Q4 2021 FIRST BANK (Hamilton) Earnings Call
Good morning, and welcome to today's first by fourth quarter 2021 earnings Conference call. My name is Candice and I will be your moderator for today's call.
Speaker 1: Good morning and welcome to today's First Bank fourth quarter 2021 earnings conference call. My name is Candice and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call. We have an opportunity for question and answer at the end. If you would like to ask a question, please press start followed by one on your telephone keypad.
All lines will be muted during the presentation portion of the cold.
We have an opportunity for question and answer the end if you would like to ask a question. Please press star followed by one on your telephone keypad.
Speaker 1: I would now like to pass the conference call over to our host, Patrick Ryan, President and CEO of First Bank. Patrick, please go ahead.
I would now like to pass the conference call over to our highest Patrick Ryan President and CEO of bus by Patrick. Please go ahead.
Speaker 2: Thank you. I'd like to welcome everyone today to First Bank's Fourth Quarter 2021 Earnings.
Thank you I'd like to welcome everyone today to first bank's fourth quarter 2021 earnings call.
I am joined by Andrew Hibshman, Our Chief Financial Officer, and Peter Cahill, Our Chief lending Officer.
Before we begin Andrew will read the Safe Harbor statement Andrew.
Thanks, Pat the following discussion may contain forward looking statements concerning the financial condition results of operations and business of first bank. We caution that such statements are subject to a number of uncertainties and actual results could differ materially and therefore, you should not place undue reliance on any forward looking statements. We make we may.
Speaker 3: Thanks, Pat. The following discussion may contain forward-looking statements concerning the financial condition, results of operations, and business of first.
Not update any forward looking statements, we make today for future events or development information about risks and uncertainties are described under item one a risk factors in our annual report on Form 10-K for the year ended December 31, 2020 filed with the FDIC that back to you.
Thanks, Andrew.
Overall, I think Q4 was a great finish to a really strong year.
Speaker 2: Overall, I think Q4 was a great finish to a really strong year.
Speaker 2: I'd like to start by hitting on a couple of the key financial performance milestones. In Q4, we had really strong return on average assets of 1.27%, which actually calculate to 1.33% if you back out the merger-related costs associated with our branch acquisition, which we finalized in December .
I'd like to start by hitting on a couple of the key financial performance milestones in Q4, we had really strong return on average assets of one point to 7%, which actually calculate to 133%. If you back out the merger related costs associated with our branch acquisition, which we finalized in this.
Looking at return on tangible common equity, we're at 12, six 3%, which when adjusted for merger cost was $13 two 6%.
Speaker 2: Looking at return on tangible common equity, we were at 12.63%, which when adjusted for merger costs was 13.26%.
Speaker 2: Very good ratios there as well. Our efficiency ratio came in below 50% for the fourth straight quarter. Our pre-provision net revenue almost hit $12 million when you exclude merger related costs. Our pre-provision net revenue return on assets has been over 1.85% in each of the past four quarters. And our net interest margin was over 3 and 1 1,000 for the past five quarters.
Very good ratios there as well our efficiency ratio came in below 50% for the fourth straight quarter of <unk>.
Pre provision net revenue almost 12 million when you exclude merger related costs are.
Our pre provision net revenue return on assets has been over 1.85% in each of the past four quarters and our net interest margin was over three and a half for the past five quarters.
Speaker 2: While many banks are performing well right now, our performance clearly places us within the top quartile based on our peer comparison of these important financial metrics.
While many banks are performing well right now our performance places us within the top quartile based on our peer comparison of these important financial metrics.
Speaker 2: Looking at the lending side of the house, we basically did the equivalent of a year's worth of lending in the fourth quarter. Our growth came primarily from C&I and owner-occupied commercial real estate, which are two areas where we're strategically trying to increase market share. So we're pleased to see not only the growth in the quarter, but where it came in and the impact on our mix.
Looking at the lending side of the house, we basically did the equivalent of a year's worth of blending in the fourth quarter. Our growth came primarily from C&I and owner occupied commercial real estate, which are two areas, where we are strategically trying to increase market share. So we're pleased to see not only the growth in the quarter.
But where it came in and the impact on our mix.
Speaker 2: Most of the growth during Q4 came at the very end of the year. So the full benefit of those loans will show up in this year, 2022.
Most of the growth during Q4 came at the very end of the year. So the full benefit of those loans will show up in this year 2022.
Speaker 2: We're glad to see that asset quality is holding up quite well, given what appears to still be a very uncertain market for a lot of folks. Our SBA group continues to perform very well, helping to drive improved non-interest income. And we continue to explore additional C&I growth opportunities to drive growth in C&I lending as we move forward.
We're glad to see that asset quality is holding up quite well given what appears to still be a very uncertain market for a lot of folks are SBA group continues to perform very well, helping to drive improved noninterest income and we continue to explore additional C&I growth opportunities to drive growth in C&I lending as we move.
Forward.
Speaker 2: On the deposit side, we brought in $100 million in new low-cost deposits from the branches we acquired from Ocean First. And that money came in at just the right time, as we had fresh low-cost funding available for the strong loan growth that we saw in Q4. And obviously, it was helpful not to be sitting on lots of excess liquidity during the quarter.
On the deposit side, we brought in $100 million in new low cost deposits from the branches. We acquired promotion first and that money came in at just the right time as we had fresh low cost funding available for the strong loan growth that we saw in Q4, and obviously was helpful not to be sitting on lots of excess liquidity during the quarter.
Speaker 2: We continue to move our deposit costs lower, we reduce them to an overall cost of 21 basis points during Q4, which was down from 25 basis points in the prior quarter.
We continue to move our deposit costs lower we reduced them to an overall cost of 21 basis points during Q4, which was down from 25 basis points in the prior quarter. We also saw continued success in our commercial deposit and cash management area and cash management deposits now make up almost half of all of our noncore.
Speaker 2: We also saw continued success in our commercial deposit and cash management area. And cash management deposits now make up almost half of all of our non-consumer deposits. So good progress in that area.
Sumer deposits so good progress in that area.
Speaker 2: A couple of quick thoughts regarding profitability. When you look at the expense side, and you actually take a look at the impact of the higher variable incentive comp that was accrued in Q4, our core employee salary and benefit number actually came down in the fourth quarter compared to the third quarter. So while we obviously need to keep a close eye on labor costs in this inflationary period, it's clear that past efforts to control costs are working.
Couple of quick quick thoughts regarding profitability when you look at the expense side.
And you actually take a look at the impact of the higher variable incentive comp that was accrued in Q4 are our core employee salary and benefit number actually came down in the fourth quarter compared to the third quarter. So while we obviously need to keep a close eye on labor costs and this inflation.
Larry period, it's clear the past efforts to control costs are working at.
Speaker 2: and we view the high variable comp as a positive since it only materializes when the bank delivers really strong results.
And we view the high variable comp is a positive since it only materializes when the bank delivered really strong results.
Speaker 2: And when you look at our core results backing out one-time income and expense-related items, we continue to see a core return on average assets of right around 1.2%, which is a very good number compared to historical standards.
And when you look at our core results backing out one time income and expense related items. We continue to see a core return on average assets of right around one 2%, which is a very good number compared to historical standards and as we look out to 2022, if the impact of the fed moving on interest.
Speaker 2: And as we look out to 2022, if the impact of the Fed moving on interest rates is a stretching out of the slope of the yield curve, we might be able to see some even improved profitability over that current level. So we're optimistic about 2020.
Rates as the stretching out of the slope of the yield curve, we might be able to see some even improve profitability over that current level. So we're optimistic about 2022 and.
Speaker 2: In summary, we view this as another overall very strong quarter and a really great year. We feel like we're hitting on all cylinders in lending. Our growth has been strong. Our pipeline remains robust. Our yields are holding in or rising, and our asset quality looks good. Deposits remain very good. We've seen good non-interest bearing growth. We're having continued success in cash management, and funding costs continue to move a little bit lower.
In summary, we view this as another overall very strong quarter and a really great year, we feel like we're hitting on all cylinders and when they are growth has been strong our pipeline remains robust our yields are holding in a rising in our asset quality looks good.
Posits remained very good we've seen good noninterest bearing growth. We're having continued success in cash management and funding costs continue to move a little bit lower the core business is growing nicely and we're actively exploring niche lending and deposit opportunities to keep on track as we move forward.
Speaker 2: The core business is growing nicely and we're actively exploring niche lending and deposit opportunities to keep on track as we move forward.
Speaker 2: So at this time, I'd like to turn it over to Andrew to give us some additional information on the results in the fourth quarter. Andrew?
So at this time I would like to turn it over to Andrew to give us some additional information on the results in the fourth quarter Andrew.
Yes.
Speaker 3: Thanks, Pat. For the three months ended December 31st, 2021, we earned $7.8 million in net income, or $0.40 per diluted share. This resulted in net income of $35.4 million for the year ended, December 31st, 2021, or $1.79 per diluted share.
Thanks, Matt for.
For the three months ended December 31, 2021, we earned $7 8 million and net income or <unk> 40 per diluted share. This resulted in net income of $35 4 million for the year ended December 31, 2021, or $1 79 per diluted share the factors contributing to another strong quarter included a stable net interest.
Speaker 3: The factors contributing to another strong quarter included a stable net interest margin and improved non-interest income. Net income declined slightly compared to the prior quarter, primarily due to what Pat mentioned, the higher non-interest expenses related to the acquisition and the higher incentive compensation expenses during Q4.
First margin and improve noninterest income net income declined slightly compared to the prior quarter, primarily due to the Pat mentioned, the higher noninterest expenses related to the acquisition and the higher incentive compensation expenses during Q4.
Speaker 3: From a balance sheet perspective, as Pat mentioned, we had a very strong loan growth quarter excluding PPP loan forgiveness. Loans were up $134.4 million in Q4 compared to an increase of non-PPP loans of approximately $13 million in Q3. That loan growth did include approximately $11 million from the Ocean First branch acquisition that was completed during December of this year.
From a balance sheet perspective, as Scott mentioned, we had a very strong loan growth quarter, excluding PPP loan forgiveness loans were up $134 4 million in Q4 compared to an increase of non PPP loans of approximately $13 million in Q3 that loan growth did include approximately $11 million from the Ocean first branch acquisition that was <unk>.
Pleated during December of this year.
Speaker 3: Net loan growth excluding PPP activity was $150.5 million for the full year.
Net loan growth, excluding PPP activity was $150 5 million for the full year.
Speaker 3: A significant amount of the year to date NQ4 growth was towards the back end of fourth quarter, which Pat mentioned, which we do expect to help propel our interest income in 20.
A significant amount of the year to date in Q4 growth was towards the back end of fourth quarter, which Pat mentioned.
Which we do expect to help propel our interest income in 2022.
Speaker 3: During Q4 2021, $26.7 million in PPP loans were forgiven, leaving approximately $51 million in PPP loans outstanding at the end of the year. During Q4 2021, we realized $1.1 million in PPP fee income, and that compared to $1.8 million in Q3 2021.
During Q4, 2021 'twenty $6 $7 million in PPP loans were forgiven, leaving approximately $51 million in PPP loans outstanding at the end of the year. During Q4, 2021 we realized $1 $1 million in PPP fee income and that compared to $1 8 million in Q3 2021.
Speaker 3: As of the end of the year, we had $1.7 million in deferred PPP loan fees remaining.
As of the end of the year, we had $1 7 million in deferred PPP loan fees remaining.
Speaker 3: Even after a strong loan growth quarter, we feel good about the strength of our commercial loan pipeline and prospects for loan growth, which Peter will mention in additional detail later. Total deposits were up $68.6 million during Q4, while we continue to reduce our reliance on higher-cost time deposits.
Even after a strong loan growth quarter, we feel good about the strength of our commercial loan pipeline and prospects for loan growth, which Peter will mentioned in additional detail. Later total deposits were up $68 6 million. During Q4, while we continue to reduce our reliance on higher cost time deposits, we obtained approximately $100 million from our branch acquisition.
Speaker 3: We obtained approximately $100 million from our branch acquisition, which translates to a decline of approximately $31 million in other deposit activity during Q4. This was a targeted and strategic decline to minimize our excess liquidity in anticipation of the branch acquisition.
Which translates to a decline of approximately $31 million in other deposit activity. During Q4. This was a targeted and strategic declined to minimize our excess liquidity in anticipation of the branch acquisition. For example, during Q4, we reduced our broker deposit balances by just over $15 million noninterest.
Speaker 3: For example, during Q4, we reduced our broker deposit balances by just over 50%.
Speaker 3: Non-interest bearing demand deposits, as a percentage of total deposits, increased slightly during Q4 to 26.4%. This compared to 26.3% at the end of September .
Noninterest bearing demand deposits as a percentage of total deposits increased slightly during Q4 to 26, 4%.
This compared to 26, 3% at the end of September .
Speaker 3: while time deposits dropped to 18.5% of total deposits at the end of the year, compared to 20.6% at September 30th.
While time deposits dropped to 18, 5% of total deposits at the end of the year compared to 26% at September 32021.
Speaker 3: In addition to shifting our deposit mix, we have been able to lower the cost of our interest-bearing deposits, which, coupled with the deposit mix shift, has contributed to a significantly lower cost of deposits, which Pat previously mentioned.
In addition to shifting our deposit mix, we have been able to lower the cost of our interest bearing deposits, which coupled with the deposit mix shift has contributed to a significantly lower cost of deposits, which Pat previously mentioned.
Speaker 3: Our tax equivalent net interest margin which bottomed out during the second quarter of 2020 to 3.07% held steady at 3.52% for the quarter ended Q4 2021. Compared to 3.5%
Our tax equivalent net interest margin, which bottomed out during the second quarter of 2020% to 3.07% held steady at 352% for the quarter ended.
Q4, 2021 compared to $3 five four in the previous quarter. Our margin continues to benefit from lower cost of deposits and minimizing the decline in the average yield on interest earning assets. Excluding PPP fee income our margin would have been approximately $3 three 3% in Q4 versus 323% in Q3.
Speaker 3: Our margin continues to benefit from lower cost of deposits and minimizing the decline in the average yield on interest earning assets.
Speaker 3: Excluding PPP fee income, our margin would have been approximately 3.33% in Q4 versus 3.23% in Q3, so nice uptick in margin during the quarter. With the anticipation of rising rates in 2022, we are well positioned for the rising rate environment and anticipate that excluding the impact of PPP fees, we should be able to maintain a fairly stable margin in 2022, and as Pat mentioned, if we get some expansion of the yield curve, we could see a slight improvement in the margin in 2022.
So a nice uptick in margin during the quarter with the anticipation of rising rates in 2022, we are well positioned for the rising rate environment and anticipate that excluding the impact of PPP fees, we should be able to maintain a fairly stable margin in 2022 and as Pat mentioned, if we get some expansion in the yield curve, we could see a slot.
Improvement in the margin in 2022.
On another low quarter in terms of charge offs.
Speaker 3: and continued strong asset quality profile, we reduced our allowance for loan losses as a percentage of loans to 1.15.
And continued strong asset quality profile, we've reduced our allowance for loan losses as a percentage of loans to 1.15%. This is excluding the impact of PPP loans. So the level was one point and one 9% at September 32021, nonperforming loans were up slightly from the prior quarter, but past due loans and COVID-19 related.
Speaker 3: This is excluding the impact of PPP loans. So the level was 1.19% at September 30.
Speaker 3: Non-performing loans were up slightly from the prior quarter, but past-due loans and COVID-related deferrals were both down. COVID-related deferrals now total only $1.6 million at December 31, 2020.
Deferrals were both down Covid related deferrals now total in the $1 6 million at December 31 2021.
Speaker 3: In spite of a decline in the allowance as a percentage alone, we recorded an $825,000 provision for loan losses in Q4, which was primary due to the loan growth during the
In spite of a decline in the allowance as a percentage alone we recorded $825000 provision for loan losses in Q4, which was primarily due to the loan growth during the quarter. This compared to a provision of 158000 in Q3 2021 in spite of the positive trends our allowance as a percentage of loans continues to be elevated compared to <unk>.
Speaker 3: This compared to a provision of $158,000 in Q3 2020.
Speaker 3: In spite of the positive trends, our allowance as a percentage of loans continues to be elevated compared to pre-COVID levels, which was right around 1% at December 31, 2019, the last quarter before we made some COVID adjustments during COVID.
Covid levels, which was right around 1% at December 31, 2019, the last quarter before we've made some COVID-19 adjustments during 2020.
Speaker 3: In the fourth quarter of 2021, total non-interest income increased to $2.2 million from $1.9 million in Q3. The increase from Q3 2021 mainly related to an increase in loan fees, which was primary loan swap fees, and an increase in gains on recovery of acquired loans.
In the fourth quarter of 2021 total noninterest income increased to $2 2 million from $1 9 million in Q3. The increase from Q3 2021, mainly related to an increase in loan fees, which was primary loan swap fees and an increase in gains on recovery of acquired loans. The increase was offset somewhat by a decline in gains on sales.
Speaker 3: The increase was offset somewhat by a decline in gains on sales of loans and a decline in other non-income.
Of loans and a decline in other noninterest income SBA loan sale income, which is our primary source of loan sale gains actually increased slightly in Q4 2021 compared to Q3. The overall decline compared to Q3 was due do some non SBA loan sales that occurred in Q3.
Speaker 3: SBA loan sale income, which is our primary source of loan sale gains, actually increased slightly in Q4 2021 compared to Q3. The overall decline compared to Q3 was due to some non-SBA loan sales that occurred.
Speaker 3: The decrease in other income compared to Q3 was primarily due to $159,000 gain on the sale of a closed branch building that occurred in the third quarter.
The decrease in other income compared to Q3 was primarily due to a $159000 gain on the sale of a closed branch building that occurred in the third quarter, while noninterest income levels may continue to fluctuate the underlying strength of our noninterest income generation capabilities has improved from prior years.
Speaker 3: While non-interest income levels may continue to fluctuate, the underlying strength of our non-interest income generation capabilities has improved from prior years.
Speaker 3: In Q4 2021, we continued to focus on controlling non-interest expenses, which resulted in the fourth straight quarter of our efficiency ratio under 50%. Our efficiency ratio did increase slightly during the quarter compared to the prior quarter, and this is primarily due to the elevated level of incentive comp, which we mentioned previously.
In Q4, 2021 we continue to focus on controlling noninterest expenses, which resulted in the fourth straight quarter of our efficiency ratio under 50% our efficiency ratio did increase slightly during the quarter compared to the prior quarter and this was primarily due to the elevated level of incentive comp, which we mentioned previously in.
Speaker 3: In total, non-interest expense was up 1.3 million, or 12.4%, to 11.8 million in Q4, versus 10.5 million in Q3 2021. The increase was due to the aforementioned incentive comp increases, which was approximately $850,000 higher than Q3, and our merger-related expenses associated with the Ocean First transaction.
In total noninterest expense was up $1 3 million or 12, 4% to $11 8 million in Q4 versus $10 5 million in Q3 2021. The increase was due to the aforementioned incentive comp increases, which was approximately $850000 higher than Q3, and our merger related expenses.
With the Ocean first transaction.
<unk> related expenses.
Speaker 3: During the quarter are all recorded and there should be no significant additional expenses related to the actual merger of those
During the quarter, our all recorded in there should be no significant additional expenses related to the actual merger.
Those branches.
Speaker 3: With a strong commercial loan pipeline, the continued trend of lower cost funding base and effective management of non-interest expense, we are well positioned to continue our strong and improving core profitability trends.
With the strong commercial loan pipeline the continued trend of lower cost funding base and effective management of noninterest expense, we are well positioned to continue our strong and improving core profitability trends in 2022.
Speaker 3: At this time, I'd like to turn it over to Peter Cahill, our Chief Lending Officer, for his remarks. Peter? Thank you, John . Thank you, Peter.
At this time I'd like to turn it over to Peter Cahill, our Chief lending officer for his remarks Peter.
Okay.
Thanks, Andrew.
Speaker 4: The earnings release outlines well the overall results for lending and Pat and Andrew highlighted what we accomplished.
The earnings release outlines well the overall results for lending and patent Andrew highlighted what we accomplished.
Speaker 4: All in all, after a slow start to 2021, we finished very strong and exceeded our organic non-PPP loan growth goal of $120 million by $19 million or 16% of plan.
All in all after a slow start to 2021, we finished very strong and exceeded our organic non PPP loan growth goal of $120 million.
$19 million or 16% of plan.
The noise in the lending results or PPP loans, which are in the forgiveness stage and continue to decline as Andrew mentioned and loan payment deferrals related to Covid, which are down to just a little over $1 billion.
Speaker 4: The noise and the lending results are PPP loans, which are in the forgiveness stage and continue to decline, as Andrew mentioned, and loan payment deferrals related to COVID, which are down to just a little over a million dollars. Both are due.
Both are detailed in the earnings release.
Speaker 4: Lastly, as you know, we picked up $11 million of consumer loans with our acquisition of the two Ocean First branches.
Lastly, as you know, we picked up $11 million of consumer loans with our acquisition of the two ocean first branches I'll focus my comments on everything other than these things, which amounts to organic loan growth.
Plenty of 'twenty, one was heavily impacted by loan payoffs.
Speaker 4: Organic loans were down significantly in Q1. We recovered in the second quarter, and overall growth was a little over break even for the first six months. We grew a bit in Q3.
Organic loans were down significantly in Q1.
We recovered in the second quarter and overall growth was a little over breakeven for the first six months, we grew a bit in Q3.
Speaker 4: Most of our loan growth for the year took place in the fourth quarter.
Most of our loan growth for the year took place in the fourth quarter.
Speaker 4: When we look at the fourth quarter growth, 60% of that growth took place in December .
When we look at the fourth quarter growth, 60% of that growth took place in December .
Member growth was approximately 50% of our total growth for the year. So clearly a clearly a back ended the year in 2021.
Speaker 4: I spent some time during the third quarter earnings call describing the nature of the payoffs that we've been experiencing all year, and I thought I'd recap the extraordinary level of repayment as well as how we ended up here.
I spent some time during the third quarter earnings call, describing the nature of the payoffs that we've been experiencing all year and I thought I'd recap the extraordinary level of repayments as well as how we ended up exceeding plan.
Speaker 4: Comparisons to 2020 where we had a good year and also met our plan are telling.
Comparisons to 2020, where we had a good year and also met our plan our talent.
Speaker 4: Total loans closed and funded for 2021 totaled $475 million, an increase of $133 million or 39% over 2020.
Total loans closed and funded for 2021 totaled $475 million, an increase of $133 million or 39% over 2020.
Speaker 4: Offsetting new loans funded, however, are extraordinary loan payoffs.
Offsetting new loans funded however, or extraordinary loan payoffs.
Speaker 4: Total loan payoffs for 2021 were $246 million, 78% more than we had in 2020.
Total loan payoffs for 'twenty, 'twenty, one with $246 million, 78% more than we had 2020.
Speaker 4: For those interested in where these payoffs came from, in terms of dollars, 71% were loans from our investor real estate segment.
Those interested in where these payoffs came from.
In terms of dollars, 71% were loans from our Investor Real estate segment.
When we looked at the reasons behind all of the pay offs. The largest group, 42% were from borrowers who sold the underlying asset.
Speaker 4: When we look down at the reasons behind all of the payoffs, the largest group, 42%, were from borrowers who sold the underlying asset. Those sell mainly in.
Sell mainly in the Investor real estate area.
Speaker 4: The next largest group at 29% were borrowers who refinanced their loans elsewhere.
The next largest group, 29% where borrowers to refinance their loans elsewhere.
Most of these were investor real estate loans as well.
Speaker 4: Most of these were investor real estate loans as well. A request to lower the rate or upsize the loan amount are the most common reasons for refinancing in this area.
Requests to lower the ready to upsize the loan amount or the most common reasons for refinancing in this area.
Speaker 4: In certain cases, we chose to protect our overall yield or preserve credit quality rather than change.
In cases, we chose to protect our overall yield where preserve credit quality rather than change the loan terms.
Speaker 4: The third group is 18% relates to situations where we chose to improve our portfolio mix by reducing exposure to certain borrowers or industries.
The third group is 18% relates to situations, where we chose to improve our portfolio mix by reducing exposure to certain borrowers or industries.
Speaker 4: While payoffs hurt because they reduce our earning assets, they also allow us to accelerate fee income and reposition our loan portfolio.
While payoffs hurt because they reduce our earning assets. They also allow us to accelerate fee income and reposition our loan portfolio.
One thing I'd like to highlight about the year was our ability to grow C&I loans, and when I talk about C&I, including owner occupied real estate loans as well.
Speaker 4: One thing I'd like to highlight about the year was our ability to grow CNI loans.
Speaker 4: when I talk about CNI, I'm including owner-occupied real estate loans as well.
Speaker 4: As you know, we've been focused over the past few years on increasing our level of CNI relationship.
As you know we've been focused over the past few years on increasing our level of C&I relationships.
Speaker 4: We know that they bring better levels of deposits with them and we know they are stickier than investor real estate.
We know that they bring better levels of deposits with them and we know they are stickier.
Investor Real estate loans.
Speaker 4: 2021 was a good year for us regarding growth in C&I. Historically, our mix of commercial loans has been around 55 to 58% investor real estate and 42 to 45% C&I. You know, kind of our simplified goal is to try to move towards 50 or 50%.
2021 was a good year for us regarding growth in C&I. This.
Storage our mix of commercial loans has been around 55% to 58% investor real estate, 42% to 45% C&I.
Our simplified goal is to try to move towards 50 or 50%.
Speaker 4: investor real estate, growing your C&I portion organically.
Investor Real estate growing your C&I portion, though organically.
Speaker 4: In 2021, we were happy to see our focus on C&I is paying off.
In 2021 we were happy to see our focus on C&I, it's paying off well.
When we look at where our growth for the year came from approximately 77% of growth came from the C&I segment.
Speaker 4: Approximately 77% of growth came from the CNI sector.
Speaker 4: We still grow investor real estate loans as we plan to always do, but just not at the rate of C&I.
We still grew investor real estate loans as we play in it's always do but just not at the rate of C&I loans.
Speaker 4: I was asked a couple of quarters ago about utilization rates on our working capital lines of credit, which for us are exclusively C&I in nature.
I was asked a couple of quarters ago about utilization rates on our working capital lines of credit, which for us are exclusively C&I in nature.
The past year showed some interesting things regarding utilization rates. If you look at the numbers rates declined over the course of the year.
Speaker 4: The past year showed some interesting things regarding utilization rates. If you look at the numbers, rates declined over the course of the year. For example, at year-end 2020, our utilization rate was 54%.
For example at year end 2020, our utilization rate was 54%.
Speaker 4: The rate for year-end 2021, however, was lower at 45%, a difference obviously.
For year end 2021, however was lower at 45% of <unk>.
Obviously the 9%.
Speaker 4: This reduction is a result of lower utilization on existing facilities and the addition of new facilities that came into the bank late in the year with minimal utilization.
This reduction is a result of lower utilization of existing facilities and the addition of new facilities that came into the bank late in the year with minimal utilization.
Speaker 4: At this point, I'll segue over to our loan pipeline, which remains strong. At our last earnings call for the third quarter of 2021, I reported that the pipeline stood at $265 million, which was a record level for us at the time and the basis for the strong fourth quarter.
At this point I'll segue over to our loan pipeline, which remains strong.
At our last earnings call for the third quarter of 2021, I reported that the pipeline stood at $265 million, which was a record level for us at the time and the basis for the strong fourth quarter.
I'm happy to report that the loan pipeline at year end right after closing.
Speaker 4: I'm happy to report that the loan pipeline at year-end, right after closing.
Speaker 4: Much of our loan growth for the year stood at $262 million, a reduction of only a shade over 1%.
Of our loan growth for the year.
At $262 million, a reduction of only a shade over 1%.
Speaker 4: We continue to source good business in our market, and the pipeline continues to be well diversified.
We continue to source good business in our market and the pipeline continues to be well diversified.
A review of the pipeline leads to a discussion of projected loan fundings as I've mentioned before each month.
Speaker 4: A review of the pipeline leads to a discussion of projected loan fundings, as I've mentioned before.
Speaker 4: We look out 60 days and project funding and payoffs for Andrew's team and finance.
We look at 60 days in project funding and pay offs for interest team in finance.
Speaker 4: Despite a very strong end to the year, January and February look solid and represent a big turnaround from the start we projected and experienced in 2020.
Despite a very strong end to the year January and February looked solid represent a big turnaround from the start we projected an experienced in 2021 early 2021.
Speaker 4: So in summary, despite loan growth being back-ended for the year, we exceeded our point-to-point organic loan growth plan in 2021, and the outlook continues to be positive as we enter 2022.
So in summary, despite loan growth being back ended for the year, we exceeded our point to point organic loan growth plan in 2021, and the outlook continues to be positive as we enter 2022.
New hires we made in the middle of 2021 are doing very well.
Andrew mentioned, our SBA lending group earlier it hit its stride in 2021, doubling the school for the year and.
We expect continued growth with this team in 2022.
Speaker 4: As the earnings release mentioned, we received SBA preferred lender status right near the end of the year.
As the earnings release mentioned, we received SBA preferred lender status near right near the end of the year and that should also help us make a it'll help make us more responsive to customers going forward.
Speaker 4: And that should also help make us more responsive to customers going.
Speaker 4: And we're also, as we always do, we're augmenting support staff this year to allow for additional growth in our regional sales.
And we're also as we.
Always do we're augmenting support staff this year to allow for additional growth in our regional sales teams.
Speaker 4: Lastly, regarding asset quality, Andrew commented on that. The earnings release provides the normal data on where we are. I'll just reiterate that things, from my perspective, continue to look good. Delinquencies were very low, near record levels at year end, and normal credit metrics.
Lastly regarding asset quality Andrew commented on that in the earnings release provides the normal data on where we are.
Just reiterate reiterate the things.
From my perspective continue to look good delinquencies were very low near record levels at year end.
And the normal credit metrics are still solid.
Speaker 4: That concludes my report for lending for the fourth quarter. I'll turn it back over to Pat for some final comments. Pat.
That concludes my report for lending for the fourth quarter I will turn it back over to Pat for some final comments.
Speaker 2: Thank you, Peter. Well, at this point, I'd like to turn it over to the operator to open it up for Q&A.
Thank you Peter well at this point I'd like to turn it over to the operator to open it up for Q&A.
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Speaker 1: Our first question comes from Nick Kershawale from Piper Sadler. Nick, your line is open, please go ahead. Good morning, everyone.
Our first question comes from Nick Cacharel from Piper Sutler, Nick Your line is open. Please go ahead.
Good morning, everyone. How are you.
Good morning, Nick.
Speaker 5: So I'd like to start with expenses. I appreciate your commentary on the $850,000 link quarter increase in variable comp. If you remove that impact in the merger expenses, is this a good run rate? And how do you think about the expense base playing out throughout 2022, especially in light of the wage pressure in the economy?
So I'd like to start with expenses I. Appreciate your commentary on the $850000 linked quarter increase in variable comp if you remove that impact in the merger expenses is this a good run rate and how do you think about the expense base playing out throughout 2022.
In light of the wage pressures in the economy.
Speaker 2: Yeah, I'll give you a couple thoughts and then let Andrew dive in here, Nick, but I think the, you know, the incentive comp in Q4.
Yeah, I'll give you a couple of thoughts and then let Andrew dive in here, Nick but I think the.
The incentive comp in Q4 was with higher a because we performed better but there is also a component of a catch up right. So we're running an accrual all year based on sort of budgeted performance and then over time as we start to realize that we're performing in excess of budget. Then we start to bump up the <unk>.
Speaker 2: was was higher a because we perform better but there's also a component of a catch up right so we're running an accrual all year based on you know sort of budgeted performance and then over time as we start to realize that we're
Speaker 2: Performing in excess of budget, then we start to bump up the accrual. So I think the short answer is you can't just back it all out and assume that's the normal run rate. But Andrew compared Q4 to Q3.
<unk>. So I think the short answer is you can't get back it all out and assume that the normal run rate, but Andrew compared Q4 to Q3, which is probably closer to a normal run rate if we hit budget. So.
Speaker 2: which is probably closer to a normal run rate if we hit budget.
Speaker 2: You know, we've made some changes to make our variable comp a little more variable, if that makes sense. So I think the good news is we're a little more aligned in terms of making sure the pay for performance is there. But it makes it a little harder to predict the run rate because you don't necessarily know you're going to hit budget a little below, a little above. So I think.
We've made some changes to make our variable comp a little more variable if that makes sense. So.
The good news is we're a little more aligned in terms of making sure that pay for performance is there, but it makes it a little harder to predict the run rate because you don't necessarily know where you're going to hit budget, a little below a little above so I think.
Yeah.
Speaker 2: Q3 is probably a decent proxy for a run rate, but even that, that's not a perfect number. And on your second point, you know, we're certainly.
Q3 is probably a decent proxy for our run rate, but even that that's not a perfect number and on your second point.
We're certainly keeping a close eye on expenses and wage inflation, obviously, there's a lot of information out in the press about what's happening both in terms of the ability to retain folks and what do you need to do to attract folks so.
Speaker 2: Keeping a close eye on expenses and wage inflation, obviously there's a lot of information out in the press about what's happening, both in terms of the ability to retain folks and what you need to do to attract folks. So I think we're trying hard to make sure we can keep a lid on that expense growth as best we can. But I certainly expect that kind of the base rate.
And we're trying hard to make sure we can keep a lid on that expense growth as best we can but I certainly expect that kind of the base rate salary levels next year will be higher.
Speaker 2: salary levels next year will be higher. You know, traditionally I think we were looking at two to 3%, you know, kind of inflation-based increase and I suspect that number will be higher by a point or two this year.
Traditionally I think we were looking at 2% to 3% kind of inflation based increase and I suspect that number will be will be higher by a point or two this year, but yeah. We've got other ways to manage that right and then you've got what you pay per person and then you've got how many people you have and how you reallocate work to make sure you.
Speaker 2: But, you know, we've got other ways to manage that, right? And you've got what you pay per person, then you've got how many people you have and how you reallocate work to make sure you can stay lean. And so we're looking at all those factors.
Can stay lean and so we're looking at all of those factors and short answer is I think expenses will be up almost certainly, but I think we will do a good job trying to manage that type growth anything you'd add there Andrew.
Speaker 2: Short answers, I think expenses will be up almost certainly, but I think we'll do a good job, you know, trying to manage that growth. Anything you'd add there, Andrew?
No I think you hit it there.
Speaker 3: I think you hit it. There'll clearly be some bit of a creep. I mean, we did, we added a couple branches towards the end of the quarter, which will, but they're not, they're fairly, they're consistent with our model, which is fairly cost effective branches that aren't significantly expensive. But 10.5 million was the non-interest expense in September quarter. 11.8 was the expenses in the fourth quarter. Probably the run rate going forward somewhere in between there. Little bit higher than the third quarter, but not nearly as high as the 11.8 we had in the fourth.
Clearly be some some bit of a creep I mean, we did we added a couple of branches towards the end of the quarter, which will but they're not they're fairly they're consistent with our model, which is fairly cost effective branches that arent significantly expensive, but $10 5 million was the noninterest expense in the September quarter.
11, eight was the expenses in the fourth quarter, probably the run rate going forward somewhere in between there little bit higher than than the third quarter, but not nearly as high as the 11 eight we had in the fourth quarter.
Speaker 5: That's very helpful. Back to your remarks for a stable NIM in 2022 excluding PPP, does that include rate hikes? Is there anticipation to show some NIM expansion through the first several rate hikes?
Okay. That's very helpful. And then back to your remarks for stable NIM in 2022, excluding PPP, but does that include rate hikes and is your anticipation to show some NIM expansion through the first several rate hikes.
Pat you want to take that first or you want me to take a crack at it then you can jump in.
Speaker 3: Pat, you want to take that first, or you want me to take a crack at it, then you can jump in?
No no go ahead.
Speaker 3: Yeah, I mean, I think we're well balanced, so I think we're in a good position for rate hikes. It's really going to depend on what happens with the yield curve. If the yield curve short end moves up, the long end doesn't and tightens, that's obviously bad for banks across the board. But we do feel like the way we've positioned ourselves, we're in pretty good shape for rising rates.
Yeah, I mean, I think we're well balanced so I think we're in a good position for rate hikes, it's really going to depend on what happens with the yield curve if the yield curve.
Short end moves up the long end doesn't and tightens Thats, obviously bad for banks across the board, but we do feel like the way we've positioned ourselves we're in pretty good shape for for rising rates.
Speaker 3: I don't want to predict exactly where we'll be at, but I think we can, at the very least, keep a stable margin. But I think it'll be a little bit difficult, at least early in the process, typically as rates move, curve kind of tightens, at least at first. But again, I think we're in pretty good position to not see a big – there's not much downward risk, I think, on our margin at this point, as I see it. But we'll see how kind of everything shakes out.
I don't want to predict exactly where it will be at but I think we can at the very least keep a stable margin, but I think it'll be a little bit difficult at least early in the process typically as rates move curve kind of tightens at least at first but again I think we're in pretty good position to not see a big.
There's a lot there's not much downward risk I think on our margin at this point as I see it but we'll see how it kind of everything shakes out during the year.
Okay.
Speaker 5: Okay. And then nice work hitting the loan growth target this year. What are you targeting for loan growth in 2022 and do you expect that to be back in loaded given such strong growth in the fourth quarter?
And then nice work getting the loan growth target. This year, what are you targeting for loan growth in 2022.
Do you expect that to be back end loaded given such strong growth in the fourth quarter.
Well, it's Oh, it's always kind of been it's always tended to be backend loaded a little bit, but we don't we're not we're not projecting much of that this year I don't believe Andrew could jump in there.
Speaker 4: Well, it has always tended to be back-and-loaded a little bit, but we are not projecting much of that this year. I do not believe Andrew could jump in there in a minute. The growth plan for the year is a little under 10%, I think, right around $200 million, where the plan for this year was $120 million.
In a minute.
But the growth plan for the year is a little under 10% I think right around $200 million, where the plan for this year was 120.
Thank you for taking my questions.
Thank you Nick.
Speaker 1: Thank you Nick. Our next question is from Bruce Rowe from Hovid Group. Nick, Bryce please go ahead.
Thank <unk> next question is from Chris Ryan from how does it great NIM Bys. Please go ahead.
Thanks, a lot good morning.
Speaker 6: Thanks a lot. Good morning guys. Maybe just a little more follow-up around the margin discussion there. Obviously, you've seen a pretty material improvement in the funding mix and the funding side of your balance sheet. I was curious how you're thinking about deposit betas with the prospects for rate hikes coming in here in 2022.
Good morning, guys.
Maybe just a little a little more follow up around around the margin discussion there.
Obviously, you've seen a pretty material improvement in your.
And the funding mix and the funding side of.
Of your balance sheet I was curious how youre thinking about kind of deposit betas.
With with the prospects for rate hikes come in here in 2022.
Yeah.
Yes, I mean, we obviously model.
Speaker 2: Yeah, I mean, we obviously model deposit increases as rates move higher. We do it based on historical.
Positive increases as rates move higher we do it based on historical.
Speaker 2: evidence of what we've seen in prior rate moves higher. As you know, every market's a little bit different and the key variable is competitive dynamics. I think we're starting from a point of very strong liquidity in the system overall, which you would expect would lead that maybe deposit betas won't go up quite as quickly as they have in other environments, but we don't know how quickly the money's gonna get sucked out of the system.
So what we've seen in prior rate moves higher.
As you know every market is a little bit different and the key variables competitive dynamics I think we're starting from a point a very strong liquidity in the system overall, which you would expect would lead that maybe maybe deposit betas will go up quite as quickly as they have in other environments, but.
We don't know how quickly the money to get to get sucked out of the system.
Speaker 2: You know, you're starting to see signs that loan growth might be picking up, which obviously could put some, you know, excess liquidity to work and therefore put some pressure on deposits maybe later in the year. So I think the numbers we have in our model are reflective of what you usually see in these rising rate environments. But.
Are you starting to see signs that loan growth might be picking up which obviously could put some <unk>.
Excess liquidity to work and therefore puts some pressure on deposits maybe later in the year. So.
The numbers, we have in our model are reflective of what you usually see in these rising rate environment, but.
Speaker 2: you know, whether it'll come in a little better or worse than that, it's hard to say. I don't know, Andrew, anything you want to add there?
Whether I'll comment a little better or worse than that is hard to say I don't know Andrew anything you want to add there.
Speaker 3: No, I think I think you hit it. I mean, we're still seeing, for example, I mean, we've let a lot of our brokered money go, but brokered money is still very cheap because there's just there's a lot of money out in the system and they're looking for places to put it.
No I think I think you hit it I mean, we're still seeing.
For example, I mean, we've let a lot of our brokered money go but brokered money is still very cheap because there's just there's a lot of money out in the system and they're looking for places to put it.
Speaker 3: A lot of municipal, we're seeing a lot of bids for municipal money, and the bids are not crazy in terms of
A lot of municipal work.
We're seeing a lot of bids for municipal money and the bids are not crazy in terms of what we've seen historically so yeah, we'll see pads point about how quickly the liquidity gets sucked out of the market as the as the best point, but right now we're still seeing a lot of liquidity and if that kind of sticks and rates move and there's still a lot of liquidity that should help with with beta <unk>.
Speaker 3: what we've seen historically. So, yeah, we'll see. Pat's point about how quickly the liquidity gets sucked out of the market is the best point. But right now, we're still seeing a lot of liquidity. And if that.
Speaker 3: Kind of sticks and rates move and there's still a lot of liquidity that should help with with beta pressure, but we'll see how it all shakes out
Pressure, but we'll see how it all shakes out.
Okay.
Speaker 6: Maybe one for Peter, just around the loan prospects here for 22. Peter, any sense for how payoffs are kind of shaping up? I mean, you talked a lot about the investor real estate pressure, so to speak, from 21. Just curious how you're...
Color, maybe maybe one for Peter just around.
The loan prospects here for FY 'twenty two.
Peter any sense for.
How payoffs are kind of shaping shaping up I mean, you talk a lot of you talked a lot about.
Investor Real estate.
No pressure so to speak from from 'twenty, One just just curious how you're.
Speaker 6: How that feels right now, do you still see some of these investor real estate projects maybe wanting to get pushed out or refinanced, sold or refinanced, and does that kind of play into the increased budget from a loan growth perspective for 2020?
How that feels right right now do you still you still see some of these some of these investor real estate projects, maybe wanting to get pushed out or refinanced sold or refinanced.
And does that kind of play into the increased budget from a loan growth perspective for 'twenty two.
Yeah.
Speaker 4: Good question. I don't think we are seeing any tremendous pressure on payoffs. This time last year, we knew the first quarter of 2021
Good question.
Don't think we're seeing any tremendous pressure payoffs I mean.
This time last year, we knew the fourth for the first.
First quarter of 2021.
Speaker 4: going to be tough and we're just not seeing it when we do a 60% you know our 60 a day.
It was going to be tough and we're just not seeing it when we do a 60% or 60.
<unk> 60, a day.
Speaker 4: Look out on loan funding. We're also looking at payoffs and you know, it's never it's not an exact science, but
Look out on loan funding. We're also looking at payoffs and Oh, it's never it's not an exact science, but.
We're not seeing a degree of payoffs that we are that we have been seeing this year.
Speaker 4: We're not seeing the degree of payoffs that we have been seeing this year.
Speaker 4: Um, I don't think that's what that's what's driving the plan. I think.
I don't think that's what the that's what's driving the plan I think.
Speaker 4: The overall teams come together better. We had a number of openings in our team through most of 2021. We've filled those.
The overall teams come together better we had.
Number of openings in our team through most of 'twenty.
'twenty one we filled those.
Speaker 4: We just feel good about prospects and what the pipeline looks like and what folks are out there looking at.
We just feel good about prospects of what.
The pipeline looks like folks are out there looking.
So.
That's kind of where we are.
Speaker 6: Okay, that's great, that's helpful. Last one for me, you guys highlighted the preferred SBA status.
Okay. That's great that's helpful.
Last one for me.
You guys highlighted the preferred SBA status.
Speaker 6: and obviously that's been a highlight here. Within the income statement with the loan sale gains coming from the SBA group, can you speak to any kind of impact from a positive perspective that you might see for having that SBA preferred status relative to that fee income line? That'd be helpful. Thanks.
And obviously that's been a.
Highlight here.
Within the income statement with the loan sale gains coming from the from the SBA group can you speak to.
If any kind of impact from a positive perspective that you might see perhaps that SBA preferred status rare.
Relative to that to that fee income line.
That'd be helpful. Thanks.
Speaker 4: I can tell you that, you know, Fairfax... No, no, no, it's OK.
Well I can I can tell you that.
That's right.
No no no that's okay I'll jump out.
Yes.
Speaker 4: Yeah, I'll just say that when you look back over the last three years, you know, we did a handful of deals in 2019. I think we did five SBA loans in 2020.
Just say that when you look back over the last three years.
We did a handful of deals in 2019, I think we did five SBA loans in 2020.
Speaker 4: 14 in 2021, and those were not as a preferred lender. You layer on top of that PPP, and the pressure that has put the SBA under to turn around
14 and 2021.
And those were not as a preferred lender.
Sure.
You layer on top of that on top of that P. P Ping an.
Excuse me the pressure that's put the SBA on there to turn around.
Speaker 4: deals or be responsive if you're not a preferred lender, it was a handicap on us. We're not projecting, nor is our plan to blow out SBA business and do five times more.
Deals would be responses, if youre not a preferred lender and it was a handicap honest.
We're not projecting.
Nor is our plan to blow out SBA business.
Two five times the number of deals we've done but.
Speaker 4: Um, you know, we, we're, we did, uh.
We were we did.
Speaker 4: What did I say, 14, 13, 14 deals in 2021, I'd be disappointed if we didn't do 20, roughly. So it's going to help us.
What did I say 2014, 13 14 deals in 'twenty to 'twenty, one I'd be disappointed if we didn't do 20.
Roughly so it's going to help us.
Yeah, I would echo those comments.
Speaker 2: Yeah, I would I would echo that. Yeah, I would echo those comments. I mean, you got we got two things.
Yes, I would echo those contracts I mean, you've got we got two things, helping us heading into the year well three things we've got momentum right now that we've built a better system in process that should help continue the flow we've added.
Speaker 2: helping us heading into the year. Well, three things, we've got momentum, right? Now that we've built.
Speaker 2: a better system and process that should help continue the flow. We've added a quality person to the group and now we've got preferred status, which means we can move faster on deals. So as Peter said, you know, our expectation is to do even better in 22 than we did in 21. And I think we've got, you know, good reason to be optimistic.
Quality person to the group and now we've got preferred status, which means we can move faster on deal so as Peter said our.
Patient is to do even better in 'twenty two than we did in 'twenty, one and I think we've got good reason to be optimistic there. So.
Speaker 6: Excellent. I appreciate the answers. That's it for me. Thanks.
Excellent I appreciate the.
The answers.
That's it for me thanks.
Thank you Bryce.
Thank you. Our next question is from Eric switch from.
Speaker 1: Thank you Bryce. Our next question is from Eric Switch from Bonings, Gattagood. Your line is now open, please go ahead.
Boenning Scattergood. Your line is now iPhone. Please go ahead.
Good morning, guys.
Good morning, Eric.
Speaker 7: I'm wondering first, can you remind me with the two branches that were acquired, were any commercial lenders included with that acquisition?
I was wondering first can you remind me with the two branches that were acquired or any commercial lenders included with that acquisition.
No.
Speaker 7: And where does your kind of total commercial lenders stand today, the headcount?
Okay, and where does your kind of total commercial understand today.
The head count.
Well, we're roughly around 20.
Speaker 4: Well, we're roughly around 25, you know, we break it up by region.
25.
It up by regions.
Speaker 4: New Jersey, which is primarily Mercer County and North, and then, you know, Pennsylvania, South Jersey market, and then we also have teams focused on investor real estate and SBA, obviously, we just talked about that, and a couple of consumer lenders that are responsive to business brought in through the branch.
New Jersey, which is primarily Mercer county in North and then.
The Pennsylvania, South Jersey market.
And then we also have teams.
Focused on Investor real estate and SBA, obviously, we just talked about that in a couple of consumer lenders that.
Our responsive to business brought in through the branches.
Speaker 7: Great, thank you for the update there and then had in your prepared comments you mentioned. I think that the language users continue to explore new CNI opportunities and Peter certainly mentioned a little bit in his comments as well, but I'm curious. Is that.
Great. Thank you for that.
Date there.
And then Pat in your prepared comments you mentioned I think that the language. You used was continue to explore new C&I opportunities and Peter certainly mentioned it a little bit in his comments as well, but I'm I'm curious does that.
Speaker 7: those new opportunities purely just having you know adding some new lenders in the year and you're making sure calling efforts are staying diligent uh... we also considering you know kind of expanding into uh... your market a little bit maybe when it can do industries are just curious if you could you know how a little bit to that uh... to that comment
This new opportunity is purely just having you know, adding some new lenders in the year and making sure calling efforts are staying diligent are you also considering kind of expanding into.
The market's a little bit maybe lending to new industries or I'm. Just curious if you could add a little bit to that to that comment.
Speaker 2: Yeah, I think it's a combination of everything you mentioned, right? We continue to incentivize and coach our folks to focus a little more on CNI. As we bring in new folks, they have
Yeah, I think it's a combination of everything you've mentioned right. We continue to incentivize and coach our folks to focus a little more on C&I.
As we bring in new folks they have connections our expertise in areas, where maybe we haven't done much in the past so get a little bit of additional new C&I exposure through some of those new hires and then where we're actively looking for opportunities as we get bigger as our lending limit grows we have opportunities.
Speaker 2: connections or expertise in areas where maybe we haven't done much in the past. So get a little bit of additional new CNI exposure through some of those new hires. And then we're, you know, we're actively looking for opportunities as we get bigger, as our lending limit grows, you know, we have opportunities to move up and to, you know, more.
Move up and to more of the.
Speaker 2: the true middle market as opposed to the lower end of the middle market where we've been. And so I think there's just a variety of new opportunities emerging that we're exploring that you know won't fundamentally change the
True middle market as opposed to the lower end of the middle market, where we've been and so I think there's just a variety of new opportunities are emerging that we're exploring that.
<unk> fundamentally change the composition of the balance sheet overnight, but I think it will allow us to continue the really good results. We saw in 'twenty, one which is.
Speaker 2: the really good results we saw in 21, which is, you know, a lone mix, which is evening out a little bit more between CRE and CM.
Our loan mix, which is evening out a little bit more between CRE and C&I. So.
Thanks, Matt that's helpful. And then just last one for me.
Speaker 7: Thanks, Pat. That's helpful. And this last one for me for Andrew, I guess, I think that the effective tax rate for 2021 was just a little bit above 24%. Is that a good rate to use again? Or would you expect any differences in 2021?
Andrew I guess.
Correct.
Effective tax rate for 2021 was just a little bit above 24%.
Is that a good rate to use again or would you expect any any differences in 'twenty two.
Speaker 3: No, we don't expect any significant changes. There's a lot of things that can impact the tax rate. But yeah, I think we're still thinking mid-24 is low 24% for a run rate unless things change. But there shouldn't be a huge swing in the tax rate unless obviously there's some kind of tax rate change or tax law change. But that's a pretty good estimate for what we expect the run rate to be going forward.
No. We don't expect any significant changes there is a lot of things that can impact the tax rate, but yeah. I think we're still thinking mid mid 20 fours low 24% for a run rate unless things change, but there shouldnt be a huge swing in the tax rate unless obviously, there's some kind of tax rate change our tax law change.
But that's a pretty good estimate for what we expect the run rate to be going forward.
Perfect. Thanks for taking my questions. This morning.
Thanks, Eric.
Speaker 1: Thank you, Eric. Our next question is from Manuel Navis from DA Davidson. Manuel, please go ahead. Your line is unmuted.
Thank you Eric next question is from manual no first from D. A Davidson.
Manuel. Please go ahead your line is on mute.
Hey, good morning.
Good morning, I Hope described [laughter] can you help describe the.
Speaker 8: Can you help describe the loan yields you're seeing in either in the fourth quarter or in the pipeline currently?
Loan yields youre seeing either in the fourth quarter or in the pipeline currently.
Yeah.
Speaker 2: I mean, I would describe them as up a bit, right? I mean, you see what's going on in the treasury market and that is our primary benchmark on five and seven year loans. And our folks have been trained to price off of treasuries and we haven't seen huge compression in that spread over treasuries. So, the short answer is, I think the stuff we're looking at today is up 25, 50 bits over where it was three months ago.
I mean, I would I would describe them as up a bit right. I mean, you see what's going on in the treasury market and that is our primary benchmark.
Five and seven year loans and.
Our folks have been trained.
Price off of Treasury.
Treasuries and we haven't seen huge compression in that spread over treasury. So.
Short answer is I think the stuff. We're looking at today is up $25 50 bps over where it was.
Three months ago, Peter anything you'd add there.
Speaker 4: No, I agree. I would say, you know, overall, specific yields we're looking at are in the high threes to four percent, where prior for a top credit, you know, you might be down in the lower threes to three and a half percent. So we're up we're up a bit fourth quarter.
No I agree I would say our overall.
Overall specific yields we're looking at are in the high threes to 4%.
Were prior for a top.
Top credit you know you might be down in the lower threes to.
The three 5% so we're up we're up a bit fourth quarter.
Yeah.
Given where the pipeline is.
Speaker 8: And how much kind of close with a comparable pipeline in the fourth quarter.
And how much kind of close with a comparable pipeline in the fourth quarter.
Speaker 8: Is there some definite upside to the loan growth outlook?
Is there some definite upside to the loan growth outlook.
Well I think theres upside, we don't anticipate a.
Speaker 4: Well, I think there's upside. We don't anticipate, you know, quite the level of payoffs that we had in 2021 and the pipeline.
Quite the level of payoffs that we had in 2021 and the pipeline.
Speaker 8: now is arguably is about the same level as it was.
Now arguably is about the same level as it was.
Speaker 4: Heading into a strong fourth quarter, so we talked about our goal going up fairly significantly from 120 million to 200 million, almost 10%, so I think we're expecting some upside.
Heading into a strong fourth quarter so.
We talked about our goal going up fairly significantly from 20 million to $200 million almost 10%.
So I think we're expecting some upside.
Okay.
Thank you very much.
Thank you Emilio.
Thank Keith menu out there currently nice further questions registered so it's a reminder to star followed by one on your telephone keypad.
Speaker 1: Thank you Manuel. There are currently no further questions registered so as a reminder it is star followed by one on your telephone keypad.
There are no additional questions waiting at this time, so I will pass the conference over to the management team for closing remarks.
Speaker 1: There are no additional questions waiting at this time, so I will pass the conference over to the management team for closing remarks.
Speaker 2: Thanks very much. I'd just like to thank everybody for taking their time to listen in and ask questions on the call today. And we'll look forward to regrouping with everybody after the end of the first quarter. Thank you very much.
Thanks, very much I, just like to thank everybody for taking their time to listen in and ask questions on the call today, and we'll look forward to regrouping with everybody. After the end of the first quarter. Thank you very much.
That concludes our first bank fourth quarter 2021 earnings Conference call. You May now disconnect your lines.
Speaker 1: That concludes our First Bank fourth quarter 2021 earnings conference call. You may now disconnect your lines.
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