First Bank (NASDAQ:FRBA) Q4 2022 Earnings Conference Call January 26, 2023 9:00 AM ET
Company Participants
Patrick Ryan – President & Chief Executive Officer
Andrew Hibshman – Chief Financial Officer
Peter Cahill – Chief Lending Officer
Conference Call Participants
David Bishop – Hovde Group
Manuel Navas – D.A. Davidson
Operator
Thank you all for joining. I would like to welcome you all to the First Bank Earnings Conference Call Fourth Quarter 2022. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions]
Now let me turn the call over to Patrick Ryan, President and CEO. So, Patrick, you may begin.
Patrick Ryan
Thank you, and good morning, everybody. Welcome to our fourth quarter earnings conference call. I’m joined today by Andrew Hibshman, our Chief Financial Officer, and Peter Cahill, our Chief Lending Officer.
Before we begin, Andrew can you please read the Safe-Harbor statement?
Andrew Hibshman
The following discussion may contain forward-looking statements concerning the financial condition, results of operations, and business of First Bank. We caution that such statements are subject to a number of uncertainties, and actual results could differ materially, and therefore, you should not place undue reliance on any forward-looking statements we make.
We may not update any forward-looking statements we make today for future events or developments. Information about risks and uncertainties are described under Item 1A Risk Factors in our annual report on Form 10-K for the year ended December 31, 2021 filed with the FDIC.
Pat, back to you.
Patrick Ryan
Thank you, Andrew. I’ll start with some high level comments on the quarter and the year. I’ll turn it over to Andrew to get a little more detail behind the numbers and then he’ll turn it to Peter to give a little more background on the lending side. I’d say overall, I think it was a decent finish to a very, very good year.
Unfortunately in Q4, the NIM expansion that we achieved in Q3 was eroded and we ended-up back at margin levels more in-line with where we saw things in the second quarter. But despite the margin erosion, we do have overall profitability levels have remained very strong and we achieved tangible book value per share growth of $0.46, which was meaningful book-value growth during the quarter.
Our asset quality remained very good. We saw net recoveries during the period and our level of non-performing loans remained very, very low. Our return on average assets was down a little bit from the third quarter, but remained very healthy at 1.35%. We continue to bring in high quality new bankers, several new deposit generators were also brought in on the sales side during the year and we’re excited about the prospects for those teams as we move forward. And we think we’ll see continuing operating leverage opportunities as we continue to scale our operations and also look to integrate the Malvern merger later in the year.
I’d like to highlight strong performance metrics. While they were down from Q3, I think they still show very, very good performance, especially relative to peers. Our return on tangible common equity was 13.5%. Our efficiency ratio was below 50% for an eighth straight quarter. Our pre-provision net revenue return on assets was 1.95% just a little bit below 2%.
Our net interest margin has been over 3.5% for the past eight quarters. Our non-performing assets to assets remain very low at 23 basis points. And overall, our allowance covers are non-performing loans by over 4 times. On the lending side, we saw $74 million in loan growth during the quarter with over 70% of that new production coming from C&I. We have very strong asset quality with low delinquency.
We’re building out our capabilities in small business and asset based lending to continue to move our ratios a little higher on the C&I side further diversifying down a little bit from the investor real estate category. And we’ve seen gradual evolution of the organization as we’ve continued to layer in attractive C&I lending niches, really building the franchise out from a traditional real estate focused community bank into more of a middle market commercial bank.
On the deposit side, we obviously had some challenges. Overall deposit growth was strong, but we did see a significant increase in our cost and deposits. Some of that was related to the way the timing of events played out during the quarter. As I mentioned, we had significant C&I lending opportunities. We actually had a reduction in payoffs and paydowns that we normally see on the commercial real estate side. Those two things together put a little pressure on funding, which caused us to have to increase the rates on our money market.
And the good news is, we were able to bring in over $100 million in deposits and deposit growth during the quarter, but we also saw a lot of excess non-interest bearing balances move out of the non-interest bearing accounts into interest bearing accounts here at the bank, which gave us the liquidity we needed, but obviously had an impact on our cost of funds and on the margin.
Now we were expecting some movement out of NIB (ph) although it did happen a little bit quicker than we expected. We think some of that again was a timing issue related to the need to bump up our money market rate in order to make we have the dollars needed to fund the good C&I loan opportunities. But all-in-all, we’ve made a lot of good moves to make sure that we can continue to drive core deposit growth.
We did actually see an increase when you look at just new non-interest bearing accounts opened during the quarter. We actually brought in more in new money and new accounts than we saw money leaving and closed accounts. So again, it was a lot of money moving out of non-interest bearing into interest bearing, which impacts the margin. But in terms of retaining customer relationships, our team did an excellent job.
So in summary, despite some headwinds emerging in Q4, we had a very good and profitable year in 2022. We realized top quartile performance across key metrics like return on assets, return on tangible common equity, pre-provision net revenue and tangible book value per share growth. In fact, our tangible book value per share grew 10% during the year despite a lot of challenges on the interest rate side. And we achieved good high quality loan growth and improved asset quality profile.
Furthermore, we have reason for optimism as we work our way into 2023. We’ve been able to attract several key bankers that will help us drive core deposit growth moving forward. We’ve got some nice new C&I lending niches, which will help drive both portfolio diversification and an improvement in our overall commercial deposit balances, which will put less reliance on higher cost sources of funds.
We’re doing a nice job enhancing our digital banking capabilities to make sure that we remain competitive in that space. And we’re continuing to see fallout and opportunities from M&A within the New Jersey banking market that we think will create great opportunities for both customer acquisition and banker acquisition as we move into 2023.
And finally, the exciting opportunity with the Malvern acquisition to integrate that really drives some size and scale and improved profitability within our PA franchise and also drives overall improved scale benefits across the entire franchise. So certainly challenges as we look out to 2023, but also reasons for optimism as we love to continue to build and grow shareholder value here at First Bank.
So at this time, I’ll turn it over to Andrew to dive into the numbers. Andrew?
Andrew Hibshman
Thanks, Pat. For the three months ended December 31, 2022 we are $9.1 million in net income or $0.46 per diluted share, which translates to a $1.35 return on average assets or $1.40 excluding tax affected merger related expenses. The primary factors contributing to the quarterly results were historically strong, but slightly declining net interest margin, strong credit quality metrics, and effective management of non-interest expenses.
Net income declined $1.1 million from the linked third quarter, but was up $1.3 million compared to the fourth quarter of 2021. Strong commercial loan growth continued in the quarter. Loans were up approximately $75 million excluding the small decline in PPP loans, compared to an increase in non-PPP loans of $36 million in Q3, $84 million in Q2 and $65 million in the first quarter of 2022.
Total deposits were up $104 million during the fourth quarter of 2022 with interest bearing deposits up $184 million and non-interest bearing deposits down approximately $80 million. We continue to maintain key relationships. However, they have become more rate sensitive resulting in movement of funds. We did a detailed analysis of the decline in non-interest bearing balances during the fourth quarter, a very small percentage of the decline related to accounts that were closed and left the bank, but during the fourth quarter, we did experience several large relationships of maintaining significant non-interest bearing deposits, moved into interest bearing products and we saw some normal end of year fluctuations.
The growth in interest bearing balances was due to new money, CD and money market promos, we initiated during the quarter, coupled with the movement of funds I just discussed. Due to the shift in the deposit mix, the repricing of certain existing customer balances and the new money promos during the fourth quarter, our total cost of deposits increased 70 (ph) basis points compared to the linked prior quarter, primarily due to this increase in deposit costs, offset somewhat by the increase in the average rate on loans, our tax equivalent net interest margin decreased to 3.69% for the quarter ended Q4 2022 compared to 3.97% in the previous quarter.
The decline in the margin in the fourth quarter was exacerbated by low PPP fee income and prepayment penalty income during the fourth quarter of 2022. Excluding PPP fee income and prepayment penalty income, the margin would have been approximately 3.67% in Q4 versus 3.89% in the third quarter of 2022.
Our asset liability management approach continues to be conservative, but we have taken steps in the fourth quarter and plan to continue to shift our balance sheet to a more liability sensitive GAAP position. In the current rate environment, we expect continued pressure on the margin in the short term, but we believe the quarterly decline will not be as severe as the time was in the fourth quarter of 2022.
Liquidity levels increased slightly during the fourth quarter due to our deposit gathering initiatives. We were also able to slightly reduce borrowings and broker deposit balances during the fourth quarter. As we have mentioned on previous calls, our strong organic loan growth has lowered our liquidity levels, but has also contributed to our investment portfolio being relatively small when compared to peers. The size and low risk nature of our investment portfolio has limited our unrealized losses compared to some of our peers.
During the first three quarters of 2022, unrealized losses increased, but an unrealized losses actually declined slightly during the fourth quarter. Due to our strong net income, we were able to increase our tangible book value per share by $0.46 during the current quarter. Based on net recoveries during the quarter and a strong asset quality profile, we maintained our allowance for loan losses as a percentage of loans to 1.09% at December 31, 2022 compared to the same percentage at the end of September.
This was supported by only a very slight increase in non-performing loans compared to the end of the third quarter and we are also currently finalizing our CECL calculation and expect our allowance as a percentage of loans to increase by approximately 5% to 10% upon adoption during the first quarter of 2023.
In the fourth quarter of 2023, total non-interest income increased to $1.4 million, from $934,000 in the third quarter of 2022. The increase from the third quarter of 2022 was primarily due to an increased loan fees, which was principally related to a miscellaneous one-time loan fee. Our SBA loan activity and pipelines continue to be strong. However, sale activity has been slower than expected, primarily due to the rising interest rate environment which has reduced the premiums earned on sales. And in most cases, we are attaining the loans on our balance sheet.
Loan swap activity also continues to be slow. While non-interest income levels may continue to fluctuate, we do not expect a significant increase in non-interest income over the next several quarters. Annualized Q4 2022 non-interest expenses or 1.84% of average assets or 1.78% excluding merger related expenses compared to a peer average of 2.11%. In total, non-interest expenses were $12.5 million in the fourth quarter of 2022, up $728,000 or 6.2% compared to the third quarter of 2022. The increase was primarily due to merger related expenses associated with the merger agreement we finalized in December and higher salaries and employee benefits.
Excluding merger related expenses, non-interest expenses increased only 2.4% compared to the linked third quarter. With the difficult interest rate environment, we continue to be laser focused on expense control, but we do anticipate our quarterly expenses will continue to increase slightly from the core Q4 2022 levels as we continue to add to staff and inflationary pressure continues to affect other expense items.
While we believe the current interest rate environment will continue to put pressure on our margin, we are still generating historically high levels of net interest income and operating efficiency results. We believe we can continue to generate core loan and deposit growth and combined with very strong credit quality metrics and effective management of non-interest expenses, we are well-positioned to continue our strong core profitability trends in 2023.
At this time, I’ll turn it over to Peter Cahill, our Chief Lending Officer for his remarks. Peter?
Peter Cahill
Thanks, Andrew. I’ll try to provide some additional information not already covered by Pat or Andrew. From a lending perspective, 2022 was pretty clean from the standpoint of noise in the numbers. My comments will focus only on organic results, PPP loans, as Andrew mentioned, are about done with slightly over $3 million or so remaining and their paying is agreed (ph).
Regarding the fourth quarter, I think the results were excellent. Approximately 29% of our growth for the year took place in Q4, just slightly behind Q2, our largest quarter, and up nicely from the third quarter, which was the slowest.
Total loan growth for the year, again absent PPP, was around $260 million. This exceeded our total loan growth goal of $200 million by 30% and overall kept us in double-digit loan growth for the year.
Loan generation continues to be good in all areas of the bank. One thing of interest was that new loans closed and funded during the fourth quarter declined from an average of $126 million in the first three quarters of the year to $83 million in Q4. There are a number of factors that play here.
First, we are well ahead of plan throughout the year, which meant we could be a bit more selective. Also through the first six months, loan growth was weighted towards investor real estate loans. So again, we were selective about what we pursued in the second half of the year and then for the fourth quarter.
Then with the impact of the economy on interest rates, hoping cool loan growth on the Investor Real Estate side a bit, we experienced a reduction in loan payoffs that I think both Pat and Andrew mentioned during the fourth quarter. All of this resulted in good growth in the C&I side of the portfolio for the quarter, which brings in as you know more floating rate loans as well as relationship deposits. Payoffs in the fourth quarter totaled only $14 million compared to $177 million or a quarterly average of $59 million per quarter during the first three quarters of the year.
And the total for the year, C&I and to a much lesser extent, consumer made up 47% of all new loans closed and funded and investor real estate made up the difference. The positive news, we saw moving into the fourth quarter was that the percentage of new loans coming from C&I rose the 70% of total loans closed and funded.
Looking at the reason for loan payoffs in Q4, 62% of payoffs were due to the underlying asset being sold and 25% of total payoffs were refinanced by another bank. The entire year, the kind of “refinanced out number was higher at around 38%.
At this point, I’ll talk a little bit about our loan pipeline, which continues to look good. The numbers we discussed here are based upon probable funding, which means we project first year usage and multiply that by a probability factor based upon where we are in the approval process. That means, for example, a loan that’s already approved and will have a much higher probability of closing, no one that just went into underwriting.
At December 31, our loan pipeline stood at $233 million down slightly from 240 at the end of Q3. The total number of individual loans in the pipeline rose, however, from 211 at the end of Q3 to 222 year end. The average pipeline figure for the 12 months is past year was $244 million. So at December, we were around 4.5% off the average for the year.
Factors that impact the month, the numbers include the number and size of loans that have already closed and funded and therefore get moved off the pipeline. For example, we closed and funded $45 million in loans in December. This is above the average month and those deals came off the pipeline at 12/31.
Overall, I’m satisfied with what we’re seeing on the pipeline. Things seem to have slowed a bit, but we’re still seeing a lot of activity. Based upon economic uncertainty that we see and face every day, we’re taking a cautious approached underwriting new business, especially in investor real estate and construction lending as well as with any new prospective customer coming into the bank.
As loans move through the pipeline, they eventually hit our projected loan funding report, which we’ve talked about here before. This report looks at 60 days and projects funding then prepayments for Andrew’s team in finance. Our review of the loan funding report over the next 60 days shows continued good activity right in line with previous quarters.
Regarding asset quality, it’s not much more to say beyond Andrew’s comments and what’s in the earnings release, things from my perspective continue to look very good. Credit metrics are solid. Loan delinquencies, which were at record lows at the end of Q3, one even lower at the end of December.
That’s my recap in the fourth quarter in 2022. We’re planning on continued growth and meeting our goals and objectives going into 2023. From the lending side, we have a number of priorities, some of which we’ve previously announced, but which really haven’t had a chance to positively impact performance yet. Obviously, number one on our list is the pending merger with Malvern, that’s the top priority, then we discussed that on previous call.
We have a new regional office and opening up in Westchester, Pennsylvania, right before the end of the first quarter here. Right now, we’re running that market out of a very small space on the third floor of a building downtown. In a few weeks, we’re going to have a full service bank branch in Westchester, which will provide room to grow as well as be a better retail location, drive up et cetera.
Similarly, in Northern New Jersey, we’ve located a new Northern Regional office in Essex County. We are tentatively scheduled to have our relationship management team in the new space by the end of the quarter with retail space to follow in Q2. Late last year, we announced our equity fund banking initiative, lending to private equity funds in our market. This team is doing well and has a strong pipeline.
Pat and Andrew mentioned SBA lending. I’m satisfied with the results the team had in 2022 despite the impact on sales of the guaranteed portion of seven, eight loans. We expect even better performance this year in SBA and we’re looking to add to staff there, if we can find the right people.
I’m also happy to report that we recently hired a seasoned banker to build out and develop an asset based lending team. Pat made reference to that in his comments. This person has many years of experience in asset base lending and in our market and we’ll add to our product set. We expect the team to be up and running by early second quarter. So we’re excited about all these projects, each in its own way will enable us to continue to grow successfully in 2023 and years to come.
And that concludes my report for lending. I’ll turn things back over to Pat for some final comments.
Patrick Ryan
Thank you, Peter and thank you, Andrew. At this point, I’d like to open it up for the Q&A session for the call.
Question-and-Answer Session
Operator
Thank you. [Operator Instructions] The first question we have on the phone line comes from David Bishop of Hovde Group. Your line is now open, David.
David Bishop
Yeah. Thank you. Hey, Pat. Good morning.
Patrick Ryan
Good morning, Dave.
David Bishop
I think you noted, you exited the year a little bit flush with cash. Was there, and obviously, noted the declined DDA balance. Was there any like more to come of aggressive [indiscernible] maybe prefund some of the loan growth in 2023 and try to get ahead of the market and further rate increases and just be a little bit more aggressive to position yourself from a liquidity perspective ahead of 2023?
Patrick Ryan
Yeah. Listen, I think there’s always a variety of reasons why certain actions are taken. I mean, the practical reality is, you put a product out there or you tweak a rate and you don’t know exactly the extent of the activity it will generate and I think as we were taking a look at our product design and setting our rates and we saw there might be an opportunity if we were going to air on the side of one or the other we wanted to maybe bring in a few more dollars than not enough dollars and that’s ultimately how it played out. I think we put out rates that at the time, were decent rates. I think they’ve subsequently been surpassed by competitors based on subsequent Fed moves, but it did give us an opportunity to retain business that was getting competitively courted, if you will, and then also bringing some additional dollars.
And listen to your point, while we love the highest margin possible, you don’t want to play games on the liquidity front. You got to make sure you’re dealing from a position of strength on the liquidity side. So yeah, that obviously played a role.
David Bishop
And I’m just curious, Pat or Andy, when you look at the overall cost of deposits, maybe from a — I don’t know if there’s a way to quantify where you see maybe that trending too over the next couple of quarters and what you’re seeing in terms of average loan yield production?
Patrick Ryan
Yeah. I mean, great question. Obviously, we have visibility into rates that are currently being offered and what’s that generating in terms of new business. The piece that’s a little hard to forecast is money that’s been sit on the sidelines, folks that maybe don’t need it in their operating account that, when yields were low, they didn’t want to bother making the move over. Now those folks are looking to put some of that money to work either with us at a higher rate or into the market.
And I think we saw a fair amount of that happen in Q4. Our hope is a lot of the money that was looking to move, made the move and that what we’ll see going forward will be significant reductions in that shift out of NAV into interest bearing and at least so far in January, the non-interest bearing balances are holding up.
So a little hard to say with a lot of certainty, but we think every bank will reach a point where depending on their liquidity position, they may need to make a move. And when they make that move on the rate side, it’ll cause a short term jolt, but then things will normalize. And I think we believe based on the efforts we’re making on the core deposit generation side that Joel came for us in Q4. And that’s not to say deposit costs will continue to move higher. But we’re optimistic to move higher at a much slower pace.
David Bishop
Got it. And then just a final question for me. I’ll hop back into the queue. Outlook for loan growth, I’m curious, but your double-digit this year it sounds like a decent pipeline. You think there’s enough demand and bankable credits out there to support that or it comes in a little bit from the low-double digit range? Thanks.
Patrick Ryan
Yeah, sure, David. I think given some of our new initiatives and given what we’re seeing in terms of significant slowdown in terms of prepayments and payoffs. I think hitting our plus or minus $200 million loan growth goal will be manageable, it’ll likely be done with less new business, right, maybe not as much churn as in prior years. And certainly, we expect it’ll be done a lot more with C&I and floating rate commercial deals and a little less on the commercial real estate side. But I just think because we’ll see fewer payoffs and paydowns, achieving a net growth goal of — in that $200 million range, I suspect will be doable. Yeah.
David Bishop
Great. Thanks Pat.
Patrick Ryan
Yeah. Thank you, Dave.
Operator
Thank you. Our next question comes from the line of Manuel Navas of D.A. Davidson. Please go ahead, when you’re ready.
Manuel Navas
Hey. Good morning. Could you give a little bit more color on kind of the NIM trajectory. And I know you have your deal closing too and just kind of, a little bit less pressure this coming quarter, what kind of thought process after that?
Patrick Ryan
Yeah. Great question. I’d love to have better visibility than we do. Obviously, there’s a lot of moving pieces right now and it’s a little tough to predict. I think we expect there’ll probably be some continued pressure on the margin. We’re sort of targeting a margin over the next couple of quarters of somewhere in the 350 to 360 range. We’re going to work like hell to try to get it up closer to the higher end of that range, but that’s sort of the best I could predict at this point.
And then when you look out to the back half of the year, largely because of the idiosyncrasies of merger accounting, we’ll almost certainly see a sizable margin pickup on the back end because of how you take the upfront marks and you accretive back in the income. I don’t know, Andrew, do you have anything you want to add there, but I know based on some preliminary numbers you were showing the margin going up quite a bit on the back half, but more a function of the merger accounting than anything else.
Andrew Hibshman
Yeah. That’s right. I mean, obviously, a lot will depend on the shape of the yield curve and what happens. It seems like the Fed’s going to move a little bit more gradually here over the next couple of meetings and we’ll see what happens there, but yes, it’s going to get a little complicated later in the year with all the purchase accounting, but we’ll make sure to do a good job of disclosing the impact of the different purchase accounting things that are flowing through the margin, so you’ll see that.
But I think Pat’s got kind of guidance on the margin coming down slightly again early in the year and then hopefully, we get a little bit of a better yield curve over the back half of the year and hopefully, we can kind of maintain that kind of core margin and then with the Malvern integration you’ll see some significant fluctuations because of those interest rate marks that get accretive back into interest income.
Manuel Navas
That’s really helpful. You kind of talked a little bit about deposit costs in a big picture, are you targeting a certain beta through the year? And anything that can kind of help with seeing where they’re going to go or is it just such a relief target at the current moment?
Patrick Ryan
I mean, we obviously have deposit betas built into our budgets and our forecasts. I’d say they were coming in a lot lower than expected as we moved through the year and then I think they jumped up little bit higher than was anticipated towards the back end of the year. So I think the short answer is, yeah, we’re looking at those betas, but there is a moving target right now. We’re trying to look at the margin overall and what we can do to keep it at. I think if we can keep it in that 350 to 360 range, that’s a very healthy level and that’s a level of which I think we can generate really strong returns on assets and equity.
And we obviously have other levers to pull if the deposit costs move a little higher than we anticipate. We’re going to have to get a little leaner on the operating side, but there’s always opportunities there, if you look hard enough. So it just becomes a function of, to where you can to maintain those deposit costs while maintaining your liquidity. And if you got to end up pushing them a little higher than you’d like, then you got to find other ways to make sure you can keep your profitability at sustainable levels.
Manuel Navas
That’s helpful. And I think I might have missed this in the expense discussion, but is there kind of a core run rate expectation for 2023?
Patrick Ryan
No. I think Andrew broke out what we estimated is kind of the core for Q4 ones and then indicated there’d be — what we think would be modest increases from that core level. So I don’t know, Andrew, if there’s details, he didn’t already provide that, but I thought gave some good guidance in terms of what kind of the core expense base look like. And, in fourth quarter things always move around a little bit as true up accruals and other things. But there certainly is continued pressure on the expense side. I think the good news there is those pressures are subsiding and we’re hopeful that what used to be a sort of a 2% to 5% expense growth world that kind of jumped more to 8% to 10%, will come back into that plus or minus 5% range.
Andrew Hibshman
Yeah. I think that’s right, Pat. I mean we have Peter mentioned some we have the new Westchester location, but that’s really just a movement of a location. So expenses aren’t going up significantly there. We do have the new Fairfield location, which will add to our occupancy expense. But we don’t have any other significant initiatives that are going to drive our expenses off significantly early in 2023, but then obviously we have the Malvern deal which will drive up expenses when we close that deal in the middle of the year.
Manuel Navas
Thank you for that. I’ll hop back into the queue.
Operator
Thank you.
Patrick Ryan
Thanks, Manuel.
Operator
Thank you. [Operator Instructions] We now have the next question from Tristan Ross [indiscernible]. Your line is now open.
Unidentified Participant
Good morning, gentlemen. How are you? Could you talk a little bit about the merger with Malvern and will you close-up any of their branches? And could you talk about the revenue enhancements possibly? Thank you.
Patrick Ryan
Sure. Sure. Thanks, Ross. Yeah, I mean, listen, we’re obviously looking closely at opportunities. I think there are some things that they had underway that we’re going to work with them to continue to finish up on. There are some branches that are near some of our locations, the branch in Florida that is a market we haven’t been in, we’ll obviously take a look at to see how that’s performing. But there’s nothing that we’ve announced to date, but we’re certainly going to take a good hard look at that.
And the other thing is, there’s some spots that we had our eye on from a strategic growth perspective and some of these new locations will — it’ll allow us to hold off on some expenditures that we had planned in those markets. So I think the branch profile something, we always look at. We always looking at our own branch profile, quite honestly, to see if there’s opportunities there as well. There is some back office space that we may not need. There’s some own buildings that have some open space that could be opportunities for sales or for lease up. So I do think there’s opportunities on the expense side.
And then, we did a deep dive into sort of the SG&A side of things and we uncovered a number of line items that just quite honestly were a lot higher than we would have expected for bank that size and a lot higher than what we think we’ll need on a pro forma basis going forward. So we feel pretty good about our ability to hit on our guidance we provided in terms of the overall cost saves.
And then, as you talk about revenue enhancement, certainly they have some things that we don’t currently offer on the wealth managed and insurance side. I think it’s important to point out, we didn’t build in any revenue enhancements into our pro forma earnings model, but certainly we’ll take a hard look at what’s happening there in terms of those ancillary products and services and what can be done either from a growth or a cross sale perspective.
And I also think there’s just going to be opportunities as a larger bank to basically make sure we’re getting more looks at more deals, which allow us to be a little more selective, a little more disciplined, allow us to get our rate on certain deals that maybe before you had to feel like you had to be a little more competitive to win the business. And so that’s an area quite honestly that we’ve seen in our prior deals that we never model in, but just by virtue of having a little bit of extra pricing discipline, we found we’ve been able to improve the loan yields of the combined franchise pretty nicely.
Unidentified Participant
Okay. And going back to your expense growth. Could you just touch upon again going on a little late? What kind of net expense growth you expect over and above the ‘22 base, your non-interest expense?
Patrick Ryan
Yeah. Andrew, you want to take that? I know you gave a range on a percentage basis above the core, so maybe you can just spell that out here.
Andrew Hibshman
Yeah. I think we talked about that, I think, 5% to 8% is kind of a reasonable number. Now you got factor in, we’re going to have a bunch of merger related type expenses over the next couple of quarters until we get this thing closed. But I think our core rate, we expect to be in around that range because we are seeing some pressure, but we don’t have any major cost initiatives here outside of the Malvern acquisition.
Unidentified Participant
Okay. And just one final that I just thought about this question as a less thought. Would you consider buying back some shares if your stock continues to say this, what seems to be an unduly low inexpensive level?
Patrick Ryan
Yeah. So the short answer is absent any constraints we’d love to be buyers of our stock at these levels. Now there are challenges when you announce a merger and what that means for your 10b5 plans and exactly when you’re allowed to be in the market and how much you can buy when you are in the market. So we’re not as free to do perhaps as much as we would want on the buyback front right now just given the rules there.
But objectively or say differently, on a personal level, I’ll be really looking at the opportunities as we get out of blackout here because, listen, we’re growing book value. We’re earning good money. I’m really excited about the opportunities ahead of us. I’m not pretending that there aren’t challenges as well. But I think the way we’ve shown we can try core earnings and book value growth, I think it’s attractive at these levels.
Unidentified Participant
When does the blackout end, if I may ask, that’s my final question? Thanks a lot guys.
Patrick Ryan
Yeah. That’s something we’re working on and discussing with counsel. There’s a few different rules. And obviously, blackouts tie into, not just what’s already been disclosed. But if you’re in possession of material non-public information, that can create new blackout periods and, what you’re allowed to do once the merger’s been announced before it has regulatory shareholder approval, those rules are a little different and then you may have one set of approvals and not the other and what does that mean in terms of your ability to get in and out of the market. So It’s something we’ll be monitoring closely with counsel, but there’s no simple answer there.
Unidentified Participant
Yeah. Thank you very much. Best of luck. Sorry.
Andrew Hibshman
Sorry, yeah, I just to add to that, yeah, it’s very nuanced. The rules are very nuanced once you announce an acquisition. So even if you get out of blackout, you’re very limited in how much you can do. So it’s going to be difficult for us to get any meaningful shares, but we’re going to take a look at this because if we have any opportunity to get shares, as Pat mentioned, I think we’d very interested in buying shares back at this time.
Unidentified Participant
Thank you very much. Best of luck guys. Appreciate the help.
Patrick Ryan
All right. Thank you, Ross.
Operator
Thank you. [Operator Instructions] I can confirm we’ve had no further questions registered, so I’d like to hand it back to Patrick for any closing remarks.
Patrick Ryan
Okay. Thank you very much. Appreciate everybody, who took the time to dial in and listen, appreciate the great questions. And we’ll look forward to bring everybody a fresh update as we get through the first quarter and announce our earnings in about 90 days. So thank you everybody. Have a great day.
Operator
Thank you for joining. [indiscernible] this concludes today’s call. Please have a lovely day. You may now disconnect your lines.
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