Q4 2021 S&T Bancorp Inc Earnings Call
Speaker 2: Good afternoon, ladies and gentlemen, and welcome to the S&T Bancorp fourth quarter
Good afternoon, ladies and gentlemen, and welcome to the S&P Bancorp fourth quarter earnings Conference call. At this time, all participants are in a listen only mode and the floor will be opened for your questions and comments following the presentation.
Speaker 2: At this time, all participants are in a listen-only mode and the floor will be open for your questions and comments following the presentation. It is now my pleasure to turn the floor over to your host, Mark.
It's now my pleasure to turn the floor over to your host.
Mark Koch far Sir the floor is yours.
Speaker 3: All right, thank you very much. Good afternoon everyone and thank you for participating in today's conference call. Before beginning the presentation, I want to take time to refer you to our statement about forward-looking statements and risk factors, which is on the screen in front of you. This statement provides the cautionary language required by the Securities Exchange Commission for forward-looking statements that may be included in this presentation.
Alright, Thank you very much and good afternoon, everyone and thank you for participating in today's conference call for being the presentation I want to take time to refer you to our statement about forward looking statements and risk factors, which is on the screen and party. This statement provides the cautionary language required by the Securities Exchange Commission.
Forward looking statements that may be included in this presentation.
Speaker 3: A copy of the fourth quarter and full year 2021 earnings release can be obtained by clicking on the press release link on your screen or by visiting our investor relations website at www.stbankcorp.com.
A copy of the fourth quarter and full year 2021 earnings release can be obtained by clicking on the press release link on your screen or by visiting our Investor Relations website at Www Dot SP Bancorp Dot com will.
Speaker 3: We will be reviewing an earnings supplement slide deck as part of this presentation. You can obtain a copy of those slides by clicking on the link on your screen or on our website under events and presentations, fourth quarter 2021 earnings conference call, click on the fourth quarter 2021 earnings supplement.
We will be reviewing an earnings supplement slide deck as part of this presentation you can obtain a copy of those slides by clicking on the link on your screen or on our website under events and presentations fourth quarter of 2021 earnings conference call click on the fourth quarter 2021 earnings supplement.
With me today is Chris the Congress has Tcf, David Antolik St's President is under the weather today and won't be joining the call I'd now like to turn the call over to the program over to Chris.
Speaker 3: With me today is Chris McComish, S&T's CEO . David Antilloch, S&T's president, is under the weather today and won't be joining the call. I'd now like to turn the call, the program over to Chris.
Speaker 4: Thanks, Mark, and good afternoon, everybody, and thanks for joining the call, and certainly thank you for your interest in our company. Before we get into the discussion of the numbers and then take your questions, I want to take a couple minutes, have some statements, and talk about all that's going on with the company, and we'll get into the first quarter, the fourth quarter in the full year. I've completed my first full quarter as CEO .
Thanks, Mark and good afternoon, everybody and thanks for joining the call and certainly thank you for your interest in our company before we get into the discussion of the numbers and then take your questions I wanted to take a couple of minutes.
Some statements.
Talk about all that's gone on with the company.
We'll get into both the first quarter the fourth quarter.
And the full year, our completed my first full quarter as CEO and I can tell you. This has been a.
Speaker 4: And I can tell you this has been a great experience over the past few months.
Great experience over the past few months first this has been a signet year of significant change at S&P. So pleased with what I've been a part of it certainly.
Speaker 4: First, this has been a year of significant change at S&T. I'm so pleased with what I've been a part of and certainly have witnessed over the past few months.
As we have witnessed over the past few months, our leadership team and employee base, a shortage of the incredible commitment to accept and embrace change and transition.
Speaker 4: Our leadership team and employee bases showed an incredible commitment to accept and embrace change and transformation.
Speaker 4: and to move our company forward toward a goal of delivering consistent and superior financial performance.
And to move our company forward toward a goal of delivering consistent and superior financial performance, while the work of building a team and insuring clarity on strategic direction. It doesn't happen over a few short months, we've made great progress together in a relatively short period of time.
Speaker 4: While the work of building a team and ensuring clarity of strategic direction doesn't happen over a few short months, we've made great progress together in a relatively short period of time.
Speaker 4: We're emphasizing a focus on delivering consistent profitable growth built on a foundation of safety and soundness in all that we do.
We are emphasizing our focus on delivering consistent profitable growth built on a foundation of safety and soundness and all that we do.
Speaker 4: We know that this business is a people business first, which means that the leadership team were very focused on delivering the capabilities needed to ensure high levels of employee engagement. Our engaged, skilled, and committed employee base delivering our bank to our customers, whether it be face-to-face, voice-to-voice, or digitally, is what will win the day here at S&T.
We know that this business is a people business first which means as a leadership team, we're very focused on delivering the capabilities needed to ensure high levels of employee engagement.
Our engaged skilled and committed employee base delivering our value to our customers whether it be face to face voice to voice or digitally is what will win the day here at S&P.
As we enter into 2022 and coincidentally as we celebrate our 120th anniversary later this spring I am very optimistic about our future and our ability to deliver results for our shareholders.
Speaker 4: As we enter into 2022, and coincidentally as we celebrate our 120th anniversary later this spring, I'm very optimistic about our future and our ability to deliver results for our shareholders.
Now, let me turn to the numbers, let's go to slide three and you can see a.
Speaker 4: Let's go to slide three and you can see a brief fourth quarter overview. For the quarter, revenue was flat and margins were stable.
Great fourth quarter overview for the quarter revenue was flat and margins were stable.
Speaker 4: Great news is, loan growth was broad-based, represented in both commercial and consumer portfolios.
Great News as loan growth was broad based revenue represented in both commercial and consumer portfolios.
Speaker 4: and associated and focused with some of our strategic areas, including our asset-based lending group, our REIT team, and on the consumer side, our home equity lending business. That's two solid consecutive quarters of broad-based loan growth.
And associated and focused with some of our strategic areas, including our asset based lending group, our REIT team and on the consumer side, our home equity lending business. That's two two solid consecutive quarters of broad based loan growth.
For the team <unk>.
Speaker 4: Additionally, in a subject that's not talked about a lot nowadays, is another positive, and that is in our growth of and the source of our deposit growth.
Additionally, in a subject that's not talked about a lot nowadays.
As another positive and that is in our both in our growth.
And the source of our deposit growth our.
Speaker 4: Our deposit mix continued to improve and overall deposit growth was up $50 million length quarter highlighted by strong non-interest bearing demand growth. It's a great reflection of the loyalty of our customer base and their engagement with our company.
Our deposit mix continued to improve and overall deposit growth was up $50 million linked quarter highlighted by strong noninterest bearing demand growth is a great reflection of the loyalty of our customer base and their engagement with our company.
Speaker 4: While we did have expense growth in the quarter, it was associated with investments in our business in technology and infrastructure.
While we did have expense growth in the quarter. It was associated with investments in our business and technology and infrastructure.
Speaker 4: Also, with some proactive decisions made by me and our executive leadership team with the full support of the board related primarily to incentive and bonuses.
Also with some proactive decisions made by me and our executive leadership team with the full support of the board related primarily to incentive.
And bonuses as I mentioned, our team has been through a significant amount of change. This year they've showed an incredible commitment to each other our customers and our communities all the while navigating a pandemic and at the end of the day delivering the highest net income.
Speaker 4: As I mentioned, our team has been through a significant amount of change this year. They've showed an incredible commitment to each other, our customers, and our communities, all the while navigating a pandemic and at the end of the day delivering the highest net income on an annual basis in the history of the company.
On an annual basis in the history of the company.
For everyday employees being able to provide additional incentive pay is a great and important way to say. Thank you. We believe with you and we have high expectations of you going forward <unk>.
Speaker 4: Being able to provide additional incentives pay is a great and important way to say thank you. We believe in you and we have high expectations of you going forward.
Speaker 4: approximately 43% of our employees earn less than $19 an hour. We made a proactive decision to increase our minimum base pay rate in December . While these numbers are not in this quarter, the incentive pay is. And it's met with a great level of satisfaction with our employee base and will serve as momentum for us in the future as we move forward as an organization.
Approximately 43% of our employees earn less than $19 an hour, we made a proactive decision to increase our minimum base pay rate in December while these numbers are not in this quarter.
The incentive pay is and it's it's met with.
Great level of satisfaction with our employee base and will serve as momentum for us in the future as we move forward.
As an organization.
Speaker 4: On the credit quality front, while we are disappointed in a couple of charges, I am pleased with the overall improvement in the quality of our loan book.
On the credit quality front, while we are disappointed in a couple of charges I am pleased with the overall improvement in the quality of our loan book.
Speaker 4: Safety and soundness is a big part of who I am, and we are ensuring that the culture exists throughout our company, focused not only on profitable growth, but doing everything we do in a safe and sound way. We've made leadership changes and elevated people within the company and added new talent to the organization, all with this focus of consistent, profitable growth underpinned by safety and soundness.
Safety and soundness is a big part of who I am and we are ensuring that the culture exist throughout the throughout our company focus not only on unprofitable growth. We're doing everything we do in a safe and sound way.
Made leadership changes and elevated people within the company and added new talent to the organization all with this focus of consistent profitable growth underpinned by safety and soundness.
As we move forward into the fourth quarter.
You'll see as I mentioned.
Speaker 4: You'll see, as I mentioned, or I'm sorry, into the full year, $110 million of record net income.
I'm, sorry into the full year of $110 million of record net income.
Speaker 4: Another highlight that I want to mention to everybody is our customer fee income growth. This is a reflection of, again, our proactive customer engagement.
Another.
One highlight that I want to mentioned to everybody is our customer fee income growth. This is this is a reflection of again, our proactive customer engagement.
Speaker 4: This is activity that includes things like debit card and interchange revenue, treasury management fee income growth, growth in our wealth management business. I've defined it as sticky fee income representative of healthy customer engagement.
This is activity that includes things like debit card and interchange revenue Treasury management fee income growth growth in our wealth management business.
If I did a sticky fee income representative of healthy customer engagements.
Turning to slide five.
Speaker 4: Again, we'll talk a little bit about the balance sheet.
Again, we'll talk a little bit about about the balance sheet.
Speaker 4: We mentioned the broad-based loan growth that you see on the left made up both in our commercial businesses as well as in our consumer business, 7% annualized for the second consecutive quarter.
Mentioned, the broad based loan growth that you see on the last clean up both in our commercial businesses as well as in our consumer business, 7% annualized for the second consecutive quarter.
Speaker 4: Again, a little more detail on the deposit mix. You see DDA's up a little over $96 million, offset by a decrease in CDs of over $100 million.
Again, a little more detail on the deposit mix.
The DDA is up almost 90% a little over $96 million.
Offset by a decrease in Cds of over $100 million.
As it relates to the loan book, one thing that I know will be of interest to those on the line is two things one what we're seeing in utilization line of credit utilization.
Speaker 4: As it relates to the loan book, one thing that I know will be of interest to those on the line is two things. One, what we're seeing in utilization, line of credit utilization, it was up a little bit in the corner of about 3 percentage points into the mid-30% of the line amount.
Utilization it was up a little bit in the quarter up about three percentage point into the mid 30% of the line them up.
This is actually consistent with the same increase that we saw last year Q3 to Q4. So we believe that there still is latest borrowing capacity and activity within our customer base as we work the economy works through the pandemic supply chain issues and other.
Opportunities for growth, we certainly see getting back into that mid to low 40% utilization rate would lead to.
Speaker 4: We certainly see getting back into that mid to low 40% utilization rate would lead to growth in our low portfolio by itself of over $100 million.
Growth in our loan portfolio by itself of over $100 million.
As it relates to 2022 on the loan side, we've guided toward in very confident on an annual basis of looking at loan growth into the into the high single digit range. There is seasonality in that number we had a very strong Q4, our pipelines are building.
Speaker 4: As it relates to 2022 on the loan side, we've guided toward and very confident on an annual basis.
Lots of good activity right now, but we'd probably be looking something closer into the into the mid single digits in Q1, as we move forward with an annualized and an annual growth rate in that high single digit range.
Speaker 3: I'll stop there, turn it over to Mark, and we'll have a lot of things to keep going. Great. Thanks, Chris. Slide six, coordinated interest income, excluding PPP, improved by $0.8 million compared to the third quarter.
I'll stop there turn it over to Mark.
A lot of things to keep go great. Thanks, Brett.
Core net interest income, excluding PPP improved by $8 million compared to the third quarter.
Speaker 3: Total net interest income declined by $0.3 million as contribution from PPP decreased by $1.1 million to $3.1 million in the fourth quarter. Average loan balances excluding PPP increased by $128.8 million.
Total net interest income declined $5 3 million contribution from PPP decreased by $1 1 million to $3 million in the fourth quarter.
Loan balances, excluding PPP increased by $128 eight.
Speaker 3: We have about 88 million of PPP loans remaining, representing approximately 2.8 million in remaining.
We have about $88 million of PPP loans remaining representing approximately $2 $8 million remaining.
Speaker 3: The headline index margin rate decreased just two basis points with slight compression in loan and security yields. Looking ahead and not including
Headline net interest margin rate decreased two basis points with slight compression in loan and security yields.
Looking ahead, and not including any short term rate increases with loan growth. Returning we expect to begin to deploy the higher cash levels on the balance sheet, including a modest not additional securities purchases.
Speaker 3: With loan growth returning, we expect to begin to deploy the higher cash levels on the balance sheet, including a modest amount of additional securities purchase.
Speaker 3: This should offset any loan yield pressure and stabilize the net interest margin rate in the first half and allow for modest improvement in the second half with higher net interest
This should offset any loan yield pressure with stable and stabilize the next margin rate in the first half and allow for modest improvement in the second half was higher net interest income.
Speaker 3: Any meaningful influence of PPP should end after the first quarter when forgiveness is expected to be essentially completed.
Any meaningful influent PPP <expletive> and after the first quarter when forgiveness is expected to be essentially complete.
Speaker 3: We're well positioned for short rates moving higher. Our balance sheet is asset sensitive on the front of the curve with over 50% floating to LIBOR or PRIME.
We are well positioned for short rates moving higher AR balance sheet asset sensitive on the front of the curve with over 50% floating to LIBOR or prime.
Speaker 3: Our liabilities are better positioned for rates up, with about $110 million indexed to short rates. And like the rest of the industry, we have more liquidity to work with than in prior rate cycles.
Our liabilities are better positioned for rates up.
$10 million indexed to short rates and like the rest of the industry, we have more liquidity to work with than in prior rate cycle.
Speaker 3: Next nine inches income in the fourth quarter increased by $0.3 million compared to the third quarter. Over the course of the year, we've seen solid growth, as Chris mentioned, in core customer deposit fees, including cards, service charges, and wealth.
Net interest.
Income in the fourth quarter decreased by $5 3 million compared to the third quarter over the course of the year, we've seen solid growth as Chris mentioned in core customer deposit teeth clean card service charges as well.
Speaker 3: Combined, these three categories are up almost 19% this quarter compared to a year ago.
These three categories are up almost 19% this quarter compared to a year ago.
Mortgage banking decreased in the fourth quarter due to lower refi volume and a shift to a more to our portfolio lending, where we saw loan balances and mortgages increased by about $12 million.
Speaker 3: Mortgage banking decreased in the fourth quarter due to lower refi volume, and it shifts to more portfolio lending, where we saw loan balances in mortgages increase by about 12 percent.
The other category with favorability impacted by that swap income and market value assessment, we expect a run rate in noninterest income to be 50% to $60 million per quarter in 'twenty two.
Speaker 3: The other category was favorably impacted by better swap income and market value.
Speaker 3: expected run rate in non-income to be $15 to $16 million per quarter in 2022.
Speaker 3: Non-interest expense increased by $3 million compared to the third quarter. Higher salary and benefits of $1.9 million came mainly through higher incentives as Chris described.
Noninterest expense increased by $3 million compared to the third quarter higher salary and benefit of $1 9 billion came mainly through higher incentives as Chris described.
Speaker 3: Data processing increased due in parts to timing, but also due to higher customer activity, some expanded product offerings, and some additional outsourcing.
Data processing increased due in part to timing, but also due to higher customer activity.
<unk> product offering and some additional outsourcing.
Marketing increased due to campaigns in the quarter.
Speaker 3: And going forward with a tighter labor market and investments we are making in talent and systems, we expect our expense run rates to be in the $49 to $50 million range in 2020.
And going forward with a tighter labor market and investments we are making in talented system. We expect our expense run rate to be in the 49% to $50 million range in 2022.
Our ACL to loan decreased from $1 five 5% in the third quarter to $1 four 1% fourth quarter, primarily as a result of charging off $9 2 million specific reserve, we set aside on a C&I credit third quarter.
Speaker 3: Our ACLs alone decreased from 1.55% in the third quarter to 1.41% in the fourth quarter, primarily as a result of charging off the $9.3 million specific reserve we set aside on C&I credits in the third quarter, combined with a charge on a second C&I relationship.
<unk> with a charge on a second C&I relationship.
Speaker 3: Net charge-offs then were $17.7 million for the fourth quarter.
Net charge offs, then were $17 7 million for the fourth quarter.
These charges along with returned to accrual over $22 million of hotel loans contributed to a 40% or 45 million reduction in NPL.
Speaker 3: These charges, along with the return to accrual of over $22 million of hotel loans, contributed to a 40% or $45 million reduction in NPL.
Our risk based capital ratios were down slightly in the fourth quarter due to higher risk weighted asset combined with lower tier two capital from a small sub debt payoff in the ACO or at least that we just discussed we remain in excess of regulatory well capitalized levels and our capital position stands at about $270 million.
Speaker 3: Risk-based capital ratios are down slightly in the fourth quarter due to higher risk-weighted assets, combined with lower Tier 2 capital from a small sub-debt payoff and the ATL release that we just discussed. We remain in excess of regulatory well-capitalized levels, and our capital cushion stands at about $270 million.
Speaker 3: While we have a $37.4 million remaining on our buyback authorization, we have no immediate plan for buybacks, although we're monitoring valuations and we're prepared to respond should conditions warrant. Our preference is to utilize capital to support the loan growth organically that we're seeing for through M&A should the opportunity arise.
While we have a $37 $4 million remaining on our buyback authorization. We have no immediate plans for buybacks. Although we're monitoring valuations and are prepared to respond should conditions warrant our preference is to utilize capital to support the loan growth organically that were seeing or through M&A should that should the opportunity arise.
Speaker 3: Thank you very much. At this time I'd like to turn the call over to the operator to provide instructions for asking questions.
Thank you very much at this time I'd like to turn the call over to the operator to provide instructions for asking questions.
Ladies and gentlemen, the floor is now open for questions.
Speaker 2: If you have any questions or comments, please press star 1 on your phone now. We ask that while posing your question, you please pick up your handset, if listening on speakerphone, to provide optimum sound quality. Please hold a moment while we poll for questions. Your first question. Thank you. Your second question. Thank you. Your third question. Thank you. Your fourth question. Thank you. Your fifth question. Thank you. Your sixth question. Thank you. Your seventh question. Thank you.
Or have any questions or comments. Please press star one on your phone now we ask that while posing your question. Please pickup your handset is listing on speaker phone to provide optimum sound quality. Please hold them moment, while we poll for questions.
Your first question is coming from Daniel Tamayo.
Your line is live.
Hi, good afternoon guys.
Speaker 5: Hi. Good afternoon, guys. Maybe we could just dig into the NIM guidance a little bit in terms of, you know, what the assumptions are. And I apologize if you provide.
Daniel.
Yes.
Maybe we could just dig into the NIM guidance, a little bit in terms of.
What the assumptions are and I apologize if you've provided this I may have missed it but what your assumptions are for.
Speaker 5: it, but what your assumptions are for the deployment of excess cash, what the rate hike assumptions are in there, and then how much the bank would benefit for each individual rate hike.
The deployment of excess cash.
The rate hike hike assumptions are in there.
And then what the how much the bank would benefit for each individual rate hike.
Yes.
Speaker 3: OK, so I'll start with what's in our forecast numbers. Right now, we haven't, in the guidance that I just gave, there's not any increases staked into that for the Fed, even though we do, based on yesterday's meeting, certainly sounds like things are coming. So we don't have anything staked into those numbers yet.
Okay, So I'll start with that.
What is in our forecast numbers right now we haven't we haven't in the guidance that you gave there is not any increase is baked into that.
For the third even though they've got let yesterday meeting so it sounds like things are things are coming as we don't have anything baked into those numbers yet in terms of how much we benefit as I said, we have about $3 6 billion of loans that we would expect to reprice.
Speaker 3: In terms of how much we benefit, we have about $3.6 billion of loans that we would expect to reprice immediately or fairly close to immediately within a month of the rate increase.
Maybe immediately our credit close to be only within a month right.
Our rate increase.
So.
Approximately in the first 25 basis points, there's about $900 million.
Speaker 3: Approximately, in the first 25 basis points, there's about $900 million that won't move right away because of force, so that restricts it a little bit. But on the other side of the ledger, on the liability side, we have very little in repricing liabilities, so we should see most of the benefit, most of the benefit, that right away. And don't expect that, at least initially, there'll be a lot of pressure on deposit rates. For more information, visit www.FEMA.gov
That won't move right away because of floors.
That.
Restricted a little bit but on the other side of that.
On the liability side, we have very little in repricing liabilities. So we should see most of that to that most of the debt right away that right away and don't expect that at least initially there'll be a lot of pressure on deposits on deposit rate.
Was there a third part of that.
Speaker 5: No, I'm just trying to get a handle on how much the marginal move, which is helpful. The information you gave, which is helpful. I appreciate that. Oh, and I guess, yeah, the last part was just on the excess cash. I'm not sure if you addressed what the assumptions are for the deployment there and how much is there.
No.
Trying to get a handle on how much the margin will move.
Which is helpful.
The information, which is helpful. I appreciate that.
I guess.
Yes. The last part was just on the excess cash I'm not sure. If you addressed what the assumptions are for the deployment there and how much is there.
Speaker 3: Well, as Chris mentioned, we expect kind of high single-digit loan growth.
Yes.
As Chris mentioned, we expect.
Single digit loan growth.
Speaker 3: So that over the course of the year should absorb some of that. We do have some plans and have been moving a little bit into security.
Said that over the course of the year should absorb some of that.
Do have some plans that have been moving a little bit into securities.
Speaker 5: Early in the year, and then it will allow that to catch up at the end of the year Depending on how things go and not not replace those things So if everything goes as planned we would expect cash flows to be more More normalized by the end of the year mostly being replaced net by loans at the end of this year Okay, and then on the other
Early in the year and then we'll allow that to catch up at the end of the year, depending on how things scaling not replace those things so.
Everything goes as planned we would expect cash flows to be more more normalized by the end of the year, mostly being replaces net loans.
At the end of this year.
Okay.
And then on the other side of the balance sheet.
I mean.
You've talked about it but.
<unk> put out.
Speaker 5: number on it or a percentage? How are you thinking about the growth?
Number on it or a percentage or how are you thinking about the growth of.
Speaker 5: kind of the earning asset base overall in terms of how big the security portfolio is.
That's kind of the earning asset base overall in terms of.
How big the security portfolio got it.
Yes.
Speaker 6: Yeah, I think we're looking at the security, maybe adding a couple hundred million from where we're at right now, but then letting that, assuming the loan growth materializes as we expect, that we would then kind of let that go in the back half of the year. Okay, great. Well, I appreciate all that detail. Thank you.
Looking at our Securities, maybe adding a couple of hundred million from where we're at right now, but then lighting that assuming the loan growth materializes as we expect that we would then kind of let that let that deal in the back half of the year.
Okay great.
Appreciate all that detail. Thank you. Thank you.
Your next question is coming from Ken Tim Switzer.
Your line is live.
Hey, everyone. Good afternoon, I'm on for Mike Perito.
Okay.
Jeff.
Speaker 7: Um, thanks for the pretty detailed guide you guys gave on the 15 to 16 million dollar quarterly run rate for non interest income. You talked about the really strong customer fees you've been seeing. Could you kind of go through how you expect those line items to move in 2022, which will be like kind of the primary drivers.
Thanks for the pretty detailed guide you guys gave on the $15 million to $16 million quarterly run rate for noninterest income you talked about really strong customer fees, you've been seeing could you kind of go through how you expect those line items to move in 2022, which will be like kind of the primary drivers of that.
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Speaker 3: Right, so we do expect the debit card to continue, so that's the debit and credit card area. That's where we do see some improvement.
Great.
We do expect that.
Debit and debit card.
To continue so that the debit and credit card area.
That's where we do see some.
Some improvement continuing.
Speaker 3: Another area of continuation is also the service charges. Chris mentioned the treasury management. We're very active and have been working hard with our small business group and our commercial side. We expect continued improvements there. And then also on the wealth management side is the third area where we see double-digit growth again year over year.
Another area of continuing continuation, although the service charges, Chris mentioned, the Treasury management.
We're very active and have been working hard.
Our small business group and our commercial side, we expect.
He had improvements there and then also on the wealth management side is the third area, where we see.
Double digit growth again year over year.
Speaker 4: Okay, thanks. And then on the expenses, just to be clear, the wealth management, you know, big income is impacted by two things, obviously flows in assets under management growing.
Okay. Thanks, and then on the <unk>.
Yes, just to be clear the wealth management fee income is impacted by two things obviously flows in assets under management growing.
Speaker 4: So, new customers and expansion of relationships, but then, you know, changes in the market could have an impact because it's not a transaction-based business, it's an assets under management business. So, if the market were to go down significantly, those are headwinds, but that's, you know, everybody faces those same things.
So new customers and expansion of relationships, but then.
Jamie is that the market could have an impact because it's not a it's not a transaction based business assets under management business. So Margaret were to go down significantly as those are headwinds.
Everybody faces those things.
Right.
Speaker 7: Right. And is your wealth management business that priced off of the beginning of the quarter? So like the end of Q4 is going to dictate kind of the level of income you get for this quarter?
And as your wealth management business that priced off of the beginning of the quarter. So like the end of Q4 is going to dictate kind of the level of income you get for this quarter.
Okay.
Speaker 8: A large part of it does. There is some that's based on flows or activity during the quarter, but there's a significant part that's based on the size of the asset under management.
A large part of that there is some that they've done they've got flows of activity during the quarter, but there is a significant part of it is based on.
On the asset.
Assets under management as you described.
Speaker 7: Okay, I got you. And then with the expenses, you're talking about some of the tech and infrastructure investments you've been making on that led to some of the expense growth. Can you outline what some of the most impactful investments are that you're doing? And then if they're more directed towards either bringing efficiencies and savings or kind of revenue driver?
Okay I got you.
And then with the expenses you were talking about some of the tech and infrastructure investments you've been making on that led to some of the expense growth can you outline what some of the most impactful investments sorry that youre doing and then if they are more directed towards either bringing efficiencies in savings or.
Revenue drivers.
Speaker 8: It's a mix, there's on the FTE side, a number of the ads there and the higher expenses are related to enhancing our production capacity, both in the fee areas and also on the loan side. But there's also within there.
Well, it's a mix on that.
FTE side.
A number of the ads there and the.
Higher expenses are related to enhancing our production capacity.
In the key areas and also on the on the <unk>.
Loan side.
But theres also within there.
Support for the risk structures as well in our credit area and also in our in our operations area.
Speaker 8: for the risk structures as well in our credit area and also in our operations area. So that's kind of a mix between production and sort of more basic infrastructure.
That's kind of a mix between production and sort of more interest basic infrastructure.
Speaker 3: On the kind of FF&E, or a lot of that is software, there's some additional expenses that we anticipate with the potential rollout of CRM type software that will help our teams to be more productive. But also there's some risk.
On the on that kind of at the half of the year a lot of that is software there's.
Some additional <unk>.
<unk> expenses that we anticipate.
With the <unk>.
<unk> rollout.
CRM type software that will help our teams to be more productive, but also there is some.
Risk.
Risk.
Speaker 3: risk programs that are being implemented as well that will support the safety assignments that Chris was talking about.
Programs that are being implemented as well.
That will support support the safety and soundness that Chris was talking about.
So there is a mix of customer facing revenue generating enhancements mark talked to the CRM capability, we're working on some.
Speaker 4: So there's a mix of, you know, customer facing.
Speaker 4: Revenue generating enhancements, smart talk to the CRM capability, we're working on some opportunities throughout 2022 around enhancing our digital online mobile banking.
Opportunities throughout 2022 around enhancing our digital online and mobile banking offering as an example, the treasury management's discussion that we have represents continued investments in the business. This is not a product that we're building, but it is.
Speaker 4: offering, as an example, the treasury management discussion that we have represents, you know, continued investment in the business. This is not products that we're building, but it is, you know, we're availing ourselves to capabilities that our core systems providers.
We're availing ourselves to capabilities are core systems providers paths. For example that we may not have capitalized on in the past some of that that represents additional activity within the within our customer base, which could lead to expenses, but there's lots of that also has a revenue offset associated with it.
Speaker 4: paths, for example, that we may not have capitalized on in the past.
Speaker 9: Some of that then represents additional activity within the, within our customer base, which could lead to expenses, but there's lots of that also has revenue offset associated with it. That's great detail. Thank you guys.
That's great detail. Thank you guys towards Inc.
Your next question is coming from Russell Gunther.
Your line is live.
Speaker 10: Good afternoon, Russell. Good afternoon, guys. Thanks for taking my question. I wanted to start, Mark, just a clarification on the margin guide. So...
Good afternoon Russell.
Afternoon, guys. Thanks for taking my question I wanted to start Mark just a clarification on the margin guide so.
Speaker 10: Could you begin your comments with expectations for the reported margin of 312 to improve absent rate hikes due to the average earning absent remix you're expecting?
Did you begin your comments with expectations for the reported margin of 312 to improve.
Absent rate hikes do to the average earning asset remix you are expecting.
Speaker 8: Yes, that's correct. We would expect, you know, over the course of the year to see improvement. We think we've kind of bottled it out on the dim rate.
Yes, that's correct, we would expect over the course of the.
The year to see improvement, we think we've kind of outlined on the right.
Speaker 10: Okay. And then you guys called out the asset sensitivity of the bank in the prepared remarks. So I was just hoping you could give us a sense for, you know, whatever 25 basis point hike means.
Okay, and then you guys called out the asset sensitivity of the bank in the prepared remarks. So I was just hoping you could give us a sense for whatever 25 basis point hike means.
Speaker 10: either from a basis point perspective, NII perspective, and what you guys are assuming in terms of deposit betas within the first couple of months.
Either from a basis point perspective, NII perspective, and what you guys are assuming in terms of deposit betas within the first couple of months.
Yeah, I guess that's hit the last the last one first deposit beta we would expect us to be.
Speaker 8: Yeah, I guess just to hit the last one first, you know, on the deposit beta, we would expect those to be lower than they have been in the past. We've seen a much different, we see a much different mix than we had in the prior rates up cycle with a lot more in DEA, a lot more in management price money market accounts.
Lower than they have been in the past.
<unk> seen.
A much different much different mix than we had in the prior rates up cycle with a lot more.
A lot more in management priced money.
Money market accounts.
Speaker 8: And with the liquidity, both at the bank and in the system, we would expect, at least initially, this pot competition to be somewhat lower, so that we would have a better ability than in the past, at least initially again, to hold back on the rate.
And with that liquidity both at the bank.
In the system, we would expect at least initially.
It's hot competition to be somewhat lower so that when we have.
A better ability than in the past at least initially against it to hold back.
The whole backhaul on the rate on the rates.
Speaker 8: In terms of the value, so that's going to play into how much of that administrative income that we would be able to...
In terms of the <unk>, so that that is going to play into how much of that net interest income that we would.
We would be able to keep depending on how how well that's the price that pricing.
Speaker 8: depending on how well that pricing goes. The other thing that helps us out is that in the past, because we typically have been a net borrower, we would have a lot of floating rate debt that would reprice. Right now, we have essentially zero floating rate debt, so more of that asset improvement goes to the bottom line more directly.
The other thing that helps us out is that in the past because of that.
Typically it's been a net borrower we would have a lot of floating rate debt.
Right now we had essentially zero floating rate debt.
More of that asset improvement because of the bottom line more.
Directly.
Speaker 8: So, all that being said, with a race up of a quarter on approximately $3.6 billion of loan, that starts us out at about a $9 million or so number annualized for finished income. Now, some of that, maybe...
So all that being said you know with that with our rates up.
The quarter on approximately three.
$3 $6 billion.
You know that starts us out at about a $9 million or so number annualized for net interest.
And cutting out some of that.
Maybe it gets eaten up by that by the King.
Speaker 8: get eaten up by the kinks that we would see with at least the first 25 basis points. But all in, we'd be looking at...
That we would see with at least the first 25 basis points.
But all in you were looking at again top line without any deposit repricing about $6 million number for the first 25.
Speaker 8: Again, Tap-Lite without any positive pricing, about a $6 million number for the first 25.
Okay that is very helpful. Thank you guys.
Speaker 10: Okay, that is very helpful. Thank you, guys. And then on the loan growth expectation, appreciate the order of magnitude. Was hoping you could comment in terms of expectations for the mix and particularly an appetite to continue portfolioing single family around current levels or this commercial kind of takeover.
Then on the loan growth expectation.
The order of magnitude was hoping you could comment in terms of expectations for the mix.
Particularly an appetite to continue portfolio single family around current levels or just commercial tend to take over.
Speaker 4: Yeah, from a mixed standpoint, you know, Russell, you're obviously seeing in the marketplaces, you know, the refi boom is over, and so there's a lot more purchase activity, some construction activity that we're involved with, which ends up, you know, some higher level average mortgage size.
Yes from a mixed standpoint, Russell Youre, obviously seeing in the marketplace. The reason.
With refi boom is over.
And.
And so there's a lot more purchase activity.
Construction activities that we're involved with.
<unk>.
Some higher level average mortgage size, which could potentially take you out of the Fannie Freddie conforming.
Speaker 11: could potentially take you out of the Fannie Freddie conforming guidelines which gives us the ability to put those mortgages on the balance sheet. So we do see some balance sheet growth because of the change of mix on the mortgage side of things. We have shown some ability to work within our customer base on the home equity side of things.
Lines, which gives us the ability to put the put those mortgages on the balance sheet. So we do see some balance.
Balance sheet growth because of the change of mix on the mortgage side of things we have shown.
Some ability to work within our customer base on the home equity side of things.
Speaker 12: And that is something that's been attractive to us and we've got some growth.
And that is.
It's something that's been attractive to us and we've got some growth there.
Speaker 13: Continued focus on small business.
Continued.
Our focus on small business.
Speaker 14: There's growth, but the average life and amortization of that portfolio, it turns pretty quickly. Your production is basically offsetting that which is amortizing in the small business area. We're very focused within our small businesses.
So there is growth but that portfolio.
Average life and amortization of that portfolio. It turns pretty quickly so you've got your production basically offsetting.
That which is amortizing in the small business area and we're very focused within our small business.
Speaker 15: employee-based and customer-based on the other side of the balance sheet and that's the treasury management and activity levels that we've spoken of there. We believe there's a lot of latent capability that customers need. The deposit customer in the small business world is talking to us every day somehow.
Our employee base and customer base on the other side of the balance sheet and Thats, the Treasury management and and the activity levels that we've spoken out there. We believe there's a lot of latent capability that customers need.
The deposit customer in the small business world is talking to US every day.
Ill and they need the capabilities that we have and then the loan opportunities are more event, driven but it's still a really important business to us both side and then on the C&I side of things will continue to invest you saw the growth that we've talked about in some of our specialty specialty lines.
Speaker 16: and they need the capabilities that we have, and then the loan opportunities are more event-driven, but still a really important business to us on both sides.
Speaker 17: And then on the C&I side of things, we'll continue to invest. You saw the growth that we've talked about in some of our specialty lines.
Speaker 18: ABL, our REIT group, we've got a very active real estate group that will remain that way. So it's fairly broad-based, but again.
<unk>.
Our REIT group, we've got a very active.
Real estate group that will remain that remain that way. So it's fairly broad based but again through the year, we're expecting that.
Speaker 19: Through the year, we're expecting that high single digit number is what we're talking about.
High single digit number is what we're talking about.
That's good color. Thank you for that and then the last one last one for me if I could just broadly speaking how would you characterize the loss content that was recognized this quarter in terms of trying.
Speaker 20: That's good color. Thank you for that. And then last last one for me if I could.
Speaker 21: Broadly speaking, how would you characterize the lost content that was recognized this quarter in terms of, you know, was this try to take a big chunk at remaining problem assets. Would you expect. You know, charge Austin 2022 to remain above. A normalized level for you as you continue to work through what would be. Remaining just would like to get your thoughts on the outlook there and that's it. Thanks.
Trying to take a big chunk of it remaining problem assets would you expect charge offs in 2022 to remain above a normalized level for you as you continue to work through what would be remaining just would like to get your thoughts on the outlook there.
Thank you.
Speaker 22: Yeah, that's a difficult one to predict, and we certainly expect charges to be lower in 2022 than in 2020 as the NPLs have come down and the outlook for the economy continues.
Yes.
That's a difficult one to predict and we certainly expect.
Charges to be lower in 'twenty two.
<unk> is yet.
The NPL has come down and the outlook for the economy continues to continue to improve so we do expect those numbers to be lower.
Speaker 23: So we do expect those numbers to be lower. I mean, the losses that we had in the fourth quarter had expressed or had shown some stress.
Losses that we had.
In.
In the fourth quarter.
<unk> had a spread there has shown some some stress.
Speaker 24: you know, prior to COVID and then COVID coming in, you really made their situations more difficult. We're seeing fewer of those situations that exemplified by the improvements that we see in the hotel book. And also there's some other categories that we.
Prior to Covid, and then Covid coming in you really need their situations more difficult.
Fewer of those situations.
Slide by the improvements that we see in the hotel Hotel book and also there are some other categories that we've seen similar improvement.
Speaker 25: similar improvement. But, you know, again, it is dependent on the on the curve or the arc that we would see with the pandemic as well.
But again it is dependent on the on the curve of the arc that we would see with.
With the pandemic as well.
Speaker 26: You know, I mean, going into the new year, as we said, the non-performing levels, you know, down, you know, a little north of, you know, 40, 50 million dollars. You know, look at that compared to 4Q of 20 much higher levels. So, we're going in.
No I mean going into the new year, as we said the nonperforming loans down.
Little north of $40 million to $50 million. If you look at that compared to <unk> of 'twenty much higher level. So we're going in.
Speaker 27: through the year in better shape. And the only thing I can tell you from, this is Chris speaking, this is safety and soundness in all that we do.
Through the year.
And in better shape.
And the only thing I can tell you from this is Chris speaking is safety and soundness and all that we do.
Speaker 28: critically important to me and to our leadership team. And we've done a lot to bring talent into the company.
Critically important to me and to our.
Our leadership team as we've done a lot to bring talent into the company as well as elevate talent that was already here to ensure that we have the right focus on producing.
Speaker 29: as well as elevate talent that was already here to ensure that we have the right focus on producing consistent profitable growth with the foundation of safety and soundness. And that's my commitment to our employees, our board, and those that are investing in our company. Understood. Thank you guys for taking my questions. Sure.
Producing consistent profitable growth.
With the foundation of safety and soundness.
Our commitment to our employees our board and those that are investing in our company.
Understood. Thank you guys for taking my questions sure thing.
We have no further questions from the lines at this time.
Speaker 30: Okay, we do have one question that came in online.
Okay. We have got one question that came in.
Online and that was asking for a clarification on the guide for the NIM.
Speaker 31: and that was asking for a clarification on the guide for the NIM being stable in the first half and then grow in the second half versus the net interest income.
Table in the first half and then grow in the second half versus the net interest income, it's actually you know with the with earning assets making.
Speaker 32: It's actually, you know, with earning assets, making the shift between cash and loans and security.
Shifts between cash and.
Loans and securities.
Earning assets stay relatively stable throughout the year, so that guidance is really for both. We do expect that both the NIM and the managed income to show improvement over the course of the year, given the stability of the averaging assets.
Earning asset stayed relatively.
Stable throughout the year. So that guidance is really for both we do expect that both the NIM and net interest income to show improvement over the course of the year given the stability of.
The average earning asset.
Okay. Thank you very much, Chris. Thank you all. Greatly appreciate you taking the time to spend time with us, your interest in our company, and we look forward to further dialogue as we head into 2022, and stay warm. Thank you.
Okay. Thank you very much Chris. Thank you all greatly appreciate it.
Taking the time to spend time with us your interest in our company and we look forward to further dialogue as we head into 2022 and stay warm. Thank you.
Okay.
Thank you, ladies and gentlemen. This concludes today's conference call. You may disconnect at this time and have a wonderful day. Thank you for your...
Thank you ladies and gentlemen. This concludes today's conference call. You may disconnect at this time and have a wonderful day. Thank you for your participation.