Q4 2021 NBT Bancorp Inc Earnings Call

[music].

Yes.

Good day, everyone welcome to the MBT Bancorp fourth quarter 2021 financial results Conference call.

This call is being recorded and has been made accessible to the public in accordance with the SEC's regulation FD.

Corresponding presentation slides can be found on the company's website at MPT Bancorp Dot com.

Before the call begins Mpc's management would like to remind listeners that as noted on slide two today's presentation may contain forward looking statements as defined by the Securities and Exchange Commission.

Actual results may differ from those projected in addition, certain non-GAAP measures will be discussed.

Reconciliations for these numbers are contained within the appendix of today's presentation.

At this time all participants are in a listen only mode. Later, we will conduct a question and answer session.

Instructions will follow at that time.

Anyone require operator assistance can press the star key and then zero on your Touchtone telephone.

As a reminder, this call is being recorded I would now like to turn the conference over to NBC Bancorp, President and CEO , John <unk> Junior for his opening remarks, Mr. Watt. Please begin.

Thank you and good morning, and welcome from 14 degrees below Zero, Norwich, New York and thank you for participating in our earnings call covering MBT Banc Corp's fourth quarter and full year 2021 results.

Joining me today is Scott Kingsley, our Chief financial Officer, as well as our net Burns, our chief accounting officer, and Joanne desk, our treasurer.

At <unk>, we achieved record results in a year defined by great progress and consistently building momentum. We are very pleased to report earnings per share of <unk> 86 cents for the quarter and $3 54 for the year.

Our capital position is strong with tangible book value per share up 8% from the prior year end.

This foundation provides us with Optionality as we consider strategic investments to drive <unk> continued growth.

Our fee based businesses achieved new levels of success year over year and at the end of the fourth quarter AUM in any way exceeded $10 billion.

Loan growth, excluding PPP was 5% with the commercial business and our son gauge solar lending business, finishing strong in the fourth quarter.

Across our markets and despite the recent COVID-19 surge our commercial customers are active in their sentiment is optimistic.

In 2021, our customers continued to embrace digital services with a 64% increase in consumer adoption.

Yesterday, our board approved a 2008 dividend payable on March 15th then that would be our 520th consecutive dividend payment and it is one <unk> higher than the prior year.

Yesterday the board also welcomed our newest director Heidi <unk>, a former partner with Pwc.

With over 25 years of experience in public accounting and financial services, we look forward to adding highly valuable perspective to the discussions guiding and BT forward.

So I'll conclude my remarks by emphasizing that it was the talented and dedicated team at <unk>, who made our 2021 success possible, we could not be more optimistic about how well the team has positioned us as we enter 2022.

And now I'll turn it over to Scott and he'll walk us through our financial performance on a more detailed basis, Scott It's yours.

You John and good morning, everyone.

Turning to slide four of our earnings presentation as John mentioned, our fourth quarter earnings per share were <unk> 86.

Which was consistent with the linked third quarter and <unk> <unk> a share above the fourth quarter of 2020.

These results were driven by increases in net interest income, including a higher level of PPP interest and fees favorable credit results and strong fee income offset by higher operating expenses, we recorded a provision expense of $3 $1 million after four consecutive quarters of provision benefits.

Charge offs increased to 22 basis points of loans compared to 11 basis points in the prior quarter with almost all of that change related to one commercial relationship that had been specifically reserved for in the previous period.

Our reserve coverage decreased to $1, two 4%, excluding PPP loans from 1% to 8% in the third quarter of 2021, we continue to be pleased with our underlying operating performance.

Slide five shows trends in outstanding loans on a core basis, excluding PPP loans were up approximately $107 million for the quarter and included strength in our consumer mortgage and consumer specialty lending portfolios as well as growth in commercial outstandings.

The lack of vehicle inventories has continued to challenge net results in our indirect auto portfolio and we experienced another quarter of declines in Outstandings.

Also as a reminder, we have some additional information on PPP lending on slide 13 in the appendix of today's presentation.

Our total PPP balances as of year end 2021 were just over $100 million with forgiveness almost complete for both the 2020 in 2021 vintage loans, we recognized $7 $5 million of interest and fees associated with PPP lending during the quarter.

At $3 4 million in unamortized fees remaining we expect a significant portion of these to be recognized in 2022.

Moving now to slide six deposits were up $39 million for the quarter customer balances remain elevated from liquidity associated with the various government support programs and continued higher savings rates, our quarterly cost of deposits declined to eight basis points and we continue to add new accounts in the quarter.

Next on slide seven you'll see the detailed changes in our net interest income and margin net interest income increased $7 $5 million as compared to the third quarter and included $4 7 million of additional PPP income. The net interest margin was 20 basis points was up 20 basis.

Points, primarily due to PPP forgiveness, but also included a modest increase in earning asset yields and a decline in the cost of interest bearing liabilities.

Excess liquidity continues to be a drag on our margin, but we again remind ourselves that low cost core funding should always be viewed as a long term value driver.

Looking forward despite the growing sentiment of rising short term rates in 2022, we would expect to experience general core margin stability, excluding the impact of PPP income recognition before reaching an upward inflection point later in the year.

We would plan to deploy some of our $1 1 billion of excess liquidity into more productive earning assets over the next several quarters to improve core net interest income results as those opportunities present themselves.

Slide eight shows trends in noninterest income excluding securities gains and losses, our fee income was up linked quarter to $41 $1 million more broadly non spread revenue was 33% of our total revenue, which remains a key strength for MBT and wed like to trajectory of each of the non <unk>.

Banking businesses, we are in our.

Our wealth management and retirement plan administration businesses continued their trend of strong quarterly growth from new business wins and market appreciation.

Turning now to noninterest expense on slide nine our total operating expenses were $75 1 million for the quarter. We did incur an additional $3 million of nonrecurring costs in the quarter related to a litigation settlement, we've referenced in previous quarters.

Quarter operating expenses were again seasonally higher than the linked third quarter consistent with previous results in previous years we.

We would expect core operating expenses to continue to drift upward over the next several quarters, including expected 2022 merit related wage increases as well as our continued efforts to fill a higher than historical level of open positions in support of customer engagement and growth objectives. In addition to.

And our people we continue to expect to invest in technology related applications and tools in order to advance our customer facing and processing infrastructure.

On slide 10, we provide an overview of key asset quality metrics as I previously mentioned, excluding the impact of PPP charge offs increased to 22 basis points of loans compared to 12 basis points in the prior quarter, both Npls and Npa's declined again this quarter, we are continuing to benefit from our conservative under.

Alrighty, and thus far observed credit metrics have been much better than we would've been suggested in those seasonal models from 12 to 18 months ago.

On slide 11, we provide a walk forward of our reserve clearly the economic outlook continues to improve but uncertainty remains elevated excluding PPP our allowance to loan loss.

License to loan ratio was 124 basis points and appropriately conservative estimate of the credit risk in our portfolio today.

We continue to believe that the path of charge off activity will return to more historical norms and along with expected balance sheet growth will likely be the drivers of future provisioning needs for the company.

As I wrap up prepared remarks, some closing thoughts we started 2021 on strong footing and we are pleased with the fundamental results considering everything that has been impacted by COVID-19 pandemic.

Stable net interest income solid results from our recurring fee income lines sustained expense discipline and exceptional credit quality outcomes have been clear highlights.

Worth mentioning we've added over $130 million to capital over these last historically challenging eight quarters, while at the same time paying dividends to our shareholders of $95 million and buying back $30 million of our own shares these meaningful capital accumulation results put us in an enviable position.

And as we consider growth opportunities for 2022 and beyond.

With that we're happy to answer any questions you may have at this time.

Thank you.

Anyone with a question at this time, Ken Press Star and then one key on your touched on telephone. If your question has been answered or you wish to remove yourself from the queue. Please press the pound key.

One moment for our questions.

Our first question comes from Alex <unk> from Piper Sandler. Please go ahead.

Hey, good morning, guys good morning.

But first of all Scott I missed what you said on the expense guide did you say that.

I think you said that there were some nonrecurring this quarter and then.

Kind of a trajectory can you just go over that again please sure.

<unk>.

So we had another $300000 of costs associated with.

The litigation settlement, where we had had $4 million worth of charges combined in the second and the third quarter.

To hopefully bring that to conclusion.

And from there Alex.

The company's fourth quarter spending has always been a little bit higher than say the linked second and third quarters and that was no different for this year that included.

Some additional spending in professional fees.

We paid for some services relative to some of the initiatives.

Outside audits.

Things that we would say are generally recurring in nature, but just tend to be seasonally higher in the fourth quarter.

We typically have.

Significantly higher concentration of charitable giving in our fiscal fourth quarter than.

And then we do in the three previous quarters.

So back to.

That kind of a point.

Fourth quarter was.

Meaningfully higher than the third quarter some of that stuff is seasonal some of that stuff was completion of some initiatives that got some modest deferral in them from earlier in the year.

If you kind of roll back from that a little bit Alex I think were thinking that on a run rate, including what we expect to do with our employees relative to merit changes, we're probably 73, 5% to $74 $5 million quarterly run rate headed into 2022 understanding.

That there is some seasonality in our numbers, we're generally more expensive in the first quarter, where we have a higher level of payroll taxes.

And higher levels of equity compensation awards that require immediate expensing as well as the fact that as it turns out to turn the heat on when it's minus 14 is a bit more expensive than turning on the air conditioner in June so hopefully that helps.

Okay. So, yes, it's $2 70, or I'm, sorry, 73, 5% to $74 five implies kind of 4% to 5% annual expense growth and that's kind of in line with sort of what your expectations are.

I think thats pretty close.

Okay.

And then maybe you could talk a little bit about.

You talked about the NIM guide I think exclusive of rate hikes, maybe just remind us kind of the percentage of the portfolio that floats and sort of what the impact of.

Some short term rate hikes, it seems pretty likely in the near term would be on the balance sheet.

Yes, great point, so for us in that.

Closing in on the $11 billion of earning assets, which oh by the way, there's still a $1 billion of that sits in essentially short term overnight funds.

So if you kind of start with that.

Presumption is.

Any kind of fed rate hikes would impact that $1 billion pretty fast.

And so instead of earning the very de Minimis amount that we're earning today, we would earn a slightly higher level from the fed on that we've also got about $2 billion of.

Mostly commercial loans that are in a variable state.

And so we would expect to benefit on rate hikes, the moment that happens.

And that part of the portfolio they are tied to either LIBOR or.

And to a certain extent and some of the small business banking, a prime number or some other off Treasury index. So again, we would expect to get it we expect to get instant.

Benefit on that piece of it.

The piece, that's probably just as significant or probably quite frankly more significant to the total is we'd expect new asset generation in a higher rate of rising rate environment with a slightly steeper yield curve in the belly of the curve, where we tend to price most of our assets kind of in that sort of three <unk>.

Year to six or seven year point of the curve to present, an opportunity to price new cash flows.

At slightly higher rates than what we've had that opportunity to do over the course of the last couple of years.

Requires diligence as you know Alex means you can't compete that away.

And given all the liquidity that's out there.

Everyone's balance sheets. The jury is still out on whether people will actually realize some of that inherent benefit that quote this improved yield curve or improved rate environment actually creates.

Again, I think the impact for the first couple of quarters of the year will be pretty nominal.

Probably a second half of the year discussion relative to inflection.

Okay.

Great.

That's great commentary and then.

One final question for me just on credit historically, the fourth quarter, it's been a little bit of a clean up quarter, if I'm not mistaken indirect and taking charge offs and anything that's kind of teetering, you've kind of pushed through what was that again. The case. This quarter I'm just trying to get a sense I know youre talking about net charge offs normalize and youre heading back towards normal in 2022.

Too, but just wondering how quickly we're going to get back to or towards side of a normalized charge off level.

Whether or not that normalizes is going to really be kind of pre pandemic or if it's going to be a little bit lower in your opinion.

Well.

That's a really good question.

One that one has difficulty prognosticating. So if I took your backwards a little bit Alex 2019 for the company was 36 basis points of charge offs across all of our portfolios and as you might expect heavily dominated by our consumer lending portfolios and whether that was.

<unk>.

The old spring stone portfolios or indirect auto.

The combination thereof company has been very fortunate very modest amount of commercial losses over the last three year period and honestly historically.

So then we dropped to 24 and 13 basis points of loss in the two years with the pandemic.

So.

Inherently do we think that number starts to move back up we think the first impacted portfolio again are probably these consumer portfolios.

Alex Nobody is losing any money today on losses on indirect auto because theres not enough cars out there and anything that is making it to the auction.

It's selling at retail at the auction so losses in that portfolio are very modest does that continue for the first half of the year, probably and then maybe we start to drift more towards historical loss rates and indirect auto.

Nothing on the horizon that we see.

From a from a problem standpoint back to your question about did you clean stuff up we have one relationship.

Over 1 million and half dollars that we had specifically reserved for.

In our previous quarter and brought that to a charge offs determination in the quarter and so that represented.

35% or 40% of the charge offs for the entire quarter, whereas the rest of the charge offs come from.

Probably specialty lending on the consumer specialty side.

A little bit of.

Maybe a little bit of delinquency tick up in some of those consumer lines, but still well below historical norms. So.

Feel really good about where we are from a credit perspective on an overall basis.

But I think it's probably hard to sustain 13 basis points of charge offs with our mix.

Great. Thanks for taking my questions I got back in the queue. Thank.

Thank you Alex Thanks, Alex.

Thank you sure. Our next question comes from the line of Erik Zwick from Boenning <unk> Scattergood. Please go ahead.

Good morning, guys.

Good morning, Eric Good morning.

Within your commentary about.

Expense growth in 2022, you mentioned continued digital.

<unk> would be part of that.

Kind of creeping up in the expenses just curious what you have on the agenda in terms of kind of planned investments or systems enhancements for this coming year.

We have several projects ongoing and I think we've talked in the past about.

And <unk> adoption and that was launched in the.

The beginning of the fourth Q and will incur additional expense as we get it rolled out across the platform in 2022.

We've enhanced the indirect auto platform with.

Hey.

Offering to the dealers that digitizes all of the documentation associated with doing those individual indirect auto loans.

And that's rolling out.

Last two quarters of last year, and again <unk>, probably in the second Q.

Year.

Internally, we are upgrading our.

Human resources system, moving away from one vendor into a more integrated vendor.

A lot more efficiency associated with it that gets rolled out in another four five weeks.

So that add on.

Little cost here.

In addition.

Now that Scott cited an opportunity to look at how our financial infrastructure is.

Put together he has made some recommendations on how to improve from a system perspective.

Some of the work we do.

On the financial side and Theres a system there that will go in in 2022 so.

At a high level those are some of the bigger projects underway underlying that we're making some enhancements in our business banking platform to enable customers to access us more quickly.

And to get Decisioning on a more real time basis.

That will rollout as well.

Thanks, John I appreciate the color there.

Turning to.

Turning to loans I noticed in the press release that the commercial utilization rate seems to be kind of just hovering in that kind of 21% range curious as PPP funds get used and it seems like loan demand is increasing would you expect that to.

Potentially start to go up this year and I'm wondering if you could remind me what you would consider kind of a normal level of utilization for your portfolio.

Yes, so good question.

In terms of that.

And I think everyone will be saying this.

This quarter, yes, we see good opportunities for our commercial and business banking customers. They just have way more liquidity than they've had on their own balance sheets than historically, so in fairness from an efficiency standpoint, sometimes the best use of their next.

Initiatives to cast casualty currently have.

So we would like to see that number walk up to more historical utilization levels, which would be in the high <unk> to low thirties.

And honestly, that's why the instruments are out there for people.

Not just to be acknowledged.

I don't think we're going to see a lot of utilization characteristically different and for the first half of the year, but that being said.

Not everybody is excess cash is at the business that potentially needs borrowing opportunities I think the other thing that's happened with generally our business banking are more small business medium sized businesses is the uncertainty. That's continued to circulate has resulted in deferral of commitments from from.

Certainly from a capital spending standpoint and to a certain extent, even some of the initiatives. They might have had on spending that runs through their P&L.

So if we could get through a period of a little bit.

Less uncertainty both from a pandemic standpoint and sort of inflation.

Inflationary direction I think we'd probably.

See a bit more utilization in a bit more certainty with our customers relative to moving forward with value added projects.

Thanks, and maybe just a bit of a follow up on loans kind of with that in mind.

Yes.

At the pipeline today, what would be your kind of general expectations for organic growth in this year.

So we'll talk about.

Total loan growth first in.

Previously stated and we continue to believe that we can.

Do mid single digit growth.

This year consumer and commercial and I think the commercial number itself can be a little bit higher than that and certainly we.

Targeted internally.

Higher levels than that.

Will incent for that.

The pipelines are pretty vibrant.

Coming out of a really strong fourth quarter.

The pipelines are still.

Going to enable us to.

Have a good first Q.

This is commercial so.

So we feel pretty good about that calling activity is high.

As I said earlier customer enthusiasm is uniformly strong about things that they wanted to achieve I agree with Scott.

December January a little bit of a heads up in terms of charging hard because of omnicom, but I think thats.

Going to be behind Us pretty soon we're planning that way in any event.

And going into the rest of the year.

My optimism levels.

We would expect.

Great momentum.

Excellent. Thanks for taking my questions. This morning.

Absolutely good to talk to you.

Thank you.

As a reminder, if you have a question. Please press star and then one on your Touchtone telephone.

I show. Our next question comes from the line of Chris O'connell from K B W. Please go ahead.

Good morning, gentlemen.

Hey, good morning, Chris.

Good.

So just wanted to start on the fee side.

I know you guys.

No no.

The release.

There is a good pop in service charges this quarter, but it's still below pre pandemic levels.

There is also a pretty.

Solid increase in the retirement plan.

Cool.

Just wondering if there is anything kind of onetime in nature that might reverse in the retirement plan side or if that's a good kind of baseline levels headed into 2022 and.

There is room left for.

The deposit service charges to.

Creep back up to pre pandemic levels here in the next couple of quarters.

So let me take that one head on Chris So good observations on all fronts.

Let's start with retirement plan administration, yes, we probably did have about a half a million dollars of.

They are not necessarily one time.

But they are not necessarily core annual frequency on.

Document restatement fees.

That tends to be tend to be necessary items that when you are administering people's plans that happens, but they don't necessarily happen every quarter and there's a lot of times. They don't happen every year. So good observation that one being a little bit higher than probably the trend that we would expect going into 2022 from an inflection.

Standpoint.

The impact of improved market conditions.

Meaning full to both the retirement plan administration business and wealth management and obviously the fourth quarter was another quarter of hitting some all time highs, but remembering a lot of people that were.

Are there assets reside in.

Under our administration or management have blended portfolio. So this is not just an equity only outcome.

And if we start to get a little bit higher rates on some of the fixed income.

Items, maybe you get a little bit of that back if there is some market choppiness on the equity side.

That being said part of our compensation in those businesses is fee for service.

And part is based on basis points of <unk>.

Assets under administration.

On the banking fee side kind of two things to think about.

Of importance for us going into next year.

First one is we do have.

$11 million ish dollars within our deposit service categories that our overdraft program related.

Revenues.

Debt.

Clearly theres a lot of dialogue going on around that.

And probably like most people, we're analyzing our programs and John May have some other comments to that point.

So we havent really projected much growth in that particular area honestly.

On the debit interchange side. So a couple of things worth reminding we are growing the number of accounts. We have we're growing the number of occurrences of debit swipes today.

And actually enjoying really strong growth in that line of business.

Or is that revenue line in 2021.

Activity levels have come back to close to pre pandemic levels.

So with that said reminding everyone that on July one.

Elements of the Durbin Amendment and the <unk>.

Fixed pricing controls.

Interchange compensation, because we're over $10 billion and then some impact us starting to midyear next year.

We've estimated that impact to be about $14 million, a year of which half of that gets incurred in 2022, So the third and the fourth quarter combined.

Have roughly $7 million of expectation of lower earnings from that's certainly not something we invited but at the same point in time certainly knew it was coming.

And have.

I have done on a whole lot of things around trying to mitigate some of those outcomes in.

Multiple other places.

That's how we kind of think about that I still think that.

We'll have very robust debit card activity from our customer base going forward.

But we're just going to get paid a little less for that activity.

Chris Let me also add to that Scott teed up there.

And I know several of you on this call are interested in this subject and I have asked about it.

With respect to the overdraft product.

Wanted to.

Make sure everybody understands the position MPT has in the markets. We serve were out there focused on.

The financial needs of the communities that we're in and because of that we recently launched an ice select checking account product that is.

No fee simple checking account maintenance no minimum balance no overdraft no wind activity no early closure fees.

And thats targeted to.

Customers, who.

Look for.

A.

Access to a community bank or financial institution that may not always be available to them.

So we want to make sure we're looking at the Underbanked.

And half.

Financial services available to them with respect to.

And Oh by the way bank on adopted.

And.

Acknowledged our ice select product and we have now the bank designation associated with it with.

With respect to our existing product offerings.

We're looking at all options on whether or not we should modify.

But would expect as part of that review that will replace loss revenue from other sources of revenue.

To us this is not an all or nothing.

<unk> and <unk>.

Exercise.

And if the outcome of that.

Work is material and you can be assured we'll share with you.

When we are able to calculate the impact of any modifications, we make but as of today, we're still working really hard to make sure. We understand what the options are what the market is demanding what the regulators expect.

And we'll keep that right at the top of our list in the near term.

Great really helpful color.

Thank you.

Im.

Just wanted to.

Thank you al good loan growth this quarter.

<unk>.

And.

Pet specialty lending was up considerably just wondering if there is anything particular driving that.

Well.

Certainly there is.

As we've talked about in the past.

We have a great partnership with a solar lender headquartered in Boston called some gauge and we're the sole funder of their originated loans through a nationally based.

Install network.

In this environment.

The focus on the environment and global warming is so high and where the incentives and many states are.

Very.

Attractive and where the investment community is also focused from an ESG perspective, we've seen a lot of activity and a lot of growth in prime and Super Prime.

FICO levels.

In the fourth Q.

Each one of those three months experience significant.

Fundings that.

Our carrying us through the end of the year.

There'll be a little bit of a pause perhaps in the first 60 days, while we replenish the pipeline, but we would expect that this year as well would be very strong there.

The portfolio from a credit perspective performed extremely well during the depths of the.

Of the pandemic and the related recession and is performing well now.

It's turned out to be a significant positive additive.

Line for Us and we will continue to invest in it as we go forward.

Great. Thank you.

And then.

Hoping to just get an update on how you guys are thinking about.

Utilization of our buyback authorization.

Target or ideal capital levels going forward.

Great I'll take that one Chris so in the fourth quarter, we bought a couple of hundred thousand shares why do we do that we were trying to get out in front of what we would have assumed our 2022.

<unk> was going to be relative to <unk>.

Equity award programs for the company. So in other words at least keep your comparisons like kind of on a year over year basis, and we think we accomplished that.

Going forward.

Share buybacks are not the top priority relative to capital utilization for us I think.

They trail.

Organic growth support from a capital standpoint, and they probably trail opportunistic evaluation of potential M&A opportunities for us.

And they probably trail our considerations relative to dividend award.

So.

But are there times, where that's where that's appropriate.

And beneficial to the shareholder there are.

And so we just think it's good housekeeping to have the authorization out there.

A periods of time, where there is some potential market impacts that make that.

More reasonable and.

We're very disciplined about that like we would be from an acquisition. We start to think about the dilution characteristics associated with the.

The buyback similar to how we think about dilution characteristics associated with.

An M&A transaction. So again I was just trying to say, it's a necessary tool to have in the belt.

And.

Although we don't have big plans for a ton of that use.

Is there when when the opportunity creates itself one thing I should acknowledge this is.

Pointing both to our people remembering that the PPP program was very very successful for our bank.

Over the two year period, we generated generating $35 million in incremental.

Pretax earnings from that program so.

So even if you said we added to that program by itself added to capital to the tune of $27 million to $28 million that was capital we didn't actually planned to have.

So could one say utilization.

Buyback or something of that.

That was appropriate.

To date, we have not done that we certainly have not exhausted that much of it but at the same point in time.

Certainly a net net positive both for us and it clearly for our customer base.

Understood very helpful. Thank you.

Thanks, Chris.

Thank you.

I show. Our next question comes from the line of Matthew Breese from Stephens, Inc. Please go ahead.

Good morning, Hey, good morning, Matt.

I'd go back to specialty lending for a second first what are the what are the loan yields.

In that in that segment and then secondly.

As we think about mid single digit loan growth and the potential commercial to outpace that bogey.

Especially lending now I think it's just a hair over 10% alone should we should we expect the concentration of these loans to increase or is there a limit.

On the segment that we should keep in mind.

So Matt Great question.

So let me try to frame that in multiple buckets here for a second.

Your point is well taken were closer to $800 million of specialty loans.

Then any other number.

That's a combination of almost now a half a billion dollars worth of lending in that Sungazing portfolio that John just mentioned.

We really like the credit profile of that business and because it has what we think is a much better profile on a credit side it doesn't carry.

A yield that's much above mid single digits.

In terms of that outcome.

Ed.

But at the same point in time, we're currently with the spring stone on.

In the spring stone lending club relationships since they purchased that business yields were much higher in that portfolio, maybe closer to a blended 10%, but those typically are the way. They sit today, we're thinking about that as a portfolio thats more running down and being added to.

So from a from a rate exchange standpoint, we're getting a little bit lower rate.

Our new growth, but we're expecting a lower level of loss content.

On a longer term basis concentration is a really good question. So we are in the midst of having dialogues around what should that be what are we comfortable with and if we're not comfortable with a meaningful increase above that we're certainly we're confident we can our balance sheet can handle more increase there.

But should we be considering securitization of certain assets, if they get above a certain level.

Like maybe a lot of other businesses in the solar space, we're enjoying really good opportunities.

Through our partner Sundays and up until now we have been certainly capable of meeting all the funding needs there.

<unk> and flex if we get to even a higher number I think thats when we think about maybe alternatively, not holding everything on the balance sheet.

Maybe that gives us some rights to some other financing alternatives.

Did I get the whole question, Matt or did you have one other one.

No.

Got it all thank you.

I did want to go back to the margin discussion. So if I look at your most recent 10-Q and Youre kind of plus 100 basis point interest rate scenario.

I would call Mvpds moderately asset sensitive with a three 2% expected increase in NII and it does feel like a plus 100 basis scenario today is realistic.

Just curious if theres any kind of underlying assumptions you would highlight particularly on the deposit beta front just given your performance last cycle was.

Was really solid and I am curious if theres any underlying assumptions on that front worth worth flagging, yes, I think thats, great and I think for Q ended up for us.

So we get a great success in sort of that 2016 to 2019 cycle.

And as you appreciate not every 100 basis points is created equal, but the first 100.

The inflection on the deposit beta side was very very modest for us in the single digit basis points, certainly a little bit more maybe a third of the next hundred.

But as you know what happened with that cycle is by the time, we got to the consideration of the third group of hundreds we suddenly hit the pandemic and so the world went back to start over again.

So I think we're highly confident.

That in that first hundred we will have only nominal needs for deposit changes.

In terms of rate.

Everybody's balance sheet from a competition standpoint enjoys a ton of liquidity today that was not the case in 2016 and 17.

So some people who historically had not been best in class core deposit gatherers.

Today their balance sheet looks like they might be.

So I think the jury's out once you get past maybe this first 100, Matt as you referred to it whether the folks who really were more.

Maybe more CD funded or.

Our promotional money market funded.

What do they do.

Outside of that first 100, I think what we will probably experienced in 2022 as everybody will be pretty responsible and certainly in the markets that we compete we expect most of our significant competitors to be very responsible. They also enjoy very low cost funding today as well.

So I think the story is going to be we aspired to be sprinters on the way down we think we're going to be one of the slower people in the race on the way up.

And you've been with US a long time, Matt you know that it's in our DNA to <unk>.

Execute on the lag.

And I see no reason why.

Our experience there wouldn't repeat itself this year.

Great and then just a follow up on the margin.

What are the kind of the incremental blended loan yields in the pipeline are coming on the books say.

Versus whats on the average balance sheet and are we at the point, where we're seeing a positive role on versus roll off or is it still still negative well. That's a great question, Matt. So if you look at our fourth quarter, you would actually think we actually achieved it.

We have to we have to admit that we are very mixed dependent right. Now. So when you go through a quarter that had a very robust growth rate attached to some of those specialty lending lines, we had a net benefit.

And we've probably reached the inflection point in commercial banking.

Have we reached that inflection point in indirect auto and in mortgage lending probably not yet.

So to answer your question, it's kind of portfolio specific the blend in the fourth quarter, let us achieve that.

I think what we've been thinking going forward. In 2022 is we were probably still fighting a little bit of higher loan yield run offs.

On the lending side than we were putting on in net new assets.

We're really close on the investment portfolio right now.

We're probably not quite there, but we're really close.

So I think that's why we've kind of postured ourselves to say general stability.

A couple of basis points here or there for the first half of the year and then if we get into the second half of the year end.

The fed has pushed through a couple of changes or maybe is.

Indicating we're headed for a third by the third quarter.

I think at that point in time, we will have probably crossover.

Yes.

And then last one for me is just.

Historically, the bank has attacked new markets over time examples of Vermont, New Hampshire, now, Connecticut. So first maybe an update on those markets and the contribution of loan growth from the new England areas versus legacy Upstate New York and then two as we think about the path ahead are there any other geographies that you envision entering organically.

At this point and just curious about some of the strategic priorities for the franchise over the next year or two.

Sure let me take that one good question I'll talk about the strategy and then we'll.

Give you a little bit of color on what's going on in new England, particularly.

So.

Clearly.

The disruption in new England continues.

We're executing against it in.

Vermont, New Hampshire, Maine, particularly in Connecticut.

And we've been able to convert customers and hire bankers and that initiative will continue this year and next year and on into the future.

And that will drive incremental growth in each one of those regions.

As you know we also consider in those markets in new England, the potential to partner with strategically aligned.

All banks in those dialogues also continue and if they will supplement.

<unk> already stated growth strategies there.

We'll engage so.

I'll, just say that conversations are always ongoing there.

We have been thinking.

Matt where else, we should invest outside of new England I think there is significant opportunity in the Lehigh Valley for instance.

And.

We are.

Actively engaged in that analysis and there are several routes by which we could enter that market.

Now that we've got the worst part of the pandemic behind US we're able to do some more things.

Two.

Drive execution there so.

Keep an eye out on what's going on there with us.

Traditionally as you know we've been focused to the east of route 81 in New York State. However from time to time strategic opportunities present themselves in Western New York State and.

If and when one of those.

Preferred opportunities present themselves.

Scott talked about our capital position and our Optionality.

We have the ability to engage in those discussions as well.

Just talking regionally from.

Our growth perspective color.

In new England.

58% of the commercial originations in the fourth Q <unk>.

Came out of new England.

Maine was 27% of that.

And.

I think.

And I know the pipeline's in several of those regions are robust.

I think in Connecticut, we will continue to drive.

A whole bunch of singles and doubles, which is right in our wheelhouse.

And the more of the uncertainty persists.

More accelerated the pace will be there.

So we're feeling pretty good about.

There are new Hampshire, Maine.

It's a little bit more mature up in Burlington in terms of our effort. There are now over 10 years.

So we deal with the pay offs and amortization there but.

Still there'll be loan growth in Vermont as well so.

I hope that color is useful too.

Very much. Thank you I appreciate you taking my questions.

Thank you Matt good to talk to you.

Thank you I'm not showing any further questions I will now turn the call back to John <unk> for his closing remarks.

Well.

Again, thank you all for participating today and we appreciate your interest in <unk> and.

Look forward to interacting in the future, perhaps in a warmer climate. Thanks.

Thanks, everybody have a good day. Thank you.

Thank you Mr. Watt. This concludes our program you may disconnect have a great day.

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