Enterprise Financial Services Corp (EFSC) 2021 Q4 法說會逐字稿

Good day, and welcome to the EFSC Earnings Conference Call. Today's conference is being recorded. And at this time, I'd like to turn the conference over to Jim Lally, President and CEO. Please go ahead, sir.

Well, thank you, Catherine, and good morning. I welcome everyone to our fourth quarter earnings call. I appreciate all of you taking time to listen and joining me this morning is Keene Turner, our company's Chief Financial and Chief Operating Officer; and Scott Goodman, President of Enterprise Bank & Trust.

Before we begin, I would like to remind everyone on the call that a copy of the release and accompanying presentation can be found on our website. The presentation and earnings release were furnished on SEC Form 8-K yesterday. Please refer to Slide 2 of the presentation titled Forward-Looking Statements in our most recent 10-K and 10-Q for reasons why actual results may vary from any forward-looking statements that we make this morning.

Please turn to Slide 3 for our financial highlights of the fourth quarter. 2021 was another outstanding year for EFSC. We are especially proud of our fourth quarter performance. We earned net income of $51 million or $1.33 per diluted share. This compared favorably to our earnings per share for the linked and prior year quarters on both a reported and as adjusted for merger and impairment charges.

Our return metrics were equally impressive as we posted return on average assets of 1.52% and pre-provision net revenue of 1.89%. Our pre-provision net revenue set a quarterly record at $63 million, increasing $7 million from the third quarter. I would expect this momentum to continue into 2022 as our variable rate loan portfolio and strong noninterest-bearing deposit base have us well-positioned should we experience expected interest rate increases.

This, coupled with our solid loan production momentum that we've experienced for the last several quarters, should provide for continued strong performance. Keene will provide much more details on these results in addition to our results for all of 2021.

How these results came about is what I'd like to call your attention to. Over the last several years, we have intentionally focused on building a diversified revenue stream oriented towards our commercial banking heritage. Our strategy has been to diversify through both geography and types of businesses. The acquisitions of Seacoast in 2020 and First Choice in 2021 further illustrates this as we added several new national business lines along with growing markets of Los Angeles, Orange County and San Diego, complementing the more established markets in St. Louis, Kansas City and Phoenix.

One final comment I would like to make relative to how we are doing this relates to our branch-light model. At year-end, our average deposit for our 50 branches was over $200 million. This will continue to serve us well amid wage and other inflationary trends.

With First Choice fully integrated, we now have a balance sheet that bolsters total loans of $9 billion and total deposits of $11.3 billion, yielding a loan-to-deposit ratio of 80%. More importantly, though, when you dig into this further, approximately 50% of our loan portfolio is oriented towards either our C&I, owner-occupied CRE and specialty businesses, while our noninterest-bearing deposits to total deposits remained at 40% when compared to the linked quarter.

This illustrates the value of the differentiated model that we continue to build. Furthermore, when you look back 5 years, when our loan-to-deposit ratio is close to 100%, our return on tangible common equity was closer to 12%. At 12/31/21, we have significantly improved our return on tangible common equity while also significantly enhancing our funding profile with a loan-to-deposit ratio of 80%.

What we continue to build represents a company that's much strong -- which is a much stronger earner than we previously were while at the same time lowering our overall risk profile. Scott will provide much more detail on the various regions, businesses and product lines and the production and subsequent growth that we are seeing.

Our focus is on the long-term. We teach and reward a consultative sales process that is simple and repeatable. And our relationship managers and sales leaders know that the greatest success comes from relationships that choose us for our expertise and quick consistent responses. We are focused on the right businesses for us, not just any business.

Credit quality remains strong as evidenced by the statistics listed on this page, but please know that we do not take this for granted. Our teams have used the current credit environment to improve on already very sound credit metrics.

Efficient capital management is our goal. Keene will spend more time on the many positive moves that we made in this area during the quarter. I will just comment that this part of our balance sheet is situated extremely well and has us well-positioned for the growth that we expect in the years to come. Whether from organic or through acquisitions, we are positioned well for both.

During the fourth quarter, we successfully completed our core systems integration of First Choice and have made significant progress in our cultural and sales process integration as well. We have been successful in newer markets when we combine talent from legacy markets with our new associates and merge the enterprise how-to with local market know-how.

I'm very excited about what we can do in these markets in 2022 with results of this integration like they show up in our numbers in the second half of the year. This acquisition has provided us with significant financial benefit as we cross the $10 billion mark, has given us a wonderful platform in terrific markets and further diversifies our revenue base.

Moving on to Slide 4. You will see the list of items that we are particularly focused on in 2022. We have our teams keenly focused on their loan, deposit and net new relationship goals for 2022. As Scott will comment, our production throughout the company has been solid, and we expect this to continue.

Our SBA team had a record production year in 2021. We expect this level of achievement to continue but expect some pressure with respect to refinancing of the existing portfolio. We have a team additionally focused on stemming this tide by preemptively addressing this where it makes sense.

We will continue to invest in talent for current and new specialty businesses along with bolstering our teams in higher-growth markets. Like with past new markets tax credit allocations, we will leverage this to garner new relationships. We have found this especially true when we entered new markets where use of this program is not as prolific. This is a significant differentiator for us. We should also see new market penetration for our affordable housing business as well.

Finally, Omicron has delayed our fully implemented hybrid strategy, but we look forward to rolling this out later in the first quarter or early second.

With that, I will now turn the call over to Scott Goodman. Scott?

Thank you, Jim, and good morning, everybody. As you'll see on Slide 5, loans at the end of the year totaled just over $9 billion, representing a 24.8% increase from the prior year. The growth was most heavily impacted by the addition of the legacy First Choice book in Q3 as well as well-diversified organic growth across core business lines, net of a reduction in PPP balances.

Slide 6 reflects the full year performance of the legacy core book for which we posted annual growth of $554 million or 8.5%. Most notably, we experienced strong performance across the board in our specialty lines, while the C&I business was bolstered through the addition of new relationships and a modest rebound in usage of revolving lines.

For the quarter, which is detailed on Slide #7, we achieved net growth of $68 million before the impact of PPP balances. Our focused sales process continues to produce healthy deal flow with total originations up over 30% from the prior quarter. C&I balances grew as we onboarded new clients as well as saw businesses more actively using revolving lines of credit. While still below pre-pandemic levels, the line draws rose steadily throughout the quarter with an average usage up roughly 2%.

The specialized lending units had another robust quarter, growing by $143 million or 22% annualized. Sponsor Finance had a record quarter, closing over $100 million in new commitments with 20 different companies and posting net growth of $53 million. As I've mentioned in prior calls this year, the deal flow in this unit is at an all-time high. Despite elevated competition, our long tenure in this sector and deep sponsor relationships have allowed us to take advantage of the active private equity markets while also remaining selective to maintain our return and our quality standards.

The SBA team has also continued its stellar performance in Q4 as a top 10 SBA originator with growth of $41 million or 13.6% annualized. Despite some elevated payoffs from a more active conventional loan competition, deal flow is solid, and we also remain active in recruiting new talent.

Rounding out the specialties for Q4, both life insurance premium finance and tax credit teams continued their steady growth trajectories. Life insurance premium posted a seasonally strong $21 million increase, resulting in $60 million or 11.2% growth for the year. Tax credit also executed well with $25 million of quarterly growth and pushing the total to $104 million or 27.2% for the year.

The popularity of affordable housing and the continued adoption of these programs by more states will provide a solid pipeline in this business looking forward.

Commercial real estate originations remained strong with the net growth in the category moderated by the impact of payoffs and paydowns, generally from refis into permanent market structures and the sale of assets. Disbursements in the construction portfolio on existing projects were improved as supply chain issues eased somewhat. But the net decline in these categories was more materially impacted by a decision to reduce certain loan types within the California market, which I'll touch on in more detail.

Turning now to the markets, which is on Slide #8 and break out the portfolio's 5 business units. St. Louis represents the largest C&I book and was the beneficiary of the improved line usage as well as generating significant new loan originations in the quarter. New commitments were more than double the prior quarter and included several new relationships, asset purchases and new real estate acquisition and tax credit-based fund lines.

Arizona and Kansas City loan books also grew in the quarter as construction fundings ramped up and new commercial real estate opportunities were originated. Examples of new deals in these markets include the acquisition and development of new multifamily projects, expanded owner-occupied real estate for a large car dealership and acquisition of new Class A office and industrial properties under long-term leases.

The reduction in the New Mexico loan book mainly reflects the runoff of some of the legacy commercial real estate transactions, which were part of the LAMB acquired book and a slower ramp-up of newer commercial real estate and C&I relationship-based originations, which will be more consistent with our organic growth model. We have successfully transitioned a significant portion of this portfolio over to our business banking team, which enables us to better service and cross-sell these smaller businesses with a more efficient cost base.

Also important to note within this market and a key driver of our entrance into New Mexico through the LAMB deal. We continue to nurture a large, low-cost and well-diversified deposit base here, which has performed well and is growing, evidenced by more than $50 million of increased savings balances during Q4.

In California, during the fourth quarter, as you heard from Jim, our sales team has been primarily focused on supporting a smooth conversion process, including frequent communication with the client base and thorough training on our workflow and sales systems.

In the loan book, C&I balances net of PPP were up over $50 million in the quarter. The net decline is primarily attributable to the construction and residential real estate categories as we have opted to deemphasize the speculative construction and residential fix and flip type loans. Generally, these loans have a shorter duration and a higher risk profile while also requiring higher administrative and support costs.

There are, however, strong opportunities for us to further leverage the existing client base through deepening credit relationships with larger borrowers and by offering more medium-term credit structures to extend the bridge in commercial construction loans, which was something generally not offered by First Choice.

Looking ahead, our focus is also on expanding the talent base in this market. We recently announced the promotion of an experienced commercial leader and long-term employee of our company, who will relocate to lead the commercial teams in Orange County and L.A. Additionally, we're transplanting products and client service expertise into the market through the assignment of enterprise-experienced treasury management officers.

Externally, our early recruiting efforts are also promising with recent new hires in SVP C&I producer, a C&I portfolio manager and a treasury management sales associate.

Moving now to deposits. Accounts continue to grow in the quarter with ending balances up $516 million or 4.77%, 19% annualized. Quarterly average core balances were up across the board in all of our geographic markets with the largest growth in low-cost checking and transaction account types. Most notably, within the California market, average deposit balances were up nearly 20% in the quarter.

Specialty deposits, which are highlighted on Slide #9, also performed well in the quarter with growth across each of the primary verticals. These balances, which are generally comprised of noninterest-bearing accounts, now represent 20% of the overall deposit portfolio. Account activity also remains well-positioned with new accounts outpacing closed accounts and at a lower average cost.

Now, I'd like to turn the call over to Keene Turner. Keene?

Thanks, Scott, and good morning, everyone. My comments start on Slide 10, where we reported earnings per share of $1.33 for the quarter. Most importantly, on an adjusted basis when excluding merger-related expenses, earnings per share was $1.37 per share, which was a $0.10 improvement from the linked third quarter.

In addition to record net income, we also had operating income that drove a $0.20 per share sequential increase in earnings per share. Our fee income results were seasonally strong due to tax credit and fees from community development activities. And we also had the first full quarter of First Choice operations in both revenue and expenses. To that end, expenses reflect the combined entities and are in line with our expectations with strong asset quality.

On Slide 11, net interest income was $102 million, a $5 million increase compared to the linked third quarter. This includes approximately $4.5 million from the full quarter impact of First Choice, along with higher earnings on loan growth, partially offset by PPP trends.

In the quarter, deposit balances continued to grow, with average deposit balances increasing $870 million, including nearly $500 million of DDA. Balances increased across all of our markets and throughout our specialty lines during the quarter, providing additional core funding and flexibility in managing costs. As Scott highlighted, the growth is both a function of underlying strong liquidity of our customers as well as from new business development activities.

Slide 12 depicts net interest margin trends, which indicates the strong deposit growth resulted in higher cash balances and was the largest driver of the 8 basis point net interest margin decline in the quarter. With that said, the fundamentals of net interest margin were strong as our overall loan yield was stable and our cost of funds declined modestly.

Our balance sheet remains positioned to take advantage of higher interest rates in the future. We estimate that a 50 basis point increase in interest rates will result in an additional 3% to 4% increase in net interest income dollars on an annual basis. The asset sensitivity is principally driven by our loan portfolio, of which 63% of loans are variable rate. More than half of those loans have interest rate floors, and approximately 95% of those floors are currently priced at the floor.

Our deposit portfolio is roughly 40% noninterest-bearing deposits. And we have less than $500 million of total transaction accounts formally tied to an index. Based on our current liquidity position and ability to generate low-cost funding through our specialty verticals, we believe our ability to control deposit cost is greatly enhanced versus prior interest rate cycles.

Slide 13 depicts our asset quality position at the end of the year, which continues to show an overall level of nonperforming loans and assets, which has improved sequentially. Net charge-offs were $3.3 million or 14 basis points annualized compared to $2 million or 8 basis points in the prior quarter.

On Slide 14, our expectation for overall credit losses in the portfolio continued to improve and resulted in a negative provision of $4 million for the fourth quarter. The allowance for credit losses totaled $145 million at the end of the quarter or represented 1.61% of total loans or 1.84% of unguaranteed loans.

While our outlook has continued to improve, we believe there is enough uncertainty in the economy and the effects of COVID variants, supply chain issues and the masking effects of government stimulus to warrant continued strong coverage.

On Slide 15, fee income grew $5 million from the third quarter as we reported $23 million compared to $18 million in the third quarter. The increase led primarily by fees on community development investments and seasonally strong tax credit income. The trends in deposit service charges as a result of a fee holiday we provide during core system conversion, in this case, to First Choice customers.

While tax credit income continues to be seasonal, our momentum in the space continues to be -- continues. Also, fees earned on community development investments are not consistent sources of income on a quarterly basis, but we do expect to generate meaningful additional fees on our remaining investments this year.

Turning to Slide 16. Noninterest expense was $64 million, including $2.3 million of merger-related expenses in the fourth quarter. Core operating expenses were $2.6 million higher in the fourth quarter at $61.5 million compared to $59 million in the third quarter. The drivers include a full quarter of First Choice operations, some deposit service charges expenses as well as the write-off of the remaining debt issuance costs related to the redemption of our $50 million of subordinated debentures.

We expect 2022 expenses will be approximately $250 million with seasonal trends in the first quarter and then normal trends thereafter. In addition, we do not expect to incur any material merger costs related to the closing of First Choice.

On Slide 17, we demonstrate our capital metrics. And obviously, we were busy on the capital front in the fourth quarter as we took actions to further optimize our capital stack and to continue providing returns to shareholders. We redeemed $50 million of subordinated debentures, issued $75 million of preferred stock that increased both the quality and quantity of regulatory capital.

Notwithstanding, we also continue to manage our outstanding shares by repurchasing nearly $30 million of common shares in the fourth quarter. For the year, we have repurchased 1.3 million shares totaling $61 million. And we've also increased our dividend for each of the last 2 quarters and announced another dividend increase for the first quarter of 2022 as we look to continue to return capital to our shareholders.

In addition, with strong earnings, we have increased tangible book value per common share of 3% sequentially and 11% for the year. Our strategic management of both the type and amount of capital helped us drive a return on tangible common equity of 19% in the fourth quarter.

Our fourth quarter results cap a busy but important year for our company on multiple fronts. We successfully completed the systems integration for both Seacoast and First Choice while generating net income of $133 million and a return on tangible common equity of more than 18%, excluding merger-related and other nonrecurring events.

Adjusted for merger charges, branch impairment and CECL double count, earnings per share for the full year was $4.97 compared to $3.21 in the prior year. We finished the year strong and diversified business platform and sales culture that Jim discussed, along with the talent activity that Scott highlighted, has us well-positioned for 2022.

Thanks for joining the call today, and we're going to now open the line for analyst questions. At this time, we'll take analyst questions, please, operator.

(Operator Instructions) We'll now take the first question from Jeff Rulis at D.A. Davidson.

Question on the loan growth and paydowns maybe for Scott. Just the paydowns are tough to predict, what you saw in Q4, muting some good origination production. But if we're looking at '22, the momentum you've got on the specialty finance. How about any -- can you speak to any expectations on a net basis? Do you feel like payoffs begin to slow down here? I guess, is there any indication of that and maybe just net that against production expectations.

Sure. Happy to. Yes, I think first on production, certainly, the pipeline remains steady. I would expect to see continued growth in really most of the specialty lines. I think the increase in revolving usage is good to see. I think we're seeing some of the larger companies tap into their lines. Some of the smaller ones may be running through some of the PPP liquidity and I think maybe a little bit of a moderation in supply chain. So that's a good sign.

I think the payoffs, as you said, most highly concentrated within the commercial real estate area. And I think potentially increasing rates could certainly help moderate that and level the playing field with what I would call the nontraditional bank structure, secondary market activity that we see certainly could also affect the velocity of sale of assets that we've seen as well.

We're well-positioned with investors in that market. So some of the runoff that we've seen, particularly in California that I mentioned are more the shorter-term fix and flip, construct and sell kind of activity and more of what we're originating is the longer-term hold investors where we can go deeper with them. We can do the construction loan. We can do the acquisition loan, but it's more a mini-perm structure. So I think if that trend continues, the net effect will be positive.

Okay. Fair enough. And then just a couple of questions on the fee income. The -- what was the fee waiver? Is that number $0.5 million a quarter, what you think you gave up? Or kind of what -- the deposit service line, how does that rebound, I guess, in Q1? And then I'll just leave it there for now.

Yes. Jeff, it's probably $300,000 to $500,000 a quarter. It's not a big number, but the reason we called it out is just because you do see that negative trend from 3Q to 4Q. But we do expect that to come back here in earnest in the first quarter.

And then as we get into the third quarter, if you could just remind us of the Durbin headwind? I think is that about a $3 million annual impact?

Yes. And I think just overall for 2022, I think we believe that with some of the momentum we have, some of the sequential improvements from the deal leveraging with First Choice, I mean, we still can have a mid-single-digit overall growth rate for the year. But yes, that's sort of a little over $1 million a quarter starts to hit us in 2Q.

Okay. So closer to $1 million being in, okay. And lastly, just the other income. So within miscellaneous, I think you guys called out the servicing income was down, but the actual miscellaneous income up -- sort of doubled within the income statement there. What was the other figure in that seemed larger than the normal run rate?

Jeff, I'm looking at the slide. I've got $1.3 million of miscellaneous in 3Q and $1.2 million in the fourth quarter. So everything is fairly level. We had a little bit of decline in private equity and swap fees were up in the fourth quarter modestly. But really, the big driver there is going to be the CDE exit.

Okay. That figure -- could you detail, that's probably what it is -- the $5 million, is that not occurring? And I guess -- go ahead.

Yes. So I would say the $5 million -- and I tried to hit this in my comments, but I'll give you a little bit more flavor for it. So the CDE exits for the year were fairly strong there. Moving forward, it's probably not going to be that magnitude, but we do expect roughly $2 million in the first quarter and then there's a potential for another $2 million in the fourth quarter for 2022.

So that's not a complete going away for that line item on an annual basis. But it isn't something that happens consistently on a quarterly basis. And certainly, the magnitude of that isn't likely to continue.

Okay. So just to wrap up that entire -- again, mid-single-digit growth on total noninterest income is your expectation?

Yes. And again, that's going to be principally driven by, call it, a 15% to 20% expansion of the tax credit business that continues to have strong momentum. And we see some good progress here at the end of the year. And we should have a strong start to 2022 in the first quarter with that business.

We'll now take the next question from Andrew Liesch at Piper Sandler.

Clarification question on the residential real estate, the construction and the fix and flip here. So is the decline in the residential book, is that fix and flip loans? Or is that just other mortgages that maybe you would have acquired in California?

No, those are more of that fix and flip. Those are -- there's a lot of residential properties, coastal properties that are residential that those investors were coming to First Choice for.

Got it. Okay. And so with the emphasis on that product, I mean, how much further do you think this portfolio could decline?

Yes. I mean I think you may see some near-term pressure still. But I think as we continue to originate -- and I'm happy with what I see on the originations that we're putting on the books as well as deepening their relationships with a lot of those -- the clients that are not doing those fix and flips, I think it's going to moderate but short term, I think there could still be some pressure.

And just for perspective there -- just perspective, that book was around $150 million when we acquired it. So you're pretty much halfway through it (inaudible) the ones that we don't expect.

Okay. Very helpful there. And then just how is the rest of the integration in California going with respect to generating new loan growth? It sounds like you're bringing on someone new to lead that market. I guess what's been the tone from customers and the lenders that you've picked up there?

Tone is extremely positive. If you have a conversation with a client or a business owner in California, it's the same kinds of conversations we're having in other markets. So I'm very confident that our model is resonating here. I think clients are really pleased to hear that we have maybe a little bit bigger checkbook. We have a broader product line and very willing to continue to explore those things with us.

I think the other thing is just talent as well. I talked about some of the talent that we added. And I'm pleasantly surprised with the strong interest in our model by those external candidates because I think this provides an opportunity maybe to reinvest some of those resources that we have available. And I think the disruption here with deals like the Union U.S. Bank, Bank of West BMO, a few others also kind of levels the playing field for us. As a new name in the market, it gets people talking that otherwise would not be in place. So I feel very confident about continuing to bring on new talent.

We'll now take the next question from Damon DelMonte at KBW.

Just looking to get a little bit more color on the bullet regarding the strategic approach to participation. Could you talk a little bit more about that, please?

I can take that -- go ahead, Jim.

I was going to say, let me just -- I'll let Scott get into detail. Here's what it's not, Damon. It's not a SNC strategy, right? We're not out looking at large chunks of faceless credit, right? That's what it's not. But I'll let Scott describe more strategically what it is.

Yes. I think as we've grown, maybe back up a minute. In the past, we may have let relationship managers help source other banks within their markets to do larger deals. And that's not a real efficient strategy, and it's not a real repeatable strategy.

So as we've grown and entered new markets and moved upmarket a little bit doing business with larger companies, really centralizing that in an area that can do that legwork for those RMs but also centralize it so that we're able to find partners that can go across markets, go into some of the specialties with us and that we can develop that relationship at that bank level, which a lot of times runs through a participation desk or a syndication desk through the credit side because what we weren't necessarily getting in the cases where we're selling credit is an opportunity to buy back.

And so this also leverages that relationship to where those that we sell to, we can also buy back from with companies that have similar credit cultures as us.

Got it. Okay. That's helpful. And how big is the participation book today? And how big do you envision that getting over time?

I don't know, Keene, if you can help me there. I can tell you -- go ahead.

Rough numbers, I'm going to say that we buy $0.5 billion, and we sell over $1 billion. So it's a pretty big imbalance but not a lot in terms of what's bought versus what's sold. And again, there are club deals and deals where people are out there in-house limit and things like that with banks that are covered in your likely coverage -- community bank coverage universe.

So I think that what Scott is referring to is the strategy to try to equal out that imbalance. Back in the days when we were 100% loan to deposit, we were just trying to sell any loans to the small local banks to try to be able to do it and now recognizing we've got some more expansion, some more power. We're looking at peers who are similarly situated and in the same boat and just trying to make sure that it's a 2-way street when we look at originating and managing new credits.

Got it. Okay. That's great. And then probably for you, Keene. As we think about the provision going forward, I mean credit trends obviously are strong and very solid base of loans. How do we think about the provision here over the coming quarters?

Yes. I mean, we said this before. I mean I think at CECL adoption that we adopted about 130 basis points. Obviously, the guaranteed versus unguaranteed proportions are slightly different. So I think we probably think of the low -- when we're perfectly comfortable with the environment and everything being similar to when we adopted CECL, I think that that's probably, call it, 125 to 135 basis points to sort of where we think the model comes out. And as we continue to renew and originate a lot of credit relative to the net growth, I think the balances will come down.

So depending on what we see from a growth perspective, you could continue to see some negative provisions if growth is muted. If growth is more substantial or depending on the composition of that growth, you could have some provision. But certainly, I think if asset quality continues to be as strong as it is, there is definitely going to continue to be downward pressure with continued improvement in overall economic factors and also just comfort with some of the factors that I mentioned, which is the full absorption of stimulus and some of the segments that we thought were maybe a little bit more distressed, making it through kind of pandemic operations.

We'll now take the next question from David Long at Raymond James.

As you look at your deposit fees, I appreciate the guidance for 2022 on the noninterest income. Within that, on the deposit fee side, is there any consideration for adjustments to overdraft for nonsufficient fund fees? What -- is it seeing a lot of your peers or the bigger banks change how they're charging for those products, is that something that you guys have considered? And do you have any plans for that for 2022?

David, we're going to work our way through that. I'll just give you some comfort by saying that, that number is also less than $2 million on an annual basis. So from our perspective, we're -- we'll take a look at it, but I don't think we're going to follow closely on the heels of the top 25 there. I would just say that consumer, although important to us in certain pockets is still a fairly muted part of the business with $3 billion of balances but really only driving about $1.9 million of fees in that regard. It's both overdraft and maintenance fees on an annual basis. So we'll continue to evaluate it and have discussions with our regulators. But I think the pain of that, if we did anything, is limited to that amount or less.

Absolutely. Great. Okay. Appreciate the color there. And then on the cash side, obviously, a lot of liquidity on your balance sheet. With rates moving higher here, how aggressive do you want to be in moving that into securities in the near term until loan growth really accelerates? And does it -- is that impacted by sort of the stickiness you expect in your rapidly growing deposit balances?

Yes. David, that's a -- it's a good question. I would say nothing we do at least in terms of deployment of cash or any balance sheet remixing is coupled with the term aggressive. Certainly, we try to take on strategies and manage them as the rate environment or the operating environment dictates. We've continued to expand the size of the investment portfolio because I think -- we think that the target should be around 20% of the asset base. And we were short of that, most notably because both First Choice and Seacoast really didn't have proportionate-sized portfolios. And I think we'll let that dictate overall where we end up with investments.

I think, certainly, from my perspective, with there being some optimism about rate increases, it takes a little bit of the pressure off to continue to move to securities. But I do think you'll see over the next couple of quarters, we'll still expand the size of the portfolio, but I don't think we would increase the amount that we're moving to the securities portfolio unless you continue to see significant cash build and business development activities, then that might change our answer.

But I think that's -- it's a good point. It's a net interest income that will benefit us as we move forward. And we certainly want to be mindful of the fact that with potential tightening that some of that liquidity could get rung out of the system. And we don't want to put ourselves in a position where we've moved too much or taking too much asset sensitivity out and didn't get the upside.

So I would say status quo, we'll continue $30 million, $40 million a month, moving into the investment portfolio for the foreseeable future. And we'll just continue to monitor that versus overall cash levels. But I do think we sit -- we have a good position here from being asset-sensitive. And we certainly don't want to flush that through for a short-term pickup in investment portfolio net interest income.

(Operator Instructions) We'll now take the next question from Brian Martin at Janney.

I just wanted to touch on maybe -- I don't know, maybe Keene, just on the margin and just kind of your commentary on the asset sensitivity. It sounds like there's some floors on the loans. So maybe there's a little bit of a lag before you get the impact on the benefits of the asset sensitivity. But can you just give a little bit more color on just kind of your expectations on that?

Yes. Brian, I actually think it's pretty linear with the first increase. I mean there's a good portion that's on the floor. So we've got $5.7 billion of variable interest rate loans. $2.5 billion have no floor. So we'll start to see the benefit there. And I think also just deposit behavior, we expect that deposit repricing is less with initial increases. And then there's just over $3 billion with the floor. [$175 million] of those are priced at or above the floor, so they'll move. And then you've got another, call it, $125 million that are 0 to 25 basis points and then another almost $0.5 billion that are 25 to 50.

So there's a pretty good chunk that if you got 25 or 50 basis points even when they're at the floor start to move. But again, I think the important part is that you've got $2.5 billion there moving right away and, call it, another $200 million that are going to move somewhere between 0 and 25 basis points.

And again, I think some of that's just as much on the deposit side as is on the asset side. And I think right now with the level of cash we've got on the balance sheet, to David's question, interest rate increases based on what's forecast are fairly linear in terms of the guidance. We gave you 50 basis points, but you could probably interpret that in 25 basis point increments up and down and be pretty accurate is the way we see it today.

Got you. And what was the -- I guess, the annual increase for 50 that you guys -- you said earlier, Keene?

Yes. It was 3% to 4% net interest income dollars. And that's, call it, 10 to 15 basis points of margin based on existing cash position.

Got you. Okay. And then how about just your expectation for that excess liquidity position? Because that's over and above the asset sensitivity. I mean where do you see that playing out or deploying that excess liquidity kind of throughout the year? How does that impact kind of your outlook?

What I would say is our guidance that we've given includes a variety of scenarios. One being that, I think early, call it, in the -- if you thought about it in terms of 100 basis point Fed funds increase, I think 0 to 50, we probably don't think that there's a ton of cash moving out. But on the upside, when you go 50 and beyond, I think we think that, at least conservatively, cash moves out.

But with that said, that's all static balance sheet analysis. If you couple that with the loan growth that we're, I think, anticipating and that everyone expects of us at, call it, 8% or sort of mid- to high single digits, when you start booking that loan growth, it's also picking up from 0. And you're booking that at some nice rates and that loan yield is additive to margin.

So I think that's the reason why I've said, it's generally linear. But we haven't spoken -- I shouldn't say that. We focused a lot on what happens with cash and each component of the deposit side. But I think at some point, there's a tipping point that when the cash moves out, you make up for that with loan originations or remixing. So it moves from a static to a dynamic balance sheet analysis, if that makes sense.

Yes, it does. Okay. I appreciate the help there. And then just going back to the fees kind of with those, the CDE in there and kind of what not just given that's a little bit volatile. I mean, year-over-year, the -- you're kind of looking at -- I guess, all in with those added fees potentially on the CDE side and the Durbin kind of all in, is everything kind of that upper single-digit type of growth off of '21 level?

Yes. I would say, it's like mid-single digit, Brian. I think it's probably 5%, 6% overall with robust growth in the tax credit line item at 15-or-so percent.

Okay. And I guess just maybe for Scott. Just the deposit growth, I mean, do you guys expecting this deposit growth has been stronger? I mean do you anticipate that slowing some this year? Is that kind of in your expectations?

Yes. I mean, certainly, we've been the beneficiary of excess liquidity. I think, I wouldn't expect the production as it relates to new business, new accounts, to slow down. I think -- particularly in the specialties, I think we've done a good job. And that was our primary interest in developing that line of business is those will continue to be low-cost, steady quarter-over-quarter type growth businesses.

Okay. Perfect. And just last one for me, just maybe Keene on the tax rate. Given kind of these investments, I guess, can you give some thought on how you're thinking about the tax rate for '22?

Yes. I think the tax rate is going to move up a little bit. It's a function of profitability. I think, we haven't quite kept up as much on the tax credit investment side and the municipal side despite that we've really tried to. But we've been disciplined in terms of duration on the portfolio, principally with the munis.

So it's going to tick up, call it, 1% to 1.5%, so 22%, 22.5%, something like that for 2022 depending on what you look at from a profitability perspective versus '21. And also just some of that's a little bit of a function of a few more assets in California with a higher state rate as well.

That concludes today's question-and-answer session. At this time, I'd like to turn the conference back to Mr. Jim Lally.

Thanks, Catherine, and thank you all for your interest in our company and for joining us this morning. We look forward to seeing -- to being with you after the first quarter, if not sooner. So have a great day.

That concludes today's call. Thank you for your participation. You may now disconnect.