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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Hello and welcome to the First Financial Bancorp Fourth Quarter 2021 Earnings Call. My name is Alex, and I’ll be coordinating the call today. [Operator Instructions]
I’d now hand over to your host, Scott Crawley Corporate Controller Over to you Scott.
Thanks, Alex. Good morning, everyone, and thank you for joining us on today's conference call to discuss First Financial Bancorp's fourth quarter and full year 2021 financial results.
Participating on today's call will be Archie Brown, President and Chief Executive Officer; Jamie Anderson, Chief Financial Officer; and Bill Harrod, Chief Credit Officer.
Both the press release we issued yesterday and the accompanying slide presentation are available on our website at www.bankatfirst.com under the Investor Relations section. We'll make reference to the slides contained in the accompanying presentation during today's call.
Additionally, please refer to the forward-looking statement disclosure contained in the fourth quarter 2021 earnings release, as well as our SEC filings for a full discussion of the company's risk factors. The information we provide today is accurate as of December 31, 2021 and we will not be updating any forward-looking statements to reflect facts or circumstances after this call.
I'll now turn it over to Archie Brown.
Thank you, Scott. Good morning everyone, and thank you for joining us on today’s call. Yesterday afternoon, we announced our fourth quarter financial results which reflect an outstanding finish to an exceptional year despite the challenging operating environment and interest rate backdrop.
Our quarterly results were highlighted by strong earnings, significant core loan growth, solid fee income, provision recapture and improved credit trends. We announced and successfully completed the acquisition of some of the funding group during the quarter and were excited about our future together.
The synergies gained by adding Summit’s leading nationwide position in the equity and finance sector to our current product offerings will provide significant growth opportunities moving forward, someone has developed a diversified and nimble lending platform and demonstrated the ability to produce high quality and consistent origination volumes. We are pleased to have Summit’s exceptional asset management expertise and look forward to the growth potential created by combining our two companies.
Fourth quarter results remain strong across the board with adjusted earnings per share of $0.58, return-on-assets of 1.34% and an efficiency ratio of 60.2%. Fourth quarter earnings were again highlighted by significant provision recapture of $7.7 million as credit quality trends continue to improve and classified assets decreased by 36.7%.
Fee revenue was also strong as record foreign exchange income from our Bannockburn unit more than offset some seasonal drop in mortgage income. Loan origination activity improved to record levels and was approximately 27% higher than the third quarter with our commercial groups leading the way.
Growth in the unfunded line and construction commitments are expected to provide tailwinds to loan growth over the coming year as they draw up. We also completed the sale of approximately $144 million in commercial real estate loans, which both reduces our hotel concentration and our exposure to an industry that continues to be impacted by the pandemic, particularly in metropolitan central business districts.
Excluding the impact of PPP, the loan sale and the Summit acquisition, core loan growth was approximately $149 million or 6.3% annualized, which was the strongest quarter of the year. We are very pleased with this organic loan growth concerning we have continued to see record payoffs within our commercial real estate and commercial finance portfolios. As those payoffs moderate and the Summit portfolio builds, we expect to see further strengthening in loan growth in 2022. We're pleased to have the positive balances grow modestly across all customer segments, as our customers continue to maintain substantial liquidity levels.
PPP forgiveness continue to wind down in the fourth quarter, three quarter and almost all of around one and over 80% of round two loans have been forgiven. We expect the majority of remaining round two payoffs to come over the first half of 2022. Overall, our full year 2021 performance was exceptional, as our participation in PPP helped offset the pressure from historically low interest rate environment. While provision recapture contributed to strong earnings and reflected dramatically improved credit trends, I was pleased to see – fee income again was very strong this year, given our strategic focus on that area of our business and expenses remained well managed despite inflationary pressures.
Lastly, our balance sheet and capital ratios remained strong, and we were very pleased to deliver superior returns to our shareholders through aggressive share repurchases and a strong dividend yield.
With that, I'll now turn the call over to Jamie to discuss the details of our fourth quarter results. And then after Jamie's discussion, I will wrap up with some additional forward-looking commentary. Jamie?
Thank you, Archie and good morning everyone. Slide four, five and six provide a summary of our fourth quarter and full year 2021 financial results. We are very happy with our performance which included strong earnings, core loan growth, a significant decline in classified assets, provision recapture and elevated fee income. The highlights of our quarter included closing the acquisition of Summit funding group and 6% annualized core loan growth.
In addition, fee income surpassed our expectations as Bannockburn had a record income quarter, wealth management remained strong, and we recorded higher syndication fees during the period.
Non-interest expenses were slightly higher than our expectation due to elevated incentive compensation, which was tied to our higher fee income and overall company performance. We were particularly pleased on the credit front as classified assets declined 37% during the period. Net charge-offs were elevated due to our decision to sell $134 million of hotel loans in order to address various portfolio concentrations
The decline in classified assets, combined with a positive economic outlook resulted in $7.7 million of provision recapture during the period. From a capital standpoint, our ratios are strong and remain in excess of both internal and regulatory targets. Given the Summit acquisition, we paused our share repurchase program and expect to remain on the sidelines in the near term. However, our board recently approved a new plan, which authorized 5 million additional shares to be repurchased.
Slide seven reconciles our GAAP earnings to adjusted earnings, highlighting items that we believe are important to understanding our quarterly performance. Adjusted net income was $54.1 million or $0.58 per share for the quarter. These adjusted earnings account for $6 million in tax credit investment write-downs, $3.5 million in legal settlements, $4 million of Summit acquisition costs and $2 million of other costs not expected to recur, such as severance and branch consolidation expenses.
As depicted on slide eight, these adjusted earnings equate to return on average assets of 1.34%, a return on average tangible common equity of 17.4% and an efficiency ratio of 60.2%.
Turning the slide nine and 10, net interest margin declined 9 basis points from the linked quarter to 3.23%. This decline was primarily driven by a decline in PPP forgiveness fees and lower asset yields. The impact on the net interest margin from these changes was partially offset by an increase in other non PPP loan fees during the quarter.
Asset yields declined modestly during the period due to continued pressure from the low interest rate environment and the growth of the investment securities portfolio. Over the course of 2021, we increased the size of the investment of the investment portfolio, which has negatively impacted the margin.
Our cost of deposits of 10 basis points was flat when compared to the third quarter. Our near term outlook on funding costs remains the same. We anticipate cost stability, or a very slight decline as we have reached our pricing floor.
Slide 11 illustrates our current loan mix and balance changes compared to the linked quarter. Loan balances decreased during the period primarily due to declines in PPP, and the ICRE portfolio. The decline in PPP was expected as those loans have been forgiven, while the decline in ICRE was impacted by 144 million in loan sales during the quarter. Excluding the impact from these two events, as well as the acquisition of Summit, we were very encouraged by $149 million of growth and the rest of the portfolio.
Slide 13 shows our deposit mix as well as a progression of average deposits from the third quarter. In total, average deposit balances increased $218 million during the quarter, driven primarily by increases in non-interest bearing deposits, and public funds. This was partially offset by a decrease in higher cost brokered CDs. We continue to be mindful of deposit pricing, and we'll make any necessary adjustments based on market conditions and our funding needs.
Slide 14 highlights our non-interest income for the quarter. As I mentioned previously, fourth quarter fee income remained elevated and was driven by record production from Bannockburn and strong wealth management results. In addition, other non-interest income increased 37% during the period, primarily due to a $1.2 million increase in syndication fees.
Non-interest expense for the quarter is outlined on slide 15. Non-interest expenses increased $10.6 million during the period where it included multiple large transactions that we do not expect to recur. These include $6.1 million of tax credit investment write-downs, $4.1 million of cost associated with the Summit acquisition, a $3.5 million legal settlement and $1.9 million of other costs, such as branch consolidation and severance expenses.
Overall, core expenses were slightly higher than we expected and increase modestly when compared to the linked quarter. This was driven by elevated incentive compensation, which was tied to higher fee income and the company's overall financial performance.
Turning now to slide 16, Our ACL model resulted in a total allowance which includes both funded and unfunded reserves of $145 million and $7.7 million in total provision recapture during the period. The provision recapture was driven by a 37% decline in classified asset balances, and improved economic forecasts.
Net charge-offs as a percentage of loans increased to 32 basis points on an annualized basis, as a company sold $134 million of hotel loans during the period in an effort to address portfolio concentration. This sale added $9.2 million to our quarterly net charge-off figure. For further description of the loan sales during the quarter, please, see slide 18.
Our view on the ACL and provision expense remains unchanged. We believe we acted aggressively when building reserves in response to the pandemic and have been relatively conservative in releasing those reserves. In the beginning of 2022, we expect further provision, recapture and reserve in reserve release, but at a more gradual pace than we saw in the back half of 2021.
Finally, as shown on slides 20 and 21 capital ratios remain in excess of regulatory minimum and internal targets. All capital ratios remain strong despite declines during the period due to the acquisition of Summit. As I previously mentioned, we did not repurchase any shares in the fourth quarter, and do not expect any additional share repurchases in the near term, while we rebuild our capital position following the Summit acquisition.
Additionally, we do not anticipate any near term changes to the common dividend. However, we will continue to evaluate various capital actions as the year progresses. I'll now turn it back over to Archie for some comments on Summit and our outlook going forward. Archie?
Thank you, Jamie. Before we had our prepared remarks, I want to comment on our forward-looking guidance which can be found on slide 22. Loan demand remains strong, especially in our commercial businesses, and we expect loan balances to grow mid-single digits over the near term, excluding PPP and Summit.
Securities balances are projected to come down slightly while the positive balances are expected to remain relatively stable over the near term with some modest seasonal outflows. The net interest margin will continue to be positively impacted by the remaining PPP forgiveness payoffs, which we expect to conclude in the first half of the year. Without any further substantial liquidity inflows and excluding PPP, we expect the margin to be relatively stable over the next quarter.
Our asset sensitive balance sheet positions us very well to benefit from the expected rise in interest rates. A significant portion of our loan portfolio is indexed to short term rates. And although there are many variables at play impacting magnitude and timing, we expect to benefit from rising rates especially early in the cycle when the positive rate pressures are muted.
Regarding credit, we expect further improvement and quality trends continue to expect additional provision recapture in the near term, for less than we had in the back half of 2021. We expect fee income to be between $38 million and $40 million in the first quarter, excluding the Summit acquisition as seasonal and rate headwinds put pressure on mortgage banking income and we will see some decreases in overdraft income due to seasonality and updates to our program.
Specific to expenses, we expect to be between $91 million and $93 million, excluding the Summit acquisition, but this could fluctuate with fee income. Regarding Summit, we expect the acquisition to have a minimal impact on 2022 earnings with a slightly negative impact near term from the intangible amortization. We expect the acquisition to provide $400 million in annual originations, which should provide a strong lift to loan growth as we progress through the year.
Lastly, our capital ratios remain strong and we will continue to elevate reevaluate capital deployment opportunities over the year. Overall, we continue to be pleased with the strength and performance of our company. 2021 was another successful year for First Financial and reflects the outstanding efforts of our talented associates.
As we move into 2022, we are optimistic about our prospects for growth and are well positioned for the rising rate environment. Our focus remains on executing our core strategies, delivering exceptional service to our business, consumer and wealth management clients and capitalizing on the momentum and achieved in 2021 to deliver superior returns to our shareholders.
With that, we will now open up the call for questions.
Thank you [Operator Instructions] Our first question for today comes from Scott Siefers from Piper Sandler. Scott, your line is open.
Thank you. Good morning, guys. Thank you for taking the question. Jamie wanted to start maybe with you regarding the margin. So just make sure I understand you're saying stable with the three implied 3% which is the basic and the loan fees, is that the best way to think about it?
Help me out there. Scott, would you say the 3% in the loan fees? What do you…
The 3% which is basically the basic margin plus loan fees. The way you…
I got it? Yes, so obviously, without any rate hikes, we are our kind of base margin is right around 305. Call it and so yes, without rate hikes, we would, we don't have any rate hikes, we would look at that to be to be relatively flat. Yes.
Okay, perfect. And do you have sort of a rule of thumb for…
Excluding PPP is what Scott, right?
Yes, exactly. Okay. And then you have a rule of thumb for how much each 25 basis point hikes by the Fed would help either the margin in basis points or NII in dollars? And maybe I've just sort of thought on how the…
Yes. So I'll maybe give you two, two different answers here in terms of like, how it how it performs, as we get the rate hikes in and the number of rate hikes. So in the first couple of rate hikes, mainly, because we don't see the deposit side moving quite as much, we get a little bit more benefit from the first couple of rate hikes. So in basis points, our margin per rate hike in the first two would go up around eight basis points. So in that, call it $11 million range of benefit to the net interest income in those first two. And then after we get past the first two, that comes down a little bit, just as we will probably start to see some deposit pressure at that point. And that eight basis points comes down in that five to six basis point range of benefit. So more like, seven to eight -- call it seven and a half million in increase in net interest income. And those numbers are annualized numbers, right. Scott the dollar amounts. And so, and then, and then, you can kind of go from there, but, and then obviously, when the Fed would stop, on the tail end, the deposit side starts to catch up and, and we get, it starts to come down just a little bit. But, so on the first four, that's kind of how it would play out.
Perfect. All right, that's terrific. So thank you very much. I appreciate it.
Thank you, Scott. Our next question comes from Daniel Tamayo from Raymond James. Daniel, your line is now open.
Thank you. Good morning, everyone. Maybe just, maybe just a follow up on Scott's question. Can you just provide what your assumptions are in terms of deposit beta for the acid sensitivity? Numbers, you just?
Yes, so, like I said, in the first in the first couple of hikes, I mean, we don't really see deposits moving that much at all. And so, because in a normal scenario, deposits right now would be, there would be a bucket of them paying negative rate, but so there's, those are obviously the floor. So I need to push through that floor in that first couple of hikes. And then, but once you get past that, I mean, our overall kind of Daniel overall weighted beta would be in that 20% range. I mean, obviously, within category is going to be skewed towards the money market accounts and public funds, which would have a much, much higher beta but then what the savings is going to be on the lower side and whatnot so when you kind of look at the deposits in total, you're looking at around 20% is beta.
Okay, terrific. That's, that's helpful, thank you. And then switching gears here, if you could just provide your kind of what your thought process was on the loan sales. And if there's any, any other loans or buckets of loans that you're considering selling, thank you.
Sure. Good morning, we took a look at you know, we constantly monitor the market just to really see what the activity is. And everything kind of set up right for the hotel sale. And really, the genesis was looking at the portfolio, what we've seen over the past year and a half, two years, and really take an opportunity to pull the risk down. And mainly, as Archie alluded to in his opening comments, mainly to the business traveler, city center type locations dependent on, conventions and business travel and things like that, like as well, as well as some of our more challenged hotels in our portfolio within our watch, and worse bucket. And so it really included full service hotels, some limited service hotels, and focused on where we felt that, the short and medium term risk was the highest within our portfolio. And we'll continue to monitor the various loan sale markets with different portfolios, but we don't have anything right now in our sites.
And Daniel, this is Archie. I mean, part of this as we, as you know, we were all monitoring hotels, a little bit larger book going into the pandemics, we're monitoring hotels, and most of them are rebounding really nicely. But as Bill was saying some of those in the central business districts or maybe they came new online during the pandemic, they were just ramping up slower. And with continued concerns about where the pandemic is going, we thought it was prudent to exit some of those that were more problematic in our mind.
Terrific, I appreciate all the color. That's all I had. Thank you.
Thanks, Daniel.
Thank you, Daniel. Our next question comes from Chris McGratty from KBW. Chris, your line is now open.
Hey, good morning. Jamie, a question on the just the efficiency ratio. How do we think about the cadence of it from here maybe with Summit and then with or without rates?
Yes, so I mean, if I guess, without any rate hikes, I mean you would see that efficiency ratio moving up a little bit into that, maybe 60 to 62 range. But obviously the rate hikes we’re going to benefit significantly from the rate hikes. I guess if and when they come, but look like they're coming here in March. And so, you start to just see the efficiency ratios move back down, kind of in that, more in that 57%, 58% range.
Yes, Chris this is Archie. I mean, it's fair to say Jamie we really focus on managing expense growth. So if you think 2% to 3% expense growth, typically in the fluctuation which may occur in the commissioned area where we have higher fees from time to time, but that's what we focus on there. And then of course, the goal is to get operating leverage and drive revenue higher. So think like that about it. That's how we, we managed the expense side. And so we get the rate hikes and it should be pretty beneficial.
Right. Okay. And then in terms of Summit, I think your guide is without fees and expenses. Could you just help us a bit on what might go through each of those lines, and also, that 400 million that you talked about for originations, like how do we think about just balance sheet in that stuff? Yes thanks.
Yes, so I mean, Chris I mean given the fact that this disclosed at the end of the year, so we got, a lot of moving parts we're still working through the valuation adjustments, the purchase accounting related to that. So we brought over from them around 115 million ish in assets and that’s split up between 42 million in finance leases, which you see we'll run through the loan and lease line item. And then there's around 75 million of their leases that are operating leases, that will run through other assets. And so on those, obviously, on those two buckets on the operating leases, they get rental income that will flow through non-interest income, and then the depreciation of the assets running through non-interest expense.
But, so, I mean, one of the things that that why we didn't put a lot of guidance and information in the slides about them. I mean, we're kind of flipping their entire model of how they are operating in terms of the masticity [ph], in the past, they were a originate and sell the vast majority of their production because of the size of the balance sheet. And this, their capacity to fund it and hold those types of assets. So going forward, we're changing their model quite a bit. And, we're going to, our plan is to hold the vast majority of those. And the mix of that is still a little bit up in the air as we're just trying to optimize that we know what we should, what we should keep, and then what we should, and the mix between financing and operating leases.
So but I mean, overall, like I meant, like we mentioned in the slides, the overall impact to 2022, we still believe is relatively neutral. Now in the beginning in terms of EPS, in the beginning, in the first maybe couple of quarters, especially in the first quarter, we think it could be slightly negative just because we, if you think about it, like I said, we're flipping their model where we're going to retain assets, so we need to ramp up the balance sheet, as we're doing that we need to provide for the terms of provision expense. And then, but we have all of the fixed costs up front as well and also the intangibles amortization. So in the beginning, we think it's maybe a slight negative, maybe a penny two, a penny and a half negative in the beginning. And then as we progress throughout the year, the balance sheet builds, that flips towards the back half of the year. And really for the whole year, it's kind of a wash from an EPS standpoint.
And then Chris this is Archie, that 400 million that we're talking about. That's really that's Summit standalone. That's, that's them doing what they've been doing but with a bigger balance sheet. And the ability to do more. We think there's upside we're not baking in certainly as we bring the new products set to our existing commercial clients that we know are using leasing products, somewhere, but now we think we can have a better shot at it getting more of those two. So we think there's quite a bit of upside in the 400 million.
Okay, that's helpful, very helpful. But it's just getting back to the related expenses. So I can back into the revenues, what's kind of a range for a full quarter or full year of expenses from the team?
So they have about $4 million ish in what we would call kind of like SG&A expenses, a quarter at this point. And then we look at their overall, like first quarter. And like I said, the problem, Chris, is this is going to move dramatically throughout the year based on what we retain and what we don't retain, and the types of leases. But in the first quarter, we look we're looking at an overall expense base, which includes the depreciation of those assets, somewhere in that $9 million to $11 million range in total.
Got it. That's helpful. Perfect. And then last one on the buyback. I mean, understand the capital rebuild. Is this like a what we sideline for maybe six months on buyback? Or how should we think about the new authorizations in terms of beginning to pick away?
Yes, I would say your close there. It's really minimum, a quarter, but probably more like a couple of quarters where we would be where we would be out.
Got it. Thanks Jamie.
Thank you, Chris. [Operator Instructions] Our next question comes from Jon Arfstrom from RBC Capital. Jon, your line is now open.
Thank you. Good morning, guys.
Hey Jon.
Just one quick follow up on Summit. I understand what you're saying you've got some integration going on, but you're no real changes to the origination machine that they have. And, 12 months from now we couldn't see another 400 million or 500 million of leases on the balance sheet. Is that fair?
Hey Jon, it’s Archie. Absolutely no changes to what they do on in terms of the people and the clients and the process, no changes at all. I think Jamie's mainly focusing on the fact that we’ll, we’ll probably hold more because we got the balance sheet to hold and they didn't. And, the $400 million, I mean, is it probably 80 -- with you, we hope to get hold at 80% of that or more. And we think the 400 is sort of the minimum expectation for what we think they can do this year.
Okay, any limits in your mind in terms of how large you let this get on your balance sheet?
Well, I mean, it's yes, I guess there are some point you could say so but for the next 2, 3, 4 years, I think we feel very comfortable that if they're, if they're doing 400, and then, 10%, 12% increase on that year-over-year over year, we'd be very comfortable that.
Yes. Okay. Okay. You talked about Archie, you talked about some moderation in payoffs, helping your loan growth, at least expecting to in 2022. Can you talk a little bit about that, and what you're seeing?
Yes, we just saw, certainly in our commercial real estate -- we saw significant record payoffs levels. We saw so that in our finance company, and even a little bit in our C&I business. And I do think there was some sort of rush, especially in Q4, because that was the highest quarter for payoffs. To get deals done, to get things sold. We think some clients were thinking about potential tax policy in 2022. So we just think there was a big rush to get some things done at year end, and it we still think in the current environment, there's, there's some payoff pressure, but it's we think it's going to abate some from the record levels in the first quarter. That's probably the primary thing I think we see there. We did -- also part of the pressure there was when a CRE loan pays off and we were we had great production in the CRE, but a lot of it was in the construction side. So we don't get the immediate benefit of that hitting the balance sheet, but it should fund up here over the course of the year. So and that will give us a little bit of tailwind as well.
Okay. Bill, a question for you. Just to follow up on the hotel portfolio, or the hotel sale, but how much interest is there in the market place in loans like that? And I know, you touched on, maybe looking at a couple of other areas, but how active is that market?
We found that it was very active. And the way that we constructed this was a pool based on our review, that was the best strategy and, and really, the market because we've been tested at all, your long last year and the market was very robust in Q4 up from Q3 is very robust.
Okay. Then, I guess one more on fees. I know it's difficult to predict and you're given us some of the near term outlook on fees, but how do you want us to think about Bannockburn and mortgage in terms of maybe, longer term view on those?
Yes on Bannockburn Jon, we see continued growth. They had an incredible year, think about it, but we still think there's a couple more million dollars in revenue on top of that they can do this year. On the mortgage side, certainly the rate increases have had some impact. Also, the margins are starting to come down and the Fed actions on the balance sheet can have an impact on that as well. So I think we would we would tell you that we're probably low mid 20s terms of these origination fees down from 2021. And what happened to that could be slightly worse. But we'd say it's in that range anyway.
Okay All right thanks for the help. Pretty good.
I mean, [Indiscernible] are still pretty good. They've come down a little bit seasonally. But we still think they're good. It's more, it made it may talk a little over a refi volume later in the year and, and certainly margins coming in. It's just kind of the double side of that impacting the fees.
Yes, it's an interesting market, right, because the purchase volume is still there. But obviously, we understand that gains and refi. So, okay, thanks. Thanks, guys.
Thank you, Jon. Our next question is a follow up question from Scott Siefers of Piper Sandler. Scott, your line is now open.
Hey, guys, thank you. I wanted to follow up on fees just a little. I mean, a lot, a lot of people making changes to their overdraft policies, which you alluded to here, was hoping you could maybe put a finer point on what specific changes you guys are making and sort of any specific revenue impact anticipation you'd have there?
Yes, Scott this is Archie. So just to maybe give some context, if you go back and look at 2019. And then look at where we're projected to be this year, we're probably down 30%, from 2019 levels already, the way you're projecting out 2022 and up through 2021, compared to 2019. And if you look at 2022, Scott, probably three or four things we already, we did kind of kicked them off the New Year. We lowered, we actually lowered the overdraft fee a little bit. We increase the cushion before you go into an overdraft status where you get into terms of getting charged. We eliminated some fees, we put more caps on these daily caps on diesel, just in a lot of areas, tightening it down. And if I said that's a 8% to 10% decline, probably an overdraft revenue. Now, we could get some upside offset to that with growing accounts, which we hoped to do.
But if you say this in that high single digit range in terms of impact on production income. That's probably what we talked about 2022. I was a little bit, I don't say surprised, I guess the amount of change, significant change we've seen in some of the larger banks here, right out of the gate. We will continue to monitor if we think our program is remains competitive and couldn't make further changes down the road. But this is what we had in place to start the New Year.
Got it? Okay, perfect. And then just wanted to follow up on expenses, just to make sure I'm on the same page with what you guys are thinking. So Jamie, we've got the 91 million to 93 million in costs anticipated ex Summit, and it sounds like at least in the near term, we should expect our expenses to be closer to you know 100 million to maybe a little higher than that with the full run rate of Summit in there on a kind of on a core basis. But is the way the nuance would change that as you go more toward portfolio showing them that Summit expenses would decrease over time. Is that the right way to think about it?
Well, Scott, so the first part is correct. It'll be somewhere in that 100 to low 100 100 to 102 or whatever. And then and then going forward, though, it's going to depend on the – so the operating leases are going to hit down there. And so it's going to depend on mix at that point. So if we are going more of a higher percentage and financing leases, then obviously those get up in margin and that in the depreciation expense would come down. But so yes, it’s just kind of depend on mix.
Got it. Got it. So it'll be sort of a I guess, stay tuned for what happens over a period of time.
Correct.
Okay, good. Thank you.
Thank you, Scott. We have no further questions. So I'll hand back to Archie Brown for any closing remarks.
Thank you, Alex. I want to thank everybody for joining us today and reviewing with us our year. We're very pleased with 2021. Look forward to a great 2022 and we look forward to talk to you next quarter. Have a great day. Bye now.
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