SmartFinancial Inc (SMBK) 2022 Q1 法說會逐字稿

Hello, and welcome to the SmartFinancial First Quarter 2020 Earnings Call. My name is Lauren, and I will be coordinating your call today. (Operator Instructions) I will now hand you over to your host, Miller Welborn to begin. Miller, please go ahead.

Thanks, Lauren. Good morning, and thanks for joining us this morning for our Q1 2022 earnings call. It's a treat to be on the call this morning and share an update on our company. We appreciate the interest you each have in our progress, and it's incredibly important for us to hear your questions, comments and your feedback. Joining me on the call today are Billy Carroll, our President and CEO. Ron Gorczynski, our CFO; Rhett Jordan, CCO; and Nate Strall, our Director of Corporate Strategy.

Before we get started, I'd like to ask each of you to please refer to Page 2 of our deck that we filed yesterday evening for the normal and customary disclaimers and forward-looking statements and comments. Please take a minute to review these.

Quite a strong quarter by our team here at SmartBank on many fronts. Our year has started well, just as we anticipated and had projected. We demonstrated, again, our ability to outwork the competition, execute our strategic plan. Our organic pace of loan and deposit growth has been impressive. I'm extremely proud of the team for their focus and execution as our metrics continue to improve faster than forecasted in our 2022 strategic plan. With that, I'm going to hand it off to Billy.

Thanks, Miller, and good morning, everyone. As Miller said, this has been a nice start to 2022 for SmartFinancial. We're going to change the format a bit this quarter and convey some of the commentary since our strategic shift to more organic growth leads to a little bit less noise. So I'll briefly touch on some highlights and then hand it over to Rhett to provide some color on balance sheet, lending pipelines and credit, and Ron will spend some time on financials, margins and guidance.

First, let's run through some highlights shown on Page 3 of our deck. Not to very believe, we had a very nice growth quarter. Loans, excluding PPP, grew at 21% annualized and deposits -- total deposits grew at 17% annualized, 23%, if you look at just the non-time deposits. On the loan side, growth was well distributed throughout all of our regions, but the new lift-out groups in Alabama and Middle Tennessee were big contributors here. Rhett's going to add some more color on that shortly.

Deposits continue to be very strong, turning in on the upper end of our expectations with great growth in existing accounts, coupled with some great new clients courtesy of the lift-out groups. Earnings were right on target with $8.6 million and operating net income coming in at $0.51 per share.

Our diversification in revenue mix is also progressing well. Our wealth management platform posted nice revenue gains as our new financial advisers continue to move over assets. Our insurance subsidiary had a very solid income quarter, and our Fountain Equipment Finance subsidiary posted our best quarter of growth since acquiring it and it continues to build a very solid pipeline. It's great to see these ancillary business lines beginning to contribute as we had anticipated.

Also, as a reminder, on Page 4, this is a great map of our franchise. It's a nice graphical representation of the footprint we're building out, a much stronger denser zone than what we had just a couple of years back.

As we stated on our last call, 2022 is a year to execute and capitalize on the investments we've made in 2021 as we move forward to get to stronger core earnings metrics. Continued positive trending of our ROA, ROE and efficiency ratio of what we expect to see as these new investments start to continue to grow revenue. We've started the year off very well in that regard, and that is the goal. So Rhett, let me hand it over to you now to jump in to balance sheet trends and credit.

Thank you, Billy. Looking at Slide 5 on your deck, we had a very solid first quarter in loan growth with net organic loan and leases grow just over $136 million ending the period with just over $2.8 billion in outstandings. Production was solid across all of our market areas in the first quarter with our newer marketing areas contributing over 25% of new loan balance production for the bank this past quarter.

As Billy mentioned, we ended the first 3 months of a compound annualized organic growth rate of approximately 21% over prior period. The overall yield in the full portfolio was slightly lower in Q1 compared to prior period. However, we believe this trend will improve in the near term as PPP balances continue to decline and the upward interest rate environment begins to effect a very competitive new loan origination rates more positively.

In addition, we continue to see deposit growth for the quarter with total deposits up $169 million for the year-end 2021. Complementing this continued positive momentum was another quarterly decline in total deposit costs to just 20 basis points for the quarter.

Moving to Page 6 of the deck. Loan portfolio mix held relatively steady in the first quarter with the growth mentioned previously. While we recognize our loan-to-deposit ratio continues to track below the historical levels, we're excited to continue to have excess liquidity to fund what we believe will be a significant year of production from our new lending team members and our legacy core markets.

While some economic outlooks and market guidance from various sources indicate a higher probability of slowing the economic growth over the next several quarters, our market areas continue to see strong inflows of new permanent residents and business relocations into our footprint. We believe that this will continue to drive solid business financial performance and continued loan and deposit growth opportunities within our market areas when compared to other parts of the country over the next few periods.

We also are extremely pleased with the continued improvement to our overall deposit portfolio composition with growth in non-time deposits once again outpacing time deposit runoff. At quarter end, non-time deposits represented almost 87% of the total deposit portfolio and noninterest-bearing deposits represented approximately 26% of the total deposits.

Slide 7 shows a continued solid trend in overall asset quality metrics, continuing with the same results we saw throughout the year in 2021. Q1 saw our NPA ratio hold steady to Q4 at 0.11%, net charge-offs of 0.04% and over 30-day past due ratio of 0.20% and classified loans at 0.31% of total loans were all improved over Q4 '21 performance. We ended the year at 79% and 299% of capital for our regulatory C&D and total CRE guidance ratios, both slightly higher than Q4 results, but ratio levels that are in line with our trends over the fourth quarter look back.

We have historically managed our portfolio in the upper quartile of the ratio guidance and continue to feel very comfortable doing so, given the diversification of product mix and credit profiles of our CRE book. Our loan pipeline continues to be strong across all of our market areas with a large majority of the opportunity being non-CRE in nature and over 20% of the bank lot pipeline fueled by our newer lift-out markets.

Overall, our asset quality continues to show strong, consistent results and our near-term outlook for loan growth remains positive. Now I'll turn it back -- turn it over to Ron to walk you through our allowance position.

Thanks, Rhett, and good morning, everyone. Let's move forward to Slide 8, loan loss reserve. As Rhett indicated, our strong credit quality has led to minimal credit-related provisioning for the quarter. At quarter end, our allowance to originated loans and leases was up 74 basis points and our total reserves to total loans and leases was at 1.26%. Given our positive credit outlook going into 2022, we expect to continue growth related provisioning to support our loan production and we'll continue to assess the allowance and adequacy thereof if economic and credit conditions change.

Moving on to Slide 9. During the quarter, we continued to generate additional liquidity from our deposit growth and we're able to utilize a significant portion for loan fundings and security purchases. For the quarter, we funded over $113 million in loans and increased our securities portfolio over $270 million, focusing on shorter maturity, shorter charter duration securities.

The majority of these purchases were placed in the held-to-maturity classification to help counter the impact of rising rates. At quarter end, our held-to-maturity to total securities elevated to 25% of the portfolio, up from 14% at year-end. Additionally, we retired $50 million of FHLB borrowings.

Overall, our liquidity position at quarter end, which includes cash and securities was approximately 34% of total assets, significantly stronger than the 22% from the prior year quarter and our cash to total assets stood at over 16%. Looking forward into Q2 and the remainder of 2022, with our securities to assets ratio over 17%, we are not anticipating any meaningful security purchases as we believe some of our excess liquidity will be absorbed by our strong loan production. We also want to remain vigilant and prepared for any potential deposit outflows that may occur as rates continue to rise.

Moving to the right of the slide, our net interest margin was 2.91%, consistent with the prior quarter despite having further pressure from excess liquidity. Our security purchases over the last 2 quarters provided over $1 million of additional interest income more than offsetting the reduction of $650,000 of PPP income. Further, loan yields less all accretion, remained in line with the past few quarters as a result of our continued pricing discipline. Our interest-bearing deposit costs continued to march lower by 3 basis points. Given our strong loan pipeline for both legacy and new markets, we believe we will start to see some margin expansion over the second half of 2022 as excess liquidity is deployed.

Before we leave this slide, let (inaudible) on operating revenue. PPP fee income for the quarter was $1.1 million, a significant decrease from the $2.4 million experienced in the prior year quarter. Despite this, we expect operating revenue to continue its upward trajectory with growth in traditional noninterest income sources outpacing the loss of PPP fee income.

For the quarter, noninterest income totaled $7.1 million or over 19% of total operating revenue. Overall, total operating revenue increased 1.5% quarter-over-quarter to $37.2 million, which when factoring the loss of PPP income and 2 less days during the quarter becomes a more impressive statistic. We are very pleased to start reaping the benefits of our strategies and look forward to additional operating revenue tailwinds to come.

For the second quarter, we are expecting a margin in the 3.10% range. The margin also includes estimated loan accretion of 8 basis points, approximately $560,000 and estimated PPP loan fee accretion of 14 basis points, approximately $975,000.

On Slide 10, you'll find some interest rate sensitivity information. Currently, we have approximately $1.1 billion in variable rate loans. With the inclusion of the recent 25 basis point rate increase, we have over $450 million of variable loans that will now reprice with any future upward rate change. Looking ahead, we have approximately $85 million of variable rate loans that will leave their floors with the next 100 basis point rate increase.

Given the asset-sensitive nature of our balance sheet, any increase to short-term interest rates will have a meaningful impact to our net interest income. At quarter end, our static interest rate shock analysis shows a net interest income increase of over 4% and an up 100 basis point rate scenario. Additionally, we ended the quarter with $645 million of interest earning cash and $162 million in floating deposits that will immediately reprice with any rate move.

We are currently modeling interest rate sensitivity using historical betas as this provides the most conservative picture of our sensitivity in this environment. Having said that, we believe our liquidity position and deposit composition as well as the overall liquidity in the market will allow us to lay increasing deposit rates and insulate us from the full effects of any market rate increases.

On Slide 11, our noninterest income continues to build momentum. Noninterest income increased over $300,000 or almost 5% from the prior quarter and more impressively, almost 25% from the prior year quarter and currently approaching 20% of total revenue.

Investment Services was a large contributor as revenue continues to grow as a result of a full quarter's activity on our recently added wealth team and increased volumes from the legacy. Additionally, our insurance unit experienced stronger-than-projected seasonal contingency commission payments. Overall, we remain excited and optimistic regarding the opportunities for fee generation within our family of fee generators. For our noninterest income forecast for the second quarter is $7.1 million.

On to Slide 12. As expected, our operating efficiency ratio continues to be elevated from our previously -- from our previously discussed strategic expansion initiatives. We expect this ratio to have a steady decline in the near term to the low 60s range as the newly hired teams gain further momentum and our internal platform optimization strategies unfold.

For the quarter, we experienced only a slight increase of $200,000 in operating expenses, directly in line with previous quarter guidance with no material increases. For the second quarter of 2022 we expect an expense run rate of $25.7 million range with salary benefit expense of approximately $15.6 million. Our guidance is slightly higher than our actual Q1 results as Q1 benefited from our strong loan production, which provided a larger amount of deferred loan origination costs.

On to Slide 13, capital. Even with continued asset growth, our capital ratios remained stable as a result of our profitability. Management routinely evaluates the bank's capital position as it relates to projected forecast, lending opportunities, as well as potential strategic initiatives always with an eye towards maximizing long-term shareholder value. At quarter end, the company and bank both exceeded well capitalized regulatory standards, and we are well covered with excess liquidity and excellent credit quality. We are well positioned for executing on our 2022 strategic plan.

And finally, our tangible book value per share experienced a 3% reduction impacted from unrealized losses in our securities portfolio. Since this reduction is interest rate related, the impact is temporary and will be gradually recovered over time as the securities return to the original par with no long-term impact to equity. At quarter end, our tangible book value was at $18.64 per share. And when excluding the temporary effects of our cumulative other comprehensive income component, our tangible book value was $19.56 per share -- excuse me, $19.56 per share, representing a quarter-over-quarter annualized growth of over 6%. With that said, I'll turn it back over to Billy.

Thanks, Ron. To close, first, I would ask you to take a look at Page 14. Our tech initiatives are really progressing well. One of the biggest initiatives this year is the full installation of nCino's loan workflow platform. That's moving along and we plan to be live by the third quarter and shortly after we will be adding the nCino customer pricing and profitability platform. We're thrilled to get these platforms operating in the bank this year as we believe they'll have great impacts to efficiency and profitability.

Shifting over to our outlook. We're also continuing to watch the economic landscape closely. Geopolitical issues, inflation tightened by the Fed or all elements that could have an impact on us, and we're managing our company prudently given these concerns. That said, we do remain bullish on the markets where we are doing business and believe we'll continue to grow at a very nice pace.

The Southeast continues to shine as a pro-business region. The anecdotes I hear from our local boards about companies looking to relocate to our areas or stories from our relator clients about the number of people moving to our region because of our low attach pro-growth velocity gives me confidence that we'll continue to outpace many other parts of the country.

As we've gotten some size on us now as we're approaching $5 billion in assets, we're hitting a very sweet spot where we have the size and sophistication to bank larger companies as well as having the ability to be nimble and responsive in our community markets.

We see this playing out there, as we're having great success in our legacy zones like Knoxville, Chattanooga, Tuscaloosa and Pensacola, but we're also starting to build great momentum in new markets like Nashville and Birmingham. I love our position right now, and I can't wait to watch that momentum continue.

And in order to keep this moving now more than ever, having a strong culture is critical to attracting and retaining talent. Our continued work on being a top workplace is key, and this is an area we're emphasizing more than ever. We continue to be recognized as a great place to work, and we do not take those accolades lightly.

So thanks so much to our associates who do a tremendous job every day delivering wow experiences to our clients. The excitement that is being built in our company is strong right now. And as we execute a plan, it will be transformative to our financials. It's a great time to be part of this company as a client, as an associate and as an investor, and we're very well positioned to move forward.

So I'll stop there, and we'll open it up for questions.

(Operator Instructions) Our first question comes from Brett Rabatin from Hovde Group.

Hey guys, good morning. I wanted to first ask -- impressive loan growth in the quarter, and I've been a little surprised with some opportunities in some of the markets, a large transaction, as it appears to not be going initially as smooth as some were hoping. And so there may be an opportunity to move talent before a deal even closes. I'm curious to hear what you're hearing in your East Tennessee markets in particular, regarding a large deal? And if you think you'll continue to add teams and if the focus here now is pausing for improvement more in efficiency like you talked about a little bit? Or if the opportunities are there to go ahead and continue to ramp up on the lending side?

Yes. Brett, I'll take that. Yes. From our standpoint, obviously, our #1 priority right now is just execution on what we what we've added over the last little bit. But that said, we are always on the lookout for talent in any of our markets. Obviously, there are some -- there are some bigger transactions going on that could lead to opportunities. So from our standpoint, we're evaluating that. And if we can find the right sales talent that we could add to the team, regardless of market, we'll continue to -- we'll look at it. I don't think we have really a specific initiative out there today. But I will say we're always looking for great new production talent.

Okay. That's helpful. And then I wanted to talk about the margin and the asset sensitivity and the 4% up for a 100 basis point shock would seem like given the cash that, that number could be higher. So I was hoping to get maybe some color on what you're assuming for deposit betas. I recognize money market is a big piece of the funding mix? Just wanted to understand a little bit more on what goes into the 4%.

Yes. Our -- historically, our betas, we're at about 35%, 36%. That's kind of -- that's what we use, as I said, conservative as modeled. We don't anticipate to hit that data. Based on my commentary, we think we're going to be much lower than that. But we wanted -- we're totally different bank today than we were through the last cycle. Even our deposit mix is so different.

So the cash -- immediately, we expect the cash to run off for our loan fundings and then kind of do our earnings, kind of keep the cash steady and then wean down deposits. It's kind of a loaded question, probably a high-level answer, but it's -- there's a lot of moving pieces for that.

Our actuality on that Slide 10, we think the ramp 200 is based on where we're at and looking at the pay-off cycle is probably a better gauge over the next 12 months. But it seems that 100 static was pretty prevalent on what people are reporting.

Okay. And then just one last quick one on concentrations, the commercial real estate is now around $300 million. I'm just curious if the pipeline has more C&I in it than the construction and CRE and what maybe your thoughts would be around appetite for commercial real estate and concentration levels going forward?

Yes. As I mentioned, we have historically managed our ratio kind of in the upper quartile of the guidance. But our pipeline is definitely weighted more non-CRE right now. We've got a little over 60% of the pipeline that is not in a CRE loan type, maybe it is spread across our geography. So we are seeing a lot of new activity from those nonsecurity categories.

I think we had a -- we were a little outpaced. I think with CRE growth, just so I think had some draws including some projects that were -- that we had already had on the books that were then added a little bit to that this quarter. Is that correct?

That's correct. We do.

Our next question comes from Stephen Scouten from Piper Sandler.

Thanks for the time. I thought the market -- it was going to give you some credit for a really good quarter today, but it looks like the sentiment is still too bad. And frustrating because I think this loan growth was particularly impressive even above and beyond what we've seen from some other companies. So I just wanted to think -- talk more about the loan pipeline. I know you mentioned you just said maybe 60% non-CRE. Can you give us a feel for what that pipeline looks like today, maybe relative to where it was at this point had been the first quarter or just kind of frame that pipeline up a little bit more for us potentially?

Rhett, do you want to start with that? I'll add a little bit of color.

I can. Yes. I mean actually, it has continued to grow. We are certainly beginning to see a lot throughput coming from our lift-out markets that we added to the bank over the course of last year, predominantly. And as I mentioned in the first quarter, we had about 25% of production. The first quarter came from those markets and the pipeline is weighted about that same amount, and we are continuing to get new opportunities added to it every day, especially coming out of several of those areas. So we are I guess, in relation to kind of where we started the year, it is continuing to grow and grow in those types of loans, as I mentioned, that do not add to our CRE positioning.

Yes. And I'll add, Stephen, the teams that we brought on and the comment I made about being able to bank larger companies, I think we're seeing that play through what we've seen out of especially the new teams is a really nice diversification of clients, a lot of new businesses, operating companies, nice mix of lines and some owner-occupied component. So we really see this -- I think this quarter was a little bit outpaced with real estate just because of primarily some draws on some larger projects. But I think you'll see that kind of settle back down and diversify out over the next little bit.

Okay. That's helpful. And I think if I'm looking at the data right, you have maybe about $4.5 million left in the share repurchase that's authorized. How would you think about that today, especially given some of the weakness in equity markets here we've seen as of late?

We always watch it. Share repurchase right now is not front of mind primarily as we're watching the growth. We're watching capital. Ron's comments, our capital ratios -- even with the growth that we had, our capital ratios remained constant, which was great. So from our standpoint, we'll probably have a little more clarity on that as the year goes out as far as kind of the appropriate use of capital, whether it's growth or other means. But right now, we're going to watch it. Obviously, if share price drops far enough, we'll take a look at some options there. But right now, we're trying to keep some powder really more so for growth.

Makes sense. And maybe just last thing for me. Just diving back over to the asset sensitivity. It looks like -- I'm looking it apples-to-apples, maybe that went down from up 6.5% to the up 4.2% or what have you. Is that largely driven by the incremental investments you made this quarter in the securities book already? And then along with those investments in the securities, can you give us a feel for what those new yields were on those -- on that money you put towards?

Yes. The majority is that the investment purchases kind of changed a little bit in our loan production, obviously. We did purchase $270 million. The majority of that was 2-year treasures. So all in, probably about [$140 million, $145 million -- maybe $142 million], just kind of cut in the middle. That's kind of the yields that we were -- that we put on the books for Q1.

Our next question comes from Kevin Fitzsimmons from D.A. Davidson.

I know the topic of the lift-outs has come up a few times. But I'm just curious, it seems like you're probably gaining more clarity each quarter on this, and it sounds like your excitement level is picking up in terms of your -- how you're seeing this progress. And so I'm wondering, Billy, does that make you a little more inclined to be looking for additional opportunities? Or do you feel you have plenty of runway ahead in these and not -- it's that -- another question referred to this earlier, is that a tight rope of -- do you take advantage of opportunities available to you, but then it maybe slows down the ability to demonstrate bottom line profitability if you have a lot of these things going on at one time. So I'm just wondering, given what you're seeing, how do you feel about that strategy doing it on a continuous basis going forward with additional markets?

Yes. It's a great question. Kevin, and it's something that we talk a lot about around our tables. And it is the balance. I think for us, again, our priority, one, is to really get this -- grow -- get this expense base, get the revenue growing commensurate with the expense base. So I think that's first and foremost. But at the same time, I mean, I think strategically, we don't want to turn our backs on good opportunities.

So we're always keeping an eye out for that, especially now that we've been able to have success recruiting and bringing over really strong sales talent. The bank has changed so much in the last couple of years, just from the sophistication, the way we operate, the way we underwrite, the way we handle the sales process.

And so I think we're building something that can continue to plug on more of that, more of those types of -- more of those types of organic opportunities. But -- and right now, we're laser-focused on making sure that we can control this expense line, which we feel really, really good about. And really get this revenue going. So we're going to balance it. So it's kind of -- it's a little bit of a hedged answer, but we're going to continue to balance it and look at both sides.

I'll add to it. I'll give Billy and the team credit. There are some institutions that have a different philosophy that will just add lenders, add producers, no budget line for producers. Ours is a little different in that, sure, we've had other opportunities, and we think we'll have some in the future. But I will say culture and (inaudible) is a huge component of what we're looking at. We're talking to folks about wanting to come on board. And the lift-outs and the legacy lenders we have all understand, we're on the same page of where we are and where we're going.

I just think that's a huge component of it. We're not looking for somebody to just come in with the best of transactions. We look at the long-term clients and the lenders that we have and the producers of just a great fit, and that will be very important as we look forward to bringing any more on.

Okay. And one quick follow-up on expenses. So I appreciate the run rate from Ron. I'm just thinking what's the best way to think about it as we look into the back half of the year. Is that a decent run rate to think about? Or -- because you mentioned the efficiency ratio coming down, I'm assuming that's more from the revenues picking up, but you also had some initiatives in the nCino rollout that you talked about later in the year. Is it a realistic goal to expect just kind of low -- very low single-digit type of expense growth? Or is there something more we need to be aware of?

Yes, Kevin, actually, we -- the guidance for the expenses today is pretty much what we see for the rest of the year quarter-over-quarter. We -- as Billy has indicated, we've controlled our expenses and we feel we can absorb -- everything we can do is absorb and that we will gain efficiencies with nCino, but then taking that money to offset -- to other expenses. But we think it's going to be controlled. No incremental growth for that line item at this point.

Yes. And I'll just add, we may have a little bit of an uptick if we add some occupancy in Birmingham or in Nashville, some markets where we're looking to (inaudible). But to your -- I think to your point, it's going to be a relatively low tick up in the expense line. And then we think this revenue line is going to going to start to move up nicely for us. So I think that's where the efficiency gains come in.

Our next question comes from the line of Matt Olney from Stephens Inc.

I just want to clarify the outlook on the margin, the 3.10% in 2Q. I assume that captures the Fed hike from a few weeks ago, the 25 bps. Does it assume any kind of fed hike in the May or the June time frame at all?

Yes, we are. We're following the pay-off cycle. We expect 2 more. Again, we'll have half of that -- half of the 50 in May and then expected another 50 in June. We didn't go any further than that. But it's all baked in that margin.

And then on the deposit side, I guess there was some commentary in the prepared remarks that you've been a little bit cautious about, the deposits and any kind of potential for outflows during this cycle. Is there anything in particular at the bank that you're more concerned on than others? Just trying to get a sense of kind of the cautiousness there about the deposit outflows over the next few quarters.

Yes. And I'll take that, and then Ron, you can add anything that you felt pertinent. But I think for us, Matt, I think the cautiousness is really just trying to watch what's going on with these rates. Again, looking obviously at the lag these -- at least this first rate increase or 2 on deposit cost. The liquidity position that we're sitting in gives us some ability to kind of be a little more disciplined on moving our rates up.

So I think that -- I believe, Ron, that's kind of really where our commentary has been. We still feel really good about our ability to produce new deposits. These new teams that we've got come in, they're bringing on in onboarding some just amounts, standing client relationships. So I think it gives us a little bit of -- it gives us some comfort there. But again, just being cautious, we're going to look, I think if we get a little bit of runoff, we've got enough -- we've got plenty of powder to allow that to happen. Ron, is that a fair to say?

Yes, that's fair. And we don't know when this deposit cycle will end or maybe it won't. We've been blessed with our growth in our deposits, and we're still seeing deposit growth today. But we just want to be just cautious to say, okay, what happens if it does slow down or stop? That's kind of what we put out there. But no, we're not seeing any evidence of that happening whatsoever.

And I guess following up on that, Ron. Does that outlook -- does the guidance assume any kind of deposit growth from current levels. It seems like that the loan growth you expect to fund with the excess liquidization coming down. So it seems like you're not assuming any kind of deposit growth from here. And as you said, you can be pretty careful on deposit pricing as rates move higher. So just trying to appreciate at what point could we see deposit growth? And if we do see some, would that be the catalyst to increase the size of the securities portfolio? I know that's a -- there's a lot there. I'm just trying to appreciate the way you guys are thinking about this now.

Yes, I can go in any direction with that and giving the leads. Although, we're probably -- we're modeling around a 3% deposit growth for the year. So again, we are expecting a little bit. Still seeing having the loans outpaced. And so that 67% loan-to-deposit ratio, we really are encouraged to keep our loan production going to start getting more into the 70% range, 70% is ideal, mid-80s.

But -- and today, where our asset, where our securities are, where we are very -- we are comfortable where we're at with the level of securities I think going over that, approaching the 20% level of assets.

Again, it's quarter-by-quarter at this point to see how the numbers are shaking out. We're just being patient with our standard. We think we're in a great position to execute one way or the other, and we just don't want to jeopardize that execution for any reason. So we will just be patient over the next quarter. Now my guidance next quarter may change, but -- right now, it's kind of -- we're just kind of pausing a little bit and we're seeing how it settles down.

Our next question comes from Feddie Strickland from Janney Montgomery.

So I appreciate the overall guidance on the noninterest income, but I was wondering if we could bake in a little bit just so I can understand longer term. It seems like mortgage held up pretty good in the quarter. I'm just kind of curious on what your outlook was there and what percentage of production is purchased versus refund.

Ron, you get that.

Yes, I'll take that. We think our -- we're never a really big mortgage shop. We're very steady throughout the last few years, we've been very steady. Coming off record highs. We think our Q1 is probably a good indication of probably the remainder of the year. We have a lot of headwinds with supply, rates and such, but we do have a strong pipeline coming in. And we don't think that will change much. And I'm sorry, the other part of the question?

It was really more about percentage of...

Yes, right now, we're at 50-50. 50 as our refi or what -- from the portfolio or probably a combination of both.

Refis.

Yes, refis. I would say, for the refi side, probably is higher to 85% refis, unless -- I'm sorry, back that up. Let's keep 50-50. I'm getting my numbers mixed up.

Yes. We've not had a really -- we've never had a huge refi. Obviously, a little more refi in 2021. We're seeing -- I think the pipeline right now is obviously, it is much more purchase. I've seen a lot, and we've seen a lot of construction firms in our markets, too, with supply changing a little bit, even though you're getting some upward tick in materials cost, we're still seeing a lot of construction firms.

I think our mortgage ought to hold pretty steady this year. I don't -- we don't see it taking a big dive down because we just -- I think what we'll lose in the refi piece, we'll be able to pick up in just some new purchases. And we've added a couple of new production team members there late in the year -- last year.

Got you. So it sounds like overall, just all footprint effectively really helps keeping that setting just because you've got continued population in for. Is that right?

Absolutely it is. And I think that's really the key. Again, I think what we lose on the refi side, we should be able to replace on the purchase side, pretty close. At the end of the day, we like the business. I think our -- the way we've got our structure is really, quite frankly, pretty good kind of given where the market is today. We don't have a ton of overhead in that line of business. And so we've got a very efficient mortgage shop and believe that what we'll see is continued purchase money opportunities as we move forward.

Got you. And then just one more for me, still in noninterest income. Just it seems like investment services was up a good bit this quarter. Was that just -- is any of that seasonal? Or is that just solid growth? I saw you guys had a technology initiative related to that. So I wasn't sure if that's just some of -- reaping the benefit of some of that? Or is that just growth in that position?

The wealth side is really just growth in that division. We might have -- I don't believe there's much seasonality in that at all. It's primarily, Feddie, just the new teams coming online that we add. We made a push added a really nice group of financial advisers down in the Gulf Coast region late last year. Those folks are continuing to move assets and perform well. And really, all of our markets are trending nicely from an investment wealth platform side. So most of that should be recurring, we believe, moving forward, and hopefully growing as we continue to build AUM.

(Operator Instructions) Our next question comes from the line of Catherine Mealor from KBW.

Just want to follow up on the margin. I just wanted to ask about loan yields. The yield, ex-accretable yield and PPP has remained really steady over the past few quarters at [4.18%] now. How do we think about how that compares to where new loan yields are coming on? And then as we think about finally getting the impact of higher rates, is there still some kind of downward repricing just from the new loan production? Or do you think this is the bottom of the loan yield, and we'll start to see that move up next quarter?

Do you want to...

I think it's kind of a joint question.

(inaudible), Ron, and Rhett give some thought on what you're seeing in the pipeline.

Yes. We're expecting our loan yields. And what's baked in with the increases we should see about a 25, 30 basis point lift over the next quarter for that purposes. And I think we're at the bottom. I don't see us -- we're at the bottom of the cycle as you've indicated. Rhett, you want to...

I would say the same. I mean, obviously, you're still continuing to see some pretty aggressive pricing in the marketplace from time to time depending on the transaction. But we're also beginning to see some creep up in debt rates we're able to still win the business at, at least certainly in the past, probably 45 days or so that's been added.

Also, we've got a handful of transactions that came on the bank's books as for the rate debt, which would be positive when debt rates begin to move up, but we also did have the interest rate swap aside of that well that contributed to the overall yield for the bank. So at the end of the day, we get the benefit of the upward rising rate side on the loan piece and any kind of fixed rate type of exposure, we're beginning to see improved rates on the pipeline.

Certainly that's a discipline that (inaudible) to give it away.

Yes. And I'll add, Catherine. What we're seeing -- and I know we were talking about this in a loan meeting the other day. We've got -- we're seeing some of the -- especially the smaller balance loans, we're able to get some rate movement in those. Obviously, some of the larger loans, it might be a little bit tougher from competitor standpoint.

I think the real thing that we're watching is just you're still seeing a lot of competition to be extremely aggressive. We think in some cases, too aggressive on the pricing side, especially folks with the liquidity that's sitting on balance sheets right now. So we're kind of watching that. But we're trying to stay and I think the guys use the word discipline, and I think we are really trying to start to build some (inaudible) in their pricing and handle it appropriately. But it's -- we feel pretty good about our ability to get a little bit more rate moving forward.

And then on that $1.1 billion of variable rate loans, can you help us think about the timing, like how much of that flows immediately and reprices kind of immediately with the rate increase versus maybe a variable piece that lags by a month or a quarter or a (inaudible).

Ron's got -- we've got that -- I think it's in the deck.

It's in the deck, yes, $450 million of the variable rate loans will reprice immediately with any rate increase. And then we're looking forward after the next 100 basis point rise, we'll add on another $85 million to that.

Okay. Great. And then the delta of that, what's the kind of timeline on that?

It's more of a timeline. I think very minimal for the remainder of '22. These are largely [5- to 7-year] loans and some of 'that are U.S. treasury base. So it's really a time element. The majority of those will really come in over the next several years. So not really meaningful. And then probably, I would say an extra $40 million at the end of 2022. And for 2023, we're looking at $60 million. So incrementally, it's going to be thrown in. The majority of it's out a few years where we sell -- where the fixed terms is back to floating.

Great. Okay. That's super helpful. And again, to just iterate, you said you think there'll be a 25 -- like within your 3.10% margin guide for next quarter, you're thinking we'll see a 25 to 30 bps lift in loan yields all off equal. Did I hear that right? .

Yes.

Yes.

Our final question comes from William Wallace from Raymond James.

A couple of follow-ups. Wondering on loan growth, if you could talk a little bit about your pipeline, how do they stand at the end of the quarter versus the end of the fourth quarter. And based on the pipelines and the pull-through rate that you're seeing quarter-to-date, are you guys maybe feeling better about the high end of the guidance that you provided before us? I wanted to maybe circle back on that a little bit.

I'll start and I think our pipeline is just kind of into Q4, into Q1 are a little bit higher. I think when we look at those -- for us, and converting, what we're not seeing that we saw in the last couple of quarters of 2021 are the payoffs. Payoffs have slowed a little bit. Production numbers and pipelines have still been relatively good. So we're getting a little bit more pull through. We're picking up a little bit more on the net balance side.

From a guidance standpoint, the guidance that we gave last quarter for 2022 was a mid-teens number. I think we still feel good about that mid-teens number when you look at it for the year. Again, we're really kind of trying to address it -- really only kind of on a quarter-by-quarter basis is as we kind of watch what rates -- as these rates move up, does that slow pipelines a little bit. We've not seen signs of that, yet pipelines are still strong. So we feel good about Q2 from where we're sitting today and still feel good about that mid-teens annual guidance.

Okay. Great. And then I had a couple of housekeeping questions. In your guide, the 3.10% margin guide, what did you say was the anticipated impact from purchase accounting accretion?

Oh, I'm sorry. Yes, let me -- the purchase accounting accretion, I think, is $580,000.

Okay.

And the PPP fee income was $975,000.

How much -- and fees, do you have left in the PPP program? And what was the ending balance?

That's it. So hopefully, we can be out of the PPP business by the end of this quarter on that side of the house. But we have very little left after that -- the $50,000 left after that. So we're at the end of that cycle.

We currently have no further questions. I will now hand back over to Miller Welborn for any closing remarks.

Thanks, Lauren, and thanks again to each of you for joining us today. I hope you have a great rest of your week. And as always, feel free to reach out to one of us if you have additional questions. Goodbye.

This concludes today's call. Thank you for joining. You may now disconnect your lines.