Earnings Call: Q3 2021

Oct 20, 2021

Hello all, and welcome to the Smart Financial Third Quarter 2021 Earnings Call. My name is Lydia, and I'll be your operator today. You'll have the opportunity to ask questions at the end of the presentation. It's my pleasure to now hand you over to our host, Tim LaValle, to begin. Please go ahead, Miller. Thank you, Leah. Good morning, and thanks for being with us this morning to our Q3 2021 earnings call. We always love to listen to this great big quarter to talk about our progress and our confidence. Joining me today on the call are Billy Carroll, our President and CEO John Krasinski, our CFO Rick Jordan, our Chief Trade Officer and Nate Frahl, our Director of Corporate Strategy. So we just thought I'd like to each of you to please refer to Page 2 that I did that we filed this morning for the normal and customary disclaimers and forward looking statements, comments. Please take a minute to review these. It's a fantastic quarter of our team here at the bank. I challenge anyone to find the bank with more energy, drive and commitment than our team here at Smart Bank. We've demonstrated again our growth outlook to help pace and execute our strategic plan. Our organic pace of growth has been impressive and we see nothing slowing that down in the months ahead. Between very strong markets and the addition of several new sales team members that Billy will talk about shortly, we feel we're well positioned to continue on our current pace. As we march toward the end of 2021, we're excited about what we have accomplished this year to date. With that, I'm going to turn it over to Clay. Thanks, Mark, and good morning, everyone. This was another extremely solid quarter for our company. This year has been a very busy one from this final round of PPP to an acquisition to the lift outs to several new expansion markets. 2021 has been a transformative year. Optimize some high level thoughts on our recent accomplishments and then turn it over the line for the financials in the U. S. For credit. First, we have some great highlights for the quarter. Looking to Page 3 of our slide deck, starting with earnings and tangible book value, a very nice income quarter with operating earnings coming in at $9,9.63 per share. Feeage per book value has increased to $90.03 7% quarter over quarter increase. Returns were solid as well with 13% return on tangible common and credit remains pristine with broad performance at 0.14 percent to assets. In addition to our financial performance, you'll see we've eclipsed the $200,000,000,000 in asset market continuing to add size in a relatively small peer set. Getting into this $4,000,000 to $6,000,000 range has been a focus where we now have the size and the earnings momentum of better loan origination opportunities. We also had outstanding growth this quarter. Net organic loan growth excluding PPP was over $52,000,000 or approximately 9% annualized. Our lender teams continue to do a great job, and we've seen growth balance throughout all of our markets. If we weren't surprised by anything, it continues to be the growth on the deposit side of the balance sheet. We've not been surprised that our bankers continue to do a great job in growing our core client base, but that volume, coupled with the existing clients, continue to hold and grow their balances, has us in an extremely large liquidity position. Deposit balances grew 29% annualized during the quarter and we are currently in a cash position of approximately $1,000,000,000 Ron will give you some further detail on this, but it does have an impact on them and returning to the near term that I really believe puts us in a position of strength strategically over the longer term. We completed our acquisition of Seminary County Bank in September and will be converted and rebranded this coming weekend. We also made the decision to sell the Richmond piece of this deal. This was simply a play to keep our focus in the Southeast. With the substantial opportunities that we have presented us over the last couple of quarters to build density in our current zones, it made a lot of sense to send this piece out. At NowDown, we're excited to get this one integrated. The process has gone very well. We are on target, if not ahead of target, with our 60% plus cost savings. Segue into some of our recent opportunities, the next couple of slides highlight some of the things we've been working on over the last few months. Looking at the map on Slide 4, you'll visually see the recent expansions for our company. We've taken advantage of this unusual opportunity to bring on a number of outstanding bankers in some great Southeastern markets. Only on the left out of the banking team in our Gulf Coast region earlier in the year, we now added teams in Montgomery, Quothem and Auburn, Alabama as well as Tallahassee, Florida during the last few months. We've always had solid organic growth. Most recent lift out focus represents a pivot for us in our company as we move more strongly to an organic model with a stronger focus on density building and zones where we operate. Moving to Slides 5 and 6, you will see some detail on these new markets that we've entered as well as some of our other 2021 achievements. I've spoken previously about our Agrop Equipment Finance acquisition and that team is performing well. We've also started to leverage our footprint to expand our prospecting efforts with that group. Very pleased so far with this new line of business and very bullish on the outlook. Also note, we have a new zero floor plan group that will lift out that will be based in Birmingham. I'm going to let Rick speak to this a little more in a moment, but a nice mixed lending area that will yield some great opportunities. These are all big investments for us. And while we know we'll have some modest EPS drag over the next few quarters, we feel this is the right investment to make for loan from shareholder value. So let me I hand it over to Ron now to jump in the financials. Thanks, Billy. Good morning, everyone. Let's start with Slide 7, balance sheet. Since 2017, we have continued to realize consistent balance sheet expansion. As Bill indicated, for the Q4, we view loans outstanding $2,300,000 in our S and P acquisition over $2,000,000 or 8.6 percent annualized and had year to date loan growth of 12.4 percent annualized. In addition, we had over $90,000,000 of 50,000,000 loans forgiven and acquired $219,000,000 of loans from FCD, net of the non 30 loan sale. Our average loan yield for the current quarter was 4.95 percent, an increase of 43 basis points from the prior quarter, which was attributable to the addition of $1,700,000 of accretion income. On the right side of the slide, you see that our privates continued with privates trend upward. During the Q3, excluding $446,000,000 from the FCD acquisition, our core deposits increased over $224,000,000 or almost 29% annualized. Between this growth and our focus on controlling funding costs, we've lowered our total cost of deposits to 25 basis points, up 4 basis points to 5 from the previous quarter and had a loan to deposit ratio of 70%. On Slide 8, you can see trending information on our loan composition along with our current quarter activity, which we'll be going over shortly. On Slide 1, our deposit composition remained relatively stable with our 4th quarter growth and SEB acquisition. We remain focused on managing time deposits downward while growing our non interest bearing deposits, which currently make up over 26% of total deposits. Looking ahead, we do not expect significant changes in our deposit cost or composition, although we do expect continued repurchasing of some of our higher cost SCB time deposits in the coming months. Moving on to Slide 10, liquidity utilization. We did end the quarter with our cash position over $1,000,000,000 DepositOne, Incredient Forgiveness and Essence Cash from the F and B acquisition all contributed to the increase of over $400,000,000 in cash and cash equivalents from the prior quarter. Previously, we've been patient with the deployment of excess cash. However, as we move into Q4 and into Q1 of 2022, we will be taking a prudent and systematic approach to deploying approximately $40,000,000 Tarzana portfolio which will generate significantly higher yield versus our current cash year. Our investment strategy will consist of a ladder approach where a deep portion of the cash flows will come back within a 3 to 5 year period thus limiting excessive inflation risk. As shown on the revenue side of the slide, our margin for the current quarter was 3.25%, which includes $1,700,000 of discount loan accretion and $2,900,000 of 3.2.2 percent accretion. We also benefited from a 5 basis point decrease in interest bearing deposits. Offsetting these positive impacts is our excess liquidity position, which has negatively impacted our margin by 28 basis points. We are forecasting a 4th quarter margin around 4%. We are estimated to have loan accretion of 10 basis points of $644,000 an estimated 50 3 loan accretion of 22 basis points up to $2,100,000 Before we leave this slide, let's touch base on operating revenue. Operating revenue continued its operating trajectory to $86,600,000 dollars an increase of over 14% as compared to the prior linked quarter. We had another strong quarter of managed receivables, which contributed $6,300,000 or approximately 70% of total operating revenue. Turning to the purchase income, let's move on to Slide 11. We are encouraged by the positive momentum across all of our non interest income categories, particularly service charges and interest income resulted approximately $2,300,000 in the quarter. Additionally, other income is elevated as we were fully operational with our capital markets initiative having almost 470,000,000 swap in income. We also remain very optimistic regarding the strong opportunities for food generation and our family of revenue generators. As a result of the 4th quarter, our management income increased almost 22% and more impressively increased over 50% from the prior year quarter. Our forecast for the 4th quarter is having non interest income of $6,400,000 Moving on to Slide 12, operating expenses. As we continue to execute on our current opportunities, we will see some short term expense headwinds that will bring us an ongoing value over the next 18 months. During the Q1, operating expense increases were from 1, 3, 3 months of expenses from the filing acquisition 2, 1 year of expenses from the FCB acquisition and 3, expenses associated with our Lookout strategy. For the Q4, we expect expenses to be slightly elevated with total expenses around $25,300,000 and salary and bank expense approaching $15,500,000 This elevation is primarily from the SEB acquisition. However, we didn't realize a partial reduction to those expenses as we finish executing on our cost savings as we planned in the quarter. Looking forward into 2022, we believe our 20 20 run rate will be lower than the 4th quarter, more in the $24,500,000 to $25,000,000 range and the size of the range that's around the $14,000,000 to $13,500,000 range. So I think for this 2020 run rate, I'll try to manage the issues that Barry will touch base on it, Page 13. Glenn? Yes. Thanks, Ronny. Yes, I think it's important to share with this group some of the information that we've been working on related to technology. We've talked around it on previous calls that we've been doing some real work in moving our company forward in sec. On Slide 13, you'll see some of these initiatives that, as Ron said, are built in there, as far as Scott. I believe that's not who we significant focus in this area are going to be behind, and we will not be in that position. Of note, one of our business initiatives is moving to the Enxino platform at the beginning of next quarter, and I'm confident it will be game changer the way that we handle our entire commercial process of prospecting deployed disease. We're very excited about this work and know that it can be critical to our future success. So with that, I'll flip it over to you and let you talk about lending and credit. Thank you, Billy. As noted earlier in the deck on Slide 8, our loan portfolio continues to show diversification across the loan segments with 12% annualized loan growth quarter to quarter of approximately 278,000,000 dollars This is inclusive of the Sabrina Bank loan acquisition, but excluding PPP loans. Net organic loan growth for the quarter was $52,000,000 and annualized increase was 6% over the prior quarter. The SCB acquisition did not impact our overall portfolio mix significantly with the post close profile being very similar to previous quarters and the same period prior year. As mentioned, our portfolio is seeing consistent growth this year spread across all geographic areas of our footprint. Our CRE portfolio has seen most growth year to date moving to approximately 40% of our portfolio outstanding as compared to 35% at year end 2020, primarily due to the impact of the Sugar County acquisition. But as Ron noted earlier, we've also seen good year to date growth in our owner occupied commercial real commercial real estate segment as well. We continue to see strong housing demand in our market area. Our core markets still seeing historically low supply levels and strong prices on a steep to this demand. Our overall loan portfolio yield continues to reflect solid positioning at 4.21%, including the SCE portfolio but excluding accretion and PPP loan impacts, which is above both quarter 1 and quarter 2 levels. All in all, a very solid quarter with strong organic loan growth in the portfolio and profit outment for the remainder of the year. Slide 14 shows our overall asset quality metrics, which continue to trend very positively and generate consistent excellent results. Our NDA ratio continued to improve throughout 2021, dropping consistently each quarter to a low of 0.14% in the 3rd quarter. Net charge offs for the quarter were 0.03 percent and our over 30 day pass through ratio was consistent to 2nd quarter at 0.29%. Classified loans of 0.36%, up slightly from 2nd quarter due to the SCB portfolio acquisition, but was still well below legacy Smart Bank ratio positions for Q1 2021 year end 2020. Overall, our asset quality continues to demonstrate solid metrics, resulting from continued strong economic performance in our marketplaces and stay in line with best of class levels. Our outlook for the balance of the year, and we expect these strong portfolio metrics to continue in upcoming periods. As for the PPP loan book, we've seen considerable CapEx activity through Q3 in our round nine loans. As noted on Slide 15, we received the business payoffs on 2,900 and 42 applications or roughly 99% of the round 1 originations with over $299,000,000 in balances. We ended the quarter with about $6,000,000 balances remaining from the 1st round, including roughly 15,000,000 loan totaling over $2,000,000 in balances since the accounting originated, but we're not yet forgiven prior to the acquisition date. These remaining few loans were actively working with all of the competitive stages and or finalize repayment structures on any unforeseen residual balances. We're also proactive in reaching out to Round 2 clients to continue to process those commitments applications to seamless cover periods expire and once you're ready to submit. On the Q3 period end, we had already processed 715 Round 2. EPP forgiveness apps for $55,000,000 in balances or roughly 40 percent of the generated loans in Round 2. Overall, PPP's logic proved to be a very successful venture for our company, generating $17,000,000 in fees for the bank while creating considerable prospect opportunities for our teams. We anticipate PPP balance positions to continue to decline swiftly through Q4 and early 2020. As Billy mentioned, we're very excited about the addition of our GEDA Financial Specialist team to help expand our lending platform into the core plan component of the segment. These team members bring a combined 60 plus years of experience in the industry and have worked together as a team for nearly 3 years in the space. They provide administrative, underwriting and relationship management support to a nearly $2,000,000,000 platform that has strong performance with solid credit quality measures and strong well and sustained relationship with their clientele. BH Network will play into a multi $1,000,000,000 segment of the banking industry in which smart banks has historically held very little exposure and have tremendous opportunities within our core footprint to take advantage of existing business relationships and client familiarity. Furthermore, the long time relationships that our new team has in the marketplace also brings new strategic growth opportunities for SmartLink to pursue as well. A chance to bring this admired and highly recommended team to Smart Bank provides us the needed bridge to support the foregone component of these valued relationships. Clearly, we're very excited about this addition and the opportunity it creates for us to continue to grow and diversify our lending portfolio. Now, I'll turn it back over to Ron to walk you through our allowance position for the quarter. Thanks for all the detail. Let's move forward with Slide 16, our loan loss reserve. As we continue to have great stats for our credit quality, we did require a $1,100,000 provision for the quarter, which was due for the reallocation of loan discounts associated with the FCP loan sale and to a lesser extent facilitate loan growth. At quarter end, our allowance originated loans less PPP loans was up from 25% and our total reserves of total loans in leases and SPCP loans was up 1.26%. Moving to Slide 17, capital. Our capital ratio remains strong with a slight uptick from the prior linked quarter. The current quarter's acquisition of S and B had minimal effects on our capital. Our change in the common equity and tangible assets was down slightly, reflecting the way to our excess liquidity position and our acquisition. Our core letters are well positioned at this time. In development beside our entire SMB team is focused on positioning building shareholder value. At quarter end, our $0.08 per share was over $19 an increase of 7.3% linked quarter annualized and over 10% increase year over year. With that said, I'll turn it back over to Bill. Thanks, Ron. And to close, our markets are all performing extremely well. The Southeast is poised for great continued growth, and it's one of the reasons you've seen us pivot a bit a bit as we look to commercial banking look down opportunities. Our loan pipelines continue to be robust and are equally distributed across all of our markets. The excess liquidity in the system, like most others, were battling some headwinds and some low line utilization and pay downs. With that said, we're very bullish on where we stand and once these mid teens get up and going, we anticipate a move for a low grade, we'll kick up into the mid teens on an annualized basis. We're seeing this company transform and operate on a different level, continuing to drive revenue moving toward being a top tier portfolio on the off road and on how we get there. I'm very excited to be part of this company right now. It's very exciting to be an associate and an investor. I think we're very well positioned to be opportunistic moving forward. So I'll stop there, and we'll open it up for questions. Our Our first question today comes from Brett Hatton of Roth Group. Brett, your line is open. Please go ahead. Hi, good morning, guys. This is actually Ben Drillinger. Brett. Congrats on Crossing 4, JDC. I was curious if you can kind of start with the growth trajectory. I understand that you guys had a pretty busy year, to say the least. And then the guidance was for kind of that low, I think if I heard that correctly, incurring anyone's growth as kind of a core rate. Just curious on how you guys think about the larger balance sheet, what's the opportunities? I'm sure that there's going to be some sort of lumpiness to growth as you add more lenders. But when you think about the strategy for growth, is it an area of lending or geography of lending that you see as the lowest coming through, the areas where you might want to expand? And then kind of juxtapose against that, like, expense guidance for $24,000,000 ish, does that include any additional reserves for the next year? Or is that kind of a core rate as if you were running out of static I'll start with that. Let me I'll take the right part of that question, Carlos. Ron, I think I'm saying this correctly. The expense guidance we did is kind of what we've got today. We're not looking looking if we would adjust that if we came up with any more rent opportunities. That is correct. And so yes, expense guidance is what we've got going today, Ben. The first part of the question, I do think that obviously the growth on the loan side and the deposit side is something that we're very focused on with this, again, this organic plan. But kind of as we talked about earlier in previous calls this year, I think we've been kind of targeting even though we've been above that. We've been, I think, post year, I think we're at about 12% growth, which has been a little higher than we recall. And we're signed this quarter. With the look back, as we look into 2022, we do think that number is going to edge up on what we have discussed as mid to high singles now into mid teens. And we're equally confident about that. Again, the expense guidance that we broke in incorporates not only the lift out compensation occupancy expense and also the technology that Ron talked about. So we're trying to lay out what we believe is a fairly well hold to expense 1 and so I can keep it up and doing. And as you know, it might take a quarter to get these folks up and running. But once they hear, we're very, very excited about the growth trajectory that we might continue. SG and A. Got you. That's very helpful. And I think that's kind of the internal lift that bolt on with lift doses, the consultants. It makes sense that you have more control over the growth and the credits that you're adding. And it also shows the capital to some degree if you're not looking to do major acquisitions. I'm curious on how you now approach any excess capital and how you feel they're deploying like if you could do the rank order of the priorities? I'll take a stab at that. You know why you guys hopefully would jump in. Yes. I think capital. I think we've always been doing good small way. I think for us, right now, I think their thoughts around excess capital is growth. Obviously, share buybacks could come into place if we think that that is appropriate at the right time. That would be a great utilization of that. It's dividend increase. We're weighing all of these different pieces today. And I think for us, right now, we're in a I think we're at risk. We're spot related to capital. We don't have a lot of excess, but I think we're very comfortable with where we sit today. Yes. And I think that's something that we address kind of weekly, daily hourly around here. We talk about it often, allocation of capital, best use of capital. And going back to the expansion rate, I will say that there are certainly realty additional lift out opportunities, but with additional adding a sales team. So we'll protect that a little bit on the upside if we have to on the run rate side. And you talk about M and A a little bit or LICA. We certainly continue to look at opportunities as they're presented to us. We've been invested, as we said, but there are ton of time in building relationships. And we've stated over the last quarter or 2 that our top priority is organic growth and netbacks. I'm not saying we're not going to 0 deal, but I will say that if we're 0 deal, you can rest assure it will be a good one. It will be very, very successful that they will. But that answer capital question, I know that we're prioritizing, but we continue to juggle that and look at that and assess every opportunity. Our next question comes from Stephen Scouten of Piper Sandler. Stephen, your line is open. Great. Thanks. Good morning, everyone. Good morning. I just wanted to think about operating leverage for a second into '22, just given the puts and takes of when these new hires will be able to contribute. Do you think you can see positive operating leverage year over year? Or is this more like a 2023 event given the need to kind of earn back those initial upfront costs? Yes, this is Ron. Yes, we are seeing the positive effects going into 2023. 2023, we will again, as we build the portfolios and build the asset base, 2023 will be the year that will be positive for us. Okay. That's helpful. And as we think about just trying to circle back on the loan growth commentary. I know, Bill, you said kind of mid teens once these guys are up and running. But is this more mid single digits in the next couple of quarters until that time? Or am I misconstruing that? No. I don't think so. I think we can get there fairly quick. I think it's a on the pipelines that we're seeing right now, Stephen, and it's not just the new team. We have our existing team, too. Our pipeline is still really good. So I think what we've looked at is it takes a quarter or so, some of these folks have been on a quarter now. So it ebbs and flows a little bit. But I don't think we're I think we're looking at double digits here relative to the surgery. We may take it might take us a quarter to get up to that close to core pace, but we should be rolling into the double digits here within the next quarter, any of the next single digits as well. Yes. I mean, we're not we're not in the year over year, but it's off at 9% this quarter. So I Okay, great. And maybe just one last thing for me here. And that 3% NIM guidance, is that a core margin kind of accretion and ex PPP? Or is that relative to the 3.35% GAAP NIM? And could you kind of I know you gave some of those numbers on expected accretion and PPP accretion, but what would be the big drag quarter over quarter? Is that more some of the securities investments that maybe pulling that down either way? Yes. I think 3% is I kind of answered the 2 questions just to both. The Q4, we will wind down the PPP process and see that last tranche of fees to recognize through the NIM. As we go into 2022, deploying the excess liquidity, which really hampers our NIM to get more positive results off of that. So we are seeing, particularly one side to the other, but we do see that 3% at the baseline going forward. So unless they get loan accretion, discount loan accretion, we are unusual at tops along the way from loan activity. Other than that, we're seeing solid 3% one way or the other. Okay, great. Thanks everyone for the color. I appreciate it. Thanks, David. The next question comes from Thomas Wenger of Stephens Inc. Thomas, your line is open. Thank you, and good morning, guys. I've got a couple of questions here. Give me an idea what kind of loan yields you're seeing on new production and then kind of how the new hires are playing into that. Yes. Rick, I know you've said we've got, I think, some data probably, probably the best data on looping for the 2 deals. Do you want to kind of run through some of that? Yes. I mean, if you look at this most recent quarter, we're still averaging around what 4% on new yields for productivity, new activity going on the grid. So overall, it's been relatively steady. Yes. And I'll add. So I think some of the new teams, as we're bringing in some of the larger C and I top clients, some of that is probably coming on board a little bit lower, but typically, you're going to see that kind of on a lower float basis. So you might be looking at somewhere in the lower threes on some of that new production, but it is a variable rate product that comes with some nice fee side as well. So we still think we're getting decent pricing. Everything's too low. I'd say in this environment, but I think comparatively, we should get decent pricing on new question. That's great color. And then one final one for me. With the new teams, are they focused on gathering deposits at all since you guys have so much excess liquidity? And then once you kind of shift into gathering deposits, can you give any idea of what kind of impact it's going to have? Yes. We are. The bankers that we're running out of the way, they get really strong core relationship language. And so we're not just going out chasing loan transactions, even though Ron is sitting on a daily dollar in cash. I mean, we are just still looking to bring in these core deposit relationships with treasury. And that really has continued to go really well from what we've seen. So the pipeline of loans also should lead to more deposits as well, where those points should be in corporate checking type balances primarily with lower loan interest rate. So that's we'll continue to take those even though we're in a heavy cash position. We think that's going to be a great long term benefit for us. All right. Sounds good. Thanks for answering my questions, and The next questioner in the queue is Catherine Miller of KBW. Catherine, please proceed with your question. Hey, good morning. I just have a follow-up on the balance sheet side conversation. And thinking about that $400,000,000 of securities deployment, what's the timing that you put in on for that $400,000,000 dollars Yes, Jacqueline. This is Ron. Yes, we've already started our deployment. And we're probably looking at $75,000,000 to $80,000,000 a month. And that will bring us into the Q1 of 2023. So we've right after the time you've bumped off is when we started doing our purchasing, time you've been doing our favor at this point. So we're very excited. And so far, I know this will change depending on how rates move. But today, how new yield what are kind of average new yields for those investments? Yes. We're looking at this. We'll be closer to share call around 1.5, 1.5, 1.50 range. And then my second question just on the margin, just came up next quarter. You said 3% for the reported margin, which is implying some further compression in the core NIM if we back out PPP and accretable yield. Is that is there are there any significant changes to liquidity or the size of the balance sheet for next quarter except I guess that does include some of this liquidity will go into securities. So even within that, we're still I guess I'm trying to think about we're still seeing more NIM compression even though part of these securities are going to be redeployed from cash into securities next quarter. But maybe the way to think about it is we bottom next quarter and then it's a slow grind up as you move through 2022? Yes. Exactly that. It's not only our plan, but again, it's fully loaded for Q4 to 3% because again, we still have that excess PPP pre recognition. And then we kind of convert over to Q1 with the tailing into the bond portfolio, and then that reduces to negative carry. So we're trying to put a natural look back to that 3% range. And that includes as our loan production slowly dwindles downward, That's not significant, but a little bit of a compression. But still that 3% is I mean, we're looking at that pretty much too flat throughout the next 4 quarters with all the balancing back in parts we have in our activity. Okay, great. And then one thing on expenses, this is a challenging question. I know a lot of moving parts within the margin as well, but I'll just throw it out there to see how you're thinking about it. But is there an efficiency ratio target that we should think about maybe longer term as we kind of feel the full impact of the cost savings from the deal and then the benefit from all these recent hires? Yes. Catherine, this is Billy. I'll take that, and Ron, feel free to chime in. For us, as we I think our long term goal is to be sub-six. That's where we want to be. That's where I know we need to be. And so I think that is the longer term goal. I think right now, we're kind of we've drifted in the low 60s. I think you'll see that is that should that will probably tick up here in the near term, probably up maybe up a couple of percentage points as we kind of realize this expense load from the new group. But we think that will be kind of falling out to 2023. We think we see that number edging right down in a long term target, but it's really not that long term, I think. I always kind of look at this as a marathon, not a sprint. But I think in a reasonable tone, we should be able to get that back down into the lower 60s, and our goal is to be sub-sixty as a company. The next question comes from Fadi Sytlett of Janney Montgomery Scott. I I saw you guys had some really strong non interest income overall, but I saw mortgage came in a little lower than I was expecting. Is it safe to say mortgages kind of started to pull off at this point? And I guess the growth in the other fee income lines offset that going forward? Yes. That's probably a fair statement. I think our mortgage has stabilized. I don't think this I think it's very stable. I think that's the biggest issue. In talking to our mortgage teams in our various markets, they're very bullish on the same. And we've seen the population in blood. A lot of its supply is where we're running into issues. I mean home inventories, it just seems to be slowing just kind of just because of that is the primary driver. We've got a bullish on what we've got and continuing to look to add some mortgage producing team members and then to these new teams. And so we're still recruiting, we're still looking to add to that team and grow that line. But I think it's steady lives is probably the best of yours. I mean, Ron, any The leading was we're excited to see that some of our non our other non interest income categories are starting to take over. We know that you've been number 1 for us for a long time. So even though it's again relatively stable income going forward, but our other categories will overtake that as real believers in that group. This is part of our emphasis on COVID. Got it. Is there any particular line, whether it's the wealth management or finance or is there any particular line that you guys see kind of being the spark going forward? Rod, do you want to address it on that, Tom? Yes. I think we have the greatest opportunity in our customer service With the lookouts and Billy had mentioned about the treasury, our treasury service and our platform, we are making some hires to support that group. And I think we have most opportunity in that line item in the near future. We'll see that growth a decent amount. So we're excited to see that. Yes. And, Billy, I'll just add. We're really focusing on all of them. And Ron has alluded to some of the feed side on swaps we've got. We've got the investment side where we're really putting some real deliberate focus, especially with the teams that we've added and some of the private bankers on there that are really doing a nice job bringing in wealth management clients. It really is all kind of playing together. So we've been focusing on all those zones. Like Ron said, we're probably looking at the seaside, maybe being a little bit more of a shining story in near term. But we see lift in really all these lines. Got it. And just one more question for me. Just given the Richmond closure, it sounds like it's safe to say you guys are going to be focused on the South and the East. Is there any consideration for expansion, and it's going to be longer term too, but into the Carolinas? Or is North Georgia probably a more likely next step to look out for acquisitions? Well, China, that's what we're in. We love the Tennessee, Alabama and Philadelphia. We would certainly look at continuous markets of opportunity that is just really, really nice. I don't know that Rob would prioritize the trail lines every quarter and pull them to trail on. It's all going to be a member's and opportunity thing. Yes. And I'll just add to that. From us, I mean, as more exciting. I think we would definitely look to continue growth in contiguous geographies. So I think all of those are doing more. They've been focusing primary focuses on what we've got. Got it. Makes sense. Thanks for answering all my questions and congrats on a great quarter. Thanks, Nick. You have a great day. The next question comes from William Wallace of Raymond James. Ron, in your prepared remarks, it sounded like you said that the provision expense had to do with, I think you said like repositioning or something around the pending loan sale of the Richmond assets. Did I hear that correctly? And if so, can you explain that a little bit more? Yes. The Richmond loans have considered a day 2 event. And there's a lot of discounts associated with that. So when we took away from the pools of the loans, because we do the pooling replacement foreclosed, we kind of had to reallocate, do that evaluation assessment on the remaining portfolio and we had to replace we had to replace what was taken out from the loan sale. So it's just a timing issue. It was not a day one issue. So it was strictly around the fair value we're adjusting fair value marks, I guess, so to speak. I usually see that on day 1 and you never see it again, but we had to revalue it once again at 9:30. Okay. Okay. So that didn't run through the net interest income line as an interest adjustment? Okay. It did not. Okay. So moving forward then, how should we be thinking about the provision expense line with the mid teens anticipated loan growth rate and assuming that we don't get any backup in economic situation related to COVID or anything that we're continuing to improve, not get worse? Yes. Q4, I think we're probably going to maintain our percentages at this point of time. And then we have seen the cases have the variant cases have driven down as a whole, kind of factors. So and I think there's probably a little bit of opportunity for us to keep lower, but I think we'll keep that 25 basis point level for the time being. Again, every quarter is a different strategy or different calculation, but probably flat. And with our loan growth, we'll just try to at this point, the calculation saying we'll try to still be in that 75 basis point range to delineate the book. Okay. All right. That's helpful. And then sorry to do this, but I'd like to circle back to the NIM commentary. So the guidance for the 4th quarter is around 3%. And that includes about $2,000,000 I think you said $2,100,000 of accretion related to PPP loan fees. It's going to sound like you said moving forward that you'll still be around 3% even when that that will be the last of the PPP efficient. Is that correct? Well, we'll have a we still have a little bit of a sliver of $1,000,000 plus to do Q1. And at that point, the big mover is we're going to eliminate the liquidity drag, which is the 24 is 28 basis points. And basically, which we're not taking those counties, we're still retiring a lot of 1% loans other than the PPBPs recognized. We still have that base of 1% SPP loans. And we're on the books that will be forgiven. So there's a lot of moving pieces. And yes, we're still expecting that 3% to hold going forward, and what we're modeling today. Okay. And then so in 2022, what is the kind of anticipated run rate on the purchase accounting accretion, excluding what might come if you have loans pay off, required loans pay off or anything like that? I think the Q4 was 642,000 dollars That was the ballpark that they had been paying. It's probably like $500,000 a quarter. It's not as this acquisition didn't bring a lot of discount accretion to it. But as always, we do have a lot of loans in the portfolio loaded with marks and with pay downs and payoffs and such. We probably have loan unique events happening quarter over quarter as we've seen just as an accelerated accretion coming through the books on this kind of patient. Okay. Yes. Okay. And then if you just there's you guys have done a lot, right, with seamless sales and acquisition. If you I don't know if you track this or not, but if you do, I mean, if you were to look at your core originators and the growth that they're adding to the portfolio, are they is the run rate of this business, is it really kind of a high single digit run rate that will be boosted with all the team lift outs, etcetera? Or is this are we do you think you could settle out low double digits once we get past the kind of the initial boost that will come from all the new hires? Yes. I think near term, I think your earlier comments, right, I think we're still learning kind of that, I call it, within the highs with the mid teen numbers coming on board. I think that puts you set up into double digits and the mid teens. I do think we've said I think we're a double digit grower, Wally, moving forward. I mean, I really do. The way we're structuring this team and kind of what we're looking at with the markets we're in, the group that we've got. Yes, I think we can do kind of on average a double digit grow or even pass this initial kind of this initial spike that we anticipate. Okay. That's very helpful. I really appreciate the time guys. That's all I have. Yes. Thank you. Thank you. Thank you. And our next question comes from Kevin Fitzsimons of D. A. Davidson. Kevin, please go ahead. Hey, guys. Good morning. Most of my questions have been asked and answered. So I apologize if I'm being redundant here. But I just want to, given your answers a few questions ago about expanding into other states and the fact that the moves you're doing in Richmond, is it fair to say that the focus is on these existing markets, as you pointed out before, Miller. So given the new teams that you've hired, is it safe to say you have a flag planted in the markets you want to be in and now it's just a matter of adding density in those existing markets? Or are there other metro markets in Alabama or the Florida Panhandle that are you don't have a flagging yet that you would jump on if the teams became available? Kevin, I'll start and then to the best and gentlemen. I think we've got most of our flag plan. I think, Jeff, as we've said previously, we like we continue to like that Nashville zone. We believe Nashville, we need to continue to grow. We're in the MSA in Morton's Florida, but that's an area where we think we've got the size now and the ability to be impactful in that market. So that's a priority. We're in that zone, but we would like to take a little bit bigger in that zone. Same thing to say about the down again. We're in note now we're in note the MSAs. We've been released 2 weeks back, letting the plane folks know that we're looking to grow in the Army and that's an area where we want to grow. Our floor plan groups can be based there. We've already planted some leadership in that market and very excited about opportunities there. In Florida, I think Florida is an area where I think we could see some expansion maybe a little bit further, maybe a little bit further east. We added some scale in Tallahassee. I think as you look kind of through that kind of that I can corridor. There could be some other opportunities there. But I think it's continuous to really where we are. And I don't know whether you guys want to dive into that comment. I think we're going to hit on Cunningham and building out that market. Obviously a really good city in the state of Alabama. I haven't seen success, great success. Good bankers want to be part of a good team and a good bank. And as we build out some of these markets and we've just gone into and expand on some of our business unit. I think we are able to and have discussions on a regular basis with good bankers that we will be able to bring over our team. And is that focus, that pivot that you talked about before, is that more based on the willingness of these loan officers to move, like there's an increased willingness? Or is it more about and I think you've discussed this before about just not having to bulk up in size, nothing that's not as much of an urgency where before arguably maybe it was a little more like, hey, let's do a deal and we'll optimize we'll figure it out late not figure it out later, but there was an urgency to getting to a certain size where now it's more of a real rifle shot approach to getting the right people, getting in the right markets. It's a follow-up. Even the 2,000,000,000 assets, your size, your lending limits, your earnings momentum to invest in new teams is just limited. And I think that's the reason we're taking the approach of getting the foundation built through acquisitions of organic over the last several years. And now we're hit for the earnings momentum that we have, the sophistication that we built around treasury and credit and all of these other ancillary pieces. We can go out and do a much better job in recruiting and these bankers that are looking to move to us from these larger regionals, they know we can handle their books of business. That's tougher to do than we can do, or even 3. I think for us, we felt like we needed to get to this size. And now I think we're a very attractive alternative for some of these really good regional bankers that are maybe looking to go somewhere. It's got a little more numbers. And I think that's what's appealing to us now. And I think that's what's attracting these really good teams. Currently have no further questions. So I'll hand back over to Miller Walden for closing remarks. Thanks, Levi. Thanks for all of you all for joining us today on the call. We appreciate your support of our company, and we hope you have a great rest of your week. Have a good day.