Q4 2021 Sandy Spring Bancorp Inc Earnings Call
Speaker 1: the investor owned commercial portfolio. The year of a year decline in the mortgage portfolio resulted from customer refinancing activities and the continuing sale of the majority of new mortgage loan production.
Portfolio.
The year over year decline in the mortgage portfolio resulted from customer refinancing activities and the continuing sale of the majority of new mortgage loan production.
Speaker 1: In the second half of 2021, we saw $2.1 billion in new gross loan production, including $1.5 billion of funded production. This more than offset $874 million in commercial loan run-off.
In the second half of 2021, we saw $2 1 billion in new gross loan production.
Including a 1 billion and $5 of funded production this more than offset $874 million in commercial loan runoff.
Speaker 1: During the quarter, funded commercial loan production increased to 937 million or 115 percent, compared to 435 million for the same quarter of the prior year.
During the quarter funded commercial loan production increased to $937 million or 115% compared to $435 million for the same quarter of the prior year.
Speaker 1: These are remarkable numbers and we're extremely proud of what the team delivered for our company and our clients. Last quarter I shared with you some of the actions we were taking to put excess liquidity to work and to accelerate commercial loan growth in the fourth quarter, including adding new talent, looking at larger credits, proactively approaching new and prospective clients, and pursuing new opportunities in our market.
These are remarkable numbers and we're extremely proud of what the team delivered for our company.
And our clients.
Last quarter I shared with you some of the actions we are taking to put excess liquidity to work and to accelerate commercial loan growth in the fourth quarter.
Including adding new talent looking at larger credits proactively approaching new and prospective clients.
And pursuing new opportunities in our market it.
Speaker 1: It's clear that those efforts delivered results. And again, we are in a great position for continued growth this year.
It's clear that those efforts delivered results and again, we are in a great position for continued growth this year.
Speaker 1: We've previously disclosed where we stand in PPP forgiveness. At the end of the year, we had outstanding PPP loans of $183.5 million, with remaining fees to be earned of $4.7 million, which we expect will be earned gradually over the course of the year. PPP revenue earned in the fourth quarter totaled $9.2 million, compared to $11.4 million in the linked quarter.
We've previously disclosed where we stand in PPP forgiveness.
At the end of the year, we had outstanding PPP loans of $183 5 million with remaining fees to be earned a $4 7 million, which we expect will be earned gradually over the course of the year.
PPP revenue earned in the fourth quarter totaled $9 2 million compared to $11 $4 million in the linked quarter.
It is important to note that throughout 2020 in 2021, we had nearly 100 people dedicated to PPP with.
Speaker 1: It is important to note that throughout 2020 and 2021, we had nearly 100 people dedicated to PPP. With the vast majority of PPP forgiveness behind us, those resources have shifted back from helping clients through the PPP process to hitting the street and driving new and expanded business.
With the vast majority of PPP for given us behind us those resources have shifted back from helping clients through the PPP process to hitting the street and driving new and expanded business.
Speaker 1: This change is, again, evidenced in the record commercial loan production we achieved this quarter.
This changes again evidenced in the record commercial loan production, we achieved this quarter.
Speaker 1: On the deposit side of things, year-over-year deposits increased 6%. This was driven by 14% growth in non-interest-bearing deposits and 2% growth in interest-bearing deposits and reflects the impact of the PPP program and growth in transaction relationships.
On the deposit side of things year over year deposits increased 6%. This.
This was driven by 14% growth in noninterest bearing deposits and 2% growth in interest bearing deposits and reflects the impact of the PPP program and growth in transaction relationships.
Speaker 1: Time deposits declined $367 million as we continue to manage our overall cost of funds.
Time deposits declined $367 million as we continued to manage our overall cost of funds.
Speaker 1: Non-interest income for the current quarter decreased by 30%, or $9.7 million, compared to the prior year quarter. We anticipated this reduction, and it can be attributed to the rising rate environment for fixed-rate mortgages, which slowed refinance activity, as well as our decision to sacrifice gain on stale as we shift to holding a larger percentage of our mortgage production on the balance sheet and regrowing this asset class.
Noninterest income for the current quarter decreased by 30% or $9 7 million compared to the prior year quarter. We anticipated this reduction and it can be attributed to the rising rate environment for fixed rate mortgages, which slowed refinance activity as well as our decision to sacrifice gain on sale as we shift to holding a lot.
<unk> percentage of our mortgage production on the balance sheet and re growing this asset class.
Speaker 1: While income from mortgage banking activities declined 75% compared to the prior year quarter, this was still a strong quarter for our mortgage line of business, and we saw an uptick in outstanding balances in that portfolio for the first time in five quarters.
While income from mortgage banking activities declined 75% compared to the prior year quarter. This was still a strong quarter for our mortgage line of business and we saw an uptick in outstanding balances in that portfolio for the first time in five quarters.
Speaker 1: Looking forward, we anticipate that quarterly mortgage gain on sale results will be comparable to those achieved in the fourth quarter as we continue to drive a larger percentage of our production toward the rebuild of that portfolio.
Looking forward, we anticipate that quarterly mortgage gain on sale results will be comparable to those achieved in the fourth quarter as we continue to drive a larger percentage of our production towards the rebuild of that portfolio.
Speaker 1: Our wealth management income increased $6.3 million compared to 2020 as year-over-year assets under management grew $927 million and that client base continued to expand.
Our wealth management income increased $6 3 million compared to 2020 as year over year assets under management grew $927 million and that client base continued to expand.
Speaker 1: Across the board, our wealth group, which includes Rembrandt Pendleton Jackson, Sandy Spring Trust, and West Financial Services, has performed exceptionally well and delivered significant results for our company.
Across the board our wealth group, which includes Rembert Pendleton Jackson, Sandy Spring Trust and West Financial services has performed extraction really well and delivered significant results for our company.
On the margin side. The net interest margin was $3 51 compared to $3 38 for the same quarter of 2020 and $3 52 for the linked quarter.
Speaker 1: On the margin side, the net interest margin was 351 compared to 338 for the same quarter of 2020, and 352 for the linked quarter.
Speaker 1: Excluding the amortization of the fair value marks derived from acquisitions, the net interest margin would have been 352 compared to 331 for the fourth quarter of 2020 and 349 for the linked quarter.
Excluding the amortization of the fair value marks derived from acquisitions. The net interest margin would have been $3 52 compared to $3 31 for the fourth quarter of 2020 and $3 49 for the linked quarter.
Speaker 1: We are pleased with the overall stability of the margin as the 4th quarter margin without the benefit of PPP related income would have been 330.
We are pleased with the overall stability of the margin as the fourth quarter margin without the benefit of PPP related income would have been $3 30.
Speaker 1: On a linked quarter basis, this was a five basis point decline as excess liquidity continued to build early in the quarter. This trend should reverse as we enter 2022 as our strong loan growth during the quarter has significantly reduced our overnight cash position by the end of the quarter.
On a linked quarter basis. This was a five basis point decline as excess liquidity continued to build early in the quarter.
This trend should reverse as we enter 2022 as our strong loan growth during the quarter has significantly reduced our overnight cash position by the end of the quarter.
Speaker 1: Non-interest expense increased 4.5 million or 7% compared to the prior year quarter. This was primarily due to the increased compensation costs that come with delivering record commercial loan production, as well as operational and staffing costs and expenses related to the implementation of our strategic initiatives.
Noninterest expense increased $4 5 million or 7% compared to the prior year quarter. This was primarily due to the increased compensation costs that come with delivering record commercial loan production as well as operational and staffing costs and expenses related to the implementation of our strategic initiatives salary.
Speaker 1: Salary and benefit expense increased five and a half million compared to the fourth quarter of 2020 and three million for the linked quarter.
Salary and benefit expense increased $5 5 million compared to the fourth quarter of 2020 and $3 million for the linked quarter.
Speaker 1: The non-GAAP efficiency ratio for the fourth quarter was 50-17 compared to 45-09 for the prior year quarter and 46-67 for the linked quarter. As we've commented in prior quarters, we feel that over time our non-GAAP efficiency ratio will settle in that 50-51% range as we continue to invest in the future.
The non-GAAP efficiency ratio for the fourth quarter was $50 17 compared to $45 nine for the prior year quarter and $46 67 for the linked quarter.
As we've commented in prior quarters, we feel that over time, our non-GAAP efficiency ratio will settle in that $50 to 51% range as we continue to invest in the future.
Shifting to credit quality the positive trend in the level of nonperforming loans continued this quarter at 49 basis points compared to 111 basis points at December 31 of 2020, and 80 basis points for the linked quarter.
Speaker 1: Shifting to credit quality, the positive trend and the level of non-performing loans continued this quarter at 49 basis points compared to 111 basis points at December 31 of 2020 and 80 basis points for the linked quarter.
Speaker 1: To put this further into context, the current level of non-performing loans as a percentage of total loans is the lowest it has been since the second quarter of 2018 when it was at 46 basis points.
To put this further into context, the current level of nonperforming loans as a percentage of total loans is the lowest it has been since the second quarter of 2018, when it was at 46 basis points.
Speaker 1: Loans placed on non-accrual during the current quarter totaled a half a million dollars compared to $54.7 million for the prior year quarter and $5.7 million for the linked quarter of 2020.
Loans placed on nonaccrual during the current quarter totaled $5 million compared to $54 7 million for the prior year quarter and $5 7 million for the linked quarter of 2020.
Speaker 1: This decline can be attributed to the improved economic environment.
One this decline can be attributed to the improved economic environment.
Speaker 1: Loans greater than 90 days or more past due decreased from the prior quarter as a result of the renewal of existing performing portfolio loans that were in the process of being renewed at the end of the prior quarter.
Loans greater than 90 days or more past due decreased from the prior quarter as a result of the renewal of existing performing portfolio loans that were in the process of being renewed at the end of the prior quarter.
Speaker 1: Net charge offs for the fourth quarter were 400,000 compared to net charge of 500,000 for the fourth quarter of 2020 and that charge offs of 7.8 million for the linked quarter.
Net charge offs for the fourth quarter were 400000 compared to net charge offs of 500000 for the fourth quarter of 2020, and net charge offs of $7 8 million for the linked quarter.
Speaker 1: The allowance for credit losses was at $109.1 million, or 1.1% of outstanding loans, and 224% of non-performing loans, compared to $107.9 million, or 1.11% of outstanding loans, and 138% of non-performers at the end of the prior quarter.
The allowance for credit losses was at $109 1 million or one 1% of outstanding loans, and 224% of nonperforming loans compared to $107 9 million or $1, one 1% of outstanding loans and 138% of non performers at the end of the prior quarter.
Speaker 1: Excluding PPP loans, the allowance for credit losses to outstanding loans was 1.12%.
Excluding PPP loans, the allowance for credit losses to outstanding loans.
It was one 1% 2% at year end.
Speaker 1: The tangible common equity ratio increased to 9.21% of tangible assets compared to 8.61% at December 31st, 2020. Excluding the impact of the PPP program from tangible assets, tangible common equity ratio would be 9.35%.
The tangible common equity ratio increased to $9, two 1% of tangible assets compared to 861% at December 31, 2020, excluding the impact of the PPP program from tangible assets tangible common equity ratio would be 935%.
Speaker 1: The company had a total risk-based capital ratio of $1,455, a common equity tier 1 risk-based capital ratio of $1,188.
The company had a total risk based capital ratio of $14 55, a common equity tier one risk based capital ratio of $11 88.
Speaker 1: tier one risk-based capital ratio of 1250 and a tier one leverage ratio of 926.
A tier one risk based capital ratio of $12 50, and a tier one leverage ratio of 926.
Speaker 1: And during the quarter, the company repurchased 1,088,172 shares of its common stock at an average price of $48.66 per share. And this completed the authorized repurchase.
And during the quarter the company repurchased 1 million 88172 shares of its common stock at an average price of 48.
<unk> 66 per share and this completed the authorized repurchase.
Speaker 1: of 2,350,000 shares under the current repurchase authorization.
Of 2.350 million shares under the current repurchase authorization.
Speaker 1: With that, we'll now turn to the supplemental information with also issues this morning.
With that we'll now turn to the supplemental information we also issued.
This morning.
On slide two we have detailed specific industry information as we have in the past outstanding balances for each segment or as of December 31, 2021, and as you will see we have no current payment accommodations in those asset classes.
Speaker 1: On slide 2, we have detailed specific industry information as we have in the past outstanding balances for each segment or as of December 31st of 2021. And as you will see, we have no current payment accommodations in those asset classes. And Phil will now talk you through
And Phil will now talk you through seasonal and our capital position.
Speaker 2: Thank you, Dan and good afternoon everyone picking up on slide 3. we have a waterfall representation of the movement of our allowance for the 4th quarter of 2021.
Thank you Dan and good afternoon, everyone now picking up on slide three we have a waterfall representation of the movement of our allowance for the fourth quarter of 2021.
Speaker 2: broken into the components that reflect the key drivers of change during quarter. Change over the course of the current quarter, which resulted in a provision expense for the first time since the third quarter of 2020, was primarily driven by the growth in the loan portfolio by the end of the quarter and the associated impact to our qualitative facts.
Broken into the components that reflect the key drivers of change during the quarter.
Change over the course of the current quarter, which resulted in a provision expense for the first time since the third quarter of 2020 was primarily driven by the growth in the loan portfolio by the end of the quarter and the associated impact to our qualitative factors.
Speaker 2: Continuing improvement in the forecast at economic factors provided the major off...
Continuing improvement in the forecasted economic factors provided the major offset.
Speaker 2: Our next slide shows the full year transition of our allowance for credit losses, which has been dominated by improved economic forecast factors, resulting in a reserve release of 56.3 million dollars over the course of 2021.
Our next slide shows the full year transition of our allowance for credit losses, which has been dominated by improved economic forecast factors, resulting in a reserve release of $556 $3 million over the course of 2021.
Speaker 2: Slide five is the comparison of our current and more recent economic forecast variables. Our CECL methodology continues to use the Moody's baseline forecast for the fourth quarter was a version released by Moody's on December the 17th.
Slide five is the comparison of our current and more recent economic forecast variables are seasonal methodology continues to use the Moody's baseline forecast that for the fourth quarter was a version released by Moody's on December 17th.
Speaker 2: This baseline forecast integrates the effects of COVID-19 and portrays an unemployment rate for our local market that has essentially already peaked and ultimately recovers to a level of 2.81% in the fourth quarter of 2023.
This baseline forecast integrates the effect of COVID-19, and portrays an unemployment rate for our local market that has essentially already peaked and ultimately recovers to a level of 281% in the fourth quarter of 2023.
Speaker 2: On slide 6 is our key macroeconomic variables for the current quarter. All of these variables have been applied in a consistent manner to those same factors as used in prior quarter.
On slide six is our key macroeconomic variables.
For the current quarter all of these barrels have been applied in a consistent manner to those same factors as used in prior quarters.
Speaker 2: On slide seven, we provide some additional granularity related to our reserve from a portfolio view where you can see a significant number of categories of commercial loans showing increase in reserves based on the strong loan growth during the quarter.
On slide seven we provide some additional granularity related to our reserve from a portfolio view, where you can see a significant number of categories of commercial loans show an increase in reserves based on the strong loan growth during the quarter.
Speaker 2: We should note that the 1.56% of reserve reflected for the commercial business loans includes PPP loans in the balance, although there is no reserve required on those loans.
We should note that the one 5% 6% of reserve reflected for the commercial business loans includes PPP loans and the balance although as no reserve required on those loans and.
Speaker 2: And as illustrated in the footnote at the bottom of the slide, when adjusting the balance to include PPP loans, exclude PPP loans outstanding, the reserve on our commercial business segment would be 1.78% and our total loan reserve would be 1.12% of our total loan.
And as illustrated on the footnote at the bottom of the slide when adjusting the balance to include PPP loans exclude PPP loans outstanding the reserve on our commercial business segment would be 178%.
Our total loan reserve would be one 2% of our total loans.
Speaker 2: And finally, on slide eight is the trend of our capital ratios with some brief explanations regarding the treatment of certain items and their impact on the resultant ratios.
And finally on slide eight is the trend of our capital ratios with some brief explanations regarding the treatment of certain items and their impact on the resultant ratios included.
Speaker 2: Included in those comments is an adjusted tangible equity to tangible asset ratio to reflect the impact of PPP loans on the current measure.
Included in those comments as an adjusted tangible equity to tangible asset ratio to reflect the impact of PPP loans on the current measure.
Speaker 2: As noted at the bottom of the slide, we completed our authorized share repurchase program during the quarter and the metrics displayed reflect the impact.
As noted at the bottom of the slide we completed our authorized share repurchase program during the quarter and the metrics displayed reflect the impact.
Speaker 2: We continue to feel confident about our capital position as all regulatory ratios continue to be in excess of well-capitalized requirements.
We continue to feel confident about our capital position as all regulatory ratios continue to be in excess of well capitalized requirements and.
Speaker 2: And we have also recently updated our capital stress test where we've constructed a baseline in severe forecast scenarios, utilizing the same Moody's baseline forecast that's incorporated in our CECL calculations, and a COVID-based S-4 economy in the most severe case. With that, Stan, I'll turn it over to you.
And we have also recently updated our capital stress tests, where we have constructed a baseline and severe forecast scenarios. He is utilizing the same moody's baseline forecast, that's incorporating our seasonal calculations and the COVID-19 based S for economy and the most severe case.
So with that Dan I'll turn it back over to you.
Speaker 1: Thanks, Phil. Before we conclude our prepared remarks, I'd like to briefly share a few other comments with you about our performance beyond financial.
Thanks, Phil before we conclude our prepared remarks I'd like to briefly share a few other comments with you about our performance beyond financials as we look back on the year, we have a lot to be proud of most notably our people.
Speaker 1: As we look back on the year, we have a lot to be proud of, most notably our people. Thanks to our employees, we once again earned several local and national recognitions.
Thanks to our employees, we once again earned several local and national recognition for the third year in a row Forbes named Sandy Spring Bank, one of America's Best in state banks, and the number one bank in Maryland.
Speaker 1: For the third year in a row, Forbes named Sandy Spring Bank one of America's best in-state banks and the number one bank in Maryland. The Washington Post and the Baltimore Sun also named us the top workplace for the third consecutive year. And for the second consecutive year, American Banker named us one of the best banks to work for.
The Washington post and the Baltimore Sun also named US a top workplace for the third consecutive year and for the second consecutive year American banker named US one of the best banks to work for.
Speaker 1: These have continued to be difficult times, but we're so grateful for our employees today. We employ more than twelve hundred folks as we continue to grow. We remain focused on fostering a culture that prioritizes people and doing what is best for our clients and community.
These are continued to be difficult times, but we are so grateful for our employees today, we employ deploy more than 200 folks and as we continue to grow we remain focused on fostering a culture that prioritizes people and doing what is best for our clients and community.
Speaker 1: To that end, last quarter I shared with you, we made a decision to require all employees to be vaccinated against COVID-19 by November 1st of 2021.
To that end last quarter I shared with you we made a decision to require all employees to be vaccinated against COVID-19 by November one 2021.
Speaker 1: We made this decision early last fall because we felt it was necessary to ensure a safe workplace for our colleagues, clients, and community.
We made this decision early last fall because we felt it was necessary to ensure a safe workplace for our colleagues clients and communities.
Speaker 1: This policy went into effect as planned and the implementation was extremely smooth.
This policy went into effect as planned and the implementation was extremely smooth and.
Speaker 1: And we continue to be pleased with this decision. We got in front of the latest variant. We've continued to operate our business with confidence without significant disruption.
And we continue to be pleased with this decision we got in front of the latest variant we've continued to operate our business with confidence and without significant disruptions.
Speaker 1: We are offering employees flexibility as needed, but our vaccine policy was a necessary and good decision, both for the health and well-being of our employees and our business.
We are offering employees flexibility as needed, but our vaccine policies was unnecessary and good decision both for the health and wellbeing of our employees and our business.
Speaker 1: This was a solid year and a great quarter. Our momentum in commercial loan production and growth in wealth assets are a testament to our success in the marketplace and the trust our clients have in us.
This was a solid year and a great quarter, our momentum in commercial loan production and growth in wealth assets are a testament to our success in the marketplace and the trust our clients have in us.
Speaker 1: We strive to take a long-term view in all that we do. So we're pleased to be in a position where we can invest in talent, technology, and the future of our company.
We strive to take the long term view and although we do so we're pleased to be in a position, where we can invest in talent technology and the future of our company.
Speaker 1: This concludes our general comments for today and now we'll move to your questions.
And this concludes our general comments for today and now we'll move to your questions.
Operator, if we can have the first question that'd be great.
Of course.
Speaker 3: Cool. If you would like to ask a question please press star followed by one on your telephone keypad. If you change your mind please press star followed by two.
Thank you I would like to ask a question. Please press star followed by one on your telephone keypad.
If you change your mind, Please press star followed by <unk>.
Speaker 3: When preparing to ask your question, please ensure your phone is unmuted locally.
We're preparing to ask your questions. Please ensure you'll find some niches lately.
Speaker 3: Our first question comes from the line of Casey Whitman from Piper Sandler. Casey, please go ahead. Hey, good afternoon.
Our first question comes from the line of Casey Whitman from Piper Sandler Keybanc. Please go ahead.
Hey, good afternoon.
Good afternoon Casey Casey.
Hi.
Speaker 3: Hi, I thought we'd start maybe just with a really good loan growth this quarter. What's the reasonable expectation for commercial growth and the overall growth this year? I assume it wouldn't be quite the same pace as you were putting on this quarter.
We'd start maybe just with the really good loan growth this quarter, what's a reasonable expectation for commercial growth in the overall growth. This year I assume that would be quite the same pace that you are putting on this quarter.
Speaker 1: forward? No, I think, yeah, good question, Casey. I think this quarter had a lot of things at play, as I mentioned, just folks getting back aggressively calling on existing clients and new opportunities, coupled with, you know, the fact that many in the, particularly in the commercial real estate area, are trying to get ahead of anticipated rate increases.
Forward.
No I think yeah. Good question Casey I think this quarter had a lot of things at play as I mentioned, just folks getting back aggressively calling on existing clients and new opportunities.
Coupled with.
The fact that many in the particularly in the commercial real estate area trying to get ahead of anticipated rate increases.
Speaker 1: and you know before 2022. So our outlook in the commercial space is, you know, 8 to 10 percent growth in those categories and overall loan growth probably in the mid to upper single digits.
Before before 2022, so our outlook.
In the commercial space is.
8% to 10% growth.
Those categories and overall loan growth probably in the mid to upper single digits.
Speaker 4: Okay. I think you had mentioned possibly pursuing some loan purchases last quarter, but did you have any of that impacting the growth this quarter?
Okay.
I think you had mentioned possible pursuing some loan purchases last quarter, but did you have any of that impacting the growth this quarter.
We did not we actually did not have any any.
Speaker 1: We did not. We actually did not have any acquired or purchased participation in the quarter.
Acquired or purchased participations in the quarter.
Speaker 4: Okay, and how about the new loan yields on the loans coming on? How do those compare with the loan yields on the rest of the portfolio?
Okay.
The new loan yields on the loans coming on because it had to have.
How did those compare with the filling out the rest of the portfolio.
Yeah Casey this is Phil.
Okay.
Speaker 2: You know, it's a mixed, certainly a mixed bag of.
Is it mix certainly a mixed bag of.
Of average yield.
Speaker 2: of average yield, you know, based on the different overall portfolios. But by and large, you know, the average of all production that was generated in over the quarter and in more in particular, the bulk of which was generated in December was probably in the low 4 to 4.20 range. And that's actually fairly comparable to other things that had been booked.
Based on the different overall portfolios, but.
By and large.
The average of all production that was generated.
Over the quarter any more in particular, the bulk of which was generated in December was.
And a low 4% to four $4 20 range.
And thats actually fairly comparable to the other things that had been booked.
Speaker 2: in previous quarters. So, you know, it doesn't appear as if we really sacrifice a whole lot of yield in order to garner the amount of production during the period.
In previous quarters so.
It doesn't appear as if we rally stock price the whole lot of yield in order to garner the amount of production during the period.
Great.
Speaker 4: And maybe this is a broad question, but can you address how you're feeling positioned for rate hikes? I think your ALCO model suggests that you're asset sensitive, but can you walk us through sort of the push and pulls going on there and what kind of deposit betas you're assuming the cycle?
And maybe this is.
Broad question, but can you address how you are feeling positioned for rate hikes I think your Alco model suggests that youre asset sensitive, but can you walk us through sort of the.
Pushing pulse going on there and what kind of deposit betas, you're assuming the cycle.
Sure. Yes, so you are correct that.
Speaker 2: Sure, yeah. So you're correct that...
Speaker 2: From the standpoint of published kind of interest rate risk information, we would portray.
From the standpoint of published kind of interest rate risk information, we would portray have and will continue to portray as being what I would characterize as slightly asset sensitive.
Speaker 2: have and would continue to portray as being what I would characterize as slightly asset sensitive.
Speaker 2: And I think that that continues as we look forward.
And.
And I think that that continues as we look forward.
Speaker 2: 1 of the things that we were obviously able to do here at the end of the quarter was absorb a significant amount of the.
One of the things that we're obviously able to do here at the end of the quarter was absorbed a significant amount of the two.
Speaker 2: the liquidity that we had on the balance sheet through the last second half of the year. And certainly that went into the loan portfolio predominantly. And so that changes the reported profile a little bit. But I would say that, you know, with that outsize liquidity with also a little bit more of a positive
The liquidity that we had on the balance sheet through the last the second half of the year.
And certainly that went into into the loan portfolio predominantly.
So that changes the reported profile a little bit, but I would say that with that outsized liquidity with also a little bit more of a of a <unk>.
Speaker 2: exaggerated asset sensitivity position. But having said all that, you know, we will certainly, in terms of looking at the margin, we will certainly benefit from, you know, if the Fed chooses to do the three rate hikes throughout the year. It won't be significant in terms of, you know, just because of the timing that may take place, in terms of the incremental amounts to the margin.
Exaggerated asset.
Activity position, but having said all of that.
We will certainly.
In terms of looking at the margin, we will certainly benefit from.
If the fed chooses to do the three rate hikes throughout the year.
It won't be significant in terms of.
Just because of the timing that may take place in terms of the incremental amounts to the margin.
Speaker 2: Um, but nevertheless, we will certainly benefit and that includes a kind of, um, deposit beta that aspect of your question that would.
But nevertheless, we will certainly benefit and that includes our kind of deposit betas that aspect of your question that would.
Speaker 2: Would indicate that if we thought we needed to, we would probably run some of those money market and other. More rate sensitive items at a 40% beta now. I don't we don't believe that we'll be.
Would indicate that if we thought we needed to we would probably run some of those money market and other.
More rate sensitive items at a 40% beta now.
We don't believe that will be.
Speaker 2: That'll be necessary, especially given where we're starting this rate cycle related to the, you know, the build up in the nature of our deposit base.
Yeah that'll be necessary.
Especially given where we're starting this rate cycle related to the buildup in the nature of our deposit base.
Speaker 2: I mean we're still operating at about a 93% loan to deposit ratio. And as you probably remember that's traditionally low for us.
Mill operating at about a 93% loan to deposit ratio and as you probably remember that traditionally low for us.
Speaker 2: And so I feel like we're entering this cycle in a pretty good position so that we don't have to necessarily get out in front of.
And so.
Feel like we're entering this cycle in a pretty good position. So that we don't have to necessarily get out in front of.
Speaker 2: You know, some of the rate offerings that we may have had to do the last time we had such a, you know, an upturn in rates.
Some of the rate offerings that we may have had to do the last time, we had such a.
An upturn in rates.
Thank you helpful I'll, let someone else jump on.
Thanks, guys. Thank you.
Speaker 3: Our next question comes from the line of Brodie Prexton from Stevens Inc. Brodie please proceed.
Our next question comes from the line of Brady Preston from Stephens, Inc. Please proceed.
Hey, good afternoon, everyone.
Hey, Barry.
Speaker 5: I guess I wanted to ask, just on the securities book, you know, looking at it, you put a little bit more liquidity to work this quarter, so I wanted to gauge, you know, one, what's the appetite going forward, and then, you know, quickly, if you happen to have the duration of the portfolio, and what percent of it is floating rate handy, it would be helpful.
Sure.
I guess I wanted to ask just on the Securities book.
Looking at you put a little bit more liquidity to work this quarter. So on the gauge.
One what's your appetite going forward and then.
Quickly if you happen to have the duration of the portfolio and what percent of it is floating rate handy that would be helpful.
Speaker 2: Yeah, Brody, this is Phil. We really did not add to the portfolio, investment portfolio position.
They have already this is Phil.
We really did not.
Add to the portfolio investment portfolio position.
Speaker 2: During the quarter we chose, I think as we discussed on a previous quarter call that we preferred to, you know, kind of keep our powder dry there in the event that we got the kind of loan growth that we ultimately did here in the quarter to absorb the...
During the quarter, we chose I think as we discussed on previous call previous quarter call that we preferred to kind of keep our powder guy there in the event that we got the kind of loan growth that we ultimately did here in the quarter too.
Absorb.
Speaker 2: So at the time, probably about a billion dollars, the next, you know, overall overnight position with the Fed.
So at the time, probably about a $1 billion in overall.
Overall.
Overnight position with with the fed.
Speaker 2: And we don't really see that the necessity to add to the portfolio here going forward as well. We did make some under the hood adjustments that are related to your question around the duration of the portfolio, but buying large.
And we don't really see that the necessity to to add to the portfolio here going forward as well.
We did make some under the kind of under the Hood adjustments that are related to your question around.
The duration of the portfolio, but by and large.
Speaker 2: I think we're just going to continue to replace, you know, cash flow runoffs with like kind of
I think we're just going to continue to replace cash flow runoffs with like kind of.
Speaker 2: of instruments, which are mostly mortgage-backed CMO-type products that'll just continue to give off a consistent amount of cash flow into the future. The overall duration of the portfolio is about 52 months.
Of instruments, which are mostly mortgage backed CMO type products that will just continue.
To give off a consistent amount of cash flow.
Into the into the future.
The overall duration of the portfolio is about 52 months.
Speaker 2: And it's been that way for now for a couple quarters.
And it's been that way for now for <unk>.
A couple of quarters.
Speaker 2: Yeah, the floating rate pieces is pretty small. I'm going to just off the top of my head say it's probably less than 10 percent of the portfolio.
You're absolutely right.
Yes, yes.
The floating rate piece is it's pretty it's pretty small.
Just off top my head say, it's probably less than 10% of the portfolio.
Speaker 5: Got it, got it. And then just on the, just maybe switching to capital, just M&A, I just wanted to know if you could update us in terms of how you're thinking about M&A going forward in terms of bolt-on fee or whole bank M&A.
Got it got it and then just on the.
Just maybe switching to capital just M&A I just wanted to know if you could update us in terms of how you're thinking about M&A.
Going forward in terms of bolt on fee or whole bank M&A.
Speaker 1: Yeah, Brody, Dan here, you know, our success in the well space and particularly with the, you know, the acquisitions of RIAs has us continue to be interested in growing both organically and through, you know, partners and particularly in that well space. We think we have scale and it's working well and so we continue to be high on that business and continue to look for good opportunities in the bank side. Thank you.
Yes, Brody Dan here.
Our success in the wealth space and particularly with.
The acquisitions of <unk> has us continued to be interested in growing both organically and through.
Partners in particularly in that wealth space, We think we have scale and it's working well and so we continue to be high on that business and continue to look for good opportunities in the bank side of things.
Speaker 1: We think continuing to grow again organically and through select partnerships in the banking space is really important. We don't have anything on the racket to comment on at this point, but we continue to build those relationships.
We think.
Continuing to grow again organically and through select partnerships in the banking space is really important that don't have anything.
On the racket too.
Comment on at this point, but we continue to build those relationships.
Okay and on the loan mix.
Speaker 5: Okay, and on the loan mix, I'm sorry if I missed this, but do you happen to have what percent of the loan portfolio is floating rate?
I'm sorry, if I missed this but do you happen to have what percent of the loan portfolio is floating rate.
Speaker 2: Yeah, Brody, I have that information. On the overall total loan portfolio, about 24% of total loans is.
Yes, Brody I have that information.
On the overall total loan portfolio of about 24%.
Of total loans.
Speaker 2: is floating rate. That percentage in the commercial portfolio is certainly higher than that. But in terms of the overall portfolio, about 24%. And about half of those that are floating have floors on them as well. And, you know, a large majority of the loans that have the floors are at the floors.
As floating rate that percentage in the commercial portfolio is certainly.
Certainly higher than that but in terms of the overall portfolio about 24% and about half of those that are floating.
Floors on them as.
As well and.
A large majority of the loans that have the floors are at the floors.
Speaker 2: you know, at the floors at this time. So, you know, certainly as rates pop back up in most of those floors I think are probably on average around 4%. There's probably what, the 75 basis points of repricing, it'll have to take place before we see any, you know, any additional..
Or at the floors at this time so.
Certainly as rates pop back up in most of those floors. I think are probably on average around 4%, there's probably what 75 basis points of repricing and I'll have to take place before we see any.
Any of that any additional.
Speaker 2: benefit from rates rising on that portion of the portfolio.
Benefit from.
From rates rising on those that portion of the portfolio.
Speaker 5: Got it. And then the last one from me was just some of the the tick up that we saw in the in the salaries and benefits line item. Would you expect that to further increase in the first quarter? I should be thinking about about that specific line item. Yeah, I would. I would certainly 2022.
Got it and then the last one.
For me it was just some of the.
The tick up that we saw in the salaries and benefits.
Line item would you expect that to further increase in the first quarter, how should we be thinking about about that specific line item.
I would characterize 2022.
Speaker 2: Yeah, great question. I would certainly not expect it to increase from red is and in fact, I would expect some of that to come back to us. You know, we increased.
Yeah, Great question, I would certainly not expected to increase from where it is and in fact I would expect some of that to come back to us.
We increased incentive compensation quarter over quarter here, probably by approximately $2 million.
Speaker 2: Incentive compensation quarter over quarter here, probably by approximately 2 million dollars.
Speaker 2: Uh, that was, you know, mostly necessitated by the, you know, the need to cover the amount incentives that were related to the, you know, outsized amount and production toward the end of the quarter. That's not going to necessarily need to be repeated on a quarter over quarter basis.
That was.
Mostly necessitated by the.
The need to cover the amount of incentives that were related to that.
Outsized amount in production towards the end of the quarter.
That's not going to necessarily need to be repeated on a quarter over quarter basis.
Speaker 2: And so I would think that some of that's going to come back to us and then, you know, in the broader area of expense, we also had a couple of. Of 1 time related expenses, 1 in the, in the in the benefit area related to some pension. Pension settlement charges that we were required to take due to the accounting on that. And some other other other expenses related to disposition of some of the branches we closed earlier in the year that are both worth.
And so I would think that some of that is going to come back to us and then in the <unk>.
<unk> area of expense. We also had a couple of one time related expenses, one in it and the benefit area related to some pension pension <unk>.
Settlement charges that were required to take due to the accounting on that and some other other other expenses related to disposition of some of the branches. We closed earlier in the year that are both werent.
Speaker 2: Uh, in total about a 1Million dollars. So if I were going to kind of say what what the look at from a quarterly standpoint on expenses. I would say that that run rate is probably somewhere between what it was in the 3rd quarter and what it was in the 4th quarter in that 64 to 65Million dollar quarter range.
In total about $1 billion. So if I were going to kind of say what what to look at from a quarterly standpoint on expenses I would say that that run rate is probably somewhere between what it was in the third quarter than what it was in the fourth quarter in that $64 million to $65 million per quarter range.
Awesome. Thank you very much for that and thank you for taking my questions I appreciate it.
Speaker 5: Awesome. Thank you very much for that and thank you for taking my questions. I appreciate it.
Thanks Brody.
Our next question comes from the line of Catherine Mealor, Keefe Bruyette <unk> Woods Catherine. Please go ahead.
Speaker 3: Our next question comes from the line of Katherine Meehler from Keith Brouette and Woods. Katherine, please go ahead. Thanks, good afternoon.
Thanks, Good afternoon.
Hi, Catharine Hey, Catharine.
Speaker 6: Just as a follow up to the expense question, so if we take a more normalized run rate of this quarter at 64 to 65, as you look
Just as a follow up to the expense question. So if we take a more normalized run rate of this quarter at 64% to 65 as you look.
Speaker 6: forward to 2022, do you still think, I think last quarter you said that the expense growth rate should be somewhere around 4%. Do you still think that's a good expense growth rate for next year or are there other investments or kind of inflationary pressures that could push that growth rate up a little bit?
Forward to 2022 do you still think I think last quarter, you said that the expense growth rate should be somewhere around 4% do you still think thats a good expense growth rate for next year or are there other investments or kind of inflationary pressures that could push that growth rate up a little bit.
Speaker 2: Yeah, Catherine, Phil, again, I do still believe that on a, and I'll call it a little bit of a normalized basis year over year when you pull out, especially in the things that were related to our, you know, home loan bank prepayment fees and things like that, that occurred during 21, that, yeah, that 4% range is probably still a reasonable way to look at, look at the overall level of the expenses, you know, year over year.
Yes, Catherine Phil again, I do still believe that on a I'll call. It a little bit of a normalized basis year over year, when you pull out, especially in the things that are related to our <unk>.
Home loan bank prepayment fees and things like that that occurred during 'twenty, one, but yes in that 4% range is probably still a reasonable way to look at look at the overall level of expenses.
Year over year.
Okay great.
Speaker 6: And then any thoughts on buyback? You finished your most recent authorization, but your stock is a lot higher valuation today. So how are you thinking about buybacks and capital allocation this year?
And then any thoughts on buyback you finished your most recent.
Authorization your stock isn't all at higher valuation today as to how you're thinking about buybacks and capital allocation this year.
Speaker 1: Yeah, Catherine Dan, we, we currently, as, you know, used up the authorization. We likely like to have 1 in place.
Yes, Catherine Dan.
We we currently as you know used up the authorization we likely.
I'd like to have one in place.
Speaker 1: You know, at all times, just to have that tool available to us, but there, there are no immediate plans to be active on repurchase.
At all times, just to have that tool available to us.
There are no immediate plans to be active on repurchases at this point.
Okay, Great and then my last question on credit.
Speaker 6: And then my last question on credit, you know, credit's improved so much, and the ACF ratio obviously is continuing to come down. But there was a little bit, you know, less of a reserve release this quarter than we've seen in past, so is it fair to say that this is, we're kind of evening out, and from here, you know, there's limited, I guess, reserve reversals, or would you expect that ratio to continue to move down?
So much.
The ACL ratio, obviously is continuing to come down.
Little bit.
Less of a reserve release this quarter than we've seen in past. So is it fair to say that this is.
We're kind of evening out and from here there is limited I guess.
Reserve reversals or do you expect that ratio to container midterm.
Speaker 2: Okay, Catherine, this is Phil again. I think we're probably leveling off here to more directly answer your, most directly answer your question. I think the reserve and the provision that goes with it move as growth moves at this point. And we said this before and that's
Hey, Catherine this is Phil again.
I think we're probably leveling off here.
Directly more directly answer your most directly answer your question.
I think the reserve.
And the provision that goes with it move as growth moves at this point.
And we said this before and Thats just.
Speaker 2: you know, absent of any outside or unusual charge-off activity that we're not anticipating, you know, as we move forward from this point. So, yeah, I would say that, you know, we're adding that 110 to, you know, 112 level of total loans is probably something to look forward towards. So, yeah, I would, certainly try to look forward
Absent of any outsized or unusual charge off activity that we're not anticipating.
As we move forward from this point, so yes, I would say that where were at in that 110 to $1 12 level of total loans.
It is probably something to look forward towards.
Okay, great. Thank you so much.
Thanks, Catherine welcome. Thank you.
Speaker 3: As a reminder, to ask any further questions, please press star followed by one on your telephone keypad.
As a reminder to ask any further questions. Please press star followed by one and your telephone keypad.
Speaker 3: Our next question comes from the line of Eric Swick from Boening and Scattergood. Eric please proceed.
Our next question comes from the line of Erik Zwick with Boenning and Scattergood Eric. Please proceed.
Good afternoon guys.
I've known Eric.
Speaker 7: First one from me, just thinking about the net interest margin a little bit, and I appreciate the commentary on the asset sensitivity. If we just look at the core in the fourth quarter of that 3.3% level, just kind of curious, you know, a lot of the strong loan production in the fourth quarter wasn't fully in the run rate at that point. As we look forward over, you know, into 1Q and maybe a little bit into 2Q, how do you see the trajectory of that core margin from this point?
First one for me just thinking about the net interest margin and a little bit and I. Appreciate the commentary on the asset sensitivity. If we just look at the core for fourth quarter or about three 3%.
Level, just kind of curious a lot of the.
Strong loan production in the fourth quarter wasn't fully in the run rate.
At that point as we look forward over into <unk>, and maybe a little bit into <unk>. How do you see the trajectory of that core margin from this from this point.
Speaker 2: Yeah, this is Phil. I think you're going to see it expand from from where we finished out the.
Yeah, Eric This is Phil I think youre going to see it expand.
From from where we finished out the.
Speaker 2: fourth quarter, I think you could see it head towards 340. In that range is based on, you know, the projected benefit from what happened through this through this quarter.
The fourth quarter, I think you could see it head towards $3 40 in that range.
Based on.
The projected benefit from what happens through the through this quarter.
Speaker 2: So I think that that's where it is. And again, that's core. You know, we still have a little bit of PPP, as Dan mentioned, left there. So you're going to get some bump up in probably the first and maybe second quarter related to that. But from a pure core standpoint, I do think that it could easily expand into that range here as we move forward.
And so I think that Thats, where it is and again that's core.
Still have a little bit of PPP as Dan mentioned left there so youre going to get you're going to get some bump up in probably the first and maybe second quarter related to that but from a pure core standpoint, I do think that it is.
It could easily expand into that range here as we move move forward.
That's helpful. Thanks, and then just thinking about the the noninterest income and especially in light of the decision to retain more of the residential mortgage production on the balance sheet at this point.
Speaker 7: And then just thinking about the non-interest income, and especially in light of the decision to retain more of the residential mortgage production on the balance sheet at this point, you know, I look back over the past couple years and obviously had, you know, very strong years in 2020 and 2021 for mortgage banking.
I look back over the past couple of years, and obviously had very strong years in 2020 and in 'twenty one from mortgage banking.
Speaker 7: I guess as we think about 22, do we start moving back to something more like that 2019 level and I guess kind of bigger picture with non-interest income is that 4Q level, a decent run rate going forward, obviously, so you're getting some benefit from larger wealth management, but that mortgage banking is certainly a bit of a headwind at this point relative to the last couple of years.
I guess as we think about 'twenty two do we start moving back to something more like that that 2019 level and I guess kind of bigger picture with noninterest income is that <unk> level, a decent run rate going forward.
Obviously, youre getting some benefit from larger wealth management mortgage banking is certainly a bit of a headwind at this point relative to the last couple of years.
Speaker 1: Yeah, Eric, this is Dan, you know, I would, I would look at from a mortgage banking standpoint, kind of model after what we experienced in the fourth quarter. And it'll give us the opportunity to balance both gain revenue and and rebuild that portfolio a bit.
Yeah, Eric This is Dan.
I would look at it from a mortgage banking standpoint kind of modeled after what we experienced in the fourth quarter.
And that will give us the opportunity to balance both gain revenue in.
Rebuild that portfolio a.
A bit.
Speaker 7: that's probably a good way to look at it. Thanks, that's all I had today. I appreciate it.
That's probably a good way to look at it.
Okay. Thanks, that's all I had today I appreciate it guys.
Thanks, Eric Thanks, Eric.
Speaker 3: We currently have no further questions so we'll now hand back over to the management team for any closing remarks.
We currently have no further questions I will now hand, it back over to the management team for any closing remarks.
Speaker 1: All right, thank you, Lauren, and thanks everyone for taking the time to participate this afternoon, and we hope that you have a great one.
Alright. Thank you Lorne I think thanks to everyone for taking the time to participate.
This afternoon, and we hope that you have a great one.
That concludes our call.
Speaker 3: This concludes today's course. Thank you for joining and I hope you have a lovely rest of your day. You may now disconnect your lines.
This concludes today's call. Thank you for joining and I Hope you have a lovely rest of your day you may now disconnect your lines.
Okay.