Q4 2022 Finemark Holdings Inc Earnings Call

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Speaker 1: And on here, I'm just gonna go through a few things, some of the big things obviously that changed. One big thing is obviously our cash position dropped by over 240 million for the year. And we'll go through some of the details as for why. And as Joe mentioned, our net income for the year to date was 22.3 million compared to the year before.

Speaker 2: is on a year-to-date basis is 2.11. On a quarter-to-date basis, it's 1.90%. And if you look at last year, we were pretty much flat last year at 2.24 on both the quarter and year-to-date numbers. So what's happened? What is the reason? Obviously, the Federal Reserve.

Speaker 3: they raised rates over 300 basis points between March and the end of the third quarter. And then another 125 basis points in the fourth quarter. So, you know, the Fed started off a little bit late. They just did 25 basis points the first one in March, so they kind of lulled us a little bit. And then all of a sudden they... Crowd Chibox and the Fed

Speaker 4: change rates considerably. So one of the things that there's some things we'll talk about shortly, but one of the things is there's a lag in terms of our pricing of our loan portfolio.

Speaker 5: 25% of our loans are what we call floating. So they change as primary or federal reserve, whatever the Fed funds rate, it's basically prime. Whenever that changes, they change pretty much in lock and step. There's some that are on a slight delay, but mostly they change. And then 43% of our loans are either.

Speaker 6: 3-1, 5-1, or 7-1 arms. And those obviously reset on those particular intervals. So after three years or whatnot.

Speaker 7: The other big things that happened during the year, you know, as rates started to rise in the short term, short end of the curve, we saw $370 million of our deposits moving into our trust side and getting invested into treasuries.

Speaker 8: The bulk of that actually happened in the fourth quarter. So we saw $200 million in deposits go in the fourth quarter of 2022. And so what we did, obviously the other downside is we had to borrow from the Federal Reserve. And we borrowed at then Fed funds rates, which obviously went up.

Speaker 9: or exceed the minimums by the regulator. So we're capitalized, we're as strong as ever. Our loan composition has remained relatively consistent. So we've got a very conservative balance sheet.

Speaker 10: We're a predominantly residential lender, obviously. We did see a little uptick in our commercial real estate, but that's owner occupied. We went down and drilled into it, and that's all just owner occupied properties that we finance. It's obviously in the lesser risk area of commercial real estate.

Speaker 11: The other part we saw, obviously our loans continue to grow. We saw a 12% increase or $234 million growth in our loans year over year. And that compares considerably better than what we did in 2021 where we only saw $146 million in growth. We're still going strong and we'll probably...

Speaker 12: Hopefully that will continue obviously. Some of the other key things are non-interest expense. One thing that comes in alignment, a non-interest expense increased. Obviously it went up by 15% and it went up by 17% in 2021. But one of the key things that we saw was the actual relative dollar amount was...

Speaker 13: In 2022, we added 28 new associates.

Speaker 14: going from 232 to 260 people here at the end of the year. And then one, this is a very tight labor market, so we proactively looked at everybody's salary due in alignment to what the market is paying and to...

Speaker 15: A lot of the people we identified that we needed to increase their salaries, so that's also part of what increased them. And then in 2022, we opened two new offices and expanded three of our existing locations. So that was what really brought up our occupancy expense, as I mentioned before.

Speaker 16: Can you go to the next slide? Joe, I'll turn it over to you.

Speaker 17: Yeah, I'm going to touch on this slide and Brian mentioned about our funding costs in 2022. So one of our significant funding sources is what we define as a trust money market account. It's a sweep account.

Speaker 18: So...

Speaker 19: Money that we manage for our clients, the cash sweeps every night into a bank account. The other option that our clients have is the Goldman Sachs money market account. When interest rates were at zero, we were paying 10 basis points on that.

Speaker 20: So very, very low cost of funding for the bank and a premium on what clients would have earned had they been in the Goldman Sachs account. As Brian already mentioned, we saw rates increase significantly, as did everybody in 2022.

Speaker 21: But we went from paying 10 basis points to over 400 basis points in December . The increase in that expense, that actually accounted for 85% of our deposit interest expense.

Speaker 22: in the fourth quarter where we realized most of that. Now that's something that we really can't control and as disadvantaged as we have been in 2022, in the rising rate environment, we believe that we will be equally advantaged.

Speaker 23: that we did proactively with our clients we thought it was the right thing to do. However, you know, if we were paying 20 or 30 basis points on those deposits, you know, that those rates then increase to the overnight borrowing rate from the Federal Reserve. And in that billion dollars there, you know, that's really the crux of...

Speaker 24: they did and at the level that they did in such a short period of time.

Speaker 25: So, Brian ?

Speaker 26: So this next slide is appropriately titled, Unprecedented Rise in Interest Rates. And it really, if you look at it historically, it's really, it's a telltale when you see 2022 in terms of the slope of that curve compared to the prior races by the Federal Reserve.

Speaker 27: So as we mentioned before, you know, some of our some of the key facets Findmark has 25% floating rates only 25% of our loans repriced right away Whereas the rest of them do over a leg or short period of time Which would have been fine if we were something in the prior years

Speaker 28: Joe mentioned the trust money market, that's one of the biggest things there.

Speaker 29: The other key part, obviously, everything that we're producing in terms of our loans are much higher now and have been for several months or quarters relative to the rates that we charge. So we're seeing that.

Speaker 30: start to increase. Our interest income is growing quite quickly now, but again it's hard to keep up with the Federal Reserve that has gone so aggressively.

Speaker 31: Okay.

Speaker 32: On here, one of the other key parts we have is just to talk about our non-trust suite.

as trust accounts. So you'll see here, this is what we refer to as our core deposits, which trust money market is also part of it, but excluding that. And you can see one of the key facets is we had a 1% beta, which is really good in terms of the change in rates. So this has not been the problem. Our clients understand.

As Joe mentioned, we were proactive on the ones that had large balances and wanted to get a higher yield, that we moved them over into the trust area. So there's still, obviously still our clients and some of them had trust accounts with just everything knobbed in.

managing their assets a little bit.

And then we did see growth. You know, you see the growth in terms of our deposits on average, $392 million.

But on a year-over-year ending balance, this was only a plus 84. And that is accounted for obviously by the...

The money that we moved the 370 million we moved from the bank into the trust

So that's really some of the key parts here on our deposit base.

And so where do we go? What are our steps now? So in 2023, we're going to see approximately 175 million dollars come back to us from our securities portfolio And so we're going to be applying that towards our borrowing, you know the money we borrowed from either the federal or the home loan bank

And also, we're going to see our core deposits growing considerably too, hopefully in 2023, and we're going to use both of those things obviously to fund our loan production.

which is probably...

The things that aren't in their control, what's the Federal Reserve going to do? They've got a meeting coming up the end of this month, the beginning of February , they'll come out on February , and the Federal Reserve, we can't tell exactly what they're going to do. They've kind of said it's going to be 25%. They've got a meeting coming up the end of February , and the Federal Reserve, they've

25 basis point increase, but who knows. And then one more in March, but that's what's on the, that we know of that again, that's something that's outside of our control.

And then I'll turn it over to Joe. OK, thank you.

So, FineMark has been a growth story since its inception and you can see on the slide, and I'm not going to read all of the details, but in 2022 we continued to significantly increase the number of families that we are doing business with.

12% increase year over year. As Brian mentioned earlier, 12% net rounding, 12% net loan growth while not compromising our asset quality at all. Deposit growth that was substantial, while the net was not quite as much as the average. And the average is $2.5 million. And the net was $2.5 million. And the net was $2.5 million. And the net was $2.5 million. And the net was $2.5 million.

had asset management growth from existing clients and new clients of over $700 million. That resulted in $3.9 million of new annualized trust fees, which was a record year for us.

We opened two new offices, one in South Naples, one in Jupiter. Both of those offices are off to a great start. Our sports management division continues to hit through the cycle. We added 20 new professional athletes. Many of you would know many of those names if we were to.

you know 2022 despite the rise in rates and what that did to our funding costs you know that every other area of the company continues to thrive. As we enter into 2023 we're going to continue as always to invest in our people.

which are the hallmark of the company. The service levels that we provide are what differentiate us from everybody else, coupled with developing deep long-term relationships that are very genuine and sincere.

We've also made a $1.5 to $1.7 million commitment in new technology, both that will provide advancements and enhancements to our client experience, as well as our associates and make their jobs easier. As we look at our budget for 2023, we've also made a $1.5 million commitment to our

We've budgeted two 25 basis point increases in rates, one in February 1 and then the second in March. We've budgeted that the equity markets would remain flat from a C standpoint.

We're also budgeting pretty significant growth in every area, so loans, deposits, and assets under management, coupled with our trust fees. We are watching expenses without compromising our business model, and we believe that we will be.

well positioned as we come out of this rising rate environment and come out of what is either currently a recession or will be recession. Finally, we're off to a great start in January so far.

for January and February . We're bringing in excess of $140 million in new assets to be managed. And that offsets with just under $800,000 in new annualized fees that correspond with that.

From a loan standpoint, we believe our net loan growth for the month of January will be right around $50 million, subject to any paydowns that we're not aware of that could take place this month. So again, we believe that our story is solid and...

to any questions if there are any.

Joe, thank you. And like you mentioned at the beginning of this, this is the first time we've done a WebEx where we're actually taking live questions. And I realized once we started speaking, a lot of people are calling in versus logging in through a computer or your phone. And so I just want to let you know if you have a question, please feel free to ask.

any questions you have. However, it is time now if anyone who's able to ask a question, if you want to go ahead and raise your hand.

And so far I'm not seeing any. So let's just give it a minute to see if anybody has a question.

I am not seeing any.

Let me make sure I'm doing it right.

Yes, I'm doing it correctly tonight, Joe. I don't see that we have any questions right now. Okay. Can everybody hear me? Yes. So again, thank you for taking your time. If anybody does have questions that they would like to talk to with a one-on-one basis, feel free to call us. We'll be right back.

and we can talk through anything that you might like to know that you feel we didn't cover. But again, thank you for your commitment to the company. As investors, we really appreciate you.