Q4 2019 Earnings Call
Ladies and gentlemen, thank you for standing by welcome to the Eagle Bancorp fourth quarter and year end 2019 earnings conference call.
Just sort of listen only mode. After the speakers presentation. There will be a question answer session to asked a question during the session you depressed star one on your telephone if you require further assistance. Please press Star then zero I would now like to do straws levies and Chief Financial Officer, you may begin Sir.
Thank you Kevin Good morning. This is Charles Lovington, Chief Financial Officer of Eagle Bancorp before we begin the presentation I would like to remind everyone that some of the comments made during this call maybe considered forward looking statements. Our Form 10-K for the 2018 fiscal year, our quarterly reports on Form 10-Q and currently.
Ports on form 8-K identifies certain factors that could cause the company's actual results could differ materially from those projected any forward looking statements made this morning. The company does not undertake to update any forward looking statements as a result of new information or future events or developments.
Our periodic reports are available from the company or online on the company's website, where the FCC website <unk>.
I would like to remind you that while we see set our prospects for continued growth in performance are good is our policy not to establish with the markets any earnings margin or balance sheet guidance.
Now I would like to introduce Susan real the president and CEO of Eagle Bancorp.
Thank you Charles I'd like to welcome all of you to our earnings call for the fourth quarter and full year 2019.
We appreciate your calling in this morning, and your continued interest in Eagle Bank I.
As usual Jam Williams, our Chief Credit Officer is also with US this morning.
In in Charles will be available later.
First call for questions.
I'm pleased to discuss our financial and business results.
Okay, which again showed strong profitability with net income of 35.5 million for the fourth quarter and 142.9 million for the entire year of 2019.
The earnings for the quarter and for the full year or less than the same respective periods in 2018, but still reflects the high quality of our earnings which continues to result in return on assets and tangible equity above peer group averages for community Bank.
The earnings per share a worry college six on a diluted basis for the fourth quarter of 2019 as compared to $1.17 cents in the fourth quarter of 2008.
Down slightly from a dollar seven cents in the third quarter of 2019.
The full year 2019, <unk> earnings per fully diluted share $4 in 18 cents as compared to $4.42 for the here in 2018.
Return on average assets for the fourth quarter was 1.49% almost 1.61 person for the year 2019.
Average the return on average tangible common equity was 12.91 person for the fourth quarter and 13 point, 40% for the full year 2019.
Levels indicative of continued solid performance.
While our profitability continues to be very good part of our culture at Eagle Bank strive for strong result.
Across all of the performance indicators for community Bank.
In reviewing the fourth quarter, we recognize that there were three major factors would somewhat dampened our earnings during the fourth quarter.
Very difficult interest rate environment. We are operating in has caused decreasing net interest margin across the entire industry.
Certainly impacted us as LIBOR rates dropped during the quarter, the second factor, which impacted our net interest margin during the quarter was a change in our our asset liability composition during the quarter, which led to an unusually high level of liquidity and lower.
So I feel.
The final item, which hindered net income was the continued elevated level of legal expenses related to the ongoing government investigations.
Since we measure and try to optimize the follows the performance indicators. We are pleased to note that on the positive side, we had a very strong quarter of non interest income driven primarily by gains on the sale of residential mortgages.
We continue our disciplined approach.
Fence management and maintained a very favorable efficiency ratio, even when including the elevated legal expenses. We also continued to benefit from our sound credit quality.
Let's talk first about the margin, which increased decreased 23 basis points to 3.49%.
For the fourth quarter as compared to 3.72% in the third quarter of 2019.
The decrease was due primarily to a change in our asset liability mix during the quarter as we saw robust growth in average deposits during the quarter of 398 million or 5.4%.
The growth in average deposits for the quarter outpaced loan growth, which drove down the average loan to deposit ratio and led to a change in the asset mix to a lower percentage of loans and a higher level of liquidity.
Our deposit levels were very fluid during the quarter and on average we had about 370 million in excess liquidity for the quarter.
A tribute approximately 15 basis points or 71% of the decline in the margin to the impact of this excess liquidity.
The second factor impacting the margin in the fourth quarter, what's the interest rate environment.
Evidenced by the average 30 day, LIBOR, which was 39 basis points above.
Lower than the third quarter of 2019, given that 40% of our loan portfolio.
Decks, she's a 30 day LIBOR rate the impact of the decrease in that right together with a competitive market that we saw the loan yield decline from 5.39% in the third quarter of 19.
5.18% for the fourth quarter.
We also achieved decrease in the cost of funds. So we attribute approximately eight basis points or 29% of the decrease in the margin to a lower spread on the loan book.
Both to reduce deposit cost during the quarter.
Two hours deposit levels and the falling rate environment.
As compared to the third quarter, we were able to reduce the rates paid on interest bearing deposits by 20 320 basis points and the composite cost of funds by 13 basis points during this quarter.
We are pleased by the growth of the deposit base so over the last year.
All the points to point growth from year end 2018 to December 31, 2019, with 250 million for 3.6%.
Growth in average deposits from the fourth quarter of 2018 to the fourth quarter of 2019 was 766 million for 11%.
As I mentioned earlier the deposit flows during the quarter work on either due to our commercially oriented business model. We have a good number of customers with high average deposits level, but also have significant fluctuations in their balances during any given period that's.
Fourth quarter progress, we held a significant deposit in October and November .
Flowed out prior.
Prior to yearend.
As you I see no we face many law firms entitled comp.
Chad escrow balances, which declined as the related real estate transactions when when two closings in December .
We continue to benefit from the significant level of D.A. balances, which remained favorable with an average of 29.6% total deposits for the fourth quarter.
The 7.5 billion balance of our loan portfolio at yearend was basically flat as compared to the.
Through the balance at the end of third quarter of 2019.
We had reasonable loan production in the fourth quarter as we continued our efforts to be more selective regarding and individual credits and we also slowed outgrowth on construction lending.
At the same time, we realize significant pay off during the fourth quarter. Many of these payoffs were expected and came primarily through the successful completion and sale or refinance of the subject properties. So despite new loan book of 281 million in the fourth quarter.
Net loan growth was essentially flat in the quarter based on the timing of pay off which was about 40% of the loans payoff for the full year 2019.
As of December 31st 2019, we achieved points to point annual loan growth of 554 million.
Or 8% more importantly, the growth in average loan balances from the fourth quarter of 2018 to the fourth quarter of 2019 with 635 million or 9.2%.
Those growth figures are right in line with the expected target levels. We have been forecasting also in line with our expected goal during the fourth quarter, we increased the percentage of C and I and owner occupied loan in our portfolio, while reducing the percentage of CRT and eight.
We see loan balances, which resulted in decreases in the C. I read in a DC concentration ratios.
We are pleased that the growth and positioning of the portfolio was in line without our expectations for 2019.
While we continue to see significant loan demand in the market, we remain selective throughout the credit approval and monitoring process loan pricing is very competitive. However, eagle bank was filled through relationship banking and we continue to benefit from that strategy, while many of our competitors.
There seems to be leading with price and not pricing for risk our strong relationships with our existing customers often gives us the opportunity for the last look at the transaction.
Economy in the Washington area remains healthy with favorable demographics, while the rate of production and job growth.
Population and job growth is slower than the torrid pace of 2017. The economy has picked up in the second half of 2019.
As compared to earlier in the year end to 2018 for the 12 month period ending in October the region added 52000, net new jobs and those jobs are in higher income white collar positions.
Next sector continues to flourish in northern Virginia, The DC Metro area has fifth largest regional economy in the U.S. and the gross regional products.
It's now 541 billion.
Growth rate of the GRP has been about 1.7 per cent per annum for the last three years and is expected to increase to 2.2% over the next two years.
The efficiency ratio for the fourth quarter with 39.71% as compared to 36.79% in the fourth quarter of 2018 and 38.34th person for the third quarter of 2019.
The uptick in the efficiency ratio as compared to the fourth quarter of 2018, and the third quarter. In 2019 was caused by both the relative flattening of our topline revenue due to declining interest rate environment and by an increase in non interest expenses.
A major driver of the noninterest expense increased what's a 496000 dollar increase and legal accounting and professional fees, which totaled 4.1 million for the fourth quarter as well as an additional 794000.
In FDIC insurance expense following the significant credit received in the third quarter of 2019.
The fees associated with the government investigation for 2.1 million for the fourth quarter of 2019.
These investigations are ongoing and we expect the related expenses to remain at an elevated level in 2020, we continue to fully cooperate with the various information requests and are trying to resolve these matters prudently and expeditiously, we continue to allow arc.
Turning to handle the bulk of the workloads as a management team continues to focus on building and serving relationships and executing the strategic plan.
We believe that for the next several quarters, we will be able to maintain the risk the efficiency ratio under 40%.
While judiciously managing expenses, we continued to make the necessary investments and systems and personnel and organizational structure as we grow towards the regulatory thresholds at $10 billion enough.
In that regard I would like to note two recent important additions to our Eagle Bank team in October we welcome to mess Rockwell to the board supposed to bank and and Eagle Bancorp met brings a wealth of experience and auditing and regulatory affairs.
Just last week, Paul Saltzman joined the bank as executive Vice President and Chief Legal Officer, Paul joins Us from the law firm of White case, and also has many years of experience in the financial services industry.
We are also very pleased with the results to date of the share repurchase program from inception on August nine through December 31st we repurchased 1 million 304500 shares.
76% of authorized amount at an average price of $42.06 per share.
Because the calculations on based on our based on weighted averages. The program did not create much EPS accretion during the third and fourth quarters since 2019, what should happen more beneficial impact in 2020.
In December 2019 with approval from our regulated the board authorized a new share repurchase program, which allows for the repurchase of up to 1.641 million shares through December 31 2020.
Noninterest income was the plus again during the fourth quarter as total non interest income grew to 6.7 million as compared to 6.1 million in the fourth quarter of 2018.
The gain on sale of residential mortgages was 2.5 million for the quarter as compared to 1.4 million in the fourth quarter of 2018, and 2.6 million in the third quarter 2019.
We also recognized just over 500000.
From the sale and servicing of FHLB loans and Sta loans during the fourth quarter. This represented a slight uptick for those units.
The bank continues to maintain solid credit quality at December 31, 2019, and P. AIDS as a percentage of total assets what 0.56%.
As compared to point to 1% a year ago and 2.66% at September 32019.
Nonperforming loans with 0.65% of total loans at the end of the fourth quarter as compared to 2.22% at December 31, 2000, 19.5% at September 32019, we continue to constantly evaluate.
The portfolio and taken aggressive approach, placing loans on non accrual status.
Net charge offs for the fourth quarter of 2000, 19.16%.
Compared 2.05% in the fourth quarter of 2018 on an annualized basis net charge offs were just point.
One 3% for the full year of 2019 compared to point, so 5% in 2018.
Allowance for loan losses was <unk>, 0.98% of total loans at December 31, 2019, the provision expense for the quarter was 2.9 million consistent with our allowance methodology. The current economic climates and are minimal charge off history.
At December 31, 2019 coverage ratio was 151% and we believe we are adequately reserved.
We are finalizing our system to accommodate the new accounting standards for Q cumulative loan losses terms Cecil and continue to expect that the adjustment to equity which will be effective as of January one 2020 will be in the range earlier disclose.
10% to 20%, including a reserve on some did commitments.
Okay capital position remains quite strong.
At the year end of 2019, the total risk based capital ratio was 16.2% as compared to 16.28% in December of 2018.
Common equity tier one ratio has improved from 12.49% to 12.87% over the same period and the tangible common equity ratio had improved from 12 point of 11% at the end of 2018 to 12.22.
Percent at December 31, 2019.
Due to our strong profitability all of these capital ratios continue to improve quarterly even after the effect of the share repurchase and cash dividend actions, we initiated during 2019.
We are confident in our ability to continue a quarterly cash dividends, we intend to continue share repurchases when the effective price allows us to meet our established return objectives. The board remains committed to maintaining a strong capital position.
Always considering any opportunities to enhance shareholder returns.
I would like to thank all of you on the line. This morning for your support during 2019 I would also like to things that many people who are not on this call.
Leading our Eagle bank employees, and directors and most of all our customers for their confidence and efforts during.
During its very challenging year for our company, we look forward to a successful 2020.
This concludes my formal remarks, we would be glad to take any quick.
Ladies and gentlemen, several question were common at this time. Please press Star then one key are due to strong telephone. If your question is but that's pretty were some reasonable for MCU. Please press the pound <unk>.
First question comes from PC wouldn't with Piper salmon.
Good morning.
Good morning, I Casey.
Hey, just the first quick question on the on the margin I. Appreciate your commentary around it just I guess, assuming we don't get more downward movement in short term rates [laughter] well, one you know how much more room do you have to lower deposit cost in this scenario and then I guess with their liquidity coming off by year end you could we actually see the margin needle move up.
Pretty meaningfully in the first quarter and then maybe hold steady from there is that one way to think about it or how should we think about the margin outlook. Yeah. Casey I you know we've seen.
Some of the liquidity recover here in the last last couple a couple of weeks here as we move back into it.
Into a new year I think you know given the current facts and circumstances, it's reasonable to expect a that there may be some improvement in the margin going forward as you suggested with some of the normalization of the liquidity.
We are originating loans.
You know right around the we leverage coupon of the of the over a portfolio.
And.
Also as you referenced the stable rate environment, the stable rate outlook. So you know, it's I think the only other other headwinds.
In addition to our ability to lower funding costs.
Would would be certainly compression on spreads a credit spreads right with it.
In in the absence of any kind of significant credit event more broadly.
Market worker bees broadly.
<unk> credit a bit.
It's going to be some relative to two to widen those spreads you know by our competitors as well. So we still have to compete on that front.
But yeah.
In terms of being able to lower deposit rates.
I do think that there will.
Continue to be some competitiveness on that on the deposit side as well, we're still seeing a little bit of that but it certainly softening since.
The second third quarter of last year, but I do think it could be reasonable to expect a little bit of an improvement in the margin.
Okay, and then maybe touching on that a little more just as we think about where you guys kind of want a whole liquidity should we think about it I was just you know your average loan deposit ratio, maybe heading more towards like 100, 100% or so versus you know because 98 or so this quarter would that be.
One way to think about it you know ideally we you know I think I've I've stated before that if we could achieve a 100, 102% loan deposit ratio that that would be it will be fine on my end you know we.
We want to make sure that were accommodating our customers and I think we've seen a lot of liquidity we saw flow in the third fourth quarter was with symptomatic of broader market themes.
As more casters flowed into the banking system.
So to the extent that does that phenomenon continues we'll we'll continue to have is elevated costs.
You know again, if I had my brothers, we'd be at 101, one or two on average.
Okay. Thank thinking helpful. And then I'm just your commentary around loan growth this quarter and the payoffs came in when do you have confidence that growth will you know pick back up to the high single digits or should we think about that being a little lower in 2020 or what sort of your outlook for it for the year.
Our our outlook is to continue in the high single digits.
Okay, I feel pretty confident our pipeline is strong we feel confident that we can meet that.
Great I'll, just ask one more let someone else jump on just the tax rate has continued to migrate a little bit higher any outlook for where you know that shakes out into the 20, Yeah I would expect that to normalize next year as we get beyond the you know the the impact of the accrual we moved a lot.
I can deductibility on those for associated with the you know the departure of our former CEO and.
Again right around the 26%.
Right I think is where I'm expecting things to land somewhere in the 20.
Okay, Great I'll, let someone else jump on thank you.
Our next question comes from Joe will do with all the securities.
Good morning.
I want to doing so.
Oh.
Just want to do a touch base on a few where the.
No pluses and minuses, some fourth quarter versus.
Third quarter.
I'll start with bid noninterest income just yet other noninterest income was up about 700000 versus the third quarter. Just wondering if you could break out a little bit of where that was mainly coming from.
Sure Yeah, I mean, you know we.
We did.
Successfully close a I.
And that PJ deal in the fourth quarter, you know, it's a good construction deal that that will continue to.
You know to bring funds up additional gains.
Additionally, we had some.
Some SPD gains that would have contributed there as well.
[laughter].
Alright, and on the expense side, just little what works and a little more on the.
On those.
Salary and compensation expense, yeah, I'm third quarter has the.
Roughly 2 million of.
Compensation.
Accelerated share based compensation, so I was kind of expecting a little bit of.
I guess relief in that line item.
Fourth quarter I assume that some of the increase was related to some of the.
The preparations you talked about.
Approaching the 10 billion, an asset mark and adding some some additional people with that.
That's fair characterization and are there anymore.
Missions in that regard that that you expect in the near term.
Well certain certainly that that is part of it we did bring on several employees.
I mentioned, the addition of our Chief legal officer.
The actually took place.
I started this year, but certainly towards the end of last year, we we brought on some additional.
Employees.
There were higher costs in nature, and we did also have obviously the merit increases and.
And.
Also you know the as the incentive.
Comes more into focus in the in the fourth quarter there were adjustments associated there.
[laughter].
Right.
Sure. So I'll just ask one other.
It looks like.
Right.
Yeah, I guess, just almost on the margin a little bit.
Further I, just wondering where the where you stand in relation to.
Yeah.
Loan hitting floors after that the most recent.
That should be ended the year, yes. So as it stands right now there is about $1.9 billion, a little under 1.9 billion that.
Loans that are currently at the floors and and that's that's where it currently said.
It's about 62% of total loans with floors.
Okay, Alright, that's all I had thank you.
[noise] next question comes from come from me with KBW.
Thanks, Good morning more pattern.
We're good at a couple margin question, but I think we've Oh, we had most of them I'm flipping S. One on asset quality. The trends this quarter were really good but if we look back into queue. There was a really big increase in classified.
Watchlist credits last quarter.
Can you circle back on that and give us any kind of color on what drove that and then how any.
Update on on where that trend at this quarter. Thanks.
Catherine and.
Last quarter, we did have one large loan that was added to our internal watch list.
At 930, you would've seen that and that was around $100 million.
It was a lounge that set of 70% loan to value with a strong guarantor there's.
There was an issue with driving.
Stabilize numbers it took longer than we anticipated because it with a larger loan we wanted to raise its internal profile. So we did at it.
Internal watch category.
Consequently, we've had success working through that and adding some credit enhancements and some seasoning has been taking place at the property. So that is not something that won't be appearing on the watch list at the end of the year and you're going to see a precipitous decline.
But it is just one credit.
We have had a reduction in our criticized and classified loans over the course of the year and I think where.
In pretty good shape, there overall, when you're looking at non performing loans Scott rapidly.
40% of them on the CRT side about.
48% on <unk>.
The FDIC and I side, and basically 12% in residential mortgages and I think we had talked a couple of calls ago about some slowness in the very high end market.
Residential real estate, so we are seeing a little bit.
Got it Okay and then it doesn't really no credit is that your largest credit.
How many other one do you have around that.
We have.
Probably a handful maybe five plans around that five this was the largest line in terms of Outstandings.
And we're comfortable with the sponsor comfortable with the property and the loan to value that we're sitting with so you know just coincidentally.
At the same time that this hundred million moved into the what we call our internal watch category.
We did note that the.
Related deposits were about $50 million so it's not.
What I would call in distressed situations, I think where this which affordable.
Heightened scrutiny of loan that haven't met its stabilization timeline.
Okay. That's really helpful. Thank you so much <unk>.
Next question comes from Brody Preston with Stephens, Inc.
30, Brody's why does open you can ask your question or maybe if your phone is really could you. Please oh.
Sorry about that everyone I had the phone on mute the morning, how are you more temporary isn't it.
So the question going back to the margin so over the last you know, let's call it five or six quarters.
I started to see the noninterest bearing deposits.
I guess the difference between what would you what you would see between averaging the balances on the period end balances on what you experience on the average balance sheet pick up.
And so should we I guess in terms of thinking about from a modeling the average balance sheet perspective should we expect sort of these large and I'll call. It hundred that 200 million dollar intra quarter swings in noninterest bearing deposits to continue.
No broadly I think we've we've had the ability to maintain that.
Noninterest bearing level on average as you point out right around right around 30% and I would expect us to continue to be able to.
To achieve that even with even with the continued growth. That's that's the expectation were working hard to continue to expand existing.
Relationships and seek new new relationships on on that front so I.
I'm I'm pretty comfortable that 30% right around 30%.
We'll be able to hold that.
Okay, all right and I guess is I think about incremental cost of deposits just on the CD book is the incremental costs right around 145 right now.
I would say you know that's that's where we are for you know.
The the core Cds that we're booking.
On the wholesale side of things on a brokerage side of things you know, we're we're looking at three year tenders and now they're all in.
Cost of 180 basis points are so but to the extent that we can continue to book.
Cds that are that are core oh on that in the two or three year range 140, 140, fives about where it's coming in.
Okay. So it's it's some lender the 145 in 180, depending on the mix okay. Thank you.
Flipping over to the income statement.
Compensation expense. So you know I saw you had some new hires this quarter on on the loan production side to replace some of the folks that had left.
Just wanted to get a sense for how much of the increase in compensation. This quarter was tied to more I guess onetime in nature items like signing bonuses and how we should be thinking about that line item as we move forward into 2020 is it going to remain elevated at that 19 million or do you expect that to come down a little bit yeah, I'd I'd expect that.
To to Ratchet back just just a bit I mean, the again, there's not much in the in the way of of the signing bonuses.
Again.
We did bring on some new employees as I as I mentioned, there have been some to some increases in.
In salaries over the course of year, but.
It was also.
We also made some adjustments on the incentive front as the big per year came into focus in terms of those payoffs as people achieve certain gates and incentive plans and things of that nature. So I would expect that to pull back a coach.
Okay and on the legal expenses, you know I understand that you say you expected to remain elevated but I guess, when we think about the growth outlook, it's been growing by double digits on a quarterly basis for the last few quarters now so when we say remain elevated do you expect it to continue to to grow like that or do you expect disorder.
Remain flattish from here forward and foreign change.
It's very difficult to project that.
We work with the attorneys and get some budgets together from them and their recommendations, but it's very difficult for us to project what the outcome of the legal expenses will be.
Okay and does that just related to you know the variance around their billable hours and I guess, maybe producing documents that are difficult to predict.
Probably all of that.
Okay. No on you know I guess thinking about the investigation I understand you can't go into specifics, but I guess sort of.
You know were.
From a year into this or so how are you guys sort of feeling about the timeline of the investigation at this point.
The timeline, we really can't say I mean, you can imagine dealing with government agencies, you can't predict the timeline for them I will tell you that we continued to believes the banks will not have a major impact.
As a result.
Okay, and then one last one from me on the buyback from you know I saw in the 8-K back in December and your longer term your long term incentive comp U includes a 50% earnings payout target.
You guys played up closer to 80% this quarter in terms of modeling and thinking about buybacks.
Is should we move the modeling closer to the 50% payout ratio all in or should it be something higher moving forward.
Yeah, I mean in terms of where we're looking to actually purchased.
We repurchased shares of the again as I've said in the past.
Looking at that the earn back of tangible book so the the pricing meet these to make sense.
Does that address your question.
Yeah I yeah.
That I guess that should suffice.
Alright, thank you.
Thanks Barry.
Your next question comes from Christopher Marinac with Janney Montgomery Scott.
Thanks, Good morning, I, just wanted to circle back on the balance sheet growth in the quarter. So if we look at did the difference as we talked about longer longer going to call about the average growth versus the period end growth does the average this quarter reflect kind of what you are capable of doing. These next couple of quarters or would you envision that the pace is different from what we saw the average Q.
For versus Q3.
I like we expected to be different going forward than it was in the fourth quarter, we will get back on our normal pace and with an end result of average growth being in the high single digits.
So the acceleration for what we saw and then with the period and differences probably be less likely or is it kind of hard to predict that because it may vary.
It's it's very difficult to predict we generally.
Tightly communicating all of those expectations, but it's very hard to predict.
Yeah, and we've seen those kinds of fluctuations in the past obviously, you know again as we noted with the successful completion of certain projects.
We see kind of some of these lumpy pay off.
So.
As as Susan mentioned, it's going to its going to obsolete hearing there, but just just focusing on the averages I think is what.
What were what we're focusing on.
Okay, Great and then fluff cap our question on capital. It does your capital when your flexibility change at all this year and I'm thinking more because you're you've been very conservative for so long ones on maintaining the capital levels. You do I mean do you feel that that that you may have more flexibility this year I'm, just with retention and how.
They are pure pace plays out yeah, we'll we'll continue to two to evaluate than we were always talking about that just in terms of.
You know the level the appropriate level of dividend payout or or any other use of capital that we want to do we want to employ.
But yeah.
One other element or constraint that they were sensitive to our these 80, CNC or he concentration ratios, which which are headed.
And you know headed downward, which which gives us a little bit of relief on on that front. So.
From from by that measure, we will provide us with certainly a little bit more more flexibility.
Great Charles Thank you both very much feature thank you.
Our next question comes from Steve Chrome Rucci research.
Hey, good morning, good morning.
Yeah I was wondering if you guys could you know kind of just qualitatively talk about sort of the demand you saw during the quarter. Obviously, we didn't see a lot of net balance sheet growth due to the payoffs, but kind of.
What was customer activity like you know what sort of product commitments coming through.
I think demand has been fairly strong our pipeline is good and we did book about.
Hundred and 81 million in new loans during the quarter. So we are seeing demand were being quite selective so I think.
As you know weve taken.
A bit of a pause in terms of the construction lending side other than a existing customers with very strong deals. So I think we are continuing to land and construction, but we're not growing that area. The demand is still here and I think the.
Arrival, Amazon in Northern Virginia is going to further prompt that along with the election coming up we always get a bit of election year and DC area.
Really seeing the falloff in demand.
Okay. Thank you that's very helpful. So so they can just thinking about the construction completion calendar in the pay offs you guys mentioned in the release a these completions were expected maybe just talk about like.
Is the calendar for construction completion like.
Lumpy going forward or what do we expect to see kind of like a more like measured pace there.
No. It's all excuse me always gonna be lumpy.
Just by virtue of how long given different projects take and of our larger loan pay offs may take place.
Early in a quarter late in a quarter I think rather than looking at a point in time, if we focus more on the average gross I think you'll get a better idea in terms of your modeling.
Okay.
And then and then just just finally.
Yeah on the on the sort of like pulling away from from construction loans that you, especially maybe just talk about how that impacts the margin.
The difference in mix going forward with the with the loan growth.
Well there is some impact for sure but overall it hasn't been.
Hugely significant in terms of loan yields I think Charles pointed out earlier the difference in loan yields over just last quarter.
21 basis point.
So it's not a huge impact most of that impact really came from a rate change change in line or.
I think where.
Certainly.
Not taking on.
Risky projects and if you believe in risk based pricing and you would see.
Some decline as a result to that but it hasn't been significant thus far.
Okay very good thank you.
Hey, Steve.
Our next question comes from Erik Zwick, with Boenning and Scattergood.
[noise] good morning.
Morning.
In the prepared comments.
Based on kind of the increased composition of the loan portfolio in terms of Cnine owner occupied Syria.
Kind of corresponding decrease in the income producing CRT and 86, just curious kind of based on the current loan pipeline as well as your preference for portfolio composition going forward to see that trend.
Can you ring and if so do you have kind of a target in mind for the percentage of books.
<unk> series segments.
Well I think we're always looking to balance portfolio said, we've been working to grow cnine loans over the last several years. We're also looking for geographic balance. So we've been working to grow the northern Virginia business as well.
Kind of the ultimate being a third D. C. A third, Maryland third Northern Virginia, and I think having a balance portfolio really is a risk mitigant as well so we're definitely working towards that.
We also so that's helpful feel a god.
We see a great deal of potential in the government contracting market and have some outstanding relationship managers that are targeting that for growth.
That's great. Thank you and I guess, just a follow up on the geographic comment in order to achieve that desired kind of one third one third one started mix based on the demand you see in that market, making that happen naturally or would you potentially need to add.
More lenders and more capacity in some of those markets to achieve that cycle.
Well I actually think the place where we would like to grow the most as northern Virginia and that also happens to be the area, where there is a must demand and the most growth right. Now so I think we should be able to organically make that happen.
But we will we will probably need to add to our staff as we ramp up that growth.
Thank you for taking my questions.
Sure.
And I'm not showing any further questions at the start let's turn the call back over to shoes room.
I want to thank everyone for being on the call and for your support during the year and look forward to talking to you at the next quarterly meetings.
Ladies and gentlemen. This concludes today's presentation you may now disconnect everyone before.