Q4 2019 Earnings Call

Thank you Chuck. Good day everyone and thank you for joining us to discuss to discuss first internet bank or financial results for the fourth quarter and year ended December 31st, 2019 off. The company issued. Its earnings, press release yesterday afternoon, and it's available on the company's website at ww.w. First internet Bancorp, in addition the company that included a slide presentation that you can refer to during the call. You can also access these slides on the website.

Is today for the management team our chairman president and CEO David Becker?

And Executive Vice President and CFO Ken Lubbock David and Ken will discuss the financial results. And then we'll open the call up to your questions before we begin. I'd like to remind you that this call contains forward-looking statements with respect to the Future performance and financial condition the first internet Bancorp that involve risks and uncertainties various factors could cause actual results to be materially different from any future results expressed in or applied implied by such forward-looking statements. These factors are discussed in the company's SEC filings, which are available on the company's website.

The company disclaims any obligation to update any forward-looking statements made during the call additionally management May refer to non-GAAP measures which are intended to supplement but not substitute the most directly comparable gaap measures the press release available on the website contains the financial and other quantitative information to be discussed today as well as the reconciliation of the gaap to non-GAAP measures off this time. I'd like to turn the call over to David. Thank you Larry. Good afternoon everyone and thank you for joining us today. We have a great deal to be proud of God upon completion of our twentieth year of operation. We finished 2019 on a high note and with substantial momentum and I'd like to highlight a few of those accomplishments.

our team delivered

Recording that income of 7.1 million and record quarterly diluted EPS of $0.72 in 2019. We also produce record annual net income of 25.2 million and record annual diluted EPS $2.51 during the quarter our cost of interest bearing deposits decline five basis points from the third quarter to 2:35 and our asset quality remains solid with non-performing assets to total assets have only 22 basis points while charge-offs to average loans total for bath, which is generally consistent with our historical performance. We were able to deploy some of the excess liquidity and completed the acquisition of first, Colorado National Banks small business lending division. This represented another important step into our ongoing efforts to build a nationwide small business platform. I'll provide more details on this and just a few minutes.

We continue to manage.

Balance sheet growth who loan sales which during the fourth quarter included fifty-four million a single-tenant leasing and Public Finance Loans. And also we completed our first-ever sales of the SBA 7A additionally while seasonally slower when compared with the prior quarter are directed consumer Mortgage business was again strong in the fourth quarter reflecting the positive impact of Investments with earlier in the year to improve both the customer experience in the workflow efficiency in the mortgage origination process.

Our balance sheet management strategies not only strengthened our earnings for the quarter but also allowed us to build Capital as the tangible common Equity to tangible assets ratio increased from 7.1 to 7.33% Furthermore a tangible book value per share increased 3.4% quarter-over-quarter the $30.82 and was up 10.5% for the year from a lending perspective. Our teams remained active and engaged while over on loan balance has only increased two hundred forty-seven million or 9% for the year. Our team actually produced over $900 billion a funded origination and commitments are single kind of leasing fleets financing Public Finance and Health Care financing businesses. Remain our largest commercial lines and had combined production of over five hundred and fifty million for the year. We were also very active on the consumer side of our business especially lines of horse trailer and RV lending led the wage.

With $82 million of combined.

Production and our direct-to-consumer mortgage business originated in an additional $645 million of mortgage loans that were sold in the secondary Market, we grew our Nationwide branches deposit franchise by over four hundred and eighty million dollars in 2019, which included $258 million of growth in our money market account in particular our efforts to bring in more small business market and checking accounts were extremely successful and contributed to over 190 million of the annual growth in the deposit balances.

The combination of the shift toward money market balances and aggressive downward repricing of CDs that allowed us to better manage deposit costs in the second half of the Year. This is a trend that we expected to continue throughout 2020.

Let me shift gears her mother and provide an update on RSVP a business. We continue to make progress with our expansion into small business banking with attractive opportunities on both sides of our balance sheet off. This is a meaningful and long-term element of our strategy. We brought on an experienced professionals during the year to begin building the foundation of our platform and we appointing new sales leadership his head up our extended National program with ambitious plans to further build out our presence in twenty-twenty. We completed our acquisition of the small business lending division the first Colorado National Bank in November and doing so we picked up a 35 million dollar portfolio of loans and a servicing portfolio of approximately one hundred million dollars. We also gained a talented team of Professionals in the area credit portfolio management and servicing that will help us accelerate our growth and small business lending the pipeline of million opportunities continues to grow and our efforts on the deposit wage.

producing positive results

We believe that we can differentiate ourselves with a full Suite of products in a consistently high level of service that emerging entrepreneurs need in that many larger Banks do not prioritize patiently as we grow our asset quality remains exceptional. It is among the best in the industry and is driven not only by our strong credit culture and disciplined approach to underwriting but also by our phone cuz especially lending lines that Target lower-risk asset classes such as our Public Finance and are single tenant lease financing business looking at on a year ahead. We are laser focused on improving Financial returns. We will do this by continuing to execute on the initiatives that we successfully implemented in 2019 building. Our Capital base is a priority for us off and we intend to drive this to improve profitability and disability balance sheet management while overall balance sheet growth for 20 20 may be modest, especially by our standards we still wage.

strong Loan Production from our lungs

Business, so we'll continue to execute loan sales to manage Capital supplement non-interest income and improve overall portfolio yields. These strategies combined with discipline loan nice clean and the strong downward Trend and deposit pricing are expected to produce that interest expansion during the the year twenty-twenty. We also continue to invest in forward-looking policies to further enhance our digital focused approach for example, following the demonstrated success in our mortgage business. We are moving on to Commercial and small business lending to implement new Solutions off the customer experience and provide workflow efficiencies. We are pleased with our 2019 results over the last five years our net income has grown at a compounded annual rate of 52% And in 2019 it grew by 15% Even as we continue to navigate a challenging interest rate environment.

We plan to build up on our open Oriole culture to attract and retain top talent as you've heard me saying many times in the past our people our greatest asset in our Vital to our long-term success Thursday. We continue to be recognized for Innovation and are consistently ranked among the best banks to work for this recognition of our positive workplace environment and quality leadership own not have to reinforce our foundational approach to business. As always. I want to acknowledge the entire first internet Bank team for the diligent and tireless work receive the strong results for a shareholder of customers and the communities in which we operate their dedication and efforts repeat our ongoing growth and success as we enter our twenty first year. I'm excited about the pioneering found dead end that we have built and digital Banking and our proven success reaching more consumers and small businesses as they continue to increase Embrace online banking are twenty years of experience.

She meekly positions us to continue servicing customers in the digital economy providing them.

Customer-centric digital banking Solutions while maintaining the Personal Touch of relationship banking. I'm looking forward to building up on our Legacy and making the next decade and even more of a family adventure with that. I'd like to turn the call over to Ken to discuss our financial results in more detail. Thanks David is David mentioned we are very happy with our results for the fourth quarter and full-year 2019, especially our record net income and diluted EPS for the quarter and the double-digit growth compared to the linked quarter. We continue to successfully managed over off on growth through loan sales and we made important progress throughout 2019 and optimizing are earning asset mix our Focus for the year ahead remains on disciplined Capital efficient growth Drive increased profitability total asset growth moderated in the quarter which was consistent with our stated goal of managing the balance sheet around our internal Capital generation capacity dead.

Overall total loans outstanding at the end of the fourth quarter worth 3 billion dollars an increase of $82 or 2.9% from the third quarter as we were able to deploy some of our access liquidity in terms of portfolio composition total commercial loans were up $94 million dollars or 4.3% compared to the linked quarter driven largely by production and Health Care finance and the addition of the SBA loan portfolio total Consumer loans declined by $9 or 1.3% compared to the third quarter due primarily to Elevated Sportz payments on portfolio Residential Mortgage Loans, as well as higher payoffs in the recreational vehicles and trailers portfolios as mentioned earlier. We sold 54 million of loans during the day during the fourth the fourth quarter. We also completed our first-ever sales of sba7 a guaranteed loans, which included nine point two million dollars of balances. We recognize the gain of birth.

one point seven million dollars from our

On sale activity in the fourth quarter compared to $500,000 in the third quarter. We expect to continue executing sales of portfolio loans during 2022 manage balance sheet cake and capital levels while also helping to improve our net interest margin and profitability moving on to deposits during the fourth quarter of the cost of funds related to interest bearing deposits decreased by five basis points as the cost of new CD production and the rates paid on money market accounts declined during the quarter recall that we reflect. We reached an inflection point late in the third quarter when new CD production rates drop below the rates on the chair and CDs and that Trend continues. We also reduced our money market deposit rates by ten basis points in early November additionally a shift in the deposit mixed from CDs to money market accounts driven by growth and small business balances positively impacted deposit costs during the quarter dead.

To give you a sense.

Of how CD rates has moved throughout 2019. The weighted average cost of new CDs in the fourth quarter was 1.90% compared to the rate on maturing CDs of 2.50 percent. So the incremental benefit was 60 basis points versus an incremental cost of 116 basis points back in the fourth quarter of 2018, illustrating the meaningful convergence in CD costs over the last year in December new CDs came on at a weighted average cost of 1.79% Whereas wage Insurance CDs rolled off at 2.60% a positive spread of 81 basis points. We expect this trend to continue into the first quarter of 2020 as the weighted average wage unscheduled CD maturities during the first quarter is 2.61% in total over the next twelve months. We have approximately 1.1 billion of CDs and brokered apologize.

maturing at a weighted average

Cost at 2.59% additionally we reduced our money market rates by another 10 basis points in January , which will have a positive impact going forward faith our current money market balances of over $785 million dollars turning to net interest income and net interest margin net interest income on both a gap and fully taxable-equivalent basis grew modestly compared to the linked quarter as an increase in the average balance of interest-bearing deposits was essentially offset by the five basis point decline in the cost of funds off that interest margin declined three basis points from the third quarter on both the Gap and a fully taxable-equivalent basis. The fully taxable-equivalent net interest margin came in at 1.67% which was a little lower than what we were estimating for the quarter the variance between our forecast for net interest margin expansion, and the actual result was due primarily to holding higher cash balance.

Has been we had modeled.

As we aggressively lowered CD rates throughout the year. We successfully minimized new CD production during the fourth quarter. However CD renewals from existing retail and Small Business Club, we're significantly higher than we had projected which led to the increased cash position. It is important to highlight that compared to the linked quarter deposit cost had a positive impact of 4 basis points on that interest margin and Loan yields provided a benefit of two basis points. However, these were offset by the lower yields resulting from successive Federal Reserve rate Cuts in September and October burned on elevated cash balances, which had a negative impact of 7 basis points and on other interest-earning assets, which had a negative impact of two bases off.

As David noted we continue to feel good about the upward trajectory of net interest. Margin over the course of twenty twenty. We are estimating that net interest margin should increase in the range of twenty to twenty-five basis points by the fourth quarter of 2020 actual results are likely to exhibit some quarterly volatility this year based on the trends in our excess cash balances, but we are confident that the general direction is higher for three main reasons first for all the reasons to discussed earlier our cost of deposit should continue to decline higher-cost CDs will either be replaced at lower rates or run off the balance sheet second. Our average cash balance is still about a 100 to 125 million above our Target level and should gradually come down as we put these thousands to work and either higher-yielding assets or to fund deposit run off and third. We are working hard to manage loan yields such that discipline discipline pricing and improvements in the composition of the Dead.

can offset the impact of

lower short-term interest rates

just a quick word on our non-interest income as David mentioned our direct-to-consumer mortgage business continue to experience strong demand in a seasonally slower fourth quarter as long term rates remain low combined with the technology enhancements. We have made to improve the customer experience and gain operating efficiencies. The mortgage business has the potential to remain a solid performer in two thousand. However, as the industry is projecting a year-over-year decline in mortgage origination than 20/20 our results are likely to moderate a bit. But as we have discussed in the past month the fees generated from our mortgage banking activity serve as a great natural hedge in a down rate environment giving us another reason to remain optimistic about the business.

We also anticipate higher SBA related fees in 2020 as our fourth quarter results included only two months of contributions from our acquisition of first Colorado's small business lending division based on our plans to build out this business line. We we expect its quarterly fee and come run rate to continue to increase as both production levels and gain-on-sale revenues grow the servicing portfolio grows with respect to our non-interest expenses the increase of one point four million from the third quarter was due primarily to increases in deposit insurance premium hire Consulting and professional fees and an increase in salaries and employee benefits deposit insurance premium expense resumed in the fourth quarter after not incurring any expenses in the third quarter as a result of the small Bank assessment credit applied by the FDIC the increase in Consulting and professional fees was tied to hire recruiting fees and third-party Loan review fees dead.

The increase in salaries and employee benefits was due mainly to the headcount growth in our SBA Lending.

Business now turning to ask the quality overall credit quality remains solid in the aggregate non-performing loans increased by $900,000 to six point five million dollars while the ratio of non-performing loans. The total loans remained relatively low at 23 basis points net charge-offs of 300,000 were recognized during the 4th quarter resulting in net charge-offs. The average loans of four basis points as compared to Fifteen basis points in the third quarter. The decline in net charge-offs was due primarily to an eight hundred thousand a month charge off on a commercial loan relationship in the third quarter with respect to Capital. Our overall Capital levels remained sound as David mentioned are tangible common Equity to tangible assets ratio increased to 7.33% in the fourth quarter from 7.10% in the third quarter. This came in above are targeted year-end range of 7.25% off.

7.30% our expectation is for the tce ratio to increase throughout 2020 and be in the range of 7.85% to 8% off the end of the year is internal Capital generation and balance sheet management strategies support our organic loan origination activities with that. I will turn it back over to the operator so we can take your questions.

Thank you.

Who 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 * then two months at this time. We'll pause momentarily to a sandbar roster.

And our first question will come from Michael perido of KBW, please go ahead.

Hey, hey David. Good afternoon. How are you guys doing? All right, Mike. I'm good, Mike. How are you? Good. Thank you. What is the S couple things? I'm obviously a nice Revenue corner from you guys good to see, you know with regards to the team. You know, I mean, can you give us a sense? I guess of where wage, you know, some of the conference's coming from kind of grow that product moving moving forward. Is it is it simply that the the team had a lot of pent-up demand at the prior institution and with the bigger balance and more capital and they're they're a whole lot more or is there something else at work that's kind of driving the ability to to grow that Revenue Source in twenty-twenty. Well my it's it's probably a combination of several things with that phone number we did bring on a team a small team from from first, Colorado and primarily the the primary kind of staff and benefit from that deal.

Was really getting adding to our back office ten strength. They have experienced closer.

Servicers portfolio managers credit we did bring on one video as well. But the combination of that with our own efforts cuz we've been as we announced earlier in the year. We we brought on an individual to build out a national sales platform for us and we've actually added people on our own throughout the course of the year in you know, all kind of operations capacity. So we had the the ability to service these loans which have some twists to them because of the governmental aspect to them. So as we look out and we kind of model out our expectations for SBA. It's it's really not just limited to the team we acquired but it's everything that we're doing in total which is we we look at it as as one team versus kind of two different components.

Oh and then the just do you know, what? Can you just just to avoid any confusion give us the dollar amount? Like if the team was on for a full quarter as opposed to months, you know what that variance was in terms of.

Avenue well, it's It's tricky because we haven't we we've just started to originate our own loans here. So we're really coming from from zero for ourselves. Our servicing portfolio is probably if we can grow that by itself. That's probably maybe 1/2 to 1/4 of one point four million of Revenue next year. Um, but I'm kind of looking at the the ramp-up of of the lending opportunity as really the combined effort between the teams here. I mean, I may be another way to look at it. Is that by the end of the year and fourth quarter off the the the origination the video teams that that we plan on having on board will be at about a hundred million dollar a year run rate and I think that's probably being conserved because we're hoping to get people on board sooner rather than later, but that that's kind of the the way we have origination is modeled throughout the course of twenty twenty.

and

Maybe switching over to the market. So I mean it seems like you guys still feel like by the end of the year you can get to you know, call it that 2ish percent almost type one 92% type thousand rate on a daily basis based on where you are today. I know you said to be choppy quarter quarter. I was wondering if you had any initial sense here, you know, almost a month to the first quarter. I mean, do you expect 1:20 to kind of have some lift even regardless of the excess liquidity that might take some time to to work off? Yeah. We we do expect a little bit of a lift right now. It's you know, not quite through a month. It's a bit hard to pinpoint the the basis point expansion in here in the fourth quarter or excuse me in the first quarter, but we are expecting some lift. I mean again as we said we feel pretty good about a year. It's just going to be how fast we can get the excess capital or excuse me, excess liquidity out the door one thing that might impact is a little bit Mike and its first-quarter wage.

pretty significant loan sale of

About a hundred million coming up and the key will be to get that cash back to work quickly. So if we're going to have a soft quarter, I would tell you first quarter will be the the softest of the bunch, but I'm on board with kid by a year in between now and December 31st, you'll see twenty points plus in March and expansion.

Got it. And then David just you know, I'll have you one last one and I'll step back with some other guy, but just you know with that set with the FDA team, you know at a point where hopefully, you know, there's much more Revenue than expect 20/20 the margins move it up. What's the thoughts on kind of profitability improvement in in 2020 and what's realistic for us to expect. Thanks again.

Well, yeah, I think you know again you had a good point there that we do kind of have some ramp-up expense here in the SBA business cuz I think we've tried to go about it thoughtfully and and make sure we have the the back office and the operations built so we don't stub our toe faith in in the regulatory world and uh, cuz the SPs be a had certain, you know, as you know from covering other Banks, um, if you if you don't. Eyes and crossed Keys Inn, SBA a pay for it down the road, so there is some ramp-up cost here. I mean we expect you know over the course of the year for our oh and in our oh he's to to go up. I'm not going to say significantly, but they they will continue to improve such that, you know, maybe by the, you know, by the by the fourth quarter we're hopefully in that you know off

8285 basis-point range of r o a

As as we've again the The Originators in the video is are on board and and out originating.

And then Michael we build up the SBA process over the course of the year and I agree with Ken that we're going to get to your end with about a hundred million in origination with the servicing portfolio that we picked up and the team that we built out here prior to acquiring the first Colorado group. The program is profitable on a month-to-month basis now is Ken took it out. There's a lot of regulatory Hoops that were jumping through but we've got a good team on board from the back office is the make sure all of that is done properly. If we definitely have the ability to add videos. We announced last week a new business development officer joining us on the east coast and he has a reputation as historical background as a 20 million dollar a year of origination and we expect him to hit that and more over the course of the year. So we're we're locked in pretty solid. It'll it'll be a very positive year for USDA side.

Great. Thanks guys.

Our next question will come from George Sutton of craig-hallum, please go ahead. Thank you nice results guys. I wondered if you could give us your thoughts process on gain of sale plans relative to what you've defined as excess liquidity. How are you determining when to take the gain on sale?

You want to go first? Yeah, I I mean in in terms of I mean, you know, some of it is is just looking at what the what the gain on sale pricing and the premiums are in the market and off right now, you know based on on our initial entry into into the space and the fourth quarter gain-on-sale premiums are pretty healthy, you know kind of like that 109 110 even I think we got 113 on one of our sales. So the the premiums are are pretty good and I think as long as we can, uh,

that range or you know, where the

Again on sale is does the the cost-benefit between holding the what's really relatively High yielding acid on your books is more advantageous will elect to do that. And the nice thing about the SBA business is you do have some balance sheet flexibility with that and if premiums kind of return to Norm if they they get depressed and come back to revert to the page. If you will, then you have the opportunity to sell it at that point. The other side that we're looking at George to is we have an opportunity. We're going to unload about a hundred million dollar portfolio and 30-year consumer mortgage has some arms but the bulk of it is 30 year mortgages with a probably Blended yield in a 375 and we can replace that with the commercial side of things were all of our categories are above for the sba's above six. So being able to take pick up a hundred twenty five hundred fifty basis points off.

By swapping out portfolios and it'll it'll be you know, we're not obviously going to sell it.

The one day and replace it the next day but within a quarter, we think we can backfill the sale and that's the biggest sale. We're looking in the range of 25 to fifty million a quarter in sales as we discussed last quarter. We don't want to stop our sales pipeline that we don't want to grow the balance sheet geometrically. So we'll we'll get a little bit of influx here in the first quarter, but will be twenty-five to fifty million going forward and that allow us to keep the sales engine running full steam and we're actually replacing lower priced assets with top-quality higher price assets. So it's it's a winning trade for as all in all.

I appreciate your laying out the hundred million dollar by the end of the year run rate on on origination SVA. Can you give us a sense of the longer-term plan their house you this opportunity to be relative to the rest of your specialty platforms?

I'm pretty confident that piece were on there. We'll get to the $200 million a year and origination by the end of 2021. We're going to hit a point where you know growth doesn't really get as much for is there but we're pretty confident. We'll get it over two hundred million by the end. It'll double down in twenty 21% Perfect. Thanks guys Banks George.

And our next question will come from Nathan race of Piper Sandler, please go ahead you guys morning just touch base on deposit growth expectations. Just given, you know, the benefits that you guys have with, you know, a lot of CDs rolling off and what you're paying on deposits today. So just curious how we should kind of think about the Positive Growth into this year. And if you could just remind us what you're kind of comfort level or ranges for the loan-to-deposit ratio.

What was the last part of that the loan loan-to-deposit ratio of yes. Well, I think overall. I mean right now we're kind of forecasting a relatively modest overall balance sheet growth again is our our sales teams in in commercial lines of business have a lot of opportunity in front of them. But like as we said SBA is is going to be primarily a an originating sale cell model for the foreseeable future and and will continue to take advantage of of portfolio sales, especially in the single tenant and Public Finance Basin in the single tenant space. We've we've been out to Market enough where we we have repeat buyers coming back to us. Both our names that you guys would all know in the bank space who have recognized the the pretty solid credits that we originated from. So we expect overall balance sheet growth to be fed.

modest and I think

Probably in on the loan side will you know the plan is to migrate that excess liquidity into the loan portfolio over the court, you know, hopefully sooner in the earlier part of the year, but I'm not really run, you know, run that cash balance down more towards our Target level in the deposit side. I wouldn't say we see a significant amount of growth because well, well, I think we'll continue to be success in the money market business and especially in the small business money markets, but from an overall composition that growth will be offset by probably a significant amount of brokered deposit right off as well as CD run off. So I think when we look, you know forecast to the end of the year what that means is that loans to deposit ratio is going to crack up words. We prefer to keep it under a hundred percent and I think as of now, we don't we don't really expect it to be that high probably more in college.

You know call it ninety-six to ninety-seven ninety-eight.

That range versus, you know, ninety-three ninety-four percent today.

Just backing up on his backing up a quick second on Ken's comments. I think he said we're going to see the the positive mix change over the quarter one thing. We've been very successful in the last six to nine months. We have a new small business checking savings program that we rolled out and we're consistently bringing in 20 to 25 million a month in New deposits and money market and our low-cost checking accounts in the small business community. So that will definitely help our costs as cost of funds as well over the year as Ken said we've got some brokered CDs couple of hundred million that will mature over the next twelve months. That is a guarantee. We will not put those back on the balance sheet will replace that with the small business account. So mixed will change overall growth will be minimal.

Okay, that's very helpful. And I guess I'm from a credit perspective. Just give them that you guys are selling a lot of that product going forward. Is it fair to just expect kind of charge off of in the range that we saw in 1 Q to q and for two of last year this year particularly in light of you know, balance sheet growth X balance sheet growth expectations being fairly fairly low wage for twenty twenty. Yeah, I think all right history speaks for itself and we've changed nothing on the credit parameters and even in the World Cup in in my mind and I'll give you my philosophy on it does not make it bad loan good. So we're as tight on our credit standards in the SV a world as we can be. In fact, I'm looking at the history and performance of the first Colorado portfolio looking at the history and performance hit the folks that we're bringing on and they assets generated in the past and the quality of them wage.

See a significant bump up. Obviously, we we have to reserve it a higher component for the FDA than some of our other loans.

But we're pretty confident quality is going to stay right where it's at. We don't see any significant without some major downturn in the economy any real change in the the charged-off category?

Okay, very helpful. And if I could just ask lastly on expense growth expectations for 2020 obviously moving pieces with the SV 18 being on board for the full year and some additional hires are just any thoughts maybe quarterly run rate for 2020 on the expense side kind of all in

It's it's going to it's going to increase somewhat obviously with the investment in the in the SBA. I think, you know, probably I think the all-in incremental expense once we have for 2020 with with the hires assuming we keep to the schedule that we have. You know, that's probably going to add three million dollars to the expense categories of all in

So I think you know probably, you know, probably you know where we're at today, you know, obviously first quarter, you're going to have all of the the the the beginning of the year resets on the employee side and off will have a fully a full Year's impact of of other hires. We made outside of this year's we've continued to build out our teams in in the it space and and added to certain areas across the bank so could probably, you know, maybe 12 and 1/2 to 13 over, you know, 12 and 1/2 to kind of running out to the 13 and 1/2 over the course of the year, but that's going to be just really dependent on timing of of hires.

and that's probably

I think that that's probably on the higher side. I think that's a conservative number.

Okay, great. I appreciate all the color. Thank you. Thank you.

again, if you have a question, please press * then 1

and our next question will come from John Road of please go ahead sir. Good afternoon guys. Hey John off the the the the the expected loan sale of a hundred million dollars in the first quarter. So if I'm thinking about that, right, so all things equal your loan portfolio is going to walk you down be down from in the first quarter versus the fourth quarter. Is that right?

It could very well be down. Yeah, yeah down to neutral growth for the 1st. Okay? Okay, and then you said you you keep saying modest growth for for 2020 which I appreciate it does, you know just sort of reading between the lines is modest mean is that low single-digits off your mind? Yeah. Yeah, that's probably low low low to mid-single digits on a sec road. Yeah.

Okay, okay.

And then the the the loan sale gain in the fourth quarter of a million seven, which was up nicely from the $523,000 in the third quarter yet. You've sold, you know, you sold a similar amount of loans. I know there was what roughly nine million an SBA, but I correct me if I'm wrong, but I don't think that s b a piece drove the difference so long you get better pricing in the fourth quarter versus the third quarter. Well, some of it had to do with the quality of the portfolios. I mean, we we still didn't in in the of the 6:10 and we sold three we sold three different three different transactions where we just we we negotiated pretty solid pricing that was all above wage. Even the the range of of 102 and Higher One of the sales was was under that and kind of the 101 101 and half range, but that was a very low-yielding pool that we sold which wage

a good trade from our perspective

And then on the Public Finance side, we also had games there. Whereas maybe in some prior quarters certain sales of Public Finance Loans had been kind of Legacy kind of 2017 type of origination prior to tax reform that that were originated so that so the FTE tax rate on those weren't quite as high as they would have been prior to tax form where we sold them for, you know par value or maybe a nominal loss. Whereas we we sold some some higher-yielding stuff in in public finance that we actually clips and nice premiums on when you break down that 1.7 about a million of that came from portfolio loans and the $700,000 off that difference was was in the space.

This is a heads up John and for the rest of you the hundred million dollar portfolio sale that is coming up here latter part of January early part of February is off mortgage pool. That one's going to be pretty much at par. There's not a big pick up on that but we are as I stated earlier getting rid of a hundred million in assets. If you lean about a 370 glass and we place then the other part of it too. We've been in the market long enough and we're we have interest in the play. We're able to sell most of these portfolios in the fourth quarter. And what we're looking at here is the first part of the year. We have no broker's in between and that helps good chunk of the yield that we're getting or their earnings were picking up.

Okay, fair enough. Thanks guys. And then can you get you said t c e approaching, you know High sevens 8% by the end of this year any thoughts on you know, does that include a buyback activity or what? What are your thoughts today on BuyBacks guys? Yeah, that that does not include buyback activities as of right now, you know, we are our boss hasn't authorized a new repurchase plan. I think our view on it is again as I've used this term before it's a balancing act. I you know, we obviously want to continue building Capital. So I think probably the the way that we're going to look at it is is let's get through the first quarter and and kind of see how Trends look see what he looks like see what the balance sheet looks like see how our forecast have changed if at all and and revisit revisit the topic then Thursday.

See if we're if we're able to build Kappa.

Faster than we expect that will probably give us an opportunity to talk to the board about implementing a new repurchase plan. Okay, and then can just on the provisioning obviously, you know a pretty big drop in the fourth quarter relative to the first three quarters. How should we sort of and obviously given the expected loan sales and so forth. How should we think about provisioning going forward for this year 4 20

You know, I think in general overall provisioning a couple different levels on that, I think provisioning in general should be lower than we've had in the past just simply because poor overall portfolio growth is going to you know, be be much much less as as loan sales help to offset new original versions. So really you're you're. In portfolio at any given time is is not going to probably show a lot of growth. So I think historically they, you know, we're probably you know without

You know.

I was thinking about SB a 4-minute provisioning should be probably under you know, well under a million dollars a quarter now, it's David alluded to earlier with the shack in the SBA the the SBA balances that are retained on the balance sheet. Those are going to be reserved at a higher level just simply because of the perceived risk with small business lending say as versus single-tenant Finance. So so that will kind of act as as we add those balances to the to the balance sheet that will that will be somewhat not in not not offset the decline in provisioning do the balance sheet management, right, but it will kind of increase the coverage ratio if you will over the course of the year now. I remember our goal here today is is initially as to the originated the guaranteed pieces of the 7 a loans, which means for every dollar we originated when only retaining $25 off.

Osba, balances will grow over the course of the year, but certainly not to the extent that total origination is due.

Okay, so can I just want to make sure I heard you say you said you think less than a million dollars a quarter, but that excludes the impact from SBA. Is that right? Yeah that yeah, I mean that that includes that includes actually that includes the SBA if you wrap it up by the end of the year to a little bit over a million dollars, but earlier in the year when when we're still building balances. There's just not that much of an impact because it's such a smaller part of the portfolio. So so for the first half of the year, we expect provisioning to be below below a million dollars in in the second half of the year. It'll be probably a little bit above a million dollars a quarter.

Okay, and then can we just one final question on the margin? If you sort of look at the fourth quarter, where did it end sort of in December did the margin end above what the quarterly phone number was?

I mean

We're probably we're in the low 170s into in in December . We had a little bit of a dip in October John over what we were in September and then it improved in November and December both months or Improvement.

Okay, super. Thanks guys. Thanks, John .

This concludes our question-and-answer session. I would like to turn the conference back over to David Becker for any closing remarks.

Thank you. We appreciate all of you taking time out today to join us for the call. We're looking for to a very solid year in 2020 and a great start to the new decade-long follow-up questions. Feel free to reach out to us. Thank you very much for your time.

The conference has now concluded thank you for attending today's presentation. You may now disconnect.