Q4 2021 Bank of Marin Bancorp Earnings Call
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Good morning, and thank you for joining bank of Marin Bancorp's earnings call for the fourth quarter and year ended December 31 2021.
I am Andrea Henderson director of marketing for bank of Marin.
During the presentation, all participants will be in a listen only mode. After the call. We will conduct a question and answer session.
At that time, if you have questions. Please press one followed by four on your telephone.
If at any time during the conference call you need to reach an operator. Please press Star Zero. This conference call is being recorded on January 24th 2022.
Joining us on the call today are Tim Myers, President and CEO , and Tani Girton Executive Vice President.
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Good morning, and thank you for joining bank of Marin Bancorp's earnings call for the fourth quarter and year ended December 31 2021.
I am Andrea Henderson director of marketing for bank of Marin.
During the presentation, all participants will be in a listen only mode. After the call.
A question and answer session.
At that time, if you have questions. Please press one followed by four.
<unk>.
If at any time during the conference call.
Operator, Please press Star Zero. This conference call is being recorded on January 24th.
Okay.
Joining us on the call today are Tim Myers, President and CEO , and Tani, Girton Executive Vice President and Chief Financial Officer.
Our earnings press release, which we issued this morning can be found on our website at bank of Marin Dot Com, where this call is also being webcast.
Before we get started I want to note that we will be discussing some non-GAAP financial measures on the call.
Please refer to the reconciliation table on page three of our earnings press release for both GAAP and non-GAAP measures.
Additionally, the discussion on this call is based on information, we know as of Friday January 21, 2022 and.
And may contain forward looking statements that involve risks and uncertainties.
Actual results may differ materially from those set forth in such statements.
For a discussion of these risks and uncertainties. Please review the forward looking statements disclosure in our earnings press release as well as our SEC filings.
Following our prepared remarks, Tim and Tony will be available to answer your question and now I'd like to turn the call over to Ken Meyers.
Thank you Andrea good morning, and welcome to the call.
I'd like to begin my first earnings call as CEO of bank of Marin by affirming that we remain laser focused on serving our customers and communities, while consistently driving long term value for our shareholders.
We generated solid results for the fourth quarter and full year of 2021.
While maintaining capital liquidity and overall credit quality.
These are the hallmarks of our consistent performance.
Our acquisition of American River Bankshares in 2021 and expanded our footprint in the greater Sacramento, one of the fastest growing regions in California.
Importantly, it provided us with better scale to maximize efficiencies and drive growth into the future.
Integration of American River is on track as we approach core systems conversion in late March.
We also continue to make strategic hires and develop our teams to support growth.
Several of our key hires have been in the greater Sacramento region, and I'd like to take a moment to highlight one of them.
2021, we hired <unk> <unk> as senior Vice President commercial banking sales manager in this newly created position he will oversee the bank's commercial banking growth initiatives across our entire footprint.
<unk> is a great example of the talent, we continue to attract as we grow.
With nearly 20 years of commercial banking expertise, including deep learning experience in the greater Sacramento area. He has a strong track record of building successful teams.
This will serve us well as he expands our new client acquisition efforts and helps guide our growth initiatives.
For the full year, we generated strong loan production in Napa Moran, Oakland and Walnut Creek.
Later in the year, our commercial banking teams in these and other key markets, including Sacramento were successful in bringing new clients to the bank and expanding existing relationships.
These efforts helped generate a notable lift in loan production in the fourth quarter and we expect that drive to continue.
The pandemic is still with us, but we continue to adapt as necessary and manage the business for ongoing growth.
We along with our customers have learned a great deal over the past two years I am confident we will continue to accelerate momentum gained through the past year to deliver value for our shareholders in 2022 and beyond.
Now for some key highlights.
Net income for the full year was $33 2 million or $2 30 per share representing a return on assets of <unk>, 94% and return on equity of eight 4%.
Excluding onetime merger related and conversion costs net income would have been $38 1 million or $2 64 per share representing a return on average assets of 1.08% and return on average equity of 967%.
Loans increased 8% to $2 3 billion at year end 2021 up from $2 1 billion at December 31 2020.
Year over year growth was driven by the American River acquisition, and non PPP commercial loan origination.
Majority of which were investor commercial real estate loans.
$191 $7 million of non PPP loan originations were distributed across our footprint.
Loan growth was offset by PPP forgiveness commercial real estate asset sales and commercial payoffs due to ongoing borrower deleveraging.
As of December 31, there were 368, SBA PPP loans outstanding totaling $111 million net of $2 5 million in unrecognized fees and costs.
Deposits grew $1 3 billion or 52% in 2021% to $3 8 billion.
Including $790 million acquired from American River Bank on August six.
Noninterest bearing deposits increased $556 million in 2021 and made up 50% of total deposits at year end.
Our already low cost of deposits decreased further to seven basis points for the full year of 2021.
Down from 11 basis points in 2020.
We reported a net increase in sub standard loans in the fourth quarter, primarily due to one borrower with two secured investor commercial real estate loans that were negative negatively affected by the pandemic.
However, nonaccrual loans represented only 0.37% of the bank's loan portfolio as of December 31.
$8 $4 million in nonaccrual loans at year end included two secured owner occupied commercial real estate loans totaling $7 1 million.
Which were placed on non accrual status in the fourth quarter of 2020.
Bank of Marin Bancorp continued its share repurchase program repurchasing 149983 shares totaling $5 $6 million in the fourth quarter of 2021.
Given our continued strong capital position and solid 2021 results. Our board of directors declared a cash dividend of <unk> 24 per share on January 21, 2022. This.
This represents the 67th consecutive quarterly dividend paid by bank of Marin Bancorp.
Now I'll hand, the call over to Tony to discuss our financial results.
Thank you Tim.
Good morning, everyone.
Fourth quarter 2021 represented the first full quarter with the combined assets of bank of Marin and American River Bank.
Net income of $9 7 million increase from $5 3 million in the third quarter and $8 1 million in the fourth quarter of 2020.
As shown in the earnings release reconciliation of GAAP and non-GAAP measures fourth quarter net income would have been $10 5 million and earnings per share 66, without the merger related one time and conversion costs.
Return on average assets of <unk>, 9% for the fourth quarter would have been <unk>.
97% without those costs.
The eight 5% return on equity would have been $9 one 9%.
While non PPP loan originations exceeded payoffs by $7 million in the fourth quarter total loans decreased by $61 million to $54 million in PPP loan payoff and changes related to scheduled amortization and utilization.
$80 million in non PTT loan originations for the quarter was up significantly from $43 million in the fourth quarter 2020.
Quarter over quarter average loan balances increased to $80 million and the yield increased 10 basis points to 443%, mostly due to lower rate PPP loans paying off.
While average yields on investment securities decreased 36 basis points higher balances significantly contributed to an increase in quarterly net interest income.
Fourth quarter 2021, net interest income of $30 6 million increased $2 9 million over the third quarter.
Net interest income increased $7 million over the same quarter last year due to higher loan balances and a 52 basis points higher average loan yields resulting from accelerated fee recognition on PPP loan payoffs.
Incremental balances in the investment portfolio added $2 4 million to net interest income despite the lower average yield.
Overall average interest, earning assets increased $1 3 billion.
The tax equivalent net interest margin was three 3% for the fourth quarter of 2021 compared to $3 one 5% in the prior quarter and three 4% in the fourth quarter of 2020.
The 12 basis point decrease from the prior quarter and a 37 basis point decrease from the same quarter a year ago were primarily due to a higher proportion of investment securities in the growing balance sheet.
The balance sheet continues to be asset sensitive and well positioned to benefit from rising interest rates.
Noninterest income totaled $2 7 million in the fourth quarter compared to $3 6 million in the prior quarter and $1 8 million in the fourth quarter of 2020.
The decline from the third quarter was largely due to $1 1 million in bank owned life insurance benefits collected in the third quarter.
The increase over the fourth quarter of 2020 was spread across most categories and largely resulted from increased activity related to our expanded deposit base.
Noninterest expense of $19 million in the fourth quarter of 2021 declined $3 7 million from third quarter, mostly due to lower merger related one time and conversion cost.
Higher loan originations in the fourth quarter led to more deferred costs, which reduced salaries and benefits.
Year end true ups to incentives and benefits had the opposite effect.
Full year non interest expense of $72 6 million increased $14 million over 2020.
$6 $5 million of that increase came from acquisition related one time and conversion costs.
Additional personnel from the merger annual Merit increases.
Sure deferred loan origination costs and year end true ups to incentives also increased salaries and benefits.
Other increases included consulting expenses related to PPP forgiveness, and higher data processing expense associated with increased transaction activity.
Several other categories increased due to the banks larger size.
<unk> contribution decreased due to supplemental contributions in 2020 related to the pandemic.
The efficiency ratio for the quarter, excluding merger related one time and conversion cost was 53, 6% and improved from 56% third quarter and 55, 9% in the fourth quarter of 2020.
The effective tax rate increased 50 basis points to 26% in 2021, primarily as a result of nondeductible merger related expenses.
In closing.
2021 presented both challenges and opportunities and we effectively navigated the environment, while staying committed to the principles underlying our long term success.
We are pleased with these results and are ready to take on the new year.
And now Tim we'd like to share some final comments.
Thank you Tani.
Think of them brand continued to deliver solid performance in 2021, while growing and expanding our footprint.
We entered 2020 too confident in our ability to navigate the remaining stages of the pandemic and respond to our customers' needs as we continue our transition to a post pandemic economy.
Following our acquisition of American River, our ongoing efforts to attract skilled leaders and revenue generating talent will help us further build out our team in Sacramento and drive growth across Northern California.
Thanks to everyone on today's call for your interest and support.
With that we will open the call to your questions.
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One moment please for the first question.
Our first question comes from the line of Jeff relief.
Davidson. Please go ahead.
Hi, Thanks, Good morning, Tim and Tony.
Good morning, Jeff.
Wanted to get into the expenses.
I think the core is running a little lower than I had anticipated maybe youre capturing the American River cost saves ahead of time any can we get just to catch up on how.
Successful you've been on obtaining cost saves to date and then what.
I think Tim you mentioned the conversion occurring in March.
Due to the.
The absolute number as well.
Yeah, Thanks, Jeff I'll start high level, and then Tana can take over so as of right. Now we're tracking ahead of plan on one time costs and.
Cost saves going forward, Tony can give any specifics there.
Hi, Yes, I would say if you look at Q4 without the acquisition cost that's a pretty good indicator of our run rate.
<unk>.
I think that.
And also if you look at what the conversion and one and one time expenses that were included in the in the fourth quarter.
That's a good indicator of what might show up in the first quarter, because our best estimate.
What is going to be expensed over the course of the conversion is M is accrued over the course of the conversion.
Okay. So if we get back to that core run rate if you think.
Something.
Just below 18 million is the core.
If we just focus on sort of.
Sean.
Onetime merger costs.
Is there more saves to go or is that sort of from there is going to be offset by wage inflation and others. So that.
$18 million run rate and then it kind of carries on from there.
Post conversion I guess as we get into the second quarter.
Well when we model our cost saves we model those to increase over time with.
With inflationary and merit increases and that sort of thing so.
But the absolute expenses, obviously overtime will go up because for those same reasons.
Okay.
So if I read you right.
<unk> conversion you wouldn't anticipate the run rate to be meaningfully disrupted in that over time.
Probably revert to some to some growth.
That is correct.
Okay got you. Thanks.
Switching gears just on the on the margin and the securities invest.
Investment or that build.
Okay understandable.
With what's happened with loans as well as the.
The transaction on.
Liquidity just wanted to see about the balance of 'twenty two how your advantage is there additional interest in the securities portfolio.
The short answer would probably be preferred loans, but.
How does that man.
With the backdrop, you've said you remain well positioned on on rates.
How do you manage.
The balance sheet versus what you think the output on the margin would be.
So I'll just quickly say Geoff to your point about we would much rather prefer and are targeting putting more money to work in loans, we talked about in the release hiring Deepak Baku to have a disciplined consistent sales process across our footprint really hammer home the relationship banking, which Don correctly helps the yield.
But certainly tani has a lot to do on the security side.
Yes, so the balance sheet remains asset sensitive as I mentioned last quarter, we reported on a static balance sheet in an up 100 basis point environment, an increase in first year NII of about two 8% and in the second year six 9%.
So that's pretty well balanced and and a little bit.
Heavily weighted towards an increasing rate environment, but we're probably a little bit lower on asset sensitivity than we were then because we have deployed some of our cash into securities.
But remember that's a static balance sheet so to the extent that we are.
Grow loans, that's going to be improved.
Also with the with the probability that interest rates will go up that's that is definitely a tale a tailwind for us.
PPP loans, we've got about $2 5 million in fees net of cost left to amortize after that goes away that's a bit of a headwind.
But another tailwind we have is that we've got a ton of liquidity. So that supports our ability to lag deposit rates.
On the way up when interest rates increase and then the last point is that.
As we deploy cash into the investment portfolio recently, most recently with rates up we've been able to do that at a yield that is higher than the average yield on the portfolio.
Okay.
Got it so it sounds like on the <unk>.
And securities to loans of that mix in the near term.
Yes.
The well.
I mean youre growing NII.
Some some volume and it sounds good on the rate outlook going forward. So.
Appreciate the detail I'll step back.
Thanks, Jeff.
Our next question comes from the line of David Feaster with Raymond James. Please go ahead.
Hey, good morning, everybody.
Morning, David.
I just wanted to start on the organic growth outlook due to new hires.
Looks like originations really accelerated in the fourth quarter, but payoffs and Paydowns. There are still a headwind maybe just could you talk about some of the puts and takes with loan growth as we look forward. What do you think you'd kind of trough year on a core basis, just how you think about organic growth heading into 'twenty two.
Yes, that's a key focus of ours, David certainly one of the nice things. If you look on a group by group basis across our commercial banking office network, we had much more even production in the year. So we're really seeing some of the newer offices or the offices that were not just moran and for the full year margin was a third of our total production. So we're.
Seeing some really good production out of regions like Napa, Oakland, but also key areas like Walnut Creek and San Mateo there were.
Walnut Creek was started shortly before the pandemic and was completely diverted to that was that was our PPP team.
They had one of the better production years. This year as the time demands on them decline with PPP, we're seeing good activity in San Mateo, which was started right in the middle of the pandemic, which is a horrible time to start a commercial banking office in our relationship banking model. So I think a depot coming in and continue to drive that consistent sales process.
I feel very good about that more even growth it really gives us an opportunity to drive the kind of targeted loan growth that we want certainly there are headwinds the pay off a lot of those have been out of our control of the asset sales and cash pay downs.
Due to deleveraging, but we did have a fairly large amount of third party refinancing. So we've really made an attempt to tackle that in terms of calling on our customers, making sure. We're getting in front of issues, but also and you see that in some of the NIM decline as the loan yields.
In targeted areas being more aggressive on loan pricing to retain and attract new customers. It is better to put that money to work in loans. So we will continue all of those approaches to continue the organic growth.
Good pipeline right now we don't comment on amounts, but despite the amount that funded in Q4, we have a healthy amount of loans, we are expecting to fund.
The new team that we've hired out in Sacramento has developed a good pipeline already and we will just continue to hammer on those key factors.
To answer your question yes.
Yes, no. That's extremely helpful. And then maybe just any thoughts on the additional new hires theres been a lot of disruption.
And the market just curious.
What are you seeing more opportunities for new hires and just how you think about.
New hires going forward.
Well that disruption goes both ways, David I mean, we've had good people com we've had good people.
We believe it's an aggressive market and that again that works both ways for us and against Us.
But that team in Sacramento is a really good example, our scale our ability to do.
Loans out in the Sacramento market allowed us to attract people that had done very well in prior jobs and like I said, they already have a considerable pipeline and <unk> role they'll be pushing that out to our other regions as well so.
Again, it can work both ways, but we've certainly benefited and we are looking to fill key positions still going forward.
Okay. That's helpful. And then just one other quick one could you just remind us of the seasonal expenses that you would expect in the first quarter and I guess, maybe we should expect a little bit of a bump in that.
First quarter before kind of coming back to that.
Upwards of $17 million run rate that you were kind of talking about.
Yes, that's exactly right we do have.
We do typically have a bump in the first quarter relative to the resets of the 401K contributions related to them.
Ah contract the bonus payouts and 401K payments associated with that so that's a really good point.
And I'll just we had a question on the webcast regarding that as well asking is $18 million per quarter sort of was the run rate.
Based on our fourth quarter minus the acquisition expenses in <unk>.
That is correct, but that $18 million would not include that first quarter cyclical bump.
Okay.
Alright Thats helpful. Thank you.
Uh-huh.
Our next question comes from the line of Matthew Clark with Piper Sandler. Please go ahead.
Yes.
Hey, good morning.
Good morning, Matthew.
Yeah.
Maybe just to round out the expense related discussion and get more specific I guess how much.
How much of the $6 1 million of annualized cost saves have been realized so far and what do you think the upside is stood at six one.
When it's all said and done.
So.
Sorry, Matthew I'm, not sure where the $6 1 million is coming from or you just are you at.
We're running that number based on what American River Bank costs were.
Sorry.
Yes, I guess I am using a targeted <unk>.
Percentage based on the last 12 months, but it might be different relative to what you guys are okay. Okay.
So we'll just talk conceptually.
Yeah. So first of all we used consensus estimates when we ran our model.
And we only estimated at about a 25%.
And realization of cost savings in the first quarter. So it's very early days on that but I think in general when we look at where most of those cost saves come from is in salaries and benefits and when we look at where we are and where we're headed.
Over the.
Over the course of the acquisition and post conversion.
Right now it looks like we're going to exceed the projected cost saves we also modeled a 75% realization of those in 2022.
The accretion numbers that we quoted in the Investor presentation remember, we're on a fully phased in basis.
And so fully phased in would be 100% realized in 2023.
And that's because we've got a quarter of conversion in 2022.
Okay got it.
And then.
The bump in in reserves this quarter.
And I think last as well I guess, where do you what do you feel comfortable with that coverage ratio longer term based on you know.
The mix of.
Your loan portfolio.
In terms of what Youre targeting for your loan mix longer term.
Yes.
The increase in the reserves due to see so we're really not necessarily a reflection of the credit quality in the portfolio. We feel good about the credit quality. We did have the one downgrade, but we feel like we have our arms around that and it was really an adjustment to the factors in the model that we mentioned in the earnings release management other factors. So.
I don't think Theres any reason to think that will worsen or continue you can't predict when some of these credits will.
Deteriorate, but we feel very good about our loan portfolio credit quality and don't see anything in our plans in terms of the portfolio mix that would materially impact that.
Okay, and then shifting gears to the margin outlook.
Your asset sensitivity, what's the underlying loan and deposit beta that you're using for up 100 basis points.
If you have it offhand.
Yes.
Let me I'm going to pull that for you, Matt just tough to go through some papers so illuminate on that one.
Sure.
Sure.
I'll try to shift away from a question for you Tony.
And then maybe Tim on the buyback.
You still have I think about $40 million left under the current authorization do you have any I guess, what's your sensitivity.
To price because there are limited, which you will no longer buy back stock.
Well the.
Yes, I think we have $35 million left on the approved program volume has slowed.
But we're going to look as we go forward Matthew about our other.
Repurchase activity relative to other investment so.
Just because as they are approved.
Im not ready to say at this point that we're going to continue on that pace irrespective of price. So we have to we have to weigh as we go into 2022 and looking ahead, what our investment priorities are and what the right thing to do is.
Okay, and then last one for me a follow up one for Tani do you happen to have the purchase accounting accretion.
Embedded in net interest income this quarter from American River.
That one I will have to get back to you on.
And same with the beta I've got the average life here, which is roughly six five.
Years, but the beta I don't want to quote a number off the top of my head because I don't want to have to call you and say I got that wrong.
So I'll be back to you understood nor elections.
Thank you.
Thank you Matthew.
Next question from the line of Andrew <unk> with Stephens. Please proceed with your question.
Hey, good morning.
Good morning, Andrew Hello.
So most of mine have been asked and answered already but Tim was hoping you could maybe just provide an update on how you're thinking about M&A right now maybe just an update on an appetite into 2022 are all kind of status of conversations are going or just where you might be focused on just any kind of color on M&A would be helpful.
No I appreciate that Andrew our focus is 100% right now on integrating and completing the successful conversion of the legacy American River Bank. So that is our total intense focus at the time.
Going forward as you know banks are sold not bought and so you can't really control the timing.
And my job is always to be out there talking to other investment banks and Ceos and <unk>.
I will continue to do so but there is there is nothing in the immediate works we are 100% focused on integrating <unk>.
Okay perfect. Thank you.
And then maybe one for Tani do you have the.
The average yield for the new Securities purchased in the fourth quarter, just kind of square away the margin. Thanks.
Thanks.
Yeah.
I have that but not here with me so I can get back to you on that.
Because you are talking about the entire quarter right.
Yes, that's right.
Okay.
Thank you.
Mhm.
Our next question comes from the line of.
Stuart Lotz with <unk>.
BW. Please go ahead.
Hey, guys good morning.
Good morning Stuart.
Tony I appreciate all the detail, particularly on your asset sensitivity.
So I guess just kind of trying to piece that altogether, how can we think about how quickly your loan book.
Would reprice, if we do get a hike here in March.
Just in terms of kind of overall composition between fixed and floating rate.
Mhm.
So if you look at the whole book together about 18% of our loans repriced in less than or equal to a year.
And obviously that doesn't include securities or securities portfolio is in the.
The duration on that is pretty short and we get a lot of cash off of that portfolio.
And then 63% of the loan book re prices in less than or equal to five years only 4% of the.
The portfolio is in the money on floors.
And roughly one third of that would reprice upwards once right because rates go up 50 basis points. The other two thirds 100, but thats a pretty small percentage of the overall portfolio.
Okay. So it sounds like just.
But when you run your screen from an asset sensitivity most of the upside is from.
<unk> cash and.
Cash.
Back to 8% today.
Where do you see that trending is that really just driven by <unk>.
Deposit inflows and how quickly you can you can put money to better use in the securities book.
Yeah. So we have continued to have deposit inflows as you mentioned it is a little bit hard to keep up with it.
Given where rates are and we want to make sure that we invest opportunistically, which is why we.
We had quite a few investments that the ended the third quarter and the beginning of the fourth quarter.
And then again here more recently in the last couple of weeks when when rates popped up again so.
We try to manage that we have a lot of liquidity off balance sheet too that we can rely on.
If we if we have the opportunity to invest at higher rates. So.
Yes.
It's a full time job keeping up with the deposit growth.
Speaker 1: God, the crush.
Speaker 2: Great. And maybe just one more for me, if we go back to the reserve outlook, you know, I think the provision this quarter was, was probably driven by just the stronger production. So how are you guys thinking about, you know, kind of a quarterly provision run rate in 22? You know, charge offs remain at, you know, near zero, and maybe we'd use to, you know, long growth start to improve, just kind of any color there.
Great.
And maybe just one more for me.
Go back to the reserve outlook.
The provision this quarter, which was probably driven by.
The stronger production.
So how are you guys thinking about kind of a quarterly provision run rate in 'twenty two.
Charge offs remain at.
Near zero and maybe reduced to.
Loan growth start to improve.
Kind of any color there. Thanks.
Speaker 3: Yeah, we don't expect any change in the charge-off numbers. I'll let Tawny answer some of the ongoing provision expectations.
Expect any change in the charge off numbers I'll, let Tom answer some of the ongoing provision expectation, yes, so with diesel.
Speaker 4: Yeah, so with CECL, that model is a lot more dependent on the underlying economic forecast. So that's where you would get any fluctuations. And then obviously if we grow the portfolio, we're going to get some change associated with that.
That model is a lot more dependent on the underlying economic forecast. So that's where you would get any fluctuations and then obviously if we grow the portfolio, we're going to get some change associated with that.
Speaker 4: We normally with CECL, a very high percentage of the provision is based on the calculated or quantitative portion of the analysis. However, as Tim mentioned earlier, we have quite a few qualitative results.
Normally we see still a very high percentage of the provision is based on the calculated or quantitative portion of of.
The analysis, however, as mentioned as Tim mentioned earlier.
We have quite a few qualitative.
[noise] elements in there right now due to the <unk>.
Speaker 4: elements in there right now due to the, you know, the change in the executive management, the
Change in the executive management.
Speaker 4: the integration of the ARB team in terms of underwriting and all of that. So that's typical to what we did.
The integration of the <unk> team in terms of underwriting and all of that so.
That's typical to what we did.
Speaker 4: during the last acquisition or during prior transitions from one, we'll say, Chief Credit Officer to another Chief Credit Officer, we just tend to bump those qualitative factors up a little bit just because there's a little more risk. Another element of the qualitative factors is the model risk. And you will notice, though, that also in the qualitative factors, there was some risk
During the last acquisition or during.
Prior transitions from one will stay chief credit officer to another Chief Credit Officer, we just tend to bump those qualitative factors up a little bit.
Just because there is a little more risk another.
Another element of the qualitative factors is the model risk.
And you will notice, though that also in the qualitative factors there was some.
Speaker 4: there was some reduction because we did have some improvement in some of the risks on classified and doubtful.
There was some reduction because we did have some improvement in some of the risks on classified and doubtful.
Speaker 3: We tried to take a conservative outlook on changes in leadership, integration of the ARB team, credit culture, etc. So that drove a significant part of the industry.
We tried to take a conservative outlook on changes in leadership.
Integration of the <unk> team credit culture et cetera. So.
That drove a significant part of the increase.
Speaker 2: Great, that's that's very helpful detail and then maybe just kind of one more here. Yeah, just any update on you know utilization rates and where those are trending and you know, have we seen any improvement in the fourth quarter and kind of going into 22?
Alright.
Very helpful detail Tim.
And then maybe just kind of one more here.
Any update on utilization rates.
Those are trending and have you seen any improvement.
In the fourth quarter and kind of going into 'twenty two.
Speaker 3: Unfortunately, Stuart, no. I think our overall portfolio utilization declined 8% from 34 to 33 quarter over quarter. And at that level, it sits exactly where it did at 12-31-2020. It has bounced around though. We've had months where we've had considerable improvement.
No Unfortunately, Stewart know or I.
Our overall portfolio utilization declined 8% from 34% to 33 quarter over quarter and at that level since exactly where it did at 12 31 2020. So.
It has bounced around though we've had months, where we've had considerable improvement.
Speaker 3: But we are still, you know, just like the banks, a lot of our customers remain very liquid. And so trying to predict when that utilization trend might.
But we are still just like the banks a lot of our customers remain very liquid and so trying to predict when that utilization trend might reverse is really tough there's a lot of liquidity out there.
Speaker 2: reverse is really tough. There's a lot of liquidity out there and everywhere. So I think that continues to drive the usage levels. But I think it went from 34 to 33 September to December , but it's flat year over year. Okay. Great. Thanks for taking my question. You're welcome. Thank you.
From everywhere.
I think that continues to drive the usage levels, but I think you went from 34% to 33 September to December but is flat year over year.
Okay.
Great.
For taking my question.
Youre welcome. Thank you.
Once again, if you have.
One.
Speaker 4: While we're waiting for the next question, I'll get back to Andrew from Stevens. On the securities purchased over the quarter, the yield was about 1.6 on average. So obviously some higher, some lower, but that was the average for the quarter.
And while we're waiting for the next question.
I will get back to Andrew from Stephens on the securities purchased over the quarter. The yield was about 1.6 on average.
So obviously some higher some lower but that was the average for the quarter.
Speaker 5: We do have a question from the line of Tim Coffey with Jenny Montgomery Scott. Please go ahead. Thanks.
We do have a question from the line of Tim Coffey with Janney Montgomery Scott. Please go ahead.
Thanks, Good morning, good morning Tani.
Speaker 6: Good. I have a question on the loan yields that you, on loans that you originated in the quarter. Can you talk about where they were relative to kind of the period in yield?
Good morning, how are you good.
Question.
The loan.
Loan yields.
On loans you originated in the quarter can you talk about where they were relative to kind of the period and yield.
Speaker 3: Yeah, I have some numbers here. I won't give exact numbers, but we did see a decline in loan yields, particularly on a new production on investor real estate, some on owner occupied real estate. As I mentioned earlier in the call, you know, we've had a push to not just put cash to work, but play defense a little bit from really some of the highly competitive
Yes, I have some numbers here I won't give exact numbers, but we did see a decline in loan yields, particularly on new production on investor Real estate.
The amount of owner occupied real estate as I mentioned earlier in the call. We've had a push to just put cash to work, but play defense a little bit from really a sum of the highly competitive.
Speaker 3: offers we see out in the market. So we did go out with a lower loan yield on some of those. Most of the others are relatively close, but we did see a decline in that investor real estate on our occupied real estate primary.
<unk> offers we sell in the market. So we did go out with a lower loan yield on some of those most of the others are relatively close but we did see a decline.
Investor Real estate owner occupied real estate primarily.
Speaker 6: I think the way to get off the fence out there in this market right now, you talked about wanting to be more aggressive on price and at least competitive on price, I should say. Are these kind of like teaser rates or is this kind of how you're approaching the market right now?
Okay.
And then.
The way to get offensive out there in the market right now you talked about wanting to be more.
Aggressive on pricing or at least competitive on pricing I should say.
Yes, I was just kind of like teaser rates or is this kind of your how.
How are you approaching the market right now.
Speaker 3: No, no, we don't we don't do teaser rates. This is just for a strong customer strong prospect.
We don't we don't do teaser rates. This is just for a strong customer strong prospect.
Speaker 3: being competitive relative to what we're seeing in the market, but we had a relatively small bucket that we allocated for that. We continue to have an intense focus on that relationship banking model, so we can get yields at a premium to market and certainly want to improve our overall portfolio yield. So we continue to focus on that. We're not explicitly saying let's...
Being competitive relative to what we're seeing in the market.
But we had a relatively small bucket that we allocated for that.
We continue to have an intense focus on that relationship banking model. So we can get yields.
At a premium to market and certainly want to improve our overall portfolio yield. So we continue to focus on that we don't we're not.
<unk>, saying, let's.
Speaker 3: be aggressive consistently. It's just being competitive where necessary to maintain and grow the loan balance.
Be aggressive consistently it's just being competitive where necessary to maintain and grow the loan balances.
Speaker 3: Great. And then, Tani, what's a good way to think about your tax rate going forward, given the volatility we've seen the last two quarters?
Okay got it understood and then tani.
Kind of a good way to think about your tax.
Our rate going forward given the volatility you've seen the last two quarters.
Speaker 4: Um, I think that, uh, if you, we, we, it would be, we would want to ratchet it down a little bit versus the full year 2021 because we had, uh, some.
I think that.
Right.
If you would be we would want to ratchet it down a little bit versus the full year 2021, because we had.
Some.
Speaker 4: some non-deductible merger expenses. So I would say, you know, that was for the full year that was worth about 50 basis points in the effective tax rate. Okay.
Some nondeductible merger expenses.
So I would say that was for the full year that was worth about 50 basis excuse me 50 basis points in the effective tax rate.
Okay, Alright, great. Thanks, those are my questions.
Speaker 4: Thank you. Great. And I'm going to come back to...
Thank you and I'm going to come back to them.
Speaker 4: Matthew's question on the betas, so the average beta for the portfolio that we apply in our interest rate risk analytics is 58%, and that includes the 74% beta on our money market account.
Matthew's question on the betas, so the average beta for the portfolio that we apply in our interest rate risk analytics is 58% and that includes a 74% beta on our money market accounts.
Yeah.
Speaker 5: And we appear to have no further questions on the phone line. I'll turn it over back to our speakers for any closing remarks.
And we appear to have no further questions on the phone line I'll turn it over back to our speakers for any closing remarks.
Yeah.
Speaker 3: Thank you very much for joining us on the call. I appreciate it. If anyone has any follow-up questions, please let us know.
Thank you very much for joining us on the call I. Appreciate it if anyone has any follow up questions. Please let us know.
Thank you.
Speaker 5: That concludes today's call. We thank you for your participation and ask you to please disconnect your line.
That concludes today's call. We thank you for your participation and ask you to please disconnect your lines.
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Yeah.
Yeah.
Yeah.
Yeah.
Speaker 7: What.
Yeah.
Hum.
Yeah.