Q4 2019 Earnings Call
Word. I am confident that Opus will continue to improve on its growth and profitability over the coming year and continue to increase shareholder value. I want to take a moment here to Thursday. Thank all of my Opus team-mates for all of their contributions to produce this successful fourth quarter and the year 2019 and we look forward to continued success in 2020 with that. I'm going to turn over the discussion to Kevin. Thank you Paul turning to slide for average life thirty-seven million or 6% during the fourth quarter while. And balances increased $99 million or 2.9% new loan fundings measured 410 million compared to $406 million in the prior quarter, but the timing of loan findings was concentrated in the month of December .
looking for
Loan payoffs for $272 million compared to three hundred million last quarter.
New Loan Fund these included 130 million of Commercial Banking division loans up from $99 last quarter while multi-family loans constituted 217 million of loan fundings compared to $156 million in the third quarter.
Total O'Neill decreased 11 basis points to 4.13% primarily driven by the rate differential between new loan fundings and higher-yielding loans that paid off downward pricing of adjustable rate loans and a lower net benefit from from prepays.
155 you can see that the average balance of our investment Securities portfolio decreased twenty 1 million or 2% from the prior quarter while. And balances actually increased by $29 million or 3% The decrease in the average balance was due to the timing of security sales at the end of the third quarter and the subsequent purchase of $65 million during the fourth quarter.
We continue to optimize our Securities Holdings by swapping out lower-yielding shorter-duration Securities with the mix of longer duration mortgage-backed and corporate Securities. The yield on investment wage is increased 16 basis points to 3% due primarily to lower premium amortization turning to slide six average deposits increased 160,000 million or 2.6% with the majority of growth coming from interest-bearing demand deposits and money market accounts. The growth in average deposits was primarily generated through higher pennis, KO an exchange and Commercial Banking division of deposits during the quarter. We actively manage our costs of deposits which resulted in an 8:00 basis point decrease in our cost of deposits to 1.01% Well competition remains high in our markets, we anticipate making further progress on lowering our costs of deposits during twenty-twenty as we improve the mix to include a greater wage.
image of non-interest bearing deposits
How long does deposit ratio decrease to 91.1% compared to 92.5% in the prior quarter?
Turning slide seven that interest income with largely unchanged from the prior quarter at 50.1 million interest income decreased primarily due to the effect of higher-yielding loans paying off and the lower average balance of loans compared to the prior quarter lower interest expense offset the decrease in loan interest income as their cost of funds decreased 9 basis points.
Net interest margin decrease six basis points to 2.76% driven primarily by the eleven basis point decrease in Lone yield that was partially offset by an 8:00 basis point decrease cost of deposits and a 16 basis point increase in the yield on investment securities.
Preceding the slight eight non-interest income increased to 13.9 million for the fourth quarter during the quarter. We recognize the gain of $851,000 on the sale of a bank operations building a pentacle fee income increased slightly to 7.3 million and boldly income increased due to Insurance purchases. We made in October .
excluding
Gain, on sale of the bank operations office and 220,000 of Cell games last quarter non-interest income increased $162,000 or 1.3%
turning to slide 9 are cordially non interest expense decreased 1% from the prior quarter to 39.7 million driven by continued Focus intention on reducing our overhead expenses and improve efficiency our efficiency ratio decreased slightly to 61.3% driven by both lower expenses and higher revenues. We further utilize the FDIC small bank took my credit in the fourth quarter which reduced on interest expense by 461000 and we also have lower amortization expense due to Prior Acquisitions costs core deposit in Tamarac G.
I'll fly ten. We show Capital ratios a quarter end. Although total Equity increased 1.5% from the prior quarter are tangible common equity ratio decreased four basis points to a healthy 9.24% full total risk-based Capital decreased 18 basis points to 15.08% due to asset growth in the quarter tangible book value per share increased $0.44 to $19.38. Finally our board authorized and $0.11 cash dividend payable in the first quarter of 2020.
On flight eleven we display some of our asset-liability metrics which includes durations and our simulation of net interest income, assuming instantaneous parallel rate shifts. The anticipated duration of our life has increased as a result of a slight mix shift in loans. We continue to closely assess our position as we navigate this difficult interest rate environment.
Turning to slide 12 or credit quality continue to improve during the quarter as non-performing assets decreased 19.5% to 6 million or 7 basis points of total assets compared to month basis points in the prior quarter net charge-offs were 1.6 million or 11 basis points of average loans annualized compared to 4.9 million or 33 basis points in the prior quarter as a result of the continued Improvement in reducing the balance of criticized loans during the quarter. We recorded a negative provision expense of two point seven million compared to a negative provision of 7.7 Million last quarter criticized loans decreased 27.5% to 73.5 million.
Let's light.
Teen we show the changes in our allowance for loan losses and the drivers of the 2.7 million negative provision expense in the fourth quarter total reserves decreased slightly to 40.8 million or 16% of loans compared to forty five point two million or 78% of loans in the prior quarter, the recapture of allowance associated with loans that paid off during the quarter more than offset additions time allowance due to growth we had zero specific reserves as of the end of the quarter.
On five fourteen we present a summary of our outlook for 2020 assuming a continuation of the current economic environment and no further rate cuts by the Federal Reserve despite the difficult interest rates and we are optimistic and we continue to see slow steady economic expansion in our markets. We expect loans will grow at a high single-digit rate for the full year twenty-twenty with continued progress in our Commercial Banking division supplemented with some growth in our multi family portfolio. We intend to maintain our strong credit discipline, which has consistently guided our lending decisions.
We estimate steady deposits.
Growth when with an increasing percentage of total deposits that are non interest-bearing.
We estimate our net interest margin will be stable to slightly declining in the year. We began to see relief in our cost of deposits during the fourth quarter with monthly levels incrementally following throughout the quarter off and we anticipate a continuation of this trend as we see further roomed lower rates on certain products, but we continue to anticipated flat yield curve and elevated prepayments and coming quarters month. We continue to maintain our prudent expense discipline and we are very focused on increasing operating leverage. We expect our core efficiency ratio for the full year to be in the low sixty percent range quarterly levels dropping into the fifties in the last half of the year. We expect stable credit Trends and we remain focused on maintaining a strong risk management infrastructure regarding the implementation of Cecil. We expect a minimal day one impact and capital with an initial increase in our credit allowance of between 5% and 10%
we estimate and
Effective tax rate going forward or 26% consistent with recent quarters. And finally, we evaluate our quarterly dividend payment based on our assessment of loan growth our risk profile Capital level job market conditions. This concludes our prepared remarks operator. Would you please open the line for questions?
We will now begin the question-and-answer session to ask you a question. You may press * then 1 on your touchtone phone. If you're using a speaker phone, please pick up your handset before pressing the keys to withdraw your name, please press star then to our first question comes from Jackie Bolen from KBW, please go ahead.
Hi morning morning. I just wanted to understand that you talked about this in both. The press release on the prepared comments the rate differential wage in new loan fundings and payoffs. Do you have that? I know that there's dollar values in the The Helpful name chart you provide and slides but I was wondering if you had the rates on those. Yeah new loan funding for around 350. The the payoffs were around the 470 and that differential that's lower than it's been in past quarterbacks. Correct. Now that the intentional runoff is slowing. That's correct. The number of those loans that were intentionally being run off were a higher rate loans.
Okay. Okay. Thank you. And then
You talked about instability with a you know, a slight downward bias. What's the main driver of that stability after some of the recent contraction we saw.
We do see some stabilization in the the yield curve. We have some opportunity. You know, we have this lack Behavior. Our cost is deposits. It lagged going off its flag coming down. So we have some opportunity there. There's still a good amount of pressure on loan pricing, but with a little stability in the the yield curve it gives us the opportunity to talk to for things to satellite, but we believe
Okay, okay, and then just one last one for me and then I'll step back the loan growth that you're looking to does that drive any mix shift and earning assets or do you anticipate with a similar level of a speck Rhodes as well?
Yeah, I think you'll you'll see asset growth across the whole asset side of the balance sheet. But again, we're really pushing commercial lending were gaining traction with a hundred and thirty million dollars in funding in the fourth quarter, you know pipeline in the in the first quarter looks good also, so our our goal is to make commercial lending a much bigger piece of our balance sheet. Okay, so a mix shift within the loan portfolio, but not necessarily a mix shift between loans versus cash and securities, correct?
Thank you. Thank you.
The next question comes from Matthew Clark from Piper Sandler, please get a good morning. Good morning on loan 15. Can you give us a sense for where you're pricing new multi-family loans. I think you you know more recently have been trying to stay a little bit above the market. I think it was four and a quarter last year on last quarter inch and 1/4. Give us a sense for where that pricing was this quarter relative to the competition.
Yes, so I would say we're right in that kind of mid-range of competition and it's really followed the the yield curve. So it came down to probably on average about in the mid-30s to 390 S2. I would say to be more precise probably the mid 300S for the quarter. Okay, great. And then do you happen to have the spot rate on interest-bearing deposit that the end of December ?
I do.
Just come down a little bit were more in the mid-90s at the end of December . Okay, and then do you have anything left for the upcoming quarter? And if so how long we anticipate kind of the average amount? We've seen so far through third quarter of 2028. Okay, and then the you speak to the I know it's not a large amount, but can you speak to the inflow into age mention this quarter? What drove that if mostly driven by one loan and just late financials. Nothing concerning know concerning credit friends.
Okay, and then one more if I can sneak it in the day one impact from Cecil looks to be a lot more modest. I think than we originally expected, I guess. How are you thinking about day to provisioning? I know it's not easy to forecast but would you suspect that you'll see incrementally higher Provisions just from having to comply with a rep.
Yes.
Incrementally higher, um, definitely, uh, you know, Cecil will introduce some volatility to all banks because of the economic forecasts and so that we anticipate as all banks. We may have a little additional volatility. But other than that, I think this is a consistent rate as long as economic environment doesn't doesn't change the reserve a little bit higher wage this rate, but this will be changing ongoing it's all of us refine our models and as we continually forecast
Okay, great. Thank you.
Again, if you have a question, please press the star then one the next question comes from Kevin Swanson from Hope D. Group is a good morning. Good morning, you know look like Penn School helped you mentioned the deposit Gathering any update on the Outlook there and progress made with some time and the new president.
Yeah, so, uh our new president Rich Ms. Burger is a very experienced guy in this section of banking business. And we we have high hopes for Pence go. I mean it's a great asset can be expanded and it should be stable to increasing.
Okay. Any I think last time we talked about it on the call any kind of outlook on some strategic initiatives there or is it still too early for that? It's still too early. But I'm looking at very strategic initiatives that would help build that business and then I guess just on the Roa think you guys hit 1% 442 State Quarters off obviously helped a little bit by the the negative provisioning. I guess what's kind of the path of least resistance to the maintaining that level kind of X some of the credit movements going forward?
I think it's you know, it is to your point temporarily High because of the credit provisions and of course, we had a cell of an operational Center as well that that helped with that so but it is incrementally improving as we're incrementally improving our pre-provision net revenue overtime and we plan to continue to Mark's down that path both on the suspense and revenue side. We have contributions in our strategic plan from both of those to be very careful with expenses operating a much more efficient way while we grow revenues and Leverage The the existing infrastructure that we have and as the the strategies of our Commercial Banking and our other Bankers play out over the next few years wage. Okay, great. And then maybe just on that point about Commercial Banking, you know, obviously you mentioned the pickup and funding this quarter. Do you think some of the changes there have started to take hold and kind of how do you think about the the current phone number?
That division home.
very very
Very excited about our Commercial Banking division, you know, we've we've brought out a lot of new people into that Division and Commercial endings got the longest sales cycle in my experience in banking and it takes time and we've had some time and it's really starting to gain traction. And as I look forward into our new pipelines, it's still looks very good. So, I think we'll see that product continue to grow throughout 2020.
Okay, great. Thanks for the time. Yeah.
This concludes our question-and-answer session. I would like to turn the conference back over to Paul Taylor for any closing remarks.
Well, I want to thank everybody for their interest in Opus and joining us on this conference call and I look forward to speaking to all of you in the future.
The conference has now concluded thank you for attending today's presentation to you may now disconnect.
Dead dead dead dead.