Q4 2021 Old Second Bancorp Inc Earnings Call
Speaker 1: Good morning, everyone, and thank you for joining us today for Old Second Bancorp Inc.'s fourth quarter 2021 earnings call. On the call today is Jim Ecker, the company's CEO , Gary Collins, the vice chairman of our board, and the company's CFO , Brad Adams.
Good morning, everyone and thank you for joining us today for old Second Bancorp, Inc. 's fourth quarter 2021 earnings call.
Our call today is Jim <unk>, the company's CEO , Gary Collins, Vice Chairman of our board and the company's CFO Brad Adams.
Speaker 1: I will start with a reminder that old seconds comments today may contain forward-looking statements about the company's business, strategies, and prospects, which are based on management's existing expectations in the current economic environment. These statements are not a guarantee of future performance and results may differ materially from those projected. Management would ask you to refer to the company's SEC filings for a full discussion of the company's risk factors.
I'll start with a reminder, that old second's comments today may contain forward looking statements about the company's business strategies and prospects, which are based on management's existing expectations in the current economic environment. These statements are not a guarantee of future performance and results may differ materially from those projected.
Management would ask you to refer to the company's SEC filings for a full discussion of the company's risk factors on.
Speaker 1: On today's call, we will also be discussing certain non-GAAP financial measures. These non-GAAP measures are described to reconcile to their GAAP counterparts in our earnings release which is available on our website at oldsecond.com on the home page under the Investor Relations tab. Now I will turn it over to Jim Ecker.
On today's call. We will also be discussing certain non-GAAP financial measures. These non-GAAP measures are described to reconciled to their GAAP counterparts in our earnings release, which is available on our website at old second dot com on the homepage under the Investor Relations tab.
Now I will turn it over to Jim Edgar.
Speaker 2: Good morning and thank you for joining us. I have several prepared opening remarks and will give my overview of the quarter and then turn it over to Brad for additional details.
Good morning, and thank you for joining us.
Several prepared opening remarks, and will give my overview of the quarter and then turn it over to Brad for additional details.
Speaker 2: I will then conclude with some summary comments and thoughts about the future before we open it up for questions.
I will then conclude with some summary comments and thoughts about the future before we open it up for questions.
Speaker 2: Okay, net loss was $9.1 million, or $0.26 per diluted share, in the fourth quarter. Net income, excluding acquisition-related adjustments to our provision for credit losses and merger-related costs.
Net loss was $9 1 million or 26 cents per diluted share in the fourth quarter net income excluding.
Acquisition related adjustments to our provision for credit losses and merger related costs was $12 5 million.
Speaker 2: $12.5 million, or $0.36 per share in the fourth quarter.
<unk> 36 per share in the fourth quarter.
Speaker 2: On the same basis, return on assets was 1.15%.
On a same basis return on assets was 1.15%.
Speaker 2: Return on Tangible Common Equity was 14.1% and the efficiency ratio was 66.1%.
Return on tangible common equity was 14, 1%.
And the efficiency ratio was 66, 1%.
Speaker 2: Earnings this quarter were favorably impacted by the inclusion of one month of the legacy West Suburban net interest income, as well as a $2.3 million reversal provision for credit losses due to more favorable unemployment projections.
Earnings this quarter were favorably impacted by the inclusion of one month of the legacy West suburban net interest income as.
As well as a $2 $3 million reversal of provision for credit losses.
Due to more favorable unemployment projections over the next year.
In addition.
Speaker 2: In addition, a MSR valuation mark-to-market gain of $1.5 million was recorded in the fourth quarter.
MSR valuation mark to market gain of $1 5 million was recorded recorded in the fourth quarter.
Speaker 2: We closed the West Suburban acquisition on December 1st, which resulted in some transformational changes to our financial status.
We closed the west suburban acquisition on December one, which resulted in some transformational changes to our financial statements.
Speaker 2: For the full year, earnings were $41.9 million, or $1.36 per diluted share, excluding the merger-related charges and CECL adjustments.
For the full year earnings were $41 9 million or $1 36 per diluted share excluding the merger related charges and seasonal adjustments.
Speaker 2: ROA was 1.20%, ROTC was 13.66%.
ROA was 120% royalty.
<unk> was $13 six 6%.
Speaker 2: and the efficiency ratio was 65.8% on the same basis.
And the efficiency ratio was 65, 8% on the same basis.
Speaker 2: Overall, we are very pleased with the financial performance we delivered in 2021.
Overall, we were very pleased with the financial performance, we delivered in 2021.
Speaker 2: But the acquisition of West Suburban and what it can mean for us in the future is clearly the story for us. We now have $6.2 billion in assets, including
With the acquisition of West suburban and what it can mean for us in the futures is clearly the story for us.
We now have $6 2 billion in assets, including $3 4 billion in loans.
Speaker 2: and an incredibly granular low beta of 5.5 billion dollars in deposits.
And an incredibly granular low beta of $5 5 billion and deposits.
We are focused on deploying liquidity in order to more fully leverage the quality of the deposit base by building commercial loan origination capabilities for the long term and making prudent investments in the securities portfolio in the short term that do not carry excess spread or credit risk.
Speaker 2: We are focused on deploying liquidity in order to more fully leverage the quality of the deposit base by building commercial loan origination capability for the long term and making prudent investments in the securities portfolio in the short term that do not carry excess spread or credit risk.
Speaker 2: The goal is obviously to build back towards an 80% plus loan to deposit ratio in order to drive the returns on equity commensurate with our recent historical performance. We have a plan and are making progress.
The goal is obviously to build back towards an 80% plus loan to deposit ratio in order to drive the returns on equity commensurate with our recent historical performance.
We have a plan and are making progress.
In regards to the quarter and our balance sheet specifically.
Speaker 2: Security and loan growth quarter over quarter included the growth from the inclusion of the West suburban portfolio year at
Security and loan growth quarter over quarter included the growth from the inclusion of the west suburban portfolio at year end.
Speaker 2: The West Suburban Securities portfolio was fair valued at $1.07 billion and it was recorded in its entirety within our available for sale portfolio.
West suburban Securities portfolio was fair valued at 1.07 billion.
It was recorded in its entirety within our available for sale portfolio.
Speaker 2: We executed 570.8 million of security sales or 54% of the portfolio immediately upon acquisition close in order to align the portfolio with our
We executed $570 eight.
$8 million of security sales or 54% of the portfolio immediately upon acquisition close.
In order to align the portfolio with our investment strategy.
Speaker 2: This included subsequent purchases of $533.9 million of securities throughout the fourth quarter of 2021.
This included subsequent purchases of $533 9 million of securities throughout the fourth quarter of 2021.
We significantly improved our liquidity and reduce the duration of the portfolio, thereby reducing extension risk.
Speaker 2: We significantly improved the liquidity and reduced the duration of the portfolio, thereby reducing extension risk.
There was certainly a cost of doing this in both income and fair value associated with these actions the outlook that we shared with you when we announced the transaction is unchanged.
Speaker 2: There is certainly a cost to doing this in both income and fair value associated with these actions. The outlook that we share with you when we announce the transaction is unchanged.
Period end loans for the fourth quarter included the addition of $1 5 billion from West suburban merger as well as organic growth of $81 6 million exclusive exclusive of PPP loan pay downs of $29 7 million for the quarter.
Only $38 4 million of PPP loans for both the first and second round remain outstanding.
At the end of the year, which includes both legacy old second and west suburban portfolios.
We're encouraged both by returning to growth mode and that our pipeline at quarter end is by far the strongest we've seen since the pandemic began.
We are seeing significant pipeline builds in commercial real estate and healthcare, although C&I activity in line utilization remains soft.
After a strong fourth quarter last year equipment leasing will ramp up as the new year unfolds.
With the new CRE team that started with us in the third quarter, along with our senior leasing officer.
And an experienced team leading a new sponsor finance vertical added in the fourth quarter of 2021, I'm optimistic we can see solid loan growth in 2022.
Nonperforming loans increased by $15 7 million compared to the prior quarter with the addition of the west suburban portfolio.
The increase is attributable to three newly acquired west suburban credits importing.
Importantly, legacy old second nonperforming loans decreased $2 million in the quarter.
Additionally, we did charge off two large credits in the fourth quarter one in commercial from legacy old second and one commercial real estate from legacy West suburban resulting in net charge offs of $4 7 million for the quarter.
Both of these large credits were fully allocated in prior quarters.
Total classified loans increased $39 6 million.
To $74 5 million due to the inclusion of the west suburban portfolio.
We remain confident in the strength of our portfolios.
Other real estate owned did not increase materially as the west suburban portfolio had minimal oriel at acquisition and two of the three properties. We did acquire were sold in December .
Details are available in the earnings release tables on these changes.
The allowance for credit losses totaled $44 3 million as of December 31, which is one 3% of total loans.
During the quarter during the fourth quarter of 2021, the credit Mark on acquired PCV loans of $12 1 million increase the ACL.
As well as the day two provision for credit losses.
Adjustment based on the estimated future credit losses, our non PCI loans acquired a $12 2 million for loans.
In addition, $2 4 million was recorded to the provision for credit losses for the day to unfunded commitments future losses estimate.
At quarter end, $2 3 million of provision for credit losses on loans was reversed and 49000 of reserves for unfunded commitments was reverse based on our review of line utilization trends.
Our outlook is cautiously optimistic as the underlying economy continues to improve albeit with significant uncertainties.
We believe that we are more than adequately reserved under base case scenarios, but continue to modestly overweight more pessimistic scenarios given the high degree of uncertainty.
Expense discipline continues to be strong and we are making good progress on cost saving targets announced with the acquisition.
Write downs for legacy old second branches of $3 8 million were recorded in the fourth quarter of 2021.
With the potential of marketing these properties in the near future.
These branches are in addition to the nine west suburban branches that have been identified as overlapping with newly acquired branches.
Total merger related costs of $12 8 million were recorded in the fourth quarter, which includes this $3 8 million fixed asset write down as well as other merger costs, including severance and retention data deconversion legal investment banker and other consulting fees.
With that I'll turn it over to Brad for additional color in his prepared comments.
Thank you Jim.
I think probably the best use of the time, we have remaining is to talk a bit about how things have changed.
What we got right and wrong in the estimates we put out in July at the announcement.
Certainly the macro environment is a bit different with.
With the world seemingly waking up to the reality of inflation here very recently.
Our credit facility marks for the WSB acquisition were consistent with expectations.
So the day two adjustments were slightly larger than our initial expectations. Once the model runs were completed.
The rally in rates in late November and early December appeared inexplicable on our end and provided us an opportunity for a much larger than we expected portfolio repositioning.
Substantially reduces the risk posed by the prospect of higher rates.
The WSB portfolio was around $1 billion as Jim said.
The duration on that portfolio.
Was reduced from an excess of six to well under three.
Without a meaningful change in yield.
I am extremely pleased that we were able to get this done here given the illiquidity as some of the issues that were in that portfolio.
Obviously, I don't have a crystal ball, but whether that will turn out to be worth it or not but the bias and results so far indicate.
That would favor significantly higher rates than where we are today and certainly higher than where we were in early December .
As we move towards the announcement of this deal we discussed internally the things that we needed to do to be successful with the investment we're making.
And in the years ahead more generally.
In the short term, we decided we needed to double our loan origination capability within a year of the close.
I'm pleased with where we are in this effort and we are much further along than I expected to be at this point.
On the cost save front I would love to tell you that we expect to outperform the $21 million number we gave you in July .
And we are but we have already spent the difference in new talent acquisition.
And I am optimistic additional opportunities that are out there and we will keep you posted on these efforts.
From a cultural standpoint, there are always challenges to overcome but I would say that the communication is very good.
And we are getting to the right answers and things feel even better than we expected.
With that said I'll move more into the results.
Net interest income increased $6 million relative to last quarter.
And $4 8 million from the year ago quarter.
Margin trends were stable on a core basis due to the securities portfolio growth.
Which mitigated the continuing increase in liquidity.
The reinvestment rate on the portfolio was slightly less than 100 basis points as we continued to avoid duration throughout the fourth quarter.
Given the more recent moves that we've seen we have been going quite a bit longer but we do remain somewhat cautious on that front.
We continue to have strong deposit inflows and substantial excess liquidity persistent for the entirety of the quarter our.
Our margin trends will be a function of loan growth, primarily and we will continue to deploy liquidity within the securities portfolio as well.
I would have even more confidence if we were able to see positive developments in C&I and utilization rates.
Both of which remain depressed.
We do feel quite a bit better on loan growth side of things, though as he mentioned actually substantially better.
If the forward curve is accurate the first two rate hikes will benefit us, but not to the degree of any subsequent moves would we.
We do have significant floors in our loan portfolio, though west suburban did not.
I would add that we expect our deposit beta to be excellent in a rising rate environment.
Sum total of that discussion is that we currently expect loan growth trends to drive net interest income growth with modest margin improvement.
If things move further along in the rate hike in development, obviously that would be biased upward further.
But I kind of feel like we're in a chicken or the egg discussion here I don't want to count on that yet.
Noninterest income increased from last quarter, with an increase of $1 7 million quarter over quarter, and MSR mark to market gains.
Service charges on deposits growth of 256000 wealth management income remains strong with $2 4 million in both the current quarter in the prior quarter.
Excluding the $14 6 million a day two acquisition acquisition related provision for credit loss adjustments.
Our provision for credit loss reversal of $2 3 million was recorded in the fourth quarter.
Compared to a $1 $5 million versus last quarter.
The economic outlook for US assumes continued improvement with an unemployment rate projection remaining at approximately 5% to 6%.
Through December 31, 2022, and over the remaining life of the allowance.
Which is.
I'm going to sound high to you, but it shows that a substantial decline from the approximate $5 $25 to $6 75 from last quarter.
I certainly recognize that our assumptions are probably more pessimistic than most at this point and expect the severity of these assumptions to be lessened in coming quarters.
Those assumptions are relaxed I would expect loan growth to outpace provision growth in the near term.
I am extremely pleased with how credit has performed through the pandemic credit metrics have remained stable to improving.
And a number of credits that I would have been concerned about had been resolved favorably.
Expenses are difficult to manage in 2022 absent the acquisition with mid single digit increases in salaries and double digit increases in benefits, reflecting wage inflation in a difficult environment to hire.
We are managing through this and are thankful for the flexibility and opportunities for centered synergies that exists for us right now.
We had expected to realize more synergies from scale on the benefit side, but inflation is very real on this front.
Fortunately, we were able to look to other opportunities on the expense side to get to where we need to be.
Our efforts in the coming quarters will be on delivering on the synergies that we promised continuing to bring additional loan growth talent onboard hell.
Helping our customers and funding quality loan growth with the expectation of a stable and improving margin.
<unk> assumes that liquidity remains robust and risk spreads remain unreasonably tight.
With that I'd like to turn the call back over to Jim Okay, Thanks, Brett and closing.
We are optimistic about the new year confident that our balance sheet and loan growth opportunities that are ahead.
Prolonged low rates certainly not the best environment for deposit base like old second.
But it certainly appears we are near an inflection point in rates, regardless, we remain extremely profitable given our focus on expense discipline.
We expect to remain so.
We believe our credit and underwriting has remained disciplined and our funding position is strong.
Today, we have the balance sheet and liquidity to take advantage of a rising rate environment and have the financial strength to wait for this to occur.
We continue to be active in the effort to bring additional salespeople to our team and are making substantial progress on the systems integration to.
To ensure a smooth transition for west suburban customers and employees.
We are excited about the opportunities that exist for old second.
In 2022 and beyond.
That concludes our prepared comments. This morning, so I will turn it back over to you Holly to open it up for questions.
Certainly.
Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments. Please press star one on your phone at this time.
We ask that while posing your question. Please pickup your handset is listening on speaker phone to provide optimum sound quality. Please hold while we poll for questions.
Your first question for today is coming from Chris Mcgrady. Please announce your affiliation and pose your question.
Hey, good morning, Chris Mcgratty from Covid.
Jim.
And Jim and Brad the outlook for loan growth it.
It seems like a little bit of a divide right commercial real estate doing better C&I kind of stuck.
Can you elaborate on on the outlook for organic loan growth.
In light of the team hires in those comments in your prepared remarks.
Sure Chris.
And we've added.
Substantial talent.
Over the last couple of quarters.
Not to mention we are seeing.
Some increased demand across all fronts, but yes.
We feel.
We have.
An opportunity with our new teams to generate mid to upper single digit loan growth really fueled by <unk>.
Good pipeline of CRE.
Healthcare continues to.
To build their pipeline.
Our triple net.
<unk>.
Sorry team.
Our newly formed sponsor finance team, which will probably be delivered results later in the year, but we're certainly more optimistic today than than we have been and then.
Suburban legacy portfolio, we had originally.
We expected more significant run off in the near term, we're not seeing that so we're we're optimistic we can generate some growth with that with that team as well.
Okay.
And with that in your 80% target on your loan to deposit you talked about.
How do we think about is this a remix here of the balance sheet. I know you took actions with the western Robyn.
Owned portfolio, but yes.
So the security book be used as a source of funds to fund the growth or will you need to grow that as well.
That will be growing as well in the near term.
It's largely going to be driven by what happens to the liquidity and if rates do in fact go up I would expect that some of our liquidity to drain.
But it's been far more persistent than I expected.
I would expect to see another couple $100 million in Peru and portfolio growth for us over the next two quarters.
And then we will also focus on the loan growth getting back to our loan to deposit ratio that looks more like us is going to take some time.
But it obviously represents a long term opportunity.
Okay.
Maybe if I could squeeze one more in.
The 21 million you said youre doing better on the on the cost saves.
But youre, putting it back into the business.
How far along are we on the cost saves and.
I guess, how should we be thinking about just the expense cadence over the rest of the year.
I would expect that at some point this year, we will get to the fully phased in run rate.
Okay.
And then outside of that.
We're seeing inflationary pressures.
Core bank growing 34%.
If we were standalone today, we would probably be staring at expenses that got north of four.
A couple of things embedded in that one.
The the increase that we saw on the benefit side was far in excess of my expectations.
A little bit of that is fueled by people are actually going to the doctor again, thank goodness.
And filing claims, but some of it is also basically provider driven in terms of what's being pass through.
And then yeah.
Obviously, there are people with much bigger workforces that can speak to the dynamics that is going on within hiring markets.
There is substantial wage inflation and the competition to hire people.
And though we have not seen excess turnover at this point.
Filling rules is difficult.
People have a lot of choices on who they can work for us.
And it is showing up in wage markets.
Okay. Thanks Brent.
Your next question is coming from Nathan race. Please announce your affiliation and pose your question.
Yes, hi.
Nathan race with Piper Sandler.
Good morning, guys.
Quick question.
The outlook for the reserve going forward.
Within the mid to high single digit loan growth expectations that you guys have.
Just curious in terms of kind of remaining unallocated reserves that you guys can grow into it.
Expectations from a provisioning perspective in terms of having to provide some of that growth through the course of 2022.
A lot is going to determine the churn by what assumptions go into the model obviously.
But given the fact that we've stated that our assumption is probably will be relaxed at some point if nothing else changes in the world.
I think it's safe to assume that the provision growth will lag loan growth.
The magnitude of that.
I'm not fully confident and laying that out for you for example, I'm not going to say there is no provision growth in 2022, but it will be substantially level less than what you would expect if everything stayed the same.
Understood.
Perhaps within that context.
Seems like with the elevated charge offs that we saw here in the fourth quarter that may have been somewhat of a clean up heading into this year. So just it sounds like Brad that you guys are feeling pretty optimistic on the outlook for credit quality going forward. So we'll just be interested to hear some.
Comments in terms of kind of what you guys are expecting from a charge off perspective.
Over the course of 2022 as well.
Yeah. So.
The one credit that was legacy old second that we charged off was.
I think we first talked about that credit on these earnings calls about five quarters ago.
And we've talked about it in two quarter to other earnings calls as well.
It's not something that's new it's not.
Not a new development and.
I think we provided for it.
For 15 months ago it's.
It's been a while.
So if that's the only thing you worry about that as something Thats 12 months to 15 months stale.
Youre, obviously, feeling pretty good and.
The other credit as Jim mentioned was the was the west suburban credit that they've been aware of for quite some time.
In terms of new issues popping up.
Nobody's come to meetings with any really bad news or any scary stuff here recently so.
We feel pretty good Jim Jim Nate.
We track obviously early stage delinquencies are very benign.
We're seeing very little migration from from watch list credits to two problem credits and non accruals. So.
Remarkably stable at this point so our outlook in the near term any way is very positive.
Okay.
Don't mean to oversimplify the margin outlook with all the various.
Moving pieces there but.
Perhaps strategy just any comments on kind of the starting point for the core margin ex PPP and accretion and would be interested to hear from our reported margin basis.
Your expectations for purchase accounting accretion.
Starting off 2022, and then I imagine kind of running off thereafter incrementally.
That's a huge question dude.
Yeah.
I think the reported margin will be relatively stable I think that there'll be a slight goes relative to the purchase accounting.
It's not a massive number.
I think on a full year basis, we're probably looking at.
A couple million Bucks that will benefit on that front.
And it will last for basically two years.
In terms of.
We had originally spec.
Expected in July that the.
The combination with old second would be.
Roughly 25 basis points dilutive to our reported margin.
And that's because they were obviously carrying as much excess liquidity as we were but with even less loan deposit ratio.
We've essentially swallowed that up with the deployment of liquidity at this point.
Just so nobody gets nervous on that front we have.
Largely looked at being between one five and three years on the duration curve and are taking somewhere less than our in spitting distance of 100 basis points.
With a lot of variable as well.
So I don't feel like we're giving up much.
And we are offering some level of protection and cases.
One or two or three rate increases and then something breaks.
So we're trying to be prudent here obviously.
Second is what it is.
Nearly perfect creature for higher short term rates.
And that's just who we are because of the deposit base and west suburban came with the very same trades.
So we're good bank.
We're managing it prudently margin is biased higher purchase accounting will help a little bit.
And we're just kind of looking forward and waiting for it gets here before we count on it.
Got it.
Helpful color.
Impacting that and thanks again for taking the questions.
Sure. Thank you Nate.
Once again, if there are any questions or comments. Please press star one on your phone at this time.
Your next question is coming from David Long. Please announce your affiliation then pose your question.
Good morning, everyone, It's Dave long from Raymond James.
I wanted to stick with the discussion on the net interest margin Brandon not to put you on the spot again, but.
As youre thinking about rate hikes in the sensitivity it sounded like from your prepared comments that the first couple of rate hikes.
Not have as much of a positive impact as the second couple rate hikes. So my question.
The first rate hike, what does that impact the NIM all else equal versus maybe the third or fourth rate hike.
So.
Yes.
The first rate hike in the second rate hike.
Do impact us very positively.
So does the third and the fourth is that if that happens to fruition.
In terms of basis points I think that you can see depending on when in a quarter. It comes a rate hike can impact are our margin if its mid quarter or later by a few basis points to upper single digit basis points.
A full year basis.
<unk> equals.
You don't even want to say this stuff because you don't want to count on it but.
It's wildly positive to us right one rate hike equals.
Somewhere between two and $3 million, even inclusive of burning through floors.
And net income.
And it piles on as you get further because I would expect that our beta on the first two would be pretty darn close to zero.
And then it wouldn't be much on three and four.
We are short duration on the asset side, that's who we are.
We are funded by $1000 checking accounts.
It's a perfect balance sheet for higher rates on the short end of the curve.
Got it okay.
Thats helpful.
Switching gears here, obviously, just closed whats suburban and are still working through that.
But do you have an appetite to do additional deals or and if so is there a timeframe on that when you would really start to consider them again now how are you thinking about the M&A environment for old second in 2022.
Yes, Dave obviously this is a significant.
A significant transaction for old second.
We've got.
<unk>.
We've got systems conversions late April we've got to digest that we've got.
Plenty to do here internally to work through French restaurant rationalization and integration changes so we certainly.
Arent in a position to do anything in the near term.
Clearly the regulators would would want us to definitely integrate this in a satisfactory manner before green lighting us but.
We'd probably.
Probably entertain something later in the year before we can do anything now.
Got it thanks, Jim I appreciate it.
Thank you Dave.
Next question is coming from Brian Martin. Please announce your affiliation then pose your question.
Hey, good morning, Brian Martin with Janney Montgomery, Hey, good morning, guys.
Hey, Brian .
Maybe just one last one Brad on that on the margin or asset sensitivity, what the percentage of loans that are variable and then just could you just maybe I missed it you just said, but if you had a one if you had the 125 basis point increase.
At the beginning of a quarter how much of a benefit to margin would that have on the on the on the.
Hi.
So roughly half the loan book is variable and.
I don't have completely reliable on data in terms of what has floors within the west suburban portfolio there.
They are not fully integrated into our Alco model, yet obviously, we still have systems conversions ahead. So there is substantial uncertainty here.
Uncertainty in only one direction and thats the magnitude of the positivity.
If we were to get a rate hike in.
In March I would say the second quarter's margin everything else would be up probably 10 basis points.
Got you okay.
Helpful. And then maybe just on the integration of the cost savings when do you guys expect to do the sentiment the system's integration when is that scheduled for us it kind of gives us a path to win full cost savings will be in there.
It'll be it'll be done by mid second quarter.
So youll start to see some benefit of cost savings leaking in in the second quarter and Youll see it.
Very healthy run rate reduction in the third.
Okay perfect that's helpful and.
How about just from a.
You guys had talked about.
The senior debt that was out there kind of would reevaluate that.
Can you give us an update on how youre thinking about that or just the capital.
We are still in the re evaluation stage.
Okay. So stay tuned and then.
Jim you talked about the significant hires <unk> had here the last couple of quarters, just kind of wondering what you're in brad's comments about getting near the.
The capabilities, you were hoping to get to as far as doubling the origination activity.
What does the pipeline look for recruiting today.
It sounds like you still expect to be pretty active here. The next couple of quarters is that a.
Fair assessment.
Yes, Chris.
And we certainly are still at.
Actively.
Looking at talent to the team we've very happy with.
The new talent that joined us in the last couple of quarters, we certainly have high expectations as we move into 2022.
Keeping one eye on.
Cost saves is important and expense control, but we've also had a handful of retirements and we clearly have have room to continue to pursue.
Additional talent.
Gotcha, Okay, Alright, maybe just last one from me, Brad just going back to the sensitivity I guess your comment about the floors and just the impact of.
Our future hikes, it sounds like the that 10 basis points or whatnot could be.
Equal a little bit better in the future, albeit with the deposit betas going higher is that fair based on your comments.
Yes, I mean last rate hike cycle old second experience over the duration of the cycle experienced deposit beta of around 10%.
I don't think theres anything within the west suburban deposit portfolio that look substantially different from us.
So I think we performed similarly.
Hi.
It is at this point before they've come in I had probably more hope than most that they would actually do something yesterday in the face of.
Mid to high single digit inflation.
But.
The reality is is that.
Yeah.
It's substantially benefits margin I would point you to.
When we were 150 basis points higher than the short end of the curve a couple of years ago second was running at a $4 25 margin.
Today, we're three or below.
If we get back to that level and I'm trying to steer you towards a longer term look here I don't know, how many basis points hit in which quarter.
And if you think back two years ago.
When people ask me that question I got it really wrong.
Because I was telling people, we get five or six basis points, and we wind up getting 20.
So it's hard to know with the speed and.
What loans pay down and what pays up how many basis points youre going to fall in which quarter.
But I can tell you there's nothing structurally different about old second from a contribution analysis standpoint that says we can't be north of a 4% margin. If we get back to that 150 type rate level on the on the short end of the curve.
Got you okay.
That's all very helpful. Thanks for taking the question guys.
Thanks, Thanks Rajiv.
There is a follow up question coming from Chris Chris Your line is live.
Yes, yes.
Thanks for the follow up.
The two to 3 million Brad first quarter hike was that did you say net income or did you say net interest income understand I've said I've said net income on a full year basis for each hike.
Got it okay.
And that comes in one that comes in September is not going to be that much of a contributor for two months I got it.
Perfect. Thank you.
Yes.
There are no further questions in queue at this time.
Okay. Thanks to everyone for joining us this morning, and we look forward to speaking with you again.
Quarter Goodbye.
Thank you ladies and gentlemen, this does conclude today's conference call. You may disconnect. Your phone lines at this time and have a wonderful day. Thank you for your participation.