Q4 2019 Earnings Call
Actual USA Inc. fourth quarter 2019 conference call.
This afternoon Heartland distributed its fourth quarter press release, and hopefully you've had a chance to review the results. If there's anyone on this call who did not receive a copy you may access Heartlands web site at H.T. I left dot com.
With us today from management or Lynn Fuller executive operating chairman.
Bruce Lee President and CEO .
Brian Mccaig, Executive Vice President and Chief Financial Officer.
Management will provide a brief summary of the quarter and then we will open the call to your question.
Before we begin the presentation I would like to remind everyone that some of the information management will be providing today falls into the guidelines are forward looking statements as defined by the Securities and Exchange Commission.
That's part of these guidelines I must point out that any statements made during this presentation concerning the company's hopes beliefs expectations and predictions of the future a forward looking statements and actual results could differ materially from those projected.
Additional information on these factors is included from time to time in the company's 10-K, and 10-Q filings, which may be obtained on the company's website for the Fccs web site.
At this time all participants are in listen only mode. If anyone should require operator assistance. During the conference. Please press Star then zero on your telephone keypad.
As a reminder, this conference is being recorded.
At this time now I'll turn the call over to Mr. Lynn Fuller at Harland. Please go ahead Sir.
Thank you Jimmy and good afternoon, everyone.
Welcome to our fourth quarter 2019 earnings conference call. We appreciate everyone joining us today.
As we discussed the company's performance for the fourth quarter of 2019 and for the year.
In the next few minutes I'll touch on some of the years highlights and then turn the call over to Heartlands, President and CEO , Bruce Lee, who will go into more detail on our performance.
Then Ryan Mckenna, our SVP and CFO will provide additional color on Heartlands results also joining us today on the call is drew Townsend, our SVP and Chief Credit Officer.
Well I'm very pleased to report we had another record year and finish the year with a strong fourth quarter.
I will be sharing with you a number of significant percentage increases in many of our financial performance metrics.
So with that.
Fourth quarter net income available to common shareholders was 37.9 million.
<unk> dollar and three cents per diluted common share.
And for the full year of 2019.
Net income available to common shareholders was 149.1 million an increase of 32.2 million.
That's 28% over 2018 and earnings per diluted common share was $4 in 14 cents, an increase of 18% over 2018.
Hartland strong some strong performance was supported by our net interest margin, which on a fully tax equivalent basis for the quarter and here were 3.9% and 4.04% respectively.
Return on average assets for the quarter and the year were 1.17% and 1.24% respectively return on average common equity for the quarter and the year were 9.56% and 10.12% respectively and return on average tangible.
For the quarter in year were 14.65% and 15.73% respectively.
A book value and tangible book value per common share continue to increase during the year ending the year at $43 and $29.51, respectively, and that's a 12% and 15% increase over 12 30 118.
With respect to our efficiency ratio, we've made progress over the past year with the fourth quarter dropping to 60.69% and the efficiency ratio for the year dropped to 63 point, 11%.
Moving onto the balance sheet total assets increased during the year by 1.8 billion, that's a 16% increase ending the year at 13.2 billion. Our balance sheet is extremely liquid with very little in non for funding our loan to deposit ratio is 76%.
And our investment to asset ratio was 26%.
I said growth for 2019 was largely attributed to the bank of Blue Valley, and Rockford Bank and trust acquisitions now that said, we had exceptional organic non time deposit growth.
And organic loan growth during the second half of the year was exceptional Bruce Lee will provide more detail on this in his comments.
Regarding M&A expansion of our banking franchise through mergers and acquisitions remains a high priority for heartland.
Looking at 2020, we continue to evaluate several attractive opportunities.
We continue to be focused on end market acquisitions and remain committed to achieving our goal of 1 billion or more in assets in each state where heartland operates.
Currently seven.
Of our 11 member banks have assets in excess of 1 billion and for 2020. Our goal is to have at least eight of our banks over 1 billion an asset.
Building on our M&A experience Heartland is in a great position for additional accretive acquisitions.
Well with respect to our dividend I'm very pleased to report that last week Heartlands Board of directors approved and 11% increase in our dividend to 20 cents per common share dividend will be paid on February 28, 2020 to stockholders of record on February 14th two.
Hausen 20.
In closing I'm also pleased to note that Heartland has been recognized as a Forbes best Bank for 2020. This recognition marks the fifth time Heartland has been included on the Forbes Best Bank list, which ranks the hundred largest publicly traded banks in thrips based on grow.
Both.
Credit quality efficiency and profitability.
Overall Hartland was ranked Ford again in the nation.
I'll now turn the call over to Bruce Lee Heartlands, President and CEO , who will provide more overview of the company's performance and strategic initiatives Bruce.
Thank you and good afternoon.
As we head into 2020 Heartland financial has never been a stronger franchise or better position.
As Lynn shared 2019 was a record setting year Hartland delivered significant gains in earnings earnings per share and dividends paid to our shareholders.
Im pleased to report that we followed a strong third quarter of organic deposit and loan growth with momentum and Heartland teams delivered another strong quarter of organic growth.
In addition to our strong financial performance, we've made significant advancements in our strategic initiatives, including operation customer Compass and implementation of the best in class technology platforms, Salesforce and Encino.
This afternoon I will share key highlights of our performance and then I will turn the call over to Brian Mccaig, Heartlands, Chief Financial Officer, who will provide more details on the financials.
Let me start by sharing a very strong quarter of organic loan growth exclusive of acquisition activities. Following the third quarter strong organic loan growth in our Sienna and CRB portfolios of 163 million, we delivered 97 million of organic loan.
Growth during the fourth quarter, and 293 million of organic loan growth for the year in our Sienna and CRT portfolios.
This organic loan growth represents 6% annualized organic growth for the quarter and 8% annualized organic growth in the second half of 2019.
Our AG portfolio decreased 12 million for the quarter in 27 million for the year.
Our strong commercial growth came from a healthy mix of expansion of existing relationships and winning against competitors.
During the fourth quarter, we acquired 144, new commercial lending relationships.
We have momentum and strong pipelines and we expect continued growth in these loan portfolios in 2020.
Our residential and consumer loan portfolios decreased 41 million on a combined basis for the quarter in 167 million for the full year, primarily due to exiting the mortgage origination business in most of our markets and the current to mortgage refinancing and virus.
Okay.
Turning to deposits, we had a stellar year and a strong quarter of organic deposit growth. This quarter non time organic deposit growth totaled 225 million and we delivered an impressive 758 million inorganic non.
Time deposit growth in 2019.
The quarter's growth was largely driven by retail which included a year end deposit of 185 million from a longtime customer who sold their business.
The entire amount of this deposit is not expected to remain.
During the fourth quarter, we added more than 2900, new consumer relationship.
Ended 2019, our targeted consumer acquisition efforts helped us increase the average balance in new consumer accounts to 19000 compared to 9000 a year ago.
We are enriching our retail customer experiences in branch.
I have phone and in our digital channels.
During the fourth quarter, we completed the implementation of technology that enables instead issue of debit cards in our banking centers.
We upgraded our call Center technology platform and in addition to providing stronger authentication, we're delivering more convenient self service options.
Lastly, we continue to advance our digital capabilities and we have added Apple pay Google pay and Samsung pay to our electronic payment capabilities.
Our deposit mix remains enviable with 32% in non interest bearing accounts and 89% in non time account balances.
We continue to focus on deposit pricing and have realized quarter over quarter savings of 14 basis points.
We will continue to be proactive and we will be disciplined yet competitive in our deposit pricing.
Turning to key credit metrics.
Im pleased to report that we continue to see stable credit quality.
Our nonperforming loans represented 96 basis points of total loans at the end of the fourth quarter compared to 91 basis points at the end of the third quarter.
Overall nonperforming assets as a percentage of total assets were 66 basis points at the end of the fourth quarter.
Other real estate, representing 60, with representing 6.9 million of the 87.6 million of total nonperforming assets.
The fourth quarter 30 to 89 day delinquency ratio was similar to prior quarters at 33 basis points.
Non pass rated loans improved to 6.6% from 7% last quarter.
Net loan charge offs for the quarter were 730000 or four basis points. This is our best performance in the past several quarters.
And lastly.
Representing a greater than 50% improvement from 2018 net charge offs were 11 basis points for the full year 2019.
Next I would like to share the significant progress we've made across our strategic initiatives.
As we've discussed on previous calls beginning in 2018, we initiated and completed several streamlining activities across the company.
From which we realized over $24 million of gains in 2019.
In addition, a view of also heard on previous calls we have reinvested over half or about $14 million of those gains into a companywide initiative called operation customer compass.
Operation customer Compass is focused on improving our people processes and technology.
The combination of these activities has enhanced our profitability.
Improved our efficiency and ultimately provides superior customer experiences.
These initiatives, which began about 18 months ago are now delivering significant operating leverage as evidenced by.
Salary and benefit expenses have consistently bed in the 59 in the $49 million to $50 million range for the past eight quarters.
In 2019, they were up just 2%.
Second during this timeframe our full time equivalent employee count has declined by 308 or 14% from a high of 2216 in the second quarter of 2018.
To 1908 at the end of 2019.
And third occupancy and FF any expense has consistently bed in the nine to 10 million dollar per quarter range over the last eight quarters.
And was essentially flat.
Full year 2019.
All of this was achieved in the same timeframe that we completed three acquisitions.
We grew assets by 3.2 billion or 31%.
We improved our efficiency ratio 435 basis points from 65.0 for back in Q2, 2018 to 60.69, this quarter and we accelerated organic deposit and loan growth as evidenced by the strong.
Formans in the second half of 2019.
We have built momentum and operating leverage and we'll continue to deliver strong organic growth and improve our efficiency ratio.
We expect our efficiency ratio to move below 60 in 2020.
Next I would like to give you an update on our initiative to implement the best in class Salesforce and Encino technology platforms.
These new tools will significantly improve our ability to deliver exceptional customer experiences.
They will enhance the sales process and improve the efficiency of our commercial sales teams improve back office functions and shorten sales cycles.
Earlier this month, we successfully launch these new tools in two banks and we'll roll them out to the rest of the organization by mid 2020.
We believe these significant investments in technology combined with our outstanding teams and our organic and acquired growth strategy.
Position us better than ever before to excel.
Before I turn the call over to Brian Mccaig, I would like to share that on November Thirtyth, Illinois Bank and trust completed the acquisition of the assets of Rockford Bank and Trust next week, we will complete the systems conversion and Jeff Holtman and Tom, but we'll take the helmet.
Heartlands seventh bank to exceed 1 billion it assets and control the number one market share in the Rockford MSC.
Lastly, I would like to welcome Dan Stevens Executive Vice President and Chief Operations Officer in Jae, Kim Executive Vice President and General Counsel to the Hartland Executive leadership team.
These additions to the Heartland leadership team or a continuation of a multi year comprehensive succession plans.
With that I'll turn the call over to Brian Mccaig for more detail on our quarter and year end financial results.
Thanks, Bruce and good afternoon.
I'll start my comments today by were referencing the press release, which shows our reported earnings per share of one dollar and three cents this quarter.
For the quarter non core items consisted of a net write off write down of assets totaling $1.5 million.
M&A related costs of 625000 and reversal of loan servicing rights valuation expense of 668000.
Earnings were solid again, this quarter and financial trends and metrics were positive in almost all aspects.
Starting with the strong and liquid balance sheet, which grew 640 million this quarter and includes organic loan and deposit growth Bruce discussed in his comments and of course, the completed acquisition of Rockford Bank and trust.
As a result these assets of these total.
As a result total assets ended the quarter at approximately 13.2 billion.
With a tangible common equity ratio of just over 8.5% and a total any loan to deposit ratio of 70.
Yeah.
Investments grew 298 million this quarter and comprised 28% of assets with a tax equivalent yield of 3.03% a duration of just under six years and generate over $35 million of cash flow per month.
When combined with total borrowings of only 458 million or 3.5% of assets.
Heartlands capital liquidity and leverage positions all remain in great shape and provide great flexibility to pursue growth strategies and opportunities going forward.
The allowance for loan losses, as a percentage of total loans increased one basis point for the quarter to 0.84%.
As mentioned in previous quarters, we have $1.8 billion of loans from recent acquisitions that are covered by valuation MPCI reserves totaling 47 million or 2.6%.
Excluding these loans from total loans would result in an allowance to loans ratio of 1.6%.
Moving to the income statement.
Net interest income totaled 112.7 million this quarter up 1.4 million compared to the prior quarter.
The increase was primarily driven by strong non time deposit growth together with lower deposit costs.
The net interest margin on tax equivalent basis this quarter was 3.9%.
Which was at the lower end of the 3.9% to 3.95% range, we indicated last quarter.
Klein of 12 basis points from last quarter is primarily due to lower loan yields which included lower purchase accounting accretion offset by higher investment portfolio yields and lower interest costs on deposits, which decreased 14 basis points compared to last quarter.
This quarter. The net interest margin includes 17 basis points of purchase accounting accretion compared to 23 basis points in the prior quarter.
The provision for loan losses was 4.9 million this quarter down slightly from last quarter's provision of 5.2 million ends at the top end of the expected normal range of three to 5 million.
Noninterest income totaled 28 million from the past quarter down 1.1 million from last quarter.
Compared to last quarter the gain on sale of loans was down 1.3 million and gain on sale Securities was down 1.5 million.
We also recorded as I mentioned, a $668000 reversal on the valuation of loan servicing rights, which reflect lower prepayment speeds on.
Our mortgages.
Moving to the net noninterest expense total noninterest expense was 93 million this quarter were flat compared to last quarter.
This quarter M&A and system conversion related costs totaled 625000, compared to 1.5 million last quarter.
Core run rate costs that exclude M&A costs tax credit costs and asset gains and losses.
87.6 million compared to 88.3 million last quarter or $700000 decrease.
This level of core costs was slightly above this 87 $86 million to $87 million range, we indicated last quarter.
More specifically salary and benefits were flat compared to last quarter as lower cost due to headcount reductions were offset by higher bonus and incentive accruals.
Professional fees decreased 600000, primarily due to M&A related cost in this category that were 300000 lower than last quarter.
Other noninterest expense was down 500000, with 400000 limited to lower M&A costs.
The remaining categories in expenses were flat compared to last quarter.
The efficiency ratio improved 123 basis points this quarter to 60.69% from 61.92% last quarter, reflecting improvements in both revenue and expenses.
The reported effective tax rate for the quarter was 11.99% compared to 18.66% last quarter.
The reduction was primarily due to the release of $1.9 million of deferred tax valuation allowances for capital losses that were realized for tax purposes on the exit from to historical rehab partnerships during the quarter.
On a full year basis, the effective tax rate improved 43 basis points to 19% for 2019 compared to 19.43% for 2018.
Next I'll summarize some of our thoughts for heartland, excluding any additional acquisitions as we enter into 2020.
Commercial loan growth is expect is projected to be in the mid single digits on an annualized percentage basis.
Egg and consumer loans will likely remain flat or residential mortgages are expected to continue to decline.
Non time deposit growth is expected to be in the low to mid single digits on an annualized basis.
The net interest margin I tax equivalent basis is expected to begin to stabilize next quarter ended the 3.85 to 3.9 range and then remain in the 383.8 to 3.85 range.
Rest of 2020.
This assumes no rate moves by the fed in 2020.
And includes the continued accretion accretion of the remaining valuation reserves on the $1.8 billion of acquired loans coast Cecil.
Provision for loan losses under Cecil are expected to decline and should generally range from $2 million to $4 million per quarter quarterly fluctuations reflecting.
The level of.
Organic loan growth and assumes that both macroeconomic forecasts and credit quality remained stable in 2020.
Service charges and fees growth is expected to be in the upper single digits on annualized basis.
Recent post Durban levels has continued strong growth and credit card revenue and growth in non time deposits is expected in 2020.
Gain on sale loans is expected to be slightly lower year over year on lower anticipated refinance activity and quarterly fluctuations will follow normal seasonal patterns.
Core expenses are expected to increase slightly over 2019 and should help drive the efficiency ratio ended the 60 to 61 range for the full year 2020.
However, as you would expect our Q1 2020 efficiency ratio will likely go into 63 to 64 range.
Due to fewer business days in Q1, and various accrual resets that occurred to start from a year.
The effective tax rate, excluding tax credit activities is expected to be in the six in the 22% range.
Lastly.
We have made significant progress on Cecil and are nearing completion.
However, we still have a few items to complete in Q1 2020 to finalize our implementation.
With that in mind, our current estimate of the increased the beginning allowance for credit losses from the implementation of Cecil is in the 25% to 40% range.
The range reflects some remaining uncertainty regarding three items first fine tuning of macroeconomic forecasts second the impact of potential model validation refinements and third and most significant the impact of the recently acquired Rockford Bank and trust loan portfolio.
The two primary drivers of the increase relate to additions to additional allowances for unfunded lending commitments Cecil now requires an allowance for the expected utilization by borrowers over the life of those commitments.
And second and most significant is the establishment of an allowance for the 1.8 billion of acquired loans, which did not have any allowance under the previous accounting rules.
We expect relatively modest net change to the current level of allowances on the remaining legacy loan portfolio.
In addition, the increased allowance will result in a reduction to beginning retained earnings net of deferred tax and attend to 18 million range and will decrease the Tc ratio eight to 14 basis points.
With that I'll call turn the call back over to Bruce for questions.
Okay.
Thank you we will now be Ken conducting acumen question and answer session. If you like to ask a question. Please press star one on your telephone keypad.
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Please what we poll for questions.
Thank you. Our first question comes from Mr., Andrew Liesch with Piper Sandler.
Please proceed with your question.
Good afternoon, everyone.
Hi, Andrew Hi.
Brian can you just walk walk us through a little bit more on the core run rate expense number.
What exactly are you backing out there to get down there does that include some of the asset write downs that may have come to that line and then.
What was the was there any sort of.
Tax adjustment or tax amortization expense and operating costs.
Yes, so in the operating costs I back out the M&A costs I referred to the 625000.
Back out the 1.5 million of asset gains.
And then.
See the third item is the.
I think it's the tax.
The tax cost of our credits and that you can we do have that in our I guess, a little over 3 million. If you look in our reconciliation of deficiency ratio you can find that number okay.
Those are the three items I back out Okay. That's helpful.
And then I know, it's kind of nitpicky, just with classified basically being a little bit lower but just the rise in non performers. This kind of curious what what drove that and what are you guys are seeing in the agriculture space right now.
Sure. This is drew.
The first a piece that impact of this a little bit here, Andrew was we had $4 million slightly greater and over 90 days that.
Thats right at the end of the year.
I'm happy to report all of that as either been paid or resolve.
Into a very minimal number.
The second piece would be a Rockford bank and trust it wasn't a big number.
Will north of 3 million I believe.
Non performers and then we did have to larger credits agro related Anoro, Wisconsin bank that totaled in excess of 7 million. So those were the those are the three drivers.
Again, as I mentioned, the greater than 90 days of effectively been resolved already.
As it relates to AG, we were doing a little bit of discussion here.
In 2019, 26% over net charge offs were AG related and again by comparison AG is about 7% of our total book.
As a in another metric to focus on 31% of our NPS is right now our AG oriented. So you can certainly see you know a disparity there.
I remember at the last comment I would make is we have gone through the Cecil process.
We are seeing better expected commodity prices as we look forward and that's part of our economic forecast.
But you know it remains a challenging space.
As we move into 2020.
Got you at that that detailed very helpful. I will step back thanks for taking my questions.
Yes.
Thank you. Our next question is from Mr., Jeff Rulis with D.A. Davidson. Your line is now open. Please proceed with your question.
Thanks, Good afternoon.
Hi, Jeff.
Brian .
So the 87.6 core.
Expenses and in your prepared I think you kind of view that towards the efficiency ratio on the guidance, but could you.
Anyway, you could range bound what what happens to core that 87, six on a quarterly run rate.
Yeah, obviously looking out quarters, I think it's going to stay.
Up just slightly for the year, when we get our BT and everything else going but it's not going to go up a lot.
I think next quarter.
It should stay plus or minus where it was I would say between 87 at 88 million.
This is probably a good range.
We do some then salaries start to go up.
And a couple of other things in the second quarter.
Revenue should pick up than as well so thats why I think the efficiency ratio can improve as we go forward once we get on the first quarter, which is always kind of a challenge.
Okay. So obviously the big number was that the tax credit.
Yes expense and I guess, if you exclude there's one timers M&A and asset gains than a year.
You back in that range gotcha. Thank you.
And then on the organic loan growth just in the quarter drilling down a little bit.
So you talked about Cninety are you being outstanding and.
Bruce I think you mentioned runoff in the AG portfolio could we assume the other runoff was in the resi portfolio.
The vast majority was ready we actually grew our consumer portfolio in the fourth quarter.
Okay, yes slightly.
And does that dynamic of us.
You out the led with this.
Barry and I guess mid single digits.
Just something inside of that if you look at a flat flat AG and consumer and down Reggie would be.
Something inside of that for a net growth for the full year.
Yeah, Yeah, I think net growth is probably.
In that mid to lower single digits, but I would say med, probably because we're getting very heavily.
Commercial loan oriented so I think we still should should be in that mid single digit area. Yeah, we think that the.
See an eye NCR he should really be.
Similar range that we were in the back half of 2019.
And and again, we would expect consumer to be flat.
Pag realistically probably is going to be down as we continue to work through.
Credits and the industry and the resi portfolios really going to depend on what interest rates do.
Whether we'll keep those on our books or they'll get refinanced out.
Great.
And then last one I just wanted to make sure I had the right number Brian on the on the margin.
If you had.
I think you've reference.
Is that core number 373 versus 379 is that align with this yeah. Okay. Yes, I've got it right. Yeah. The 12 12 basis points were down six of it was in the purchase accounting so the other six was in.
In core yes.
Okay.
Thank you.
Thank you. Our next question comes from Mr., Terry Mcevoy with Stephens. Please proceed with your question.
Good evening everyone.
Terry.
Brian if I could just start with a Cecil question does the credit Mark on the no I guess the PCD loans does does any of that migrate into the Hcl post Cecil and is that captured at all in so the outlook you discussed earlier on the call.
Yes.
The the reserve that we carry for PC I loans today, we'll move over into the allowance.
The other.
We believe will be there will remain to be amortized as we've been doing historically.
Okay, and then a question for Bruce it's tough for us as outsiders to see the progress on operation customer Compass.
You talked about the 144.
Increase a new commercial relationships last quarter, and I guess could you put that in perspective is that number higher than in prior quarters and has any of that a reflection of salesforce and CNO and what you're doing to strengthen and build out that platform.
Yes, I would say the last two quarters have been very strong in that 144 number would would fit into that for us anything north of 100 is pretty strong from a new relationship standpoint, and really what's driven that in the last half of this year has not necessarily Ben.
Salesforce or encino, yet, it's really been the sales management process that David Prince has put in place as well as a much more targeted.
Calling effort as opposed to kind of a shotgun approach, it's been very targeted and most of our markets and we're starting to see the benefit of that where we will see the benefit longer term of Salesforce and Encino will give us we think an extra couple of basis point.
Couple of percentages of growth because we believe long terminal shortened the sales cycle.
About 20%, which for US is four to five days, so that speed to market between the initial contact through underwriting through approval and through documentation, we think that timeframe will be shortened up with the new technology that enables us to have a better threesixty view of the customer and.
I have more people working in the technology at the same time.
Perfect and then I'll ask the M&A question could just comment on level of conversations pricing expectations. Among some of the parties that you're talking within I guess thoughts in the first half of 2020 on announcing another bank acquisition.
Yes, we're we're close to a couple deals.
As you know the multiples on the buyers stock or what drive the prices and.
Fortunate for us we've been able to work with the banks that we've had relationships for some time that would like to be part of heartland in our model and.
They like our financial performance over time so.
Yes, I really think you'll be happy as as we go through the year with the announcements of new partners for Heartland.
Thanks, everyone.
Okay. Thanks Terry.
Thank you and before we continue with our questions if you'd like to queue up to ask your question. Please press Star then one on your touched on telephone to withdraw your question press the pound key.
Next question comes from Mr., Damon Delmonte with CBW.
Please proceed with your question. Good afternoon, guys has gone today.
David Damon.
Good day or so first question, if we could just circle back on the margin real quick.
Brian I think you said, you're looking for three five to 390 range here in the first quarter and then down to 380 385, as we progressed through 2020.
How much of that is from lower accretable yield versus core compression.
I would expect.
Probably 50% of each if I were to kind of that's what happened. This last quarter I would sense thats potentially what will happen purchased accounting, we can have a little bit more turnover in that portfolio can bump up and then come back down but I think.
What I've seen and which and Bruce you guys can jump in but when I looked at loan pricing. If I went back to mid June at loan pricing is down 40 to 50 basis points from where it was half a year ago, but if you look at our deposit prices only down about 25.
So we've got to really work on the deposit side and even if we do that it's still going to be hard to maintain the margins. So I think theres going to be a little bit of erosion, there and probably a little bit on the purchase accounting side.
As that naturally runs way and we won't replace nearly as much on future acquisitions under Cecil.
There is an opportunity because we are so liquid Damon.
With 75%, 76% loan to deposit ratio, if we can be effective of generating more loans I mean, we're still earning just a little under 3% in our bond portfolio on a fully taxable equivalent basis, but if we can convert into loans that we will certainly.
We help us hold margin.
And we'll have to be diligent as Brian said on continuing to reduce our deposit cost.
Got it and then kind of along those lines with the.
That liquidity that you know the securities portfolio did increase this quarter.
So can we expect it to not get much bigger than this or do you would you look to put more leverage on.
Yeah, we wouldn't leverage to put anything on in the investment book, the only way that investment would grow as if as Bruce puts that we don't get the loan growth and we get the deposit growth. So otherwise I don't think you'll see it getting bigger it should.
Come down as we're able to go the other way hopefully.
Yeah, I don't think game and the you'll see us put leverage on through the investment portfolio. We based upon what we think our pipelines look like as well as that one large deposit.
Which we don't believe that will maintain we should be able to increase our loan to deposit ratio over the next couple of quarters.
Okay and the other thing Dave I would just tell you that we're thinking is given where the loan where the investment portfolio yields today.
If we drive our deposit deposit rates down and slow that deposit growth a bit if that happens we may choose to take on a little bit leverage because we have so little rather than sell off the investment portfolio take gains today to give up higher yielding assets. So.
Kind of to wait and see how it plays out but.
We'd really rather not put on the leverage and rather just grow the the core customer base.
Got it okay.
That's all I really had most of my other questions have been answered. Thank you.
Great. Thanks payment.
Thank you and speakers there are no further questions at this time I would like to turn the floor back over to Mr. Miller for closing comments.
Thank you Jamie as mentioned earlier, we are going into 2020 with great momentum in all of our business lines, our commitment to our strategic priorities and key areas of focus will continue to guide us as we build on the many accomplishments and successes achieved in 2000.
I was in 19 like to thank everyone for joining us today and hope you can join US again for our next quarterly conference call in late April .
That said everyone have a great evening.
This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
No.