Q4 2020 County Bancorp Inc Earnings Call
Good morning, and welcome to the County Bancorp, Inc. Quarterly earnings Conference call.
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I would now like to turn the conference over to Tim Schneider President of County Bancorp. Please go ahead.
Thank you welcome everyone. Thanks for joining us today for our fourth quarter and year end 2020 earnings call.
As a reminder, we average disclaimer on the use of forward looking statements on slide two of our presentation.
I'll start with the quarter four 2020 overview moving to slide three.
There were several positive trends to our financials this quarter, which resulted in net income of $4 5 million or 70 cents per diluted share those.
Those included number one net interest income increased to $10 8 million, primarily driven by a $3 1 million of SBA P. P. P origination fees from forgiveness of PPP loans.
Number two.
Yeah.
$5 million increase in loan servicing right origination fees.
Number three our credit to loan loss provision of <unk> 5 million related to the release of our COVID-19 reserves tied to AG loans.
Point number four loans on payment deferral decreasing to $16 8 million.
Or which is less than 2% of total loans.
Point number five or adversely classified asset ratio declined to 39.43%.
And lastly, we repurchased a 107437 share so common shares during the quarter.
Now moving to a 2020 year in review.
Moving to slide four.
We have had several positive achievements during the year that I would like to highlight.
Number one loans sold and serviced increased $68 million.
Number two client deposits increased $84 million, while brokered and national deposits decreased $141 million and point number three we repurchased 567118 common shares.
While 2020 net income was down compared to 2019 due to the Pan get pandemic I want to reemphasize, how proud I am of our team and what they have accomplished in what was a very challenging year for all of us.
First we've rallied together and supported our local community in multiple ways. This included our support of the P. P. P program as well as the implementation of flow flexible solutions that allow deferred terms for customers that needed time to recover from the initial shock of the lockdown in spring.
As we navigated a rapidly changing marketplace and supported our community and customers through the challenges of 2020.
We also didn't lose sight of our strategic priorities.
This included the continued transformation of the funding side of our balance sheet and a commitment to grow our loans sold and serviced in 2020.
The success of those efforts is evident in and momentum our business build through the second half of 2020 and can also be seen by the fact that we saw vast improvement in loans and payment deferral dropping to less than 2% of total loans by year end.
Milk prices continue to bolster our client's cash flows and we believe 'twenty 'twenty one we'll see continued improvement in overall credit metrics.
This should allow us to return our focus to growth and value creation and we're looking forward to a more positive operating environment in 'twenty and 'twenty one.
And now I'd like to turn it over to Matt Lemke, Executive Vice President and Chief retail and deposit officer for an update on our funding transformation Matt.
Thanks, Tim.
Moving to slide five I'm going to highlight a few key points as it relates to our funding transformation.
As mentioned on previous calls since 2018, we set out to change the right side of our balance sheet primary by decreasing wholesale funding and high rate Cds instead, focusing on generating non maturity client deposits to decrease our cost of funds and enhance long term franchise value.
And fourth quarter 2020, we decreased wholesale funding by 27.8 million, bringing our total decrease for the fiscal year to $141 million.
Additionally, since December 31, 2019, we decreased our consumer CD portfolio by $81 7 million and we increased our client deposits by $18 4 million in the fourth quarter, bringing the total increase for the year to $80 4 million.
In terms of the number of accounts since the end of 2019, we have increased transaction accounts by 11 eight per cent.
Commercial transaction accounts increased 12.5 per cent.
Transaction accounts increased by 10, 6%.
And consumer accounts increased by 11, 6%.
The client deposit graph on the slide illustrates the trajectory of our progress since fourth quarter 2018, when we became more heavily engaged in sourcing transaction account balances.
To achieve these results we executed on a variety of strategic initiatives, specifically, we continue to focus on three main areas people infrastructure and services.
The time and effort spent on our people was evident during the P. P. P process as we were able to convert 62% of the 145 non customer P. P. P loan applicants to full depository relationships we.
The usage in balances in these accounts continued to grow throughout the year.
We will also continue to work on building a robust treasury management infrastructure like hiring talent, adding the necessary digital tools to meet our customers' needs and creating internal processes, we were able to both grow deposits as well as generate increased non interest income.
Next we returned to the mortgage origination business in March of 2020. This was a strategic move to retain relationships and gather new client deposits. We're selling these loans servicing released and had been using current staff as mortgage originators to maximize efficiency.
Lastly, the increase in transaction accounts referenced earlier is a direct reflection of our frontline teams, having more meaningful quality conversations with customers and prospects.
These interactions will help us to continue to drive transaction accounts provided us a more stable base of deposits the London.
These decisions and tactics led to the results that we produced in 2020 and will continue to be the foundation for us to build and improve our funding base moving forward.
And now I'd like to turn it over to John Fillingim, Chief Credit Officer for an update on credit John.
Thanks, Matt and good morning, everyone moving to slide six I'd like to provide an update to our COVID-19 payment relief metrics on the AG side 17 customers remained on payment relief as of 12 31 'twenty.
Of those 17 remaining 14 will come off of payment modification by the end of January totaling $4.4 million. The remaining three customers will come out by the end of February our AG portfolio benefited benefited from a significant amount of government assistance, which helped to rebuild many of our customers' balance sheets from a working capital and liquid.
D standpoint overall.
Overall, we're encouraged by our AG portfolio and proud of the work our bankers have done to service our customers through a difficult macro economic environment.
On the commercial side. We initially provided 90 days of payment relief to customers, who requested it and were negatively affected by COVID-19.
At 12, 31, 'twenty only seven commercial customers will remain on some form of payment relief.
Of those four have requested an additional 90 days of payment relief of the four.
Two of our hotels that are interest only one as a bar restaurant and the limited service restaurant as a customer on interest only in connection with an S. P. A five O. Four project that is near completion and was not impacted by Covid.
Overall, we've seen very little direct impact from Covid other than one hotel property that was in the middle of a flag change and has gone dark since the beginning of the pandemic.
Moving to slide seven I want to highlight some of our key credit metrics as Tim mentioned, our adverse classified ratio decreased to 39 point, 43% at 12 31 'twenty.
Total sub standard loans decreased by $1 million and watch credits increased by $4.8 million, primarily as a result of moving our three hotel three remaining hotel loans into the watch category.
Our Oreo levels decreased by $1.9 million as a result of several sales of property that occurred during the quarter.
We continue to monitor the high concern watch and substandard credits on a quarterly basis to ensure a proper monitoring and follow up on these accounts.
Moving to slide eight we're very pleased with a relatively well with a relatively limited impact from COVID-19, but on our commercial book of business. We continue to monitor the industries. We consider high risk is detailed on the bottom of slide eight.
As you'll see the loans in these categories are supported by some satisfactory loan to values and risk ratings.
We had two commercial loans, where we charged off a portion of the specific reserves during the quarter.
One was the hotel property discussed previously that was in the process of a flag change where the borrowers have a purchase contract in place that is anticipated to close by the end of the first quarter.
The other was a startup commercial borrower where.
I'm, sorry, where the where their revenue projections have not have not been obtained over the last two years and we're in the process of restructuring their debt and to an a b note structure, which will allow them to operate.
Additionally, we conducted we conduct a review of the collateral values of all impaired loans during the quarter and found no necessary additions to the specific reserves.
Our three remaining hotel loans were moved to the watch bucket as our occupancy rates have been negatively impacted by the pandemic.
Moving to slide nine overall, we're very pleased with the quality of our dairy portfolio. We are finalizing the twenty-twenty dairy stress test for the 20th 19 operating year.
And we will begin the 'twenty 'twenty annual review process, where we expect several upgrades milk price has rebounded nicely. After the initial shock of Covid in April and May.
And further support was provided by several government programs in 'twenty 'twenty, we continue to focus on break even analysis to ensure that our dairy customers have their cost and production metrics in line.
We're encouraged by the impact our new AG lenders have made by diversifying our customer base with the addition of several large potato growers.
You can see that the majority of our AG exposure is to the dairy industry and we should also highlight that 69% of our dairy relationships and 63 per cent of our total aggravation shifts are supported by FSA guarantees.
At this time I'd like to turn it over to Dave Coggins, Our Chief banking officer to give an update on the overall AG environment Dave.
Thanks, John moving to slide 10.
Class III milk prices for the three months of quarter, four average 20 point to to making it a solid quarter for our dairy producers in bringing the class III price for 2020 to $18 16, excuse me 16 cents.
Despite the Covid shock early in the year that is above the 16 96 observed in 2019 and 14 61 seen in 2018.
While there was still some negative producer price differential experience for some producers in October and November the mailbox price for most dairy producers was the best they have experienced since 2014.
Strong mailbox prices combined with the PPP program and the Corona virus food assistance program reinforces our expectation that 'twenty 'twenty will be a strong cash flow year for most of our dairy customers, which strengthen strengthens their liquidity position.
The class III milk futures prices for 'twenty 'twenty, one remained solid and curdle currently average almost $18 per hundred weight.
Most of our dairy customers have estimated breakeven prices well below this level.
'twenty 'twenty was also a solid crop year for most of our AG footprint.
This resulted in solid yields and feed quality, along with good conditions for harvest and volatility.
Corn and soybean prices have seen a recent upward trend in prices, which benefits our row crop farmers, however, elevated corn and soybean prices is putting some pressure on feed ingredient costs, which is a headwind for dairy breakeven prices, especially for producers who need to buy more fees.
That said there have been opportunities for marketing future milk feed and fuel at favorable prices that help mitigate commodity price risk for our customers.
On the export front the outlook is strong for is for strong economic global growth as the COVID-19 vaccination program starts to impact the economic outlook for most very trading partners.
As demand is expected to be strong, which combined with a weaker dollar sets our expectations for strong U S dairy exports activity in 'twenty and 'twenty one.
U S D a forecast for global dairy supply and demand indicators that dairy consumption is expected to grow for all products dairy powder demand will be a major driver of growth in 'twenty and 'twenty, one due to Asian needs with global <unk>.
Non fat dry milk consumption to rise four 2% year over year.
It is expected to be up 2% all categories will grow by a slightly better rate than seen in 2019, and 2020, which is noteworthy in.
In the U S cheese consumption will rise, 5%, which is a positive outlook for Wisconsin, dairy, where 90% of the smell it goes into cheese and.
Now I would like to turn it over to Glen slightly for an update on our financial performance Glen.
Thanks, Dave turning to slide 11.
We continue to see strong growth in loans sold and serviced and continued improvement in our whole overall wholesale funding levels.
Additionally, we continued to invest excess cash.
And the securities portfolio.
Turning to slide 12.
Loan yields are being offset by deposit rate cuts P. P. P forgiveness and continued growth in investments.
Turning to slide 13, you will see the breakout over allowance for loan loss.
We charge off a portion of our specific reserves as John had mentioned earlier this quarter, which impacted our general reserves tied to loan losses history. However, this was offset by the reversal of our Covid reserves tied to our AG portfolio, which resulted in the credit to provision for loan losses, you saw this quarter.
Turning to slide 14 loans sold and serviced increased $14 7 million during the quarter, which was offset by a seven basis point decrease in loan servicing spread.
Our loan servicing rights origination income increased due to the overall originations this quarter.
Turning to slide 15.
It did have some noise in the fourth quarter due to incentive compensation and catch up due to our success this year.
Moving to slide 16.
As Tim noted earlier, we've been very pleased with the results of our buyback program during 2020 and.
In Q4, 2020, we purchased 107000.
437 shares at a weighted average price of $22.64.
During 2020 repurchased 567000 shares.
At a weighted average price of 21 89.
Okay.
Moving to slide 17.
I wanted to give a little bit of guidance as far as how we envision 2021.
Right now, we're targeting up to a 10% buyback during the year or approximately 622000 shares.
We anticipate mid single digit loan growth, excluding PPP loan activity.
We're going to use our excess capital to implement $150 million leverage strategy using investments funded by broker Cds, which we evaluate quarterly.
Yeah.
We anticipated an increase in net interest income during the year in 'twenty 'twenty, one with an overall net interest margin of approximately two 2.52%.
We believe our noninterest income will decrease slightly when you back off Twenty-twenty gains on sales securities and Oreo we.
We expect a mid single digit growth rate in loans sold and serviced in 2021.
We believe overall expense levels from 'twenty 'twenty, one will increase when compared to 'twenty 'twenty. When you back off our Oreo write downs of goodwill impairment from 'twenty 'twenty results, Although we think the increase will be minimal.
To conclude as Tim mentioned, we continue to be extremely proud of this organization our people and the role we play in supporting our local customers and communities and how our team executed in 2020 to deliver such great results.
And now I'd like to open it up to questions.
I'd like to make one one couple final final comments here just to add to Glen's comments I'm very pleased how our team responded to this challenging year.
Improvement in our dairy environment has also been very encouraging and finally, the strategic transformation of the right side of our balance sheet has been impressive and as mentioned earlier, we're poised to move into a more offensive direction in 2021.
I'll open it up to questions.
Yeah.
We will now begin the question and answer session.
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At this time, we will pause momentarily to assemble our roster.
Okay.
Yeah.
And our first question will come from Brendan Nosal with Piper Sandler. Please go ahead.
Hey, good morning, everybody how are you.
Good morning Brennan.
Just wanted to start off on the hotel loan charge offs here do you happen to have the original balance of the loan prior to the Mark this quarter and what the LTV was prior to the charge offs.
John do you have that information.
Yeah. It was burning it wasn't it was approximately $6 million was the total debt on that property the original or the the appraisal. We had initially as a going concern we were at the high 70% loan to value once the hotel again it was right in the middle of converting flag.
When the pandemic hit once it went dark we we we had another appraisal done as a you know dark hotel and that's what dropped the value down and but we.
We have been working with the borrowers now and Theres, a potential buyer, where they have executed a purchase contract as I mentioned.
So we don't anticipate any further write down on this property there may depending on closing calls may be a slight gain from what we wrote down two but we were conservative when we took a write down.
Okay.
That's helpful. And then just on the remainder of the hotel book can you just kind of compare and contrast, what's left with you know it's one credit this quarter I get that it was in the middle of a flag change.
Any color on you know whether they're in similar markets or are the primary uses or similar just help us understand those dynamics yeah. So the so so the the hotel where we took the charge was down in the Milwaukee area near the airport. The we only have three remaining hotels, we have one in Madison, we have the other two up in the Fox Valley.
We've got good guarantors their you know their their occupancy rates have been impacted but nothing I mean, nothing to the extent of what happened in Milwaukee, They're still operating we've got good guarantor support there. These are multiple location hotel operators and we're starting to see some recovery in that in.
Industry generally speaking so and you know we we do we did placed them N Y and the watch bucket a precaution as a precaution.
We continue to watch them closely one of them is still making volt P&I payments the other day, where an interest only.
But again, we're comfortable with the loan to buyers that we have there they're still operating.
Albeit not at historical levels, but enough to keep things going at this point so completely different situation than what we were dealing with with the hotel in Milwaukee.
Yes, that's fantastic color. Thank you for that.
Final one for me before I step back can you just spend a minute on the broker strategy that you guys mentioned a few minutes ago.
Yes, just one what are you guys trying to accomplish and then two.
What can you anticipate from a spread point of view between you know what you're bringing on sheet on the asset side versus the liability side.
Brian.
Yes, So Brendan you know were using free.
He used in broker Cds to you know with some flexibility so they're longer term brokerage Cds with call options again, just to give us maximum flexibility.
As rates change.
And then on the asset side, you know we're looking at.
We started doing investments from bank sub debt as well as municipal and CMO. So it's you know.
Largely going to be a.
From liquid strategy when it comes to the balance sheet. So.
And the spreads the spreads so the spreads are probably about it just it's true.
It's over 2%.
Got it.
Alright, thanks for taking my questions.
The next question comes from Terry Mcevoy of Stephens. Please go ahead.
Hey, good morning, guys.
Terry.
Maybe Tim a question for you within that expense outlook.
What are your thoughts on new hires new branches and in what I'll, just generically called growth initiatives for 'twenty and 'twenty one.
Yeah.
New hires we definitely scrutinized the additional new hires that that we added to the budget for this year, it's just a handful of them.
We ended up.
Pulling a few of them out of given the current environment. Most of them are our frontline producers that'll be generating revenue for us and <unk> deposits.
So we feel like we've done a pretty good I guess scour of that of that list of our work force plan for the year.
Relative to you mentioned de Novo branches I I'm not sure that we're strategizing any additional de Novo branches I think as most of you know we are in the process of building a new location in Appleton and that market's been outstanding for us from a growth perspective, both on the deposit side and the and the commercial.
One side and we feel the location and the visibility of this new facility will give us even better exposure in that market are considering our current location is kind of hidden.
And what was your last question Terry.
I think I think you hit both just kind of growth initiatives and how that played into expenses. So I think he talked about individuals' in branches. So that was good.
Yeah, and we've got we've got a pretty solid pipeline at this point to I. Just attended the commercial banking meeting the other day and there are some nice activity. There that we're excited about opportunities that I think we're going to see here in 2021.
That's great and then maybe a question for Matt I appreciate you're running through some of the new account openings and if you look at just total deposit growth in 'twenty 'twenty is there a way to think about how much of that came from existing customers that just built up liquidity or or P. P P versus new customers in terms of.
That kind of 12% increase in transaction accounts that that's referenced here on the slide.
Yeah, I think it was a good combination of both but certainly when we add north of 650, new accounts a lot of that deposit growth is gonna have come from relationships that we brought on the treasury team has become much more focused and robust on gathering deposits and have built some great partnerships with commercial which has led to a lot of.
What you've seen from the deposit growth and certainly we've gotten better at selling through our existing customers. So I think it's fair to say it was a decent balance we're going to continue to have a heavier focus on prospects and new money, where and when we can but there's always an opportunity to get greater share of wallet from any of our existing customers, but they've already chose to buy from us one.
And then just last question for Glen the net interest income increasing with a margin of 2.5 percentage is that that 2.5% net interest margin I'm. Just what are your thoughts on how how's P. P. P come into play and what on a quarterly basis any thoughts on how the margin trajectory.
As well as with the the leverage strategy that was discussed.
Yeah.
Yeah, Terry so.
Overall margin growth you know, we do have some growth projected in there. So that's that's probably the biggest governor as far as.
Why the why the net interest income is going to grow this year.
The P. P. P side, we have not factored in anything on the new program into that so you know I think we had on that.
Obviously add to the to the growth of net interest income during the year.
You have some of our PPP loans that are still forgive them from 2020, and that's you know that's been reflected.
You know I know.
Look at the overall margin, it's probably it's probably going to drop kind of from where it's at today, but again it should settle down to net 252 level overall for per year to date. So.
Okay. Thanks, guys have a nice weekend I appreciate it.
Go Bill.
The next question comes from Jeff <unk> of D. A Davidson. Please go ahead.
Thanks, Good morning good.
Good morning, Jeff just to follow up on the.
So the expense levels.
The kind of the guide I, just wanted to narrow that down a little bit we exclude the.
Oreo and goodwill impairment.
Top line has been pretty lumpy.
Could we maybe talk about of a base level.
Is this sort of like a quarterly expenses led.
Around $8 million and kind of.
To grow off of that is that is that fair.
Yeah, Jeff If you you know if you back out the noise like you talked about I'm looking at a mid single digit growth. So you know about a half million dollars.
Yeah that onto the two.
2020 results and I think that's where we're going to be at.
Youll see a little bit of dip I think from the first quarter, because we did have a little lumpiness with the incentive comp so.
Yeah, Okay. So again, if it's something it's growth of something in that low 30, 32 range is kind of what you're using as the base for 'twenty and then.
Mid single digit growth from there.
Yeah, like I said, a private credit book.
Half million half million dollars in growth I think.
Got it okay.
Yeah, and then on the.
Did reserve management and a lot of moving pieces in there I think the charge offs.
Even a 20% reduction in reserves.
Maybe indicates your comfort level with what's remaining.
Just if you could speak to the broad level kind of reserve management true through the balance of the year could we expect maybe.
Maybe rebuilding of that if you do have some loan growth and then.
Just kind of interested in that are.
A pretty big chunk down in the reserve, but then as we go forward how does that look.
Yeah. So you know I'm, you know well we're envisioning.
Visiting I think we I think hopefully you've heard kind of the highlights that we think that you know we see some really good AG improvement during 2021.
Milk price has been very stable and it's been you know.
Really good from a from a.
Profitability perspective from our clients.
So I think any any provisions for growth or can you really can be offset by you know as you see we put in amounts for per loan grading in our in our in our reserves. So I think anything from growth is going to be offset by.
No improvement in the overall credit rating in the portfolio. So we're looking at a very low loan loss provision.
Year for 2021 and based on what we know today.
Got it.
Okay.
Oh, and then just another.
Quick one on the on the fee income side.
About shrinking slightly and I assume that's sort of the.
The loan servicing rights was it was a bit heavy in the quarter. So I mean it.
Either you could speak to kind of a normalized level.
Yeah.
There's the shrinking guidance from a 4.4 level in Q4 or is it for the full year.
Yeah its for the full year, Jeff. So the you know if you back off the gains on securities and back off that were yeah.
The noise from the gain on sale of assets you know I'm looking at you know.
Kind of a low six figure shrinkage. So you know 200 to 300000 shrinkage offs.
After 2020 level so.
Okay.
Again, theres like you've noticed there's just there I mean because of the heavy originations in the fourth quarter that just builds up on the on the loan servicing rights. So.
Okay. Thanks.
Thanks for the color appreciate it yep Yep.
The next question comes from Bryce Rowe of Husky. Please go ahead.
Thanks, Good morning, everyone.
Hey, good morning, guys, Hey, Brian.
Hi.
Wanted to.
Maybe maybe talk about the.
The transformation of the right side of the balance sheet, it's something that certainly you all have.
Really focused on since since the get go or going public.
But.
Wanted to understand what the maybe what the opportunity is today in terms of continuing what we saw.
In 2020, obviously, a little bit of benefit from them all.
Liquidity again that got pushed into the system, but.
Are you are you seeing opportunities to continue the transformation of that of that right side of the balance sheet.
Matt do you want to speak to that.
Sure Yeah price I think there's opportunity, especially given the market and continued talks of liquidity, that's gonna stay and come into the system.
We've got a robust pipeline already starting this year with prospects on a variety of fronts.
The addition of a new treasury sales person that we just recently announced is also going to be a key to driving some of that as well as our continued development in the mortgage side. So I think we've got a really good opportunity to continue to diversify where we get our deposits from a drive those transaction accounts certainly as a community bank, you're always going to have a portion of that in.
Individuals' Cds, but are heavier focus will continue to be on those non maturity deposits.
Yeah.
Okay Alright.
Races through price.
Glen you know just I.
Income from our wholesale funding from the wholesale funding perspective, we're really trying to govern our loan growth with using client deposits. You know, we're going to we're going to use our wholesale funding to be more strategic as we talked about the leverage strategy. So.
Yeah.
Okay. That's that's helpful. Glenn.
And when it wanted to understand I mean, obviously there was a question about <unk>.
TPP and the contribution that it that he could make here in 'twenty one with this with this new round have you have you seen and we certainly heard other banks talk about kind of early.
Early success with this latest round or you know with the clients from clients signing up for for new loans.
Any commentary that you guys could have.
Around that would be helpful. What you're you know what you're seeing from clients at this early stage of this round.
Sure Bryce I'm going to a day or respond to that he's been kind of our in house expert on that topic and staying on top of it so Dave.
Sure.
We as.
As a community bank over $1 billion, we were able to start originating these loans on.
This this week.
Week on Tuesday.
And we have.
We have a technology partner that helped us with our.
Online portal that we can use it that's pretty it makes it pretty easy for our customers. We weren't sure. What do you expect the early going we've tried to tamp down the tendency for some people to think that this is another.
Mad Dash like the first time around back in back in April and the.
Technology platform that we have that's helped with that but we've had good second draw.
Activity.
The average size of the deals are smaller, but we think that there's there's probably more qualifying second round or second drawn loans than we might have thought originally the other thing that's from.
An important change in the rules for.
First draw is that or a lot of our customers that final schedule less hedged.
Their net income on their schedule left as a basis for determining their eligibility for sole proprietors and.
For self employed and this round that was changed to user growth for firms and so we had a lot of farmers that weren't eligible the first time around because of their tax planning and tax deferral strategies, but now this round. They will qualify now it's not like you said the average sizes aren't going to be as big.
But.
We're we're pleased with the activity and the pace of the activity, so far and where.
Less than a week into it of course, but we.
We think that this round will be meaningful, but not near to the level. The first the first go around.
That's that's good detail Dave I appreciate it.
And Tim I wanted to ask about you know about the buyback I mean, clearly a good opportunity to pick up your stock trading below tangible book value.
Just this is there is there a way to think about.
What what the appetite is.
At current levels and if you see some level of increase in your stock where you pulled back from the buyback intention or do you think you'll move ahead.
No.
Assuming that the stock didn't get doesn't get too too high in terms of price.
Yeah, I would say that we're you know we're committed to continue to buy back shares at this level and where we're still quite a ways from from our book value obviously.
And I think it makes sense to continue to to to repurchase shares. Our current authorization is almost up and we're anticipating we'll get approval from our board to reauthorize. Another tranche of buybacks here shortly to continue it for the balance of the year as long as you know unless we start trading at a significant premium.
To our book value, then I'd say, we might might consider pulling back, but we're a long ways from that today.
Yes.
That's great.
I appreciate the answers and it's good to good to talk to you guys again.
Thanks Bryce.
Okay.
The next question comes from Howard Hennick Squarely Dog capital. Please go ahead.
Hey, Thanks, gentlemen, thanks for taking my question.
I'm going to follow up on Brendan and and maybe I'm slow, but I wonder really flush out that $3 $4 million of charge offs and in what concerns me is you guys have always been.
Banquet high N P H, but very low charge offs. So I was comfortable with the high Mpa's and obviously I'm less comfortable when they start having high charge offs. So is the three could you flesh out the details of the $3 4 million is that all on that one in Milwaukee Hotel, and if not where else to go and do you still have these loans you said mentioned that E D.
Structure could you give me more details on that so is it possible that we get some of those charge offs back. Thank you.
John you want to just reiterate what you mentioned earlier, yeah, well so they're there they're there were two charge offs. So it wasn't all associated with the Milwaukee Hotel.
It's probably split kind of 50 50, I would say I don't have the numbers right in front of me, what we did there but on the Milwaukee Hotel again, the owners do have a signed purchase contract. We may see a slight recovery on some of the charge offs. There just based on closing costs and how that all shakes out.
The other one where we're looking at a b no. This was a it's a commercial customer was a startup a few years ago.
They just didn't they haven't at this point they haven't hit the revenue projections that they thought that they would get two however, they are making enough money to service them and you know a portion of the data actually more than half of the debt. So setting it up on the a b note structure, we would be able to over time over some period.
The time be able to return that that that a note back to an accrual status. The beano stays there if they continue to perform and the business grows we always have the opportunity to recover that that amount of charge offs that went through the b note.
So both of these were all on the commercial side both of them. We had adequate specific reserves that had been established that more than covered the charge offs that we took again, we we've looked at all of our sub standard and our impaired loans from a collateral standpoint validated those numbers to make sure that.
We're comfortable with what's left you know at this point, what we know we don't have anything else that we are concerned of any kind of a charge off and this was one of the probably the first you know charge offs. This is odd that this bank has had in quite some time, so I'm really see.
Especially on the hotel side directly involved with Covid. The other side again. It was just a it was a start up business that we had we had financed a few years ago again, a second one C&I loan I'm, sorry, sorry, yeah yeah.
So yesterday from a collateral but aren't a second loan other than cash flow.
No no no. We we have we have real estate, we have equipment.
Yeah, you know so there there is collateral there there's hard collateral there.
Okay.
But any other reserves established well do either of those loans still have reserves I guess I'd. Just point you don't have any specific reserves against either alone or is that correct and what's the charge is in excess of specific reserves or was it only specific reserves.
The specific reserves were in an excess of the amount of charges that we took there.
So we're and so where where are those specific question I'm still held against those loans that are still on the books.
The restructured loans or are they go back into general reserves now.
Glenn you can answer that I believe grant I'll, let you answer that part.
Yeah, I mean, just it just goes all it goes into our overall evaluation. So if there was if we had if we had excess reserves that would just go back into our whole calculation. We adjusted the whatever the calculation says at the end of the year. So.
Well what I'm asking is you don't think at this point you have no specific reserves against either of these two loans because at this point you think theyre adequately reserved for the current.
Structure, that's correct okay.
Yeah.
Okay.
Thank you.
And their book by recent appraisals as well.
Great.
The next question comes from Evan <unk> of Janney Montgomery Scott. Please go ahead.
Hey, guys. Good morning, I'm on for Brian Martin.
Hey, good morning, Evan.
Just a few quick questions. Most of mine have been asked I think I'll just start on the loan side. I know you guys have been a lot of color on the slides on this call, but I'm. Just curious about you know any particular areas of your footprint that stand out in terms of potential growth you know I'll just kind of.
For 'twenty 'twenty, one, possibly any color there would be appreciated.
Yeah, I guess I'll start I mentioned earlier Appleton spent a great market for us and we think there's even more to come given our team up there and our new facility that we're constructing it for our growing team.
And that's been a you know.
Typical mix.
C&I side, and a little bit of commercial real estate mixed in there.
We think there's there's continued opportunity in the Green Bay market for us we pair them.
Recently a.
Senior associated Banc banker, who joined US within the last 90 days and Unfortunately has got a non solicitation. He has to deal with but he is well known in that market and we think that will bear some fruit over time.
And then I guess.
Shifting to the agricultural side.
Our three new bankers that we added during 2020 from BMO.
Continue to bring in new relationships, including some diversified AG in the potato business that we referenced earlier as well as the row crop cash grain.
Space So.
We think there's some nice opportunities for some growth both on and off balance sheet as Glen alluded to and some of the guidance information.
We're optimistic for 2021.
Yeah.
Awesome I appreciate that next thing I think I'm, just going to move to PPP loans I know you mentioned some stuff about the.
On the conference call and everything but I was just curious what are the remaining unearned fees to collect and you know what's left as we go through the Boston.
Glenn you want to respond to that.
Yeah. This is on one of the slides in the slide deck, if you need to refer to it back I'm just trying to I'm just turning to net right now.
Yeah.
I'll get you to the slide number here in one second.
Yeah.
Okay.
It's on our margin side on slide 12.
So we've got 38, we've got $38 5 million less.
Can see how it's funded we're using the fed the fed funding you've got deferred fee income net of about 1 million Bucks left to be recognized and we anticipate that being recognized in 2021.
Okay perfect.
Yeah, and I think and then I think probably lastly, just.
You know you touched on the reserve level.
Where do we expect that to go with a credit holds up just how are you thinking about that.
Yeah, you know credit holds up we expect to be very low loan loss provision this year.
Well, obviously puts them in for for loan growth.
But as you can see how the allowances built up on slide 13, you know we do put in you know.
General reserves based on loan grading so the the watch and worse loans get heavier allocation between 1% and 5% depending on if it's a watcher. So special mentioned substandard performing.
If we see the AG portfolio.
Improve as we think of it as you know those balances are going to move out of those buckets and start to move up the migration change so that will definitely help reduce our allowance requirements just because of that so I.
I mean I envision.
What kind of improvements on the AG side offsetting against any growth provision so.
Okay. So would.
Would you guys I was just curious you think our criticized and classified levels do you think they've peaked or do you think.
Do you think we're going to see you know that level kind of rise going into 'twenty or 'twenty, one or just just curious on your thoughts on that.
No we can generally yeah.
Yeah, we clearly think they've peaked and we should see some downward migration in net.
That ratio throughout 2021, as we get through the review cycle, especially on the AG side.
Okay perfect I appreciate the color that's all from me.
Yeah.
The next question comes from Ross Haberman of our Al H investments. Please go ahead.
Good morning, gentlemen, how are you oney correct channel generally to the overall loan growth expectations or hopes are you.
You talked a little bit about just now do you see any real net loan growth in the first half of 'twenty one.
From what Youre seeing in terms of your backlog today.
I would say, yes, given the deals that I've heard about in the commercial Q. The other day I think we will see some some net loan growth.
I hate debenture guests on a number but you know again again ex PPP, but.
We think we've got some pretty solid pipeline on both sides of the house to to see some loan growth first quarter first half of the year.
And just one further question about the spread at the margin ex the P. P P, which you did or what youre going to do.
Yeah.
It looks like it went up this quarter.
D C. It's slowly going up over the over the next six to nine months.
Yes.
Assuming rates are stable to going up a little bit over the next year.
The long end at least.
Yeah Rod. This is this is Glenn so you know there's a big there's a jump in the theres jumped in and the margin this quarter because of the P. P. P loans and the fee income that gets recognized so youre.
You definitely see a drift downwards from from just that level overall in 2021.
You know, we we think it's going to level off to about again on a year to day to average about a $2 52 and again from a dollar perspective as we believe it is going to grow just from overall loan growth.
As well as again some of the P. P. P income that's going to be recognize too so.
And one final thing have you bought any of these subordinated debt or trust preferreds of other banks, which have been very.
Political sales.
Three of three or six months have you bought have you bought from other banks and if so in total how much have you bought.
Yes.
So we have you know we have started to buy we have started to buy that this year.
Hum.
You know, it's it's I think we bought probably 20 to 30 million again.
Having really we've got a proprietary grading system that we use for those so we do do some due diligence on those just to make sure that we're buying and selling paper. So.
I got it okay. Thanks, a lot the best of luck have a good weekend guys.
Thank you.
Okay.
Again, if you would like to ask a question. Please press Star then one.
And the next question will come from Brian Martin of Janney Montgomery. Please go ahead.
Hey, Hey, guys its Brian I apologize my associates I jumped on 'twenty. So congrats on the on the quarter and thanks for getting information for us. Thanks.
Thanks, Brian.
This concludes our question and answer session I would like to turn the conference back over to Tim Schneider for any closing remarks.
Thank you again, all for joining us as I alluded to we had a challenging year like everyone else and felt like we weathered it pretty well and we're excited about the opportunities in 2021 and.
More good things to come we feel so thank you.
Yeah.
The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.
Okay.
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