Q4 2021 SmartFinancial Inc Earnings Call
Okay.
Hello, and welcome to todays Smart financial fourth quarter 2021 earnings call.
Hi, My name is Bailey and I'll be your moderator for today's call all lines will be muted during the motivation for today's call.
If you would like to ask a question. Please press star followed by one on your telephone keypad.
Now I'd like to pass the conference over to a host of Miller Ruben Miller. Please go ahead.
Thanks Neely.
Morning, and thanks for joining us this morning for our Q4 2021 earnings call.
<unk> enjoyed visiting with this group each quarter to talk about our progress in our company.
Joining me on the call today are Billy Carroll, our president and CEO , Ron Gorczynski our CFO .
Jordan, our chief Credit officer, and thanks to all of our director of corporate strategy.
We get started I'd like to ask each of you to please refer to page two of our deck that we filed this morning for the normal customary disclaimers and forward looking statements tell me. Please.
Take a moment to review the.
What a fantastic quarter by our team here at Smart life, and a great end to a really strong year for our company, we demonstrated again, our ability to outwork the competition and execute our strategic plan.
Our organic pace of growth has been impressive, but we see nothing slowing that down in the months ahead to a very very strong markets and the addition of several new sales team members the ability to talk about shortly.
We are well positioned to continue our current pace as we jump into 2022. We're excited about what lies ahead for us this year with that I will hand, it off to bill.
Thanks, Noah and good morning, everyone.
As Miller said this this has been one heck of a year for smart financial we wrapped up another solid quarter to close out 2021, and I believe this last year was probably as transformative as any we've had.
The evolution of our company has made in the last 12 months has been incredible and are positioned for the future is very exciting.
First let me touch on some slides shown in our deck well I'll reference page three.
First we wrapped up its work any bank acquisition, achieving our targeted cost savings of over 63%.
We've also done a nice job, they're retaining assets are in the necessary sales team pieces, all while picking up a great long term core deposit base. This was a great transaction for us.
Equipment Finance group that was acquired mid year has had a solid production quarter. We remain very bullish on this line of business in 2022, as we now look to leverage the banks footprint and sales network.
Organically our investment in several new sales teams in the second half of 2021 is progressing well we've added over 45 bankers. During this expansion, adding several great new markets to our franchise. During Q4 are new dealer floor plan team.
His put the needed operational pieces in place and we're excited to see this group go to market in 2022 wells.
We also made an exciting addition to our wealth management team by bringing on an experienced very well in our Gulf Coast region that had previously managed over 350 million at a U M. This team is now fully integrated and having some great early success.
Let me touch on our organic growth expansion now since that has been a major pivot for US page four provides a nice map those familiar with our story know we took advantage of some great opportunities during 2021 to add talent and deepen our presence in our existing footprint.
This has been a large investment for us and one that well and quite frankly already has dramatically changed our company in a great way.
That's where we are on what we have added just in the last couple of quarters, New branch offices are now open in Montgomery dosing mobile in Auburn, Alabama, We've opened our Birmingham, Alabama L. P O and added our market leadership, there we've expanded our sales team in Tallahassee, Florida, and we've expanded our national presence.
With the addition of several outstanding bankers and one of the country's most dynamic markets as we've communicated these investments will take a few quarters to start moving to a P. S. One, but I'm extremely confident that we will create strong revenue growth as we move into the latter part of 2022.
Page five details these new markets and as you can see we're rounding out our footprint to include some of the best growth markets in the country before I turn it over to let Ron to dive into the details allow me to touch on a few numbers referenced on page six of the deck for the quarter $8 7 million in operating net income was <unk> 52 per share.
12% annualized organic loan growth in Q4, right on top of where we thought we would be 23% annualized deposit growth for the quarter.
As we continue to build liquidity.
Does it make the transition over the last year does not need to go unnoticed.
Building, a really strong core funding base 11 basis points, our nonperforming assets as credit quality remains very strong double digit return on tangible common equity in footings now four 6 billion in assets rounding out a really really nice quarter for us. So let me hand, it over to rhett to dive into the balance sheet and.
Credit metrics, a little bit rep.
Thank you Billy.
Slide seven in the deck our loan portfolio has continued to see steady growth throughout the past four years, ending 2021, just short of $2 7 billion and outstanding loan balances that equates to a compound annualized growth rate of 20% over the same time period.
Average loan portfolio yield for the year 2021.
4.67% and was relatively stable throughout the year, we wrapped up the most recent quarter at 4.53% down from an unusually strong Q3, but in line with prior quarters. This year. We're extremely pleased with 2021 performance, especially given the challenging headwinds generated by excess liquidity across all financing sources in the marketplace continuing to put pressure on it.
Loan yields.
Likewise, our deposit portfolio has seen continued strong growth over that same timeframe with exceptionally strong performance in 2020 and 21 during the current quarter, our core deposits increased over $220 million or 23% annualized.
This growth and our focus on controlling funding costs, we've lowered our total cost of deposits to 22 basis points or 40 basis point decline from previous quarter and ended the year with a loan to deposit ratio of 67% Ron will provide more information on deposit composition in a few slides.
As you can see on page eight our loan growth for the year finished strong with Q4 net organic loan growth of over $75 million year to date portfolio balanced growth of 311 million represents an annualized growth rate of 12, 4%. Considering these levels were net of $35 million in PPP loan forgiveness activity in Q4 and over $375 million in <unk>.
T P loans forgiven since year end 2020. This capped a very strong production year for 2021 portfolio mix, excluding PPP impact and geographic diversification and portfolio remain consistent throughout 2021, we're very proud of what proved to be an outstanding organic loan growth year for our bank moving into 2020 do while we recognize our.
Loan to deposit ratio was below historic levels. We are thrilled to have excess liquidity to fund what we believe will be a significant year of production from our new lending team members and our legacy core markets.
Slide nine shows our overall asset quality metrics continuing the same strong trends. We saw all year Q4 saw our MPA ratio fell three basis points to 0.11% the lowest level since 2009 net charge offs of five basis points over 30 day past due ratio of 33, 3% in classified loans of three 5%.
Are all consistent with Q3 levels.
The aforementioned loan growth our CRE exposure actually saw a slight reduction at year end, primarily in our construction and development segment as a number of construction projects, including several owner occupied transactions were completed late in the year and moved into permanent financing positions.
As a result, we ended the year at <unk> 75 per cent of 290% of capital for our regulatory C&D and total CRE guidance ratios, both down from second to third quarter and overall, our asset quality continues to demonstrate superior metrics, resulting from a combination of strong economic conditions in our market area and unwavering commitment to strict credit underwriting standards.
For our PPP loan book as you can see on slide 10, we have nearly completed our 2020 loan pool forgiveness, and our 2021 pool has seen 63% of originations successful forgiven Tonight, we will be working through the remaining $50 million in balances over the next couple of quarters and borrowers submit final applications for forgiveness and don't foresee any issues in concluding our parts.
Dissipation in the program, we could not have been more pleased with our team's initial commitment to nimble responsiveness and dedication throughout the PPP loan program process now I'll turn it back over to Ron to walk you through our allowance positioning and some additional detail on our margin right.
Thanks right.
Let's move forward to slide 11, our loan loss reserve.
As Randy indicated our strong credit quality has led to minimal provision for the quarter.
And our allowance to originated loans and leases was <unk>, 74% and our.
Total reserves to total loans and leases was at 131%.
Given our positive credit outlook going into 2022, we expect to continue minimum provision baneful, mainly to support new growth and can certainly safeguard against unforeseen events.
On slide 12, our deposit composition have any change for the quarter our.
Our noninterest bearing deposits grew 32, 32% annualized and our noninterest bearing to total deposit ratio held at 26%.
Looking ahead, we are cognizant of it potentially lagging the environment and its impact on deposit pricing.
Given the bank's current liquidity position, we don't expect significant near term changes in deposit cost all composition, we do.
Anticipate some minimal downward re pricing of some higher cost of your county bank time deposits in the coming months.
Moving on to slide 13 liquidity.
The inflation.
During the quarter, we continued to experience liquidity build and in line with our previously discussed Securities purchase program began strategically putting excess wanting to work.
Our bond purchase strategy has been built around two central themes discipline and patience.
<unk> has been to take advantage of that great periods and take their purchases during periods of market weaknesses as we saw near year end.
As you move into 2022.
Continue to evaluate our liquidity unionization, there support and that Amy our loan growth and our continued purchasing securities.
Even with purchasing and the 250 million securities this quarter, our cash position remained virtually unchanged when compared to the prior quarter.
Total cash just above $1 billion.
Our net interest margin for the current quarter was $2 nine 2% a decrease of 43 basis points from the prior quarter.
During the quarter, our margin was negatively impacted by $1 3 million massive discount loan accretion and $1 2 million. So PPP accretion however, with over 17% of our total assets and low yielding interest, earning cash opex all excess liquidity position continues to be the largest factor suppressing margin today.
Sure.
During the quarter, we did experience a decline in our security portfolio yields due to the recent purchases of shorter duration lower yielding bonds. However, these purchase has provided us with over 500000 more revenue annual result, even higher income next quarter as we realize a full three months of interest income also on a positive note.
Removing all accretion loan yields remained in line with yields experienced in the prior quarter.
Additionally, we also benefited from a five basis point decrease in interest bearing deposits.
We are forecasting the first quarter margin in the range of $2, 90% to 95% slightly lower than we anticipated due to the additional inflows of deposits.
The margin also includes estimated loan accretion of six basis points or 416000, and estimated PPP loan fee accretion of 20 basis points approximately $1 4 million.
Given the asset sensitive nature of our balance sheet, we feel confident that we are appropriately positioned to benefit form what is shaping to be shaping up to be a rising rate environment.
Our most recent data shows a 6% increase in net interest income and an up 100 basis point scenario.
$440 million available rate loans without floors, and another $600 million rather than a clear position of.
All these four loans, we have over $67 million <unk>. After the first 50 days.
For the first 50 basis points, we also hold a year and $900 million of interest, earning cash that re prices in the amount of the rate move.
Pfizer modest deposit cost increases in the Oklahoma scenario, we believe a heightened liquidity position and better deposit composition will allow us to delight insulate us from the full effect of any market rate increases.
Before we leave the slide let's touch base on operating revenue.
Operating revenue growth continues to be a primary focal point for the company, especially since our other traditional operating metrics continue to be skewed as a result of the excess liquidity in the current operating environment. Our operating revenues remained strong mirroring that of the prior quarter. Despite a $2 5 million reduction in loans and discount one of PPP accretion.
We're also pleased to have another strong quarter noninterest income, which contributed $6 8 million or 18% of total operating revenue.
As Billy mentioned, we will continue our revenue expansion into new opportunities and existing platform optimization, which is a primary focus for the company as we move into 2022.
Delving deeper into noninterest income, let's move on to slide Slide 14.
Noninterest income continues to experience strong tailwind as our operational focus even non spread based revenue streams are continuing to play out noninterest income increased 500000 from the prior quarter to $6 8 million, which includes service charges and interchange income increasing over 500000 from the increase there.
JV in transaction volume and inclusion of severe County Bank and investment services revenue increasing over 170000, primarily from the addition of a new loyalty and increased volumes from existing belt advisors.
Getting some of these games was reduced income from our mortgage and insurance units, mostly due to seasonality.
Also recognized 349001 time gain in other income related to be selling our credit card portfolio.
In comparison with the prior quarter, our noninterest income increased almost 8% and more impressively, having increases over 36% from prior year quarter.
We remain very optimistic regarding the strong opportunities for fee generation within our family of fee generators.
Our forecast for the first quarter is having noninterest income of $6 9 million.
Moving onto slide 15.
Operating expenses for the.
The fourth quarter, our operating expenses increased $1 8 million to $25 1 million and our salary and benefit expense increased $1 4 million to 50 million bank in line with our prior quarter guidance.
A significant portion of the increase was due to the additional operational expenses related to severe county bank as well as expenses related to all of that initiatives as Billy highlighted earlier, we have completed the integration of severe county bank and looking back we are extremely pleased with the results of the integration as well have surpassed our original cost estimates.
As expected our operating efficiency ratio was elevated this quarter at 68% looking forward into 2022, and we anticipate this ratio decreasing into the mid sixties range as immediate lift out teams gain steam as well as having or other internal platform optimization strategies unfold for.
For the first quarter of 2022, we expect an expense run rate of $25 5 million range with salary benefit extensive bumps from $15 5 million.
Slide 16 summarizes some of our current technology initiatives as.
As mentioned on previous calls we continue to advance our technology platforms in all areas of the bank.
Primary focus has always been to enhance and improve our customers' wallet experience and a small bank and easier organization to do business with <unk>.
Beginning this mission part of that strategy has been to invest heavily in the networking technologies and all employees of flexibility to work remotely as needed while it.
We currently don't envision the majority of our workforce working remotely full time, we do anticipate certain teams embracing hybrid Oregon, a fully remote working model.
This capability has increased employee productivity and perhaps more importantly, given us flexibility to recruit new team members, which previously would have been geographically geographically on available as.
As we move into 2022, we are extremely excited about the technological improvements to come and benefited provides recruiting the best and brightest talent across all operational areas.
And to finish up on slide 17 capital.
Our capital ratios continue to be some advantages most modern metrics management routinely evaluates the bank's capital position as it relates to projected forecast lending opportunities as well as potential strategic initiatives at quarter end. The company had bank, both exceed well capitalized regulatory standards and we believe is well positioned to execute on our 2002.
Two strategic plan.
As in previous quarters. The company continues to grow its tangible book value per share at quarter end, our tangible book value was $19 20 substantial representing a quarter over quarter annualized growth of 5% and a growth of seven 5% for the year. We continue to be focused on building long term shareholder value with that said I'll turn it back over to bill.
Thanks, Ron and and to close our markets are all performing extremely well and the southeast is poised for great continued growth and it's one of the reasons you're seeing this pivot to a strategy of using these commercial banking lift out opportunities.
We're becoming recognized in our region as a great place to work and I believe there were a small group of banks in that peer set so high caliber bankers want to go when looking to make a move we are becoming one of those places the.
The lending side of the house continues to be robust production has been strong, but we're still battling some of the excess liquidity in the system. That's leading to continued lower line utilization and some pay downs, but that said our new teams are starting to build nice pipelines and as these loans move onto the balance sheet. We believe that loan growth will continue in the low to mid <unk>.
Teens on an annualized basis for the next few quarters is a lot of it we do think we've got several moving parts as easy as they as the new teams ramp up.
As PPP income rolls off, but with 20% of our assets in cash just a little rate movement upward should provide some nice wind at our back.
We feel very good about our ability to produce solid metrics. This year, even with the investments we've made and as we move into becoming a strong organic revenue growth company.
Momentum that is being built as we execute our plan. This year will be transformative to our financials. It's a very exciting time to be part of this company is a client as an associate and as an investor.
Well positioned moving forward, so I'll stop there and we will open it up for questions.
Thank you if you would like to ask a question. Please press star followed by one on your telephone keypad. If for any reason you would like to them makes that question. Please press star followed by two again to ask a question that is star followed by one.
Okay. So we do have our first question and that question comes from Graham <expletive> of Piper Sandler. Please go ahead.
Hey, good morning, guys.
Hey, Graham.
So you know obviously 2021 was a huge year for you guys on the strategic front with M&A, new hires lift outs and market expansion.
I'm just trying to I'm trying to understand are you guys thinking about maybe slowing down this year and really focusing on operating the franchise or it is currently.
Are you still just seeing so many great opportunities.
Out there that it might simply be too good to pass up.
Maybe in the form of more lift outs or new market entries.
Yeah, It's a great question grant.
Yeah.
You you've been familiar with their story.
I think we're always we're always opportunistic.
But at the same time I really think are planned for this year is to is to really have this is really more of just a blocking and tackling year. This is a year, where we really are focusing on you know the integrations in particular these new team members, making sure that we have success in all of these new zones really focusing on.
Expense control is getting that efficiency ratio, we've made some huge investments last year and we're really excited about those we need to make sure that those come to come to fruition like we want so.
I would say, we're going to lean into a little bit more of a of what I would call a blocking and tackling year could there be some additional hires.
They come in in their existing markets, yes, possibly we're gonna be opportunistic on the hiring front, but probably not looking to replicate.
Anything near what we did in 2021.
Okay, great that makes sense definitely a really busy year for you all and I guess as that translates to expenses I heard that 25 5 million dollar guidance for at least <unk>.
Are you thinking that might be sustainable for the next few quarters or maybe just a little bit higher given you don't have anything planned.
I guess any plans for any big strategic initiatives to start the year.
Or are you seeing expecting to see maybe a little bit of wage inflation or our general cost inflation or additional tech spend that might.
Let that higher I mean, maybe over $26 million.
As a run rate for the full year.
Yes, its Ron I'll, let you take that out obviously, you're getting I mean wage inflation I think we're all experiencing some of that so we know that there's probably a little bit of build into that Ron you want to.
Give some color on your thoughts around kind of forward guidance.
Yes.
Q1.
25, five I think we will match out around 26, and the later Q3 Q4, I think we've already embedded some wage inflation in our numbers. So I'm pretty confident that we probably won't go over that 26 million marks the later quarters, while 25, 5% to five seven.
The first two quarters.
Okay Awesome, that's very helpful.
That's just the final thing from me last one it's just those numbers on.
Asset sensitivity or more specifically your variable rate book do you mind, just going back and repeating as I've got this $440 million.
Number maybe and variable rate loans that are neither Florida, I might've misheard. It just if you could just repeat that that would be helpful.
Sure we have.
$440 million that are out of floors that will reprice immediately or within three months on a rate hike and we have 600 million that are in floors.
And after 50 basis points of rate.
Rates up we should see a fair amount of 67 to 70 million of those turned turned the full flow through the full variable.
Okay perfect Alright, that's it for me guys. Thanks for taking my questions and congrats on another really good quarter.
Thanks, Brian .
Thank you Brian . The next question comes from Brett Robinson from Hovde Group.
Please go ahead.
Hey, guys good morning.
Hey, Brian .
I wanted to first go to the margin and I think if I heard you correctly you gave guidance for 290 295 for the first quarter.
And then I wanted to make sure I understood the linked quarter increase in our securities portfolio. So 129 hundred 95, I assume that includes the 460 carrier than the $1 4 million for discount accretion on the on the PPP fees.
And then wanted to make sure.
I understood the commentary around the securities portfolio correctly. It sounded like you added about half a million in income from securities.
I was just curious how how much yardage or what the what you bought during the quarter and how much it how much Oh watch on the acquire.
Acquired Securities.
Yeah, I'll take that Brad.
For the 290 teams fully loaded.
With the accretion that was booked.
And the guidance, we gave a little bit less accretion through Q1, but for the securities. We purchased during the quarter $250 million worth of wall.
Securities, we're probably looking around 140 to $1 43.
Interest rate yield on those with duration.
Probably around 5% at this point, we're less than 5%.
Going forward, we did purchase a little bit in 2020 to 50 million so far.
We pushed our duration down into the three three and a half year Mark.
That's probably around 150.
Central.
To answer your question any more infill.
Nation on that yeah, yeah.
Yeah, No. That's helpful. And then just think about the you know the $6.
For a 100 basis point upside and I think about the first quarter.
And the possibility of a March rate hike you know it seems like between the liquidity that you have on the balance sheet to the repricing of loans that reprice.
It seemed like your margin should be over 3% depending.
Depending on the rate hikes later this year would there you know I guess am I thinking about it correctly and you know is there anything that would be maybe an impediment to that.
Yes.
Other than that the rate shock, we had done a scenario where you don't.
March's margin wakes up in the first quarter is probably de Minimis just do it can be so late in the quarter, but we projected 25 basis point increases for March June and December and we are looking at additional $5 $3 million or <unk> <unk>.
<unk> net income net interest income on that I'm sorry.
Excuse me our net income on that so.
We are our margin.
We'll go up with that and especially if we had more demand that we're expecting to get some yield off of that probably $600 million of cash that we're sitting on so I think I think operate will be our friends going forward.
Okay.
That's great color and then lastly, just mentioned loan growth I'm curious that.
The dealer floor plan in particular.
Does that ramp up pretty quickly here and how much does that contribute to the.
The low to mid teens loan growth this year.
Yeah.
Right I'll, let you speak a little more specifically to thoughts around that probably not much right out of the gate.
Brett as you know as we look to bring these folks on we think this first quarter is going to be a lot of transition opportunities for us as you know, especially as as a dealer.
Dealer inventories are little bit lower right now their line utilization drove our level of which which we actually think is a great time to probably get into this business as some of those opportunities present, but right you want to give a little color on air or beta route and thoughts around that.
Billy I wasn't going to basically kind of stayed pretty much. The same you did I think I think we will see more impact there in the latter part of the year than the early part of the year I think as you mentioned earlier we've spent.
Most of the fourth quarter, but went into the early part of this quarter and just preparing that division. That's a that's a new line of business for us So getting software capabilities in place getting everybody set up and ready to go.
<unk> has been a key focus and utilization rates are still low in that space. So I would anticipate it to be a little more impactful on the second half of the year than the front end of the year.
Okay, that's great color I appreciate it.
Thanks, Brett.
Thank you Brad our next question comes from Matt Olney from Stephens.
Please go ahead.
Hi, Thanks, Good morning, guys.
Hey, Matt.
I wanted to ask more about the excess liquidity that you have right now you have hired a number of new loan producers. So I'm sure most of the liquidity is earmarked for.
Loan growth this year, but still seems like you've got room to deploy a lot more liquidity in the securities portfolio.
What are the updated thoughts about how much you're willing to deploy into securities throughout the course of the year.
Yeah and Rob.
High level, and then Ron I'll, let you kind of get some some maybe a little bit deeper color you know for US first Matt. It's just been you know we've just not been really sorry, yeah. We felt like we needed to put some to work in Q4, which we did and Roz and the team were very.
I think deliberate in the way they they they invested it in kind of watch the market to do that obviously with projected rate increases and there we're watching that closely.
I think our thought we like if we do go we like staying shorter.
Given what's going on in and I think at the end of the day, we really liked this position of additional liquidity strength right now, but rod I'll, let you kind of a building that wallet that while it does drag it's a yes, it's a nice it's a nice tool to have in the tool belt.
Yes. Thanks.
That's a good question Lee.
Originally one.
Wanted to purchase around $400 million of securities.
We're about 100 short.
Pause may be kind of on the rates stabilize a little bit to see what this is going we do anticipate to.
Probably purchased another $100 million.
Near future and then kind of see where our loan growth is strong and more importantly, CMO our deposit growth is growing so again. So we can look forward to see whats much SaaS, but we.
We've been patient long time, it's made sense to go rush out today and go ahead and wind up in investment Securities may not be the best answer, but that's what we're doing at this point in time.
No I appreciate that and it's a moving target with lots of difficult moving pieces. There. So I appreciate the color.
And I also want to make sure I appreciate the guidance around efficiency I think I heard you say a mid 60% range just want to clarify is that the average for the full year and if so should we be assuming a little bit on the higher end and the front part of the year and a little bit lower end and the back.
Half of the year.
Yes.
I'm sorry. This guidance is for the Q1, so it's not for the full year.
We are higher for Q1, we will drift down.
And then probably around the mid 60 range by year end. So yes to what you said it won't get better as we go forward.
Okay. Thanks for the clarification.
Thank you Matt. The next question comes from studies Stickland Janney Montgomery Scott 30. Please go ahead.
Hey, good morning, guys.
Good morning.
Just wondering do you think that the continued in migration of people into areas like Tennessee in the Panhandle can offset some of the pressures of higher rates on the mortgage side.
Yeah.
From a mortgage just kind of from a mortgage revenue standpoint 30.
The demand side and correct, yes quite revenue standpoint.
We do.
We've never been a huge refi shop anyway.
You know our focus has been more on.
Purchase transactions and yes day and to your question is we believe I think we are we believe that our mortgage line can stay.
We continue to be a good contributor for us just with the inflow and and a growth that we're seeing population growth. We're seeing in our science, Yeah inventory is probably one of the biggest headwinds that when we talk to our teams.
Out in the field.
It's just a lack of inventory is probably the biggest headwind that as if that would stay reasonable we feel still feel really good that mortgage could be a nice contributor going forward.
Gotcha, and then are you hearing anything incrementally different from customers on their business outlook or are they seeing any kind of easing up of supply chain issues or does that has that been an issue for your customers.
You know it depends it depends Oh I'll, let Brett you know kind of chime in on what he's hearing.
From from our market teams are but I think it's dependent on the.
On the industry.
For the most part I think most of our businesses that we're dealing with have been pretty positive you may add some comment on this as you talked to some of our clients the ones I've talked to feel pretty good about where we are I think there are some there are some supply chain challenges, but overall.
Most of our customers feel pretty good out mellow uol has any doubt it's touched everybody a little bit.
Hopefully it has bottomed and people don't see it getting much worse, nothing gradually get a little bit better, but I think it's.
Watching its probably touched everybody in some sense.
We're at any anything from you.
I was going to say the same Billy I mean, I think the supply chain clearly you you'd probably see it more so in certain.
Asset areas as far as so.
Equipment, just delays in being able to complete a purchase of somebody needs to add a new piece of equipment or expand the fleet or something to that effect just bonding.
Available.
Assets to purchase is still a challenge at times, but for the most part just general business activity.
Cost of World, we're very pleased from 'twenty one.
We're looking very good and the outlook that we're hearing most of them are bullish on 'twenty two at this point.
Yeah.
No that's great color. Thanks, and one last question I was just curious do you see opportunities to improve the margin even without the fed hikes. It sounds like you guys have some from your prepared comments that some favorable deposit repricing coming up.
Why do you want to touch base on deposit pricing deposit re pricing will have some but its probably very similar to what we saw last quarter to 83 basis points probably match movement.
If they will know that increase is coming out we would be able to improve the margin by taking our excess liquidity that we get in 2014 15 basis points and putting investment security. So we would be able to improve the margin.
On the back of the napkin, we're looking.
Our excess liquidity today is probably holding our margin of around 40 basis points. So it's yeah, we can probably move the needle one way or the other and get the margin elevated overtime with or without the fed increases.
Well.
Got it thanks for answering all my questions in the graph.
Great quarter guys.
Alright, Thanks, 30 cases.
Thank you <unk>. The next question comes from Kevin Fitzsimmons from D. A Davidson Kevin. Please go ahead.
Hey, good morning, guys how are you.
Hey, Kevin Hey, Kevin.
Most questions have been asked and answered I was just more kind.
Kind of.
Did you back on Betty's last question there.
Because when we think about that.
The tailwind of favorable mix shift of earning assets have taken that excess liquidity to work in the securities book.
Be radically helping the margin it seems like it would.
It only becomes more evident.
The.
You know the flow into the bucket of excess liquidity starts to slow down a little in other words the deposit growth. So I know you I think you guys. In your prepared remarks said, you expect Texas liquidity and deposits to remain.
Higher elevated I'm not sure.
What where it was but is there should we be thinking more about a scenario where you.
We've had this really outsized deposit growth, but should we be looking out a number of quarters and starting to think about.
Much more limited deposit growth, maybe even having a quarter where deposits go down and maybe I'm. Just curious how you would think of that because maybe where.
We're looking out at a pivot point, where NII has been driven by balance sheet growth, while the margin has been getting hit.
And could we be setting ourselves up for the opposite where if deposit growth really moderates you even without you know and then on top of that rate hikes. You can really you know I don't see why you wouldn't see.
Healthy margin expansion, but then if that excess liquidity is draining which is a good thing for the margin maybe it keeps a limit.
Average, earning asset growth. So I'm, just I know, that's a lot, but I just wanted to throw that kind of scenario out there.
Thought about the pop.
Yeah, Kevin I think no I think you're right I think a lot of it's going to be it a lot of is gonna be asics asset next movement I mean, it really is at the end of the day and the wildcard. There is is what the continued deposit growth number I was going to be I don't think there's any doubt we were surprised with the amount of deposit growth we saw in 'twenty.
One.
Yeah. The great you know the good thing about it.
We've picked up a lot of these new teams and these are great relationship bankers and so we're moving other.
Their accounts in but yes, I do believe that Youll see deposit growth.
A little bit and and as we change that mix kind of going back to face to face comment that should help margin on its own absent any any real real world large rate increases from the fed.
I think your comments are spot on and I don't run any anything from you.
Totally agree and we've been modeling that one way or the other.
We will have a different bank coming into the pandemic and that will have a different band coming out.
The one Bob you were getting your head around our hands around is the lift outs. We did hire good deposit gatherers. So we're trying to balance what is the probable answer but.
That's very good question by the way so a great problem to have.
Great.
We just have to watch.
It's in place now.
Kevin It's funny, Ron and I were talking this morning, you know when this pandemic started we said you know what there through something like this there's probably some opportunity we need to make sure that we're positioned as we come out of this thing to come out swinging that I think we believe we have a and I love, where we're sitting today at like I said I I.
Even though yes. The the you know the additional liquidity drag in margin a little bit.
I'll tell you there's a it's a great position of strength for us to be sitting in today are light cabin. This asset sensitivity on the balance sheet gives us a lot of flexibility with you know with changing mix, putting some of it to work in investments of the yield to get where we liked them. It's.
It's a good spot to be in.
Yeah no.
Totally understand why it's difficult to make any kind of forecast prediction about deposit growth, but it seems that.
You know and partly its because we have a backdrop of rising rates now that the tone about excess liquidity. It seems like in the past quarter or so it has shifted from being the biggest drag on earnings to big being the biggest opportunity look looking forward and but I don't think.
Deposit growth aspect is key.
Yes.
And then one additional thing Ron I was trying my best to keep up with you on that.
Rate shock scenario would you mind, giving those numbers again.
Sure.
Doug.
The 100 basis point shock.
Well see a 6% increase in net interest income.
Currently we have $440 million available rate loans without floors. Another 600 with.
And at 50 basis points.
That $667 million I'll go back to floating so we had a little bit.
As a way of.
The increases to get more of the.
Our floor get these loans out of the CEO position.
Our deposit base.
Our deposit betas for this is about 40%.
<unk> also already base, where we're at today I think we can.
Can go lower than that.
Probably 30%, 35% range. So I think we still have some opportunities off there has been again, an upward rates as bill indicated.
We're in a pretty good position going forward.
Got it thanks Ralph.
Hi, Kevin Thanks Kev.
Thank you Kevin.
Next question comes from Stuart votes of K Kw Stuart. Please go ahead.
Hey, guys good morning.
Everyone's doing well.
Just two more questions for me most of my stuff has been answered already but Ron if we could go back.
Your fee guidance for next quarter I think you mentioned.
You expect fees of about $6 9 million in the first quarter.
Yeah, which is all up in this quarter, but if I if I understood you correctly, there was about 340000 from.
From a onetime gain or one time gain this portfolio. So I'm just curious what you what you think is driving the higher.
Hi.
Sorry, if your guidance next quarter.
Yes.
We really have two items that are driving it our mortgage our mortgage line. This.
The seasonality in the fourth quarter overseeing a decrease so we're seeing that ramp back up or more towards Q3 production level.
About 160, 170000 increase and also the other items are Walt.
We brought on this new wealth division that it came on mid mid to late fourth quarter. So that's what we're looking to get about $400000 of wheat.
<unk> revenue from that line item those two alone will get us there and also insurance again.
Less of an impact still.
Kris and probably more to Q3 levels. So those three items are going to drive drive us back to that $6 9 million run rate.
Okay great.
Are you thinking about a growth rate for the full year on top of that I mean do you think.
Total fee income of $28 million is reasonable we've just given you know.
The hiring momentum and expectation for kind of improved contribution from some of your new teams there.
No not really.
We're not really getting a full year guidance, but I think I think.
$28 million is obtainable.
And then some but we'll take that quarter by quarter as we move forward.
Got it.
And just one more for me.
Turning to capital.
Yeah I think.
Your TCE ratio in kind of a total risk based capital are a little bit.
Bob.
I guess artificially low right now just given all the excess liquidity, but.
But given your expectation for pretty substantial loan growth. This year is there any appetite to I guess cap.
Tap tap capital markets. Given you know we do see your rates were going to start moving higher maybe.
Appetite for.
Common equity or additional sub debt just kind of any.
Comments there thanks.
I'll jump in there Stuart Yeah for US I think we're always watching what's going on in the market and yeah.
Yes, you know, we'll continue to look to be opportunistic we do feel that the ratios have stabilized.
They've got a little pitched with with the acquisition, which we knew.
But.
As we look to go ahead and project that into 2022, we feel pretty comfortable with the position we've always been comfortable leveraging appropriate. We think that's the right thing to do from a shareholder standpoint. So.
Currently leveraging it is something that we're comfortable with but that said.
We know where the markets are and look for.
Could could look for opportunities to take advantage of that potentially as we look ahead into the year.
Okay.
Alright, thanks for taking my questions guys.
Thank you again.
Thank you Stuart.
Just before we ask the last question is just a quick reminder, it is star one to ask a question.
Our final question comes from William Wallace of Raymond James William Please go ahead.
Thanks, Good morning, guys.
Yeah.
Couple House I'm. Good. Thank you couple of housekeeping questions on the on the NIM guide for the first quarter, what what is the PPP fees you all are anticipating.
I believe at one point.
$4 million.
I'm, sorry could you repeat that.
One 4 million.
One four okay.
Hum.
Yes.
Okay.
And then just on the loan guide.
I'm curious and I apologize if I missed this I got on little bit late but I'm curious what pipelines look like coming into the first quarter versus coming into this fourth quarter.
Yes.
Yeah from a from a loan pipeline standpoint, I'd say, they're up pipeline.
Looks look stronger going into Q1 than they did going into Q4 was good I think Q1 is a little bit better.
Pipelines, you Gotta get them. It takes it just takes a while to get them through the process through the system and get them out of the books.
<unk> are good.
A really good it's a.
Phil fill these new teams are coming online well with some nice momentum in.
Feel pretty bullish on our pipeline evenly spread through the moment yeah yeah.
Yeah. So.
To that last comment.
What is what are the pipelines look like or what does production look like.
All of the.
Existing.
Producers not the new teams are those also.
Good.
Good I think when you look at that when you look at the existing markets I think we.
We tend to probably battle the pay off pay down issues more in existing markets, where we you know where we've got a stronger base got got got a larger footprint.
Yeah, I think that's where it is so when you look at net growth out of those markets those markets are not.
Production is good but their contribution to the net balance growth number is a little bit smaller. So we think the new group can the newer groups can kind of help bolster that that that low to mid teens guidance on loans.
Okay, great. Yeah, that's very helpful. I appreciate all the color today guys. Thank you.
Right.
Thank you William.
Currently no further questions registered.
So I'll pass the conference back over to the management team.
Thank you appreciate it thanks, so very much for your support of our company and for your interest and where we're headed I hope each had a great week.
Thank you.
And that concludes that smart financial fourth quarter 2021 earnings call. You may now disconnect your line.
Uh huh.
Right.
Yeah.
Okay.
Yeah.
Yeah.
Right.
Yeah.
Yeah.
Okay.
[music].
Okay.