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spk01: Greetings and welcome to Connect One Bancorp Inc. Fourth Quarter 2021 Earnings Call. At this time, all participants are in listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Sia Vansia, Vice President of Marketing Connect One Bank. Thank you. Please go ahead.
spk05: Good morning and welcome to today's conference call to review Connect One's results for the fourth quarter of 2021 and to update you on recent developments. On today's conference call will be Frank Sorrentino, Chairman and Chief Executive Officer, and Bill Burns, Executive Vice President and Chief Financial Officer. The results as well as notice of this call on a listen only basis over the internet were distributed this morning in a press release that has been covered by the financial media. At this time, let me remind you that certain statements and assumptions in this conference call contain or are based upon forward looking information and are being made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward looking statements are subject to numerous assumptions, uncertainties, and known or unknown risks, which could cause actual results to differ materially from those anticipated. These risk factors are more fully discussed in the company's filings with the Securities and Exchange Commission. The forward-looking statements included in this conference call are only made as of the date of this call and the company is not obligated to publicly update or revise them. In addition, certain terms used in this call are non-GAAP financial measures, reconciliations of which are provided in the company's earnings release and accompanying tables or schedules which have been filed today on Form 8K with the SEC and may also be accessed through the company's website at ir.connectonebank.com. Each listener is encouraged to review those reconciliations provided in the earnings release together with all other information provided in the release. I will now turn the call over to Frank Sorrentino. Frank, please go ahead.
spk03: Thank you, Cian. Good morning, everyone. We appreciate you joining us today. We're very pleased to report another strong quarter, capping off what was truly an exceptional year for Connect One. And I'm extremely proud of our entire team's effort to help achieve these results. Highlights for this quarter include some of the best metrics evidenced by our strong return on assets and our strong return on tangible common equity. This resulted in our pre-provision net revenue metric exceeding 2% for the sixth quarter in a row. over 20 percent organic loan growth on an annualized basis, all while we improved our sub-40 percent best-in-class efficiency ratio. 2021 reaffirmed our operating philosophy that a focus on organically driven growth and efficiency through investment in technology coupled with a strong client-centric culture leads to greater financial strength and ultimately the creation of shareholder value. As many of you are aware, Stock price performance for the entire banking sector was strong over the course of 2021, with the BKX index rising by about 35%, while ConnectOne's stock price increased by over 60%. We saw our market capitalization increase from about $800 million at the start of 2021 to approximately $1.4 billion today. And tangible book value per share increased 3.5% for the quarter and by more than 15% for the year. Yet we still traded a discount to our peers, and we firmly believe we're still undervalued. We entered 2022 uniquely positioned to continue to deliver long-term sustainable growth and industry-leading returns. Our existing markets are growing, and we expect to further capitalize on opportunities to expand our valuable franchise. Additionally, the expansion of our team is paying dividends while gaining momentum, translating into meaningful organic growth. Looking ahead, our current pipeline remains robust across all business lines. The outlook for the economy remains relatively strong and client confidence seems to remain high. We continue to strengthen our position in the New York Metro market while also successfully expanding into new markets that are a natural progression for us, such as Eastern Long Island and Southeast Florida. Further, We have a solid team of bankers with a proven ability to execute, and we continue to be a first choice for top talent in the industry seeking a dynamic growth-focused organization. Additionally, our investments in BowFly continue to produce opportunities to deepen existing relationships and expand the potential of this platform. And lastly, we've built a strong technological foundation, and are well-positioned to take advantage of the competitive fintech environment. Expect to hear more about this as the year progresses. Notwithstanding all this, we certainly see several headwinds forming, which may slow some of the extraordinary growth rates we experienced in 2021. As we move through the new year, we expect competition to heat up, and the Fed's anticipated tightening could slow overall economic growth. Just to repeat, we're still experiencing strong growth in 2022, but it will likely be somewhat subdued from what we experienced in the latter half of 21 and probably land somewhere in the low double digits. On the deposit side, our focus has always been on core non-interest bearing demand. And in that regard, we expect those balances to keep pace with our loan growth. Connect One has a long standing and proven track record of prudent and profitable growth supported by our people first philosophy and a stellar reputation among our business lines. Additionally, the continued disruption caused by M&A is providing us even more opportunities to gain new clients and hire experienced bankers, from revenue generators to tech talent. Speaking of M&A, while our last transaction was completed in January of 2020, We expect that strategic acquisitions will continue to be a part of our long-term growth plans. We, of course, are maintaining our disciplined approach when evaluating potential partners that provide a number of synergies with Connect One and strengthen our franchise. So now let me turn to our capital base. We currently stand with capital levels and earnings strength to support our projected growth. We also plan to be opportunistic with regard to share repurchases. being mindful of market conditions and actual growth in our balance sheet. Further, as you may know, our Board increased Connect One's cash dividend twice during 2021 for a combined total of 44 percent in dividend increases during the year. Our Board will continue to evaluate future dividend increases during 22 and beyond. I want to reiterate that we're building on the solid momentum we've achieved and will continue to take an opportunistic approach to our growth, including continued strategic investments in technology and talent acquisition. As a result, expense growth is expected to accelerate at a pace that is faster than we have seen historically. Bill will provide a few more details on these projections in a minute. However, we continue to generate favorable operating leverage, which ultimately empowers us to continue to invest in Connect One while maintaining superior financial returns. In summary, I'm pleased to report that the company experienced a very successful year, both financially and operationally, and we believe Connect One is poised to deliver on its long-term objectives. I'll now turn the call over to Bill to provide some more details on this quarter's financial performance. Bill?
spk09: Okay, thank you, Frank. Good morning, everyone. So as Frank mentioned, we are very pleased to report another great quarter and year with financial metrics that place us among the highest performing banks in the country. Of particular note, our pre-provision net revenue as a percentage of assets increased for the seventh consecutive quarter to 2.28%, and the net interest margin widened for the eighth consecutive quarter to 3.75%. There's another metric that is very important to many of our investors and to us as well, and that's the upward trajectory of tangible book value per share. We surpassed $20 per share at year end, reflecting a 15% increase over the past year, and that comes on top of a 10% increase for each of the prior two years. And that type of book value growth comes from strong earnings that are primarily organically driven, combined with financially disciplined M&A. As Frank alluded to, Our stock price performance in 21 was exceptional, you know, but we still traded the discounted peers on a PE basis, and so that, plus the fact we probably should be trading at a premium based on performance metrics and our growth, that leads me to believe there is significant room to further outperform. Our loan portfolio, excluding the PVP, continues to grow at a double-digit pace while credit quality remains sound. Our deferred loans under the CARES Act is now down to almost zero. Our charge-offs this quarter were next to nothing, and non-recruits declined during the most recent quarter. And even with the strong balance sheet growth, our capital ratios continue to increase. The tangible common equity ratio on a consolidated basis surpassed 10% at year-end. And that puts us in a great position to do all or a combination of the following. Grow organically at double digits, repurchase stock, increase dividends, and we also have the flexibility to utilize cash in an acquisition. Let me dive a little deeper into our financial results, first with the net interest margin. As we mentioned earlier, our margin has continued to expand, whereas the industry has mostly contracted. In fact, the NIM here at Connect One on a gap basis has expanded eight consecutive quarters. That's been a result of a number of structural factors related to our interest earning assets and loan portfolio, including, first, we just have a low percentage of immediately repricing loans. and a high percentage of floors in place on those floating rate loans. We also have significantly less exposure than most banks to prepay mortgage instruments. And then on top of that, going way back to the beginning of the pandemic, we were very aggressive in repricing our deposits. Now as rates rise, there'll be several factors in play with determining our margin going forward. First on the positive side, we're gonna benefit from utilizing excess cash We don't have as much as some banks, but we have a good $100 million or so that we can put to work. Second, during the latter half of last year, we locked in in excess of $500 million of fixed funding rates. In addition, our core non-interest-bearing relationship balances have been increasing significantly over the past year. That number is up more than 20%, commensurate with the loan growth, and that source of funds will help drive managers' income in a higher-rate environment. But there are also several factors working against the margins. First, there's a reduction in market liquidity that's coming, and that's going to lead to deposit pricing competition. And then we have pricing competition on loan originations, and that's already taking place, and that is compressing spreads on new business today. And then there's prepayment activity, and therefore fees. There's been a lot of that in 2021. That's expected to decline in a rising rate environment. End of the day, you know, we've been operating at the widest net interest margin in our history. and I expect some margin compression in 2022. Next, I want to talk about progress we've made on non-interest income initiatives. The core non-interest income is up 10% year over year. Our newly formed SBA team is generating meaningful success in originating and selling SBA loans. We continue to invest in bolster resources there. Also, our CRE origination for sale platform continues to accelerate and expand its reach. So natural progression for us, given our ability to generate strong credits with favorable terms in markets where others may lack our origination power. Next, with regard to Bowfly, we continue to invest in that platform as well as its marketing and product development. The number of franchisors using our proprietary products is accelerating, and the pipeline for fee generation is increasing. And, you know, you may be aware we do not rely significantly on overdraft fees, so fees at risk are relatively low at Connect One. So with all of that, I'm conservatively predicting approximately 15% increase in non-interest income in 2022. Let me turn to OPEX. The fourth quarter was about flat from the sequential third quarter, as I expected. But now going to 2022, we will see an increase in expenses, especially in the comp lines. This is due in part to wage inflation, which impacts not just our existing staff, but also new hires. And as Frank was alluding to, we are expanding organically into new markets, capitalizing on disruption caused by M&A, which has been driving revenue-generating talent to Connect One. In addition, you should expect increased technology expenses here, including enhancements to our bank infrastructure, build out of our product offerings, and continued investment in Bowfly's digital platform. So together these items are driving expense growth, which I estimate to be approximately three to 5% in the first quarter over the sequential fourth quarter. So three to 5% sequential growth. And I estimate that expenses will continue to increase over the remainder of 2022, but at a slower sequential pace than I just mentioned. Turning to credit quality, all in all we've had positive trends and that speaks highly to the strength of the portfolio and how our team has responded to the pandemic. We are seeing a reduction in non-accruals that's attributable to both solid underwriting and our proactive workout philosophy. Delinquencies continue to remain extremely low. Deferrals, I mentioned before, are down next to nothing. We have one loan left. In regards to CECL, I said this before and it still holds true. It's just a complex and difficult thing to project over any reasonable horizon, especially in a volatile economic period like we're in today. For the quarter, we provided a small addition to our ACL, primarily due to significant core loan growth. Offsetting the increase in the provision due to growth were releases generated by our seasonal model, reflecting improved economic forecasts, as well as qualitative factors related to the reduction of deferred loans, as well as lower levels of delinquencies in paired loans. So going forward, I think it's fair to project provisioning commensurate with portfolio growth, although everyone is in the same boat with regards to economic forecasts, which are uncertain. I WANTED TO ALSO MENTION OUR TAX EXPENSE LINE, OUR EFFECTIVE TAX RATE JUMPED A LITTLE UP TO 27% FOR THE QUARTER, AND THAT REFLECTED A SIGNIFICANT INCREASE IN TAXABLE INCOME. GOING FORWARD, WE WILL HAVE MORE ROOM TO INVEST IN TAX ADVANTAGE INVESTMENTS, BUT MY EXPECTATION IS THAT OUR EFFECTIVE TAX RATE WILL INCREASE OVER THE FULL YEAR 2021 EFFECTIVE RATE. IN 2021, THE ANNUAL EFFECTIVE TAX RATE WAS 25.5%. AND SO THE FORECAST FOR THE INCREASE IS BASED BOTH ON MORE GROWTH and our expanding geography, which can reduce the benefit of some of our tax strategies. And that's the end of my remarks, and I will now turn it back over to Frank for concluding remarks. Well, thank you, Bill.
spk03: As you just heard, Connect One delivered a record financial performance during 21, and we had great success in creating positive operating leverage, which drove our sub-40% efficiency for the year. We drove this efficiency not by being a cost cutter, but rather the direct opposite. And we are continuing to make all the necessary investments in Connect One. As we move into 2022, I'd like to reiterate a few points. We're projecting strong, organically driven growth. We're continuing our digital enhancements and investments on both the Connect One and both live platforms. Our margins and efficiencies are expected to remain among the best in the industry. Our balance sheet and credit are in good shape, and we continue to pursue attractive opportunities to further maximize long-term shareholder value. So we're excited about our future and look forward to updating you in the quarters ahead. And with that, we're happy to take your questions. Operator?
spk01: Thank you. We will be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in a question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. The first question comes from Frank Chiraldi with Piper Sandler. Please go ahead.
spk07: Morning. Morning, Frank. Just on – first on the – on outlook for the margin, you know, any sort of guide or color you can give, Bill, on your thoughts of what a given 25 basis point rate hike – how that would impact NIM here and sort of what sort of deposit betas you're thinking about right out of the gate?
spk09: You know, I don't think it's going to have a major impact on our margin for, you know, the reasons that I just spoke to. There are a lot of moving parts. And at the end of the day, it doesn't have a significant impact that alone.
spk07: Okay, so maybe more neutral.
spk09: I would say it's neutral, right.
spk07: And then just in terms of growth, the growth outlook is a little bit better, I think, than you noted last quarter. In terms of 2022, I think you talked about maybe 10% growth. Now you're talking low double digits. So just wondering in terms of geography, I know you have a small amount of footings in Florida. is that additive to that growth rate or, you know, is that going to grow faster than the overall bank or, you know, about the same, do you think?
spk03: Well, I think there's a lot of different things we're doing here at Connect One that may have higher growth rates than the overall growth of the balance sheet. So, you know, some of the, obviously just the rule of smaller numbers, you know, smaller footings in certain places may have higher growth rates. But, you know, I think, somewhere around the 10% to low double digits is within the realm of what we think we see as we sit here today. Now there's lots of things that could impact that going forward, but we have more lines of business, more in the way of geography, more in the way of what we're building out, more opportunities to hire revenue producing individuals than maybe we've ever had before. And so You know, I think pegging it down at the low, you know, low double digits is probably the right place for us to be thinking about it. Got you. Okay.
spk06: I appreciate the call. Thank you. You're welcome.
spk04: The next question comes from David Bishop with Seaport Research Partners.
spk01: Please go ahead.
spk11: Yeah, good morning, Frank, as well. Hey, Frank, just curious, sort of circling back to that, you mentioned the opportunity to hire revenue producers that obviously impacts the expenses. But just curious in terms of the types of bankers you might be targeting, are these more CNI or CRE focused? And just curious how many maybe individuals you added this year and maybe what the budget could be for this year.
spk03: It's hard to say who's going to pick up the phone and call us tomorrow, but we are seeing inquiries from various types of individuals as well as entire teams, both in the C&I and the commercial real estate and in other specialty type markets. So really hard for me to predict what those are going to be. I would venture to say, and I would believe based on where we are, the banks that they're calling from that there'll probably be some mix of C&I and commercial real estate. We are targeting other potential verticals as well. As you know, we're building out our expertise relative to our Bowfly platform and some of the franchise lending there. We have a healthcare group that's been building. We have our SBA team that we've been building as well. So certainly those things rise to the top of the pile. As far as numbers go, you know, I think I made an advertisement on our last call. If you're interested, please call us. I'll make it again. You know, there's sort of no cap on what we'd be willing to look at, you know, relative to the number of people that we'd be willing to hire in 2022. We'll take those opportunities as they come because some of them are just great opportunities. They're almost once-in-a-lifetime opportunities. But I think in 2022, 21, we hired probably about a dozen, you know, dozen, dozen and a half individuals over the course of 21. I think we're going to see similar, you know, growth in 2022. Got it.
spk11: And Frank, you mentioned one potential use of excess capital, M&A. Would your preference to be, look, in terms of a target bank, would it be something a to be core deposit driven, something that's on venture fee income generation? Is there sort of a a top line characteristic you're looking for in terms of a potential acquisition target?
spk03: I think we made a list of all the reasons why we would even entertain an M&A transaction. I would say yes to all of them. You know, we don't generally don't generally get to pick exactly what it is that's going to present itself as an opportunity. but there are so many different reasons why. And I think even if you look at some of the transactions we've done in the past, whether it was bringing on another line of business, whether it was expanding a geography, whether it was other sources of income, whether it was moving more in a technology world, each acquisition brings its own unique strengths to the transaction. And I think we've developed a reputation here at Connect One of being quite opportunistic. And when we see opportunities that fit within, you know, a particular discipline financial model and provide some other expansion of our, you know, existing franchise, you know, whether that expansion is human capital, geographic or whatever, you know, we'll take advantage of that when we think all those things line up the right way. Now, all that being said, you know, some of our best performances come from, you know, straight out organic growth and the vast majority of our growth has been organic. and we continue to develop resources to attract that organic growth. But coupled with that organic growth and with the concept that we continue to grow capital, I do believe that selected M&A and disciplined M&A can play a really valuable role in our future growth plans.
spk11: Got it. Maybe a question for Bill. I think he had mentioned... in terms of the NIMS and competitive pressure on the loan front. Just curious what you're seeing in terms of loan spreads currently versus maybe last quarter. Thanks.
spk09: Yeah, my most recent reading of it, spreads were coming in 35 to 50 basis points, which is a lot.
spk06: Got it. Thanks.
spk04: Thank you.
spk01: Next question comes from Matthew Breeze with Stephens, Inc. Please go ahead. Good morning.
spk09: Good morning, Matt.
spk10: Hey, Bill, going back to the NIM. So you mentioned in the prepared remarks that you expect some pressure from here. And along these lines, one of the things I struggle with is the sustainability of the overall core loan yield, which still comes in, I think, a little bit north of $450,000. So can you discuss where new loan yields, not the spreads, are actually coming on? What portfolios kind of come above 450 and what the blended new rate is relative to that?
spk09: Yeah, it depends on the portfolio. Obviously, construction, lending, and CNI is well over 4% as we get into owner-occupied and non-unoccupied commercial real estate, it's a little bit lower, and then multifamily is the lowest of those. The overall spread is, I think the overall loan origination rate is about 25 or 30 basis points below where we are. It's about that, about maybe 35 or 40 basis points lower than we are today for new loans. But our cost of funds continues to go down. I just, you know, it's... The other aspect to it is that, you know, the growth, when you're looking at the margin is the growth and not just bearing demand. So when I put all those things together and none of those assumptions that I made or projections are certain, I come out that I expect some margin compression. And again, I've talked about before, we are at the highest level we've ever been at, at 375. So, you know, even if our margin compressed by 10, or even 20 basis points, we're still in really good shape in terms of driving return on equity.
spk10: Okay. And just considering the absolute level of loan yields, it still strikes me as quite a bit higher than a lot of your peers. Why is that? Does it come down to the relationship-driven model, or is it the structure of the loans? Maybe give me a little bit more insight there.
spk09: I think part of it is the relationship aspect of it, where we're getting something more than the market, an eighth to a quarter higher on that. We also have less residential mortgages than most, and those tend to be lower yielding. So when you put it all together, I don't think we are that far off market. We're not out there. It's not an indication that there are riskier assets, okay? It is, you know, the proof is in the pudding, our performance in our portfolio. We're very careful in how we lend. And we don't, you know, we don't chase yields down. We're able to say no if we don't want to compete at a given rate.
spk10: Got it. Okay. And then the last one, you know, I think all things credit quality related, you know, are on very solid ground at this point. You know, kind of the lone remaining asset class I get questions on is office, particularly New York City office. And I'm just curious your thoughts on the health of that segment over time. And do you see any kind of incremental anecdotes that give you a feeling one way or another of whether or not there's real valuation impacts to be had there?
spk03: Matt, I would tell you that, first off, we don't have a lot of office in our portfolio. But that being said, the New York office market is actually pretty strong. It's hard to find office. Everybody thinks everyone's just leaving the keys on the desk and walking out of their offices. That's not what's happening. The offices may be partially vacant today because of all the COVID issues. But that's very, very rapidly changing. I go by my traffic index and how many minutes it takes me to get from the city to Angle Cliffs, and that's continuing to increase. So traffic is going up, and there's more and more people in the city. Subways are filling up. There's still large firms executing large leases in Manhattan, and I think that trend is only going to continue to rise. There's actually some conversation about shortage of office space in the city that we can see going into the future. So I wouldn't be overly concerned. Properties are trading at pretty good valuations going forward. So it doesn't give me a lot of concern, even though it's an incredibly small part of our portfolio.
spk10: Great. Well, I appreciate you taking my questions. That's all I had. Thank you.
spk06: Good night.
spk01: Thank you. The next question comes from William Wallace with Raymond James. Please go ahead.
spk08: Putting it all together... Morning, Wallace. Morning. With the expense pressures that you are talking about and then potential for... margin pressures, I'm just kind of curious, what do you think efficiency can do in the year with the loan growth?
spk09: In terms of the efficiency ratio?
spk08: Yeah, yeah.
spk09: I think it will trend up a little bit, but not too much, you know, a few percentage points, and maybe we could reach 40%. But, you know, as we get bigger, I think in the long run, I think in the long run, we'll still be able to drive efficiencies down even further as we increase our size. But for this year, given the wage inflation and the margin pressures, you could see some pressure on the efficiency ratio.
spk08: Okay. Thank you. That's helpful. And then my last question, Frank, you kind of teased us a little bit in your prepared remarks. I believe you said something along the lines of, the potential opportunities that the BowFly technological platform might provide and to stay tuned. I'm wondering if you might maybe give us a little bit, maybe some hints or just kind of like what kind of opportunities might a platform like that provide other than expanded verticals or something?
spk03: Well, The platform itself today from when we bought it has more than doubled the amount of business that it does with individual franchisors, which then in turn opens up the channels for more franchisees to make applications to BowFly. So just when we look at the original platform and what BowFly's mission was, we've created a lot of efficiencies there, and that part of it's growing. And it's growing on top of a marketplace where there are more and more people who are interested in franchise opportunities. So you put all that together and I'm pretty confident that that platform will continue to grow over time and get some meaningful scale relative to what the marketplace provides. But then you start to look at all those clients that we have access to in the franchisee space and what other products they need as they grow their businesses outside of what Bowfly's primary mission is. And we're starting to take advantage using their technology, using some of our technology, using, you know, our Encino platform, using lots of other tools we have here, both at Connect One and Bowfly, to take advantage of those opportunities just like we do at Connect One. when we try to onboard a client and get the entire relationship where you start thinking about people that are coming through that platform and the reach of that platform, which, as you know, is national. There's a lot of great opportunities there for fee income opportunities without the use of Connect One's balance sheet to grow that platform. And so we've been making investments there. We're seeing those opportunities. You know, I don't want to put any numbers to the paper today, but, you know, we're seeing clear and consistent growth, not only in the platform itself, but in the other, you know, the expansion of that platform into other verticals, into other types of business. And then, you know, when you take one more step away from it and say, okay, that's the franchise world, there are other places where this applies to. So for me, every dollar we're putting into that platform has some multiplier effect to it as we continue to expand what we're doing there. And Mike Rosman and his team are just doing an outstanding job of building that out and utilizing the resources that we're giving him to be able to do that. So that's why I say, I think, you know, I think as we go through 22, you know, 20 and 21 were challenging years for both live because, you know, think about it. All the food franchisors and the automotive franchises and everyone, they were basically shut down for parts of that timeframe. They're all roaring back and there's more and more franchise opportunities. There are franchise aggregators that are now interested in the BowFly platform. You can't be in the franchise space without knowing about BowFly today. So we're pretty optimistic about, you know, what our possibilities are there. And I think as the year goes on, we're going to see, you know, we're going to see some muscularity that will start to show up in some of the numbers. And, you know, we'd be happy to report that when that happens.
spk08: Okay, great. Yeah, thanks, Frank. That's helpful. I appreciate that additional commentary and we'll look forward to kind of watching how it unfolds.
spk02: So thank you. That's all I have. Thank you, Wally. Thanks, Wally.
spk01: Thank you. Again, if you would like to ask a question, please press star 1 on your telephone keypad. The next question comes from Michael Perito with KBW. Please go ahead.
spk02: Hey, good morning. Hi, Michael. couple most of my questions been asked but just a couple follow-ups sorry if i missed this but on the um the sba gain on sale um i was curious if you guys could provide any outlook commentary for for 2022 i mean it seems like you guys are have good momentum there and are maybe getting some market share with some hires you've made but you know the overall 7a market i imagine will take a step back you know just from the record levels it was at last year just curious if you could uh kind of break out what you think you see there, and on the gain on sale margin side too, which were elevated in the last couple quarters?
spk09: This is Bill speaking. I don't want to give an exact projection because we don't know ourselves, but it is going to be up significantly. We're actually hoping to double the amount of gains that we had in 2021. And I think the margins are holding in there pretty well. So it remains to be seen, but we are continuing to put resources there and building it.
spk02: And is most of your production today on the 7A side, or are you guys doing anything else within the SBA product verticals?
spk09: Mostly that.
spk02: Okay. That's helpful. And then just lastly, curious on the low double-digit, you know, 10 plus percent loan growth. I know you guys spent a bit of time on it already, but just as we try to understand kind of geographically where some of your opportunities are, just curious if there's anything specific you're willing to add in terms of, you know, being down in Florida or some of the M&A disruption in New York, just any particular kind of locations or verticals that seem to kind of have a little bit more momentum or strength possible for next year that we should be mindful of.
spk03: I mean, the general answer is yes. We're going to see it from everywhere, and it's pretty much going to come, in my opinion, from all the various markets, verticals, and various teams that we have. I think when you look at the company at the end of 2022, you'll see the pie of distribution is probably going to be about the same across verticals, markets, geographies, maybe some of the smallest geographies seeing a little, you know, somewhat of an increase just because of the nature of their size. But, you know, Mike, don't forget, we're in the New York metro market. It's an enormous market, and we have such a tiny, you know, market presence that we can do big numbers and still not, you know, change, you know, anybody's, you know, market presence. So, I think when you look at how Connect One is structured, you know, both geographically and the different lines of business, I think you're going to see a similar story when we get to the end of the year.
spk09: I just want to add, you know, we continue to be disciplined both in terms of quality of deal and pricing. And so having all these ways to grow is very helpful. We don't need any one of them. And it contributes, you know, to sustainable margins and high returns.
spk03: And Mike, let me just add to you mentioned specifically Florida. You know, I think I mentioned on the previous call or maybe the one before that, that Florida was more of a defensive strategy for us, not an offensive strategy. So it's almost hard to differentiate when we do a loan in Florida. Is that really New York business or is it Florida business? Just because the assets in Florida may not mean necessarily that, you know, that we brought on a new business relationship. You know, as I mentioned, a lot of our New York and now New Jersey relationships here are also expanding their presence into Florida. So, you know, again, that's why I say I think when you look at the balance sheet, you'll see hopefully a similar but larger balance sheet at the end of 2022.
spk02: Got it. Very helpful. Thank you. And then just, just lastly, a little bit of a ticket jacket question here, but just on the NIM outlook, you know, the compression expectation. So what do you think the best, what type of starting point are you using? I mean, cause obviously the NIM saw some really good expansion in the year. Are we talking compression off kind of the, the exit core in the fourth quarter kind of year on year, just, just trying to get a better gauge of what. Yeah, I would start.
spk09: I'm looking, I'm looking for where we are today and what's going to happen going forward. And obviously, internally, I look at it month by month. But when I report to you, it's on a quarterly basis.
spk02: Nope, that's perfect. That's what I figured. Just wanted to double check. Thank you, guys. Appreciate it. Thank you, Michael. Thanks, Mike.
spk04: Thank you.
spk01: Ladies and gentlemen, we have reached the end of question and answer session. And I would like to turn the call back to the management for closing remarks. Please go ahead.
spk03: Well, I want to thank everyone and especially thank all the great questions we were asked here today. And thank you for joining us on our year-end conference call and certainly look forward to speaking to you through the year of 2022. So thank you and enjoy.
spk04: Thank you. This concludes today's conference. You may disconnect your lines at this time.
spk01: Thank you for your participation. Thank you.
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