Q4 2021 Horizon Bancorp Inc Earnings Call
Good morning, everyone and welcome to the Horizon Bancorp conference call to discuss financial results for three months ended December 31st 2021.
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Actual results to differ materially from those discussed.
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Additional information about factors that could cause actual results to differ materially.
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Reconciliations for these measures are contained in the presentation.
The company assumes no obligation to update any forward looking statements made in the fall.
If anyone does not already have a copy of the press release and supplemental presentation that is on horizon. Today, you can access it at the company's website at Www Dot horizon Bank's dogs' home.
Representing horizon today.
CEO Craig Hawaii.
President Jim Neff.
The vice President and CFO Mark <unk>.
Senior Vice President Luisa, London recently, London.
Uh huh.
Executive Vice President and Chief commercial banking Officer, Dennis Kuhn.
And executive Vice President and senior conversion Trinidad dessert then correct.
This time I'd like to turn the floor Mr.
Mr. Boyd can I go ahead Sir.
Thank you Rocco and good morning.
And thank you for participating in Horizon Bancorp fourth quarter earnings Conference call.
Our comments today will follow the Investor presentation and press releases that we published yesterday January 26.
Horizon is pleased to report record earnings for 2021, and a solid fourth quarter that continues our momentum into 2022, and 2023 with strong commercial and consumer loan growth.
The successful integration of our fall branch acquisition.
<unk> gained from our late summer consolidation of 10 offices and continuation of our excellent asset quality.
We're very proud of what our associates have accomplished this past year and their incredible work ethic as we continue to build for the future.
The momentum taking us into 2022 and 'twenty three is due in part to the new associates and customers. We welcomed from the 14, Michigan branches acquired on September 17th this logical extension of our franchise includes adding approximately 50000, new households, three commercial lenders and at low cost and stable core.
Deposits.
He has already proven that massive scale work to drive shareholder value and our recent branch acquisition only contributes to that momentum.
In addition, the 10 branches we closed on August 27th is the continuation of our ongoing effort to maximize the efficiency of our retail franchise, excluding acquisition related and non reoccurring costs, our fourth quarter expense to average asset ratio was 195 per cent supportive or 2022 full.
Your goal to be below 2%.
Now I'd like to discuss our promotions a retirement of a senior officer, which was announced yesterday.
Jim Neff, President of Horizon, Bancorp and Horizon Bank on Monday shared his decision to retire at the end of the first quarter.
Jim has been an integral part of our company's growth during his 22 years with horizon as we grew from approximately $370 million in total assets two or Quint current footings of over 7 billion. We thank Jim for his contributions to our success and we wish him and his family good health and happiness in his retirement years.
The consumer and commercial banking promotions and appointments, we announced yesterday are all possible because of the depth of talent. We have cultivated in our organization. We are promoting E. D. P. Lynn <unk> Chief business banking officer, and knowing that there are two E V P and senior retail and mortgage lending officer.
Both went into we are familiar with their expanded areas of responsibility, which makes this transition seamless from a cultural standpoint and to maintain our growth momentum.
In addition, Dennis Kuhn will move into the role as regional market President for southwest, Michigan and.
He returned to his hometown of the Kalamazoo, where he has a long banking history deep roots in the community and established our original office in 2010.
Dennis is primary focus in his new role will be to go grow commercial loans.
Starting on slide four of our presentation horizon completed the fourth quarter reporting solid quarterly earnings at 49 cents per share or 54 cents per share and adjusted earnings which compares favorably to the 52 cents per share adjusted earnings for the third quarter.
Driving the quarterly results were net interest income growth organic commercial and consumer loan growth additional revenue from the acquired offices in the cost saves achieved 10 branch closures.
Given the size of our balance sheet and highly efficient operations and talented workforce. We believe horizon is well positioned to capitalize on significant organic and strategic opportunities within our attractive Midwestern markets.
So why invest in horizon.
Our investment thesis is simple we are a high performing company located in attractive Midwest growth markets. We are in the right side of Chicago.
We are a company that continues to look for opportunities to improve our operating model as evidenced by the enhancements to our retail network and market area in 2021.
We have consistent history of strong our way in our own E.
We have a positive earnings growth outlook for 2022, which we believe provides us another opportunity to favorably distinguish horizon from its peers.
To further support that we are a growth company.
Compounded annual growth rate from 2002 through 2021 was 13% for total assets and 20% for net income.
[noise] horizons ability to grow earnings faster than total al assets illustrates the company's ability to efficiently increase the bottom line.
Moving on to digital transformation.
<unk> average monthly transactions continue to shift away from branches towards digital virtual channels as of last month, 75% of all transactions took place toward digital channels compared to 44% in 2018.
The good news is throughout this pandemic horizons online activity has stayed relatively constant even with the reopening and closing of offices.
Horizon embrace this shift before the pandemic, which of course is celebrated the trend and it was a key consideration in our annual branch performance review and the consolidation of 10 branches in August .
Excellent examples of our technology investments that are paying off our trends in the online chat.
Deposit account opening and ability to support the branch network from our three independent call Center locations.
In 2021 Horizon was able to answer 86% of all online chance through or chats through our AI bots.
And total chats increased in excess of 300% over the prior year.
In addition, horizon opened 12% of all new checking accounts online during the year, we expect substantial increase in this effort in 2022.
As part of our annual branch rationalization and due to our investments in technology, we see additional opportunities and receipt, reducing the number of branches in 2022.
Now to talk about capital.
Ryzen managers and deploys capital well as evidenced by our recent acquisition stock buybacks for the year and 25% increase in our quarterly dividend during the year with a 2.9% yield as of December 31 2021.
Horizon has reported in excess of 30 years on uninterrupted quarterly cash dividends.
In the fourth quarter of 2021 Horizon Bancorp, Inc. Did inject $60 million of cash into the bank to maintain strong bank capital ratios into lower FDIC insurance premiums in 2022 by 400 to $500000.
This is part of our original plan, when we announced the Tcf acquisition.
After this capital injection into the bank holding company still has cash on hand to cover more than six quarters of fixed costs and dividends.
Now for our financial update let me, it's my privilege Jujitsu Horizon Bank's executive Vice President and Chief Financial Officer, Mark C core Mark.
Thank you Craig.
Horizon had its fourth consecutive quarter of record adjusted net income with New records for net interest income and adjusted diluted earnings per share were very pleased with these results and the continued positive core trends demonstrated in the fourth quarter.
Starting with slide 15, the company's fourth quarter results were impacted by a pair of one time events. The first 884000 of additional transaction costs from the recent branch acquisition and the second is the $1 9 million mediation settlement for a department of labor dispute related to the Aesop's where at horizon.
Acted as a trustee.
And it is no longer in the Aesop trustee business and as we reported in the fall we sold all Aesop accounts to another service provider for a $2.3 million gain in the third quarter.
The record net interest income for the quarter was primarily due to a higher level of interest, earning assets with cash continuing to move to the investment portfolio, along with growth in commercial and consumer lending and the run off of lower yielding P. P. P loans as they are forgiven.
Growth in net interest income dollars through 2022 remains one of our goals for the year.
We had a $2 $1 million release for credit loss compared to $1 $1 million provision expense in the linked quarter.
We see continued strong credit performance reductions in nonperforming loans and improving the kind of metrics and believe we are appropriately reserved given the current state of our portfolio the recovering economy and our seasonal modeling.
Slide 16.
We continue to focus on increasing net interest income and an expectation of a rising rate environment. We wanted to provide a few details on our balance sheet.
It's currently in an asset sensitive position with approximately $1 8 billion of adjustable rate assets of which approximately $925 million would move immediately with the rate change to their index.
Shocking our balance sheet with 100 basis point increase eating 2021 and the net interest income we would generate an increase in net interest income of approximately 5.61% or $10.2 million.
Contributing to the increase or the expected deposit betas for rising rates, which currently range from 4% for consumer deposits to 45% on money market and public funds.
Our internal folk forecast assumes 325 basis point rate hikes during 2022 with the first in March.
And in this scenario, we expect our asset sensitive position to enable our net interest income and earnings to benefit from increase increases in short term rates starting this year.
Slide 17.
The adjusted margin decline decline of 26 basis points during the quarter was positively impacted by 10 basis points from P. P. P income as net deferred fees were recognized for loan forgiveness.
This was offset by 32 basis points of margin compression from the high average cash balances held during the quarter.
The decrease in the margin was expected as a result of the branch acquisition that closed on September 17th which resulted in the average balances for fed funds sold Denise can be 334 million higher in the fourth quarter compared to the third quarter, along with average balance of investments being $459 million higher for the same period.
However, even with this drop in the margin the growth of earning assets in the fourth quarter increased net interest income by $3 $4 million.
Yeah.
Slide 18.
The loan yield decreased four basis points in the fourth quarter, primarily due to the decreasing amount of P. P. P. C income recognized.
Excluding P. P. P fees in the fourth quarter yield would have increased one basis point from the third quarter.
The steady loan yield as a result of the growth in commercial and consumer loans changing the portfolio mix to higher yielding assets, helping to offset the lower rates for new loans being originated in the current portfolio rates.
As the majority of P. P. P fees had been recognized additional downward pressure on the loan yield is expected going into 2022 .
Slide 19.
The investment portfolio was $2 7 billion at quarter end and it increased 1.4 billion since the end of 2020.
$630 million of this growth is directly related to the local low cost liquidity on boarded with our September branch acquisition.
With $593 million of cash on the balance sheet at the end of the fourth quarter additional purchases of investments during the first quarter are expected to increase the investment portfolio to approximately 3 billion as we continue to focus on increasing net interest income.
Also during the quarter, we increased held to maturity investments to 57% in the investment portfolio.
To help manage tangible capital in a rising rate environment, a select group group of investments with higher interest rate risk were transferred to held to maturity along with all investments currently being purchased.
Management will continue to monitor the liquidity required from the investment portfolio to determine the appropriate level of investments in this classification.
Slide 20.
Margin compression was slightly tempered by our continued improvement in funding costs, which reflect reflected the low cost funding acquired in the branch acquisition in September which added two horizons valuable core deposit franchise.
The CD portfolio is 23 basis point decrease in pricing reduce total funding cost is higher cost term deposits matured during the quarter.
479 million of Cds with an average cost of 49 basis points will mature during 2022 and will continue to reduce our cost of funds.
Further improvement in our long standing low cost funding model also reflected in noninterest bearing deposits growing by 16% in the fourth quarter.
Slide 21.
Setting aside the one time acquisition and mediation costs, our fourth quarter operating expenses underscored our long standing ability to manage expenses, while continuing to invest in growth opportunities and the business.
Even with our first full quarter of costs for the acquired Michigan Operation added in late September and higher FDIC and pre insurance premium in our fourth quarter core operating expenses at $36 6 million, representing an increase of only 9% from the third quarter and 0.4% from the same period last year.
Core operating expenses continued to be leveraged as we saw noninterest expense to total average assets declined 10 basis points to 195% annualized fully supporting our 2022 goal of less than 2%.
Now knowing the Harrow will provide an update on mortgage and consumer lending.
Thank you Mark good morning, everyone I would like to provide additional insights into our 2022 strategies on how we are going to achieve growth in our retail lending.
Onto slide 23, our expansion into the northern Michigan market has had an immediate impact on our consumer production, we achieved record consumer loan production in 2020 one in excess of 397 million, finishing with a strong fourth quarter the mix of home equity lines and indirect lending was equally.
During this period.
We expect similar results during the first quarter of 2020 two as we launch a new home equity product too.
To further build on the momentum of the fourth quarter.
To date, we have 34, new dealer partners, which have embraced our program and we will continue to perform during this auto inventory short period we.
We have recently hired a highly experienced indirect representative for the Indianapolis market, which has a growth potential. She has been well received by our partners in the market.
Additionally, we have refreshed our indirect lending program to focus on higher yielding loans all of this without compromising credit standards.
This will be achieved with limited risk, while increasing yield we expect our charge off levels to remain consistent with market trends. We anticipate these changes to have a positive impact on the yield and the growth of our existing consumer portfolios with.
With the expected mortgage rate increases in 2022 we will showcase our existing no. He no fee HELOC products, but quick approval process.
We believe it is more economical for borrowers to draw on their new existing HELOC and getting cash out refinances as has been the case during the past several years. This will result in higher line usage, allowing portfolio balances to grow at a much higher rate than in previous years, we are confident that our consumer products will remain competitive and all.
Markets now.
Now onto slide 24.
Our expansion into the Michigan market provided significant to overall production we experienced in 'twenty. One the market provides a great opportunity for a second home in jumbo financing, which were strong portfolio of products we offer.
We recently made a policy adjustment expanding our geographic footprint to over 20 states for Sellable products. This will provide opportunity for growth while at the same time limiting horizons risk.
Since these loans will be sold on the secondary market. This geographic expansion is being marketed by our mortgage loan officers to their contact centers of influence and through online channels.
M B a forecast total mortgage originations in 2022.
To decline by 35% compared to 21, we expect to be Mba's forecast and anticipate a reduction between 815 and 18% for the year.
With a return to normal seasonality typical of pre pandemic levels, we are positioned well with experienced loan officers, who have long term relationships with local contractors real estate agents builders in all markets.
One of the drivers.
Of the forecasted reduction in mortgage originations for 'twenty 'twenty. Two is lack of housing inventory, thus, creating a strong demand for new construction throughout our footprint horizon has long been in the construction loan business and is positioned well to take advantage of this growth segment. Additionally, our experienced loan officers.
And back office support have proven proficient in handling these products, while leveraging long tenured relationships. We feel we can beat the market estimates in the coming year, regardless of the rate increased as expected, we expect to finish the year well north of 500 million and total mortgage production.
And now I'd like to introduce Dennis Kim.
Thank you Noah and good morning, please refer to slide 25, accelerating commercial loan growth.
Horizon continued to gain momentum momentum in core commercial loan activity during the fourth quarter with 51 million net loan growth or 10% annualized. This was driven by a 38% increase in net funded new commercial loans against the prior quarter.
The addition of new experienced commercial lenders.
Our growth markets is fueling this growth, which we expect to continue into 2022 .
This is supported by our $120 million pipeline entering the new year, which we expect to grow throughout the quarter.
We also continue to see an uptick in revolving line of credit usage, which increased for the second consecutive quarter up by over $5 million during the fourth quarter.
We have the capacity within our lending groups to continue this established growth trajectory.
Which is expected to be in the range of 10% in 2022.
Now Lynn Kerber, who will comment on asset quality.
Thank you very much Denis and good morning.
Referring to slide number 26 regarding asset quality.
I'd like to highlight several items are for the group.
Firstly, our credit quality metrics for the fourth quarter I remained very strong with low delinquency and improving trends in nonperforming loans.
Our total bank past dues for December where 0.24% compared to point to zero percent at December 2020.
Our commercial delinquency for December was 0.17% compared to 0.15% a year ago.
Our nonperforming loans decreased from $29 4 million at September 30 of 'twenty $1 million to $19 million at 12, 31, resulting in a ratio of nonperforming loans of 53 basis points, an improvement from 69 basis points the previous year.
Our commercial loan nonperforming loans decreased $8 $6 million in the fourth quarter. This was principally due to the upgrade and pay off of several loans, resulting in a commercial loan nonperforming loan ratio of just 36 basis points.
Our net charge offs for 2021, where $1.6 million. This reflects a charge off rate of five basis points for the year.
In the fourth quarter the bank recognized two commercial charge offs totaling 926000, which were anticipated and previously reserved for.
Regarding the allowance for credit loss as Mark previously discussed we provided in our release of allowance and 2.07 million in the fourth quarter.
This results in or ACL ratio of 1.51% and is reflective of our continuing strong credit metrics.
With this I will turn the presentation back to Craig to cover key franchise highlights.
Thank you Lynn.
To summarize horizon Bancorp key franchise highlights horizon is positioned well for earnings growth going into 2022 and 'twenty 'twenty three as a result of our recent acquisition of 14, new branches low operating cost discipline, a pick up in loan demand and increase the number of commercial loan officers and expansion of our consumer loan.
Dealer network and leveraging excess capital.
Excluding PPP loans, we expect core commercial loans increased by approximately 10%.
We expect solid consumer loan growth in a range of 5% to 9%.
We expect a reduction in mortgage loan production.
15% to 18%, which is well below the mortgage bankers association forecasts that calls for a 35% reduction.
We have a seasoned management team with depth as exhibited by our recent promotions.
Horizon is maintain a solid historical compounded annual earnings growth rate of 20% over the past 19 years and the company has paid 30 years of uninterrupted cash dividends on common shares and raised the dividend two times last year for a total of 25% increase.
This concludes our remarks for today and now I'll ask our operator to please open the line for questions. Thank you.
Thank you Sir well now begin the question and answer session.
There's no question in my Press Star then one on your Touchtone phone, if you're using a speaker phone what else can you. Please pickup your handset before pressing the keys.
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As a reminder, we do ask you limit yourself to one question or a single follow up.
Today's first question comes from Terry Mcevoy with Stephens. Please go ahead.
Hi, good morning, everyone.
Good morning.
Maybe first question the future initiatives you talk about 2022 branch optimization, starting in the second quarter should we.
We expect additional branch consolidations and closures is that is that what you're hinting at in <unk> and then I guess the follow up question. There is will the cost savings be reinvested into kind of the digital channels or other parts of the bank or would those savings fall to the bottom line.
Yeah Terry Good morning. This is Craig. Thank you for the question. We do anticipate there will be additional branch closures late in 2022 we complete the rationalization in the second quarter and then once you announced the closures its a into the third quarter. So it's not going to have a much of an impact on the bottom line. This.
This year, but most of the.
Cost reduction will go to reinvestment in technology.
Sure.
And then as my follow up question and in the press release, I think you mentioned that I'm trying to track it down about an 8% decline in the acquired deposits from from Tcf.
And if I remember correctly the original forecast last summer was about a 30% run off.
So maybe just maybe talk about it it sounds like the the run off is better than expected and maybe what's the financial kind of benefit from holding onto more of those deposits.
Yeah, Terry Thank you Mark.
Yeah.
Haven't seen about an 8% decline in the deposit some of that seasonality as we've seen it in our own deposits and the municipal arena.
The we did announce or we didn't model in a 10% initial run off after the after the acquisition, but we also like we updated in our investor or Investor Day, you got another 10% after that from surge deposits. So we are well below that and we have seen that stabilize.
Around that 8% run off for a period of time here.
Great. Thanks, Mark Thanks for clearing that up and I forgot to say Jim Congrats on your retirement announcement I Should've said that right from the beginning congrats.
Thank you Terry.
Ladies and gentlemen, our next question comes from David Long of Raymond James. Please go ahead.
Good morning, everyone and Jim Congratulations to you as well.
Wanted to talk a little bit about operating expenses the.
You know very well controlled in the quarter, giving all of the moving parts in the investments that you've been making as we look into 2022, you know what should we expect on the pace of growth and how does wage inflation impact. Your expenses you know as we look at 2022.
Thank you David this is mark.
We did see a we would typically see in the fourth quarter. Some true up for bonus expense. So we did have a little more expense for for bonus even though our R. R.
Our employee our benefits costs are pretty well managed the other area that we saw an increase and we touched on a little bit with your FDIC insurance expense.
Due to lower capital ratios in the high growth rate that we've had in assets that.
That our insurance cost has come up that we we do expect by capitalizing the bank more and by absorbing these asset growth. We do anticipate that four to $500000 savings next year in our in the FDIC from what the current run rate is.
Sorry, what was the second part of your question our wage inflation wage inflation.
Like everyone, we're seeing that with offsetting it is opened positions. So as you continue to try to fill positions we did budget in a.
For that to have planned next year that we would be able to deal.
Deal with some of the wage inflation and so we are planning on that it hasn't shown significantly on the financial statement, but we do anticipate that we will see some besides normal wage increase we will see some pressure on wage inflation.
Got it okay great.
Just to add to that.
We anticipate a four four and a half a cent a wage increase however, bonuses will be accrued at substantially less than they were at last year, We had a special fourth quarter bonus for the Tcf acquisition, which was extremely challenging from a backroom.
Into the frontline people. So we did have a special accrual for that as well. So you will see the broad bonus accrual come down.
Okay.
Got it Okay and then the other thing I want to ask about was on the credit side I know maybe this is this is your a question for you, but the day one Cecil level that you guys talked about pre pandemic was about 98 basis points on the reserve.
Obviously, well above that here.
Can you get back to that level or has the mix of the loan portfolio changed or you know your outlook you know forever.
Forever change given the pandemic head on.
And on what the right. She saw reserve level is so I guess the question is you know where can that go where can we go from here and I can't even get close to that 98 basis points you talked about.
A couple of years ago.
Hey, David This is mark.
You know we did see the release this quarter and that is because of our improving trends and improving historical loss rates.
We still want to be cautious you know we're not a this pandemic thing continues.
We have specific allocations to sectors of our loan portfolios.
The ones that would be a higher risk of always talked about for many quarters here of hotel restaurants and.
Until we know what the outcome is we wanted to try to maintain those to the best we can until we can clearly see a what a what the risks are in those areas.
So you know will we ever get back to that level. You know I think there's too many factors to say I would anticipate there wouldn't be much credit loss reserve through the year Ah just based on what the trends are but to get back to that level I think it would take quite a while.
Got it thanks for taking my questions I appreciate it.
Thank you David.
Ladies and gentlemen, as a reminder, if you'd like to ask a question. Please press Star then one today's next question comes from Damon Delmonte with <unk>. Please go ahead.
Hey, good morning, guys hope everybody's doing well today for first question just wanted to circle back Mark on your in your commentary about the securities portfolio I think he referenced that the securities would we get up to $3 billion in 'twenty, two and remain there for most of the year is that how you characterize it.
Yeah. That's that's what we're planning we are unless theres some liquidity needs that we arent foreseeing, we could use some run off but yeah, where we're targeting around that $3 billion figure for the year.
And do you expect to get there like in the first quarter or is that going to be you know kind of legged into over the next couple of quarters.
Yeah, we we started purchasing and hope to have that here averaged in through the first quarter.
Okay, Great and then as he.
Kind of think of the dynamic of the margin here you know you did a good job illustrating the the asset sensitivity. So yeah. I guess first what was the the P. P. P impact on the margin this quarter I may have missed that.
The 10 basis points wouldn't be any impact.
And we only have we stated we only have about $560000 of fees is yet to be recognized on what's remaining.
So do you feel that your your core margin has kind of bottomed here as you are.
You kind of rotating into securities, which presumably will be higher yielding than the cash that sitting in and that you're being positioned for rising rate environment would is it fair to assume that the.
Core has kind of trough at this point and should be looking upward.
Yeah at this point I mean, the excess cash had a significant impact on the margin as we talked about a 32 basis points. So as we use that cash that mix was got a meal to help get the margin up from that point.
Got it okay.
And then just my second question or my follow up question I'm kind of going back to the expense side I know you guys, providing kind of a like a range going forward.
All growth range for the year kind of based off of fourth quarter numbers.
Yeah, I mean, we've targeted that sub 2% and were 195, obviously average assets play into what that ratio is but yeah. Yeah, I think I think the run rate from the fourth quarter.
Yes, as we said we had some bonus expense offsetting the growth in salary expense going forward. We had some the FDIC expense was it was higher than what we would've anticipated just to try to catch up from from the calculation. So I think I think it's a pretty good a pretty good.
Place to start for looking into the next year.
Great. Thank you very much appreciate the the insight today.
Thanks Damian.
And our next question today comes from Brian Martin of Janney Montgomery. Please go ahead.
Hey, good morning, Mark I, just wanted to see if you could touch a little bit on the investments you're making on these securities just kind of you know kind of what are the what are the new rates youre getting on that just kind of how you're thinking about that and I think he also talked about the margin maybe just.
Maybe you can give a little insight on how first quarter shakes out on if you have a little bit more crystal on your crystal ball on that core right. Another rate increase is probably begin to occur after that but just how we should be thinking about the margin percentage as you go into <unk> and then make some adjustment based on your comments on sensitivity.
Yeah.
That's meant portfolio. We are you know, we're maybe buying a mix of Muni is of a few corporates looking at some sub debt as it comes available and then your typical mortgage products nothing nothing outside of what our policy would've allowed them in the past are not.
Looking to stretch the portfolio put off the $2, one 7% taxes equivalent yield for the <unk> for the quarter. That's that's pretty close to the range that we're putting it on so I think theres only the ability upside and when you look at the cash flow rolling off Theres not a lot of <unk>.
High yielding investments rolling off so.
With some.
The potential rate movement, I think I feel pretty comfortable that what we would reinvest in wouldn't help maintain that as we go forward.
The margin is as we just answered the last question from Damon.
That cash balance.
It's a huge impact to the margin decline. So if you net out the P. P. P that is slowing down and that you know it would have been at 22 basis point decline. So we shouldn't be able to see some of that come back the pressure is on the.
Peninsula in the loan portfolio not significantly but in the loans that are going on currently are under portfolio rates. So theres, a little bit of pressure on the new product coming on but so you know I think the margins would come up here from where it is currently and again as we continue to.
Do and continue to say our focus is on growing net interest income because the balance sheet continues to fluctuate the margin as as the asset mix changes.
Yup Yup I got it.
Understood. Thanks, Mark and just maybe a follow up.
Our line of credit utilization you know I guess has there been any have you guys seen any change with that and I guess, maybe are you starting to see any changes there.
This is Dennis and yes over the last two quarters, we did see growth in our line usage are they are they are really at continue to be at a lower level certainly so for the full year, we saw a 21 million.
Dollar reduction in line usage, but again over the last two quarters. We have started to see an uptick and we would expect into 2022 to see additional growth in line usage.
And Brian I wanted to follow up and I know I'm not sure. What your plans of you gotta be modeling rate increases, but as we stated we are asset sensitive. So those rate increases will help improve the margin going forward.
Hum.
Again, a follow up to Dennis that both on the consumer and commercial were low on our line usages just a quick estimate of a what we would have been maybe on an average basis between the consumer and commercial lines. We still are about $100 million lower than what our average line usage would be and historically.
Gotcha. Okay market. You said you gave the amount I think if you I don't recall, he said, but as far as what moves immediately but are there. The piece that has floors. I mean do you have floors in the portfolio can you just comment on where those stand today.
Yeah, we do have floors. There is a portion and that's factored into that and it was the the modeling we do have a portion that will will have to have to see more than a 25 basis point increase to get above but not not a significant amount.
And by the time, we get to 50 and on up about it but we will be out of those so there's not much difference. If you noticed between on the slide between 102 hundred basis point increase because of that.
Gotcha, Okay, well. Thank you so much.
So it's something that comes from Nathan race Piper Sandler. Please go ahead.
Yes, hi, everyone. Good morning.
Good morning, Mark maybe a question just on the overall balance sheet dynamics, you know just given that the tcf.
Deposit run off or attrition has been less than you guys modeled.
Is there any thoughts around essentially deleveraging the balance sheet to the extent possible to support margin or you guys, maybe more focused on kind of maintaining the balance sheet levels as it exists today to just kind of grow a spread revenue going forward.
Yeah, I think in this environment currently where we're wanting to maintain a balance sheet to the best we can and.
Would not look for a deleverage opportunity and instead growing earning assets. We are we've talked about in the past just as an example, we've talked about in the past that we have got this borrowing last year that was a $225 million advance from the F. H L. B one basis point with a three month.
Portable and they put that in January .
So we had to pay that down but they came back with some more specials in a little different but we did have another special not quite at that level around the $200 million range, but to maintain the balance sheet and it's at a six months put a bull at 10 basis points. So it's still extremely good opportunity to maintain that just.
Painting, some of the seasonality of some of our deposits. So that we don't have to borrow and another in a rising rate environment.
Nathan we are looking at possibly redeeming some sub debt that's expensive, but its not significant.
Yeah.
Okay understood.
Christopher.
Yeah.
Okay.
And just maybe one housekeeping question on the wealth management revenue was down someone noticeably in the fourth quarter compared to three Q was there any specific driver. There was just kind of market volatility kind of towards year end and just kind of the outlook for wealth management revenue growth in 2022.
Yeah, that's primarily directly related to the sale of the Aesop trustee accounts that we did in the third quarter and not having that revenue going forward.
Okay understood Great and then if I could just ask one more just on kind of updated capital deployment priorities.
You know TCE is or has already started to I think rebuild at pretty healthy clips who's the Duluth.
Dilution with the Tcf deal from last quarter.
So maybe Craig just any updated thoughts on kind of what youre seeing from an acquisition opportunity perspective, I believe you know there's an interest in some leasing and kind of asset generating companies from what you guys discussed in early December at the Investor Day, and just you know within that context any updated thoughts around the.
And share buybacks as well into 2022 .
Yeah Nathan Thanks for the question, we do not see a acquisition taking place for the first six months of this year, primarily because we do want a buildup T. C E O throughout this year unless it's in the leasing company or an asset generator.
However, after our first six months I think discussions will pick up again as I mean as.
As you probably already sharing it.
We're looking at either in market or market extensions in Indiana, Michigan and Ohio.
To complement our current footprint a typical size 500 million to 2 billion is the sweet spot for us for.
From a target size.
Okay, Great I appreciate all the color. Thank you everyone.
Thanks, Dave.
And gentlemen, this concludes our question and answer session I'd like to turn the conference back over to the management team for any final remarks.
Okay. Thank you for participating in today's call and we look forward to talking with you in the near future. If you have questions feel free to give mark or myself a call. Thank you and have a good day.
Thank you Sir This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.
Okay.