Q4 2019 Earnings Call
strong returns with operator
R o a n r o e of 1.7% and 12.1% respectively robust organic loan volumes with about one point five billion dollars in a commercial originations along with healthy pipelines. This was masked by a higher levels of pay downs and runoff especially related disease choir Blue Hills portfolios, similarly organic growth organic core deposit generation remained strong while also being offset by anticipated run off in a higher cost of choir deposits as well as cash flow volatility with with in summer or commercial deposits are invested Management Group had another banner year with 10% Revenue growth and assets under management and administration Rising 26% to 4.6 billion dollars credit quality remains Stellar with fairly stable non-performing asset levels and a loss rate of a mere three basis points for the year.
Our efficiency ratio was in a low 50% range tangible book value per share Rose another 19% last year. We are quite proud of the fact that this key measure has grown in a compounded rate of 12% over the last five years despite numerous Acquisitions. And finally we rewarded are many loyal shareholders with another healthy wage increase in our dividend last year. So all-in-all our performance in 2018 was a very good one.
as we turn the
Calendar page over 20 20, we do face several headwinds like others in the industry. We head into the new year with lower interest margins that puts pressure on Revenue levels. In addition having crossed it off and asset threshold. We will begin to incur the impact of the Durbin Amendment related to The Interchange fees commencing on the second half of 2020 also solve or tax credits related to community lending are expiring this year, which will result in an increase to our effective tax rates notwithstanding these weights on earnings and related growth rates. We expect to post solid returns off-color remark will give us give you more color on this in a moment beyond. The number is the rocket us franchise continued to progress over the past year in many ways first and foremost acquisition and successful deleveraging and assimilation of Blue Hills Bank has significantly Advanced our strategic path and has bolted us into the number one deposits your position in the state wage.
Have any massachusetts-based Bank?
And meaningfully expanded our presence in the coveted Greater Boston Market. It has also brought us a powerful mortgage origination platform and an excellent mortgage team. And of course, we had a great talent and Commercial Banking and Retail Banking and other areas other progress points include our continued expansion in the Worcester Market good growth in our new downtown Boston bought a new household formation above the population growth rate of the state new products and features such as a credit card offering Premier Banking products streamlined online account opening expanded use of video tellers and multiple Mobile Banking enhancements.
We further strengthened our Enterprise risk management cyber security programs. And we continue to receive recognition of Excellence by reputable Publications such as JD Power Forums Global Finance in the Boston Globe and we position ourselves for future success while preserving our culture by strengthening our executive leadership ranks by internal promotions of Highly counted and qualified individuals such as Rob and Mark we've joined me today heading into the new year are priority initiatives include continuing to build out of Worcester, press the new branches ATMs and marketing campaigns continuing to satisfy the Blue Hills customer base with more extensive with are more expensive product offerings capitalizing off of best management opportunities, especially in recently acquired markets such as Martha's Vineyard or Nantucket augmenting customer online access to offering such as credit card home equity and Investment Management wage.
Streamlining our underwriting processes and keeping Pace with a growing customer preferences for mobile banking. So it's another
Busy year in store for us with the added scale and operating leverage provided by the Blue Hills Acquisitions will be making incremental investments in our infrastructure, especially wage management technology and analytics to ensure we're fully equipped to pursue the concrete growth opportunities. We envisioned arising from our increased scale while these investments will add to our office space. The long-term benefits will be well worth it. Nationally. We continue to monitor the increasing risks associated with for intentions global economic struggle struggles and Tighter labor. It's the 10-year expansion is continued on the back of a strong labor market with unemployment remaining unchanged at the three and a half percent of 50 year Lowell locally the Massachusetts unemployment rep stated an incredible 2.9% or October with an estimated State Gross State GDP of about 1.4% in Q3. So despite the head wage.
Just mentioned we continue to see a rather healthy economy around us.
And wrapping up. I want to reiterate that while we enter twenty-twenty a much different company in terms of size and scale. Remain the same in many important ways specifically retained often feel the local bank totally focused on our customers. We're committed to continue providing top-tier products and services while building even stronger customer relationships are not going success serving. Our customers is validated by the consistently High customer satisfaction and service rankings will receive we also remain committed to a a path of discipline and focus which is served us well and will continue to be a Cornerstone of our success.
We will devote our research.
This is to leverage our court competitive advantages all the same time avoiding distracted by Pursuits pursues that detract from it. Once again. I wish to salute my Rockland Trust colleagues for the incredible energy Innovation and creativity to be bring to work each and every day we invest heavily in their potential as an integrated learning and coaching culture that provides us with the next generation of leaders for the 11th year in a row. We heard a very high-ranking in the Boston Globe top places to work survey of employees which reflects this commitment to our own colleagues and lastly before I handed over to Mark. I'd like to acknowledge Brian Tedeschi our longest-serving director who made a decision to voluntarily stepped down earlier this month. I greatly appreciate and support and guidance over these many years. He will be missed mark. Thank you Chris. I will now cover the fourth quarter results in more detail log.
gaap net income of $47
5 million and diluted EPS of a dollar thirty eight and the fourth quarter of 2019 reflect decreases of 8.4% and 8.6% respectively from the prior quarter's results driven primarily by margin pressure imposed by the macro-level interest rate environment and timing over net charge-off and Recovery activity in related provisioning in addition. The third cup results included a gain associated with a d leverage sale of residential loans as well as merger-and-acquisition expenses, and they related tax impacts when excluding items deemed to be non-core off and I didn't come in diluted EPS results for the fourth quarter reflect decreases of 8.1% and 8% respectively when compared to the prior quarter and reflect increases of 33.3% and 7% respectively when compared to 2018 fourth-quarter results, despite the quarter-over-quarter decrease in earnings the results were in line with expectations.
And reflects strong.
Assistant business momentum across a number of key areas that I will cover in more detail in addition. The fourth quarter return on average assets of 1.64% Anchored In addition wage increase in tangible Book value of $0.75 in the quarter bringing the December 31st, 2019 tangible book value per share to $34.11 inclusive of the same impact of the Blue Hills acquisition and cost-saving initiatives absorbed in 2019 this year and tangible book value per share represents a 19% increase over the prior-year level in addition return on average tangible common Equity with a healthy 16.14% for the quarter.
Included in the Q4 results net loans decreased slightly in the fourth quarter as the total outstanding balance is continue to reflect strong loan closing activity being offset off accelerated payoffs and paid out included in the payoff and paid on activity for the fourth quarter was approximately $100 million associated with acquired Blue Hills commercial loans and another sixty million in the Blue Hills residential portfolio similar to private quarters. The majority of payoff activity in the commercial book is occurring in the commercial and Industrial and Commercial Real Estate portfolios, as borrowers continue to take advantage of favorable conditions to pursue refinance or exit event of opportunities.
countering the
Payoff activity and resulting decline in these portfolios the strong Northeast economy continues to Spur a solid business investment as reflected in the 5% increase in construct construction loan balances off as well as strong closing volumes in the commercial real estate category. In addition. The approved commercial pipeline was 261 million as of December 31st, 2019, which bodes well for continued strong closing volumes heading into twenty-twenty on the consumer real estate side the overall reduction in balances continues to primarily reflect the fact that the majority of companies robust mortgage production is being sold to the secondary Market resulting in Strong Mortgage Banking income results offsetting the decrease in residential loan balances.
And it was noted last quarter the yield curve shape continued to favor Cash out refinance mortgage opportunities causing a temporary strain over home equity demand and balanced growth on the deposit side. The balance sheet narrative is similar as healthy new core deposit sales are being offset by various sources of deposit outflow, including customer cash flow volatility and Commercial checking in Municipal deposits as well as as a subsiding but notable run off of higher-cost Blue Hills Bank deposits.
the remix of deposit
Products and use of broker deposits to replace higher costing CD maturities to stabilize the overall cost of deposits with the fourth quarter cost of 48 basis points reflecting a two-page this point decrease from the prior quarter.
In addition to the favorable deposit remix, the fourth quarter also reflected a full quarter of minimal wholesale bar and balances as well as the retirement of $35 million in subordinated debentures off further improving the company's overall funding costs as such the decline in the net interest margin for the fourth quarter to 3.90% was also in line with expectations wage and it is inclusive of a full quarter impact from both the July and September Federal Reserve rate Cuts as well as an additional cut at the end of October offsetting the rate cut compression month loan accretion income for the acquired loans remains at an elevated level and was approximately 3.4 million for the fourth quarter.
shifting gears to 9
Tourist items fourth-quarter non-interest income was 33.3 million and represents an operating 7.9% increase from the third quarter when excluding a 1 million dollar gain a tribute to the residential do you leverage sale in the prior quarter? See I see items to highlight for the quarter include the following regarding Investment Management income the outflow of a large temporary get a $200 million-dollar custody account that we noted last quarter was mitigated by another quarter of strong new acid generation increase in the overall assets under Administration to 4.6 billion as of December 31st, 2019 this shift in asset Holdings along with increased retail commissions drove overall increases in fee revenues, when compared to the third quarter of
While down from exceptional third-quarter levels both Mortgage Banking income and low-level derivative income remain elevated as strong demand for both reflect a natural hedge against declines and long-term rates interchange an ATM fee income. We're down compared to the prior quarter due to seasonality and lastly recognition of a three point 1 million dollar insurance recovery included in the other category, which I will speak to you in a bit more detail as part of my update on asset quality metrics.
Total no.
Just expense of 67.4 million for the fourth quarter of 2019 represents a slightly elevated level from the prior quarter when excluding approximately 700,000 of merger related expenses in a third quarter some key items to highlight for the quarter include salaries and benefits decreased due primarily to the timing of incentive related accruals that correspond to each quarter's earnings length similar to the third quarter. The FDIC assessment expense was zero in the fourth quarter due to credit utilization with an additional 1.2 million in credits available to be offset against future quarterly FDIC assessment, assuming the fund Reserve level stays stabilized.
You know is Chris alluded to in his earlier comments the company continues to invest prudently in its overall infrastructure. This probably this prioritization on strategic initiatives spending money is focused on building scale while optimizing efficiency and includes incremental costs associated with the risk management primarily in the areas of Technology risk and credit Administration as well as New Market expansion along those lines included in the fourth quarter results were $440,000 of one-time costs associated with lease exits and restructures off as well as increases in technology and Consulting to further build scale while maintaining infrastructure efficiency, despite the modest level of increased spending the efficiency ratio for the fourth quarter remained low at 50.6%
asset quality
Metrics remain strong despite a couple of one-off items during the fourth quarter similar to Prior experience with Acquisitions except this quarter on a larger scale a couple of acquired choice and ships experienced exit events resulting in offsetting non-recurring net income results in particular a 2.5 million dollar charge off on an acquired commercial real estate loan was offset by the previously alluded to 3.1 million dollar insurance claim payout associated with a charged-off Blue Hills alone because of the timeline of of events in business combination purchase account and implications. The charge off impact is reflected in the company's increase in provision for loan loss. Whereas the Insurance Recovery is included in non-interest income as the systems are considered to be isolated events. They are not deemed to be indicative of any other General Credit characteristics within the portfolio as non-performing assets remain consistent with the prior quarter wage.
Approximately 48.2 million are only four percent of total assets the provisional.
Loss of four million dollars provides coverage for the large charge off as well as general allocation for organic loan growth essentially replacing the runoff of acquired balance. Is that come over with zero Reserve allocation and with the long-awaited arrival of Cecil implementation heading into twenty-twenty. The company is complete with its model built out and is finalizing documentation of model validation and it's and its Associated processes and controls.
As such we feel that it's premature to disclose a specific result at this point. However, we are comfortable indicating that the day one impact on the reserve is expected to be immaterial.
Lastly the tax rate for the fourth quarter declined to 23.2% which reflects the benefit of a revised state tax filing position as such the company amended previously filed tax returns, which resulted in a $632,000 discrete tax benefit recorded in the fourth quarter as well as additional benefit for adjusting the year-to-date 2019 tax expense wage really determined lower effective tax rate in conjunction with this amended position the company incurred approximately $370,000 of Consulting expense, which also contributed to the increase in other expenses this quarter now switch gears to provide full year 2020 guidance, assuming no significant changes to the current competitive and economic landscape off that loan growth is expected to be in the low single-digit range to provide a bit more insight new loan. New loan closing commitments are expected to remain strong and two twenty20 dead.
all the challenge for net growth will
Likely continue to be impacted by the recent increase in pay pay off activity from both the acquired Blue Hills by portfolio as well as the current rate environment changes in either assumption could result in Lone Grove volatility or results outside of this range consistent with loan growth guidance. Net deposit growth is also expected to be in the low single-digit range, assuming a static r a down payment and with an expectation of continuing to shift balance is from maturing time deposits the core deposits. The overall cost of deposits is expected to improve slightly over the course of the upcoming month.
Regarding the net interest. Margin. We anticipate the full year twenty-twenty margin to be in the mid-to-high 380 range which represents a declined from Total 2019 levels off approximately 15 to 20 basis points. This 2020 guidance includes the following assumptions. No changes to interest rates from the Federal Reserve loan yields stabilizing with some nominal level of compression resulting from portfolio turnover overall funding costs to improve slightly and a normalized level of loan accretion of 2 to 2 and 1/2 million dollars per quarter.
Rating fee income should remain essentially flat as compared to adjusted 29 results with that Base Line number excluding $5000000 recognized in 2019 for the Air Force and Insurance Recovery and other large one-time gains on asset sales. One of the factors Weighing on Revenue levels is an assumed reduction and interchange income from the Durbin amendment of five to five-and-a-half million over the last six months of the year operating expenses, excluding merger-related and other non-core expenses incurred in 2019 are anticipated to be well contained with the year-over-year increase in the low-to-mid single-digit range despite continued investment in digital capabilities internal infrastructure in New Market expansion.
Similar to the impact on the reserve provisioning for bad debt under the Cecil model should not materially change from previous levels and will be driven primarily by net charge-off experience in general economic and credit conditions both of which do not pose any known significant concern over the long-term Horizon at this point, and lastly with the 2019 final expiration of New Market tax credit benefit. The tax rate is expected to increase to approximately 26% for the year with some level of discrete benefit in the first quarter due to vesting of equity compensation award wage. That concludes my comments Chris. Great. Thanks, Mark Nick. We're ready for some questions.
And I'll begin the question-and-answer session to ask a question may press star them one on your touchtone phone you're using a speakerphone. Please pick up your handset before pressing the keys off anytime. Your question has been addressed and you're like the withdraw your question, please press star then to this time. It'll pause momentarily to assemble our roster.
First question comes from Gilligan's Piper Sandler, please. Go ahead.
I wondered if first you could just clarify a comment you made about The Interchange fees is that at 5 to 5 and 1/2 million dollars of interchange fees in the second half of the year. Did you say that was in including that or excluding that I I apologize I missed it. The guidance includes that reduction Mark. Got you. Okay, and secondly, can you help us think about the purchase accounting increase accretion as we sort of go into the first quarter. Does that move a touch lower?
It does. Yeah we
Experiments and over the last couple of quarters. If you recall the the Q3 accretion income was about three point nine million Q4 was about three point four million. Our expectations on a normalized level included in the margin guidance I gave is about 2 to 2 and 1/2 million a quarter. So we do anticipate that to come down. But again, I'm always somewhat contingent on individual credits and what we may have from Ox on those but on a whole basis, we do anticipate that come down to a degree. Yes. Okay, and then how much more runoff do you think is likely from the Blue Hills portfolio or we getting to the end of that? Yeah, I'd say big picture when we when we click on the deal and it looked up the portfolio. There were a handful of credits that we certainly anticipated when they came up for Renewal that we would not extend or that would just be cut off.
a transactional nature refinance out here in the new
Term, so I would say the majority of that has exited through the fourth quarter. So I we do anticipate that that the level of payoffs and pay down should say side. I wouldn't say it's all behind us by any means but we certainly should see that come down compared to the levels. We've been seeing. Okay, and then lastly I know that a couple of crazy things she had this quarter were idiosyncratic, but but they're from a credit perspective, you know, what are the kinds of things that you worried about out there that you're maybe dialing back a little bit or or avoiding?
Yeah, I'd say certainly when you look at the growth that construction portfolio. I think that's a a portfolio portfolio that inherently may seem to be more risky but I feel very very good about that portfolio and the opportunities we've been seeing and I think in particular an interesting Dynamic there is we're we're really getting a lot of those construction details that are looking to have a very local Banker familiar with construction lending and underwriting and as a result we're seeing less competition for those types of deals such that they meet our underwriting standards. The pricing is very well. We have good spreads there. We typically see far as putting more Equity into a job and when those deals get to a permanent stage and they're looking to get permanent refinancing. That's when we often may see other competitors coming into the market the undead
Fighting gets a little bit more loose. We may not see the level of
Coming in from the bar or and that's where we're willing to step away from those relationships on the permanent side. When we look around the market the things that concern us are things that wage being away from it and like the large multifamily high-end housing developments are you know all the cranes you see in Boston. I mean that's that that raises her eyebrows and that's something that historically have not been involved in and we sort of of we avoid continue to avoid it.
Thank you. Yeah, so Marcus, we don't really have a lot of worries right now. I mean, we just we as you know, we over time we just super, this blending a fairly conservative lenders and we feel we're well secured and and they're in good shape.
Appreciate you, Thanks.
Our next question comes from David Bishop d a Davidson, please. Go ahead.
Hey, good morning guys, appreciate the Overture and the guy quick question. You mentioned in terms of operating expense possible some new market initiative infrastructure investment details, you can provide their just little bit more color terms of what you're thinking in terms of specifics.
it's
So I'll I'll I'll start I mean one of the markets that we've been wanting to really sort of sort of enter for a long time is Worcester and over the last 18 months. We'd begun doing just took took us a while to sort of figure out sort of who we could build the team Iran as we've announced a while ago my Crawford joined us and this leading in team their office building out with this management commercial folks treasury services and we will be opening our first branch in Worcester and I'm a month or so that's a problem is that's right. That's right. So that that is a that is a market We Believe would really be very very suitable for our Rockland Trust in our operation approach. That's one big thing. There's a lot of a lot of work in our technology and operations area on on Cyber on risk management page.
Activities we are more aware of our full.
To flashing out for a second and third lines of Defense. We have formed a risk Committee of the board and we've we've always had a good risk management approach. I think Christ in a million dollars places higher expectations on us even higher expectations on us and we were we were making a lot of Ed where there we've we've added some some head count in there should be in our risk areas to help us meet those I would just add to that Friday. I think a lot of those spends is really looking to build scale so that we can leverage the framework as we continue to grow. I think incremental spends in the near-term is is still The Prudent thing to do and we feel creates longer-term value as we continue to build our infrastructure. So doing it, right and then spending a level of of incremental money at this point to really get us to scale for future growth is is the right choice.
And in the right opportunity at this point, so that's where we're seeing a little bit more of the elevated expense.
That we talked about in the fourth quarter and that'll transition a bit into twenty-twenty.
Got it. And then you know Chris you mentioned the the Wooster after there any sensors a too early just to ring-fence how you're thinking in terms of the growth potential in terms of you know, maybe that's the low end of the wage growth potential from a from a dollar perspective any and any Targets or any numbers you can share their this point or is it still with the two probably two days, it's Rob. It's probably a little too early to share of any specific targets. And in in terms of the development plan Chris mentioned we expect to open One Branch in early February and we're hoping we can have another Branch by mid-year and and maybe even a third location before the the end of 2020 and that's what we've contemplated in the expense numbers that box shared with you. I will tell you the Worcester Market has about four billion dollars of deposits in just the city of Worcester and that is primarily on
by B of A and
Berkshire here and then People's United who just acquired United. So there's some disruption there with the acquisition of Commerce Bank by Berkshire a few years ago. And then more recently People's United acquisition of United. So we you know, we think there's a decent opportunity for a commercial Bank of our scale down to make a difference in that market. It's also a nicely growing Market. It's been revitalized. There are a number of meaningful initiatives in the city itself that we expect to drive additional growth in addition to what they've already seen and in the last couple of years, so we're really excited about this opportunity and and the key there is finding the right people and we've been fortunate to find a number of Worcester based individuals with a long history of being successful in that month.
Got it, and maybe just would follow up in terms of credit notice. There was a little bit of an uptick in addition to the non-accrual any color in terms of what fluid in the winter of the Muslim additions to an article. Not that I'd say indicative of any portfolio as a whole concern. There was a little bit of increase on our on our residential side and some additional info on the commercial book as well. But both of them were fairly nominal compared to overall portfolio the night when it's say at this point represents any sort of War broader concern in terms of credit characteristics. These were again what we would consider to be sort of isolated event with with individual credits.
Thanks for the color.
Our next question comes from calling Gilbert KBW, please go ahead one morning, if we could just start with the the Nim wage and I appreciate your guidance for twenty twenty indicating kind of the mid-to-high 380 range. Could you just talk a little bit about how you sort of see that trajectory going? And I know you had indicated that that assumes no choice Cuts, but just some of the Dynamics you expect kind of in the next quarter or so and then how you see that playing out to the remainder of the Year sure. And so I'd say it really stems from where we would Peg the the fourth quarter margin on a normalized basis. So as you know, we we we reported a 3.9% margin for the quarter off with three point four million of purchase accounting accretion if we scaled out back to the normalized level that that in the range that I provided in my guidance in December .
assuming that
The rate environment remains benign and static that would sort of Peg our margin to the in the three mid 380 range going throughout the rest of the year in 2020. We do think there's opportunity to continue to just naturally at right are higher costing time deposits down replace those with with lower-cost core deposits. There may also be some opportunities on the funding side as well. So we do think we can make incremental Headway on our overall cost of funding which should add a month a bit of a increased to the margin. So I think that combination of stabilized loan yields being pegged to what I'd say is a normalized run rate through the fourth quarter with some level of increasing on the funding side should should put us in that mid-to-high 380 range.
Okay. Okay, that's very helpful. And then just on Mortgage Banking. Can you just talk about sort of where what what some of the trends are you're seeing there and where you're kind of expecting incremental demand to be I mean, I know it's it's baked into your fee guidance, but just trying to think about that business kind of in total how you're thinking about the growth there.
either
It's calling this is Rob. It's been a a very successful 2019 with a mortgage business and the combination with blue hills. And we now have almost 40 producing Flores produced over 800 million in production. And if you analyze the last three quarters of the year, it would be a billion dollars annually. So we're very excited about the opportunity. Their momentum has continued into 2020 application volume continues to be strong with a healthy mix of purchase and refinance and we think that that is made a meaningful difference to the potential stability of the combined with the having a high percentage in purchase and there was a fair amount of refi still but 55% of our production is purchased volume and I think as long as the Dead
in a local real estate market
Remains healthy and the yield curve is stable where it is. We continue to expect refinance volume and purchase volume to be healthy. 5% of that volume is being sold into the secondary market and this continues to be strong demand there and we're getting healthy pricing. So in the next couple of quarters, we expect them momentum to be good, you know, it's it has certainly surprised us the level of production that we've been able to generate as a combined team, but there's no signs that that is slowing to any meaningful extent at this point.
Okay, that's very helpful. That's great. Okay, and then just on the pay down dynamics that you guys are seeing you indicated in your opening comments. I think that like a hundred million if I took this down correctly a hundred million of Blue Hills on the commercial side and then sixty million of Blue Hills on the resi side. I just curious how that compares to what you saw in kind of stand-alone Rockland. Yeah, to be honest with you actually had even more payoff and pay down activity on the Legacy Rock than portfolio. So in addition to to the numbers you mentioned for Blue Hills. We also saw over two hundred million of commercial payoff activity associated with the Legacy portfolio and also another hundred thousand on the retail side. So just just to bring that back up to sort of the bigger picture just in that fourth-quarter. We're talking about almost half a billion dead.
An overall pay down and pay off a activity.
And when you look at that translating to Flat loan growth we had just as strong as success on fundings and new origination. So close to half a billion of choice lending to existing customers or funding on new relationships. So there's a lot of volume and a lot of activity going through the book that is essentially washing. The net balance is over the last couple of quarters. So that's what I to the extent some of the front off activity does subside we feel very good about the closing volumes and the pipelines heading into twenty-twenty the couple things have probably worth noting but it one point five billion dollars a commercial originations for 2019 is like forty fifty percent of above are sort of previous highs. So I'm not as strong and also what bodes well is that the the Blue Hills lending team was a significant contributor in the fourth quarter. I mean, they're really coming online and producing for us.
That's great. Okay. Okay, that's that's helpful. And then just wanted to clarify on the credit side. So the net charge-off that you guys saw this quarter wage even indicated recent acquisition do we can we assume that that was Blue Hills. That's correct. Okay, and then is that directly tied to the insurance claim and issues two separate events that happened in the same quarter very conveniently, right? Okay. Okay. So just curious what if a little bit of color on the page that you charged off, you know, the obvious question is the fact that you know, you kind of did a good good Deep dive and and diligence I would assume when you acquire Blue Hills. So just what I just sort of came as a surprise or maybe a little bit of background as to what happened with this specific credit.
Yeah, this was an individual.
Commercial real estate deal that at the time of the acquisition was actually performing indicated no evidence of of credit deterioration. The borrower went bankrupt off the time of acquisition. It was a single-tenant facility group. The tenant went bankrupt. Sorry tenant went bankrupt and it was a a a large facility with just one single tenant in that facility. So
As a result the the property was no longer as marketable. We've actually exited that relationship in full. It has been paid off in full and resulted in the associated charges that we did take in the fourth quarter, but it was really a function of a single-tenant large facility, which is not indicative of what we typically see in our portfolio and and as I understand it had a special being somewhat special-purpose out at operating so so they it we're order required a bit of we have today to get it up to standard wage. That was the reason for sort of the the depressed market pricing or the or the value of the property of the time. We it was trying to be sold. Okay just keeps the the geography of that credit. Where was it?
It was in our market area.
Okay, and Jason just just adjacent to it within our commercial market area. Okay, okay, very good. And then just lastly I guess question for for both Chris and Mark but you know you guys continue to build a lot of capital. You did not buy back any shares this quarter. Can you just talk about sort of took Capital deployment plans whether you no appetite for buyback Capital goals targets and then Chris if you could just kind of give an update on how you're seeing the m&a landscape wage.
Oh, yeah, I'd be happy to after Marcus's you be any different than what I've said in the past, but I'd be happy about this from a Capital Management perspective was certainly in in the first quarter. We'll as we customarily do we'll take a look at our dividend and revisit. And and again as you noted we have very often Capital levels, which would Bode for a sizable nominal increase in in what we expect to pay out for dividends off the the exact number we obviously haven't determined yet. But I think it's safe to say that will look to to make the right change in that that quarterly rate going forward and from a stock buyback perspective. It's certainly continues to be on our radar and when we look at really the the levels of capital that we have been able to generate over the last couple of quarters dead.
Okay.
And the corresponding increase in our tangible.
What value we continue to? Look at that that authorization is one that we we really want to make that an economic decision over what the right level is to buy back at home as a multiple of our tangible work. So as we continue to grow that Capital over 20 20, they may be an opportunity to execute on that buy back, but often we still feel it's prudent to do that only when it makes economic sense and and that'll be something we'll certainly monitor closely throughout the year.
Okay, and I'll go ahead. I just going to say Mark. Can I push you a little bit harder on that in terms of you know, the economic sense. Do you look at it similar to the way you would look at it and acquisition in terms of buyback on the dilution that you would take or turn back on tangible book. Okay, and the corresponding benefit on the on the multiple on the return on tangible? So it doesn't matter how we think about pricing deals. Right? I'm just understanding the Dynamics of that are in back. Okay, very good. Okay. Go ahead. Chris took us with a whole new whole new m&a strategy and exactly down with the British for for thirty-five years eighty-five. We have a pretty steady Trend about three three and a half percent of the bank's being acquired or merged per year and we've taken that from 18,500 Banks down to about five years.
and Banks today and I'm going to make the Bold prediction that that's going to be and that the
The and actually it's that were not I mean, we're not going to see sort of any sort of sort of significant acceleration of de novo banks in the country club given the heightened regulatory scrutiny that we sort of entered into a since since Dodd-Frank and the last ten years locally-owned know the the great Heyday of Acquisitions or an acquisition was announced every month or two with Sovereign Bank North and citizens sort of the mopping-up. The marketplace those days are over with you have a handful of publicly traded banks that are that are really are even could be sold. If they wanted to that that pool is added to it from time to time with a mutual conversions. And then you know, there's a three-year wait. And we've been the beneficiary that among our ten Acquisitions. We've done the last fifteen years and we moved
We'd like to continue to be a buyer. I mean we
But we know we really can't control that. We can't we can't go out and do a bank store and buy Banks. We we need to wait till board of directors decide to the maybe linking up to our currency is is a good idea off. And so what we've you are charged doing is to really maintain that high multiple in our currency. So we made this we continue to be a an attractive buyer and be a also Thursday. We have developed a reputation of being a good acquire one. That would say we're going to do when we do what we say and we treat people well and we have a great culture and we just want to Endeavor to maintain that way. I'll say interestingly when we sort of started our acquisition the last time we were sort of back in 03. Oh for we looked at Acquisitions as an opportunistic thing. I would say that looking a rear view mirror that it's really been pretty important to add scale and get to the scale. We need today with with the all the the fixed overhead you need now to run a bank.
And and they a risk appropriate way.
And I would hope that would continue and I imagine it will but in terms of predictions, it's really hard to say so that's a long way of saying nothing. So, yep, but no that's helpful. That's always it's always good to hear your thoughts on that. Okay. Thank you Chris, and that's that's all I had. Thanks everyone great. Thank you.
And if you have a question, please press * then 1.
Our next question comes from Bernard horn Polaris Capital, please. Go ahead.
Hi, good morning, like any good on the press release it talks about in other non-interest expense. It was up mostly because of an increase provision on unfunded commitments. I didn't I just don't understand why you'd have a provision on an unfunded commitment. But maybe you could maybe I miss something there. Yeah that that is a prescriptive requirement in accounting guidance wage that speaks similar to the reserve for the allowance. It doesn't roll into that balance. But to the extent you've legally committed to extend Credit in anticipation of life extending that credit and applying a nominal default loss rate to that. So that number in can be volatile depending on what stage of the pipeline a certain loans are. So, you know, I mentioned are approved pipeline was pretty consistent with where we were at the at the end of the third quarter. It just happened to shift a bit in terms of dead.
the stage of that pipeline which which
Really resulted in in the level of increased that we had to book in the fourth quarter. Okay. All right. The other question I had is just on the ALCO positioning. I know you know, I hear the guidance on the net interest margin wage for next year and and the puts and takes on kind of deposits. But is there anything that you anticipate to change much on on your Alcove position? And it looks like you must be a little bit as it's sensitive. But you know, you you talk a little bit about shifting around some deposit and and borrowings and but we expecting to see the same kind of Alco positioning for twenty twenty years. We we we continued to be acid sensitive but we have made great strides throughout 2019 of reducing that exposure and just to reiterate we now have faith and fifty million of hedges in place against our loan portfolio to protect against rates going down of that eight hundred fifty million seven hundred fifty million of that as I am.
In the money, so that is already provided protection.
And based on where we are today and rates fifty million of that is neutral. It was a caller. We're current market rates are right in the middle of that range. And then the last fifty million will give us additional protection to the extent. We have one more cut. So that's a program that we continue to look at. We ideally we would like to to probably put some more hedge play to give us a bit more protection on on the down rate environment risk the challenge there has really just been convinced convincing ourselves to actually lock in a a trait that the market is pricing in order to execute those Hedges. So essentially taking the loss now for for future protection, we've all sort of seen over the last wage a couple of months. The the Outlook has certainly improved. It's comforting to see and the last round of the Federal Reserve meetings. There seems to be at least consensus that wage
raids should should relatively hold flat here for
While and specific risks over any future Cuts have really diminished so may provide the right pricing opportunities to put a little more protection on but we have we feel very good about level we've been able to execute during nineteen and and a strategy will continue to implement through 2020. Thanks, and I'm assuming that the margin guidance is those wages are built into that guidance. They are correct, sir. Okay. All right. That's all I thanks very much. Great. Thanks Frank.
This concludes our question-and-answer session on my way to turn the car back over to mr. Leeson for any closing remarks, right? Thank you very much, Nick, and thank you everybody for joining us today, and we look forward to talking to you in three months time about our first quarter 2020 results. Have a good rest of the winter by
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