Q1 2022 SmartFinancial Inc Earnings Call
Yes.
Hello, and welcome to the Smart financial first quarter 2022 earnings call. My name is Laura and I'll be coordinating youku today, if you would like to ask a question. During the presentation. You may do so by pressing star Liftboy, Guam and your telephone keypad.
I will now hand, you a jewel Heisman a wide once became Miller. Please go ahead.
Thanks Lauren.
Good morning, and thanks for joining us this morning for our Q1 2022 earnings call. It's great to be on the call. This morning to ensure an update on our company and we appreciate the answers to recap our progress and that's incredibly important for us to hear your questions comments and your feedback joining me on the call today or Billy Carroll.
President and CEO , Ron Gorczynski, our CFO Rhett Jordan C C.
Extra all our director of corporate strategy before we get started I'd like to ask each of you to please refer to page two of our deck that we filed yesterday evening with a normal and customary disclaimers and forward looking statements comments. Please take a minute to review the.
What a strong quarter by our team here at Smart bank on many fronts. Our year has started well just as we anticipated and have projected we demonstrated again, our ability to outwork the competition execute our strategic plan.
Organic pace of loan and deposit growth has been impressive I'm extremely.
We are proud of the team for their focus and execution as our metrics continue to improve faster than forecasted in our 2022 strategic plan.
With that I'm going to hand, it off to bill.
Thanks, Miller and good morning, everyone. As Miller said this has been a nice start to 2022 for smart financial that we're gonna change the format a bit this quarter and condense some of the commentary since your strategic shift to more organic growth leads to a little bit less noise. So I'll Bruce briefly touch on some highlights and then hand it over.
To provide some color on balance sheet lending pipelines and credit and Ron will spend some time on financials margins and guidance.
First let's run through some highlights shown on page three of air back not buried the lead we had a very nice growth quarter loans, excluding PPP grew at 21% annualized and deposits total deposits grew at 17% annualized 23%. If you look at just the non time deposits.
On the loan side growth was well distributed throughout all of our regions, but the new lift out groups in Alabama in Middle Tennessee were big contributors here, well, that's going to add some more color on that shortly.
<unk> continued to be very strong coming in on the upper end of our expectations with great growth in existing accounts, coupled with some great new clients courtesy of bullet that groups.
Earnings were right on target.
With eight 6 million in operating net income coming in at 51 cents per share.
Diversification in revenue mix is also progressing well and wealth management platform posted nice revenue gains is there a new financial advisors continue to move over assets are insurance subsidiary had a very solid income quarter in our fountain equipment finance subsidiary posted our best quarter of growth since <unk>.
Wiring, yet and it continues to build a very solid pipeline, it's great to see these ancillary business lines beginning to contribute as we had anticipated.
Also as a reminder on page four this is a great my epic or franchise, it's a nice graphical representation of the footprint. We're building out a much stronger denser zone. It's been what we had just a couple of years back.
As we stated on our last call 2022 as of year to execute and capitalize on the investments. We've made in 2021 as we move forward to get to stronger core earnings metrics continued positive trending of our ROA ROE and efficiency ratio or what we expect to see as these new investments start to.
To grow revenue.
We've started the year off very well in that regard and that is the goal. So let me hand, it over to you now to jump into balance sheet trends in credit.
Thank you Bill looking at slide five in your deck, we had a very solid first quarter in loan growth net organic loan and leases were just over $136 million ending the period with just over $2 eight internationally.
Production was solid across all of our market areas in the third quarter with our newer market areas contributing over 25% of new loan production for the bank this past quarter.
Billy mentioned, we ended the first three months of a compound annualized organic growth rate of approximately 21% of a barbie.
Overall yield in the portfolio was slightly lower in Q1 compared to prior periods. However, we believe this trend will improve in the near term as PPP balances continued to decline in the operating interest rate environment begins to think very competitive new loan origination rates more possibly in addition, we continued to see deposit growth for the quarter with total deposits of $169 million a year in 2000.
Complementing. This continued positive momentum was another quarterly decline in total deposit cost of just 20 basis points for the quarter.
Moving to page six of the deck loan portfolio mix held relatively steady in first quarter Winter mentioned previously while we recognize our loan to deposit ratio continues to track below historical levels. We're excited to continue to have excess liquidity to fund what we believe will be a significant year of production from our new lending team members and our legacy core markets.
While some economic outlooks in multi guidance from various sources indicate a higher probability of slowing economic growth over the next several quarters. Our market area has continued to see strong inflows of new permanent residents and business relocations into our footprint. We believe this will continue to drive solid business financial performance and continued loan and deposit growth opportunities within our market areas when compared to other parts of the country.
Over the next few periods.
We also are extremely pleased with the continued improvement to our overall deposit portfolio composition with growth in non time deposits. Once again outpacing time deposit run off at quarter end non time deposits represented almost 87% of the total deposit portfolio and noninterest bearing deposits represented approximately 20, 26% of total deposits.
Seven shows a continued solid trend in overall asset quality metrics continue the same results. We saw throughout the year in 2021 Q1 saw our NPA ratio hold steady to Q4 at one 1% net charge offs of 0.0% to 4% and over 30 day past due ratio of 0.20% and classified loans at 0.3.
31% of total loans were all improved over Q4 'twenty. One performance, we ended the year at 79% and 299% of capital for our regulatory C and D and total CRE guidance ratios, both slightly higher than Q4 results, but ratio levels that are in line with our trends over a four quarter look back.
We have historically managed our portfolio in the upper quartile of the ratio guidance and continue to feel very comfortable doing so given the diversification of product mix and credit profile of our CRE book, our loan pipeline continues to be strong across all of our market areas with a large majority of the opportunity as being non CRE in nature and over 20% of the bank lock pipeline fueled by our newer looked out mortgage.
Overall, our asset quality continues to show strong consistent results and our near term outlook for loan growth remains positive now I'll turn it turn it over to Ron to walk you through our allowance positions.
Thanks, Brett and good morning, everyone, let's move forward to slide eight loan loss reserve.
Indicated our strong credit quality has led to minimal credit related provisioning for the quarter at quarter end, our allowance to originate the loans and leases was at 74 basis points and our total reserves to total loans and leases was at 1.26%.
Given our positive credit outlook going into 2022, we expect to continue growth related provisioning to support our loan production and we will continue to assess the allowance and adequacy thereof, if economic and credit conditions change.
Moving on to slide nine during the quarter, we continued to generate additional liquidity from our deposit growth and we're able to utilize a significant portion for a loan fundings and security purchases for the quarter. We funded over 113 million in loans and increased our securities portfolio over $270 million focusing on shorter maturity.
<unk> shorter duration securities. The majority of these purchases were placed in the held to maturity classification to help counter the impact of rising rates at quarter end, our held to maturity to total securities elevated at 35% of the portfolio up from 14% at year end. Additionally, we retired $50 million of FHA would be borrowing.
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Overall, our liquidity position at quarter end, which includes cash and securities was approximately 34% of total assets significantly stronger than the 22% from the prior year quarter and our cash to total assets stood at over 16%.
Looking forward into Q2, and the remainder of 2022 with our securities to ask situations over 17%, we are not anticipating any meaningful security purchases as we believe some of our excess liquidity will be absorbed by our strong loan production.
We also want to remain vigilant and prepared for any potential deposit outflows that may occur as rates continue to rise.
Moving to the right of the slide our interest margin was 291% consistent with the prior quarter, despite having further pressure from excess liquidity.
Our security purchases over the last two quarters provided over $1 million of additional interest income more than offsetting the reduction of 650000, a P. P. P income.
Further loan yields less all accretion remained in line with the past few quarters as a result of our continued pricing discipline.
Our interest bearing deposit costs continued to March lower by three basis points.
Given our strong loan pipeline from both legacy and new markets. We believe we will start to see some margin expansion over the second half of 2022 as excess liquidity is deployed.
Before we leave the slide let's touch base on operating revenue.
P. P. P fee income for the quarter was $1 1 million a significant decrease from the $2 4 million experienced in the prior year quarter.
Despite this we expect operating revenue to continue its upward trajectory with growth in traditional noninterest income sources outpacing the loss of P. P. P. P income for the quarter noninterest income totaled $7 1 million or over 19% of total operating revenue.
Overall total operating revenue increased 1.5% quarter over quarter to $37 2 billion, which when factoring in the loss of PPP income and two less days during the quarter becomes a more impressive statistic.
We are very pleased to start reaping the benefits of our strategies and look forward to additional operating revenue tailwind to come.
For the second quarter, we're expecting a margin in the 310 range. The margin also includes estimated loan accretion of eight basis points, approximately 560000 and estimated PPP loan fee accretion of 14 basis points approximately 175000.
On slide 10, you'll find some interest rate sensitivity information.
Currently we have approximately $1 1 billion in variable rate loans with the inclusion of the leash and 25 basis point rate increase we have over $450 million available loans that will now repriced with any future upward rate change looking ahead, we have approximately 85 million available rate loans that will leave their floors with the Max.
100 basis point rate increase.
Given the asset sensitive nature of our balance sheet any increased short term interest rates will have a meaningful impact to our net interest income at quarter end, our static interest rate shock analysis shows a net interest income increase of over 4% and up 100 basis point rate scenario. Additionally, we ended the quarter with $645 million of interest.
Earning cash and $162 million in floating deposits that will immediately reprice with any rate move.
We're currently modeling interest rate sensitivity using historical betas as this provides the most and shows a picture of our sensitivity in this environment, having said that we believe our liquidity position and deposit composition as well as the overall liquidity in the market will allow us to like increasing deposit rates and insulate us from the full effects of any marketing.
If any market rate increases.
On slide 11, our noninterest income continues to build momentum.
Noninterest income increased over 300000, or almost 5% from the prior quarter and more impressively almost 25% from the prior year quarter and currently approaching 20% of total revenue.
Investment services was a large contributor as revenue continues to grow as a result of a full quarter's activity. My recently added wealth team and increased volumes from the legacy.
Additionally, our insurance unit experienced stronger than projected seasonal contingency commission payments.
Overall, we remain excited and optimistic regarding the opportunities for fee generation within our family of fee generators.
For our noninterest income forecast for the second quarter is $7 1 million.
Onto slide 12 as expected our operating efficiency ratio continues to be elevated from our previously from our previously discussed strategic expansion initiatives.
We expect this ratio to have a steady decline in the near term to the low sixties range as the newly hired teams gained further momentum in our internal platform optimization strategies unfold for the quarter, we experienced only a slight increase of 200000 operating expenses directly in line with previous quarter guidance, but no material increases.
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For the second quarter of 2022, we expect an expense run rate of $25 7 million range with salary and benefit expense of approximately $15 6 million.
Our guidance is slightly higher than our actual Q1 results as Q1 benefited from our strong loan production, which provided a larger amount of deferred loan origination cost.
Onto slide 13 capital.
Even with continued asset growth our capital ratios remained stable as a result of our profitability.
Management routinely evaluated the bank's capital position as it relates to projected forecast lending opportunities as well as potential strategic initiatives always with an eye towards maximizing long term shareholder value at quarter end, the company and bank, both exceed well capitalized regulatory standards and.
And we are well covered with excess liquidity and excellent credit quality.
We are well positioned for executing on our 2022 strategic plan.
And finally, our tangible book value per share experienced a 3% reduction impacted from unrealized losses on our securities portfolio. Since this reduction as interest rate related the impact is temporary it will be gradually recovered all the time as just as a security has returned to the original par with no long term impact to equity.
At quarter end, our tangible book value was at $18.64 per share and when excluding the temporary effects of our accumulated other comprehensive income component our tangible book value was $19 56 per share.
Excuse me $19 56 per share representing a quarter over quarter annualized growth of over 6%.
But that said I will turn it back over to Bill.
Thanks, Ron.
To close out first I would ask you to take a look at page 14, our ticket mix. Our tech initiatives are really progressing well one of the biggest initiatives. This year is the pole installation of Encino has a workflow platform, that's moving along and we plan to be live by the third quarter and shortly.
After we will be adding being seen oh customer pricing and profitability platform. We're thrilled to get these platforms operating in the bank. This year as we believe they will have great impact to efficiency and profitability shifting over to our outlook where.
We're also continuing to watch the economic landscape closely geopolitical issues inflation tightening by the fed or all elements that could have an impact on us and we're managing our company prudently given these concerns that said, we do remain bullish on the markets, where we're doing business.
And believe we continue to grow at a very nice pace. The southeast continues to shine as a pro business region. The anecdotes I hear from our local boards about companies looking to relocate to or areas or stories from a relative clients about the number of people moving to a region because of our low tax pro growth philosophy.
Gives me confidence that we will continue to outpace many other parts of the country.
As we've gotten some size on US now as we're approaching 5 billion in assets, we're hitting a great sweet spot, where we have the size and sophistication to bank larger companies as well as having the ability to be nimble and responsive in our community markets.
We see this playing out daily as we're having great success in our legacy zones, like Knoxville, Chattanooga, Tuscaloosa, and Pensacola, but we're also starting to build great momentum in new markets like Nashville, and Birmingham, I Love, our position right now and I can't wait to watch that momentum continue.
And in order to keep this moving now more than ever having a strong culture is critical to attracting and retaining talent. Our continued work on being a top workplaces key and this is an area, we're emphasizing more than ever we continue to be recognized as a great place to work and we do not take those accolades rightly. So thanks so much.
Associates, who do a tremendous job every day delivering wow experiences to our clients. The excitement that is being built in our company is strong right now and as we execute our plan it will be transformative to our financials. It's a great time to be part of this company is a client as an associate and as an investor and we're very well positioned.
To move forward, so I'll stop there and we'll open it up for questions.
Thank you.
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Our parents ask your question, Keith and Charles from your checked lately.
As a reminder.
One can you kind of think he packs.
Our first question comes from Brian Robertson from half day, Great. Brett. Please go ahead.
Hey, guys good morning.
More and more than one in Britain.
Wanted to first ask you know an impressive loan growth in the quarter and I've been a little surprised with some opportunities and some of the markets are a large <unk>.
Transaction nothing appears to not be going initially is as smooth as some are hoping and so there maybe an opportunity to move talent before a deal even closes I'm I'm I'm curious to hear.
What youre hearing in your and your East, Tennessee markets in particular regarding.
Large deal and if you think you'll continue to add teams and.
If the focus here now is positing for improvement more on efficiency like you've talked about a little bit or if the opportunities are there to go ahead and continue to ramp up on the lending side.
Yeah.
Brett I'll take that yeah from our standpoint, Yeah. Obviously are number one priority right now is just execution on what we are.
What we've added over the last little bit, but that said we are always.
On the look out for for talent in any of our markets are obviously there are some there are some some bigger transactions going on that that could lead to opportunities. So from.
From our standpoint, we were evaluating that and you know if we can find.
The right sales talent that we could add to the team regardless of market will continue to look at it I don't think we have really no.
Specific initiatives.
Out there today, but that but I will say, we're always looking for great for great New production talent.
Okay. That's helpful. And then wanted to talk about the the margin and the asset sensitivity and the 4% up for 100 basis point shock would seem like given the cash that that number could be higher so I was hoping to get.
Maybe just maybe some color on what you're assuming for deposit betas I recognize money markets are a big piece of the funding mix just wanted to understand a little bit more on what goes into the 4%.
Yeah are you know.
Historically, our our betas.
We're at about 35, 36%.
That's what we use as I said conservative as modeled we don't anticipate to hit that data.
We.
Based on my commentary, we think we're going to be much lower than that but we wanted well I totally different bank today than we were doing.
Through the last cycle.
Even our deposit mix is so different so you know the.
The cash immediately we expect the cash to run off for our for our loan fundings and then.
Kind of do our earnings kind of keep the cash steady and then wind down deposits, it's kind of a loaded question and probably a high level answer, but it's there's a lot of moving pieces are.
For that <unk>.
<unk> on that slide 10.
We think the ramp 200 is based on where we're at and looking at the fed cycle is probably a better gauge over the next 12 months, but.
It seems a 100, a static was pretty prevalent on what people are reporting.
Okay.
And then just one last quick one on concentrations you know the commercial real estate is now around 300, I'm just curious if the pipeline.
Has more C&I and then the construction and CRE and what what maybe your thoughts would be around appetite for commercial real estate concentration levels going forward.
Yeah as I mentioned.
Historically managed our ratio kind of in the upper quartile of the other guidance, but our pipeline is.
<unk> weighted more non CRE right now we've got a little over 60% of the pipeline that is CRE.
CRE loan type.
Spread across our geographies. So we are we are seeing a lot of.
New activity.
And those are very small.
So I think we had a little weird little bit outpaced I think we're at with with our CRE growth. Just so I think had some draws we do have some projects that were that we had already had on the books that were that added a little bit to that this quarter is that correct that is correct.
Okay. That's helpful. Thanks, a lot for the color congrats on the quarter.
Thanks I appreciate it.
Our next question comes from Stephen Scouten from Hypersound clear Steven. Please go ahead.
Hey, good morning, everyone and thanks for the time.
Good morning.
I thought the market was going to give you some some credit for a really good quarter today, but it looks like the sentiment still too bad.
Frustrating because I think you know this loan growth was particularly impressive.
Even above and beyond what we've seen from some other companies. So I just wanted to think talk more about the loan pipeline. I know you mentioned I think you just said maybe 60% non theory can you give us a feel for what that pipeline looks like today, maybe relative to where it was at this point heading into the first quarter or just kind of frame that pipeline up a little bit more for us.
Centrally.
Great you want to start with that I might add I'll add a little bit of color I can't yeah, I mean actually it is a it has continued to grow.
We are we are certainly beginning to see a lot of throughput coming from our looked at markets that we added to the the bank over the course of last year predominantly.
I mentioned, the first quarter, we had about 45% of production.
The first quarter came from those markets and the pipeline is up as.
Weighted about that same amount and we are continuing to get new opportunities that have to do it every day, especially coming out of several of those areas. So we are or where I guess in relation to kind of where we started the year. It is continuing to grow and grow in those types of.
Loans or as I mentioned that that do not add to our our CRE our positioning yeah now I'll add I'll add Stephen you know the teams that we brought on there and the comment I made about.
Being able to bank larger companies I think we're seeing that.
Through its you know, we've what we've seen out of especially the new teams.
Is is a really nice diversification of clients a lot of our new.
New businesses operating companies, a nice a nice mix of lines and and some owner occupied.
Component. So we really see this I think this quarter was a little bit outpaced wood with real estate, just because of primarily some draws on some larger projects, but I think youll see that that I think you'll see that kind of settled back down and diversify out.
Over the next little bit.
Okay. That's helpful and I think if I'm looking at the data right you have maybe about four and a half million left in the share repurchase that.
It's authorized how would you think about that today, especially given some of the weakness in the equity markets here, we've seen as of late.
You know, we're we always watch it sure.
Share repurchase right now is not a.
Front of mind, primarily as we're watching the growth, we're watching capital Ron's comments and our capital ratios, even with the growth that we had our capital ratios remained constant which was great. So.
From our standpoint, we'll probably have a little more clarity on that as you know as the year goes out as far as Canada, the appropriate use of capital, whether it's growth or other.
Other other means but right now we're going to watch it obviously, if the share price dropped far enough. We will we'll take a look at some options there, but right now we're trying to keep some powder really more more so for growth.
Makes sense and maybe just last thing for me just dialing back over to the asset sensitivity it looks like.
I'm looking at apples to apples, maybe that went down from up six 5% up 4.2 or what have you.
That largely driven by the incremental investments you made this quarter in the Securities book already and then along with those investments and Securities can you give us a feel for what those new yields were on those on that money you put to work.
Yes.
Majority is that the investment purchases kind of changed a little bit in our in our loan production obviously.
We did purchase $270 million the majority of that was to your treasuries. So all landed probably about $141 45, maybe 142, just kind of cut in the middle that's kind of the yields that we were that we put on the books for Q1.
Okay, great very helpful. Congrats on a great quarter everyone.
Okay interesting.
Our next question comes from Kevin Fitzsimmons with D. A Davidson Kevin. Please go ahead.
Hey, good morning, everyone.
Good morning.
Yeah.
I know the topic of the lift outs as it's come up a few times, but I'm just curious it seemed like you are probably gaining.
<unk> more clarity each quarter on this and it sounds like your.
Your excitement level is picking up in terms of how you're seeing this progress and.
So I'm wondering.
Uh huh.
You know building does that make you a little more.
Inclined to be looking for additional opportunities or do you feel you have plenty of run.
Run rate runway ahead in these and not you know it's that.
Other question referred to this earlier.
Is that a tight rope of you know do you do you.
Take advantage of opportunities available to you, but then it maybe slows down the ability to demonstrate bottomline profitability. If you have a law.
Lot of these things come on at one time, so I'm just wondering given what you're seeing.
How do you feel about that strategy.
Doing it on a continuous basis going forward with additional markets. Thanks.
It's a it's a great question, Kevin and it's something that we talk a lot about around their tables.
And it is the balance you know I think for US you know again are priority. One is to is to really get this it grow it get this expense base get the revenue growing commensurate with the expense base I think that that that's first and foremost but at the same time I mean.
I think strategically we don't want to turn our backs on good opportunity. So we were always keeping an eye out for that especially now.
We have been able to have success with <unk>.
Fruiting.
And bringing over really strong sales talent that the bank has changed so much in the last couple of years just from the sophistication of the way we operate the way we underwrite the way we the way we handle the sales process and so I.
I think we're building something that can continue to plug on more of that more of those types of.
The more of those types of organic opportunities, but right now we're laser focused on making sure that we can control. This expense line, which we feel really really good about and and really get this revenue growth. So we're going to balance it.
So it's kind of a it's a little bit of a hedge to answer.
But we're going to continue to balance it and look at both sides I'll add to argue Billy and the team credit you know there are some institutions that have a different philosophy that will just add.
Lenders and producers no budget lab for producers ours is a little different than that sure. We've had other opportunities and we think we'll have some in the future, but I will say culture and it is a.
Huge component of what we're looking at we're talking.
To folks about wanted to come onboard and and the lift outs and the legacy lenders would have all understand we're all on the same page of where we are and where we're going and I. Just think that's a huge component of it we're not looking for somebody who's just come in with a bunch of transactions look long term clients and the lenders that we have and the producers.
R R.
Just a great fit and that would be very important as we look forward to.
Bring them anymore.
Okay. Thanks Miller Thanks, Billy.
And one quick follow up on expenses. So I appreciate the run rate.
From from Ron I'm just.
Thinking what's the best way to think about as we look into the back half of the year is that a decent run rate.
Think about or because you mentioned the efficiency ratio coming down I'm, assuming that's more from the revenues picking up.
But you also have some initiatives in the encino.
Rollout that you talked about later in the year or is it a realistic goal could expect just kind of low.
Very low single digit type of expense growth or is there something more we need to be aware of.
Yeah.
You know Kevin actually we Werent the guidance for the expenses today, it's pretty much what we see for the rest of the year quarter over quarter, we as Billy had indicated we've controlled our expenses and we feel we can absorb everything we can do is absorbed began we will gain efficiencies we can see now.
But then taken that money too.
Offset to two other expenses, but we think it's going to be controlled no incremental growth for that line item at this point, yeah, and I'll just add you know where we might have a little bit of an uptick if we you know add some occupancy in Birmingham and Nashville, Some markets, where we're looking to to get sick, but to your point I think you are.
It is it's going to be a relatively low tick up in the expense line and then we think this revenue lines, you're going to get to start to move move up nicely for so I think that's where the the efficiency gains come in.
Got it thanks very much guys.
Hey, Kevin.
Our next question comes from the line of Matt Olney from Stephens, Inc. Please go ahead.
Hey, Thanks, good morning, guys.
Hey, Matt.
I just wanted to clarify the outlook on the margin.
I assume that captures the fed hike from a few weeks ago.
Assume any kind of.
And then.
The June timeframe at all.
Yes. We are we are in court will following the fed the fed cycle. We yes, we expect two more again, we will have a won't happen to 50 in May and then expect that another 50 in June we didn't go any further than that.
All baked in that margin.
Got it okay. Thank you for that.
And then on the deposit side I guess, there was some commentary in the prepared remarks.
That should be a little bit cautious about deposits.
For.
This cycle.
Is there anything in particular at the bank.
That you're that you.
We're more concerned on that.
And then others just trying to get a sense of.
Uh huh.
The cautiousness there about the deposit outflows in the next few quarters.
Yeah.
And I'll I'll take that and then Ron you can add anything that you you feel pertinent, but I think for US Matt I think the cautiousness is is really just trying to watch.
What's going on with these rates again.
Looking obviously at a lag.
These are these FERC at least this first rate increase or two on deposit cost you know the liquidity position that were sitting in gives us some ability to to kind of be a little more disciplined on on moving our rates up. So I think that I believe we're on that kind of really where were common.
Terry has been weak.
We still feel really good about our ability to produce new deposits. These new teams that we've got coming in will bringing on an on boarding some just some outstanding client relationships.
I think it gives us a little bit of it gives us some comfort there, but again just being cautious we're going to look and if we get a little bit of run off we've got enough. We've got plenty of powder to to allow that to happen. Yeah right is that a fair that's fair and.
You know, we don't know when this deposit cycle will will lend or maybe it won't we've been blessed with with our growth in our deposits and we're still seeing deposit growth today, but we just wanted to be.
Just cautious to say, okay. What happens if it does slow down or stop that's kind of what we put out there, but no we're not seeing any evidence of that happening whatsoever.
And I guess, just following up on that Ron.
Yeah.
Does the guidance assume any kind of deposit growth from current levels.
It seems like the loan growth you expect to fund with the excess liquidity position coming down.
It seems like you're not assuming any kind of deposit growth from here and as you said you can be pretty careful on deposit pricing.
So I'm just trying to appreciate.
At what point could we see.
Deposit growth and if we did see some.
That would be the catalyst.
Increase the size of it.
I know, there's a lot there I'm trying to appreciate kind of the way you guys are thinking about this now.
Yeah, I can go in any direction with that and get into weeds, where we're probably modeling around a 3% deposit growth for the year.
So again, we are expecting a little bit still seeing you know.
Having the loans outpace and soon a 67% loan to deposit ratio, we really are.
Encourage too to keep our loan production going to start getting more into the 70 range 70, so ideal mid eighties, but.
And.
Today, where our asset where our securities are.
We are very.
We're comfortable where we're at with our with with the the level of Securities I think going over that approaching that 20% level of assets.
Again.
It's quarter by quarter at this point to see how the numbers are shaking out.
We're just being patient with our standards and we think we're in a great position execute one way or the other and we just don't want to jeopardize that execution.
Or any reasons. So we're just we're gonna be patient over the next quarter now my guidance next quarter may change, but.
Right now that's kind of we're just kind of pausing, a little bit and you're seeing how it settles down.
Okay got it understood.
A great a great spot for horizon.
Yes.
Thanks, Matt.
Our next question comes from strictly from Janney Montgomery. Please go ahead.
Hey, good morning, guys.
Hey, good morning Betty.
So I appreciate the overall guidance on the non interest income, but I was wondering if we could dig in a little bit just so I can understand longer term.
It seems like mortgage held up pretty good in the quarter.
Just kind of curious what your outlook was there and what percentage of production is purchase versus refi.
Yeah I'll take that.
We think our whenever a really big mortgage shop were very steady.
Throughout the last few years, we've been very steady coming off record highs. We think our Q1 is probably a good indication of probably the remainder of the year, we have a lot of.
Headwinds with supply rates and such but we do have a strong pipeline.
Coming in and out.
We don't think that will change much and I'm sorry, the other part of the question. It was it was really more about us.
There are certain percentage.
Percentage up.
Yeah right now we're at 50 50.
<unk> is a refi or what we're putting the portfolio.
Combination of both.
Five <unk>.
<unk>.
I would say for the refi <unk> was hired to 85% Refis unless I'm, sorry backed that up let's keep 50 50, I'm getting my numbers mixed up yeah, we were.
<unk> not had we've not had a really we've never had a huge refi these little more refi in 2021.
We're seeing I think the pipeline right now is obviously it is much more purchase I haven't seen a lot and we've seen a lot of <unk>.
Instruction parks in our markets too.
With which supply changing a little bit even though.
You're getting some some upward tick in materials costs, we're still seeing a lot of construction firms I think our mortgage ought to hold pretty steady this year I don't we don't we don't see it.
Don't see it taken a big a big dive down because we just I think what we will lose in the refi piece will be able to pick up and just some some some new purchases and we've added a couple of new production team members there late in the in.
In the in the year last year.
So it sounds like overall just the.
You All's footprint effectively really helps.
Keep in that setting just because you've got continued population it before was that right.
It is you know and I think that's really the key again I think what we lose on the <unk> side, we should be able to replace on the purchase side pretty close you know at the end of the day, we like the business I think the way. We've got our structure is is it really quite frankly pretty good kind of give.
Where the market is today, we don't have a ton of overhead in that line of business and so.
Yeah, we've got a very efficient mortgage shop in and believe that.
What will what we will see is continued purchase money opportunities as we move forward.
Gotcha, and then just one more for me still in noninterest income I'm just it.
It seems like investment services was up a good bit this quarter.
<unk>.
Was that just is any of that seasonal or is that just you know solid growth I saw you guys had a technology initiative relates to that so I wasn't sure. If that's just some of you know reaping the benefit of some of that or is that just growth in that division.
The wealth side really just growth in that division.
I really don't believe might Heather I don't believe there is much seasonality in that at all it's primarily 30, just the new teams coming online.
But we had we made a push out at a really nice.
Really nice group of financial advisors down in our Gulf Coast region lately.
Late last year are those folks who are continuing to move assets and performed well and really all of our markets.
Are trending nicely from an investment wealth platform side so.
Most of that should be recurring we believe moving forward and hopefully growing as we continue to build out you are.
Got it thanks guys.
Appreciate the color I really appreciate all the detail on the slides as well.
Okay. Thanks.
As a reminder to ask any further questions. Please press star followed by one on your telephone keypad.
Our next question comes from the line Catherine Miller from K P.
Please go ahead.
Hey, good morning.
Good morning.
I just want to follow up on the margin.
Ask about loan yields.
Yield ex Accretable yield and P. P. P has remained really steady over the past few quarters at 418 now how do we.
Think about.
How that compares to where new loan yields are coming on.
And then as you think about finally getting the impact of higher rate, but there's still some kind of downward repricing just pardon me one production or do you think is there.
But I don't have the amount of the loan yard and won't start to see that move up next quarter.
I think it's kind of a joined US last year that didn't you start robin and give us some color on what youre seeing in the pipeline.
I expect that our loan yields.
Baked in with the increases we should see about a 25% 30 basis point lift over the next quarter.
Uh huh.
For that purposes.
And I think we're at the bottom.
C S nor at the bottom of the cycle as you indicated right.
What are you seeing in the pipeline I would say the same I mean, obviously, you're still continuing to see some some pretty aggressive pricing in the marketplace from time to time, depending on the transaction.
But we're also beginning to see some creep up and what rates were able to still win the business that are at least certainly in the past 45 days or so.
What's been added also we've got a handful of transactions that came on as a bank.
Floating rate debt, which would be positive when rates begin to move up but we also did have the interest rate swaps as well that contributed to the overall yield in place. So at the end of the day.
Of the upward rise in rates at home alone piece, and any kind of fixed rate type of exposure, we're beginning to see.
Prove rates on the pipeline certainly takes a disciplined approach that could give it away yeah I'll add Catherine what we're seeing in and I know we were talking about this in a loan meeting the other day, we've got we're seeing some of the especially the smaller balance loans, we're able to get some some rate of movement in those obviously some of the larger one.
It might be a little bit tougher competitive standpoint, I think the you know the real thing that we're watching is just you know you are still seeing a lot of competition and be extremely aggressive we think in some cases too aggressive on the pricing side.
A space of folks with the liquidity that sitting on balance sheet right now.
So we're kind of watching that but we're trying to stay and I think the guys used the word disciplined and I think we are really trying to start to build some disciplined in their pricing and handle it appropriately, but we feel pretty good about our ability to get a little bit more right moving forward.
And then on that $1 1 billion of variable rate loans can you help us think about the timing like how much of that work immediately.
Great prices kind of immediately with the rate.
Rate increase versus.
Versus maybe the variable piece that you know lags by a month or a quarter right along.
You Gotta rods got we've got we've got that.
And the debt that's in the deck $450 million of the variable rate loans will reprice immediately with any rate rate increase and then looking forward. After the next 100 basis point rise will add on another $85 million to that.
Yeah.
Okay, Great and then the delta of that what's the timeline on that.
Yeah, it's more of a it's more of a timeline I think very minimal.
For for the remainder of 'twenty two.
These are largely five 571 arms.
Some that are our U S Treasury base, so it's really a time element.
The majority of those will really come in over the next several years, so not really meaningful.
Then probably I would say next year 40 million at the end of 2022.
And for 2023, we're looking at $60 million, so incrementally it's going to be thrown in the majority of it.
Out of few years will be small.
Turns back to floating.
Great. Okay. That's super helpful and again just to reiterate you said you think there'll be a 25 like within your 310 margin guide for next quarter.
Thinking more fee of 25 to 30 debt for Revkin Imran yoga, all else equal I hear that right yes.
Yes.
Great perfect Alright, Thank you for taking the question.
Thanks Scott.
Yes.
Our final question comes from William as well right.
Raymond James Williams. Please go ahead.
Thanks, Good morning, guys.
Just a couple of follow ups.
Wondering on.
As long as that's if we could talk a little bit about your pipelines have they stand at the end of the quarter versus the end of the fourth quarter and based on the pipelines and the pull through rate that you're seeing quarter to date.
You guys may be feeling better about the high end of the guidance that you provided before it's wanted to maybe circle back on that Robert.
Yeah, I'll start and I think part pipelines, just Canada and at the end of Q4 into Q1.
Or a little bit higher I think that I think when we look at those for us and converting what we're not saying that we saw in the last couple of quarters of 2021 or the payoffs payoffs have slowed a little bit production numbers and pipelines has still been relatively good. So we're getting a little bit more popery, we're picking up a little bit more.
And the net balance side.
Yes.
From a guidance standpoint.
The guidance that we gave last quarter for 2022 was was a was a mid teens number.
Well I think we still feel good about that mid teens number when you look at it for the year.
Again, we're really kind of trying to address it really all that kind of on a quarter by quarter basis, as we kind of watched what rights do you know as these rates move up does that slow pipelines, a little bit we've not seen signs of that yet pipelines are still strong. So we feel good about Q2.
From where we're sitting today and.
And still feel good about that mid teens annual guidance.
Okay, great. Thank you and then.
I had a couple of house.
Keeping questions and your guide the 310 margin guide what did you say was the anticipated impact from purchase accounting accretion.
Oh, I'm sorry, Yeah, let me.
The purchase of the purchase accounting accretion I believe was 580000.
Okay and then.
The PPP fee income was 975000.
How much how much.
And fees do you have left in the PPP program and what was the ending balance.
That's it.
Yeah.
We're hopeful we can be out of the PPP business by the end of this quarter.
On that side of the house, but.
We have very little left after that $50000 left after that so we're at the end of that cycle. Okay.
Okay, great. So we're done okay.
That was a that was all I had just from a housekeeping perspective I appreciate the time guys.
Thank you.
We currently have nice ask a question. So now I'll hand, it back to the committee Wellbore for any closing remarks.
Thanks, Lauren and thanks again to each of you for joining us today and hope you have a great rest of your week and as always feel free to reach out to one of US if you have additional questions Goodbye.
This concludes today's call. Thank you for joining you may now disconnect your lines.
Okay.
Yeah.
Okay.
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