Earnings Call: Q1 2021

Apr 21, 2021

Good morning, and welcome to the Smart Financial First Quarter 2021 Earnings Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Miller Welborn. Please go ahead. Thanks, Garrett. Good morning, and thanks to everyone for joining us this morning for our Q1 earnings call. We do always love to listen to this group each quarter to talk about our progress and our company. Joining me this morning on the call are Billy Carroll, our President and CEO Ron Grozinski, our CFO Rick Jordan, our Chief Credit Officer and Nate Strahl, our Corporate Strategist. Before we get started, I'd like to ask everyone to please refer to page 2 of our deck that we filed this morning for the normal and customary disclaimers and forward looking statements comments. Please take a minute to review these. Well, 2021 has certainly started off at a mighty fast pace for our company. The bank has grown rapidly over the past couple of years and in particular the past 12 months. We've grown our assets by more than $1,000,000,000 and only about $400,000,000 of them were acquisition related. Our organic pace of growth has been impressive and we see nothing slowing us down over the months ahead. Four major points of focus for our team this year to date have been strong tangible book value growth, ROA growth, ROE growth and EPS growth and we do feel very confident, very proud of the progress we've made in all four of these areas to date. We talked often about how excited we are in the company and we can't stress enough about how we feel this company is positioned for the quarters ahead. With that, I'm going to hand it off to Billy to talk about a few of the points. Thanks, Miller. We did kick off the year in a great way, as Miller said, with a very solid 1st 3 months. Our company continues to take the steps necessary to become a key player in the Southeastern Bank landscape and with a great value for our shareholders. I'm going to hit on a couple of the highlights and I'm going to turn it over to Ron to dive in his financials a little bit and then on to reps' touch on credit. But first, we do believe the pandemic is clearly in a review mirror. Although we are still operating cautious and safely in our markets, our markets and our teams are back to normal for the most part. Our sales teams are back on offense and we are seeing great opportunities in all of our zones. We've had a couple of new worthy items of late, so I wanted to start by highlighting those. Last week, we announced the signing of the definitive agreement to acquire Seguertany Bancshares and move subsidiaries of Seguertany Bank, a deal we're very excited about in our legacy market where we can achieve some great synergies with the combination. SCB is a $460,000,000 bank with a very complementary book of business. We anticipate our cost savings to be over 60% on this deal and it is a huge win for us. We've included some additional details on the deal on pages 56 of our deck, but an excellent density play that will add nicely to our metrics. Next, detailed on Page 7 of the deck, you'll see some information on some great additions to our SMART 2019. Over the last few weeks, we've completed a lift out in our belt case solution to add some muscle in South Alabama and the Florida Panhandle. Another huge win for our bank with this team coming from a solid regional player. This move will be adding 1 office in Mobile, Alabama, along with our new regional president makes summer, with the other members of the team expanding our existing presence in Bear Hope, Alabama, Pensacola, Florida and Vested, Florida. While a lot of the quarter was spent on those 2 initiatives, it has not impacted our continued improvement on the financial front. A few of those highlights. Earnings very solid at $8,900,000 from both a GAAP and an operating standpoint coming in at $0.65 per share, noting another non interest income record quarter. We had strong home and deposit growth for the quarter. We organically grew core loans over $60,000,000 or 10% annualized. And deposits grew over $240,000,000 34 percent annualized, outstanding results on both fronts. We're continuing to see clients hold larger than normal amounts of liquidity and that does create some net headwind, but we are taking the approach to watch these physicians through the PPP payout cycle to gauge how sticky that excess will be. This quarter also included participation in the reimbursement around the paycheck protection program. We saw strong demand and we're very glad to be able to offer our clients and prospects this service, originating over 1200 loans in this Mayfair incident round, totaling over $119,000,000 in loans, also generating over $5,000,000 in projected revenue. Brett's going to provide additional details on this in a moment. I guess more comments as to what I expect as we move forward in 2021, but again nice results from our company this quarter. Let me turn it over to Ron now for financials and then Brett will touch on portfolio credit and then I'll close with his comments. Ron? Thanks, Billy, and good morning, everyone. I'll be starting on Slide 11. Focusing on the top graph, we continue to improve our ROA metrics as seen by the continued and consistent steady ramp in profitability. Moving on to the lower portion of the slide, our operating return on average tangible common equity of 14.5% continues to be a bright spot for us. We have done an excellent job of managing capital levels throughout the pandemic and didn't rush to raise capital. Turning to Slide 12. As Noah indicated, we have continued our consistent trend of increasing our tangible book value with a 10.5% increase on a linked quarter annualized basis, and year over year, we had increases of over 12%. On the lower portion of the graph, our operating efficiency ratio represented by the green line has been steadily improving. We are proud of our SMBK team for the continuous efforts on improving our efficiency levels. For the current quarter, we are still hovering at that 60% level. Turning to Slide 13, net interest income. We reported net interest income excuse me, we reported net interest margin of 3.48%, a decline of 9 basis points from the prior quarter. Our net interest income FTE was $26,400,000 for the quarter, very consistent with the prior quarter's $26,700,000 We did very well considering the headwinds of 2 fewer days of interest, lower loan rates and continued repricing of the balance sheet, all being partially offset by our continued benefit from our decreasing deposit costs. During the quarter, our loan yields, less loan discount accretion of PPP fees, have declined 23 basis points from the prior quarter, but the prior quarter did include 7 to 8 basis points of escalation from an elevated amount of loan prepayment fees as well as our participation in the 2021 PPP program, which negatively impacted our loan yields by approximately 6 to 7 basis points. Overall, the decrease in loan yields were offset by 27 basis points or $1,600,000 of loan discount accretion and 40 basis points or $2,400,000 of PPP accretion. For our interest bearing deposits, we had a decrease in funding cost of 6 basis points to 0.44 percent with our cost of total deposits for the quarter at 0.33%. For the Q2 of 2021, we will have almost 19% of our time deposits maturing and repricing. So we still have an opportunity to further reduce our deposit costs thinking maybe another 2 to 3 basis points. Overall, when removing loan discount accretion and PPP accretion, we believe our NIM has bottomed. Our expectations for our NIM is to hold steady and slowly rise during the latter part of 2021 and beyond. Over the past several quarters, we've been maintaining elevated cash balances. Our average cash balance has increased almost $68,000,000 for the quarter with a quarterly average balance of $417,000,000 dollars This elevated position of excess liquidity has negatively impacted our margin well over 20 basis points. As we have mentioned previously, we have taken a conservative approach and have been patient in the deployment of our excess cash since we don't know how permanent our recurring position will be going forward. These patients may have benefited us because if the forward interest rate curve materializes, we will be in a good position for deployment. We anticipate to use some of our interest funds to fund projected loan growth and we anticipate our narrowing in more bond purchases over the next several quarters to get our securities to asset ratio closer to the 10% level. In Q4, we are forecasting the 2nd quarter margin around 3.20%. We are also aiming to have loan accretion of 9 basis points or approximately 546,000 dollars and estimated PPP loan fee accretion of 31 basis points, approximately $1,900,000 Moving on to Slide 14, operating non interest income. We had a great quarter for operating non interest income as we continued our momentum in growing this category. For the quarter, we reported $5,700,000 of operating non interest income, an increase of almost $1,200,000 from the prior linked quarter. Our service charge interchange fee income remained stable. We had $124,000 increase in investment services from the continued growth in assets under management. For our mortgage banking team, we had another great quarter. As expected, our Q1 income was a little softer than the previous quarter, but still had revenues reaching over $1,100,000 As our pipeline remains strong coming into Q2, we are seeing some headwinds with increased building prices delaying some projects, increased inventory as well as an uptick in interest rates. With that said, we are still expecting some good things from our mortgage team for 2021 as we continue the mortgage division. We also had an outstanding quarter in our insurance division. Looking forward into the 2nd quarter, we expect to gain some traction with additional fee income from our newly hired Director of Capital Markets. In addition, we have recently executed a branding agreement, which will provide increased interchange fee income during the second half of the year. Our forecast for the Q2 is having non interest income of $5,100,000 Continuing on to Slide 15, again, we want to take the opportunity to once again introduce our family of revenue generators. During the quarter, we started to see some positive traction from our new internal referral system that's providing many leads directly to our revenue generators. We are highly optimistic that our continued focus will drive increases in our non interest income category moving forward. Turning to Slide 16, we'll find our operating leverage expenses. As you can see on the slide, we are maintaining our level expenses and are continuing to remain focused on expense control. During the quarter, our non interest expenses have increased slightly. Some of the variances were our salary and employee benefit expense decreased slightly for the quarter, primarily related to salary cost deferrals for the PPP loan originations. Our data processing and technology expense increases were related to pure pricing adjustments from our core processor and other technology related expenditures. Our level expense category had an increase of $578,000 with the majority of this increase related to our strategic investment in startup Fintech Company, focusing on technology in the digital saving app space. Offsetting these increases were decreases in both our professional fees and amortization of intangibles, where the previous quarter had a higher level of expenditures. Looking forward, our forecast for the 2nd quarter is having non interest expenses around the $20,000,000 area with salary and benefit expense around $12,000,000 range. The reason for the increase from the prior quarter guidance is primarily attributable to the salary and expense run rate for the 8 person golf course lift out team and additional expenses related to the company's health insurance premiums and technology related spends. Before we move to the next slide, let's touch base on taxes. Our income taxes for the current quarter reported an effective tax rate of 21.5%, which includes tax benefits derived from our continued involvement with the State of Tennessee Community Visible Loan Program and to a lesser extent the benefit from adding additional borrowing income. We are forecasting our effective tax rate of 21.5% in the Q2 of 2021. Moving on to Slide 17, we look at our deposits. As we previously indicated, we have seen significant growth in our deposits. Our overall composition of deposits have continued to evolve with time deposits currently making up 17% of our deposits. When compared to the same quarter last year, we had our time deposits making up over 30%. Now to deposit footings. We had another fantastic deposit quarter. Our total deposits continued to accelerate during the Q1 with an increase of almost $233,000,000 and ended the quarter over $2,000,000,000 up over 30% from the same prior year quarter. For the current quarter, our non interest bearing deposits ended at $778,000,000 up over $92,000,000 and represented almost 26% of total deposits compared to 18% for the same period quarter last year. In addition, our money market and savings deposits were up over $154,000,000 and our time deposits continued to decrease down $38,000,000 At quarter end, our growth of deposits to total deposits dropped another 2% level. With that said, I'm handing over the slides to Rick Jordan, our Chief Credit Officer, to give over loan and credit related info. Rick? Thank you, Ron. Beginning on Slide 18, our loan portfolio continues to show stability and diversification with outstanding balances up approximately $105,000,000 quarter to quarter and the overall loan mix staying similar to previous quarters. As mentioned, our portfolio grew by just over $100,000,000 with approximately $60,000,000 of that being organic growth across our footprint. Our CRE portfolio saw a slight uptick as new projects were started, coupled with continued strong housing demand in our markets. Open marketplaces across our three state area have been consistently reducing COVID restrictions and our client base is reaping the benefit of a robust start to 2021. All in all, a solid quarter with continued strong performance in the book. Moving to Slide 19. While we saw our loan outstanding realized solid growth in the Q1, our overall credit quality metrics continued to perform very well. Our NPA ratio saw a mild improvement to 0.29% from 0.31% at year end 2020. Net charge offs for the quarter were 0.01% and our over 30 day past dues trended similar to our Q4 2020 results. Classified loans were 0.39% of total loans, down from 0.44% at year end 2020. Overall, a continued strong quarter in credit quality metrics. We're also excited to report that our overall portfolio has returned back to near full normalcy from COVID related modifications, and we ended the quarter with only 0.07% of our loan portfolio still in a COVID modified status, just a few unique cases with 100 percent of our hospitality and restaurant portfolio back to a non modified status. From a peak of nearly 25% of the portfolio in Q2 2020, This is an accomplishment we are very proud of and is a result of tremendous effort, innovation, dedication and teamwork on the part of our clients and our associates in navigating never before seen waters during the 2020 operating year. Overall, our asset quality continues to demonstrate solid metrics overall and stay in line with best in class levels. Our outlook is positive and we expect our historically consistent performance to continue in upcoming periods. As for our PPP loan portfolio, we continue to see expansion of our forgiveness applications during Q1, while also realizing strong volumes in new applications for round 2 of PPP stimulus. As noted on Slide 20, by quarter end, we had successfully processed and posted forgiveness payoffs on approximately 4.78 applications for just over $82,000,000 in balances. We ended the quarter with about $218,000,000 in balances remaining from round 1 advances, roughly 73% of our originated total and expect the forgiveness trend to continue with a reasonable pace into the remainder of 2021, especially as funding for round 2 reaches capacity. In addition, as Billy mentioned, we have seen a strong volume of round 2 PPP production thus far, having originated 1231 loans for just over $119,000,000 and approximately $5,500,000 in fee generation. This round has been a little more heavily oriented toward existing client applications than round 1, but still a reasonable mix with approximately 79% of fundings to Smart Bank clients, 21% to prospective relationships. About 70% of borrowers in round 2 were repeat borrowers having also received funds in the initial PPP issuance. Though not as heavy a volume as round 1, round 2 PPP still has been a very strong exercise in providing continued support for our client base through the pandemic and solid revenue prevention effort for the bank. Now I'll turn it back over to Ron to walk you through our allowance positioning for the quarter. Thanks, Rhett. Let's move forward to Slide 21, our loan loss reserve. As Rhett had indicated, we have continued our great stats for our credit quality. For the current quarter, we did not require a provision and had our allowance at accurate levels. We did utilize a loss to accommodate organic loan growth, but that was offset by both the improving economic environment in our footprint and other qualitative factors, including having most of our COVID loans going back to regular payment schedules. At quarter end, our allowance to originated loans less PPP loans was up 0.93% and our total reserves to total loans less PPP loans was up 1.46%. Going forward, we will adjust our allowance if needed to accommodate the current economic and credit conditions. Moving on to Slide 22, our capital position. Our capital ratios remained strong, very consistent with the prior quarter and keeping up with our significant asset growth. During the quarter, we had $900,000 of cash dividends paid and we repurchased almost 60,000 shares of common stock for a total of $1,200,000 We have recently suspended our share repurchase program due to our recent merger announcement. At our current levels, we are well positioned. Relating to our merger announcement, our pro form a capital ratio remains strong and above well capitalized, and we are not anticipating the need for additional capital at this time. With that said, I'll turn it back over to Billy. Thanks, Ron. Thanks, Brett. Really appreciate those comments. As you can hear, just a great quarter for our company. As Rhod alluded to, our markets are all performing extremely well. Growth and top line is very equally distributed across our markets, and we feel very bullish on growth over the coming quarters. I would hedge our growth trajectory up from previous quarter guidance between our markets being very robust, benefiting from strong population in play that we believe will continue for some time to come and the new team members that we've added. I think we can move into the high single digits on loan growth in the coming quarters and the remainder of the year. Some headwinds with payoffs and paydowns as clients are holding again higher levels of liquidity, but our sales team is doing a nice job of keeping the deal flow. Ron mentioned a few of the headwinds with some of the continued margin pressure, but we have purposely held these higher levels of liquidity and cash. We believe this is a correct approach for our company even if it does drag net interest income slightly for a couple of quarters. Our confidence in our ability to grow loans is strong and we do think the margin levels will level out in the coming months and allow us to take a look at these levels of liquidity and determine the correct utilization strategy. The syndicate bank deals when properly executed and we will properly execute is going to be a big win for our company. The synergy case coupled with a credit expansion market in King in Richmond, Virginia has outstanding upside. This transaction is anticipated to close in Q3 with a Q4 conversion. But with what I discussed earlier, it's something we would like to do more of. Our size, scale and earnings teams now allow us to do these types of needle moving plays. While we continue to explore strategic M and A, you will see our company now pivot to an even more stronger disciplined focus on the organic front. We've always been able to produce nice organic growth. But moving forward, we will look to take more of a deliberate focus on this strategy. It's an exciting time to be part of our company as an associate and as an investor, and we are positioned extremely well to be opportunistic moving forward. So I'll stop there, and we'll open it up for questions. We will now begin the question and answer session. First question comes from Stephen Scouten with Piper Sandler. Hey, good morning, everyone. How are you doing? Good morning, Stephen. So I appreciate all the color on the new team lift out in the slide in there. That's great detail. And I know, Bill, you said kind of taken up that loan growth guidance to maybe high single digit there. But I'm wondering with that team in particular, if you could frame up for us kind of what was the size of their overall book, where they're coming from and kind of what you could expect from that team over maybe the next 3 years or so as they ramp up? Yes. Steve, Yes, our projections for these states are really pretty bullish. I think their total book, the 15 managers, somewhere in the $400,000,000 to $500,000,000 range. But we see I think they also have been hands on a little bit with some areas that they couldn't focus on with their previous employer. We really feel like that we can kick start over the next couple of quarters really well. Our pipelines, they've been with us now for just a few weeks and we're often generating rep about our pipelines of nearly $40,000,000 We are extremely bullish on where we can take this route. As far as kind of what we think over the next couple of years, it's been a probably yet to be determined. We know it's going to be good. I can't tell you how excited I am to have this team in our company. It's a perfect fit for our business model, diversifies us into North CI. They've got a much stronger CI focus than what we've seen in some of the folks that we've had in the past. But they also have the ability to do some nice real estate. We did Murfreesboro about 18 months ago, and I think our Murfreesboro lift out probably got overshadowed a little bit by COVID. That has proven to be extremely beneficial for us. Those folks were added right before really COVID cranked up, so they were a little muted in 2020. But we're seeing some of the growth that we're seeing this quarter is directly resulting from that team as well as others throughout our footprint. So I think we'll be able to start strong again, be able to get these folks accretive to income within just a couple of quarters and very bullish on where we can take it from there. Okay, great. That's helpful. And then maybe kind of 2 questions around the NIM. I'm wondering, 1, what kind of drove the decline in loan yields ex PPP plus accretion. It looked like that was down about 23 basis points. Just kind of wondering where new loan yields are coming on for new production? And then also where you would expect kind of this incremental securities investment that you were talking about to come on at from a yield perspective? Yes. This is Ron. Yes, I appreciate it. That's a good question. The 23 basis points again was distorted because we had an elevated amount for Q4. Our new loan production, I think we're and let you confirm this, we're probably around the 3.75 ish area of what we're putting on. The bigger driver of this is, again, the PPP participation is weighing down, is skewing our loan yields. And it's hard just to pull that out and say what it could be without it because there's so many levers involved with that. As far as the bond repurchases, we have not solidified what area they're being. This is something that we're just kind of kicking around out there right now. So there'll be more to come as we progress in that area. Okay, great. And then maybe just one follow-up clarifier. On the insurance revenues, is that like a run rate sort of item? Or was that life insurance? Is that kind of a one time deal within the insurance line item? Yes, more onetime, Stephen, more of a onetime. Yes, although we're looking to do more of that product, seems to be the opportunities of what it is. It's probably not recurring at that level. Got it. Perfect. Very good. Thanks for the color, guys, and congrats on all the exciting news. Thanks. Appreciate it, Steven. Your next question comes from Brett Roditon with Hork Group. Good morning, guys. This is Ben Brown on for Brett. Good morning. Hi. I just wanted to do a quick follow-up. The high single digit guidance that is inclusive of Gulf Coast but excludes PPP and severe catamaran, right? That is correct. Okay. And then if you think about the loan growth itself that's kind of going in a little bit more, are there any types of loans, like loan categories that you are feeling more comfortable with today or at least should expect going forward? I know that construction costs was referenced, so I think that might be a little bit slower later in the year. But I was just trying to think of just how your the loan portfolio book might mix out by the time you get to the end of the year. Yes. Rett, why don't you want to touch on that? I think we still I don't think we're looking to rotate one sector over another right now. Still fairly evenly distributed. Do you want to comment on that? Yes. I would say we don't anticipate the overall mix to look a whole lot different as we go through the balance of the year. Yes, construction costs are up, but we still have strong demand for housing. Really, I mean, we're seeing solid demand for residential housing, multifamily. I mean, it's across the footprint. The other is that I would point out is you mentioned the Gulf Coast lift out there also between that our Mercurysboro marketplace and we're also seeing a lot of good activity in our Southeast Tennessee marketplace in C and I. So we think that's an area that we'll begin to see some additional demand as companies kind of get their feedback under them and they're looking to redeploy some of this capital they will accumulate. Got you. That's really helpful. And then if you look at kind of the PPP balances, I know that across the entire banking spectrum, some there's a wide variety of how many have gone forgiven and how many are still yet on the books in terms of percentage and especially with these 2 programs. I'm wondering how you guys think about the forgiveness of 2020 and then 2021, you can really start to see any come off the book in the second half of this year. I know it's not necessarily up to you, more so the clients in the SBA, but I was just trying to think how you guys are planning and looking at that over the next 2 quarters or so? Yes. I'll take that one. This forgiveness process has been challenging for modeling, as you well know. But I think everything seems to have wound up. And for the 2020 vintage, we expect that we have about $218,000,000 left in that vintage. We expect about 55% of that to get forgiven in Q2, another 35% in Q3 and then remaining $10,000,000 $15,000,000 that's there, we're probably just going to keep that to the end of the program, which is a 2 year cycle. So and for the 2021 vintage, we think it will be a lot more expedient. So we have $190,000,000 $120,000,000 in that bucket. We kind of modeled the Q2 of 10%, Q3 of 16%. And in Q4, we see I think that's going to be our bigger quarter, probably about 29%, 30% of the forgiveness cycle for that and then the trailing will go into 2022. So we'll have the majority of this forgiven, we believe, this year for 2021. Got you. Okay. And then my last question is a little bit more hypothetical, especially with all the noise going around the banking space. Even you guys are kind of kicking up a year here in terms of overall growth, I was wondering how you guys are approaching your loan to deposit ratio, especially with the Gulf Coast and severe coming on for the end of the year. I get liquidity is important with deposits coming in and out with this massive influx across the banking space. If you were to kind of strip away all the noise, are there any guardrails that you're using internally to kind of manage to? Yes. I wouldn't say you guys. I think our guardrails are probably been the ones where we always manage to. We typically like to have longer deposits. In particular, we've been in the 90% range. And obviously, we have had success in being able to grow our loan portfolio and grow funding at a pace to kind of keep it around that 90% give or take level. Obviously, the liquidity that's in the markets now, I think we're all trying to figure out how sticky that is. As you go through the peak of the business cycle, folks get those loans from getting where will that liquidity go? Will it be how will it be spent utilized, invested? So I think for us, that's one of the reasons we're comfortable holding a little extra cash right now is that let's see how the next couple of quarters play out. And then hopefully we can get back to a little more normal loan to deposit level within the next year or so. That's what we'd love to see happen. Okay. Sounds good. Congrats on a great start to the year. I'll sit back in queue. Thank you. Thanks. The next question comes from Kevin Fitzsimons with D. A. Davidson. Hey, good morning, guys. Good morning, Kevin. I'm just curious on the focusing on organic growth, Billy, that you kind of emphasized there. Is that just a recognition that you've got a deal pending and you're going to be focused on integrating that? Or just I guess, kind of what I'm wondering is, why is it a possibility to be open to further M and A while this one's even pending or still being integrated, it's fairly digestible? Or is it just acknowledgment that, hey, that was more of a specialized situation and you don't necessarily have the currency to go out and pay what expectations are right now? Or maybe that's not maybe it's not a good assumption that you would have the green light to do additional deals while this one is still going on. Just curious on the thought process on focusing organic exclusively. I'm not really worried about the currency price. We can't control that. We keep performing. The currency will take care of itself. We think we have good regulatory relationships and we've not ever been getting any challenge there. So we're not really worried about that. I just think that the size we are now at $4,000,000,000 that we get SBB in here. We don't have to do another deal. We have got plenty to focus on here internally. We drove hard this last couple of quarters on PBV, our ROA, ROE and EPS. And man, if we keep focusing on those, we will be just fine. I will say that the lift outs are a real focus for us. So we think we can do we have a hyper focus on that and that potential. So we will the SEB deal was a great deal for us at 60% plus cost saves. I can't say if somebody gave us another one of those. That was a great fit, good for us. But we want to be internally focused and I think that's it. And I'll add, yes. And Kevin, to talk about Greenlight, we've not had any we could definitely integrate another we could do another deal if we wanted to do another deal. Our team is very capable of handling that. I think there's a couple of things. I think it is we've said very clearly over the last several quarters that we are moving to a much more distant focus on our financial metrics. We've gotten a great scale. We've built a great platform. Now we've got to leverage it. For some reason, the market just does not get air forward. When you see us trading at the levels that we're trading at from a multiple standpoint, it's crazy. It's absolutely ludicrous. So that said, we're not going to go out and overpay for that. We never have. And so I think for us, I think the best thing for us to do is just focus on making money and growing EPS. And I think you'll see that come to fruition over the next few quarters. Sooner or later, all you analysts are going to believe our story is not into it. Well, I believe. We know you do. We know you do, Tim. We appreciate it. I don't know who these others but anyway Thank you. But I guess to be fair, Billy, like the focus for years was getting scale and growing and less about putting up the profitability and now you've got to scale to a point that now it's time to focus on delivering that higher level of core profitability and maybe everything just takes care of itself with that, with the multiple and everything. It's going to be less muddled in terms of what the profitability is you're delivering versus what it could be, I guess, is how it's best to look at it, right? No, I think you're spot on. You're spot on. It is. We've built the platform. Now we have to deliver. And I think that's kind of what the changes that we've made over the course of the last 12 months with upgrades in finance talent, upgrades in tech talent. When you look at our company, we look a lot different than we looked 24 months ago in a great way. And I think a lot of it too, kind of going back to the look at, you've got to have an earnings stream that allows you to make the types of investments to really make these new to new employees. Now we've got that. We can afford to make an investment in a team that might have a slight drag for a couple of quarters. And so I think the focus there I would rather take a couple of sense of deletion on that versus taking a larger diluted dilutive. Even though I think we're always open to strategic opportunities. I think you're going to see us focus really, really hard on execution over the next little bit. Billy, on the subject of the team lift outs, I'm just curious if you can share it. With this situation, was it a case of them coming to you? Or were you really on the hunt for a team to put in place in that market? And then looking further out, are there other markets? It's a fairly broad geographic spectrum right now looking at the franchise. Are there other markets where you would look for a similar kind of situation? Yes, definitely. We're on the hunt for those opportunities. And I said even probably a little more so now coming out of this than we have been. I think we've always been open to look for to add sales talent. But I think that's a big piece of it. This team in particular, it was a little bit of both. It was some folks that we've met and just great timing from air side and air side. But I do think there will be opportunities as you continue to see more consolidation in the space above us. I think it will provide some great opportunities for a bank like ours that is number that's flexible that can still do larger deals now at this point, as Mark said, knocking on the door of $4,000,000,000 post SCB that we can deliver a lot to really good teams that want a great place to work. Yes, it's a success bridge success, as you all know, and it's a combination of both. We're aggressively searching, and we have been fortunate enough to fill a couple of calls inbound that are searching us. So it's a good combination. Okay, great. And one last one for me, and I apologize if you guys have talked about this before and maybe I just don't recall it, the FinTech startup. Is there can you provide a little color or background? Is that going to require additional spend or just any kind of background on that? Thanks. Yes. That startup is in Chattanooga and it's not going to start a couple of year old company. We don't think it will require any additional spend on our part. Very strong banking team that's running it, bank operator as CEO. We understand it. Great opportunity, got a good value on it and we're learning a ton about that space and it has been and will be a good investment for us. Okay. Thanks, guys. Thanks, guys. Thanks, guys. The next question comes from Betty Strickland of Janney. Hey, good morning, guys. So I guess I just wanted to round back to it sounds like hospitality and restaurants is broadly not really an issue for you guys. Is that correct? Just between the Panhandle and kind of the Smoky Mountain area from our discussion last week, it sounds like things are pretty good for you guys relative to what everyone else is doing. I'll interrupt interrupt you. Absolutely. I'll give you more sense. Yes, come to the coast or the mountains and you'll see. And that's where a lot of that sector is for us in both those markets have just been absolutely on fire. Really over the last 6 to 8 months, but in particular, the start of the year. Got you. And then kind of along those same lines, I'm just wondering what you're hearing from customers just in terms of business sentiment incrementally. I gather cautiously optimistic is probably the phrase, but is there more optimism, I guess, than last quarter? Yes. I would even drop cautiously right now in our markets. So in particular, I know different markets and different geographies still a little bit different. But when you look at Knoxville's and Chattanooga's and Murfreesboro's and Huntsville's and Mobile, Baldwin, and when you look at Arizona's Tuscaloosa, these markets where we've got some really great team members, we're just seeing a lot of optimism. I mean, Rhett, you're in the markets frequently. You want to give any color on that? I would say it's a very optimistic outlook. I mean the only I would say repetitive challenge you hear and it's across industries is finding personnel. That's the only thing that if there is anything that is causing any degree of delay in customers really being able to just take off like a rocket like they think they could, it's finding the team members they need to be able to do it. Got you. Interesting. Thanks for the color, guys, and congrats on a great quarter. Thank you. The next question comes from Catherine Mellanore of KBW. Thanks. Good morning. Good morning, Catherine. All right. I just had a couple of detailed questions as follow ups. My first is just on the net interest margin guide for this quarter. I wanted to confirm that the 320 is reported, not excluding PPP and accretable yield? Yes. The 3 points is all in. The big difference between last quarter and this quarter, we're expecting about $1,600,000 less of the combined fee accretion and PPP accretion. We were elevated to last quarter. So it is all in combined. Okay. Yes, that makes sense. The accretable yield was high. And then how can we think about I know you gave the guidance for accretable yield for this upcoming quarter. Is this is that a good run rate to use moving forward? And maybe the bigger question is, what's the Q minus the discount that's remaining and kind of the pace that you think that will come off in the next, call it, 2 years? Yes. Our run rate actually our run rate is pretty stable over the next few years. I think I don't have that in front of us, we've got about $12,000,000 $13,000,000 left in that bucket. We're probably consistent with the $400,000 $500,000 range. I believe Q3, we probably have a little bit of elevated amount just the way similar loans are reacting in the model. But pretty much, it's unless we see 3 payments and something that haven't seen the loan through, that's pretty much a consistent run rate to the, I would say, near future. How's that? Okay. Yes. No, that's great. Great. And then how about on I know you gave the expense guide. Within that, the data processing, the depth this quarter, was that just due to the Fintech investment? And should that normalize to kind of the $500,000 to $600,000 kind of range we saw last year? Or is this a new run rate for data processing? Yes. It was kind of a little bit about we did have expenditures, but last year, we indicated that we did enter into a new agreement with our processor, and it was done on a tiered approach. So once we hit the $3,000,000,000 mark, our GP costs to the data processor did go up. So our run rate pretty much to give you an idea in our expense category, we're probably looking for our run rate to be about $1,600,000 going forward. Now that changed because we not only have data processing, we included our line item, we included technology spend, we decided to kind of rejigger that account to include all the data classes and technology and software expenses in that. The data process is just a piece of that whole puzzle. So it will I think what the $1,600,000 will pretty much be the new run rate going forward in that category in totality. Great. Okay. Awesome. And then maybe just last, just kind of thinking bigger picture, thinking about the margin. I know there's so many moving parts with the excess liquidity and increased loan growth. But just kind of big picture, how do we think about your asset sensitivity position once we get to a better rate environment? I don't think at this point, we're certainly asset sensitive with our acquisition, upcoming acquisition. We don't see that changing that much. We'll get a little bit more, but we want to bring it down to the neutral position. So honestly, we're not going to see much change or significant change, pretty much staying where we're at. Again, we'll reassess this quarter by quarter as we go, but we're not seeing any wholesale changes on our part for that. Our next call comes from Jordan Gents of Stephens. Hi, good morning. I'm in for Matt. I had a question about the delinquency loans. They ticked up a modest amount in this past quarter. Can you guys give any color on that? Thanks. Yes. Gordon, I'll let Russ touch on that. Gordon, I'll be happy to do that. That tick up was related to one transaction where to make a long story short, we had a loan that matured in our book. It is related to a transaction where the it's a private entity that has some tax advantages associated with this particular piece of real estate. They were required to get a approval from a local municipality's tax board and due to some issues at the municipality level, they were tremendously delayed getting that board to convene and make the election. And for our clients' benefit, we allowed that loan to just stay in a matured status. It hit the 90 day mark. That is why it ticked up for purposes of the wrong approval and hit us a little bit in that capacity. But that will be resolved expected this month. There's no credit risk in that transaction. Strictly the timing of the Board meeting. Strictly the timing. Okay, perfect. Thank you. This concludes our question and answer session. I would like to turn the conference back over to Miller Weldon for any closing remarks. Thank you all for joining us. As you all can see, we continue to progress. We're happy with where we are this quarter and the results we're putting out. Thanks for joining us, and I hope you all have a great rest of your week. Have a good day.