Earnings Call Transcript
Smartfinancial Inc. (SMBK)
Earnings Call Transcript - SMBK Q1 2022
Operator, Operator
Hello and welcome to the SmartFinancial First Quarter 2022 Earnings Call. My name is Lauren and I'll be coordinating your call today. I'll now hand you over to our host, Miller Welborn, to begin. Miller, please go ahead.
Miller Welborn, Host
Thanks Lauren. Good morning and thanks for joining us this morning for our Q1 2022 earnings call. It's great 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. What 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've demonstrated again our ability to outwork the competition and execute our strategic plan. Our organic pace of loan and deposit growth has been impressive. I'm extremely proud of the team for the 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 up to Billy.
Billy Carroll, President and CEO
Thanks, Miller, and good morning, everyone. This has been a positive start to 2022 for SmartFinancial. We're changing the format this quarter and condensing some of the commentary since our strategic shift to more organic growth results in less commentary. I’ll briefly highlight some key points and then turn it over to Rhett for details on the balance sheet, lending, pipelines, and credit, followed by Ron, who will discuss financials, margins, and guidance. First, let's review some highlights from our presentation. To get straight to the point, we had a strong growth quarter. Loans, excluding PPP, increased by 21% annually, and total deposits grew by 17% annually, climbing to 23% when only considering non-time deposits. Loan growth was well spread across all our regions, particularly boosted by the new groups established in Alabama and Middle Tennessee. Rhett will elaborate on that shortly. Deposits remained robust, meeting the upper end of our expectations due to excellent growth in existing accounts and new clients thanks to the lift-out groups. Our earnings were right on target, with $8.6 million in operating net income translating to $0.51 per share. Our revenue diversification is also on track. Our wealth management platform achieved significant revenue growth as new financial advisors transitioned assets. Our insurance subsidiary reported solid income, and our Fountain Equipment Finance subsidiary experienced its best growth quarter since acquisition, building a strong pipeline. It’s great to see these additional business lines starting to thrive as we expected. Also, as a reminder, the map on page 4 provides a great visual of our franchise, showing a much stronger presence than we had just a couple of years ago. As we noted on our last call, 2022 is the year to execute and leverage the investments made in 2021 as we aim for stronger core earnings metrics, continued positive trends in our ROA and ROE ratios, and to see revenue grow from these new investments. We've had a strong start in that regard, and that's our goal. Rhett, I’ll hand it over to you now to discuss balance sheet trends in credit.
Rhett Jordan, CCO
Thank you, Billy. Looking at Slide 5 in your deck, we have a very solid first quarter in loan growth, with natural organic loans and leases exceeding just over $136 million, ending the period with just over $2.8 billion outstanding. Production was solid across all of our market areas in the first quarter, with our newer markets contributing over 25% of new loan balance production for the bank this past quarter. As Billy mentioned, we ended the first three months with a compound annualized organic growth rate of approximately 21% over the prior period. The overall yield in our portfolio was slightly lower in Q1 compared to prior periods. However, we believe this trend will improve in the near term as PPP balances continue to decline and the operating environment begins to positively affect very competitive loan origination rates. In addition, we continue to see deposit growth for the quarter, with total deposits up $169 million for the year-ending 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 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 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 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 are also extremely pleased with the continued improvement to our overall deposit portfolio composition, with growth in non-time deposits once again outpacing time deposit run-off. At quarter end, non-time deposits represented almost 87% of the total deposit portfolio and non-interest-bearing deposits represented approximately 26% of total deposits. Slide 7 shows a continued solid trend in overall asset quality metrics, continuing to explain results up year-over-year in 2021. Q1 is soaring forward at 0.11% net charge-offs of 0.04%, and the over 30-day past due ratio of 0.20%, and classified loans at 3.1% of total loans improved over Q4 '21 performance. We have restored and managed our portfolio in the upper quartile of the ratio and continue to feel very comfortable doing so given the diversification, product mix, and credit profiles of our commercial real estate book. Our loan pipeline continues to be strong across all of our market areas with a large majority of the opportunities being non-CRE in nature and over 20% of the bank-wide pipeline fueled by our newer markets. Overall, our asset quality continues to show strong consistent results and our near-term outlook for loan growth remains positive. Now, I will turn it back over to Ron to walk you through our allowance positioning.
Ron Gorczynski, CFO
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 were stable. Given our positive credit outlook going into, we expect to continue growing our reserves to support our loan production and to assess the allowance and adequate credit conditions change. Moving on to slide 9. During the quarter, we continued to generate additional liquidity for deposit growth, and we were 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-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 total securities elevated to 35% 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're not anticipating any meaningful security purchases as we believe some of our excess liquidity will be absorbed via 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 industry margin was 2.91%, consistent with the prior quarter despite having further pressure from excess liquidity. Our security purchases in the last two quarters provided over $1 million of additional interest income, more than offsetting the reduction of $650,000 in PPP income. Further, loan yields remained in line with the past few quarters as a result of our continued pricing discipline. Our interest-bearing deposit costs continue to march lower by three basis points. Given our strong loan pipeline from 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's touch base on operating revenue. PPP 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 non-interest income sources, outpacing the loss of PPP income. For the quarter, non-interest income totaled $7.1 million, a little over 19% of total operating revenue. Overall, total operating revenue increased 1.5% quarter-over-quarter to $37.2 billion, which when factoring in the loss of PPP income and two fewer days during the quarter becomes a more impressive statistic. We're very pleased to start reaping the benefits of our strategies and look forward to additional operating revenue tailwinds to come. 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 on our net interest income. At quarter-end, our static interest rate shock analysis shows a net interest income increase of over 4% in 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 were nearly repriced 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 raise increasing deposit rates and insulate us from the full effects of any market rate increases. On Slide 11, our non-interest income continues to build momentum. Non-interest income increased over $300,000 or almost 5% from the prior quarter and more impressively, almost 25% from the prior-year quarter and is 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 by our recently added wealth team and increased volumes from the legacy team. 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 non-interest income forecast for the second quarter is $7.1 million. Onto Slide 12, as expected, our operating efficiency ratio continues to be elevated 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 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 in the $25.7 million range, with salary 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. Onto Slide 13, capital. Even with continued asset growth, our capital ratios remain 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 by 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 on equity. At quarter-end, our tangible book value was at $18.64 per share, and when excluding the temporary effects of our accumulated other comprehensive income component, our tangible book value was $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.
Billy Carroll, President and CEO
Thanks, Ron. To close, at 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 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 profitability platform. We're thrilled to get these platforms operating in the bank this year as we believe they'll have great impacts on efficiency and profitability. Shifting over to our outlook. We are also continuing to watch the economic landscape closely; geopolitical issues, inflation, tightening by the Fed, are 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 market where we're doing business and believe we will continue to grow at a very nice pace. The Southeast continues to shine as a pro-business region. The anecdotes are here from our local boards about companies looking to relocate to our areas or stories from our Realtor clients about the number of people moving to our region because of their low tax 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 daily 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 us 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 outstanding experiences to our clients. The excitement that is being built in our company is strong right now and as we execute our 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, Operator
Thank you. Our first question comes from Brett Rabatin from Hovde Group. Brett, please go ahead.
Brett Rabatin, Analyst
Hey, guys. Good morning.
Billy Carroll, President and CEO
Morning.
Ron Gorczynski, CFO
Good morning, Brett.
Brett Rabatin, Analyst
Wanted to ask about the impressive loan growth in the quarter and I've been a little surprised with some opportunities in some of the markets. A large transaction appears to not be going initially as smoothly 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's your sentiment in your 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 continue to ramp up on the lending side.
Billy Carroll, President and CEO
Yes. Well, I'll take that. Yes. From our standpoint, obviously, our number one priority right now is just execution on what we've added over the last several quarters. But that said, we are always on the lookout for talent in any of the markets. Obviously, there are some bigger trends and actions going on that could lead to opportunities. So, most importantly, we're evaluating that, and if we can find direct sales talent that we can add to the team, regardless of market, we'll look at it. I don't think we have really specific initiatives out there today, but I will say we're always looking for great new production talent.
Brett Rabatin, Analyst
Okay. That's helpful. And then wanted to talk about the margin and the asset sensitivity, and the 4% up for 100 basis points shock. It 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 markets are a big piece of the funding mix. I just wanted to understand a little bit more about what goes into the 4%.
Billy Carroll, President and CEO
Historically, our betas were around 35% to 36%, which we have conservatively modeled. We do not expect to reach that beta; we believe it will be much lower. Our bank is completely different today compared to the last cycle, and even our deposit mix has changed significantly. We anticipate a decrease in our loan fundings and for our earnings to help maintain cash levels, while deposits will gradually decline. This is a complex issue with many factors to consider.
Brett Rabatin, Analyst
Okay. And then just one last quick one on concentrations. The commercial real estate is now around 300. I'm just curious if the pipeline is more concentrated in it than others and what's your appetite for commercial real estate?
Rhett Jordan, CCO
We're historically managed over the upper quartile of guidance. But our pipeline is definitely leaning more non-CRE right now. We've got a little over 60% of the pipeline that is not in a CRE loan type and maybe spread across our geography. So, we are seeing a lot of new activity coming.
Brett Rabatin, Analyst
We're a little bit outpaced by CRE growth, just so I think had some draws of some projects we had on the books that added a little to that this quarter; is that correct?
Rhett Jordan, CCO
That's correct, we do.
Brett Rabatin, Analyst
Okay. That's helpful. Thanks for the color, congrats on the quarter.
Billy Carroll, President and CEO
Thank you. I appreciate it.
Operator, Operator
Our next question comes from Stephen Scouten from Piper Sandler. Stephen, please go ahead.
Stephen Scouten, Analyst
Hey, good morning, everyone. Thanks for the time. I thought the market might give you some credit for a really good quarter today but it looks like sentiment is still too bad. That first trading, 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 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 heading into the first quarter or just kind of frame that pipeline up a little bit more for us potentially?
Billy Carroll, President and CEO
Rhett, would you like to begin? I can add a bit more detail afterward.
Rhett Jordan, CCO
I can confirm that the pipeline has continued to grow. We are starting to see significant throughput from markets we added last year. In the first quarter, approximately 25% of our production came from those markets, and the pipeline reflects a similar distribution. We are consistently uncovering new opportunities, particularly from several of those areas. Compared to where we began the year, this segment of loans continues to expand without increasing our CRE exposure.
Billy Carroll, President and CEO
I'll add that the teams we've brought on are showing positive results in terms of banking larger companies. We're seeing a good diversification of clients, particularly from the new teams, with many of our newly acquired businesses being operating companies, a solid mix of lines, and some owner-occupied components. This quarter saw some strong activity in real estate, mainly due to draws on some larger projects. However, I expect that to stabilize and diversify over the next little while.
Stephen Scouten, Analyst
Okay. That's helpful. And I think if I'm looking at the data right, you have about $4.5 million left in the share repurchases that's authorized. How would you think about that today, especially given some of the weakness in the equity markets we’ve seen as of late?
Billy Carroll, President and CEO
We always watch it. Share repurchase right now is not front of mind primarily as we're watching the growth and 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 the appropriate use of capital, whether it's growth or other means. But right now, we're going to watch it. Obviously, if the 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.
Stephen Scouten, Analyst
It makes sense. One last thing from me regarding asset sensitivity. It appears that the metric decreased from about 6.5% to approximately 4.2%. Is this primarily due to the additional investments made this quarter in the securities portfolio? Also, in relation to those investments, could you provide insight into the new yields on the funds you allocated?
Ron Gorczynski, CFO
Yes. The majority of that investment purchases changed a little bit in our loan production, obviously. We did purchase $270 million, the majority of that are almost two-year Treasuries, so all-in for about 140, 145, maybe 142, just kind of caught in the middle. That's kind of the yields that we put on the books for Q1.
Stephen Scouten, Analyst
Okay, great. Very helpful. Congrats on a great quarter, everyone.
Ron Gorczynski, CFO
Thanks.
Billy Carroll, President and CEO
Thanks, Stephen.
Operator, Operator
Our next question comes from Kevin Fitzsimmons from D.A. Davidson. Kevin, please go ahead.
Kevin Fitzsimmons, Analyst
Hey. Good morning, everyone.
Billy Carroll, President and CEO
Morning, Kevin.
Kevin Fitzsimmons, Analyst
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 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? Another question referred to this earlier; it's that type 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? Thanks.
Billy Carroll, President and CEO
It's a great question that we discuss frequently. Our top priority is to grow our operations while managing our expenses and ensuring revenues increase in line with those expenses. However, we also want to remain open to good opportunities, especially since we've had success in recruiting strong sales talent. The bank has evolved significantly in the past couple of years in terms of sophistication, operations, underwriting, and sales processes. We are building a foundation that can capitalize on more organic opportunities. Right now, we are focused on controlling our expenses, which we feel confident about, while also driving revenue growth. We will continue to find a balance between these two aspects.
Miller Welborn, Host
I want to acknowledge Billy and the team. Some institutions take a different approach by just adding lenders and producers and creating budgets for them. Our approach is somewhat unique in that we've had other opportunities and expect more in the future, but our focus on culture and fit is crucial. When we discuss potential new team members, both the lift-outs and our existing legacy lenders understand our goals and direction. This alignment is essential for us. We are not just seeking someone who can bring in many transactions. Our preference is for long-term clients, and the lenders and producers we currently have are a great match, which will be very significant as we consider bringing on more in the future.
Kevin Fitzsimmons, Analyst
Okay. Thanks, Miller. Thanks, Billy. 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 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 have some initiatives and 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?
Ron Gorczynski, CFO
Yes, Kevin. During our expense guidance today, we're projecting a steady outlook for the remainder of the year, quarter-over-quarter. As Billy mentioned, we've managed our expenses well, and we believe we can handle this effectively. We will achieve efficiencies that are currently visible to help offset other managed areas without expecting any significant growth in that line item at this time.
Billy Carroll, President and CEO
Yeah. And I'll just add, we may have a little bit of an uptick if we add some occupancy in Birmingham or Nashville, some markets where we're looking to get some growth. But 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 start to move up nicely for us. I think that's where the efficiency gains come in.
Kevin Fitzsimmons, Analyst
Got it. Thanks very much, guys.
Billy Carroll, President and CEO
Thanks, Kevin.
Operator, Operator
Our next question comes from the line of Matt Olney from Stephens Inc. Matt, please go ahead.
Matt Olney, Analyst
Hey, thanks. Good morning, guys.
Billy Carroll, President and CEO
Morning, Matt.
Matt Olney, Analyst
I just want to clarify the outlook on the margin, the 310 and 2Q. I assume that captures the Fed hike from a few weeks ago, 25 bps. Does it assume any kind of Fed hike in the May or the June time frame at all?
Ron Gorczynski, CFO
Yes, we are monitoring the Federal Reserve's cycle and anticipate two more rate hikes. Specifically, we expect an increase of 25 basis points in May, followed by another 25 basis points in June. We haven't made any further predictions beyond that, but we've incorporated these expectations into our margin outlook.
Matt Olney, Analyst
Got it. Okay. Thank you for that. And then on the deposit side, I guess there were some commentaries in the prepared remarks that you've been a little bit cautious about deposits and any kind of potential for outflows during this cycle. Is there anything in particular at the bank that you're more concerned about than others? Just trying to get a sense of the cautiousness there about the deposit outflows over the next few quarters. Thanks.
Billy Carroll, President and CEO
I'll take that one, and Ron can add anything he thinks is important. For us, Matt, our caution is mainly about monitoring the rate situation, particularly as we look to manage our costs, especially with the recent increases in deposit rates. Our current liquidity allows us to be more disciplined about raising our rates, which I believe is what we've discussed, Ron. We're confident in our ability to attract new deposits. The new teams joining us are establishing excellent client relationships, which reassures us. However, we are being careful, and if we experience any outflows, we have sufficient resources to handle that. Ron, does that sound accurate?
Ron Gorczynski, CFO
Yeah, 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.
Matt Olney, Analyst
And I guess just following up on that, Ron, does the guidance assume any kind of deposit growth from current levels? It seems like the loan growth you expect to fund with the excess liquidity addition 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 just trying to appreciate at what point could we see deposit growth and if we did see some, would that be the catalyst to increase the size of the securities portfolio?
Ron Gorczynski, CFO
I can take that in various ways and delve deeper. We're projecting around a 3% growth in deposits for the year. We anticipate that loans will continue to outpace this growth, with our loan-to-deposit ratio currently at 67%. We're motivated to maintain our loan production and aim to reach the 70% range, ideally moving into the mid to high 70s. Regarding our current assets and securities, we are comfortable with our levels. We believe approaching 20% of our assets in securities is feasible. We will assess the situation on a quarterly basis to see how things develop. We're being patient with our approach as we feel confident in our position to act when needed. However, we want to ensure that we're not risking our execution for any reason. We should remain patient over the next quarter. While my guidance for the next quarter could change, for now, we're taking a cautious pause and observing how things settle.
Matt Olney, Analyst
Okay. Got it. Understood. Yeah, you guys are in a great spot for rising rates. Thank you.
Billy Carroll, President and CEO
Thanks, Matt.
Operator, Operator
Our next question comes from Feddie Strickland from Janney Montgomery. Feddie, please go ahead.
Feddie Strickland, Analyst
Hey, good morning, guys.
Ron Gorczynski, CFO
Good morning, Feddie.
Feddie Strickland, Analyst
So, I appreciate the overall guidance on the non-interest income but I was wondering if we could dig 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 curious what your outlook was there and what percentage of production is purchase versus refinancing.
Billy Carroll, President and CEO
Ron, you got that?
Ron Gorczynski, CFO
Sure, I'll address that. While we have never been a large mortgage operation, we have maintained steady performance over the past few years, reaching record highs. We believe the first quarter is a good indicator for the rest of the year. Although we face several challenges with supply rates and similar factors, we have a robust pipeline coming in, and we anticipate that this situation will not change significantly.
Billy Carroll, President and CEO
I don't believe we're going to see a significant decrease because what we may lose in refinancing will be offset by new purchases. We brought on a few new members to the production team late last year.
Feddie Strickland, Analyst
Got it. So, it sounds like overall, just your footprint effectively really helps with keeping that steady just because you've got continued population inflow. Is that right?
Ron Gorczynski, CFO
Absolutely.
Billy Carroll, President and CEO
It is. And I think that's really the key. Again, I think what we lose on the refinancing side, we should be able to replace on the purchase side pretty closely at the end of the day. We like the business. I think the way we've got it structured is really quite frankly pretty good, given where the market is today. We don't have a ton of overhead in that lot 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.
Feddie Strickland, Analyst
Got you. And then just one more for me, still in non-interest income. It seems like investment services was up a good bit this quarter. Was that just seasonal or is that solid growth? I saw you guys had a technology initiative related to that, so I wasn't sure if that's just reaping the benefits of that or if it's just growth in that division?
Billy Carroll, President and CEO
The wealth side is really just growth in that division. I really don't believe there's much seasonality in that at all. It's primarily just the new teams coming online that we had. We made a push, added a really nice group of financial advisors down in our 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 our team.
Feddie Strickland, Analyst
Got it. Thanks, guys. Appreciate the color and really appreciate all the detail on the slides as well.
Billy Carroll, President and CEO
Thanks, Feddie.
Operator, Operator
Our next question comes from Catherine Mealor from KBW. Catherine, please go ahead.
Catherine Mealor, Analyst
Hey, good morning.
Ron Gorczynski, CFO
Good morning, Catherine.
Catherine Mealor, Analyst
I just want to follow up on the margin. I wanted to ask about loan yields that both yield excluding accretable yield and PPP have remained really steady over the past few quarters at 4.18 now. How do we think about how it 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 re-pricing 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? Thanks.
Ron Gorczynski, CFO
I think it's kind of a joined question.
Billy Carroll, President and CEO
You start, Ron, and Rhett give some follow-up on what you're seeing in the pipeline.
Ron Gorczynski, CFO
Yes, we expected our loan yields to start increasing. We anticipate a lift of about 25 to 30 basis points in the next quarter and believe we've reached the bottom. I don't see us going any lower; I think we are at the bottom of the cycle as you've mentioned.
Rhett Jordan, CCO
I would say the same. Obviously, you are still seeing some aggressive pricing in the marketplace from time to time, depending on the transaction. However, we are also starting to see an increase in the rates at which we can win business, especially over the past 45 days or so. Additionally, we have a few transactions that were added to the bank's portfolio at a lower rate, which will be beneficial as rates begin to rise. We also had interest rate swaps that contributed to our growth yield for the bank. Ultimately, we will benefit from the rising rates on loans and any fixed-rate exposure; we are starting to see improved rates in the pipeline. It definitely requires a disciplined approach to avoid giving it away.
Billy Carroll, President and CEO
Yes. And I'll add, Catherine. What we're seeing especially with the smaller balanced loans, we're able to get some rate movement in those. Obviously, some of the larger loans might find it a little tougher, competitively. I think that the real thing that we're watching is you're still seeing a lot of competition being extremely aggressive, we think in some cases, too aggressive on the pricing side, especially folks with the liquidity that certain balance sheets right now. We're watching that but we're trying to stay, and I think the guys use the word disciplined, I think we are really trying to start to build some discipline in their pricing and handle it appropriately but we feel pretty good about our ability to get a little bit more light moving forward.
Catherine Mealor, Analyst
And then on that $1.1 billion of variable rate loans, can you help us think about the timing? How much of that float immediately reprices immediately with the rate increase versus maybe a variable piece that lags by a quarter or so?
Billy Carroll, President and CEO
We've got that. I think it's in the deck.
Ron Gorczynski, CFO
That's in the deck. $450 million of the variable rate loans will reprice immediately with any rate increase. And then we're looking forward to the next 100 basis point rise, we'll add another $85 million to that.
Catherine Mealor, Analyst
Okay. Great. Just to clarify, you mentioned that you expect a 25 to 30 basis point improvement in margins within your 310-margin guidance for the next quarter; did I understand that correctly?
Ron Gorczynski, CFO
Well, yes. Yes.
Billy Carroll, President and CEO
Yes.
Catherine Mealor, Analyst
Great, perfect. All right. Thank you for taking the questions.
Billy Carroll, President and CEO
Thanks, Cathy.
Miller Welborn, Host
Thanks, Catherine.
Operator, Operator
Our final question comes from William Wallace from Raymond James. William, please go ahead.
William Wallace, Analyst
Thanks. Good morning, everyone. I have a couple of follow-up questions. Could you discuss your loan growth and provide some details about your pipelines at the end of this quarter in comparison to the end of the fourth quarter? Additionally, based on the current pipelines and the pull-through rate you are observing so far this quarter, could you elaborate on that?
Billy Carroll, President and CEO
I'll start. Pipelines just kind of transitioned into Q4, into Q1 are a little bit higher. I think when we look at those, Rhett 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. Production numbers in the pipeline have been relatively good but so we're getting a little bit more, we're picking up a little bit more in net production. 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-teen number when you look at it for the year. Again, we're really trying to address it really on a quarter-by-quarter basis as we watch what rates do. 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-teen’s annual guidance.
William Wallace, Analyst
Okay. Great. Thank you. 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?
Ron Gorczynski, CFO
Oh, I'm sorry. Yeah, the purchase account increased by $580,000.
William Wallace, Analyst
Okay.
Ron Gorczynski, CFO
And the PPP income was $975,000.
William Wallace, Analyst
How much in fees do you have left in the PPP program and what was the ending balance?
Ron Gorczynski, CFO
That's good. We're hopeful we can be out of the PPP business by the end of this quarter. But we have very little left after that, $50,000 remaining. So, we're at the end of that cycle.
William Wallace, Analyst
Okay, great. So we're done. Okay. That was all I had just from a housekeeping perspective. I appreciate the time, guys.
Rhett Jordan, CCO
Thank you.
Ron Gorczynski, CFO
Thanks.
Operator, Operator
We currently have no further questions. So, I'll now hand it back over to Miller Welborn for any closing remarks.
Miller Welborn, Host
Thanks, Lauren. Thanks 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.
Operator, Operator
This concludes today's call. Thank you for joining. You may now disconnect your line.