balance sheet.
Since 2017, we have continued to realize consistent balance sheet expansion.
As Billy indicated for the current quarter, we grew loans, excluding PPP and launch.
So let me UCB acquisition, and the $52 million or eight 6% annualized and had year to date loan growth of 12, 4% annualized in addition that over $90 million of PPP loans forgiven and acquired $290 million of loans from NCB net of the month ended on sale.
Our average loan yield for the current.
<unk> is four 9% an increase of 42 basis points from the prior quarter, which was attributable to an additional $1 $7 million of accretion income.
On the right side of the slide you see that our deposits continue to positive trend upward.
During the current quarter, excluding 436 million from the FCB acquisition.
Accordingly, our core deposits increased over $224 million.
29% annualized.
Between this growth and our focus on controlling funding costs, we've lowered our total cost of deposits of 25 basis points, a four basis point decline from the previous quarter and had a loan to deposit nation of 70%.
On slide eight you will see trending information.
On our loan composition, along with our current quarter activity, which will be going over shortly.
On slide nine.
Deposit composition remained relatively stable with our current quarter growth and SCB acquisition.
We remained focus.
Thank your time deposits downward.
Our noninterest bearing deposits, which currently make up over 20% of total deposits.
Looking ahead, we are not expecting significant changes in loan deposit cost or composition. Although we do expect continued repricing of some of our higher cost Seb time deposits in the coming months.
On moving on to slide 10, and liquidity utilization we.
We did end the quarter with a cash position of over $1 billion.
Deposit growth ppb forgiveness, and excess cash from the STB acquisition, all contributed to an increase of over 400 million in cash and cash equivalents from the prior quarter.
Previously we've been patient.
<unk> with the deployment of excess cash however, as we move into Q4 and into Q1 of 2022, we will be taking a prudent and systematic approach to deploying approximately $400 million to our bond portfolio, we can generate significantly higher yield versus our current cash yield on our investment strategy will consist of a lot of the.
Approach, where a good portion of the cash flows will come back within a three to five year period, thus limiting access of duration risk.
As shown on the right hand side of the slide our margin for the current quarter was 335%, which includes $1 7 million of discount loan accretion and $2 9 million of PPP accretion.
[noise], leading should benefit benefited from a five basis point decrease in our interest bearing deposits.
Offsetting these positive impacts with our excess liquidity position, which has negatively impacted our margin by 28 basis points.
We are forecasting a fourth quarter margin around 3%.
Estimate.
<unk> loan accretion of 10 basis points.
144000, and estimated PPP loan fee accretion of 32 basis points from $2 1 million.
Before we before we leave the slide let's let's touch base on operating revenue operating revenue continued its upward trajectory to $36.
To have $1 million, an increase of over 13% when compared to the prior linked quarter. We had another strong quarter of managing noninterest income, which contributed $6 3 million, while approximately 70% of total operating revenue.
Diving deeper into noninterest income, let's move on to slide 11.
Since encouraged by the positive momentum across all of our noninterest income categories, particularly service charges and interchange income, which totaled approximately $2 3 million for the quarter.
Additionally, other income was elevated as we were fully operational with our capital markets initiative, having almost 470000 swap fee income.
We also remain very optimistic regarding the strong opportunities for fee generation within our family of revenue generators.
In comparison, the prior quarter, our noninterest income increased almost 22% and more impressively increased over 50% from the prior year quarter.
Our forecast for the fourth quarter <unk> noninterest income of $6.
We are.
Moving onto slide 12 operating expenses.
As we continue to execute on our current opportunities we will see some short term expense headwinds that will bring us long term value over the next 18 months.
During the current quarter operating expense increases were from one.
Two or three months of expense from Mcdonald acquisition too.
Net of expenses from the <unk> acquisition, and three expenses assumption with endless aisle strategy.
For the fourth quarter, we expect expenses to be slightly elevated with total expenses around $25 3 million in salary and benefit expense of approximately 15.
<unk> 5 million.
This elevation is primarily from the STB acquisition. However, we will realize a partial reduction to those expenses as we finish executing on our cost saving measures during the quarter looking.
Looking forward into 2022, we believe our express our expense run rate will be lower than the fourth quarter more in the 'twenty five 'twenty.
$8 million range, and the salary and benefits around the $14 $5 million range.
Built into this 2022 run rate or some technology initiatives the ability to touch base on page 13.
Yes, Thanks Ron.
Is it important to share with this group some of the information that we've been working on related to.
Five technology, we've talked around it on previous calls, but we've been doing some real work in moving our company forward and tech on Slide 13, Youll see some of those initiatives that as Ron said are built into our expense guidance.
<unk> not putting significant focus in this area are going to be behind and we will not be in that position.
Of note one of our biggest initiatives is moving to the Encino platform. This will begin next quarter and I'm confident it will be a game changer in the way that we handle our entire commercial process for prospecting to closing deals.
We're excited about this work.
And now it's going to be critical to our future success.
With that.
<unk> I'll flip it over to you and let you talk about lending and credit. Thank you Billy.
You did earlier in the deck on slide eight our loan portfolio continues to show good diversification across the loan segments with 12% annualized loan growth quarter to quarter of approximately $278 million. This is inclusive of the severe county bank loan acquisition, but excluding PPP.
Loans net.
Net organic loan growth for the quarter was $52 million in annualized increase of eight 6% over prior quarter.
The FCB acquisition did not impact our overall portfolio mix significantly with the post closed profile being very similar to previous quarters and same period prior year.
As mentioned our portfolio seeing consistent growth this year spread across all.
<unk> areas of our footprint, our CRE portfolio has seen the most growth year to date moving to approximately 40% of our portfolio outstandings as compared to 35% at year end 2020, primarily due to the impact of the severe county acquisition, but as Ron noted earlier. We are also seeing good year to date growth in our owner occupied commercial real estate segment as well.
We continue.
Of your graph on housing demand in our market areas with core market still seeing historically low supply levels and strong price performance due to this demand.
Our overall loan portfolio yield continues to reflect solid positioning at four 1%, including the FCB portfolio, but excluding accretion and PPP loan impacts, which is above both quarter, one and quarter two levels all in all a very solid.
Six four with strong organic.
Loan growth in the portfolio and our positive outlook for the remainder of the year slide.
Slide 14 shows our overall asset quality metrics, which continue to trend very positively and generate consistent excellent results. Our NPA ratio continued to improve throughout 2021, dropping consistently each quarter to a low of one 4% in third quarter net charge.
Solid fourth quarter, where 0.0% to 3% and our over 30 day past due ratio was consistent to the second quarter at two 9% classified loans of three 6%.
Up slightly from second quarter due to the FCB portfolio acquisition, but was still low below legacy Smart bank ratio positions at first quarter of 2021 and year end 2020.
Offs for overall, our asset quality continues to demonstrate solid metrics for both resulting from continued strong economic performance in our marketplaces and stay in line with best in class levels. Our outlook is positive for the balance of the year, we expect a strong portfolio metrics to continue in the upcoming periods.
As for the PPP loan book, we've seen considerable forgiveness activity through third quarter and.
On loans as noted on slide 15, we receive forgiveness payoffs on 2942 applications are roughly 99% of the round one originations just over $299 million in balances.
We ended the quarter with about 6 million of balances remaining from the first round, including roughly 25 loans totaling over $2 million in balances. That's every county.
Around the United, but we're not yet for given prior to the acquisition date for these remaining few loans, we're actively working with borrowers to complete the forgiveness spaces <unk> finalized repayment structures on any unforgiven residual balances were also proactively reaching out to round two clients to continue to process those forgiveness applications as soon as covered periods expire in class, we're ready to submit.
County, really third quarter period end, we had already processed 715 round two ppt forgiveness apps for $55 million in balances of roughly 40% of the generated loans in round. Two overall the PPP project proved to be a very successful venture for our company generating 17 million in fees for the bank, while creating considerable prospect opportunities for our teams we.
So <unk> PPP balanced position us to continue to decline roughly through fourth quarter and early 2022.
As Billy mentioned, we're very excited about the addition of our data data finance specialist team to help expand our lending platform entered the floorplan component of the segment. These team members bring a combined 60 plus years of experience in the industry and have worked together as a team for nearly 20 years.
We entered as they provide administrative underwriting and relationship management support to a nearly $2 billion platform that had strong performance with solid credit quality measures and strong long sustained relationship with their clientele.
Dealer floor plan is a multi billion dollar segment of the banking industry and with Smart Banka has historically held very little exposure that has tremendous opportunities within our core.
And this but to take advantage of existing business relationships and client familiarity and Furthermore, the long time relationships that our new team has in the marketplace also brings new strategic growth opportunities for smart right to pursue as well.
To bring this admired and highly recommended team to Smart Bank provides us the needed bridge to support the Floorplan component of these valued relationships.
Footprint any we're very excited about this addition, and the opportunity it creates for us to continue to grow and diversify our lending portfolio.
Now I'll turn it back over to Ron to walk you through our allowance positioning for the quarter.
Thank you for all the detail, let's move forward to slide 16, our loan loss reserve.
As we continue to have great stats around credit quality.
We did require a $1 1 million provision for the corner, which is needed for the reallocation of loan discounts associated with the FCB loan sale and some lessons and to a lesser extent facilitate loan growth at quarter end, our allowance originated loans unless PPP loans was that 75% and our total reserves to total loans and leases and SBB loans was at one.
<unk> grew 6%.
On to slide 17 capital.
Our capital ratios remained strong with a slight uptick from the prior linked quarter. The current quarter's acquisition of FCB had minimal effects on our capital our tangible common equity tangible assets was down slightly to recognize our excess liquidity position and our.
<unk>.
Our current are.
Excuse me our current levels are well positioned at this time and the ramp up this slide our entire SMB team is focused on consistently building shareholder value at quarter end, our tangible book value per share was over $19 an increase of seven.
<unk>, 3% linked quarter annualized and over 10% increase year over year with that said I'll turn it back over to Billy.
Thanks, Ron and Ed declines.
Our markets are all performing extremely well the southeast is poised for great continued growth and it's one of the reasons youre seeing us pivot a bit as we look.
Commercial banking lift out opportunities our loan pipelines continue to be robust and are equally distributed across all of our markets with the excess liquidity in the system like most others were battling some headwinds and some below line utilization and paydowns, but that said.
We're very bullish on where we stand and once these new teams get up and going.
It <unk> anticipate Irvin our loan growth will tick up into the mid teens on an annualized basis.
We're seeing this company transform and operate on a different level continuing to drive revenue moving toward being a top tier performer all while focusing on how we get better I'm very excited to be part of this company right now it's very exciting to be.
We have shipped and an investor and I think we're very well positioned to be opportunistic moving forward. So I'll stop there and we'll open it up for questions.
Thank you and.
If you'd like to ask a question. Please press star followed by one on your telephone keypad now if you change your mind on withdraw your question.
And the second best off followed by Jay and then preparing to ask a question. Please ensure that you are fine is unmated. Thank you Paul.
Okay.
First question today comes from Brett Rebecca.
Great, but your line is open. Please go ahead.
Hey, Good morning, guys. This is actually been drilling on for Brett.
Good.
<unk>.
Sure.
Congrats on crossing four it's good to see as curious as we kind of start with that growth trajectory I understand that you guys.
Busy year.
To say the least and then the guidance was for.
That low double digit.
Good morning, I heard that correctly linked quarter annualized growth.
It's kind of a core rate I'm curious on how you guys think about with a larger balance sheet for lift out opportunities I'm sure that there's going to be some sort of.
Lumpiness to growth as you add more lenders.
When you when you think about the strategy for growth.
Is there an area of lending our geography of blending that you see as the lowest hanging fruit for areas, where you might want to expand.
And then kind of juxtaposed against that expense guidance for the 24 ish million dollars does that include any additional lift outs for next year or is that kind of a core rate as.
Okay running out of aesthetic pace.
I'll start with that let me I'll take the last part of that question first Rod I think.
I am saying this correctly, but.
Our expense guidance, we're giving is kind of what we've got today, we're not looking.
We would adjust that if we came up with any more lift out opportunities that is correct.
If you are.
So yes expense guidance is what we've got going today, Ben but the first part of the question, Yes I do.
Do think that the obviously the growth on the loan side on the deposit side is something that we're really focused on with US again this organic.
Yeah.
Correct.
As we talked about earlier in previous calls this year I think we've been kind of targeting even though we've been above that we've been I think for the year I think we're running at about 12% growth, which has been a little higher than we thought and.
We're not in this quarter with the lift outs as we look.
<unk>, we do think that number is going to edge up from what we had and what we discussed is mid to high singles now into mid teens, and we feel pretty confident about that.
The expense guidance that we built in incorporates not only.
The lift.
And the compensation.
Occupancy expense, but also the technology that we're on top of that so we're trying to trying to lay out what we believe is a.
Is it fairly well baked expense line.
And they'll likely these teams get up and going into and as you know.
<unk> take a quarter or two to get these folks up and running but once they do we're very very excited about the growth trajectory that the bank can achieve.
Got you that's very helpful.
It's kind of the internal or less a bolt on with Lyft doses.
The new focus and it makes sense because you have more control over.
The growth in the credits that you are adding but it also frees up capital a bit to some degree if youre not looking to do major acquisitions.
Curious on how you.
You know approach any excess capital and how you feel.
Deploying like because if you could just rank order the priorities.
I'll take a stab at that and lower running and guys feel free and feel free to chime in.
Well I think we've always been big believers in appropriate leverage of capital.
Yes.
We have not.
We never really felt like we have an over abundance of that when we've added I think we've used it.
In a smart way I think for us.
Right now I think are thoughts around excess capital is growth obviously.
Share buybacks could come into place if we think that that is.
As appropriate at the right time that would be a great utilization of that.
<unk> increases work worldwide in all of these different pieces today and an AD.
I think for US right now we're at I think we're in a good spot.
With the capital we don't have a it'll have we don't have a lot of excess.
But I think we're very comfortable with where we sit today.
And I think Thats something that we address colleague weekly daily hourly around here, we talk about it often allocation capital best use of capital.
Going back to the.
<unk> run rate.
I will say that there are certainly.
We will be additional lift out opportunities, we believe additional adding a sales team.
We will protect that a little bit on the upside if we have to on the run rate side.
Talk about M&A, a little bit or.
Or lack of we certainly.
<unk> continued to look at opportunities as they're presented to us.
<unk> as we've said before a ton of time and building relationships.
And we've stated over the last quarter or two that our top priority is organic growth and lift outs.
We're not saying, we're not going to do a deal.
But I will say that if we do a deal you can rest assured we are going to be a good one.
Very very special and that would be one.
That answer your capital question out another way prioritized them that.
We continue to juggle that and look at that and assess every.
Opportunity.
Okay. That's great I really appreciate the color thanks, guys and congrats on crossing four.
Alright got it ramps from India.
Thank you. Our next question today comes from Stephen Scouten of Piper Sandler Steven Your line is open.
Great. Thanks, good morning, everyone.
Just wanted to.
Good morning, I, just wanted to think about.
Operating leverage for a second.
And the 22, just given the puts and takes of when these.
New hires will be able to contribute do you think you can see positive operating leverage year over year.
Or is this more like a 2023 event given the need to kind of earn back those initial upfront cost.
Okay.
Yes. This is Ron yes, we are.
We are seeing the positive effects going into 2023 2022, we will again as they build portfolios and building asset base 2023 will be.
The year that will be positive for us.
Okay. That's helpful and as we think about just trying to.
Circle back on the loan growth commentary I know Bill you said kind of mid teens. Once these guys are up and running.
But is this more mid single digit in the next couple of quarters.
Until that time or am I misconstrue that.
No.
I don't think so and I think I think we can I think we can get there fairly quick I think its a.
From the pipelines that we're seeing right now Stephen.
And it's not just the new teams with their existing teams to our pipeline.
Still really good.
So.
I think what we've looked at is it takes a quarter or so some of these folks have been on a quarter now so it ebbs and flows a little bit, but I don't think were.
I think we're looking at double digits here relatively soon we may take.
It might take us a quarter or two to get up to that full full full pace.
But we should be rolling into the double digits here.
Within within the next.
Next quarter, we have been mid single digits in a while yes.
Yes.
Not yet whatnot.
We rather year orbit software at <unk>.
This quarter, but I think youll see that double digit pace moving up to mid teens over the next couple of quarters.
Okay, Great and maybe just one last thing for me here in that 3%.
NIM guidance is that a is that a core margin kind of ex the accretion in excess.
Percent P or is that relative to the $3 35, GAAP NIM and could you kind of I know you gave some of those numbers on expected accretion and Pvp accretion, but what would be the big drag quarter over quarter is that more some of the securities investment.
Maybe on that down either way.
Yes, I think I think 3% is kind of answers.
P. P question, it's yes the bank.
The third quarter, we will wind down the PPP process and see that last tranche of fees get recognized through the NIM and as we go into 2022, our deployment are deploying our excess liquidity, which really hampers our NIM.
You see the positive results on for that so we are seeing flip in one side to the other but we do see that that 3% as a baseline.
Going forward so.
Unless we get loan accretion just kind of loan accretion.
The unusual pops, along the way from Covid.
Loan activity.
We are seeing.
If you get more than 3% one way or the other.
Okay, great. Thanks, everyone for the color I appreciate it.
Thanks, Dave.
The next question comes from Thomas Wendler of Stephens, Inc. Thomas Your line is open.
Thank you and good morning.
So for a couple of questions here can you give me an idea what kind of loan yields you are seeing on new production and then kind of how the new hires are playing into that.
Yeah.
I know you've been you've got I think some some data probably probably the best data on new production yields do you want to kind of run through some of that I mean, if you.
Guys.
Just most recent quarter, we're still <unk>.
Averaging around close to 4%.
The all new yields for productivity offered new activity going on the books. So overall it it's maintained relatively steady.
Yes.
I'll add I think some of the new teams will.
Looked at some larger.
C&I top client some of that is probably coming on board, a little bit lower but typically youre going to see that kind of on a lower float basis.
So you might be looking at somewhere in the lower lower theories on some of that new new production, but it is.
Variable.
Bringing like product.
It comes with some nice fee side as well. So we still think we're getting we're getting decent pricing everything seemed a lot obviously in this environment.
But I think comparatively speaking, we still get a pretty pretty decent pricing on new production.
No.
Great color. Thank you and then one final one for me.
What's your new teams are they focused on gathering deposits at all since you guys have so much excess liquidity and then once they do kind of shift over to gathering deposits can you give any idea of what kind of impact that's going to happen.
Yes, they are.
<unk>.
As well.
The bankers that we're bringing over had been just really strong full relationship bankers.
And so we're not we're not just going out chasing loan transactions, even though Ron sitting on a $1 billion in cash I think we are we are still looking to bring in.
These.
That's positive relationships with treasury.
And that really is has continued to go really well from what we've seen sort of the pipeline of loans also should lead to more more deposits as well.
Should be in corporate checking type balances primarily.
Quarter lowered our interest rate. So that's that will continue to take those even though.
We're in a pretty heavy cash position, we think thats going to be a great long term benefit for us.
Alright sounds good thanks for answering my questions and great quarter guys.
Alright.
The next question in the queue is Kathryn Miller <unk> Catherine. Please proceed with your question.
Hey, good morning, I, just wanted to follow up on that.
Balance sheet size conversation and thinking about that 400 million of securities appointed what's the timing.
Plano in for that.
Maryann.
Yes, Catherine this is Ron.
<unk> already started our deployment.
Youre, probably looking at $75 million to $80 million a month.
And that will drive us into the fourth quarter of 2020.
So we have now.
Really right after the.
The 10 year bumped.
400 companies when we started doing our purchases timings is in our favor at this point so we've already started.
Great and so far I know this will change depending on how rates move but today, Neil what are kind of average New York for those investments.
Yeah right now we're looking at that that will be purchased so far around $1 45.
Bumped up 145, $1 50 range.
Okay.
Okay great.
And then my second question just on the margin and thinking about next quarter.
3% for the reported margin, which is implying for further.
510 in the core NIM, if we back out PPP and accretive per year or is that is there are there any significant changes to liquidity or the size of the balance sheet for next quarter, except I guess that does include some of this liquidity will go into securities.
Or even within that we are still high.
I guess I'm trying to.
<unk>.
We're still seeing more NIM compression, even though part of these securities are going to be redeployed from cash into securities next quarter, but maybe is the way to think about it every bottom next quarter and then it's a slow grind up as you move through 2022.
Yes, exactly that is.
It's not.
Think about a core NIM, but again, it's fully loaded to Q4 to 3% because again, we still have that access PPP fee recognition and then we kind of convert over during Q1 with deploying.
Deploying into the bond portfolio, and then that reduces the negative carry so we're kind.
Get a natural lift back to that 3% range and that includes as our loan production.
Slowly slowly dwindle down.
It's not significant but a little bit of a compression, but still that 3%.
I mean, we're looking at that pretty much pretty.
Not only throughout the next next four quarters with all the bouncing back and forth we haven't.
Activity.
Okay great.
And then one thing on unexpected.
Is a challenging question I know with all the moving parts within the margin with Rob I'll just throw it out there to see how youre thinking about it but is there enough question.
<unk> ratio target.
So think about maybe longer term as we kind of feel that the full impact of.
The cost savings from the deal and then the benefit from all these recent hires.
Yeah. Catherine this is Phil I'll take that Ryan feel free to.
Child in.
For us.
Capex.
Our longer term goal is to be that's where we that's where we want to be that's where I know we need to gain insight I think that is the longer term goal I think right now we're kind of we.
We've drifted into the low sixties, I think youll see.
That is that that should happen will probably tick up here in the in the in the near term probably maybe up a couple of percentage points as we kind of realized this expense load from the new group, but we think that will get you kind of fast forwarding. After 2023, we think we see that number.
<unk> back down and our long term target and its really not that won't approach I think.
You know I always kind of look at this as a marathon not a sprint.
But I think in a reasonable term, we should be able to get that back down into the lower <unk> and our goal is to be sub 60 as a company.
That makes perfect sense alright, thank you so much.
Thanks, Catherine Thank you.
The next question comes from heavy statement of Janney Montgomery Scott. Your line is now open.
Thanks, Good morning, guys.
Alright, I'm only 30.
<unk>.
Sorry.
<unk> had some really strong non interest income overall.
But I saw mortgage came in a little lower than I was expecting is it safe to say mortgages kind of starting to cool off at this point.
And I guess the growth in the other fee income lines offset that going forward.
Yeah.
Probably a fair.
So you got to think our mortgage has stabilized.
Yes.
I don't think I think it's I think it's very stable, where it is I think our biggest issue in <unk>.
Often their mortgage teams.
In our various markets.
Very very well.
We're very bullish on what we're seeing in the population of.
A lot of it is supply.
We're running into issues I mean home inventories. It just seems to be slowly just kind of just the cause of that is the primary driver.
We are still very bullish on what we got and continuing to look to add some mortgages.
Producing.
Team members of entities, new teams and so we're still recruiting we're still looking to add to that team and grow that line, but I think it's stabilized is probably the best work I mean, Ron Miller ended operating of our markets.
The meeting was.
Yes.
We're excited to see that some of our non our other noninterest income categories is starting to take over because mortgage has been number one for us for a long time, so even on <unk>.
Again relatively stable income going forward than our other categories will overtake that as as more of the leaders in that group.
This is part.
Mortgage business going forward.
Good.
Got it is there any particular line whether it's.
Wealth management or equipment finance or <unk>.
Is there any particular line that you guys see.
Kind of being the star going forward.
Roger.
Yes, I think I think we have the greatest opportunity in our customer service fee line.
With the lift outs and they had mentioned about the Treasury Treasury services platform, we are making some hires to support that group and we think we have the most opportunity in that.
One item.
In the near future, we'll see that graph because a decent amount. So we're excited to see that yes I'll.
I'll just add we're really we're really focusing on all of them.
And Ron has alluded to.
Some of the fee side on.
Swaps we've got.
We've got the.
Aside what we're really putting.
Some real deliberate focus, especially with.
The teams that we've added and some of the private bankers on there that are really do a nice job bringing in.
Wealth management clients.
It really is all kind of play in together so we've been focusing.
All of those zones.
Like Ron said, we're probably looking at the fee side, maybe being a little bit more of a shining star here near term.
But we see lift in and really all of those lines.
Got it and just just one more question for me just given the restaurant closure it sounds like its safe to say.
You guys are going to be focused on the south and the east.
Is there any consideration for expansion and this can be longer term too, but into the Carolinas or as north Georgia.
A more likely.
Next step is the lift outs or acquisitions.
Yeah.
Gotcha.
Yeah.
<unk> in the markets, we're in we love with Tennessee.
Alabama, and Florida Panhandle, we would certainly look at contiguous markets have the opportunity to do is just really really nice and I don't know that I would prioritize the carolinas over GA GA over to Carolina.
It's all going to be.
There is an opportunity to gain yes.
To add to that.
From Us I mean is.
Milk said it I think we would definitely look for continued growth and in contiguous geographies.
So I think all of those will be onboard but again folk.
The primary focus is on what we've got.
Got it that makes sense. Thanks for answering all my questions and congrats on a great quarter.
Thank you.
Sure.
Thank you. The next question comes from William Wallace of Raymond James.
Your line is open.
Thanks, Good morning, guys.
Good morning.
Yeah.
Ron in your prepared remarks.
Like you said that the provision expense had to do with I think you said like repositioning or something around the pending.
When a loan sale of the Richmond assets.
Hear that correctly and if so can you.
Explain that a little bit more.
Yes.
It was.
The Richmond <unk> consider the day two event.
And there was a lot of discounts associated with that so we took.
Limit the pools of balloons, because you did the pooling based on Qualcomm's, we kind of had to reallocate do another valuation assessment on the remaining portfolio and we had to replace we had to replace what was taken out from the loan sale.
It was just a timing issue it was not a day one issue so.
It was strictly around the fair value readjusting, the fair value marks I guess, so to speak I, usually you would see that on a day, one and you'll never see it again, but we had to revalue once again at 930.
Okay.
Yes.
Having said that.
Okay.
So that and that Didnt run through the net interest income.
Your line is now interest adjustment.
It did not so.
Uh huh.
Okay.
So moving forward then how should we be thinking about.
So there's an expense line with the mid teens anticipated loan growth right in assuming that.
We don't get any.
Backup and economic.
The current economic situation related to Covid and everything that we're continuing to improve not get worse.
Perfect.
Fourth quarter I think we're probably we're probably going to maintain our percentages at this point of time again.
We have seen the cases have the varian cases have dwindled down in our qualitative factors. So.
There's probably a little bit opportunity for us.
To keep lowering but I think we'll keep that.
75 basis point level.
For the time being again every quarter.
A different a different strategy or a different channel.
Duration, but probably flat and with our loan growth will just tried to do at this point the calculations say angle.
We're trying to still be in that 75 basis point range for the originated book.
Okay Alright. Thank you that's helpful and then.
Sorry to do this but I'd like to circle back to the to the NIM commentary. So the guidance for the fourth quarter is around 3% and that includes.
About 2 million I think you said $2 1 million of accretion related to the P. P P loan fees.
But then it sounded like you said moving forward that you'll still be around 3%, even when that you know that'll be the last to the PPP accretion is that correct.
Well.
Although we still have a little bit of a sliver.
Plus to be Q1.
And.
At that point.
The big mover is we're going to eliminate the liquidity drag which is.
The third quarter was 28 basis points.
And additionally, which were not taken.
Into account is still carrying a lot of 1% loans other than the PPP fees recognized we still have that base of 1% SBA loans that were on the books that will be forgiven. So there's there's a lot of moving pieces, but yes, we're still expecting that 3% to hold going forward and what we're modeling.
Today.
Okay.
Tom.
Okay and then so then.
2022, what is the kind of anticipated.
Run rate on the purchase accounting accretion, excluding what might com. If you have loans pay off of acquired loans pay off or anything like that.
Okay.
Third quarter with 644000.
Ballpark I don't have in front of me its probably around 500000 a quarter.
It's not us.
This acquisition didn't bring a lot of discount accretion to it.
But as always we do have a lot of loans in the portfolio still loaded with.
With Mark's and with the Paydowns and payoffs and such we will.
We'll probably have one.
Unique events happened quarter over quarter as we've seen just to get accelerated accretion coming through the books and the loan discount accretion.
Okay.
Okay, and then if you just.
You guys have done a lot right with team lift outs in acquisition.
I don't know if you track this or not but if you do I mean, if you were to look at.
Sure.
Core originators and the growth that they're adding to the portfolio or are they is the run rate of this.
Business is it really kind of a high single digit run rate that will be.
Boosted with all the team lift outs et cetera or is the.
Do you think you could settle out low double digits. Once we get past the kind of the initial boost that will come from all the new hires.
Yeah.
I think near term I think your earlier comments right I think we're still running kind of that that I call. It mid to high <unk> with the new team members coming on board I think that pushes it up into the into the double digits into the mid teens.
Do think we've said I think we're I think we're a double digit grower.
While we've been moving forward.
I really do with the way, we're structuring this team and kind of what.
We're looking at where the markets were in the group that we've got.
I think we could be.
Kind of on average a double digit grower even past. This initial kind of this initial spike that we anticipate.
Anticipate.
Okay.
Okay. That's very helpful. I really appreciate the time guys Thats all I have.
Yes. Thank you.
Thank you and our next question comes from Kevin Fitzsimmons of D. A Davidson Kevin. Please go ahead.
Okay.
Sure good morning.
Sure.
Good morning.
Most most of my questions have been.
Asked and answered.
I apologize if I'm being redundant here, but just wanted to given your answers.
Few questions ago about expanding into other states and the fact that.
The move.
Hey, guys doing enrichment, it's fair to say.
That.
The focus is.
On these existing markets as you pointed out before Miller so.
Given that the new teams that you've hired.
Is it safe to say you're up a flag planted in.
In the markets.
You want to be in and now it's just a matter of adding density in those existing markets are there other metro markets in Alabama are the Florida Panhandle better.
You don't have a flag in yet, but you would jump on if a team became available.
Kevin.
I'll start and then.
The guys can jump in here I think we're I think we've got most of our flag planted I think.
As we've said previously.
We continue to like that Nashville Zone, we believe Nashville, we need that we need to continue to grow there. We're in the MSA in Murphy's borough.
But that's an area, where we think we've got the size now and the ability.
To be impactful in that market and so that's a that's a priority.
We're in that zone, but we would like to get a little bit bigger in that zone same thing inside of Alabama. We're.
Now we're in most of the MSR.
We did release a few weeks back.
Letting the letting folks know that we're looking to grow in Birmingham, That's that's an area, where we want to grow with our Floorplan group is gonna be base there.
We have already planted some leadership in that market.
And nothing about opportunities there.
In Florida, I think Florida is.
Is an area, where I think we could see some expansion maybe a little bit further maybe a little bit further east.
We added some some scale in Tallahassee.
You should look at it through that kind of that item.
Corridor, there could be some other opportunities there, but I think it's contiguous to really where we are.
And I don't know or you buy you want to dive into that I think.
It really hit on the Birmingham and building out that market, obviously, a really good city and the state of Alabama, and the snacks success breeds success good.
Bankers want to be part of a good team and a good bank and as we build out some of these markets that we've just.
Going into and expand on some of our.
Mature markets I think we are able to and have discussions on a regular basis with good bankers that we will be able to bring them to our team.
Any thought is that focus that pivot, but you talked about before is that more based on.
The willingness of these loan officers to move like Theres, an increased willingness or is it.
More about.
And I think you've discussed this before about just not have.
Having the bulk up in size not being that that's not as much of an urgency where before arguably maybe it was a little more like hey, let's do a deal and we'll we'll we'll optimize we'll figure it out late not figured out later, but there was an urgency to getting to a certain size where now.
It's more of a real rifle shot approach to getting the right people getting in the right markets.
Final.
Is it too, but even at $2 billion in assets.
Your size your lending limits your your earnings momentum to invest in the teams is it's just limited.
And I think that's the reason we've taken the approach of getting the foundation built through acquisitions and organic over the last several years now.
Or would the earnings momentum.
But we have the sophistication that we built around treasury and credit and in all of these other ancillary.
We can go out and do a much better job in recruiting and these bankers that are looking to move to us.
Some of these larger regionals.
We can handle their books of business.
It's tougher to do when you're $2 billion or even 30 I think for US we felt like we needed to get to this size.
And now I think we're a very attractive alternative for some of these really good.
Thanks.
And to go somewhere.
Its got a LIBOR nimbleness and.
I think that's what's appealing to us now and I think thats whats attracting.
Really good to have these really good team members to us.
Okay, great. Thanks, Scott.
<unk>.
Thanks, David.
Thank you very much.
Mind, you if you'd like to ask a question. Please press star followed by one on your telephone keypad now.
We currently have no further questions I'll hand back over to Miller Welborn for closing remarks.
Thanks, Larry and thanks for all you all for joining us today on the call. We appreciate your support of our company. We hope you have a great week and good day.
Yes.
This concludes today's call. Thank you for joining you may now disconnect your lines.
Okay.
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