SmartFinancial Inc (SMBK) 2020 Q4 法說會逐字稿

Good morning, and welcome to the SmartFinancial Fourth Quarter 2020 Earnings Call. (Operator Instructions)

Please note, this event is being recorded. I would now like to turn the conference over to Miller Welborn. Please go ahead.

Thanks, Grant. Good morning, and thanks for joining us this morning for our Q4 2020 earnings call. We always enjoy visiting with this group each quarter to talk about the progress of our bank and our company. Joining me this morning on the call are Billy Carroll, our President and CEO; Ron Gorczynski, our CFO; and Rhett Jordan, our CCO.

Before we get started, I'd like to ask each of you 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.

So 2020 was certainly an interesting and fascinating year. I can say we've learned a ton here at SmartBank and grew tremendously as a team. A few things we've learned during the year. Rapid and quality communication with our team members, clients and investors is paramount. As a large community bank, we must make quality decisions faster, and we did that. Management collaboration is invaluable and has been excellent this past year. And one of the last things is we've learned to better embrace and utilize the quality of technology that we've invested in over the last few years.

With that said, let me highlight a few accomplishments of Q4 '20 before I hand it over to Billy to dig into some of the details of the quarter. We had record revenue of $31.48 million for the quarter. We had record operating profits of $9.2 million for the quarter.

We grew our noninterest income to 15% -- 15.8% of total revenue for the quarter, which was a -- certainly a record for our bank. And we grew our tangible book value to $17.92 a share, which is a 15% increase annualized.

I talk a lot about how excited we are, and where we are as a company, but I can't stress enough about how we feel this company is positioned. We actually showed strong improvement in Q4 in virtually every operating metric we track.

And with that, I am going to turn it over to Billy.

Thanks, Miller. As Miller alluded to, we wrapped the year on a really good note, closing with best quarter we've had during the last quarter. Our company has taken some great steps in 2020, and we are bullish on where we're headed. I'm going to hit on a couple of areas, then I'm going to turn it over to Ron to dive into financials and then on over to Rhett to jump into credit and the portfolio.

First, obviously, we've continued dealing with the pandemic and these challenges. But we've seen most of our markets continuing to perform very well. I won't spend a lot of time on this. But as noted on slide deck on Page 5, we continue to keep this situation front of mind. The team has done a really nice job of safely operating in this environment and have minimized those issues as we've gotten back on offense.

Let me touch on a few of the highlights. As Miller alluded to, again, total net revenue continues to climb, exceeding $31 million for the period. We had another quarter of really nice deposit growth that has resulted in us growing $758 million for the year, it's a 37% increase from 2019.

We've significantly shifted to a core deposit funded franchise. Clients continue to hold some cash, and we've utilized the year to work on moving core relationships that we picked up through the PPP process. We did some consolidation during the quarter with the closing of the branch from our PSB acquisition and also closed the larger op center in Chattanooga that was no longer needed, moving those associates to some space we had in our downtown office.

Rhett will speak to this more in a moment, but we have -- but as we've communicated and anticipated, COVID modifications have dropped significantly. And we are seeing no concern on the credit front, which is evidenced by our nonperforming assets, holding extremely low at 0.31%.

Jumping into financials. You'll see our quarterly highlights on Slide -- Page 7 of the deck. Net income for the quarter was $9 million from a GAAP standpoint and operating net income of $9.2 million. That's $0.61 per share for the operating quarter.

We reported a solid pretax pre-provision income number at $11.7 million, which equates to 1.45% PTPP ROA. This earnings trajectory is a really nice trend line and is shown on Slide 9. We also had another record noninterest income quarter, coming in at over $4.9 million. Ron will touch on this more in a moment, but this is an area of focus for us, and we're starting to see the results, another really good trend.

The balance sheet remained fairly stable. Loans were down $21.8 million quarter-over-quarter, with the majority of that being PPP loan forgiveness, core loans were down slightly for the quarter. And we -- as we ended up with a handful of closings that had moved into Q1, I do remain confident we'll see the organic growth pick back up in 2021 as our sales teams are working hard, and pipelines are looking really solid.

Also, please note the slide that we added on Page 8. We wanted to communicate some of the works we've done this year and have planned on the technology front. Under the leadership of our new Chief Information Officer, Daniel Hereford, this work is a priority for our company.

I've got some other comments as to what I expect as we move into 2021, but again, steady results from SMBK this quarter.

Let me turn it over to Ron for financials and then on over to Rhett for portfolio and credit, and then I'll close with those additional comments. Ron?

Thanks, Billy, and good morning, everyone. We had a big jump-start to 2020 with much organic growth, the completion of our Progressive Bank acquisition and participation in the PPP program. But going into the second half of the year, the COVID pandemic had impacted our loan growth, but our deposits continued to experience significant growth. Our assets continued to remain stable as our excess deposit growth was used to reduce our brokered funding allowance and also paying off our PPPLF funding facility. We will touch base more on these items in a few slides.

Moving on to Slide 11. Let's focus on the top green line. We continue to sustain our profitability with our operating pretax pre-provision returns remaining quite consistent over the last several quarters. Our operating ROA metrics have been a little more volatile, primarily to our loan loss reserve builds, except that in the current quarter, where we did not require any additional provision. Moving on to the lower portion of the slide. Our operating return on average tangible common equity was up 13.7%, an all-time high for us.

Turning to Slide 12. As Miller had indicated, we have continued our consistent trends of value creation with a tangible book value growth. We have grown tangible book value by [15%] on a linked-quarter annualized basis and year-over-year, we had increases of 6.5%, and that includes the effects of our Q1 acquisition. On the lower portion of the graph, our operating efficiency ratio, represented by the green line, was below 61%, still hovering at that 60% level.

Turning on to Slide 13, net interest income. Our tax equivalent net interest margin for the quarter was 3.57%, an increase of 18 basis points when compared to the prior quarter. As we mentioned on the last earnings call, we expected to see some margin relief with us paying off the PPPLF funding in October.

Our net interest income increased $463,000 for the quarter, having benefits from both interest-earning assets and interest-bearing liabilities. For our interest-earning assets, our contractual loan yields declined by 8 basis points, and we had $193,000 less of loan discount accretion, which was completely offset by increases in other loan fees of $403,000, primarily from loan prepayment penalties and an increase of $345,000 in PPP loan fee accretion, which totaled $2.2 million for the current quarter.

For our interest-bearing liabilities, specifically interest-bearing deposits, we had a decrease in funding costs of 9 basis points to 0.5%, and our overall cost of total deposits ended the quarter at 0.38%.

Moving forward into 2021, we will have over 50% of our time deposits maturing and repricing during the first quarter, so we should have further opportunities to reduce deposit costs, thinking maybe another 4 to 6 basis points. Like other banks, we are sitting on an excess amount of liquidity. Our initial projections at the beginning of the pandemic was to have these -- to have the excess liquidity evaporate over several quarters.

Today, we are thinking that this excess liquidity will be here for a while. As mentioned previously, we utilized a portion of our excess liquidity to pay off the PPPLF funding, while we still continue to have excess amount of liquidity due to our continued deposit growth. We are moving forward cautiously through this period of time and are hopeful that some of our excess liquidity can be utilized in both new loan fundings and the next round of the PPP loans as well as us evaluating current ALM strategies.

Looking forward, we are forecasting a first quarter margin in the mid-3.50 range, which includes a heavy amount of PPP forgiveness. We are estimating to have loan accretion of 10 basis points or approximately $577,000 and estimated PPP loan fee accretion of 28 basis points, approximately $2.8 million.

Moving on to Slide 14, operating noninterest income. This continues to be a great slide for us. Look at those stair steps. As we have discussed on previous earnings calls, over the past year, our internal focus was to increase our overall noninterest income.

We are now starting to reap the rewards with us having all-time highs, with our noninterest income increasing almost 37% on a linked-quarter annualized basis and increasing over 83% year-over-year. Our team continues to do an excellent job in this area. Our service charge income increased $140,000 as this quarter cemented that our normalized level activity should be going forward.

Our overall interchange fees increased slightly for the quarter but was lower when compared to the prior quarter due to a vendor credit of $130,000 reported in that prior quarter.

For our mortgage banking team, another tremendous quarter. We were expecting Q4 to be a little bit softer, but the reverse happened with all-time high production. Our mortgage banking revenue reached over $1.3 million, an increase of over 30% from the prior quarter. We will continue to see good things for our mortgage team as our pipeline remains strong going into 2021. Our entire SMBK team will continue its efforts in increasing and diversifying our noninterest income revenue.

Continuing on Slide 15. We wanted to take the opportunity -- we wanted to take the opportunity to introduce you to our family of revenue generators. We have SmartBank Mortgage Services, SmartBank Investment Services, which is our wealth management platform and the newest member of the lineup, The Rains Agency, a full-service independent insurance agency that also provides title services. We also have SmartBank itself, which is represented by our central logo. Our 2021 focus will be increased revenues, increased efficiency and digital innovation to enhance the client experience.

Turning to Slide 16, you'll find our operating noninterest expenses. We continue our focus on expense control. During the quarter, our noninterest expenses had increased slightly. Some of the primary increases were our salary and employee benefit expense increases were primarily related to a catch-up on employee incentive accruals. We did see a reduction in our FDIC insurance when compared to the prior quarter due to Q3 having a higher amount of accrual.

And the other item to note is the increase in our amortization of intangibles. We recorded a cumulative adjustment for the amortization of the client list and trademark related to The Rains Agency from the Progressive acquisition. As this was a catch-up entry, our forward quarterly run rate for all intangibles should be around $440,000 per quarter.

As you can see on the slide, we are continuously -- are continuing to focus on expense control as the rent over the last few quarters have slowed considerably. Looking forward, our forecast for the first quarter is having noninterest expenses remaining in the $19 million with salary and benefit expense around $11.5 million range.

Also, before we finish this slide, let's just focus on taxes. Our income taxes for the current quarter reported an effective tax rate of 21.7%, which was slightly lower than expected due to a tax benefit recorded that was associated with the program the state of Tennessee manages for community investment loans. We are forecasting the effective tax rate of 23.75% for the first quarter of 2021.

Our next Slide 17 gives detail on deposits. Our composition of deposits have been traditionally 1/3, 1/3, 1/3. But at year-end 2020, our time deposits have shifted downward to represent 20% of the portfolio and demand deposits now represent almost half the portfolio.

Now to the (inaudible). We had another big deposit quarter. Our total deposits continued to accelerate during the fourth quarter with an increase of over $153 million and ended the quarter at $2.8 billion, up 37% for the year.

Our noninterest-bearing deposits ended the quarter at $686 million, up over 88% for the year, and our time deposits continued to decrease, down $129 million for the year. As we mentioned last quarter, the big story here is that at year-end, our broker deposits to total deposits was just over 2%, a decrease of over $180 million from year-end 2019. There were several components assisting our significant deposit growth year-over-year, which included the PFG acquisition, our client participation in the PPP program, but the largest driver overall was the increased liquidity by our clients, both current as well as new relationships.

With that said, I'm handing over the slide to Rhett Jordan, our Chief Credit Officer, to go over loan and credit-related info. Rhett?

Thank you, Ron. Beginning on Slide 18, our loan portfolio composition continued to trend near third quarter results with outstanding balances slightly down and the overall portfolio mix being practically identical in segmentation. While growth in balances was slightly negative as noted, loan demand has been consistently improving across our entire footprint as our markets continue to be open and COVID-related restrictions are minimal across the bank's geography. Overall, our loan portfolio has continued to demonstrate steady operating results through the quarter, a result of our client base continuing to operate their businesses successfully in challenging times and generate the needed cash flows to support their indebtedness. All in all, a solid quarter with continued stable performance in loan book.

As shown on Slide 19, while loans did decline slightly, our overall credit quality metrics continued to perform very well through fourth quarter. Our NPA ratio saw a slight increase to 0.31% from a low of 0.19% in the prior quarter. This was due to 2 transactions. The first was an approximately $3 million underperforming out-of-market retail property credit that we inherited through a previous acquisition and elected to downgrade and position to exit.

The second was we consolidated 2 of our branch locations in our upper Cumberland region and thus moved the closed property value into our ORE asset portfolio. The combination of those 2 transactions led to the increase in our NPA ratio, and we did not expect either of these to carry loss risk to the bank.

Net charge-offs for the quarter were 0.08% and continued a strong annualized performance, up slightly quarter-over-quarter, but only the result of charging off a loan account that had been previously specific reserved in our allowance.

The over 30-day past dues ratio saw a slight increase to 0.4% of total loans but was the result of the previously mentioned downgraded acquired loan. Overall, our asset quality continued to demonstrate solid metrics impacted slightly by a couple of isolated events. Our outlook is very positive, and we expect our historically improving trend to pick back up in future periods.

Looking at Slide 20. Our fourth quarter saw the continued downward progression of our modified loan portfolio totals. As you may recall, at our peak in second quarter, approximately 25% of our loan portfolio or roughly $615 million in outstanding balances had received, and we're in some stage of a modified payment structure due to the COVID event.

At year-end, we have reduced that number down to approximately $17 million in balances or 0.7% of the portfolio still modified due to COVID. All remaining modified loans are expected to restart their regular payment structures by the end of February 2021, and we do not anticipate additional modifications going forward based on feedback from our clients.

Hospitality continued to represent the largest industry segment at 0.4% of the total loan portfolio still modified. Furthermore, hospitality represented approximately 60% of all modified loan balances at year-end.

Our restaurant portfolio is now under 0.1% modified, and clients are continuing to express confidence in their outlook. We expect this trend to continue as long as COVID restrictions are not further impacted, and we expect all loans to be on normal payment plans by the end of the quarter.

As for our PPP loans, we began working on our forgiveness process during fourth quarter and began to see a steady increase in applications for forgiveness through the quarter. By quarter end, we have processed approximately 100 applications and had formally received forgiveness on roughly $11 million or 4% of the outstanding PPP portfolio.

As seen on Slide 21, we ended the quarter with about $289 million in balances remaining and expected that to continue with a reasonable pace of forgiveness applications into fourth quarter 2021. While we still anticipate a consistent flow of forgiveness apps from the initial PPP round, with the recent legislation in the unrolling of round 2, we are prepared to actively take new applications from qualified applicants and have already begun to see activity on that front.

Our team has adjusted to both handle incoming forgiveness applications as well as new PPP applications in a more streamlined digital platform that we expect to assist us in processing applications more efficiently and with reduced cost than we saw in round 1. We are anticipating a reasonable volume of new applications for this new PPP round, and our teams have begun the process reaching out to clients and prospects to gauge interest and assist those who seek funding under round 2. We believe this will be a great opportunity for the bank to assist our clients and further expand our prospect opportunities and taking advantage of this new source of economic support.

Now I'll turn it back over to Ron to walk you through our allowance methodology. Ron?

Thanks, Rhett, for all the detail. Let's move forward to Slide 22, our loan loss reserve. As Rhett had indicated, our credit quality is strong. For the current quarter, we did not record a provision and felt our allowance was adequate -- was at adequate levels.

During the quarter, we did adjust our qualitative factors in our model and added a new factor taking into account the number of COVID cases within our footprint. Since year-end, our overall allowance had increased almost 80% or $8.1 million with most of the increases being directly associated with the economic qualitative factors caused by the pandemic. At year-end, our allowance to originated loans less PPP loans was at 0.96%, and our total reserves to total loans less PPP loans was at 1.57%. Going forward, we will adjust our allowance as needed to accommodate the current economic and credit conditions.

Moving on to Slide 23. This gives us information on our current capital position. Our capital position continues to remain strong. During the fourth quarter, we announced that we would resume our stock repurchase program. Since the start of the year, we utilized capital for the PFG acquisition, executed a loan loss reserve build and repurchased over $4.3 million or 265,000 shares of our common stock. And with all that activity, our CET 1 and total risk-based capital ratios are identical to where we started 2020.

Our tangible common equity to tangible asset ratio are trending back to the 9% level, even with our excess liquidity and almost $280 million of PPP loans on the books. At our current levels, we feel very strong that we are positioned to weather any economic issues that may arise and are able to execute on any opportunities that may present themselves.

With that said, I'll turn it back over to Billy.

Thanks, Ron, and thanks, Rhett. I appreciate the color there. And as I think everyone can see due to really solid quarter and a number of really nice trends going for our company. I'll add a few more comments just -- and then we'll open it up for some questions. But as we move into what we hope or the later innings of this pandemic, we feel very good about where we are from a loan book standpoint as you heard Rhett speak to.

To go through the year we have and watch our clients perform gives us great confidence in our loan portfolio. Our markets are all performing very well given the environment. As I mentioned before, our smaller MSA model is well positioned for these current challenges. With few exceptions, our markets are operating near-normal levels.

We've jumped into PPP round 2. Our team began working last week on collecting applications and yesterday started submitting those to the SBA. This round of PPP will provide much needed relief for a number of businesses. We currently have approximately 700 loans in our pipeline, totaling about $90 million.

We expect those numbers to rise but believe the numbers will be lower than in around 1 as many of our businesses and clients will be needing the funding or will qualify given the new parameters to the second round.

Loan pipelines are solid, and I do think we will see organic loan growth coming in the next few months. Still targeting low to mid-single digits annualized, some obvious headwinds there with line utilization being softer, imbalance in payoffs of CRE -- some CRE credits are moving to some longer-term permanent financing, but I'm still extremely optimistic because our sales team is doing a nice job with our deal flow.

I believe we're sitting in a really nice position given the environment. The energy in our company is as good as it's ever been, and our team is focused on taking advantage of those opportunities that we will see come out in this cycle. We built a $3 billion bank platform with strong loan book. We do need to continue work on our expense controls and scaling our balance sheet and business lines without significant additional expenses, but I would really, really like the direction in which we're heading. Our noninterest income sector is beginning to scale nicely and diversify nicely and will continue to be a big focus for us. And as Ron spoke to, we continue to build capital through our earnings story.

It's an exciting time to be part of this company, and we're positioned well to be opportunistic moving forward. So let me stop there, and we'll open it up for questions.

(Operator Instructions) Our first question will come from Graham Dick with Piper Sandler.

So you all mentioned that you had a fair amount of CDs that are going to roll off or reprice here at the beginning of the year. Just wanted to get an idea for where those are coming on -- or new CDs are coming on and what prices are coming on at right now? And then how much lower specifically you think that could lead interest-bearing deposit costs over 2021?

Yes, I'll take that. We are looking at around $95 million over the first quarter. And we're seeing, based on previous quarters, we're kind of at the 55 -- 50, 55 basis point area. Currently, these are the ones that are maturing at 1.31%. So as I said, I think we probably can go 4 to 6 basis points lower in our deposit costs. We're still looking at our exception bucket of pricing. So I'm still saying we could probably get 4 to 6 basis points at this point of time. Again, we're getting pretty low. So I'm not saying we're at the bottom, but we're hovering close to the bottom there.

That's great, very helpful. And then I guess, just staying on the NIM, do you think it will be possible for you guys to use some more of your excess liquidity to repay even more borrowings? And if so, what kind of benefit do you think that could have on the margin going forward?

Yes. At this point of time, we paid off all we can or roll off. A lot of the other brokered deposits that we have are structured out for different term limits. So at this point, we really don't have any opportunity left to further pay off some of the wholesale funding.

Okay. Awesome. And then just one quick housekeeping thing. How much do you guys have remaining in the buyback? It's about $5.7 million maybe. If you get close to running that thing down at some point this year, do you think you could increase the authorization further?

We certainly have that option if we desire to, but it's just -- we'll continue to evaluate best use of capital.

Yes. And Graham, I think you're right. Yes, I think Ron said about a little over 4. So we've got -- we still have some powder left on that. And as Miller said, I think for us right now, it's just kind of as we come out of this past year, just evaluating the right utilization of that capital going forward. Obviously, buybacks are still there and can be options for us, and we'll continue to evaluate that.

Our next question will come from Kevin Fitzsimmons with D.A. Davidson.

Ron, I was hoping you could walk through that. I just -- I was writing furiously when you were giving the margin outlook. And I just want to make sure I've got it straight. So you said we were at 3.57% million this quarter reported, and you're saying a mid-3.50 range in the first quarter, which is inclusive of PPP forgiveness and purchase accounting accretion, which I believe you said accretion about 10 bps, which is, I guess, compared to 13 bps this quarter and then PPP at 48 bps, I think you said, and that's compared to 36 basis points this quarter. Is that correct?

It is correct. We're targeting pretty much the market to be very -- 1 to 2 basis point range of where we were this quarter.

Okay. And is that -- what's the assumption in terms of the -- is the remaining PPP forgiveness, which is the bulk of it, right, because you really just started, projected to take place all in first quarter? Or is it real -- or is it more realistically to take place over the next few quarters?

At this point, Kevin, we've tried to give guidance on this PPP forgiveness and the bouncing ball keeps going different direction. Right now, we're giving guidance that it's -- we're looking at 50% to be forgiven in Q1, which is about $154 million. And then Q2, 40%, which is about $115 million, and the remainder will just trickle in. So the majority, as you said, the first 2 quarters, we are hopeful that we'll get most of the forgiveness out of the way and get the rest of the fees out of the way. So we should be out of the -- well, at this round of PPP forgiveness, out of fees for the most part, by Q3, Q4 of 2021.

Okay. So that 48 bps is really kind of the steady-state accretion as well as the accelerated accretion upon forgiveness of that 50%, right? Is that a way to look at it?

Yes, yes. Yes sir. Yes.

Okay. That's great. And I guess, Billy, I know you continue to sound pretty upbeat on organic loan growth and that could solve a lot of issues. Unfortunately, it just seems like we're dealing with very liquid customers. We're dealing with PPP stepping in again. So I guess what's giving you that confidence we're going to see that organic growth really begin to fall to the bottom line in terms of the numbers?

Yes. That's a good question, Kevin. And a lot of other is just conversations that I'm having with our Chief Lending Officer and our Regional President. We sit down, and we look at pipelines on a weekly basis. And as we track those and look at the deal flow that we've got coming in, it's -- it feels pretty good, to be honest. It is -- now, there's no doubt there's some headwinds, I mean, with paydowns, line utilization, that's a real thing with this increased liquidity in the system.

So line utilization is off a little bit. But when I look at -- when I just look at our pipelines, we've got a lot of folks out working hard to pick up some new deals and move deals and still feel pretty good about it. We're still balancing. It is a balancing act. You're balancing between rate. You're balancing, not to give on credit. And it is challenging.

You've got a lot of other competitors out there, all trying to get growth as well. We're going to stick there. We're going to hold tight on credit and do what we can to hold margin. But I'm still optimistic that we can pick up some growth in the coming quarters.

Okay. And one last one for me. On the subject of buybacks, you mentioned about TCE trending back up toward a 9% level. Is that an important level for you guys to get it back up above there before you'd get a little more active or proactive in terms of thinking of utilizing that?

I don't think we have any certain goal. I mean that's just an internal number that we look at regularly. And the higher it is, the better it is. But we -- no, it's not a determining factor of us doing anything in particular?

Yes. I don't think we're looking to really push that back up before we continue to look at some of those other opportunities. Earnings strength continues to improve, and we should be able to continue to accrue some capital in that way. So -- but the 9% number is a good target for us. I don't think there's a magic formula there that prevents us from doing other things follow not at that number.

And I guess that's one way to utilize your capital. Other ways, obviously, organic growth and M&A. And it's been -- we haven't talked much about M&A recently, understandably, but the industry is starting to focus on it more. As you guys get a little more of a currency, do you -- are there conversations going on that front?

Absolutely. I mean we -- as we've noted every quarter that we talk about it, we have -- maybe we slowed down some of the conversations, but we never stopped the conversations because we wanted to be ready and have some relationships and queued up when the time is right. So we feel as optimistic as we ever have that those opportunities will only increase. And you're right, you're probably seeing more and more conversations to get started out there.

Our next question will come from Feddie Strickland with Janney Montgomery Scott.

Just want to ask on the noninterest income side. What are you guys seeing on mortgage? Do you expect any decline there over the next couple of quarters? And if so, do you think there's further room for growth in the other categories like insurance to kind of offset that?

Yes. I'll start, Ron, and you can jump in. I think mortgage Ron has kind of given some guidance. We think mortgages, we're still fairly bullish on that. We -- a lot of hours have been purchased. When you look at our mortgage volume, obviously, we've had some refis in these last few quarters.

But going forward, we still feel pretty optimistic as we look to grow in the markets where we've got population in place. I think we can hold -- it may be slightly change, maybe slightly down. But I don't see us picking up a lot of growth in that sector. I do feel like we can pick up the growth coming out of wealth and insurance stronger going into 2021, though. But Ron, do you have any color there?

Yes, you're exactly right. The insurance will pick up Q1, Q2 when the contingency income comes in from insurance carriers. But as far as mortgage banking since that's our line leader. We're pretty strong at this point going into Q1, Q2, Q3. We just got to wait and see. But right now, I think all indications that we will -- we should be able to maintain and slightly tweak up at the level where we're at today.

And I don't think we're as much rate-driven on the mortgage side as a lot of people think. I mean you look at state of Tennessee and the Florida Panhandle, high-growth areas. Great tax states with population growth. And so I think that will -- won't fall off as much as a lot of other banks, but a tremendous opportunity on the wealth and on the insurance side.

And as Billy had indicated, over the last 3 quarters, the amount of repurchasing -- excuse me, the amount of purchases is increasing and the amount of refis are getting lower. So good trend as going forward, what we're seeing.

No, that's great color. And then speaking of Florida Panhandle and Tennessee. Any particular areas of your footprint that kind of stand out in terms of potential for growth for the year? Anywhere you're particularly focused on?

It's really -- it's pretty well balanced. Yes, I think we've always really focused on a real balanced approach in all of our geographies. We're continuing to look for opportunities to add sales talent in all of those zones. So I would probably respond by just saying balance through all of our markets right now.

Next question will come from Stuart Lotz with KBW.

Ron, if we could just go back to your expense guidance for a second, and I appreciate all the color you provided on some of your initiatives for this year. Would you be able to quantify kind of the associated cost of those initiatives or is that already baked into your $19 million run rate guidance for first quarter?

Yes, everything is baked into our $19 million. Going forward, our past -- we are already giving quarterly guidance, but we're -- our mission is try to keep to that $19 million flat going forward. We may have some ups and downs, but that is -- all our initiatives and what we intend doing for 2021 is baked into that number. So it's all-inclusive at this point other than if we have any strategic things go on, that will be over and above. But at this point, we're looking good at the $19 million.

Okay. Awesome. And then maybe one more for you on the reserves. It was flat this quarter. And I guess we're kind of surprised to see no provision, but you inclusive of your acquired discount, you're kind of in the 150 range. How are you thinking about that reserve level as we get into 2021? If loss content doesn't really materialize and kind of keep kicking the can down the road. Just any guidance for provisioning?

I don't know if we're giving guidance. Our thought process is that we're going to maintain where we're at as best -- the last part of the quarter, we've seen a lot of cases. Again, we switched qualitative factors to the amount of COVID cases had really spiked up in specifically Tennessee and Alabama. So we included that.

So we -- I mean, my gut says, we will probably -- I don't know if we're going to grow into provision, but if things improve quite drastically, much quicker than expected, we could see a release. But again, it's too early to tell where the reserve is going. So we're just going to kind of keep this level going forward. So I really have not much more to say. I don't -- the future is kind of tough at this point. Billy, do you have anything to add to that?

No, I think that's right. I think it's more just kind of evaluate as we go. And we've got some -- we think we'll probably have some capacity to grow into that additional bill that we did in 2020. But we will watch it and add accordingly.

I don't think we used to kind of kick the can down the road. I don't think it's that. I think it's more of a continual evaluation.

Yes.

Monthly, quarterly, weekly.

Yes.

Awesome. And sorry, just one more on that reserve. I think you're not scheduled to adopt CECL until 2023 -- or 2022. Just curious, are you guys -- are you still running kind of a parallel analysis with that? And would you look at maybe adopting earlier if it could enable some reserve release? Or is that -- are you still just kind of thinking about that's 2 years down the road?

No. Well, 2 years down the road, which is true, but we're starting to do a lot of the data scrub, and we intend to run parallel next year at some point in time. So if -- now if there's an intriguing reason why we should adopt earlier, we would probably go down that road. But at this point, we are expecting to give probably dual guidance by the third, fourth quarter of next year. And we follow the adoption standard at January 1, 2023. Again, subject to if there's an intriguing reason why we should really get this thing going quicker, we will. But that's kind of the schedule what we've laid out at this point in time.

Our next question will come from Brett Rabatin with Hovde Group.

I joined a little bit late, and you may have covered this a little bit, but I heard Billy be pretty optimistic about the growth outlook. And I was just curious to hear how the competition was related to rate competition, in particular, if you're seeing things ease up? Or if it's still pretty intense? And just maybe some thoughts around the competitive landscape relative to loan origination.

Yes. And it is, Brett. It is competitive. We're in good markets, we've got some good banks in those zones, and everybody is out chasing growth. And so for us, it is -- rate competition is pretty fierce. We've done a pretty good job of being able to balance that. What we're not sacrificing is the credit piece. I said that earlier, too. I think you are seeing maybe a little more aggressiveness on -- in some areas.

And so I think that's the only thing that kind of causes me to hedge that a little bit. But I still feel really good, as I alluded to on the -- one of my first comments. When you look at our pipelines, and I do feel we've got some really nice deal flow, the real (inaudible) is going to be payoffs. You're in an environment where you're continuing to see these cap rates move and folks are selling assets that we hadn't anticipated to sell.

And so it is a little bit of a moving target with some uncertainty. But I like the aggressiveness that our sales team is out calling right now and feel really good about where the pipeline is. And so we'll just continue to watch it. But there's no doubt competition is tough.

Okay. That's helpful. And then just want to go back to fee income and mortgage banking and the kind of the whole fee income bucket there and just thinking about '21 versus '20. I want to make sure I understood, you're still thinking about growth in fee income in '21, and it sounds like you're pretty optimistic on mortgage. Are you basically saying that mortgage really doesn't come off that much in '21 given the changes you've made in the past 12 months? Or can you maybe give me a little color on your expectations for that in the next few quarters?

I guess getting into Q2, Q3, it's really unknown. We specifically just gave guidance on Q1. We can kind of -- we got that one figured out. Overall, other than mortgage, all the other silos of noninterest income. As we explained, we're putting a lot of hard work, and we do have some internal initiatives and opportunities that we're going to exercise on. So we feel very optimistic that we will hit our guidance in this section.

(Operator Instructions) There being no further questions at this time, this will conclude our question-and-answer session. I would like to turn the conference back over to Miller Welborn for any closing remarks.

Thanks, Grant. As we jump into 2021, as you heard us talk about today, everybody knows their goals and objectives, and we're all looking forward to 2021 with tremendous optimism, and we appreciate your interest in our company and your investment in our company, and have a great week. Thanks.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.