Q4 2022 Bank of Marin Bancorp Earnings Call
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Speaker 1: Good morning, and thank you for joining Bank of Marin Bancor's earnings call for the 4th quarter ended December 31st, 2022. I am Andrea Henderson, Director of Marketing for Bank of Marin, and thank you for your patience this morning.
Speaker 2: During the presentation, all participants will be in a listen-only mode. After the call, we will conduct a question-and-answer session. At that time, if you have questions, please press 1 followed by 4 on your telephone. If at any time during the conference call you need to reach an operator, please press star 0. This conference call is being recorded on January 23, 2023. Joining us on the call today are Tim Myers, President of CIO, and Tawny Gertin, Executive Vice President and Chief Financial Officer.
Speaker 3: Our earnings press release, which was issued this morning, can be found on our website at BankofMarin.com, where this call is also being webcast.
Speaker 4: Before we get started, I wanted to note that we will be discussing some non-GAAP financial measures on the call. Please refer to the reconciliation table on page 3 of our earnings press release for both GAAP and non-GAAP measures. Additionally, the discussion on this call is based on information we know as of 2020.
Speaker 5: Friday, January 20, 2023, and may contain forward-looking statements that involve risks and uncertainties. Your results may differ materially from those set forth in such statements.
Speaker 6: For discussion of these risks and uncertainties, please review the forward-looking statements disclosure in our earnings press release as well as our SEC filings.
Speaker 7: Following our prepared remarks, Tim and Tawny will be available to answer your questions. And now I'd like to turn the call over to Tim Myers. Thank you, Andrea. Good morning, everyone, and welcome to our call. We are pleased with our record fourth quarter and full year earnings. Both reflective the strength of our relationship banking model.
Speaker 8: paired with disciplined expense control, liquidity, and credit risk management efforts. As always, we remain dedicated to discipline underwriting and prudent lending. Origination is eased in the fourth quarter, but our $240 million in full-year production represented the second best since 2019 without the need to compromise credit quality.
Speaker 9: In fact, we saw steady de-risking of credit portfolio over the course of the year.
Speaker 10: We are, of course, mindful of recessionary concerns and associated impact on loan demand. However, we will continue to rely on our balanced approach to meeting customer needs while maintaining a strong credit culture in order to navigate any economic slowdown.
Speaker 11: We provide exceptional service and local market expertise, deepening ties with our customers without competing strictly on price or taking unnecessary risks.
Speaker 12: Although our loan balance has declined modestly from the third quarter, we funded $35 million in commercial loans in early January 2023 that have been scheduled to close in the fourth quarter of 2022. $20 million of that is expected to remain on our balance sheet as we have participation commitments for $15 million of that total amount.
Speaker 13: Our asset sensitive balance sheet helped our performance in 2022, driving yields on interest turning assets and we will be diligent about protecting our net interest margin in 2023.
Speaker 14: More than half of total deposits were non-interest bearing at the close of 2022. While our cost of deposits rose just two basis points in the fourth quarter, rising rates boosted our tax equivalent net interest margin by 10 basis points in the fourth quarter and 23 basis points over the fourth quarter of the prior year.
Speaker 15: Finally, earnings and synergies generated from our 2021 acquisition of American River Bank further contributed to our improved efficiency ratio, allowing us to allocate resources towards our strategic initiatives as we head into the new year.
Speaker 16: In Q1 2023, we will deliver on our plans to further gain efficiencies from the merger by consolidating four northern Sonoma County branches into two that have overlapping customer average.
Speaker 17: Also in the corridor, we will close two additional branches where we will be able to serve customers effectively from nearby locations.
Speaker 18: These efforts are expected to generate savings of $470,000 in 2023 and approximately $1.4 million per year thereafter that will be reinvested in both talent and technology.
Speaker 19: Now, I'll turn to some additional highlights.
Speaker 20: We produce record net income of $12.9 million in the fourth quarter compared to $12.2 million in the third quarter.
Speaker 21: diluted earnings per share of 81 cents compared to 76 cents in the third quarter.
Speaker 22: For full year 2022, we generated record earnings of $46.6 million, up from $33.2 million in 2021.
Speaker 23: Deluded earnings per share were $2.92 for the quarter compared to $2.30 per share the prior year.
Speaker 24: Non-interest bearing deposits accounted for 51.5% of total deposits at the close of the year, down slightly from the third quarter, but our average cost of deposits remains very low at just 8 basis points.
Speaker 25: While the market anticipates interest rates will climb further in the first quarter, we will continue to carefully manage deposit pricing on a customer-specific basis.
Speaker 26: Credit quality, as I noted, is strong and improving, with fourth-quarter non-accrual loans declining $8.2 million, or 77 percent in the fourth quarter, and representing only 0.12 percent in total loans, down from 0.49 percent at September 30.
Speaker 27: Our efficiency ratio for the fourth quarter was 50.92% compared to 52.24% for the prior quarter and 56.92% in the fourth quarter of 2021.
Speaker 28: The improvement was driven by lower operating expenses and higher net interest income on both loans and securities.
Speaker 29: Given the consistency of our performance and record earnings, our Board of Directors declared a quarterly cash dividend of 25 cents per share, payable on February 10, 2023.
Speaker 30: This represents the 71st consecutive quarterly dividend paid by Bank of Rennes Bancourt.
Speaker 31: Now, I'll turn the call over to Tani to discuss our financial results in more detail.
Speaker 32: Thank you, Tim. Good morning, everyone. We're proud of our fourth quarter earnings, which translated into a return on assets of 1.2% and return on equity of 12.8% up from 1.1% and 11.7% in the third quarter.
Net interest income of $33.4 million in the fourth quarter increased $343,000 over the prior quarter, as higher yields more than offset the 2.2% sequential decline in earning assets and the two basis point increase in costs.
Deposits
For the full year, net interest income was $100.7.5 million, up 21.4% from 2021 as a result of higher earning assets generated from the acquisition as well as deposit growth in 2021 and lower funding costs primarily related to the early retirement of subordinate
Deposits were also down in the fourth quarter, decreasing by 329 million or 8.4% from the prior quarter.
While some of the decline can be attributed to our commercial customers year-end activity and specific planned events, we have been anticipating outflows of pandemic surge deposits for some time.
At the end of 2021, the bank held $521 million in cash and deposit network balances in anticipation of expected and potential unexpected outflows.
Over the course of the year, those balances, as well as $112 million in borrowings and $164 million reduction in loans, financed because it outflows and grows in the securities portfolio.
Our fourth quarter tax equivalent net interest margin improved 10 basis points driven by the higher yields on interest earning assets partially offset by a six basis point increase in our cost of interest bearing liabilities.
There was no provision for credit losses on loans in the fourth quarter compared to a provision of $422,000 in the third quarter.
An increase in qualitative risk factors to account for the ongoing deterioration in the economic outlook not captured in the quantitative portion of the allowance was offset by the decrease in loan balances.
Fourth quarter non-interest income of $2.6 million was down slightly from the third quarter, mostly due to the reduction in fee-generating deposit network balances.
2022 non-interest income decreased, sorry, increased $773,000 over 2021 due to higher fees on balances held at deposit networks and more transaction volume due to the larger size of the bank.
Those increases were partially offset by the reduction in earnings on bank-owned life insurance.
Non-interest expense of $18.3 million in the fourth quarter was down $368,000 in the third quarter.
Decreases from the prior quarter included a $957,000 reduction in salaries and employee benefits largely due to a bonus accrual adjustment and an increase to the discount rate applied to retirement plans.
In addition, other real estate owned expenses declined due to a $345,000 valuation adjustment in the prior quarter.
Full year non-interest expense increased $2.6 million over 2021 as a result of our larger size, investments in software and equipment, evaluation adjustment on real estate owned, and accelerated costs associated with upcoming branch closures.
Those increases were partially offset by the $5.6 million reduction in pre-tax merger related and conversion costs.
We continue to reap the positive benefits of operating leverage as our efficiency ratios were 50.9% and 54.4% for the fourth quarter and full year respectively. Both improved from 52.2% in the prior quarter and 63.1% in 2021.
As there were substantially more acquisition related expenses in 2021, the year-over-year improvement on a non-GAAP basis was 374 basis points.
All capital ratios were above well-capitalized regulatory requirements.
The total risk-based capital ratio for Bancorp was 15.9 percent at December 31, compared to 15.1 percent at September 30. And the bank base capital ratio was 15.7 percent at December 31, compared to 14.7 percent.
at September 30.
Year-end tangible common equity of 8.2% for Bancorp and 8.1% for Bank of Marin were up 76 and 85 basis points respectively from the prior quarter due to the decrease in after-tax unrealized losses available for sale securities.
associated with interest rate decreases during the fourth quarter, as well as the contribution from our strong earnings.
Overall, Bank of Marin's strong balance sheet, liquidity, and capital continue to yield healthy results, as has been the case across many interest rate and economic cycles.
We believe that this will continue in 2023, enabling us to further invest in our strategic initiative that will further improve profitability and strengthen our franchise.
With that, I'll turn it back over to Tim to share some final comments.
Thank you, Tawny. Our performance throughout 2022, combined with our more than 30-year history of delivering attractive returns to our shareholders in all cycles, positions Bank and Renwell for the year ahead.
We remain highly focused on diligent expense control, prudent risk management, and proactive balance sheet positioning.
Yet we also continue to explore new ways to invest in technology upgrades and talent, ensuring we can both meet clients' increasing preference for advanced digital banking tools and high-touch service backed by well-established bankers with proven market expertise.
We are committed to our existing clients and continue to expand our commercial lending to new customers across Northern California, building on the American River Bank acquisition.
As we further optimize our delivery channels, we will continue to identify cost-saving opportunities to offset new investments we make, which are exceptional delivery of products and services throughout our footprint.
With that, I want to thank everyone on today's call for your interest and support. We will now open the call to your questions.
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One moment, please, for our first question on the line.
We do have a few questions, Q. We'll proceed with our first one on the phone from the line to Matthew Clark from Piper Sandler. Go right ahead.
Hey, good morning, Tim Toney. Good morning, Matthew.
Um, maybe 1st, just on your updated thoughts around your.
deposit beta, this cycle, interest-bearing deposit beta of only 1% cycle to date. I think on the last call you spoke about maybe
It seems like you might do a lot better than that at this stage, assuming the Fed's done here in the first half of the year. Just any commentary around your thoughts around deposit pricing in light of the decline in deposit balances as well? Thanks.
Yes, I'll start Matthew and then I'll hand it over to Tani. But bigger picture, if you look at the biggest chunk of deposit runoff, both on the year over year base and quarter, it was accounts tied to our, what we call business as usual. We have outflows from accounts tied to election cycles and things like that. We did have some runoff and a couple key.
client areas where they manage money for other people, where they were looking for higher yield and went to alternative investment vehicles.
Very little of the amount we lost, both quarter and on a year-to-day basis, we're losing money to other financial institutions relative to the total. But that can change as the rate environment changes and rate increases further. I'll hand it to Tani for more of the specifics.
So our model beta on the interest bearing deposits is 34%, but historically we've achieved less than that. But because we have about 50% of our deposits and non interest bearing, obviously, the total bait is going to be roughly half of that.
And I'd say, you know, I would just reinforce what Tim said. We're really proactively reaching out to customers when great concerns come up and making sure that we're addressing them on a full relationship basis as opposed to
Raising rates across the board. We have a significant amount of liquidity contingent liquidity that we have not tapped into for many many years and so that enables us to really be thoughtful about how we manage our
costs of deposits.
Okay, and then just to round out the margin discussion, if you have it, the spot rate on interest bearing deposits at the end of the year and the average margin in the month of December .
Let me let me pull those for you and come back to you on those.
Okay. You want December 31st rates, is that right? For the month of December ?
Yeah, the spot rate at the end of the year, at the end of December on total deposit costs or interest-bearing other ones, and then the overall average NIM for the month of December if you had it.
Okay, I'll come back on that. I have to shuffle papers.
No worries. Thank you, Matthew.
Yeah, and then just on the on the buyback, there's some mention in the release about reconsidering re initiating the buyback, I guess.
Can you give us a sense for what's changed other than rates? Capital obviously is up with the benefit of rates, but any other color there would be helpful?
Yeah, we want to be prepared, Matthew. We think at this valuation, it's really attractive for us to buy back stock. We have to continue to watch trends in the economy and credit risk and other potential impacts on capital, but we don't want to be boxed into not doing it. We want to have the ability to do that, and it's something we talk regularly with the board about.
Okay, and the last one for me just on your office exposure, can you just remind us, you know, the outstanding there and the kind of split between downtown Metro office relative to rural and what you're seeing there in terms of the impact of ongoing tech layoff.
changes all the time is just under 44%. San Francisco's $82 million of that, that loan to value is the same. So we have good cushion and we are proactively working with borrowers where we think there is significant exposure to that environment you're alluding to.
throughout all the various sub markets. So we have again, valuations change, we proactively do that and we have properties we have concerns on but that gives a significant cushion to work with those borrowers and in the vast majority of cases we have sponsorship behind those and work closely with them.
to make sure we span track for repayment.
Now, so I pulled those spot rates for you. So for the month of December , the cost of deposits was eight basis points, and the net interest margin was 3.27% tax equivalent.
Thank you.
Mm-hmm.
Did I fully answer your question, Matthew, on the real estate?
Yeah, you did. Thanks very much. You're welcome.
Thank you. We'll get your next question on the phone line from the line of Jeff Rulis from VA Davidson. Please go right ahead with your question.
Thanks, good morning.
Looking at the three commercial real estate payoffs, were those legacy Bank of Iran credits are acquired through American River?
Are you talking about the ones that reduce non-accruals?
Yes.
Yeah, those were Legacy Bank of Marin. We had one earlier, the $7 million one we've referred to before. That was a long-standing non-accrual Bank of Marin, and then the other small ones related to a similar borrower were Legacy Bank of Marin. If you're talking about the payoffs overall...
there was a chunk related to acquired loans.
Just
Would you, you know, some of that success or movement, would you would you chalk it up to timing or was there any shift in aggressiveness, you know, seeing kind of potentially what could be ahead, economically speaking, was there a, hey, let's, let's chase some of these down, just trying to get a sense for
if it was timing or some self-directed things in-house.
It's partially both. So the one larger loan that I just referenced, that's been on the books a long time. If you're talking about the smaller ones, we were very proactive in resolving that situation with the borrower. And certainly that was in the back of our minds, that this external environment.
is not going to get any better. And so we worked with them closely and came to a mutually agreeable solution. So there's no question that this environment played into that.
worked with them closely and came to a mutually agreeable solution. So there's no question that this environment played into that.
Hopping over to the 2023 expense growth rate, how should we think about maybe a year-over-year figure given the branch consolidation savings that are expected to be a partial offset? Not specific and or just the takes of
of how you see expenses in 23.
So I'd say, you know, we had quite a few vacancies in 2022. We resolved a lot of that. So that's that's an upward push. However, and then also, you know, we plan to.
Invest some of the savings from the branch closures and other efficiencies that we realize in into some of our strategic initiatives. So, but on the other hand, you know, we had, you know, we had very few expenses related to the merger and conversion in 2022.
first quarter increase associated with bonuses and 401k contributions that go along with those bonuses.
Yep, okay. Maybe the last one just on the payoff activity, you get a sense that any of that was
sort of year-end timing driven or and or do you have any visibility that that payoffs could subside going forward especially given where where rates are and where they've been
Yeah, we do, I'll start that last part. We do think it's going to subside. If you look at the full year trend, you know, asset sales have been, you know, typically one of the largest components. That was actually down year over year. Cash payoffs were de-leveraging. That was pretty flat. We did have a larger jump in payoffs from project completions, in part because we had 120,000.
But over half of that were acquired loans where we didn't have the appetite to refinance or continue on with those loans. And so to your question about timing, yes, the intense rate competition we had earlier in the year drove a lot of activity and really accelerated that. Those were...
things that would have come to light and happened anyway, but having banks compete over those kind of things forced that decision early on. There was a timing aspect of that, but that was over half of those third-party refinancing. So a little bit of a long-winded answer, but yes, we have every reason to believe that that trend will subside.
both in terms of one, those assets being off the books, but two, the rate environment overall. And we did, like I said, see a couple of those key categories actually decline.
I guess consistent with your.
initial comments sort of strong year of origination, but you did quite a bit of de-risking under the hood if you will at least for our eyes there was a bit of churn in there that you feel better about the quality of the book.
Yes.
Okay.
All right, thank you.
Thank you very much.
We'll get your next question on the line. It's on the line of David Feaster with Raymond James. Go right ahead.
Hey, good morning everybody.
Hi, David. I just wanted to go back to the deposit side. You know, we touched on it a bit when you talked about the betas, but I'm just curious, you know, as we think about the surge deposits or maybe some more of the rate sensitive money, have we gotten most of that out at this point? Or are you still seeing
more flows on that side and you talked about excess liquidity being used to pay down debt. So are you looking for more outflows to continue is the first question. And then how do you think about funding that? I mean, Tawny, you talked about tapping some other sources of liquidity. It kind of sounds like maybe additional borrowings would be the primary source to fund outflows versus
what our deposits have done since just before the pandemic.
Deposits went up from trough to peak by about 800 million.
And since the beginning of 2021, 2022, we've lost about 400 million.
So you could you know, you could say well, there's there's 400 million in question. However You know the last time we had a situation like this when we had a deposit surge in reaction to the financial crisis and the Great Recession
we did not lose all of the deposits. And so, as I said before, the beauty of having all the contingent liquidity that we have...
enables us to really make choices about where we're willing to pay capital markets rates versus where we want to raise deposit rates. And that gives us a lot of flexibility.
As you said, we do have some unrealized losses in the securities portfolio. You know, the duration on those securities is multi-year. So, you know, we're not inclined to...
sell at significant losses to finance a cash need for several months. So it's better for us to go out into the capital markets or to increase rates selectively on the deposit side. Cash flows off the securities portfolio generally.
So, I see as you look at your portfolio and you stress some of the floating rate borrowers, where we've seen borrowing costs go up materially, are you seeing a material change in debt service coverage ratios? And as we look at the prospects of another 50 basis points of hikes, how do you see the
How do you think about the cash flows and the collateral values for some of these loans as they come up for renewal? And ultimately, how do you think that impacts credit quality? I mean, would you expect to see more TDRs? I'm just curious how you think about approaching that and what your thoughts are at a high level.
So one of the things you mentioned, David, is our disciplined approach. We've long stressed, especially commercial real estate, for rate sensitivity for higher rates. And we are constantly doing that on both floating and fixed rates.
So far within our portfolio, that's holding up well. I can't really predict where overall office rent trends are going to be that will affect the cash flow vacancy rates. But right now, we feel good about the position we're in. We've talked about some of the problem credits that we've had that we've moved to substandard in the past.
Those have not worsened. And in the meantime, we're cleaning out the portfolio of things we can control in a mutually agreeable way with our customers to create runway for dealing with potential future problems. But right now, we feel good. Certainly everything you said in that question is a risk.
but I don't know how to quantify or even fully qualify that for you at this time.
I don't know how to quantify or even fully qualify that for you at this time.
Okay. And then, you know, one thing you said in your prepared remarks, Tim, just you talk about optimizing delivery channels. I was hoping maybe you could expound on that a bit and talk about some of the things you're working on. I know you've hired a lot of talent. You've invested in technology. Just curious what you guys are working on and some of the things that you guys are doing to help you get to the point where you're working on a lot of things.
Retail network and it's an extremely important part of our customer service model.
But at some point when you get into cycles like this, it begs the question of, you know, how many do you need covering what service area? So what we're closing, certainly two of those were redundant with American River Bank. We had – we both had branches in Healdsburg and Santa Rosa, and we had put off doing that. The other two are in markets where there's –.
service nearby so we can continue to service our customers. That includes looking at commercial banking. We've always had a model of having regionally-centric commercial banking offices serving relatively narrowly defined markets and we just need to always look and say, okay, is this the right way to deliver our relationship banking model.
in a way that builds operating leverage into our models. So as we've talked about before, we're going to continue to look for ways to drive that.
Makes sense. Thank you.
You're welcome.
I will proceed to our next question. On the line.
is from Andrew Torrell with Stevens. Go right ahead.
Hey, morning, Tony.
Morning, Andrew.
Hey, maybe just starting on loan growth. It looks like...
Timing might have been an issue for some of the fourth quarter loan growth. I guess, Tim, I wanted to hear thoughts on just how the pipeline stood and overall kind of loan growth expectations and then maybe more specifically any pockets of strength within the portfolio where you would anticipate more growth and then conversely any areas where you're kind of pulling back.
Yeah, that's a good question.
In terms of the timing, yeah. If you're looking at our pipeline now at Q1, it's not quite as robust as it was last year, but last year it was a very different rate environment. What's encouraging is it is increasing. And depending on where you set your threshold for probability to close,
It's actually a fairly decent amount given that external environment right now going into Q1. There's not a lot of areas where we're pulling back per se. Certainly we're going to be cautious about large new investor real estate office property requests in San Francisco. By and large, we're going to continue to look at credits the way we always have. That's why we do it the way we do.
in the fourth quarter. I'm not sure that was fully unexpected given the rate environment and the caution among the borrowing universe out there in this economic environment. But we are continuing to focus on growing every one of the regions we have. Certainly one of the things that was an absorption of time and effort this year was...
bringing American River Bank into Bank of Merin, and then certainly on the commercial banking side, embedding credit culture people. It took some time to rebuild that team as we've talked about in the past, and they're doing a really good job. So the production across our regions was...
fairly typical, you know, Marin, Napa, Sacramento, Oakland, and we continue to believe we can drive growth in all those areas, and we'll continue to look for ways to generate activity that leads to long growth.
That's great, Keller. I appreciate it. And maybe just kind of sticking on that point, the competitive dynamics for new loan growth today. And I would be curious, have you seen spreads compress as rates, market rates have gone up, or are you still getting kind of similar spread as 12 months?
this year is not the same we saw in the first two quarters of last year. It's always a competitive market, but we have a lot of competitors that are focused on very desperate things and different things right now than they were last year this time. So I can't really promise how the spreads are going to continue by way of competition, but we're certainly happy for the higher yields and being asset sensitive helps.
Okay, maybe last one for Tani. You have an expected tax rate for 2023.
That's a tough one. I mean, I think it kind of hovers around 26.
percent. Our tax rate was a little higher this year because of the total percent of the balance sheet. The tax exempt earnings from munis and bank-owned life insurance played a smaller role in reducing the tax rate. On the other hand, we didn't have as many tax returns as we did in the past.
Non deductible merger expenses in 2022. so there's there's nothing jumping out on, you know, for the in the horizon to have a significant impact on our. Health issues that have impact Great.
Okay.
That's it for me. Thank you for taking the questions.
for taking the questions. Thank you.
We'll get to our next question on the phone lines. It is from Woody Lay with KDW. Go right ahead. As long as we stop the phone the line goes to the letter 1 in red.
Hey, good morning, guys.
Good morning, Woody.
I wanted to circle back on the buyback. I know it depends on sort of a myriad of factors, but just as it relates to capital, I mean, do you have a constraining capital ratio that you sort of look at in regards to the buyback?
Well, I think that's been a bit of a moving target. Early on when deposits were running up, there was obviously a focus and a lot of talk about the leverage ratio now, tangible common equity to tangible assets has certainly taken sort of more air space about conversation. So we're really looking at all of those.
Yep, makes sense. And then just last for me, I believe in your opening remarks, you sort of mentioned that you're focused on improving profitability ratios. You know, if I sort of look at the sort of focus on pre-tech pre-provision, I mean, do you think 4Q is sort of the high watermark? Or do you think you can...
okay, you want to talk pre-tax, pre-provision. You know, we still stand to benefit from an increase in interest rates. So,
You know, not necessarily, but, you know, also the balance sheet size does make a difference. So to the extent that our balance sheet is steady, then, you know, I think we can continue to see improvement. So. There are just a lot of moving factors in that question. So.
Sorry to punt on that one, but I can't really predict. All right. Awesome. Thanks, guys.
Thank you.
And once again on the phone, say if you'd like to ask a question, it is the one four on your telephone keypad.
We do have a question queued up from the line of Tim Coffey with Johnny Montgomery Scott. Go right ahead.
Great, thank you. Good morning. Thank you for the opportunity to ask questions.
Yeah, morning, Tim. Connie, I appreciate the color you provided on deposit and potential outflows, and I think that you're spot on. I'm wondering, though, where do you think non-interest-bearing deposits as a percentage of total deposits could end at the end of this year?
So again, that's another tough question. When we had the Great Recession, we are non-interest bearing, going to went up from an average of say 35% to 40, 42%. And that is because it, that has everything in common.
Toward the end of the cycle there, you know, we had every expectation that that percentage would go down and it never did. It did nothing but climb. So, I'm not going to.
I'm not going to predict that it's going to go up any further, and I'm not going to say that it can't go down, but I think historically that is just that's a big big focus for us, and it's something that we will work hard to maintain. And yes, it can go down from from 50%, but
I think that given our business model, that's something that we pay attention to all the time.
Okay. And I apologize if I missed it earlier, but were there any costs associated with the branch closures in 4Q?
Yeah, we had some small amount of accelerated costs, so what happens is we have some tenant improvements and lease expense that gets accelerated over the remaining time that we occupy.
those properties and so a small piece of that happened in December . Most of it will happen in 2023, but as you saw the net impact of that and the savings for the year ends up being positive. And that cost is really the differential between the cost and the savings.
Okay, all right, I appreciate that. Thank you. And then, Tim, can you provide some color on this general customer sentiment in the current rate environment? I mean, clearly you're still able to open for business and booking loans, but what's the sentiment like? Is there a bit of hesitancy to make investments right now?
I think hesitancy is a good word. I think for a few months there, a couple months at least, it was a bit of silence, right? The rates continue to increase and a lot of doom and gloom news out there are certainly uncertainty around what the news is going to be. But as I mentioned, we're really starting to see the pipeline build back up. And so people do grow a kind of
We have to work harder to generate that activity, but we are committed to doing that.
Okay, well, great. Those are my questions. Thank you very much.
Thanks.
Thank you. We did have a couple of ques... Oh, go ahead, operator. Oh, certainly. We have actually one more question on the phone. It's another follow-up from Andrew Torrell with Stevens. Go right ahead. Hey, Tim. Hey, Tommy. Thanks for the follow-up question. Sure. I just wanted to... It seems like focus kind of at the company right now is maybe more...
out there talking to other banks and investment bankers, as are many of my competitors. And as you know, they're sold, not bought. So you have to wait for someone to raise their hand. But no, we remain open to the opportunity. It remains a key part of our strategic plan. But I can't force that activity. And most importantly, finding the right partner when that does an activity increase.
what is the duration of the securities portfolio? So the total, the duration of the total portfolio is 4.99 years, however, it's important to split that up between the available for sale portfolio and the health maturity portfolio, which is.
you know roughly very roughly half but the health and maturity portfolio has a longer duration that's 5.92 percent years and the AFS portfolio is 3.98 years. So I think that answers that question and then we had another question about the tangible book value per share at year end.
securities at losses in order to finance the bank and as I said, I think we have a lot of headroom right now to manage our liquidity position both through our deposit pricing as well as in the capital market.
we don't feel like we'll be forced to take losses that we don't want to take.
Thank you.
Thank you. Thank you.
What is the granularity of the office portfolio and is their healthcare office included? So how much?
I don't have that level of data in front.
on the granularity.
Thank you.
Thank you.
Yeah, if we have a contact information on that, we'll have to make that available, but I don't have a low level detail to talk about the granularity on average size.
But yes, I'm sorry. The 2nd answer is healthcare office would be included in commercial office.
For those on the line that didn't hear the question, it was what is the granularity of the office, commercial real estate exposure, and is health care office embedded in that or included in that. I don't have that level of detail to provide on the granularity, so we'll follow up.
With that, I will end this call. Thank you all for joining us. We appreciate your support and your questions. If any of you have any follow-on questions, please reach out to us. We're happy to answer them. Thank you.