Q4 2019 Earnings Call

Dead dead dead good day and welcome to the bridge bank or fourth quarter of 2019 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal the conference specialist by pressing the star key followed by zero after today's presentation.

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Need to ask questions to ask a question. You may press * then 1 on your touchtone phone to withdraw your question, please press * then two, please note. This event is being recorded are like faith in the conference over to Kevin O'Connor president and CEO , please go ahead good morning. And thank you for joining us today. I will be discussing our quarterly and pull your performance as well as as well as offering some insights about the bank strategic initiatives. I'm joined on our call by our CFO John McCaffrey and together. We will take your questions regarding the results in General market conditions. I am pleased to report income historical. Hi this quarter of 14.2 million with EPS of seventy-one cents per share are full year income was 51.7 Million to $259 a share these results reflect the fact that broke there any assets aggressive management of funding costs and the continued evolution of the mix in geography of our loan portfolio. I'm especially proud of the fact that it was the last two years despite to check out.

You said Direction we've maintained.

It consisted name of 3.3% We've done this by staying true to our strategy of nurturing and growing for deposits and taking a thoughtful approach to balance sheet management our continued commitment to our home. It's in the addition of some key producers in a western markets a lot of strong loan growth and strong growth in Abuja Nations and fueled increases in most loan types these new loans helped offset a sizeable pay down to be experienced as several are a long-term customers successfully exited their businesses the net of the activity resulted in a 12% lift in the overall loan portfolio 23.78 in considering our deposit performance, given strategic decisions to be emphasized some higher rate of deposit products and the impact of large deposit flows related to the aforementioned business say, oh it's best to assess this on an average basis fourth quarter IPC deposits grew by two hundred twelve million or 7% for a few for 2018 and the year-over-year growth was twelve years.

with Eda at one point five

5 billion representing 40% of total deposits. We've also been very aggressive in managing the cost of these deposits and over the past two quarters. The cost of interest-bearing deposit is down 33 basis points wage is positive momentum in loans was partially offset by declines and other earning assets and result in an average asset growth of 5% first last year, and we ended 2019 with total assets of eight or nine billion from a strategic perspective. We continue to stay on course and a focused on making smart investments in people and Technology by hiring more Bankers who partnered with teams this strategy continued to bear fruit this year our Western markets contribute a significant portion or 82% of annual net loan growth and we're experiencing up taking deposits in those markets of own 19% In addition the launch of new products expanded our offerings and it's helping to drive market share a new segments as well as deeper relationships with existing customers.

Earlier this year became one of the few banks in New York.

To offer banking services to companies with permits to growth process and extract industrial hemp and CBD. They should expand our traditional customer range. We recently launched functionality. It allows businesses. It's official cashier checks on site. This is considerable value from any of our existing customers and acts as a differentiated versus other competitors.

And finally with significant Technical and credit development work in 2019. We are planning to launch a small business loan decisioning engine to significantly reduce the timeline associated with small loan originations bring up internet resources and reducing customer fiction and now turn this over to John to discuss in Greater detail specifics on the margin and other income and expenses. Thank you Kevin. Thank you all for joining us this morning. That was meeting the transcript. I will do my best to be intelligible. Let me get to the morning right off the bat the quarter-over-quarter noon compressed by 14 basis points. I will walk you through a big moving parts of that decline first and foremost increased prepayment activity in the bond portfolio resulted in higher premium amortization that's depressing yields. Secondarily. Another phenomenon has to do with the timing of the change in rates on our loans and deposits during the third quarter of the manager deposit rates lower Center Council move more than the same and we effectively lowers some rage before the same room.

Therefore impact or deposits was larger and quicker than our loan.

Additionally are floating rate loans and grants or we probably immediately so I'm can take up to a month to reset to prevailing rates for the Deputy Prime or Libor there for part of the story short North quarter was the Marlins catching up to the deposits and adjusting to Falling rates. Lastly. The third quarter usually has about three or four basis points that loaded by credit renewal fees that do not occur in the 4th, at this point are floating rate loans have adjusted to the new rate levels. And we continue to manage our deposit course lower by increasing Eda and enhancing the mix of Interest. Deposits. You will notice that IPv6 damn quarter of the quarter as we declined to compete for high-cost. 10/31. Are you placing your lower rate for for deposits? Most of the loan growth came weight of a quarter, so we will see the full effect of those loans in Cuba.

And we both were able to keep my hands on all the other support our net interest margin.

These are back-to-back alone slash interesting as reference to the press release the flat yield curve in the overall level of reading make these transactions attractive to borrowers who want low long-term financing wage in the fourth quarter. We swapped over $180 in loans giving their only thirteen basis points versus the fixed pricing these factors are still in effect. And we continue to close loans Watson few more years on a link where bases mostly through cash accrual for incentive payments our strong fourth-quarter income and Loan growth pushed are effective incentive payouts higher. We have instituted several programs to control expenses coming forward. We are the final testing phases of our system process at this time. We are guiding a coverage ratio of 87.7 basis points. This includes reserves which at about 9 basis points to the ratio at this time. This is not significantly far from where our ratio has been historically.

We still have it.

Our stock buyback and they're committed to using it to support our stock and we did last year during the second and third quarter.

We are estimating. It's actually a 25% for 2020 Captain will not make some closing remarks as John indicated. This car is margin contraction was relatives several factors. However wage of our ability to manage the funding costs and deliver non-interest income in multiple ways couples with a focused approach to aggressively manage expenses and capital will allow us to achieve our performance targets. The ability to our team was tested in 2019, and they delivered and I'm confident to continue to build it and make the prudent decisions including those related to Capital Management to achieve positive results for the company and you are Cheryl took over the operator. Take questions.

We will now begin the question-and-answer session to ask a question. You may press * then 1 on your touchtone phone. If you are using a speaker phone, please pick up your handset before pressing the keys to withdraw your question, please press star then to the first question comes from will Curtis from The Hub D group PLS. Go ahead.

Hey, good morning. Everyone, obviously a strong quarter on the swop fee. So, I just curious, you know, as we as we looked at the first quarter, you know your expectations or has has should we think about the first quarter and then maybe more more broadly how we should think about fee income growth for this year. Thanks.

Sure. So, I mean we do have we close several months Lobster in January already. We have some in the pipeline. So again, as long as it's raised by a minute here, we will keep faith in those fees. Um, you know, Q4 was was pretty strong coming up to three but again, and I think it's still follows the the rate environment and I think that the reason some of these jobs bar is want to go long-term as we have multi-family bars in New York City given the new regulations are wanting to lock in lower for longer since they feel they're not going to be able to raise rents as quickly as they had passed. So I think those factors together are what are going to keep that going into the quarter and then again for the year if we can keep this momentum going some of those floppies of generated FAQ actually refinances existing loans. So as much as we have loans that are out there that people want to come in and refinance as they come up for Renewal that can also be benefit there.

Okay.

And then wanted to ask I know you mentioned hires as part of the strategy for last year and I'm just curious. Do you have the the number of producers that you've brought on board this this past year and then maybe how you're thinking about additional opportunities going forward? I guess we had it with a net increase of five on the producer side and we're having conversations with with having conversations a half. Dozen people said I'm not say we're going to bring that many people on but this is the time of year when Bankers begin to dance between each other as to you know, they're going to get their bonus and figure out where they want our next year so long

Okay, and then just the last one for me. Do you have the accretion number for the fourth quarter or any chance?

Yes, the number for the premium premium. I think I believe.

You'd have to purchase purchase the county is minimal. If there's only a couple of million dollars up in the home. Thank you very much is higher than last quarter. This quarter was talking about the same understood. Thank you.

The next question comes from David Bishop from d a Davidson, please. Go ahead.

Hey guys, that good morning. In the fourth quarter of the sounds. Like there was some information there in the third quarter just curious. Um, do you think most of the pressure on the passenger has been filled and it sounds like you had some room on the deposit side to to bring cost down to do you think you can be able eyes it here to you. You expect we'll see a little bit more pressure here before we see some stabilization in in the second half of the year. I think for the most part the long long pressure as long as far as being prices go down. I do think we ever met a positive think we can offset those things that you love, you know, second quarter of the fourth quarter, you know, the third quarter kind of being discharged deposit benefit of we kind of cracked across, you know, kind of on the same level. So we think that that's kind of where we can be going forward.

Give me the Delta between the 2nd and the 4th. I'm sorry.

Right. So the second quarter of the the second quarter was was 332-4326.

There's there's also a little bits of the ways that you know, you know back and forth, but we think that's that range should be able to be sustained given the movement deposits and Loans over that period of time, you know, kind of impressive the rain kind of cycle and I I would think that you know, we were early on moving rates in in, you know, really early in the third quarter and continued in the fourth and as I've reviewed many of the releases of our competitors that is Kurt more in the fourth quarter. So I think you will see continued repricing down of liabilities. We had we had some customers who kind of Boston and we told him he was cutting raised to say I could go over to some Bangkok to get a better rate than the kind of came back to though. That means not there anymore either. So I think the, you know, everyone's kind of getting them on board with cutting rates as they possibly can.

Got it, in terms of new loan yields coming on board. Just curious how that compares relative to the the third quarter in six weeks or so how our New Market deals coming.

So the yields on new loans in the fourth quarter were about 4% That was because we had a lot of multifamily loans. Come on in the fourth quarter.

And there was any response so that take up again except thirteen fifteen basis points off the rate, but and I know what I've done was expecting way to go over anytime sooner. We feel having the having the floating-rate assets, especially when something longer-term premium or multi-family money is better for us. So, you know, but the the focus this year in some of the new news produces we brought on any more focused on seeing the cni business during war came on at five and half percent and the commercial mortgages themselves were a little over 4% So Thursday, we're hoping by changing the mix of the way to get better deals.

And then maybe just a a commentary obviously the fourth quarter, you know sounded like some of the the multi-family growth was was driven by some of the the rent control on this desire to lock in lower rate. The longer as you look out into the 2020 and the the pipelines any sort of uh, comments in terms of your expectations for laundry home where I guess our expectations. The lumber for the entire bag is is slightly less than it was last year and in 2019 points of 20 month and we are certainly targeting more of a mix of commercial loans and less multi-family for the year. I think the games as we sit with the yolk of environment and Thursday. We are getting paid less or each each marginal because we put on without looking to grow in his high arrays we have in the past.

but still pretty

I'm pretty close where we were.

Hi single digits.

Yeah, then one final question Johnny wasn't clear the the tax rate outlook for this year. They're saying 22 and 1/2.

22 and 1/2. Yes. Got it. Thank you.

Again, if you have a question, please press * then 1 the next question comes from from boning & Scattergood, please go ahead.

Good morning, guys. Just looking at the change and deposit balances you over your total balances were down. I guess about 2% demand deposits off 9% and your IPC deposits now represent 80% of total deposits up from 76% a year ago. Can you just talk about you know, what factors contributed to the success and mixing the deposit is and what your expectations for deposit growth in 2020 are now that alone deposit ratios at 96%

right, so

We had a few moving Parts in the in the in the deposit year-over-year whenever we did have if you remember last year the first quarter we kind of were talking about this large one Department that we have and we're customer that Kevin has resulted business that that if he has kind of moved that money out as he sold his business gave us the deposit and then he was investing in other things. So that was about ninety million dollars off money market account One account 1031 money that we also you know rates are going to go down. We were paying them, you know about 2% and they were still getting 2% off people. So we decided to have that money go that was another $90 that was the savings account. So, uh, you know, there was there was some full bath and you know, the the DDA grows is you know, that's just boots on the ground for us. So we you know,

We have to see what we have seen Exodus of money market or savings account leaves the bank based upon the reset that we can keep three. It's been more chunky deposits of people just walk we have transactions and you define they were pulling the money for that reason or they were the highest the highest paying customers that we had that we chose not to match race everybody in the places.

PGA generation really comes from

The commercial Bankers on the ground. I mean, you know, we've had a big increase in for the line exposure and that really flows from those customers that have joined us. They move their deposits. We give them lines of credit. Sometimes they draw sometimes they don't but that's really the driver of the Paw Patrol.

I appreciate the color there. And would you be you know it would you expect to for deposit growth to match loan growth this year or are you comfortable letting the London deposit ratio dress up a little bit higher.

I'm comfortable letting you tripped up a little bit higher. That's not how I'm forecasting it. I'm I'm I'm certainly expecting deposits Agro commensurate with loans. That's the challenge you put in front of everybody else. And you know, I I think there's lots of positive momentum going into this year.

Great, and then you mentioned several programs on the expense side to kind of manage expenses in 2020, you know curious just one from you know, first quarter perspective wage terms of the Run rate is is the fourth quarter of nineteen level a good place to start and then how should we think about, you know, just kind of growth and expenses throughout the year.

So I would say that was the first quarter of for 2020 to be slightly lower than 2019 Q4. You know, we are we came in a little bit higher than a 2% on the on the extended to acid radio what we want to get that back down to 2 and you can drive a little bit lower. The year goes on be will be Thursday. We will be looking at our expense budget, you know prospectively to say, you know, we're not getting the income all the talent. She wrote we're going to kind of graduate back on the expenses that will keep looking the other year, you know, the reverse of expenses that were related to you know some manual for a group that we were doing for the year and then we put a new software system in place and they were running concurrently wage should be able to have recast some of those people who are doing it a manual for a review two other things. We are looking at or we have begun to you know, Nutrition management Branch Staffing model.

Make people a little more Universal.

So, uh, you know employees and the branches that they can they can do different tasks and the branches especially when transactions are a little bit slower, you know, we we are putting in more, you know, I think the numerator product and we get Kevin talking about abortion and people in the in the origination States and Loans to do to do other you know other loans or if we don't have time since there's a few things going on as far as expenses before I think we're also looking at getting back a little bit on sponsorship this year as we have a new marketing director in place and we're changing our life spans different venues. Just focusing more on the rest of the markets and you know by re mixing some of our Outreach dollar that we spend there as well.

Thank you and just finally given the strong commercial real estate and multi-family growth in the fourth quarter. Do you an estimate of where your cre to Total capital in did the year? I think you were around 350 at the end of the third quarter. Just curious. I would expect that ticked up a little bit 386 at the end of the year.

Great. Thank you.

So much for taking my questions. You're welcome. Thank you.

The next question comes from Alex turtle from Piper Sandler, please. Go ahead.

Good morning.

Else going back to the the swap the income which is obviously a huge quarter for that in the fourth quarter. And now we've seen the momentum growing through the through the ages of 2019 is that is the fourth quarter just more kind of like a perfect storm of rates and appetite Etc. And there's like a really big quarter or do you think that we're going to be you know, as that business has ramped up you could kind of repeat that, you know, at least for the foreseeable future.

You know it is so again you all of those factors to live in place and we're still getting inquiries and close to be loans in January for the same reasons. We did in Iraq, you know, January , I think overall it's kind of a slow month of people that they're doing their taxes to get an international together. So I think it's going to and 1/4 typically is more busy quarter for the for the loan origination off, you know throughout the year the conditions stay in place. Then we can do more year goes on so, you know, whether it's the first quarter or the second quarter, you know, you guys last year did kind of ramp up but it is based upon, you know, the flows of the business itself. So, you know, we're still seeing them we can we can we can close to last year's number but maybe different differences in timing as to when that happens. It would be great if we could control customers Behavior, but a certain points in time that we do get we do get Chunky. Yep.

to the second and fourth quarters

Okay, so a lot of volatility in that line, but the full year maybe it comes in that kind of six to seven million dollar range if everything goes, right.

Correct. Okay, and then just give him the the very strong growth and it seems like a lot of it happened kind of late in the quarter. Does that mean that may be the same sort of the pipeline needs to rebuild as you head into the first quarter. It was a backlog still pretty good for the ability to actually closed loans in the first quarter.

Which is typically just because of people's behavior or what's going on. You know, our pipeline is showing $300 of new money and almost 500 in kind of you know, including refinancing. So if you look at you know, I think it's 600 from where we began the fourth quarter. Yeah.

down about a hundred

Okay, and then you just have just handy the the impact and the margin from the prepays in the fourth quarter.

Yeah, I'm going to say it's not a lot.

Are you talking to prepayment on the MBS portfolio? Yeah. Yeah. I'm just trying to get a sense for kind of you know, what the right, you know kind of the real driver of the margin. It seems like the most of it was driven by off the mismatch and the timing of of loan yields versus funding costs coming down, you know third quarter to the fourth quarter, but there's anything else that might be kind of non-recurring that we should be paying attention to em, so prepayment on loans of our loans was about two hundred thousand dollars in the fourth quarter the prepayment on the Investment Portfolio had about you know versus the second quarter probably a five nieces Point impact and you know, probably you know that

Depends on how you how you want to make.

The increase in the in the premium amortization on the portfolio versus the third quarter you meant right the second the second floor, which is the second quarter wage versus the third cuz it wrapped up in the third quarter as well and it continues going up into the fourth quarter so versus the first of the third quarter was probably three basis points off. All right, great. Thanks for taking my questions. All right. Thanks.

Again, if you have any question, please press * then 1 the next question comes from calling Gilbert from KBW, please go ahead. Thanks. Good morning. May. I just want to dig into the loan Dynamic a little bit here and just make sure I'm understanding this this right. So the multi-family loans that came on this quarter. I know you gave some of the origination but what what were the what was kind of the Blended yield on the multifamily loans that came on this quarter?

This quarter 356. Okay, so I guess it seems as if you know the and I understand, you know, you're you're the outlook for the year and mix shift benefit moving for the year. But if we just assumed kind of the flow through of what came on this quarter, I guess wage seems like the that loan yield can continue to compress. I don't want to say fairly meaningfully. But if you're looking at a portfolio yield a 4:50 or 4:45, I guess it was for the quarter and most of the stuff coming on at home. And and then I'm just trying to reconcile that with I know you're talking about, you know lower deposit Outlook, but you just seems like you're really now maybe perhaps below even where the market is which I'll ask that question a second, but just the first on the loan yields side. I mean, can you quantify maybe a little bit more as you know, where you think the compression in the loan yield could go as the year progresses wage?

so I guess

When we can maybe they'll just jump ahead and maybe the reason we looking for a little bit below Market is because it's we're doing effectively Lillian raise a family a lot of the not expire at 7 or 10 year fixed rates. We were giving us about thirteen months apart. They're so so so going forward. I mean, maybe maybe go up. But again, it's going to be focused on mix of the loan portfolio took away from Korea multi-family to an extent. I mean again, we we still got won't leave them alone in portfolio at least come in for a refinancing and we can swap seeds. I think it's awful. You know, it is it's a Cecil between putting more multi-family on having more swap these if they're good loans, you know, you can do them. But again, you know how much we can compress the mortgage you how much we can compress the loan you for the year. You mean based upon doing more multi-family.

I mean I look at it. If I look at the pipeline that's out there today is a weighted average rate on that is in the in the fourth seventies cuz the mix of commercial that's part of it. So while the fourth quarter welcome from hundreds of multi-family which he going through 2020 upgrade or mix of c and I which carries with a higher rate so, okay. Okay, here are based off when you're trying to stay flat for the year. Okay. Just wanted to make sure we had our plan going forward. Okay got it. And then just then on the deposit side just curious now. What are some of the the CD rates are your higher rate products? What where those are what the offering rates are on those and if you're kind of below Market on some of those higher reps products.

so we don't, you know, we don't really have I think we have

Hi Wayne there 2% of two years, but you know, it's like we we don't really make our Market. We don't have a lot of other ancient looking for great products wage actually said that attempt at one point. I'm enraged the Rodney. So it's probably lost money in which you know CDs and all branches and and our customers and we just don't have that sort of consumer base and and our customers are not trained may come here looking for a higher rate. So I I guess you know, we are we've only been below up here on the deposit side. I think the deposit franchise that we built over the last, you know hundred years of really quite honestly the last Thousand Years reflects a Commercial Bank and deposit franchise, which is geared toward ETA is geared toward money markets where your excess liquidity for a customer's so, you know, we didn't go over here. We were below few jobs are going up. I think will be below here as rates go down, you know a measure of success of commercial of our Commercial Banking officers in a relationship is as much about the deposits. They bring it is about the loans and so dead.

You know we continue to feel I mean, I think the you know, 40% Eda was when this company was six hundred billion dollars in size and it's 40% DDA is 5 billion miles inside. So we you know type of mission so that's that's the part that we're most proud of and that's the value of the franchise is it's

Is its deposits and you know will continue to imagine that aggressively as we went through and and lower the concentration the third in the third and fourth quarter. Yeah, we realized that upwards of eighty percent of our own money market account or individually we had to go in there and bring those rates down one account of the time I guess cuz that's kind of how we do it without customers. So I like when you say we have we have no choice read out there that's out there dangling just to bring people in the door. You don't get the box that way I think the referee might be three basis points. Okay? Okay good. I think I'll leave it there. Thanks guys. Thank you.

This concludes our question-and-answer session. I would like to turn the conference back over to Kevin O'Connor for any closing remarks. I guess I don't think every month again. And if you indulge me from want to I want to take a moment to acknowledge the passing this week of a loyal customer to great friend of mine of the bank Rodger Fox. He was one of our first customers that dozen years ago when he opened Brown Deer Park, and as I look at the businesses, we've grown in these new markets that we talked about much of it connected in some ways to the network of people you introduce us to he was a big advocate of the Bangkok. He walked around wearing our pin proudly. He'll be missed by by all of us. And you know, I just I want to take a moment. So I I appreciate that. So again, thank you. We're excited about prospects for 2020. I think that we've demonstrated to you our ability to sort of manage through different Cycles conversations about expenses and capital, you know, yep.

Just and make the right decisions as as events occur. So again, thank you and I look forward to talking to each individual.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Thursday

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