Q4 2021 Bank Ozk Earnings Call

Good day and thank you for standing by welcome to the Bank of VK fourth quarter 2021 earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you will need to press star one on your telephone please be advised today's conference is.

Is being recorded if you require any further assistance. Please press Star then zero I would like to hand, the conference over to your host today, Mr. Tim Hicks. Please go ahead.

Good morning, I'm, Tim Hicks, Chief credit and administrative officer for Banco <unk>. Thank you for joining our call. This morning and participating in our question and answer session.

In today's Q&A session. We may make forward looking statements about our expectations estimates and outlook for the future. Please refer to our earnings release management comments and other public filings for more information on the various factors and risks that may cause actual results or outcomes to vary from those projected in or implied by such forward looking statements.

Joining me on the call to take your questions are George Gleason, Chairman and CEO .

Ryan and Hamlin President.

Greg Mckinney, Chief Financial Officer, and Cindy Wolfe Chief Banking Officer.

We will now open up the lines for your questions. Let me ask our operator to remind our listeners how to queue in for questions.

So again, if you have a question at this time. Please press Star then one on your Touchtone telephone. If your question has been answered or you wish to remove yourself from the queue. Please press the pound key.

And our first question comes from the line of Catherine Catherine Mealor with <unk>. Your line is open. Please go ahead.

Thanks, Good morning.

Good morning Catherine.

I'll just start with the margin.

The level of interest.

Interest and other fees that we saw this quarter.

All the all the detail you gave about it in the management comments I'm just trying to think about how we.

Think about this next year, if youre, saying that paydowns are going to be elevated till next year.

Our level of accelerated fee that we could still see into next year or is there really anything kind of onetime or temporary in nature about what we saw this quarter.

Good question and the answer is yes, no and all of the above I think.

We had an exceptionally high level of minimum interest in phase on short term renewals and expansions this quarter end.

As we articulated.

Lighted that in previous three quarters, its been about $6 million quarter, which is a pretty healthy rate itself.

And jumped up to $22 million in the current quarter. So.

Clearly that was.

Even $16 million over what had been.

Healthy level in the earlier quarters of the year.

Expect.

Good income from that.

Sort of.

Source in 2022, because we will have another strong repayment year, but more of those repayments are on their normal cycle of loans that are going kind of to their full natural term and getting back on a normal cycle. So.

It's very unlikely that we'll have a quarter that would approach the quarter just ended and if we had the $6 million quarter run rate for all of 2022, we would consider that a positive so.

I think when Youre trying to calculate your run rate.

As a starting run rate for net interest income you definitely need to take out that.

$16 million and then we mentioned in the management comments Katherine.

We also had.

A really healthy level of PPP loan income another million plus in the quarter. Just ended that is kind of go away in another couple of quarters, because we're just about.

Through that PPP resolution collection process.

And then we are special assets guys did a fabulous job in the quarter collecting a bunch of purchased loans, including some loans that have been charged off.

At or prior to those acquisitions and so forth.

Fully collecting those so we had a lot of interest income another million dollars or some buyers. So really I think probably our net interest income for the quarter just ended was.

Sure.

18 or $19 million above what.

Would be a more typical normal run rate for the quarter, So kudos to our staff.

Our special asset its cash for the great job. They did in collecting a lot of those assets. We have are really gifted.

Talented special assets team that they deserve credit for that kudos to our government guaranteed lending gas for the warrant I'd add on the PPP program and kudos to our ESG guys for their.

Real expertise and very thoughtful and intentional structuring of loans. So we can achieve those kind of minimum interest in payoff numbers those things, we're always mass to get.

But.

We had an exceptionally good quarter of those in Q4 and it would it would not be prudent bike goes and maybe sort of run rate.

Got it that's very helpful. And then maybe a follow up on that is just on <unk>.

Core loan yields outside of that if we back out PPP and then I'm interested in getting a loan yield of about 520, <unk> and you also mentioned in the management comments that new loan yields are coming in lower than.

Where the portfolio is yielding today and so any.

Any guidance you can give us on how big that gap is today and where.

Core loan yields may bottom before we start to benefit from a rising rate environment.

We're seeing new loans originated probably everywhere from.

On the extreme low side two 5%.

Alone right two 6%.

On the high side.

So definitely.

If you look at that range.

The new loans were originating are at lower rates than the loans that.

Or are paying off now.

There is a flipside to that.

And that is that.

As you can see on page 15, I think it is of our management comments documents a lot of our.

Current loan portfolio will not re price.

Instead of late when the fed starts raising rates.

Because.

The.

Loans are at floor rates that are substantially above the formula rates now and you can see we gave you a very detailed table that shows how many loans are at their floors at every quarter point increase in rates and that table is getting better and better those bars to the router getting lower.

Every quarter.

As we replace new loans that are.

With a formula Thats very near their current floor.

With auto loans that add floor rates.

Much higher.

The new loan portfolio that is being originated that's replacing the old our right stuff is more rate sensitive.

Enhance will adjust more quickly when rates rise so does.

Pending on how much and how fast the fed raises right right.

The fact that we're originating loans today.

Lower rate than the loans that are paying off the fed may help mitigate that by raising the rates on those variable rate loans and the new ones are pretty much all right at their floor right on the formula right now so they'll adjust quickly it's hard to know the timing of pad right increase.

It's hard to know the magnitude of fed rate increases hearing guys talk from two to seven rate increases this year.

Who knows.

Hard to know that but.

We do get more fed rate increases that will help us mitigate the.

The impact of the fact that newly originated loans are have formula rates lower than the loans that are paying off.

With those floors.

Other thing I would tell you is we are keenly aware that.

Sure.

We've got to have more volume to generate more net interest income going forward and our guys are doing a really good job on working their pipelines and creating good opportunities for inspire.

Great Super helpful. Thank you so much.

<unk>.

Thank you and our next question comes from the line of Tomorrow Blazer with Wells Fargo. Your line is open. Please go ahead.

Hi, good morning.

Good morning.

Good morning.

To see the momentum building in our ESG, maybe talk a little bit about some of the broader trends you are seeing which verticals that growth is coming from some of the larger metro cities started to reengage in the typical size of all product you are putting on today.

Alright, Tomorrow, I'm going to let brannon hamblen take that question since he's on the front lines of that every day.

Tamara good morning, Thanks for the question.

We've got some really positive trends.

Obviously noted in the in the results from Q4 and in terms of the what and the wear.

It continues to be coming from all directions, each of our Lps as the guys are just doing a phenomenal job of.

Of getting out there and quoting and winning loans and some with sponsors that we've done a lot of business with and some we've never done business with.

So our.

We've talked many times about the advantage of our capital position gives us in terms of doing a lot with those we really like and reaching into other opportunities on.

On different and even larger loans and the guys are doing that are continuing to.

Originate.

Across the spectrum of size in terms of the what multifamily is still probably the dominant property type and.

And life Science, we've talked about a lot was probably behind that in Q4 after that it's pretty evenly distributed across the various property types and in terms of the aware.

We.

Are seeing opportunities.

Around.

Not necessarily in the middle of San Francisco, but.

Different directions from there as Youre seeing.

<unk> will move.

<unk>.

Yes.

The thing.

A big employee employment drivers moving out of the core, but nir and so we're benefiting a lot and a lot of opportunities in the Bay area.

Did some good business in New York in Q4, as well, we comment on New York in that portfolio and how its been drifting down over time and and.

But it's a very active market.

Evidenced both by payoffs, we see there, but new originations as well.

But really across the country.

We're continuing to see a really diverse opportunity.

And.

Increasing volume of it as evidenced by our Q4 results.

Brandon, Let me add and correct me if I'm wrong on this but we're probably also saying.

The.

Broadest.

A range of opportunities on larger mixed use projects.

Then we've seen in quite some time and maybe ever.

We're looking at some of the loans.

Loan opportunities that would be our largest loan opportunities ever that we think we've got.

Good shot at getting in and getting closed in.

That.

Volume of really large complex mixed use projects that we're looking at could have some fairly significant implications for our volume in later in 2002 and 23.

Absolutely the case, absolutely the case and as I've alluded to in our.

Continual.

Our consistent strategy of keeping our capital levels, where we are I think thats going to come and play in a big way.

In the foreseeable future and of course those mix mixed use deals are the ones that tend to be.

The large ones that.

Give us great quality, great diversity, great leverage levels and of course, great sponsorship.

And I would also add for that.

Brandon mentioned the Bay area has been a significant source of growth. We're also seeing.

Some really excellent opportunities in southern California, La and San Diego area.

And of course continue to.

Have a lot of opportunities in Florida, and the portfolio is just getting more diverse.

With the New York coming down in volume and I think Youll see New York at some point in this next year, possibly began to.

Turn back north in volume, you're going to see us do some mass originations there for sure.

In New York, We've got a lot of Paydowns coming in New York. So it's kind of a horse race between the originations and paydowns to that.

Flip that one, but we're doing much more business and all sorts of other markets across the country and there is a table that we put in a couple of quarters ago few quarters ago in our management comments just to kind of highlight that you've got a number of msas in which we operate and that growing.

Diversification of the portfolio, we think that's a real positive thing as well.

Okay. That's great color. Thank you for that and then maybe just adding to that.

I noticed in the management comments that the expectation for origination in 'twenty. Two is to is to outpace 'twenty, one but notice that you stopped short of expecting a record there versus the expectation for record payoffs I guess is that conservative just given the timing of some of these transactions.

I guess, maybe just you could put any kind of parameters on whether it would be great.

Brian Tomorrow.

What I would say about that as we as we sit here today.

We definitely expect strong origination year for 2022, but.

There are a lot of factors that would cause us to not want to get out over our skis in terms of what could happen six 912 months away.

But as we sit here today.

I'll just stick with the script, it's going to be strong origination volume.

We really saw a build last year that has continued.

It's not weakened.

We have probably.

The payoffs that we project or a natural.

The maturation of the portfolio in and those things would probably happen.

So.

I'm going to stop short of saying any records in originations next year, but.

I like where the year shapes up for us right now.

On especially some of the things that we talked about in terms of new opportunities in markets that are really opening up.

Sponsors that we've not done business with before that were.

You guys are signing up and loans aside so between the velocity and the size new opportunities.

The originations in 2022, we're we're feeling very positive about.

Okay. I appreciate that thank you and then last for me just kind of rounding out the topic can you remind us what the typical timeframe is from a loan being originated to the borrowers are starting to draw on that line and then finally, there won't be a refi to purchase.

Great question.

Like so many others. It's a complex question I would say sort of the.

The mean that you could.

Think about would be.

Anywhere from 12 to 18 on larger loans, maybe 24 months.

<unk> got a large project that's going to take longer.

It's going to take longer for the equity to get in but I would also tell you that a lot of our loans.

We originate with an initial funding.

Of meaningful size, but based on <unk>.

Low leverage on the land value.

Type sizing so.

While our full funding does take a number of months to get to where we can appropriately structure. Some funding initially.

We do that and that is.

A common occurrence in the portfolio as well.

Okay, and then the time for refi or purchase out.

I believe our latest average was around 34 months I don't have that number right off the top of my head but.

<unk> stayed historically.

Lengthened out a bit in COVID-19 .

But it's.

Start coming back in.

The various.

Economic factors influence that of course was.

With rates moving.

But in combination with already a lot of our portfolio being matured.

Or not not in terms of its loan term but.

Evolution.

Youre going to see that's one reason that we're we're expecting perhaps another record year of pay offs.

No.

But again I would just I would say in the in the 33% to 36 month timeframe is what we've seen historically.

Great I appreciate all the color and nice quarter.

Okay.

Thank you and our next question comes from the line of Stephen Scouten with Piper Sandler. Your line is open. Please go ahead.

Hey, good morning, everyone.

Morning, David.

I appreciate the color Brandon I wanted to dig a little deeper on some of what you just noted and I know you said you don't want to get too far off script, given who knows what happens six to nine months from now, but if I think about $13 5 billion in unfunded commitments, let's call it $9 billion in new originations that seem possible next year.

Versus maybe $7 billion to $8 billion.

And repayments, if theyre going to be higher than this year. It seems like the potential even over the timeline of funding that you just laid out.

22 $23 billion.

Fundings versus maybe seven or $8 billion.

Of repayment, so even if I kind of do a weighted average over that unfunded book of the new originations. It seems like the growth potential here in 'twenty two just in our USG let alone.

Indirect auto and community banking that seems to be turning the tide.

It's pretty attractive I wanted to know if I'm missing something or if I'm thinking about that the wrong way.

Yes.

Let me jump in there on that.

The 13 billion in unfunded.

<unk>.

Those loans will fund over three years.

For the most part and.

A little tail of that might drag out even into a year forward.

So.

You can't assume that $13 billion is going to.

Fund next year.

And you can assume that that much of what we originate in 'twenty two is going to fund in 'twenty. Two so when you think about our origination volume for 2002.

Our unfunded commitments are all things that.

90% or plus or minus of those things will fund over time, that's kind of fund over over several years. So we do expect.

A significant level of originations and.

2002, we expect a record level of payout pay.

Pay off most likely in 'twenty two we think that is a net positive.

Number but.

Your assumption that a lot of our originations from this year, we're going to fund this year and all our most of our unfunded commitments are kind of upon this years is way too optimistic.

We expect positive.

Net loan growth next year, but.

Those uncommitted and to be originated amounts in our ESG will fund over several years.

Yes.

Does that help got it yeah, and I wasn't trying to suggest that entire amount I was thinking 40% of that 23 billion funded and Youre talking 9 billion versus maybe seven $5 billion in repayment, but still seem good but it seems like you've kind of attractive.

Yes, that's an area that's not a that's.

Plausible.

Scenario I'm, not saying, that's our guidance, but that's.

The scenario.

Okay.

Yes.

All right.

Understood.

No that'd be great.

Not how it works.

And then I just wanted to dig back into Georgia, you referenced figure 15 earlier and I did notice that there was a pretty meaningful improvement there as you guys originate more new loans.

And theres less at the floors.

But I'm curious if you could give some more color about what that does to your overall asset sensitivity in an up 100 200. It seems like that would have made it.

That there and just kind of as you guys lay out those assumptions what youre looking at from a deposit beta perspective.

Especially given that you guys don't have quite as much liquidity build it's probably some of your peers have seen.

Yeah well.

Every month.

We originate new loans and <unk> loans pay off and there's a lot of velocity on both sides there.

The.

Graph on.

Page 15 gets better and they are really two graphs one is total.

Total commitments and one is the actual funded balances and since the older loans tend to be more funded and the.

Newly originated loans tend to be more in the commitment pace you can see the.

Delta between those two graphs in and that kind of gives you a visual image of.

New originations are moving those bars to the write down which is what we want and payoffs of all originations.

Moving those bars to the right.

So.

That is that is positive for the asset sensitivity of the portfolio and that is getting better literally every.

Every month, so we're pleased with the direction of that.

<unk>.

And if we can get those numbers more favorable before the fed starts raising rates that just makes the portfolio <unk>.

Benefit more right at the outset from those first right in currency. So we would hope to see further improvement between now and March which.

Seems to be the predominant.

Expectation on when the fed is going to start raising rates. So.

Thats helpful. The deposit beta question is a great question.

Over on page 33.

Our management comments document, we gave you a little more detail than we've given in the past on breaking down the deposit book here.

You can see the.

Really excellent work.

Cindy Wolfe and carbon Mcclennan, and Audi Hurley and drew Harper and the other folks on the deposit in retail banking teams are doing growing.

Non interest bearing accounts.

And non time accounts, both consumer and commercial.

And at the same time working down.

Some of the CD categories from higher levels, and working nonpublic funds brokered and reciprocal deposits that tend to be.

More expensive deposits.

I think the guys have been doing some really good blocking and tackling.

And improving the quality.

Enhance the rate sensitivity of.

Our deposit base certainly when the fed starts rising rates our deposit cost.

We'll we'll go up everybody's in the banking industry will go up.

Pretty much there'll be a few exceptions that gas.

We think that we've done a good job laying the groundwork to have much.

Lower deposit betas.

Over a full.

Interest rate increase cycle.

Early mid and late cycle after the increases than we are.

Experienced in the last interest rate cycle, so how that plays out.

It would depend on competition and how the fed.

<unk>, how quickly they move in and what else, but due to the withdrawal of liquidity from the financial system.

As far as.

They have already announced and are rapidly along the way with timeframe there right of asset purchases and the shrinkage of their balance sheet I think we will have.

Significant impact on availability of funds liquidity in the system that will affect deposit rights. None of us really know I don't think the fed even knows how they're going to do that yet or if they are there they are.

Not telling.

So there are a lot of variables there, but we feel like we're much better position than we've been in the past to deal with that.

Rising rate environment.

Yes, definitely thanks for pointing that chart does show impressive kind of multi year improvement. So I appreciate that that's really I'll, let some other people jump in but congrats on a great year and look forward to another one into 'twenty two.

Thank you Steven.

Thank you and our next question comes from the line of Michael Rose with Raymond James Your line is open. Please go ahead.

Hey, good morning, everyone. Just wanted to touch on a comment hi, how are you I just wanted to touch on the commentary in the management comments.

On page 17, just around expenses.

You kind of cited what everyone else deciding wage inflation et cetera, and also some offsets and I know you saw on the Magnolia branch this quarter, but if you could just help us.

Can you quantify what that could mean to the expense run rate.

As we move forward just given the some of the puts and takes that you guys have clearly expense control has been really strong here and thats been one of the hallmarks of the company, but just looking for some color on kind of what the magnitude could be on a run rate basis, yes macro.

Michael Let me, Mike comment or two and then im going to let Greg comment on that but.

We accelerated our annual salary review process, a very detailed process, where we go through.

Every single employee in the company with their supervisors and set there.

Right of Pi, we gave.

We accelerated that to the July .

October timeframe from what would have normally been in September through December .

Timeframe.

And a lot of those rises will given hourly and you can see that in.

Sure.

And then $2 million or sort of increase quarter over quarter in our salary and benefits line item.

The raises were much more.

Significantly in percentage terms since what's reflected in those line items because as we we did that we were closing and selling some.

Branches are closing some branches we were re engineering some workflows, we were identifying some unproductive.

Activities and personnel and we were eliminating those positions. So we will.

Gave really good rises to a lot of people in that in July through October timeframe.

And accelerated those but but avoided really having a big hit to our noninterest expense kept that pretty manageable are really working hard.

Two.

I'll set a chunk of those calls so I'm really proud of the work that our guys did in that and it was.

Extremely laborious and difficult process to really dig down and understand everything in a super granular level. There in the gas just rolled up their sleeves and worked hard on it like we did some really good work.

We will as it says in the comments continue to say.

Higher costs, because we've got a bunch of unfilled positions that were youre feeling we have some rises.

A smaller number.

It didn't take effect until January one.

And we're going to add some new positions in some areas, where we have growth opportunities. So Greg has done some work on that so I'll, let Greg provide some additional color on that.

Thanks, George Good morning, Michael.

As George said Thats.

We've really been focused on the.

This talent the staffing the competition.

How do we how do we make sure we've got the right people in the right places across the entire entirety of our company.

A lot of what we what.

What we did in Q3 and Q4, we feel puts us in a really good position today with respect to those gas clearly as George indicated and as we say in our comments.

We hope to fill positions and continue to.

To add new add new team members to support future growth.

Thank Michael if you take if you take the Q4 noninterest expense.

I think if you assume that growth probably on average $2 million to $3 million a quarter over each quarter. During 2022, that's probably a pretty good.

Assumption of where we would expect.

Noninterest expense to end up for the full year of 2002.

Obviously, it may not be.

A linear increase it may be a little bit choppy, but most of that is going to be in the salary and benefits line item.

The actual amount that that ends up is really going to be dependent upon our.

Our ability to define team members to <unk>.

They all open positions and to continue to grow our staff to support future growth. So I think thats the $2 million to $3 million range is a pretty good on average.

Our assumption for overhead growth.

So is that like a gross number or like a net number because I assume there's some some offsets.

Are you just talking about like total expenses so.

Yes got it sorry.

Non interest expenses.

Okay, so, but but what would some of the offsets because it sounds like the number actually might be higher but you have some savings that you can bring out elsewhere, whether it be further branch cuts et cetera.

Yes.

I think we are there on most of the savings I mean, there are some smaller items, we're still working on but we.

We pretty much accomplished what we needed to do as far as rationalization of our branch network.

And those sorts of things.

In that second half of.

Of 2021, so yes, we'll sell the Mike now you branch I don't think we have another.

Branch slated to close at this point.

I think everything that we've got in that regards contributing we actually have a few branches.

Going to open.

We will over the next couple of years have a few branches that we relocate that will have some.

Benefits of improving the quality of our location and market at the same time they were.

And at least one or two of those situations ought to get some cost saves out of that so there are some things we're doing there, but those things are small tightens in greg's $2 million to $3 million per quarter increase in noninterest expense is kind of a net net number I think is that right Greg yes.

That's correct George.

Yes.

Okay, Great and maybe just as my follow up.

The share repurchases.

Higher this quarter than I was expecting to increase the size of the program.

Stocks around one five of tangible just remind us George how we should think about the tenor and pace of.

Share repurchases and how you think about intrinsic value.

Well, Tim runs that program, so Tim I'm going to bounce that to you.

Alright, Thanks, Michael.

Yes, we were certainly very active in in Q4 on the share repurchases obviously, we.

Raise some preferred stock and increased our authorization.

The beginning of November .

Became really active in November and December .

We're starting to stock our stock price when we started that program was certainly less than where it is today.

We do try to be somewhat opportunistic in how we.

How we utilize that so if our stock price is increasing.

We're going to be less active.

Comparative.

It's being pulled back so.

If we see a pullback will be more active.

On a whole I would expect this to be slightly less active in Q1 than we were in Q4.

Just because we're starting at a little bit higher higher place than where we started.

Started the repurchases in Q4.

Thanks for the color guys I appreciate it.

Thank you and our next question comes from the line of Jennifer <unk> with Trust. Your line is open. Please go ahead.

Thanks, so much good morning.

Morning, Jennifer.

Yes.

George you guys have about $4 3 million.

Corporate overdraft charges in 'twenty one.

A lot of bank Levy.

We're closing again.

What have you.

Paul in the next few quarters on that front.

Yes.

Well, let me say, we've broken out the.

Service charge data into two lines in the.

In the management comments and you'll see that in our.

Accusing case going forward.

And the real reason for that is <unk> got other service charges you got your NSF hour days in and really that NSF Audi line could be broken out because insufficient charge an overdraft charges are really two different things, so I'm going to let Cindy Wolfe.

Chief.

Chief.

Banking officer.

Who is over all of that don't mind, all of our retail banking operations and so forth report are in deposits and deposit strategies are all herself Cindy you want to take that sure.

Sure George Thank you Jennifer like other banks.

Our NSF annuity fees remain below pre pandemic levels.

Our focus for quite some time has been on the fees, we charge an association with value add products and services, where you have a client they receive something of value and is happy to pay a fee for providing so that said we have taken two steps that appear to be similar to some of the things other banks have announced.

Recently.

Denver at 2021, we eliminated the transaction fee, we had historically charged for automatic transfers from one account to another to cover an overdraft and then back in February of 2021, we rolled out a new checking product that has no overdraft or NSF fees.

It is a bank on certified checking account aimed at the Unbanked and Underbanked called freedom advantaged checking.

And we have really made an emergency savings a focus of our retail bank and since we've done that we've seen a nice increase in savings account sales.

Believe that the focus should be on helping people develop healthy savings and spending habits and that will also help our clients avoid NSF and overdraft. So while we have not eliminated all the fees associated with the <unk>. We have made some similar moves to other banks and.

Of course, we have not ruled out taking other steps in the future.

Well Jennifer Allen.

Point out generally if I may point out on page 16.

Consistent with what <unk> said, our NSF phase if you compare Q4 'twenty one to pre pandemic Q4, 19 that numbers down a million dollars a quarter.

Our other service charge fees are up over that period of time, one $5 million per quarter from Q4 of 19 to Q4 of 'twenty, one and that's all part of.

Sandy's strategy that she and her team are implementing too.

Create more.

Service charge revenue from really value add things to our customers and.

Do more things that eliminate.

Reduce customers' incurring NSF fees I think that trend.

We'll continue on both sides is our strategy to continue to grow these other higher value things as Cindy was talking about.

I do think.

Market and regulatory.

Efforts over a longer period of time, we will.

Result in a continued reduction in.

NSF fee income and then probably overdraft fee income as well.

Okay.

Do you see.

Total amount of pressure on that line item.

Given the recent claims is.

<unk>.

We're at a pretty good run rate.

I think it is.

Premature to judge the timing of that.

It's a fluid situation on the competitive front end.

A fluid situation on the regulatory front, but I do think you will see.

The other service charge line item increase because they're doing a good job of.

Selling products and services that our customers.

Seem to be very willing and.

Enthusiastic about even though it means paying a fee part and I think youll see further reductions.

Overtime and that incentive to say the timing of that is hard to hard to know and then I think.

Fees will also go down over time.

Yeah.

Thanks George.

Thank you. Thank you your next one.

Our next question comes from the line of Matt Olney with Stephens. Your line is open. Please go ahead.

Hey, Thanks, Good morning, I wanted to ask more about the impact of higher interest rates.

What the bank is doing today to better prepare for this and the loan floor is obviously going to be a challenge in the near term as the fed moves higher but I'm just curious what else.

Bank is doing to better prepare for higher rate.

Well.

Obviously, Matt we've been keeping our securities portfolio pretty short we've got about.

$150 million a month.

Cash flow off that securities portfolio.

And the investments we're buying now where we're keeping in that short of short medium sort of term.

Duration.

So.

Considerable efforts to keep that where we're not paying down much long term investments and so forth and then.

<unk> propensity as we've always had to.

The vast majority of our loans variable rate when we give you statistics on that end.

Management comment documents about what percentage of those are variable right in two.

Put floors in them in.

Recycle older loans and replace them with newer loans, we're certainly.

Getting floors that are much.

Much more conducive to having a high level of asset sensitivity of the portfolio. So.

That's really the way, we're preparing and trying to.

Do things on the deposit front that will lower our deposit beta.

Do things on the asset side, both investments and loans that will enhance asset sensitivity there.

Yes that makes sense thanks for that.

I was also hoping George you could.

Put some more commentary around loan growth expectations in 2022, I know you expect to be positive, but I think the consensus forecast is calling for around a mid single digit loan growth for 'twenty, two and just trying to appreciate if those expectations are still reasonable or if we're a little bit too optimistic given your commentary today.

Matt I don't think those expectations that you described are unrealistic I mean.

It's there.

They are probably more variables.

In the world today, economically and politically and regulatory wise in.

Geopolitically wise than there have ever been in my 42 year career.

She just.

Listen to the news every day in our rate.

Stuff that's going on in the World. It is it's complicated world and we've got a great pipeline.

Going into the year, we seem to have a lot of our business units that have positive momentum we know we've got.

A big.

Almost certainly record level of payoffs coming in this next year.

But we feel like we can outrun that.

But trying to get more precise on.

What percentage actual growth, we're going to have this year. It's it's.

It's impossible to know that.

Because you got to originate a lot of loans, you know youre going to have to do a lot of payoffs some of those payoffs might push.

As they did.

Last year, if there are supply chain problems are in 'twenty, if there are supply chain problems.

Some of those payoffs may accelerative.

Customers can lock in permanent financing and Theyre concerned rates are going up theyre going to try to get to permanent financing solution faster I believe rates are going to go out and they are permanent financings kind of costs more lighter. So there are just a lot of variables that could push our accelerate payoffs.

There are a lot of variables economically that could cause folks to push project a few months or accelerate a project based on.

What they consider the opportunities to be in your planning all of that out against an extremely dynamic.

Macroeconomic environment political physical monetary policy geopolitical environment.

Covid health environment.

So.

I think.

Assumptions that you articulated there are not unreasonable, but it could be more or less than that depending on how those things play out.

Okay. That's helpful and definitely we appreciate there's lots of moving parts this year more so than more so than most.

And just lastly, I guess.

Going back on expenses with Greg if I plug in that $2 million to $3 million per quarter growth off the fourth quarter starting point.

At about 9% growth in <unk> 22 versus <unk> 21.

Thinking about that right Greg.

Yes, so Matt.

Yes, okay.

Okay.

Thank you.

Thank you.

Thank you and our next question comes from the line of Brock Vandervliet with UBS. Your line is open. Please go ahead.

Yes.

Hey, Thanks, good morning.

Yes.

Alright, yes, just questions so I won't.

I won't go there.

Let's see on.

And just kind.

Kind of a two parter one if we could get an update on the on the auto.

Auto business I know that was impacted last year by kind of a return to that business as well as.

Can't get if you can't get product you can't finance them.

The thing was the.

Pipeline issues affecting the auto business and more broadly.

Do you think.

You're obviously thinking pretty creatively about the consumer facing business now.

Do you think you've got all the product set that you really need there or are there other initiatives.

Working on behind the curtain.

Yes.

Rock.

Our indirect business is indirect RV and marine and we don't do indirect auto.

Yes, Im sorry Im sorry.

That's fair I understand it it's easy to it's easy to think of all indirect as being out of but we don't do the auto because.

We just don't think you can get.

Return on investment in our scale, but we can get out of the marine and RV business and the.

Same quality issues.

So we like what we're originating both from a quality and a yield perspective, the guys have.

Rejiggered that business model over the last couple of years, we've been ramping it up.

Since early last year.

So they are now I guess, probably in the third or fourth quarter.

Quarter of ramping that up.

Did <unk>.

<unk>, some a little bit of momentum on that in Q4, and we expect positive net growth in that portfolio.

Leo in 2022.

And.

Im reluctant to quantify what that is but we do expect originations and fundings to exceed.

You have payoffs on that portfolio in 2022 and.

It's become.

Yes.

A small but will contributor to growth.

1022.

The consumer book that you mentioned, we are continuing to do work to make our.

Our consumer.

Facing products at more competitive.

<unk>.

And doing things to enhance the sales of consumer loans through our branches.

I think we will see some positive <unk>.

Brands and that in 2022 is well again, that's not going to be.

Huge line of business, but if that contributes 50 or $100 million or $200 million of growth.

That would be a plus for us. So I do think we will see some positive.

Direction buyer.

Volume of it's hard to know at this point in time, but we are focused on growing those.

As part of our plan to diversify our business.

More broadly.

Okay.

And just as a follow up.

Much to talk about with respect to credit which is great.

How are you feeling about just the size of the.

The reserve at this point.

Yeah.

I think we feel it's appropriate.

We gave disclosure in our management comments that.

Stated that.

Greatest weight in our model selection as of December 31 was was on the.

Moody's.

Moderate recession scenario and then Moody's sustained downturn was the second.

Youre right its right in the Moody's baseline scenario, we gave the third highest weight in our our model selection allocation and the reason for that is the.

Moody's base.

Baseline scenario by year end had gotten to be a.

Pretty optimistic almost an upside scenario in our view.

And that was that was quite a shift from where the Moody's baseline scenario one quarter before so.

As we looked at the litany of open items on fiscal policy monetary policy and all the things that I talked about with Matt I only have a few minutes ago.

We just felt like there were a lot of uncertainties and risks things.

Good.

Possibly lays do us fed miscalculation of our physical policy miscalculation that could.

Throughout the economy and are more difficult.

Setting so we adopted a pretty conservative.

Slightly negative bias to scenario selections for our ICL as of.

December 31, I think that's appropriate I mean, theres just a lot of.

A lot of things out there that it could.

Because our economy to get more difficult situations.

<unk>.

Yes.

Yes.

We think we were.

Appropriately took those things into account in our scenario selections.

Qualitative adjustments to the model.

Scenarios at 12, 31, Tim and Greg might want to weigh in on that too.

Ty comment.

Yes.

George I don't know that Ive got anything else to add on that I mean, obviously if.

There are a lot of unknowns.

That we were cautiously.

Conservative about as far as our our ACO goes.

If we have more clarity on those over the next few months or few quarters, certainly that would impact our level of ACO, but theres just a lot of unknowns today and I think we were appropriate.

Where are we where we set our scenarios and where our resulting ACL ended up at 12 31.

And our block over the last two years there've been a lot of.

Negative.

Assessments of economic prospects in the U S and those over 2021 got progressively better and that was reflected in our ACL, but.

We don't want to.

Get too optimistic too fast while there is still a lot of variables that play in.

Release, a lot of our ACL and then come back later calls, while we got to be optimistic.

Relates to much and then you have to build it back. So we want them, we want to actually see these economic cards play out and adjust our reserve based on.

Real economics instead of economics.

Yes, I think Thats, an interesting point you can see a lot of other banks that have nailed themselves.

The baseline scenario have too.

After attack pretty rapidly at some point.

Thanks, Tim.

They could be right, but.

We're kind of.

We're kind of in the mindset of we want to we want to see all of those play out.

Before we release.

And know that we're really back to a very positive economic situation with a lot of variables resolved before we get.

Get too aggressive in releasing that ICL.

Thank you Brock.

<unk>.

Thank you and our next question comes from the line of Brian Martin with Janney Montgomery. Your line is open. Please go ahead.

Hey, Good morning, just a couple from me just most have been answered but just.

Going back to the capital you talked about the buyback just Tim maybe on the <unk>.

General commentary on.

The M&A outlook, given what sounds like fabulous opportunities on the organic side.

The buyback being utilized but just the level of opportunities maybe youre looking at today are seeing can you just give a little comment on that.

Yes, Brian I'd be happy to.

We do think there will be continued consolidation in the industry over the next.

Many years.

We hope to be able to participate in that at some point, we are spending more time looking at opportunities.

I personally am spending more time looking looking at opportunities.

But the timing of those obviously are hard to hard to predict and as you pointed out we've got a lot of good traction.

Organically through our ESG in community banking and our asset based lending groups.

<unk> finance lending group in indirect lending so a lot of good momentum that we feel very positive about organically. So we don't have to do M&A, but if we can find.

Something thats accretive to our franchise, one one way or the other then then we will certainly be interested in looking at it.

And we certainly have a lot of capital where we can do multiple multiple things at the same time. So it is not.

It's not one one strategy that that.

It's going to utilize all of our capital.

We can do multiple.

Multiple multiple items at the same time so.

We're looking we have appetite.

But certainly can't predict when that might occur.

Okay, and then maybe just one or two others just the.

I think last quarter, George maybe you talked about the securities portfolio, maybe getting a little bit bigger depend.

Depending on where the yield curve has had I guess any any change in your outlook there.

Brian .

That's very much a day to day.

Moment to moment situation an opportunity.

As I mentioned, we've got about $150 million quarter.

Our month end.

Cash flow from that portfolio.

We're trying to.

Knowing that rates are going up trying to find things and moments to re put that money to work as it rolls off.

But not taking too much interest rate risk on it so.

There'll come a day when we were one of them.

Being much more aggressive and loading up that portfolio.

Then than we are now but.

We're not anxious to see that portfolio grow a ton right now because.

Whatever you buy is going to get the valued going forward, but we still have to keep some of that money at work as well. So it's a delicate balance we're working everyday and look.

King.

Christy Harper and rush Harding and the rest of the team who were running that portfolio for us.

Are doing a great job on it and I think bill I think they'll figure it out as we go but it's it's a tricky time to be putting money to work there.

Got you, Okay, and then maybe just the last one was just on the it looked like a nice start to the ABL group just kind of wondering that in the CBS .

Give any commentary on.

How are you thinking about that or the momentum there.

Going forward.

Yes.

ABL group is.

Closed the deal and have several more.

Transactions in the pipeline that they are looking at and working on and some of those transactions that are looking at look look very positive.

We're optimistic about that our corporate and business specialties group.

Primarily.

Subscription finance, we had a lot of pay downs.

On that their I think their average balance for the quarter was probably much higher than their quarter end balanced cause right at the end of the year.

A lot of those.

Growers did capital calls for year end.

Cleaned up their subscription lines.

But the unfunded part of that business is growing we're doing more business, they're not less.

Even though the fundings were we're down with payoffs right at the end of the year, but that's doing well and they of course manage small shared national credit portfolio, I think is down to about $50 million plus or minus.

Continuing to shrink.

Unless there is a real buying opportunity.

Reloading that portfolio, but if market conditions might've very advantageous to do so we Matt.

But.

The mindset right now as that portfolio 50 million or so continues to just run off in a normal sort of.

Is it pays off.

Sort of way.

And.

Those guys are looking at some other non subscription line.

Non real estate structured finance opportunities, where our expertise.

<unk> in our equipment finance guys in structured finance guys on the equipment finance side are also.

Getting some pretty good opportunities, they're looking at and we would think they are going to have some volume this year. So.

Real pleased about the way.

All of the units in our lending world are working in.

Some are going to contribute a lot more growth than others.

But I think we've got almost every unit moving in a positive direction of course, we will.

We will have PPP payoff headwinds remaining I think we had about $80 million or so.

P loans at the end of the year the last little piece of that that probably pays off mostly in Q1, and Q2 and should almost all be gone if not all gone by the end of this year, so thats a little bit of a headwind on growth in community banking, but.

The guys had a lot of PPP payoffs last year and still.

Still absorb that in and offset that with new originations for the most part so we're feeling pretty good about all units being able to contribute to growth this year.

Gotcha, Okay. Thank you very much for taking the questions.

Alright, thank you.

Thank you and I'm showing no further questions at this time I would like to turn the conference back over to George Gleason for any further remarks.

Alright. Thank you. We appreciate you guys joining the call there being no further questions that concludes our call. We look forward to talking with you in about 90 days have a great quarter. Thank you.

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

[music].

Thank you.

Yes.

[music].

[music].

Good day and thank you for standing by welcome to the Bank of VK fourth quarter 2021 earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need a press star one on your telephone.

Please be advised that today's conference is being recorded if you require any further assistance. Please press Star then zero I would like to hand, the conference over to your host today, Mr. Tim Hicks. Please go ahead.

Good morning, I'm, Tim Hicks, Chief credit and administrative officer for Banco <unk>. Thank you for joining our call. This morning and participating in our question and answer session.

In today's Q&A session. We may make forward looking statements about our expectations estimates and outlook for the future. Please refer to our earnings release management comments and other public filings for more information on the various factors and risks.

May cause actual results or outcomes to vary from those projected in or implied by such forward looking statements.

Joining me on the call to take your questions are George Gleason, Chairman and CEO .

Brian and Hamlin, President, Greg Mckinney, Chief Financial Officer, and Cindy Wolfe Chief Banking Officer.

We will now open up the lines for your questions. Let me ask our operator to remind our listeners how to queue in for questions.

So again, if you have a question at this time. Please press Star then one on your Touchtone telephone. If your question has been answered or you wish to remove yourself from the queue. Please press the pound key.

And our first question comes from the line of Catherine Catherine Mealor with <unk>. Your line is open. Please go ahead.

Thanks, Good morning.

Good morning Catherine.

I just thought we'd start with the margin and the level of minimum interest in other fees that we saw this quarter.

All the all the detail you gave about it in the management comments I'm just trying to think about how we.

Think about this next year, if youre, saying that pay downs are gonna be elevated till next year.

Our level of accelerated fee that we could still see into next year or is there really anything kind of onetime or temporary in nature, but what we saw this quarter.

Good question and the answer is yes, no and all of the above I think Ken.

We had an exceptionally high level of minimum interest in phase on short term renewals and expansions this quarter end.

As we articulated that in previous three quarters, its been about $6 million quarter, which is a pretty healthy rate itself.

And jumped up to $22 million in the current quarter. So.

Clearly that was.

Even $16 million over what it meant.

Healthy level in the earlier quarters of the year.

Expect.

Good income from that.

Sort of.

Source in 2022, because we will have another strong repayment year, but more of those repayments around their normal cycle of loans that are growing kind of at or their full natural term and getting back on a normal cycle. So.

It's very unlikely that we'll have a quarter that I would approach the quarter just ended and if we had the $6 million quarter run rate for all of 2022, we would consider that a positive so.

I think when Youre trying to calculate your run rate.

As a starting run rate for net interest income you definitely need to take out that.

16 million and then we mentioned in the management comments Katherine.

We also had.

A really healthy level of PPP loan income another million plus in the quarter. Just ended that's kind of go away in another couple of quarters, because we're just about.

Through that PPP resolution collection process.

And then we are special assets guys did a fabulous job in the quarter collecting a bunch of purchased loans, including some allowance that had been charged off.

At or prior to those acquisitions and so forth.

Fully collecting those so we had a lot of interest income another million or so layer. So really I think probably our net interest income for the quarter just ended was.

Sure.

18 or $19 million above what.

Would be a more typical normal run rate for the quarter, So kudos to our staff.

Our special asset its cash for the great job. They did in collecting a lot of those assets, we ever really gifted.

Talented special assets team that manages our credit for that kudos to our government guaranteed lending gas for the ward I'd add on the PPP program and kudos to our ESG guys for their real expertise and very thoughtful and intentional structuring of loans. So we can achieve.

Those kind of minimum interest in payoff numbers those things, we're always mass to get.

But.

We had an exceptionally good quarter of those in Q4.

It would not be prudent bite goes in any sort of run rate.

Got it that's very helpful. And then maybe a follow up on that is just.

Core loan yields outside of that if we backed out PPP and the minimum interest in getting alone of about 520, <unk> and you also mentioned in the management comments that new loan yields are coming in lower than.

The way the portfolio is yielding today and so any.

Any guidance you can give us on how big that gap is today and where the core loan yields may bottom before we start to benefit from a rising rate environment.

Where we're seeing new loans originated probably everywhere from.

On the extreme low side two 5%.

Right two 6%.

On the high side.

So definitely.

You looked at that range.

The new loans were originating are at lower rates than the loans that are.

Are paying off now.

There is a flipside to that.

And that is that.

As you can see on page 15, I think it is of our management comments documents a lot of our current loan portfolio will not re price and steadily when the fed starts raising rates.

Because.

The.

Loans are at floor rates that are substantially above the formula right now and you can see we gave you a very detailed table that shows how many loans are at their floors at every quarter point increase in right. So and that table is getting better and better those bars to the router getting lower.

Or every quarter.

As we replace new loans that are.

With a formula Thats very near their current floor.

With all of the loans that add floor rates.

Much higher.

The new loan portfolio that is being originated that's replacing the higher rate stuff is more rate sensitive.

And hence will adjust more quickly when rates rise so.

Depending on how much and how fast the fed raises rack rates.

The fact that we're originating loans today.

Lower rate than the loans that are paying off the fed may help mitigate that by raising the rates on those variable rate loans and the new ones are pretty much all right at their floor right on the formula right now so they'll adjust quickly it's hard to know the timing of fed rate increase.

It's hard to know the magnitude of fed rate increases I'm hearing you guys talk from two to seven.

Increases this year, while hitting that.

<unk>.

Who knows.

It's hard to know that but.

We do get more fed rate increases that will help us mitigate the.

The impact of the fact that newly originated loans are have formula rates lower than the loans that are paying off with.

With those floors.

The.

The other thing I would tell you is we are keenly aware that.

We've got to have more volume to generate more net interest income going forward and our guys are doing a really good job on working their pipelines and creating good opportunities for inspire.

Great. Okay Super helpful. Thank you so much.

Thank you.

Thank you and our next question comes from the line is from Marci <unk> with Wells Fargo. Your line is open. Please go ahead.

Hi, good morning.

Good morning.

Good morning.

To see the momentum building in our ESG, maybe talk a little bit about some of the broader trends you are seeing which verticals that growth is coming from some of the larger metro cities started to reengage in the typical size of all product youre putting on today's.

Alright, Tomorrow, I'm going to let brannon hamblen take that question since he's on the front lines of that every day.

Tamara good morning, Thanks for the question.

We've got some really positive trends.

Obviously noted in the and the results from Q4 and in terms of the what nowhere.

It continues to be coming from all directions. Each of our <unk>. The guys are just doing a phenomenal job of.

Of getting out there and quoting and winning loans and some with sponsors that we've done a lot of business with and some we've never done business with.

So our.

We've talked many times about the advantage of our capital position gives us in terms of doing a lot with those we really like and reaching into other opportunities on.

On different and even larger loans and the guys are doing that are continuing to.

Originate.

Across the spectrum of size in terms of the what multifamily is still probably the dominant property type and.

Oh and life Science, we've talked about a lot was probably behind that in Q4 after that it's pretty evenly distributed across the various property types and in terms of the aware.

We.

Are seeing opportunities.

Around.

Not necessarily in the middle of San Francisco, but.

Different directions from there as Youre seeing.

<unk> will move.

Of.

The saying.

Big employee employment drivers moving out of the core but near and so we're benefiting a lot and a lot of opportunities in the Bay area.

Did some good business in New York in Q4, as well, we comment on New York in that portfolio and how its been drifting down over time.

<unk>.

But it's a very active market.

Evidenced both by payoffs, we see there, but new originations as well.

But really across the country.

We're continuing to see a really diverse opportunity.

And.

Increasing volume of it as evidenced by our Q4 results.

Brandon, Let me add and correct me if I'm wrong on this but we're probably also saying.

Sure.

The.

Broadest.

A range of opportunities on larger mixed use projects.

Then we've seen in quite some time and maybe ever.

We're looking at.

Some of the loans.

Loan opportunities that would be our largest loan opportunities ever that we think we've got a good shot at getting in and getting closed and that that.

Volume of really large complex mixed use projects that we're looking at could have some fairly significant implications for our volume and later in 'twenty two 'twenty three.

Absolutely the case, absolutely the case and as I've alluded to in our.

Continual.

Our consistent strategy of.

Keeping our capital levels, where we are I think that's going to come and play in a big way.

The foreseeable future and of course, those mixed use deals are the ones that tend to be.

The large ones that give us great quality, great diversity, and great leverage levels and of course, great sponsorship.

And I would also add for that.

Brandon mentioned the Bay area has been a significant source of growth. We're also seeing.

Some really excellent opportunities in southern California.

San Diego area and of course continue to.

Have a lot of opportunities in Florida.

And the portfolio is just getting more diverse.

Sure.

With the New York coming down in volume and I think Youll see New York at some point in this next year, possibly begin to.

Turned back north in volume, you're going to see us do some nice originations there for sure.

In New York, We've got a lot of pay downs coming in New York. So it's kind of a horse race between the originations and the paydowns to that.

Flip that one, but we're doing much more business and all sorts of other markets across the country.

There is a table that we put in a couple of quarters ago, a few quarters ago in our management comments just to kind of highlight that you've got a number of msas in which we operate and that growing.

<unk> of the portfolio, we think that's a real positive thing as well.

Yes.

Okay. That's great color. Thank you for that and then maybe just adding to that.

Notice in the management comments that the expectation for origination in 'twenty to us.

As to outpace 'twenty, one, but let's say you stopped short of expecting a record there versus the expectation for record payoffs.

Is that conservative just given the timing of some of these transactions.

I guess, maybe just if you can put any kind of parameters on that would be great.

Yes, Brian Tomorrow, Yes, what I would say about that as we as we sit here today.

We definitely expect a strong origination year for 2022, but.

There are a lot of factors that would cause us to not want to get out over our skis in terms of what could happen six 912 months away.

But as we sit here today.

I'll just stick with the script, it's going to be strong origination volume in.

We really saw a build last year. That's that's continued its not weakened.

We have probably.

The payoffs that we project or a natural match.

Duration of the portfolio in and those things would probably happen.

So.

Im going to stop short of saying any records in originations next year, but.

I like where the year shapes up for us right now.

Based on especially some of the things we talked about in terms of new opportunities in markets that are really opening up spot.

Sponsors that we've not done business with before that were.

The guys are signing up and loans of size, so between the velocity and the size new opportunities.

On the originations in 2022, we're feeling very positive about.

Okay. I appreciate that thank you and then last for me just kind of rounding out the topic can you remind us what the typical timeframe is from alone being originated to the borrower starting to draw on that line and then finally, there won't be a refi to purchase.

Yes.

Great question.

Like so many others. It's a complex question I would say sort of.

The main.

You could.

Think about would be.

Anywhere from 12 18 on larger loans, maybe 24 months.

<unk> got a large project that's going to take longer.

It's going to take longer for the equity to get in but I would also tell you that a lot of our loans.

We originate with an initial funding.

Of meaningful size, but they.

Just on <unk>.

Low leverage on the land value.

Type sizing so.

While our full funding does take a number of months to get to where we can appropriately structure. Some funding initially.

We do that and that is.

A common occurrence in the portfolio as well.

Okay, and then the time for refi or purchase out.

I believe our latest average was around 34 months I don't have that number right off the top of my head but.

<unk> stayed historically.

Lengthened out a bit in COVID-19 .

But it's.

There are some start coming back in as.

The various.

Economic factors influence that of course was.

With rates moving.

But in combination with already a lot of our portfolio being matured.

Or not not in terms of its loan term, but just.

Evolution.

Youre going to see that.

One reason that we were expecting perhaps another record year of pay offs.

<unk>.

But again I would I would say in the in the 33 to 36 month timeframe is what we've seen historically.

Great I appreciate all the color and nice quarter.

Okay.

Thank you and our next question comes from the line of Stephen Scouten with Piper Sandler. Your line is open. Please go ahead.

Hey, good morning, everyone.

<unk> savings.

I appreciate the color Brandon I wanted to dig a little deeper on some of what you just noted and I know you said you don't want to get too far off script, given who knows what happens six to nine months from now, but if I think about $13 5 billion in unfunded commitments, let's call. It $9 billion in new originations that seem possible next year versus may.

The 7% to $8 billion.

Repayments, if theyre going to be higher than this year. It seems like the potential even over the timeline of funding that you just laid out is.

<unk> 22 $23 billion.

Fundings versus maybe seven or $8 billion.

Of repayment, so even if I kind of do a weighted average over that unfunded book of the new originations. It seems like the growth potential here in 'twenty two just in our ESG let alone.

Indirect auto and community banking that seems to be turning the tide.

It's pretty attractive I wanted to know if I'm missing something there I'm thinking about that the wrong way or.

Yes.

Let me jump in there on that.

<unk> 13 billion in unfunded commitments.

Commitments.

Those loans will fund over three years.

For the most part.

Tale of that might drag out even into year four.

So.

You can't assume that $13 billion going to fund next year.

And you can assume that that much of what we originate in 'twenty two is going to fund in 2002. So when you think about our origination volume for 2002.

Our unfunded commitments are.

All things that.

90% or plus or minus so those things will fund over time, that's kind of fund over over several years. So we do expect.

A significant level of originations and.

'twenty two we expect a record level of payout payout.

<unk> most likely in 2002, we think that is a net positive.

Number but.

Your assumption that a lot of our originations from this year, we're going to fund this year and all our most of our unfunded commitments are kind of fun. This year as it is way too optimistic.

We expect positive.

Net loan growth next year, but.

Those uncommitted and to be originated amounts in our ESG will fund over several years.

Yes.

Does that help got it yeah, and I wasn't trying to suggest that entire amount I was thinking 40% of that 23 billion funded and Youre talking 9 billion versus maybe seven $5 billion of repayments that still seem good but it seems like you've kind of attractive.

Yes, that's an area that's not a that's clause.

Plausible.

Scenario I'm, not saying, that's our guidance, but that's.

The scenario.

Okay.

Akshay.

Got to fund all of that.

Great.

No that'd be great.

Howard.

And then I just wanted to dig back into George you referenced figure 15 earlier and I did notice that there was a pretty meaningful improvement there as you guys originate more new loans.

And theres less at the floors.

But I'm curious if you could give some more color about what that does to your overall asset sensitivity in an up 100 200. It seems like that would have made it a decent there and just kind of as you guys lay out those assumptions what youre looking at from a deposit beta perspective.

Especially given that you guys don't have quite as much liquidity build it's probably some of your peers have seen.

Well.

Every month is.

Where you're originating new loans and <unk> loans pay off and there's there's a lot of velocity on both sides there.

Net.

Graph on.

Page 15 gets better and they are really two graphs one is.

Total commitments and one is the actual funded balances and since the older loans tend to be more funded in the.

Newly originated loans tend to be more in the commitment phase you can see.

The delta between those two graphs in and that kind of gives you a visual image of.

New originations are moving those bars to the write down which is what we want and payoffs of all originations.

Moving those bars to the right.

So.

That is that is positive for the asset sensitivity of the portfolio and that is getting better literally every.

Every month, so we're pleased with the direction of that.

<unk>.

And if we can get those numbers more favorable before the fed starts raising rates that just makes the portfolio <unk>.

Benefit up more right at the outset from those first right in currency. So we would hope to see further improvement between now and March which.

Seems to be the predominant.

Expectation on when the fed is going to start raising rates. So.

Thats helpful. The deposit beta question is a great question.

Overall on page 33 of our management comments document we gave you a little more detailed than we've given in the past on breaking down the deposit book here.

You can see the.

Yeah.

Really excellent work that.

Cindy Wolfe and Carmen Mcclennan, and Audi Hurley and drew Harper and the other folks on the deposit in retail banking teams are doing growing.

Non interest bearing accounts.

And non time accounts, both consumer and commercial.

And at the same time working down.

Some of the CD categories from higher levels, and working down public tranche brokerage and reciprocal deposits that tend to be.

More expensive deposits. So I think the guys have been doing some really good blocking and tackling and improving the quality.

Enhance the rate sensitivity of <unk>.

Our deposit base certainly when the fed starts rising rates our deposit cost.

We'll we'll go everybody's in the banking industry will go up.

Pretty much there'll be a few exceptions that gas.

We think that we've done a good job laying the groundwork to have much.

Lower deposit betas.

Over a full.

Interest rate increase cycle.

Early mid and late cycle after the increases than we are.

Experienced in the last interest rate cycle, so how that plays out.

It would depend on competition and how the fed pause.

<unk>, how quickly they move in and what else, but due to withdrawal of liquidity from the financial system.

As far as.

They have already announced and are rapidly along the way with timeframe there right of asset purchases and the shrinkage of their balance sheet I think we will have.

Significant impact on availability of funds liquidity in the system that will affect deposit rates, none of us really know I don't think the fed even knows how they're going to do that yet or if they are there they are.

Not telling.

So there are a lot of variables there, but we feel like we're much better position than we've been in the past to deal with that.

Rising rate environment.

Yes, definitely thanks for pointing that chart does show impressive multiyear improvement. So I appreciate that that's really I'll, let some other people jump in but congrats on a great year and look forward to another one into 'twenty two.

Thank you Steven.

Thank you and our next question comes from the line of Michael Rose with Raymond James Your line is open. Please go ahead.

Hey, good morning, everyone. Just wanted to touch on a comment hi, how are you just wanted to touch on the commentary in the management comments.

On page 17, just around expenses.

You kind of cited what everyone else deciding wage inflation et cetera, and also some offsets and I know you saw on the Magnolia branch this quarter, but if you could just help us.

Can you quantify what that could mean to the expense run rate.

As we move forward just given the some of the puts and takes that you guys have clearly expense control has been really strong here and thats been one of the hallmarks of the company, but just looking for some color on kind of what the magnitude could be on a run rate basis, yes macro.

Michael Let me, Mike comment or two and then im going to let Greg comment on that but.

We accelerated our annual salary review process, a very detailed process, where we go through.

Every single employee in the company with their supervisors and set there.

Right of Pi, we gave.

We accelerated that to the July .

October timeframe from what would have normally been a September through December .

Timeframe.

And a lot of those rises will given hourly and you can see that in.

Sure.

And then $2 million or sort of increase quarter over quarter in our salary and benefits line item.

The raises were much more.

Significantly in percentage terms since what's reflected in those line items because as we we did that we were closing and selling some.

Branches are closing some branches, we were re engineering, some workflows, where you were identifying some unproductive.

Activities and personnel and we were eliminating those positions. So we were you gave really good rises to a lot of people on that in July through October timeframe.

And accelerated those but but avoided really having a big hit to our noninterest expense kept that pretty manageable.

We're really working hard.

Two.

Offset a chunk of those calls so I'm really proud of the work that our guys did in that and it was.

Extremely laborious and difficult process to really dig down and understand everything in a super granular level. There in the gas just rolled up their sleeves and worked hard on it and like we did some really good work we will as it says in the comments continue to say.

Higher costs, because we've got a bunch of unfilled positions that were youre feeling we have summarizes that.

A smaller number.

That didn't take effect until January one and we're going to add some new positions in some areas, where we have growth opportunities. So Greg has done some work on that so I'll, let Greg provide some additional color on that.

Thanks, George Good morning, Michael.

As George said Thats.

We've really been focused on the.

The talent the staffing the competition.

How do we how do we make sure we've got the right people in the right places across the entire entirety of our company.

A lot of what we.

What we did in Q3 and Q4, we feel puts us in a really good position today with respect to those gas clearly as George indicated and as we say in our comments.

We hope to fill positions and continue to.

To add new add new team members to support future growth.

Thank Michael if you take if you take the Q4 noninterest expense.

I think if you assume that grows probably on average $2 million to $3 million quarter over each quarter. During 2022, that's probably a pretty good.

Assumption of where we would expect.

Noninterest expense to end up for the full year of 'twenty two.

Obviously, it may not be.

A linear increase it may be a little bit choppy, but most of that is going to be in the salary and benefits line item.

The actual amount that that ends up is really going to be dependent upon.

Our ability to define team members to <unk>.

They all open positions and to continue to grow our staff to support future growth. So I think thats the $2 million to $3 million range is a pretty good on average.

Our assumption for overhead growth.

So is that like a gross number or like a net number because I assume there's some some offsets.

Are you just talking about like total expenses. So clearly, yes got it sorry total noninterest expenses.

Okay, so, but but what would some of the offsets because it sounds like the number actually might be higher but you have some savings that you can bring out elsewhere, whether it be further branch cuts et cetera.

I think we are there on most of the savings I mean, there are some smaller items, we're still working on but we.

We pretty much occur.

Complex, what we needed to do as far as rationalization of our branch network.

And those sorts of things.

In that set.

Half of.

Of 2021, so yes.

Sell the Mike now you branch I don't think we have another <unk>.

<unk> slated to close at this point, we think everything that we've got in that regards to contribute team, we actually have a few branches.

We're going to open.

Will over the next couple of years have a few branches that we relocate that will have some.

Benefits of improving the quality of our location and market at the same time they were.

And at least one or two of those situations ought to get some cost saves out of that so there are some things we're doing there, but those things are small potatoes.

Greg's $2 million to $3 million a quarter increase in noninterest expense is kind of a net net number I think is that right. Greg that's correct George.

Okay, Great and maybe just as my follow up.

The share repurchases were a little bit higher this quarter than I was expecting to increase the size of the program.

Stocks around one five of tangible just remind us George how we should think about the tenor and pace of.

Of share repurchases and how you think about intrinsic value.

Well, Tim runs that program, so Tim I'm going to bounce that to you.

Alright, Thanks, Michael.

Yes, we were certainly very active in in Q4 on the share repurchases obviously, we.

Raise some preferred stock and increased our authorization and are at the beginning of November .

Became really active in November and December .

We're starting to stock our stock price when we started that program was certainly less than where it is today.

We do try to be somewhat opportunistic in how we.

How we utilize that so if our stock price is increasing.

We're going to be less active.

Comparative it's being pulled back so.

If we see a pullback will be more active.

On a whole I would expect this to be slightly less active in Q1 than we were in Q4.

Just because we're starting at a little bit higher higher place than where we started.

Started the repurchases in Q4.

Thanks for the color guys I appreciate it.

Thank you and our next question comes from the line of Jennifer <unk> with Trust. Your line is open. Please go ahead.

Thanks, so much good morning.

Morning, Jennifer.

Yes.

George you guys have about $4 3 million.

Jack.

'twenty one.

A lot of bank.

We're closing again.

What have you.

Paul.

Quarters are mothballed.

Yeah.

Well, let me say, we've broken out.

Service charge data into two lines in the.

In the management comments and you'll see that in our.

Accusing case going forward.

And the real reason for that is <unk> got other service charges you got your NSF hour days in and really that NSF Audi line could be broken out because of insufficient charge an overdraft charges are really two different things, so I'm going to let Cindy Wolfe.

Chief.

Chief Banking officer.

Who is over all of that don't mind, all of our retail banking operations and so forth report are in deposits and deposit strategies are all herself Cindy you want to take that sure.

Sure George Thank you Jennifer like other banks.

Our NSF fees remain below pre pandemic levels.

Our focus for quite some time has been on the fees, we charge an association with value add products and services, where you have a client they receive something of value and is happy to pay a fee for for what were providing so that said we have taken two steps that appear to be similar to some of the things other banks have announced.

Recently.

Denver as 2021, we eliminated the transaction fee, we had historically charged for automatic transfers from one account to another to cover an overdraft and then back in February of 2021, we rolled out a new checking product that has no overdraft or NSF fees.

It is a bank on certified checking account aimed at the Unbanked and Underbanked called freedom advantaged checking.

And we have really made an emergency savings a focus of our retail bank and since we've done that we've seen a nice increase in savings account sales.

Believe that the focus should be on helping people develop healthy savings and spending habits and that will also help our clients avoid NSF and overdraft. So while we have not eliminated all the fees associated within <unk>. We have made some similar moves to other banks and.

Of course, we have not ruled out taking other steps in the future.

Well Jennifer.

One out of General Fund me point out on page 16.

Consistent with what <unk> said, our NSF phase if you compare Q4 'twenty one too.

Pre pandemic Q4, 19 that numbers down a million dollars a quarter.

Our other service charge fees.

Our up over that period of time, one $5 million per quarter from Q4 of 19 to Q4 of 'twenty, one and that's all part of.

Sandy's strategy that she and her team are implementing too.

Create more.

Service charge revenue from really value add things to our customers and.

Do more things that eliminate.

Reduce customers' incurring NSF phase I think that trend.

We'll continue on both sides is our strategy to continue to grow these other higher value things as Cindy was talking about.

I do think.

Market and regulatory.

Efforts over a longer period of time, we will.

Result in a continued reduction in.

NSF fee income and then probably overdraft fee income as well.

Okay.

Let's see.

Zero amount of pressure on that line item.

Given the recent changes.

Inc.

You had a pretty good run rate.

I think it is.

Premature to judge the timing of that.

It's a fluid situation on the competitive front end.

A fluid situation on the regulatory front, but I do think you will see.

The other service charge line item increase because they're doing a good job of.

Selling products and services that our customers.

Seem to be very willing and.

Enthusiastic about even though it means paying a fee for it and I think youll see further reductions.

Overtime and that NSF to say the timing of that is hard to hard to know and then I think.

Fees will also go down over time.

Yes.

Thanks George.

Thank you and our next one.

Our next question comes from the line of Matt Olney with Stephens. Your line is open. Please go ahead.

Hey, Thanks, Good morning, I wanted to ask more about the impact of higher interest rates.

What the bank is doing today to better prepare for this and the loan floor is obviously going to be a challenge in the near term as the fed moves higher but I'm just curious what else the the <unk>.

Bank is doing to better prepare for higher rates.

Well.

Obviously, Matt we've been keeping our securities portfolio pretty short we've got about.

$150 million a month.

Cash flow off that securities portfolio.

And the investments we're buying now where we're keeping in that short of short medium sort of term.

Duration.

So.

Considerable efforts to keep that where we're not paying down much long term investments and so forth and then.

From propensity as we've always had to.

The vast majority of our loans variable rate when we give you statistics on that end.

Management comment documents about what percentage of those are variable right in two.

Put floors in them in.

As we.

Recycle older loans and replace them with newer loans, we're certainly.

Getting floors that are much.

Much more conducive to having a high level of asset sensitivity of the portfolio. So.

That's really the way, we're preparing and trying to.

Do things on the deposit front that will lower our deposit beta.

Do things on the asset side, both investments and loans that will enhance asset sensitivity there.

Yes that makes sense thanks for that.

I was also hoping George you could.

Put some more commentary around loan growth expectations in 2022, I know you expect to be positive, but I think the consensus forecast is calling for around AR.

Mid single digit loan growth for 'twenty, two and just trying to appreciate if those expectations are still reasonable or if we're a little bit too optimistic given your commentary today.

Matt.

Thank those expectations that you described are unrealistic.

It's there.

They are probably more variables.

In the world today, economically and politically and regulatory wise in.

Geopolitically wise than there have ever been in my 42 year career and gas you just.

Listen to the news every day in our rate.

Stuff that's going on in the World. It is it's complicated world and we've got a great pipeline.

Going into the year, we seem to have a lot of our business units that have positive momentum we know we've got.

A big.

Almost certainly record level of payoffs coming in this next year.

But we feel like we can outrun that.

But.

And to get more precise on.

What percentage actual growth, we're going to have this year, it's it's impossible to know that.

Because you got to originate a lot of loans, you know youre going to have to do a lot of payoffs some of those payoffs might push.

As they did.

Last year, if there are supply chain problems are in 'twenty. If there are supply chain problems. Some of those payoffs my accelerative if customers can lock in permanent financing and Theyre concerned rates are going up theyre going to try to get to permanent financing solution faster I believe rates are going to go.

They're permanent financing costs more lighter. So there are just a lot of variables that could push our accelerate payoffs.

There are a lot of variables economically that could cause folks to push project few months, our accelerated project based on <unk>.

What they consider the opportunities to be in your planning all of that out against an extremely dynamic.

Macroeconomic environment political physical monetary policy geopolitical environment.

Covid health environment.

So.

I think they are.

Assumptions that you articulated there are not unreasonable, but it could be more or less than that depending on how those things play out.

Okay. That's helpful and definitely we appreciate there's lots of moving parts this year more so than more so than most.

Yes.

And just lastly, I guess.

Circling back on expenses with Greg.

Plug in that $2 million to $3 million per quarter growth off the fourth quarter starting point.

At about 9% growth in <unk> 22 versus <unk> 21 am I thinking about that right Greg.

Yes, so Matt.

Yes.

Thank you.

Thank you.

Thank you and our next question comes from the line of Brock Vandervliet with UBS. Your line is open. Please go ahead.

Hey, Thanks, good morning.

Yes.

The ocean on our ESG questions, So I won't.

We won't go there.

Let's see on.

Well it's.

Kind of a two parter one if we could get an update on the on the auto auto business.

That was impacted last year by kind of a return to that business as well as.

Can't get if you can't get product.

That sort of thing was the.

Pipeline issues affecting the auto business and more broadly.

Do you think.

You're obviously thinking pretty creatively about the consumer facing business now.

Do you think you've got all the product set that you really need there or are there other initiatives.

Working on behind the curtain.

Yes.

Rod.

Our indirect business is indirect RV and marine and we don't do indirect auto.

Yes, Im sorry Im sorry.

That's what I understand it's easy to it's easy to think of all indirect as being out of but we don't do the auto because.

We just don't think you can get.

Return on investment at our scale, but we can get out of the marine and RV business and the.

Same quality issues.

So we like what we're originating both from a quality and a yield perspective, the guys have.

Rejiggered that business model over the last couple of years, we've been ramping it up.

Since early last year.

So they are now I guess, probably in the third or fourth quarter.

Quarter of ramping that up.

Did <unk>.

<unk>, some a little bit of momentum on that in Q4, and we expect positive net growth in that portfolio in 2022.

And.

Okay.

To quantify what that is but we do expect our originations and fundings to exceed.

You have payoffs on that portfolio in 2022 and.

It's become.

Yes.

A small but those will contributor to growth.

1022.

The consumer book that you mentioned, we are continuing to do work to make our.

Our consumer.

Pricing products at more competitive.

<unk>.

And doing things to enhance the sales of consumer loans through our branches.

And I think we will see some positive <unk>.

Trends in that in 2022 is well again, that's not going to be.

A huge line of business, but if that contributes 50 or $100 million or $200 million of growth.

That would be a plus for us. So I do think we will see some positive.

Direction buyer.

Volume of it's hard to know at this point in time, but we are focused on growing those as part of our plan to diversify our business.

More broadly.

Okay, and just as a follow up.

Much to talk about with respect to credit which is great.

How are you feeling about just the size of the.

The reserve at this point.

I think we feel it's appropriate.

We gave disclosure in our management comments that.

Stated that.

Greatest weight in our model selection as of December 31 was was on the.

Moody's.

Moderate recession scenario and then Moody's sustained downturn was the second.

Youre right its right in the Moody's baseline scenario, we gave the third highest weight in.

Our model selection allocation and the reason for that is the.

Moody's.

Baseline scenario by year end had gotten to be a pretty optimistic almost an upside scenario in our view.

And that was that was quite a shift from where the Moody's baseline scenario one quarter before so.

As we looked at the litany of open items on fiscal policy monetary policy and all the things that I talked about with Matt I only have a few minutes ago.

We just felt like there were a lot of uncertainties and risk things.

Good.

Possibly late two fed miscalculation of our physical policy miscalculation that good.

Throughout the economy and are more difficult.

Setting.

So we adopted a pretty conservative.

And.

Slightly negative bias to scenario selections.

For our ICL as of.

December 31, App I think that's appropriate I mean, theres just a lot of.

A lot of things out there that it could.

Cause our economy to get the more difficult situations and.

<unk>.

Yes.

We think we were.

Appropriately took those things into account in our scenario selections.

Qualitative adjustments to the model.

Scenarios.

231, Tim and Greg might want to weigh in on that too.

Any comment.

Yes.

George I don't know that Ive got anything else to add on that I mean, obviously if.

There are a lot of unknowns.

We were cautiously up concern.

Conservative about as far as our our ACO goes.

We have more clarity on those over the next few months or few quarters, certainly that could impact our level of ACO, but theres just a lot of unknowns today and I think we were appropriate.

And where we where we set our scenarios and where our resulting ACL ended up at 12 31.

And our block over the last two years, there have been a lot of <unk>.

Negative.

Assessments of economic prospects in the U S and those over 2021 got progressively better and that was reflected in our ACL, but.

We don't want to.

Get too optimistic too fast while there is still a lot of variables that play in.

Release, a lot of our ACL and then come back later, because while we got to be optimistic.

Relates to much and then you have to build it back. So we want them, we want to actually see these economic cards play out and adjust our reserve based on.

Real economics instead of.

Economics.

Yes, I think Thats, an interesting point you can see a lot of other banks that have nailed themselves.

The baseline scenario asked too.

After tax.

The rapidly at some point.

Thanks, Tim.

They could be right, but.

We're kind of.

We're kind of in the mindset of we want to we want to see all of this play out in <unk>.

Before we release and know that we're really back to a very positive economic situation with a lot of variables resolved before where you're going to.

Get too aggressive in releasing that ICL.

<unk>.

Thank you Brock.

Yes.

Thank you and our next question comes from the line of Brian Martin with Janney Montgomery. Your line is open. Please go ahead.

Hey, Good morning, just a couple from me just most have been answered but just.

Going back to the capital you talked about the buyback just Tim maybe on the just general commentary on the M&A outlook, given what sounds like fabulous opportunities on the organic side.

The buyback being utilized but just.

The level of opportunities maybe youre looking at today are seeing can you just give a little comment on that.

Yes, Brian I'd be happy to.

We do think there will be continued consolidation in the industry over.

Over the next many.

Three years.

We hope to be able to participate in that at some point, we are spending more time.

Looking at opportunities.

I personally am spending more time looking.

Looking at opportunities.

But the timing of those obviously are hard to hard to predict and as you pointed out we've got a lot of good traction.

Organically through our ESG in community banking and our asset based lending groups in equipment finance lending group in indirect lending. So a lot of good momentum that we feel very positive about organically. So we don't have to do M&A, but if we can find.

Something that's accretive to our franchise one one way or the other then then we'll certainly be interested in looking at it.

And we certainly have a lot of capital where we can do multiple multiple things at the same time. So it is not.

It's not one one strategy that that is going to utilize all of our capital.

We can do multiple mulch.

Multiple multiple items at the same time so.

We're looking we have appetite.

But certainly can't predict when that might occur.

Gotcha, Okay, and then maybe just one or two others just the.

I think last quarter, George maybe you talked about the securities portfolio, maybe getting a little bit bigger.

Depending on where the yield curve has had I guess any any change in your outlook there.

Brian .

That's very much a day to day.

Moment to moment situation an opportunity.

As I mentioned, we've got about $150 million quarter in.

Our month end.

Cash flow from that portfolio.

We're <unk>.

Trying to.

Knowing that rates are going up trying to find things and moments to re put that money to work as it rolls off.

But not taking too much interest rate risk on it so.

There will come a day when we're one of them.

Sure.

Be much more aggressive and loading up that portfolio.

Then than we are now.

We're not anxious to see that portfolio grow a ton right now because.

Whatever you buy is going to get the valued going forward, but we still have to keep some of that money at work as well. So it's a delicate balance we're working everyday.

Load King.

Christy Harper and rush Harding and the rest of the team who were running that portfolio for us.

Are doing a great job on it and I think bill I think they'll figure it out as we go but it's a tricky time to be putting money to work there.

Gotcha, Okay, and then maybe just the last one was just on the it looked like a nice start to the ABL group just kind of wondering that in the CBS .

You can give any commentary on.

How are you thinking about that and the momentum there.

Going forward.

Yes.

<unk> group is.

Close to deal and have several more.

Transactions in the pipeline that they are looking at and working on and some of those transactions that are looking at look look very positive.

We're optimistic about that our corporate business specialties group.

As primarily.

Subscription finance, we had a lot of pay downs.

On that their I think their average balance for the quarter was probably much higher than the quarter end balance cause right at the end of the year.

A lot of those.

Ours did capital calls for year end and cleaned up their subscription lines.

But the.

Unfunded part of that business is growing we're doing more business, they're not less.

Even though the fundings were we're down with payoffs right at the end of the year, but that's doing well and they of course manage small shared national credit portfolio, I think is down to about $50 million plus or minus.

Continuing to shrink.

Unless there is a real buying opportunity.

Reloading that portfolio, but if market conditions might at very advantageous to do so we Matt.

But.

The mindset right now as that portfolio 50 million or so continues to just run off in a normal sort of.

Is it pays off.

Sort of way.

And.

Those guys are looking at some other non subscription line.

Non real estate structured finance opportunities, where our expertise.

Applies in our equipment finance guys in structured finance guys on the equipment finance side are also.

Getting some pretty good opportunities, they're looking at and we think theyre going to have some volume this year. So real pleased about the way.

All of the units in our lending world are working in.

Some are going to contribute a lot more growth than others.

But I think we've got almost every unit moving in a positive direction and of course, we will.

We will have PPP payoff headwinds remaining I think we had about $80 million or so.

P loans at the end of the year the last little piece of that that probably pays off mostly in Q1, and Q2 and should almost all be gone if not all gone by the end of this year. So that's a little bit of a headwind on growth in community banking, but.

The guys had a lot of PPP payoffs last year and still.

Still absorb that in.

And offset that with new originations for the most part so we're feeling pretty good about all units being able to contribute to growth this year.

Gotcha, Okay. Thank you very much for taking the questions.

Alright, thank you.

Thank you and I'm showing no further questions at this time I would like to turn the conference back over to George Gleason for any further remarks.

Alright. Thank you. We appreciate you guys joining the call there being no further questions that concludes our call. We look forward to talking with you in about 90 days have a great quarter. Thank you.

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