Q4 2019 Earnings Call
Good morning, and welcome to the Howard Bancorp Inc. fourth quarter and full year 2019 financial results Conference call. My name is Jesse and I will be your operator for today. Please note. This conference call is being recorded there'll be a question and answer session. After the presentation. If anyone should require operator assistance during the conference. Please press Star then.
On your telephone keypad.
I'll now turn the call over to George Kaufman Executive Vice President and Chief Financial Officer at Howard Bank Corp. The so called me you may begin.
Thank you Jesse.
To begin this morning by thanking everyone joining the call. This morning.
As Jeff noted my name is George Kaufman I'm the CFO .
Bancorp.
Before we begin the presentation I'd like to remind everyone that some of the comments made during this call may be considered forward looking statements.
Our Form 10-K for the fiscal year 2018 at our quarterly reports on forms 10-Q, as well as our current reports on form.
Oh identifies certain factors.
Actual results to differ materially from those projected in any forward looking statements made this morning.
The company does not undertake the process to update any forward looking statements as a result of new information or future events and recent developments. Our periodic reports are available from the company either online via the company's website or at the Fccs web site.
I would like to remind everyone that while we think our prospects for continued growth in performance are good. It is our policy not to establish what the markets and the earnings margin or balance sheet guidance.
With that said now I would like to introduce Marianne Scoli, the chair and CEO of Howard Bancorp.
Good morning, everybody I'd like to add Mike. Thanks, Ted George I'm I'd also like to began mornings call by addressing their decision earlier. This week to release our earnings two days earlier than was originally announced [laughter] context. The that decision was the commitment that Howard bank makes to ensure that nonpublic and for me.
She is never selectively available and over the course of along bank holiday weekend. This past weekend multiple emails between a number of individuals who works changed in the normal course of released preparation and we became aware that there was one email that wasn't mr. [laughter], we made an immediate decision.
With the Concurrents it outside counsel to take an abundance of caution approach and release early however, recognizing that our investors and research analysts have very full calendar is it. This time of year, we maintained at the conference call as scheduled.
With that I'll go into the presentation that you've all received it was released what the 8-K and we start is always with the overview of what we believed to be an exceptionally well positioned franchise. It is a singularly focused commercial bank and we'll talk later about the exit of the mortgage operation, which emphasizes that.
And your unsustainable focus we saw annual growth of net portfolio loans in the mid single digit range 95.8 million for the year with portfolio loans, increasing at a slightly lower order like right period to period during the fourth quarter due to one large.
Okay go off and two loan closings that shifted into January and both of which have at this point already occurred.
It was average total see an eye loan growth. However, in that fourth quarter of 9.7 million, 10% and go lives. So with the high end of the med.
Then go to low double digit range and average total see an eye loan growth for the fourth quarter up 19 versus linked fourth quarter is 18, 8%.
Transaction deposits increased by 34.4 million during the fourth quarter and we'll know fully funded the net loan growth and we'll talk about the momentum on the transaction deposit side and no.
Current impact on net interest expense a little later in the presentation. We do highlight here that the cost of funds decreased by 12 basis points for the fourth quarter to 1.07%.
The industry wide net margin pressure that we've all seen and that's what occurred in many of our coal.
Reporting.
Industry colleagues [laughter] was mitigated in our case by both the loan portfolio mix and most notably by that funding mix. We're also seeing the impact of the delivery changes the branch optimization that we began talking about in the second quarter of 29 team and the processing Contra to.
<unk> beginning to be realized they have noted they will not be fully realized until the first quarter up next year. We've also continued to focus on capital management. It resulted in an accelerated pace of buybacks 14000 shares repurchased in December .
49000 shares were repurchased month to date in January of 2020.
And this will discuss later are very optimistic about the impact on Howard bank that the market consolidation disruption that we've been talking about which with legal closing and scheduled conversion gauge is closer to realization that has had an impact already on our recruitment.
Retention of top talent, and we believe that got recruitment and retention of top talent from competitor bags is probably one of the strongest statements that we make in this quarterly announcement. Although that's also an impact that will be shown until the first quarter 2020, if we go into the fourth quarter highlights net income for the core.
Order was 5.9 million that was 31 cents a the p. out [laughter] there were infrequent items that we talk about in fourth quarter. Net income was there for 5.1 million. So <unk> point 27 cents.
Our net interest income.
Was up modestly from the third quarter there was.
Reduction in gross interest income due a combination of next.
I'm spread but that was more than offset by the reduction in interest expense going back to their comments that I've made a buck importance of transaction deposits and the realization of some progress on that front noninterest expenses.
Were down from the third quarter, there infrequent items in both quarters and if you look at infrequent expenses core non interest expense.
It was 14.7 million for the third quarter and 14.7 million for the fourth quarter.
Loan originations for strong we continue to see some payoffs and pay down activity, which means that there has to be an accelerated level of originations to offset that in order to see the mid did.
Digit gross that we've been talking about and loan originations in the fourth quarter were $94.8 million, let's 70 about being don't focus on commercial loan originations transaction account balances.
Represented 38% of our deposits.
They increased by 22% in the fourth quarter.
And the NIM was down eight basis point, that's despite three decreases in the prime rate and of course, our see an eye portfolio. Whenever you do see portfolio in particular are going to reflect those kinds of decreases in prime rate and lie bore excluding fair market value adjustments. The NIM was 3.31% books.
Value continues to increase to 16.48 at the end of the fourth quarter from 16.18 at the end of the third quarter and certainly that TBV does reflect the impact of the buyback as well.
Since the fourth quarter gives us an opportunity to reflect on the full year results would do that as well that income for the full year at 16.9 million.
Earnings per share 0.89, excluding infrequent items earnings per share of the dollar.
0.1 net interest income.
4% over the full year or 2018.
Primarily due to increased earnings on a higher average balance an interest earning assets.
And 29, King total reported noninterest expenses of 64 million down from down 3.5 million from the 67 point Sixmillion I know sheer as we've noted in a footnote [laughter] 2018 expenses and the 2018 net interest income.
Our both reflective of 10 months of the combined operations of the bank and show the comparisons should should consider those.
Loan originations remain strong and totaled 360 million in 2019, so the 94 million that we saw in the fourth quarter continues that strong face of originations that is more than offsetting pay downs.
The NIM was down 28 basis points core NIM was 3.42% for 29 team down from 3.65% now we'll talk a little bit later again about the push back against a reducing them, which is the lower non the lower net interest expenses.
The mortgage transition is something that we've been signaling for some period of time I think everybody will remember they didn't August of 2017, when we announced the merger with first Mariner, we indicated that we would downsize the mortgage operation we began moving beyond just to downsizing in the second quarter of 2000.
And then 19 with the exit from a consumer direct business that we weren't yen and we've continued to look at the profitability of that business as well as the distraction provided by a volatile retail base business compared to the core commercial business.
We want to date.
If they're all possible reduce any sort of impact on the capital levels of the company as we looked at how to reduce that distraction and through a series of negotiations in the third in the fourth quarter of 2019 were able to formally step away from the residential mortgage business. This allows us to focus.
It allows us to reduce some of the volatility in our earnings and as we note on page eight of the presentation. It allows us to address the fact that with a net mortgage division efficiency rate of 80%.
Compared to Oh core bank or a total bank.
Ratio in the 65% that we should start to see the efficiency ratio more dramatically come down we will we know still maintain residential mortgages in the loan portfolio for lung mix diversification. So our portfolio will still include residential mortgage.
Yes, and we will attempt to offset normal pay down in the residential mortgage portfolio with investor activity with a select group of mortgage originators, but we have totally acceded absent. This point in time, the mortgage origination business and we're able to do that.
With a 750000 dollar profit in pre tax earnings and that has been recognized in the fourth quarter.
So if we look at page nine we can see the steady progression in core earnings and I will draw everybody's attention to the core as opposed to the reported given the one time in infrequent charges that we've taken as we continue to improve our delivery infrastructure as we renegotiate core processing contract.
And as we make changes like the exit of the mortgage business. So core net income has increased from the fourth quarter of 2018 from $4 million to $5.1 million.
The P.S. from 0.21 steadily progressing to 0.27 for the last two quarters, the core efficiency ratio and again I note that this would all include a higher expense ratio mortgage operation from 73% to 66% a return on it.
Average common equity from 5.47 to 6.57 and a return on average assets coming to 0.88, and when do try to make everybody aware of the impact the C.B. I expense has on our return on assets since that's not a number of president and all of our peers, which gets us to a 0.98.
Well in the fourth quarter of 2019.
Page 10, it's just another way of telling the loan growth story.
Net loans, increasing and the commercial loan originations continuing to be strong with 252 million in commercial loan originations for the full year organic loan growth for us tends to continue to focus on long term profitable client relationships.
And I note a couple of the Cagar slides that show at 22% increase in Howard banks portfolio over 16% increase in the organic commercial see an eye and see Ari.
Our regulatory capital ratios are strong risk based capital is the core regulatory ratio for Howard Bank, given the mix of our earning assets and it creates increased to 13% from 12.87% in the third quarter, all driven by strong earnings.
I would note and given the strong capital ratios we purchased.
14000 shares during the fourth quarter and again have purchased almost another 50000 in the first three weeks of 2020 I.
I would also note on page 12, as we look at tangible common equity that the strength of those ratios allowed us to raise $25 million and subordinated debt in the fourth quarter of 2018 that provides us with the flexibility that we need to manage that capital with the buybacks.
And then finally, we look at the tangible book value per share growth of 8.9% CAGR.
Since 331, 18 again illegal day effective or those merger with first Mariner was three 118.
Our net interest margin has shown a decline.
Net interest margin was 3.38% primary driver was the impact of the decreases in prime rate in the impact that has on much of this again I portfolio and all of the agency portfolio. It reflects certainly very competitive market. Our net interest margin is not despite our aquas.
You should activity over time dramatically impacted by fair market value accretion component, but we do show the impact of bad on page 14. We also note as we did in the third quarter that the fixed rate loan assets that we probably have in the commercial real estate portfolio the residential mortgage portfolio.
Provides us with some additional protection against any further declining rate environments.
Asset quality is another positive story continued to improve since the merger in 2018, you can see a drop in nonperforming assets to total assets from 1.28% in the fourth quarter of 2018 under 1% today.
The charge off activity has been much more modest since the first quarter charge off of one loan.
And we play not on the reserves and the Mark to market adjustment for loans in the bottom left hand chart shown on page 15, what the impact of those mark to market adjustment is for comparison purposes to non acquirers and are comfortable with our reserve level.
The loan mix talks about the emphasis on the commercial portfolio and again this emphasis and differentiation that we provide especially in see an eye loans and you'll note. The combination of the see an eye at 373 million with the owner occupied C. R E.
A 243 million makes that our largest asset class centers, where our focus is on and drives a good deal or the differentiation on the funding mix. So turning to the funding mix. The overall cost of deposits was 0.9% a decrease of six basis points. So about half of the decrease.
In funding cost transaction accounts now represent 38% of total deposits, we have a very competitive treasury management product set added to that.
Group of individuals in the second quarter of 2019 and have recently taken advantage of the disruption in our market by adding three additional deposit gathering mostly on the small business in business banking side as well as one very senior see our executive in the local market.
Opportunity that all of this this this historical strength in commercial loan origination this historical strength in finding ourselves with transaction deposits not only mitigate the downward pressures of a low interest rate environment on our net interest margin, but provides us with the growth opportunity.
Is that way signal and if you look at the end market deposit disruption on page 18, we've added to this chart that was shown in the third quarter presentation. The legal day and the conversion case. So you can see that we've got some significant conversions that are coming up shortly in those provide us with the great.
This opportunity to pick up additional transaction deposits, we have a number of marketing efforts and obviously one on one business development efforts and those business development efforts have recently been enhanced by the addition of the three deposit gathering.
So in summary, a franchise that's focused on commercial banking after exiting the residential mortgage origination business fourth quarter average balance of loans year end period of loans discussed fourth quarter average balance of C and I loans grew at an annualized rate of 10.4 per.
First shot year over year end of period see an island balance is 10.7% so that high and of our of our growth range is being shown in the all important see an eye loan category, we decreased our cost of funds by 12 basis points half of that cost of funds decrease was really.
Related to a drop in our cost of deposits.
In many of the cost savings initiatives that we've instituted in 2019 are beginning to show branch network downsized is almost complete but we do still have won new branch to open late in the first quarter of 2020 and until that one consolidated branch opens we are.
Hello, operating with two old branches that are increasing our costs and the core processor cost savings only started to be realized in the last six weeks of the year. So we should see the full impact for that in the first quarter of 2020.
And looking forward as we always do we're taking advantage of the opportunities created by industry consolidation see that industry consolidation coming to fruition with most legal closes and conversion scheduled and have already scheme that enhancing our recruitment and retention efforts, which should allow us to continue to grow.
The portfolio, so with that I'm going to open it up for any questions.
Thank you ladies and gentlemen at this time, we will be conducting the question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation Tom will indicate that your line is on the question Q you May press star to if he would like to remove your question from the Q.
Participants easing speaker equipment, it may be necessary to pick up your handset for Prosigna Sarkies one moment. Please poll for questions.
Thank you. Our first question comes from William Wallace with Raymond James. Please proceed with your question.
Thanks, Good morning, Marianne George how are you.
Morning.
Maybe start off with.
Commentary on an outlook for net interest margin.
You are able to reduce your deposit costs in the fourth quarter, we'll have some lingering effect of the October fed correct.
What do you think or your opportunities on the deposit side, how might we expect to see margin trend in the first quarter on that and more importantly.
Through 2012.
While this is George.
On the deposit side.
A large number of Cds that are going to hit their maturity dates we have the ability to reprice.
We expect that we'll be able to reprice those at lower rates than where they are.
So we think we're going to see some continues.
This is in the cost of deposits.
We have a very short borrowings portfolio.
So most of the savings there are already baked in there's not much that skill still scheduled to mature that we expect will roll over at that several rates. So most of the borrowing benefit is already there. The biggest piece that we expect to see is on the term deposit side.
Depending on how successful and retaining those and at what rates, yes, it's hard to quantify what what the reduction would be.
[noise] side.
On the earnings side.
Mary and talked about it the impact of both wide bore in prime rate changes have pretty much all been now baked in the last fed move was in October .
Remember it was in mid October so most of the fourth quarter already had the impact of that so we don't think we're gonna see anything dramatic on the loan yield side as far as any downward movement.
To see.
The opposite the downward movement and the cost of deposits, which overall will basically keep our our margins stable I don't know that's going to increase dramatically, but we're kind of looking to have was just be stable for the next three to six months.
Hey, how how much.
These are maturing and what's the cost.
[noise] given once.
So you.
We have in total.
400 million, that's scheduled to mature in 2020, so for the full year and the weighted average rate on those maturities are 1.8%.
We're expecting that we'll be able to again depending on what.
Looking at a replacement rate, probably the 151 60 range.
So we'll be able to get the benefit of that.
Does that are those.
That is maturing.
Is there a cadence to that Tim when they matures it kind of spread evenly throughout the four quarters or is it weighted towards the back.
Up to 65 of that is in the first quarter and then the remainder is pretty evenly spread over quarters two through four.
Okay.
The first quarter. The first quarter 265 is at a 192 weighted average rate so higher than even though the total.
Okay.
Im surprised we wouldn't see margin expanded in the second quarter, if you've got a potential 30 or 40 basis point picked up on.
Good.
Good chunk of for what deposits you, everyone what Australia.
You probably heard citizenship weve, but.
Sure.
So having the increase in the average just lower yield what will drive that down a little bit. That's why we're saying we expect you will margin because we expect the benefit of the deposit cost, we offset by the lower yields on a higher securities portfolio.
Okay alright, okay. Thank you.
Moving on to understanding some of the moving parts around transferring all the mortgage operations to the.
To answer to that division.
And one of the side you said, it's an 80% efficiency ratio.
Is that what the efficiency ratio was in the fourth quarter and are you going to be able to transfer all of those costs that you used to calculate that efficiency ratio.
The short answer is yes, there's actually a much more intricate to answer to that and that is that the costs that we talk about on the mortgage side is what I would refer to is just the direct costs that we have there.
There's an additional benefit and that we didn't do cost allocations of expenses from the bank to the mortgage company. For example, I would use us once it's a simple one about a third of our employees companywide mortgage related.
But we didn't charge any of our HR department cost of the mortgage company that was all absorbed on the bank side. So there is that what I would refer to as the direct elimination, but then there's also the efficiency side one of the shared services, where the bank had been absorbed.
So if I take the [laughter] well Wally I think directly it's important to note that that 80% efficiency ratio was all direct costs no allocated costs and therefore all of the Clos in the mortgage company.
We're essentially eliminated with the sale there aren't allocated costs included in that number right right. That's helpful and then.
What was the revenue in the fourth quarter I know you'd have the 2.7 million broken out, but theres also I assume some net interest income associated with the.
Loans held for sale.
That also goes away I'm, just maybe you could help us just.
Back into all that's going to be.
I'll leave them, you kind of the bottom line card.
If you look at the 27 cents or earnings.
Those those onetime pieces.
The mortgage company was doing sense of that 27.
Of the three cents of just under a penny of that was driven by the spread income.
So and again just just to give you the full numbers for the total year of what we refer to as the dollar one in core.
Yes for the year the mortgage division added nine cents to that so 92 for the core bank.
Nine cents, where the mortgage and annually of that nine cents three of those nine cents came from the spread side of the mortgage revenues.
So overall it if you look at it you take away the spread side of the mortgage revenues they added nine cents.
Sense of that I'd like I said was spread so six cents and that was six cents not including any expenses that were born on the bank side.
So all in.
Adding a whole lot to the overall results of the company.
Okay, and then how much improvement additional improvement and expenses do you anticipate in the first quarter, maybe maybe the second quarter. When you. When you are able to close that last branch.
Related to the initiatives that you underwent early in 2019, how much is left to capture.
Outside of mortgage.
The biggest most of the branch pieces, we've already recognized so there's very little there. The biggest thing we would expect to see is the full quarter benefit of the re negotiated core processing contract.
Variances, we only got a little bit of that maybe half of the benefit in the fourth quarter.
And again, we projected lower annual savings would be in the 750 range.
Yes, so you take a full quarters worth of that compared to say half of a quarter's worth for the fourth quarter.
And you're going to see on the on the bank side.
Okay began to answer your direct question fourth quarter direct expenses of the mortgage division were about 2.1 million though.
Okay, and then I thought in the prepared.
Remarks, Maryann you said that there was also one branch that wouldn't close until the end of the first quarter.
There there are various I mean, it's a it's a it's a small amount on air you're you're not talking about more than $100000. There, but it's areas. There is still that additional that additional branch.
Okay. Thank you very much off that Tom let somebody else escalation.
Thank you. Our next question comes from Stewart lots with KBW. Please proceed with your question.
Hey, guys good morning.
Good morning.
Following up on unwise question on the expense side, I'm, just trying to kind of narrow and on.
Core run rate.
As we get into one you I know this quarter you still had some of the FDIC FDIC rebate.
Obviously.
But the 2.1 million coming out or more or sorry, 2.1 million of salary coming out from the mortgage sale.
And then also though probably because that was no oh well that was total expenses not just the seller so.
Okay, So 2.1 status.
And that also just the.
[noise] core processor optimization.
That flowing through and one Q.
George just you know.
What do you see as your core run rate Q1 and then.
As we get into Twoq, you and you have that branch finally closed what we can expect for a a run rate for the rest of the year.
Oh.
We'll go this way the core combined expenses, taking away those onetime items for Q4 was 14.7 million.
Let's say that way incrementally, we're going to pick up about another 100000 on the core processing side.
As a reduction.
You're also going to see the one.
So number so the 2.1 on the mortgage side, what's you're going to see though is that the first quarters. When you tend to see.
In comp related expenses, because things like FICA capture set for one KCAP Teresa merit increases kick in.
You're going to see a little bit of just a seasonal increases in expenses that we've always experienced in the first quarter due to those types of all issues.
So overall.
I would say that that the 14 seven minus the 2.1, which is mortgage is pretty easy to identify.
The 100000 core processor benefit is probably going to be more than eaten up by increased salary income related expenses.
Got it and then on the FDIC insurance side.
You know you've had the rebid the last few quarters is it going and return to kind of that.
First and second quarter.
280000, a quarter, we expect that to.
Two I guess reset in the first quarter this year.
Yes. Unfortunately, we at the end of the fourth quarter, we utilized all of the credits that we had so there will be any carryover credits going forward.
Okay, so putting that all together I'm at like a 12.9 million.
Run rate is that that seem pretty.
[noise] pretty accurate.
We're hoping to have that coming a little less but.
With what we know right now 12 seven to 12 nine.
Yes.
Thanks for your color there.
Turning to the buyback obviously activity has picked up so far this year.
What does your outlook for the the buyback the rest of this quarter and how much of that is price sensitivity.
Given your stocks seen a nice around this week.
Just curious if theres.
You know how you guys look at it from a price standpoint.
Well I can tell you I think in the deck Maryann mentioned that through the end of the year, we only bought back.
Just under 15 million, but we bought 50 million so far through the first 17 days of January so obviously the activity the repurchase activities increased pretty dramatically.
There's a limit on how much we can buyback everyday and for the last at least for most of the trading days in 2020, we've been buying bet back asset maximum amount and it changes every week, but it's roughly about a 5000 dollar a day caf is what we're up against today.
But we've been looks like I said buying back pretty much at that cap for the rest of the days. So assuming that continues that acceleration of the repurchase activities will keep going.
We don't see any reason why that would change.
Okay.
So you think that 50000, so far this month is.
You know.
At a run rate for the rest of this quarter and then.
Kind of whats your target for the full year.
Okay.
Well the total if you take the table 7 million.
We've spent about a million three of that so far.
I haven't done the math, but I think the total would be about 400000 shares that we would be able to repurchase.
That 50000 through half of January kept moving we would be able to have.
A large portion of the total bought back by the end of the first quarter and that hopefully by the end of the second quarter have hit the Max.
Okay.
Got it.
And then last one from me.
Obviously, a lot of disruption your markets with the two pending.
IOS so.
Curious as to what you.
Expect from a loan growth standpoint, this year it sound like Marianne Youre pretty optimistic that you'll be able to capitalize on that disruption and put some relationships.
So just curious what you're.
Kind of a core growth rate from loans you expect this year I think you've been in that 60% range is that.
You feel pretty comfortable with that.
Yeah, we were still saying that that mid to high single digit range on and that presumes working with the existing compliment of staff that we have we've talked in the past about.
Discussions that we're having on the you know small team lift outs, both on a Baltimore middle market side as well as the DC side. So clearly anything like that would at least by the third or fourth quarter accelerate but we're not trying to bake that into any of the expectations that.
We're setting on so absent those you know we're still looking at something in that 6% to 8% range.
Awesome.
Thanks for taking my questions guys and congrats from quarter.
Thank you. Our next question comes from Joe Gladue, What Alden Securities. Please proceed with your question and good morning.
Good morning, John Yeah, Let me just I guess.
Ask on the loan growth side.
One other question. The can you give us the amount of that the large payoffs that occurred during the quarter.
That was at 25 million dollar pay off one customer.
The customer had a need for a higher lending limit and we were able to provide a long long time customer and and was just taken by him a much larger bank in the market.
Okay.
And on the the mortgage portfolio.
You said, you're going to keep mortgages and in the portfolio for diversification is there a sort of a target.
Percentage you'd like to keep that as part of the portfolio.
Well, we'd like to see residential mortgages decreased as a percentage of the portfolio. So while the rest of the portfolios increasing at a 6% to 8% and we're trying to keep residential mortgages essentially flat.
So that's a pretty good metrics I think if those are going to be flat and everything else is growing at 68% that you'll see a modestly declining percentage.
Okay and.
Just on the on the deposit side.
Yeah nice to see that.
Added some some deposit generators, but and deposit growth was good during the fourth quarter, but over the course of the year deposit growth Watson Didnt quite match.
Loan growth just wondering if you think that now with the new additions that.
There will be able to.
Okay.
On ongoing loan growth with that with deposit generation.
I think our expectation Joe is that if you look at DTA any interest bearing checking and money market that it's probably going to cover about two thirds of the of the expected loan growth.
So it won't always be a quarter like the last quarter. When we were fully funded the loan growth, but as we noted the fourth quarter loan growth in some categories wasn't as high as we would've liked because of those pay downs.
So we think it will increase it'll it'll cover a significant percentage of it but but not all of it.
All right.
That's all I had thank you.
Thank you. Our next question comes from Brody Preston with Stephens. Please proceed with your question.
Good morning, everyone. How are you.
Hi, Brady How're you.
Well thank you.
Most of my questions.
Have been answered at this point.
So I guess I'll focus maybe a little bit on some.
The picture items.
First on the balance sheet Maryann, you has done a pretty good job leveraging in other capital base over the last couple of years.
But were sort of reaching a point here and maybe this is part of why increasing the buyback along with the valuation.
Where capital and Lisa Tc basis is starting to.
In fact, as we get into 2020 and grow from here apps and further buybacks beyond two Q.
This year and so.
Even though you know how you think about target levels for T.C. and broader uses of capital will be on loan growth.
[noise], we obviously the loan growth is the focus.
Yes.
No. It's a minor use of capital, but looking at that increasing our securities portfolio.
Asking about anything external.
Other than going out mentioned in trying to bring in pools of talent I'm on the business development side.
Theres nothing planned to utilize some of that T C.
Externally.
Yeah RTC. He Brody is certainly higher than we think it needs to be and we've signaled that with the buy back we've always historically tried to make sure that organic loan growth.
Allows us to to bring that more into line with where we'd like it to be in or whether that's the 9% range or the low end of the 10% range. There aren't any president plans today to do anything like an acquisition given where the currency is that doesn't mean that we don't continue.
Let me talk to people in the market entertain discussions.
And that's obviously historically another way that this bank has used any access Tc either we had so that's still part of the medium term strategy, but it's not something that we have any immediate plans for until the currency improves unless there is.
Some sort of an opportunity with the an organization that she is either a longer term view or have some distress generic portfolio.
Okay, and then I guess on the flip side I know that equation Marianne all we're talking about M&A.
Just given where the stock is trading where it as of yet.
One of your thoughts around you know.
In terms of shareholder Mac maximizing value for shareholders and then also has a potential partner there.
Any thoughts around that.
Yeah, and the same thoughts that we've always had which is at our job is to maximize shareholder value in the long term on and so we look at both upstream and downstream partnerships.
But the upstream has the same criteria that downstream would be on that that's that the on the price reflects no long term value of the company as well as good multiples given the progress that we've made over the last two years in integrating a success as significant acquisition.
And.
I think without somebody moving above current multiples is probably not going to derive any sort of long term shareholder value maximization, but long term shareholder value maximization has been is and will remain the goal with a company the emphasis being on long term shareholder value maximization.
Okay, Great and then last one from me.
You spoke on the pass though.
Credit environment in sort of you know some of that concerns you have around.
Repricing in the structure of loans and the market and so I wanted to get your updated thoughts just given.
But the rate rates moving lower on the curves you know.
And flat men burden in Peru, and portions of last year and still very slot today.
Just wondering what your thoughts are on credit risks that people are taking on this is still sort of some of the same concerns are able to sort of step back and maybe have tightened underwriting a little bit.
Yeah, I'm going to I'm going to let Rob can each our president who manages all of our line areas answer that question I mean, we're clearly in an environment, where we think theres a huge opportunity to take market share by the same token. We think most of our opportunities are related to taking market share it's not.
A rising tide.
Kind of economy, but he can give you a good feel for how that impacts on the pricing and structure in our ability to get these loans.
Yes.
Rob beauty. So as you mentioned it is it's a highly competitive environment and it off competed in this market for for close to 30 years and.
Im seeing.
Spreads a lot of pressure on the spreads.
As well as.
Some deterioration in underwriting.
In my opinion, so it's a highly competitive market.
We have to adjust accordingly, but but at this time, we're not really willing to go out on the risk or Oh, Mike we're seeing some of our competition do.
All right great. Thank you very much everyone.
Thank you.
Ladies and gentlemen, if he would like to ask a question at this time. Please press star one on your telephone keypad.
Our next question is a follow up from William Wallace with Raymond James. Please proceed with your question.
Yep. Thanks, just briefly in early December you guys announced that you had hired a commercial real estate team lead.
As it was that a new newly created position or were you where you, replacing something and are you anticipating building out the the commercial real estate.
Specific yeah. We were also we had an opportunity to hire a very seasoned well known individual in all market.
And our goals here are always we will add to our.
Through our lending team to the extent, we can find proven producers.
So it was a tremendous opportunity he came out of another organization, where he had been for most of his career.
So very excited to get them. So it was an addition to our real estate.
Thanks, Rob that's all I have.
Thank you. It appears we have no additional questions at this time, so I'd like to pass the floor back over to Marianne Scully for any additional concluding comments.
All right, we'd like to just thank everybody again, we always appreciate the questions we always.
Hold ourselves available if you've got more detailed questions I want to drill down into any of the numbers.
We're always available to all of our investors and perspective investors.
But we are excited about the opportunities ahead of us and appreciate all of you on who supported those efforts and who are on the line right now trying to better understand the story. So thanks very much.
Ladies and gentlemen, this does conclude today's teleconference. Again, we thank you for your participation and you may disconnect your lines at this time.