Stellar Bancorp, Inc. (STEL) Earnings Call Transcript & Summary

Good day, and thank you for standing by, and welcome to the Q4 2021 Allegiance Bancshares, Inc. Earnings Conference Call. [Operator Instructions] And I would now like to hand the conference over to your host today, Courtney Theriot, Chief Accounting Officer. You may begin.

Thank you, operator, and thank you to all who have joined our call today. This morning's earnings call will be led by Steven Retzloff, CEO of the company; Ray Vitulli, President of the company and CEO of Allegiance Bank; Paul Egge, Executive Vice President and CFO; Okan Akin, Executive Vice President and Chief Risk Officer of the company and President of Allegiance Bank; and Shanna Kuzdzal, Executive Vice President and General Counsel. Before we begin, I need to remind everyone that some of the remarks made today constitute forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995 as amended. We intend all such statements to be covered by the safe harbor provisions for forward-looking statements contained in the act. Also note that if we give guidance about future results, that guidance is only a reflection of management's beliefs at the time the statement is made, and such beliefs are subject to change. We disclaim any obligation to publicly update any forward-looking statements, except as may be required by law. Please see the last page of the text in this morning's earnings release, which is available on our website at allegiancebank.com, for additional information about the risk factors associated with forward-looking statements. We also have provided an investor presentation on our website. Although it is not being used as a guide for today's comments, it is available for review at this time. At the conclusion of our remarks, we will open the line and allow time for questions. I now turn the call over to our CEO, Steve Retzloff.

Thank you, Courtney, and good morning, everyone, who is participating with us on today's call. We thank you for your time and interest. The impressive themes from the third quarter of 2021 continued their march into the fourth quarter. Unfortunately we made it sound a little redundant, but in a good way, as our net income of $21.6 million or $1.06 per diluted share was the result of both strong core performance, but also the beneficial contribution from further PPP fee income recognition and a prudent, but significant increase in investments due to continued liquidity expansion. For the full year, we set new records all over the place, record earnings of $4.01 per share and new highs in key balance sheet components in footings such as securities, core loans, deposits, capital and total assets. Our shareholders should not only celebrate the higher earnings, but we have also declared another increase in the dividends being paid. We're not only a bigger bank. We're getting better every day. In 2021, we originated a record level of new loans, which, as it was predominantly granular, represented a courageous effort by all of our bankers in the field. We grew our core loans in the fourth quarter at an annualized rate of 7.5%. Our asset quality statistics are even better than before, highlighted by fewer nonaccrual loans and 0 ORE at year-end. With the continued strong allowance for credit loss position, this resulted in a higher NPA coverage ratio. Despite uncertainties going into 2021, we just did not experience very much in the way of net charge-offs for the year, which I believe can be attributed not only to continued solid underwriting, but also a well-conceived and executed pandemic assistance program. Great work by our special assets team and the Houston regional economy that is more resilient than people sometimes realize. It's not always easy to be succinct when you want to fully describe something so that others who are not seeing it firsthand can gain a full appreciation. Ray and Paul are about to provide the details, which represent clearly impressive results and a strong balance sheet position. I want to lean into our excitement for what is being accomplished in addition to the numbers. As you know, we announced a merger of equals during the quarter with CBTX, Inc. The announcement was the result of a year-long work between our executive team members and our respective boards. Since announcement, our joint integration team has been formed, conversations between functional departments are becoming frequent and people are getting to know and in many cases, getting reacquainted with one another. While change is often referenced as a risk factor, and it is real, our 2 teams are rapidly adopting a unified approach as they collaborate and take on the responsibility of putting these 2 organizations together. I could not be more pleased by how a strong sense of one team, one future is being formed. This is clearly an exciting time at Allegiance as we continue to embrace our quickly expanding role as the premier community bank headquartered in our region. As such, I'm proud of our financial and volunteer commitment to local outreach as we continue to support our community. Highlighting just 2 of many, we recommitted to support the Houston Food Bank in 2022, which, for those of you unfamiliar, the Houston Food Bank is the largest food bank in the country and is able to deliver annually well over 150 million pounds of food to our region through 1,800 distribution partners, which not only rescues those with food insecurities, but can also serve to supplement rising expenses for a financially challenged family. We have also been deeply involved with the formation and funding of a banking program at Texas Southern University, one of the nation's largest historically black universities, with the vision that TSU will fill the educational need for those students interested in pursuing a career in banking. With that, I'll turn it over to Ray for a more detailed review of our operational results followed by Paul, who will cover our financial results.

Thanks, Steve. Through the first 3 quarters of 2021, the story was record levels of loan originations with signs of loan growth building each quarter. The fourth quarter was no different with $450 million in core loan originations, but with meaningful growth as core loans increased $75 million during the quarter or 7.5% annualized. I know our lending team and everyone that supports the lending function were happy to see the fruits of their hard work in the form of core loan growth that was driven by higher levels of initial fundings on the originated loans and some welcome relief in the level of paid off loans, which was lower than the prior 2 quarters. For the year, we originated $1.6 billion in core loans, up 44% from the $1.1 billion in 2020. In addition, we originated $380 million in round 2 of PPP loans, bringing total loan originations for the year to $2 billion, setting a record for the bank. It's the team effort from our bankers that generates these type results and positions the bank for continued success as we attract new customers and expand existing relationships. And speaking of our team, 2021 saw 9 new lender additions with 4 hires from outside the bank and 5 promotions from our lender development program. As we progress with the MOE, we feel good about continuing our track record of attracting top lending talent to join the pro forma company. Moving now to our quarterly operating results. Our staff and lending team booked the previously mentioned $450 million of new core loans that funded to a level of $327 million by December 31 compared to the third quarter, when $454 million of new core loans were generated, which funded to a level of $293 million. The weighted average interest rate on the new fourth quarter core loans was 4.40% compared to the weighted average rate charged on new third quarter core loans of 4.57% and 4.54% in the second quarter of 2021. Paid off core loans were $223 million in the fourth quarter compared to $290 million in the third quarter. The core loan payoffs during the quarter had a weighted average rate of 4.97%. Carried core loans experienced advances of $124 million at a weighted average rate of 4.78% and paydowns of $160 million, which were at a weighted average rate of 4.93%. All in, the overall period-end weighted average rate charged on our funded core loans decreased 4 basis points, ending the quarter at 4.83% compared to 4.87% as of September 30. With the core loan growth of $75 million for the quarter, we were pleased to report core funded loans of just over $4 billion, setting another record for the bank. Turning to asset quality. Nonperforming assets, including both nonaccrual loans and ORE ended the fourth quarter at 34 basis points of total assets, down from 44 basis points in the third quarter. Nonaccrual loans decreased a net of $4.3 million during the quarter from $28.4 million to $24.1 million, primarily due to $5.6 million in payoffs, $620,000 in payments, $1.1 million in charge-offs and $3.4 million in upgrades placed back on accrual, partially offset by $6.4 million in additions. ORE sits at 0 at December 31 as the 2 residential properties at September 30 were sold during the fourth quarter. And charge-offs for the fourth quarter totaled 13 basis points annualized, but we are very pleased with the full year 2021 charge-off level of 5 basis points, especially given the challenges and uncertainties of the pandemic. In terms of our broader watch list, our classified loans as a percentage of total loans increased slightly to 3.86% of total loans as of December 31 compared to 3.83% as of September 30. Criticized loans decreased to 5.36% at December 31 from 5.37% at September 30. And specific reserves for individually evaluated loans ended the quarter at 15.5% of total reserves compared to 17.5% at September 30. We continue to keep a close eye on various loan categories that may have heightened risk due to the pandemic, including our hotel portfolio, where we feel it will take more time for financial performance to see a return to pre-COVID levels. At December 31, our hotel portfolio totaled $115 million or 2.81% of our funded loans with a weighted average LTV of 61.1% on the $112 million that's categorized as CRE. A 30% stress test on the LTV plus 6% in marketing expenses would result in a $4.5 million shortfall on the portfolio. In aggregate, our asset quality at quarter end remained in a manageable position with 0 ORE, lower levels of nonperforming loans, an improved allowance coverage ratio and single-digit charge-offs for the year, as good as ever in most asset quality metrics. On the deposit front, total deposits increased $381 million in the fourth quarter compared to the third quarter and were up $1.1 billion over the year ago quarter. We continue to see solid growth in noninterest-bearing deposits that contributed to the quarter-to-date increase, primarily the result of new customer acquisitions as well as higher balances in our carried accounts. With that, our noninterest-bearing deposits to total deposit ratio was 37.1% for December 31 compared to 36.8% for September 30 and 34.2% for the year ago quarter. In closing, the Houston region created 152,000 jobs in 2021, which set a record for employment growth for the region. This strong growth is welcomed as both population and job growth drives demand for many of the goods and services that are provided by our bank customers. As the largest community bank that is focused on the Houston region, we are as well positioned as ever to deliver growth and market share gains as we carry the momentum from the fourth quarter into 2022. I'll now turn it over to our CFO, Paul.

Thanks, Ray. We are really excited to report another outstanding quarter to cap off a record year of earnings. Net income for the fourth quarter of 2021 was $21.6 million or $1.06 per diluted share as compared to $19.1 million or $0.93 per diluted share in the third quarter and $15.9 million or $0.77 per diluted share in the fourth quarter of 2020. Net income for the full year of 2021 was $81.6 million or $4.01 per diluted share as compared to $45.5 million or $2.22 per diluted share for the full year 2020. These record results were driven in part by PPP-related revenue, the recapture of provision for loan losses and lower funding costs, all partially offset by M&A related expenses, among other things. Our pretax pre-provision income for the fourth quarter was $23.8 million as compared to $25.9 million in the third quarter and $24.2 million in the year ago quarter. Note that the fourth quarter included elevated expenses, which we'll discuss later, and the most significant being $1.4 million in M&A-related expenses. For the full year 2021, our pretax provision income was $97.6 million compared to last year at $83.3 million. Net interest income, once again, was a key driver to our pretax pre-provision earnings power during the quarter as we recorded $58.1 million for the fourth quarter, which is just slightly down from the $58.2 million in the third quarter despite a decrease of $1.4 million in PPP revenue recognized on PPP loans compared to the third quarter. Net interest income was up $3.2 million from $54.9 million for the fourth quarter of 2020. This was primarily due to the PPP revenue recognized and lower interest expenses during the fourth quarter of 2021. Total net fee revenue related to PPP loans recognized in the interest income during the fourth quarter was $5.9 million compared to $7.4 million in the third quarter and $6 million for the fourth quarter of 2020. Interest expense decreased by $200,000 during the fourth quarter of 2021 compared to the third quarter and decreased $2.6 million compared to the fourth quarter of 2020. Before moving on, I should note that as of the year-end 2021, after recognizing $5.9 million of PPP fee income into yield during the fourth quarter and a total of $26.6 million for all of 2021, we had approximately $4.9 million of net deferred fees remaining related to PPP loans to recognize in the future. Yield on loans was 5.32% in both the fourth quarter of 2021 and the third quarter as compared to 5.09% for the year ago quarter. Excluding PPP loans and related revenue, yield on loans would have been 4.95% for the fourth quarter, 5% for the third quarter and 5.11% in the year ago quarter. Total yield on interest-earning assets was 3.86% for the fourth quarter, down from 4.23% in the third quarter and 4.71% for the year ago quarter. These trends are primarily reflective of changes in interest rates and a significant mix shift of our growing earning asset base towards a higher proportion of lower-yielding securities and cash. With respect to interest expense, our cost of interest-bearing liabilities continued to track downwards in the fourth quarter to 56 basis points from 61 basis points in the third quarter and 93 basis points for the year ago quarter. This was driven principally by CD repricing. The overall cost of funds for the fourth quarter was down to 36 basis points versus 44 basis points in the third quarter. Once again, this is thanks to repricing and a higher proportion of noninterest-bearing balances. We look forward to continued deposit optimization in 2022. So as we look at our tax equivalent net interest margin, lower PPP net fee income recognition along with lower interest expense in the fourth quarter and a significant shift in the composition of our earning assets, resulted in a margin of 3.57% for the quarter as compared to 3.9% in the third quarter and 4.14% in the year ago quarter. Excluding PPP loan balances and related revenue, the net interest margin would have been 3.28% for the fourth quarter and 3.57% in the third quarter. Notwithstanding structural decreases in our go-forward NIM profile due to significant shifts in our average earning asset mix. We are really pleased to see core net interest income, excluding PPP fee income growing nonetheless, thanks to the larger balance sheet. Moving on to noninterest income. It increased to $2.5 million for the fourth quarter from $2.1 million in the third quarter, primarily due to a mix of factors, including a $222,000 recovery on an acquired loan that had been fully reserved for with an associated credit mark. We have been very pleased to see significant year-over-year increases in our interchange income and this line item increased to $3 million for the full year 2021 compared to $2.2 million in 2020. Total noninterest expense increased in the fourth quarter to $36.7 million compared to $34.3 million in the third quarter. This was largely due to acquisition and merger-related expenses, other professional fees tied to strategic initiatives to improve operating leverage and a $626,000 prepayment penalty on $50 million of paydowns that we chose to do for high-cost FHLB borrowings during the quarter. Aside from these items, which we consider to be one-off, we are pleased to be holding the line on expenses. Accordingly, our efficiency ratio for the fourth quarter increased to 60.68% compared to 56.91% from the third quarter. Our efficiency ratio for the full year of 2021 was 58.86%, down from 60.55% for the full year 2020. Moving on to credit. We recorded a recapture of provision for credit losses of $2.6 million during the quarter. This is primarily reflective of recent improvements in certain economic factors. Our allowance for credit losses on loans ended the year at $47.9 million, representing 114 basis points of total loans and 118 basis points on core or non-PPP loans. Bottom line, our fourth quarter ROAA and ROATCE metrics came to 1.23% and 15.05%, respectively. While our full year 2021 ROAA and ROATCE metrics were 1.24% and 14.93%, respectively, both representing very strong results. Year-end tangible book value per share was $28.43, making for an increase of approximately 11% from our prior yearend, notwithstanding dividends and some share repurchases that we did at the beginning of 2021. And more recently, the company declared an increase in our dividend rate to $0.14 per share quarterly, up 16.7% from our prior quarterly dividend pays of $0.12 per share. As we look back at 2021, we crossed over the $7 billion in asset mark with profitability, capital and liquidity levels at or near all-time high. We look forward to the expanded opportunities for growth in 2022, particularly as it relates to our pending merger with CBTX. I will now turn the call back over to Steve.

Thanks, Paul. With that, I'll now turn it over to the operator to open the line for questions.

[Operator Instructions] Our first question comes from Brad Milsaps from Piper Sandler.

Glad to see a rebound in loan growth this quarter. Just kind of curious kind of how you guys are thinking about 2022 as you come together with CBTX is kind of a high single-digit rate, something you feel pretty good about being able to achieve? I know there's a lot of moving parts to the merger, but just kind of curious kind of how you're thinking about loan growth this year.

Yes, I think that's a good way to look at it. Obviously, we've got a pre-MOE, we're still working on, we have to work on as our individual banks. But going into the first quarter, the pipeline as we've been taking a close look at pipeline, it looks healthy and kind of similar to what we had in the last 2 quarters of '21 that really generated these record origination level. So feel good about entering the -- having the momentum entering '22 on the loan growth side.

In the spirit of controlling what we can control, our production is really at all-time highs, and we're feeling good and we see some green shoots around the fact that the fourth quarter level of paydowns started to tether off. So that's a big thing for us to look at as we look into 2022.

Yes. We looked at earlier in the year of '21, we said we might pursue some larger relationships, the bank gets bigger, we were doing that. And we're seeing some activity in that area, too. So that gives us some upside potential, I think, as well going into '22. So it's positive.

Great. And Paul, just in that same vein, I mean, you grew the securities portfolio almost $600 million [indiscernible] quarter. Period end, you had a little over $700 million in cash. What's your appetite for additional bond purchases kind of vis-a-vis the opportunity to put more of that to work in the loan portfolio?

Certainly. Well, our highest and best use of our liquidity is into loan growth. So we fear not securities purchases getting in the way of loan growth. Really, what we're trying to do from the standpoint of managing our liquidity position is we feel pretty strongly that over 10% of our assets in cash is not the right position for the bank. So we were engaging in securities purchases pretty meaningfully in the fourth quarter, mostly in the back half of the fourth quarter when the rate backdrop got a little bit better. So long and short, we want to be investing in loans and securities are really just where we go to the extent the loan growth is materializing. And really, in the securities portfolio, we kind of have to stay short anyways. So it only accentuates the extent to which loans are going to be the highest and best use for our liquidity and everything else is really just managing that position.

So it sounds like the significant increases are going to slow down. I think the yield on the securities portfolio has stepped down about 30 basis points. Would you anticipate obviously some further step down in the first quarter as the period end catches up with -- the average catches up with the period end? Just kind of curious the magnitude of step-down in the yield there.

It's not that large. And I think hopefully, we're seeing inflection there because we still have a lot of cash flows coming off of our securities portfolio that we're likely going to be in a position to reinvest. But yes, it is, there's the step down going on and ultimately where the largest driver of our revenue profile isn't going to be that securities book. It's going to be what we can -- the progress that we can make on the loan side of the house.

Got it. And then just final couple for me. Paul is running quickly. Can you go over again the 2? I think there was maybe a recovery in fee income and then there was a debt prepayment fee in interest or in operating expense that are kind of one-off items?

Certainly. So we incurred a prepayment fee with the FHLB late in the quarter that totaled $626,000, and that was related to the paydown of $50 million of higher cost FHLB advances, weighted average rate of that in the neighborhood of 2%. And really it's a balance sheet housekeeping going into the end of the year, positioning ourselves better from an NII profile and really a reflection of the excess liquidity position that we have with the goal of really taking that negative spread off of our balance sheet. That was one. The other total, a little over $220,000, and that's related to an acquired loan, which had long since been written down to 0. We've got a -- it was acquired and written down, I should note. And it's been a while since that acquisition, and ultimately, we got a recovery, and it doesn't work its way through the provision and allowance full credit losses. And in that respect, it kind of manifests itself in noninterest income.

Got it. And then I think you guys laid out maybe like $3.12 and $3.23 or something when you announced the merger for EPS in '22 and '23? Do you still -- would you make any changes to that as you sit here today? Does that feel too conservative kind of based on the growth you've seen?

I got to admit, I love the interest rate backdrop and how that's kind of came to be over the last 3 months, which I think is some wind at our backs. Secondary to that, we're really pleased with how the loan growth story has progressed partially a function of lower paydowns, but we feel pretty bullish about the overall environment that we're sitting in. And we still think those are appropriate, but we like our potential to do better as the wind to kind of hit been on our back with respect to certain macro trends.

And our next question comes from David Feaster from Raymond James.

This is [ Eric Spector ] actually on behalf of David Feaster. Congrats on a solid quarter. We just wanted to touch on expenses. You've done a great job managing costs and continue to invest in the franchise with inflationary pressures out there. You have the benefit of the MOE to help offset some of those. I'm just curious whether there was anything maybe more onetime in nature in the quarter? What's like a good core run rate heading into 2022? And how do you think about expense growth throughout 2022?

Certainly. We are mindful of inflation pressures and things along those lines. But the goal for us is really to hold the line as best we can. When we kind of think about where we were at in the fourth quarter, bringing it down to kind of a core rate, we really -- really, there were a couple of things in the fourth quarter that supported that being higher, and we had accruals with respect -- on top of what we've already noted, which is $626,000 of FHLB prepayment penalties, the $1.4 million of acquisition-related expenses. We did have some higher professional fees as well as bonus and profit sharing accruals, given the performance of the year. So there was a little bit of catch-up there. So I'd kind of say the core rate was probably more like $34 million. But just as in 2021, our kind of goal was to be keeping our expense rate kind of in that $33 million, $34 million, the trend as we kind of look forward into 2022, stand-alone premerger, cutting out any merger-related expenses is really stepped up to $34 million to $35 million. So split the difference there, and you kind of get a run rate. Naturally, we have a little bit of seasonality in the first quarter because of payroll taxes and things along those lines. But that's had been on track.

I just wanted to touch base on the MOE. Obviously, there's only so much you can talk about, but maybe just talk about the integration team and some of the preparations you guys are taking to ensure a seamless integration and transition. And then also just touch on closing expectations. We've heard a few banks talk about things getting moved back with that approval process. So if you could just kind of give some color on all of that, that would be great.

Yes, [ Eric ], the MOE integration teams are working really well. It's an evolutionary process as we put these teams together. But we've staffed the teams. We've got leadership. We've got project managers, functional heads working in all the various areas, both -- obviously, there's a conversion team planning for that, but there's so many other areas all the way down to loan approval processes and so forth. So there were -- we've got these teams staffed with members from both sides. And we're meeting -- gosh, we have a lot of meetings [indiscernible] day jobs as well. So it's a lot of work, but it's very exciting. I think the teams are coming together great. As far as the timing, timing is out of our hands to a certain extent, we filed our applications. And so we're at, I guess, the mercy of good old regulatory approval and processes of that nature. So I really don't want to comment too much on that. I don't really know the answer to the timing question. But sooner the better as far as we're all concerned, and we would look forward to a very successful integration with that in mind.

In the spirit controlling what we can control, we still think first off closing is possible, but ultimately, Steve put it best as factors that are going to be outside of our control.

And then I just wanted to touch on the record originations. It's great to see this quarter. I'm just curious about what drove the increase? Is it the improved economic backdrop, accelerated demand, customer acquisition, PPP hiring or just kind of core household from your bankers? Can you just kind of provide a little bit more color on what drove that?

I like your hustle word. So a lot of hustle out there. So it was very close to a record, by the way. It was -- third quarter was 4.54%. This fourth quarter was 4.50%. So we'd like to call it very close to a record. But it came really from all areas that you mentioned, customer acquisition, definitely some hustle. As Steve mentioned, we have, at the beginning of the year, kind of announced an initiative to look at larger loan relationships and that's kind of -- there's fruits from that as we finish the year and that average loan size kicked up a little bit, which is nice to see. Still very granular as far as a $7 billion bank. But everything you described is what happened, just kind of the blocking and tackling of what we do and the hard work from our lending team.

And then one last question. I just wanted to touch on asset sensitivity. Obviously, the deal increases your rate sensitivity, but just curious how you think about pro forma sensitivity and how you may expect the margin to benefit from the first rate hike or 2?

Definitely. Well, we feel very good about merging our respective interest rate risk profiles. CBTX is decidedly more asset sensitive than we are. We've focused on staying pretty neutral. But we feel great about the prospects, and that's how it models, but we feel great about the prospects of net interest income potentially expanding in the context of the first rate hikes in particular because we expect deposit beta since the entire industry is not very loaned-up, to be low. And I mean, at the same time, we're going to have a heck of a lot of continued fierce competition on loan rates as well. So -- but we feel like when it all shakes out, we're going to be better positioned than what our models say with respect to our relative net interest income profile. I'd say about of our loan portfolio, 30% of it is variable rate. And of that variable rate portion, 2/3 of it is at or above its floor. So we're going to feel good about getting that as well as just the flow of how we reprice.

[Operator Instructions] And our next question comes from [ Will Jones ] from KBW.

This is [indiscernible]. So I just wanted to -- I know we talked a ton about loan growth thus far. And I know you guys saw a really nice, continued growth inflection in 4Q. You've guided high single digits longer term and as well as upcoming year, maybe not necessarily the volume of growth you're expecting, but how would you expect the cadence of loan growth this upcoming year? I know there will be a lot of ebbs and flows with the CBTX close? Just a little bit of color on that would be helpful.

Well, I mean, we continue to work at it. I mean, I think as we combine, it's -- and we have to look at it as a combined basis whenever that happens. But up until that point, I guess, maybe one way to think about it is I think maybe last year, we were talking about, we would see growth in the back half of the year. Maybe that's -- and what does that look like in 2022? I think that we're -- we want to carry the fourth quarter momentum into the first quarter and into the second quarter until we close. So I think it would be mostly steady as far as the cadence of that. I mean, we're -- again, we've got customer acquisition going on. We have some PPP, but we also have new customers that never had a PPP loan, that are just new customers that have come since we made our last PPP origination. So good momentum as far as on a standalone. And I think we just have to see what happens when we get together.

And then just looking to the deposit side, I mean, you guys had such a great year of deposit growth. It's driven a ton of excess liquidity. Any sense on the horizon of if we may eventually see it slow in this really nice deposit growth? Or how are you guys thinking about the growth in your deposit base this upcoming year?

We're thinking about quality, not quantity. And we think the kind of macro dynamics that have ultimately driven the nature of our balance sheet growth. While we're happy to take it, now I think it empowers us to be very disciplined and assertive around optimizing our funding mix. So in a -- it is a rare opportunity for us and I think the industry will be focused on the same thing as to how they can effectively optimize this surplus of funding. So that's our focus. We'll take the growth. But at the same time, it's going to be a huge focus on optimization.

And our next question comes from Matt Olney from Stephens.

So a few follow-ups here. The FHLB prepayment fee that you mentioned, where do I find that? Is that in the other expenses? Or is that in the interest expense?

It will be in other expenses. Not in interest expense.

And then, I guess, one of the hallmarks of the bank the last few years has been bringing on new producers onto the platform. I'd love to kind of hear the updated thoughts and the plans for bringing on new producers this year, especially in light of the strategic merger that's still pending?

Yes, Matt. So we'll continue to invest in quality talent on the lending side. It comes from -- there is some M&A disruption where we do talk to those lenders that are affected and the good ones we're talking to. And I think kind of like the -- when we went public in that -- in '15, when that kind of brought us to a new level as far as hiring talent and people wanting to come to the bank, I think the announcement of the MOE has been similar to that. So we've had good conversations with folks, and we'll make those investments when it's appropriate. And I think you'll probably see something like you saw in 2021, at least up until the MOE, but where we do some strategic hires and also do some of our homegrown lenders as well.

We still have capacity with some of our existing staff to continue to grow and build their book as well. So there's quite a bit of that available to us. And we want to take advantage of that as well.

And I am showing no further questions. I would now like to turn the call back over to Steve Retzloff for closing remarks.

Just once again, I really thank everybody for your time and interest in Allegiance. We look forward to speaking to you again in the future. And again, thanks very much for joining us this morning. Appreciate it.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.