Q4 2023 Bank of Marin Bancorp Earnings Call
During the presentation, all participants will be in a listen only mode. After the call. We will conduct a question and answer session.
Joining us on the call today are Tim Myers, President and CEO, and Tani, Girton Executive Vice President and Chief Financial Officer our.
Our earnings press release, and supplementary presentation, which we issued this morning can be found in the Investor Relations portion of our website at bank of Marine Dot Com, where this call is also being webcast.
Closed captioning is available during the live webcast as well as on the webcast replay.
Before we get started I want to note that we will be discussing some non-GAAP financial measures. Please refer to the reconciliation table in 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 Friday January 26, 2024 and May contain forward looking statements that involve risks and uncertainties.
Actual results may differ materially from those set forth in such statements.
A discussion of these risks and uncertainties. Please review the forward looking statements disclosure in our earnings press release as well as our SEC filings.
Following our prepared remarks, Tim <unk>, and our Chief Credit Officer, Masako Stuart will be available to answer your question.
Now I'd like to turn the call over to Tim Myers. Thank.
Thank you Adam good morning, everyone and welcome to our fourth quarter and full year earnings call.
Like to begin by providing a high level overview of our financial results.
During the fourth quarter, we took several actions to further bolster our balance sheet contributed to improvement in our pretax pre provision income excluding loss loan security sales in the quarter as well as laid the foundation for improved earnings growth in 2024.
First we have strategically repositioned our balance sheet by divesting lower yielding securities and further reducing our short term borrowings.
While the loss generated almost security sales lowered our earnings we directed the proceeds towards new loan originations and repayment of borrowings to accelerate margin improvement in the coming quarters.
These actions countered the adverse impacts of increased funding costs and supported our net interest margin expansion during the quarter.
We believe that our current interest rate risk position will better support increased profitability in the year ahead, as we navigate the potential higher for longer interest rate environment.
Second and keeping with our long established conservative approach to credit administration, we continue to proactively identify potentially vulnerable loans and during the fourth quarter created specific reserves for select loans dealing with idiosyncratic issues that have exhibited extended periods of weakness.
Specifically, we added to our provision for credit losses in the quarter contributing to the increase in the allowance to one 2% of total loans compared to 116% for the prior quarter.
Overall credit quality remained strong with non accrual loans standing at just 0.39% of our total loans at quarter end.
Additionally, classified loans declined during the quarter and comprised one 5% to 6% of total loans and improvement from one 9% at the end of Q3.
We believe it is wise to conservatively address possible challenges early and proactively.
This includes exiting relationships evaluating loans with unique characteristics individually or pursuing other credit enhancement opportunities on potentially problematic loans.
We remain highly selective and committed to strong asset quality amid economic uncertainty and the likelihood that interest rates will remain elevated this year.
During the quarter, our lending teams continue to build momentum further developing relationships with our clients and finding compelling new opportunities to grow originations as we cultivate and build a more diversified loan portfolio.
Our loan originations improved from $22 7 million in Q3 to $53 8 million in Q4 and were largely offset by payoffs scheduled repayments and strategic exits in certain lending relationships as part of our risk management process.
Overall this left total loans for the quarter essentially flat.
Fill rates on loans, we originated 175 basis points higher than those paid off helping provide margin support.
We are positioning the overall portfolio for modest growth in the year ahead.
Non owner occupied commercial real estate loans made up 73% of total classified loans at year end up modestly from the prior quarter as we carefully monitor vacancy rates in the office sector.
Our non owner occupied office portfolio is diverse and consists of 153 loans.
With an average loan size of $2 4 million.
Largest loan being $16 9 million.
The weighted average loan to value was 59% and a weighted average debt service coverage ratio was one six times based on our most recent data.
Our office CRE book in San Francisco represents just 3% of total loan portfolio and 6% of our total non owner occupied CRE portfolio.
Just to reiterate we are continually looking for ways to enhance our collateral on potentially problematic credits, including working with our borrowers to secure additional collateral and our revised credit terms all with the view of minimizing the risk of future credit losses.
Now turning to deposits.
We continue to successfully attract new clients and deepen ties with existing customers to support our funding base.
While deposits grew over the past two quarters, our deposits in Q4 declined moderately mostly view activity from clients executing typically typical seasonal and year end business transactions.
Since year end deposits have increased by as much as $104 million during January which illustrates the impact normal large fluctuations can have on the daily balances due to our high level of operating accounts and why we maintain such high levels of liquidity.
Additionally, we saw some customers move cash into alternative investments to capture higher returns some of which were directly to our own wealth management group.
Noninterest bearing deposits at year end remains strong at 44% of total deposits and a majority of the noninterest bearing outflows aligned with the same customer business activities with solid overall deposits. Our average cost of deposits increased 21 basis points in the fourth quarter to only 115%.
Continuing the deceleration of the last quarter.
We believe we are appropriately competitive on deposit pricing, while maintaining our strong core deposit franchise and excellent customer relationships through exceptional service and our local market expertise.
As many of you know well our overall cost of funds has historically trended well below peer averages, reflecting our long term approach to customer engagement.
We prove our value to customers with a robust suite of products and services rather than competing on price alone.
Importantly, as we pursue improved profitability. We also remain highly focused on expense management.
Our fourth quarter noninterest expenses declined 2% from the prior quarter.
With respect to liquidity and capital we continue to maintain high levels of both.
Security sales during the quarter reduced our capital sensitivity to rising interest rates.
Our total risk based capital ratio improved to $16, 89% at year end compared to 16, 5% to 6% at September 30.
The 31% improvement in OCI raise tangible common equity to 973% of tangible assets.
Total available liquidity of approximately $2 billion at year end consisted of cash and unencumbered securities and borrowing capacity.
Importantly, our liquidity covers all of our uninsured deposits by over 210%.
Uninsured deposits declined by a percentage point from the prior quarter and stood at 28% of our total deposits as of December 31.
In summary, we made important progress on both sides of our balance sheet in the fourth quarter and throughout the second half of 2023.
<unk>, taking strategic measures to drive profitability in the quarters ahead.
With that I'll turn the call over to Tony to discuss our financial results in greater detail.
Tony: Thanks, Tim Good morning, everyone.
Tony: We've been working hard on many fronts to enhance and accelerate our profitability growth.
Tony: Our tax equivalent net interest margin increase of five basis points in the fourth quarter, followed a three basis point increase in the third quarter.
Tony: Our balance sheet repositioning contributed 15 basis points reflected in reduced borrowings and securities and a lower average rate on borrowings and higher yields on securities.
Tony: Loan yield improvements contributed another 10 basis points.
Tony: Deposit cost increases reduced the margin by 20 basis points.
Tony: We are optimistic that we will see further margin improvement in the coming quarters with the full effect of the balance sheet restructuring our ongoing focus on selectively growing the loan portfolio and the natural repricing of the existing loan book.
Tony: We generated net income of $610000 in the fourth quarter or <unk> <unk> per diluted share as compared to net income of $5 3 million or <unk> 33 per share in the third quarter.
Tony: There were two primary drivers as the fourth quarter decline in earnings.
Tony: First we recorded a $5 $9 million pre tax net loss on the sale of investment securities as part of our balance sheet restructuring, which reduced net income by $4 2 million or 26 per share.
Tony: Second we had an $875000 increase in the pre tax provisions for credit losses due in part to specific allowances on loans that have exhibited credit risk characteristics not indicative of core loans under the <unk> model.
Tony: We have taken a proactive approach in recognizing these characteristics by removing the loans from the pooled loan categories and analyzing them individually.
Tony: Additionally, a $406000 loss on the sale of an owner occupied agricultural commercial real estate loan was charged to the allowance concurrent with the sale.
Tony: Noninterest income excluding the loss on the securities sale was stable for the quarter as modest increases from wealth management and trust services and other income were partially offset by a decrease in debit card interchange fees.
Tony: Noninterest expenses were again well controlled in the quarter at $19 3 million down from $19 7 million in the third quarter.
Tony: The improvement was due to a combination of factors salaries and related benefits decreased 380000, largely due to a decline in incentive based compensation and partially offset by increases in regular salaries and accruals for insurance and employee paid time off.
Tony: Deposit network fees also decreased by $287000 due to a decline in reciprocal deposit network balances.
Tony: Decreases were partially offset by a 164000 increase in professional services expenses.
Tony: Putting it altogether, our profitability ratios were significantly impacted by the loss on sale of securities in the fourth quarter.
Tony: Without which pre tax pre provision income would have been 4% higher than in the third quarter.
Tony: As everyone on this call is aware 2023 with a very challenging year for the banking industry with several regional bank failures. Following the fastest increase in interest rates in 40 years.
Tony: Bank of Marin was characteristically well positioned to weather. The storm, we have always maintained strengthen our capital and liquidity positions and exercise disciplined credit and interest rate risk management and conscientious expense control.
Tony: Since December 31, 2022, total risk based capital improved 99 basis points to 16, 9% for Bank Corp, and 89 basis points to 16, 6% for the Bank Bank.
Tony: <unk> TCE ratio has improved 152 basis points over the year to nine 7% and the bank's TCE ratio has improved 143 basis points to nine 5% at year end.
If the net unrealized losses on held to maturity securities. We're treated the same as available for sale Securities. Thank course TCE ratio at December 31 would have been seven 8%.
Tony: On balance sheet and contingent liquidity remains strong and represent 213% of uninsured deposits are.
Tony: Our deposit base is well diversified with businesses, representing 59% of total deposit balances and 33% of total accounts, while the remainder are consumer accounts.
Tony: The average balance per account on our deposit base decreased by $5000 over the quarter.
Tony: Our largest depositor represented just one 7% of total deposits, while our four largest depositors comprised four 6%.
Tony: Our interest rate risk position continues to be fairly neutral, although more liability sensitive than in past years due to the upward repricing of deposits.
Tony: Security sales and reductions in borrowings added some asset sensitivity to the physician.
Cumulative deposit cost increases this interest rate cycle or the deposit beta have reached the levels assumed in our modeling and we are revisiting those assumptions in the context of our 2023 experience.
Tony: Our board of directors declared a cash dividend of <unk> 25 per share on January 25, 2024, which represents the 75th consecutive quarterly dividend paid by Bank Corp.
Tony: While our share repurchase authorization remains in place we didn't repurchase any stock during the quarter as we were focused on continuing to build our strong capital increasing our allowance for credit losses, and repositioning the balance sheet for the new interest rate environment.
Tony: We have identified and implemented incremental adjustments across our balance sheet and expense structure to accelerate net interest income expansion and to self fund efficiency improvements and.
Tony: And we will continue to look for further opportunities.
Tony: Our vigilant credit administration, consistent expense discipline and commitment to strong capital and liquidity levels give us a strong foundation to continue pursuing prudent growth in the year ahead.
Tony: With that I'll turn it back to Tim to share some final comments.
Tim Myers: Thank you Tani.
Tim Myers: In closing the actions taken in the fourth quarter is significantly impacted profitability metrics in the fourth quarter and without them. The pretax pre provision income would have increased over that of the third quarter.
Tim Myers: We continue to emphasize our relationship based banking model to maintain an attractive deposit mix and healthy liquidity levels, while proactively managing our balance sheet to expand our net interest margin, we remain committed to recruiting top talent and further building our teams to grow both deposits and loans positioning the bank for increased.
Tim Myers: Profitability into the future.
Tim Myers: We continue to fortify our balance sheet and maintain robust capital levels to manage risk and are exercising consistent expense discipline as we lay the foundation for prudent growth in 2024.
Speaker Change: With that I want to thank everyone on today's call for your interest and your support we will now open the call to your questions.
Speaker Change: If you would like to ask a question. Please press star on your telephone keypad, you may remove yourself at any time by pressing star five again, and we will pause just a moment.
Our first question will come from the line of David Feaster with Raymond James Your line is now open. Please go ahead.
David Feaster: Hey, good morning, everybody.
David Feaster: Morning, David.
David Feaster: Perhaps not surprisingly I was hoping to start on the margin.
David Feaster: Could we talk a bit.
David Feaster: About how you think about I guess first of all what do you think would be a good core margin run rate I mean, theres been a lot of balance sheet maneuvers that you guys are doing you've been very active.
David Feaster: Just kind of how you think about a good core margin and then just the trajectory.
David Feaster: In a potentially declining rate scenario you screen is modestly liability sensitive you alluded in the press release, maybe a bit more rate neutral. So just curious how you're thinking about the margin trajectory, if we do get potential cuts.
Speaker Change: Yes. Thank you David Good question I'll, let Tom jump in here Yeah. Thanks, David So we still have.
Speaker Change: Some.
Tom: <unk> residual loan repricing coming off the book to the current levels of interest rates.
So on the go forward quarter or the first quarter, that's worth about seven basis points.
Tom: End to end.
Tom: <unk> seven on average and over the year about 46 basis points end to end or about 23 basis points on average.
Tom: And and that is roughly that's in the base case with interest rates flat. So.
Tom: If you have rates going up.
Tom: More than that but you also then have offsets of deposit rates going up possibly.
Speaker Change: And we are revisiting our deposit beta assumptions there.
Speaker Change: But if you if we go down we still have some residual repricing on the loan portfolio.
Yes, we would have.
Speaker Change: Pricing on the deposits.
Speaker Change: So it's really difficult to say.
Speaker Change: What.
Speaker Change: What the deposits are going to do on the repricing, although we do feel that that's going to continue to moderate in terms of increases if if the fed stays on pause.
Speaker Change: And then the last factor there as I mentioned was the residual or the full effect of the securities.
Speaker Change: Or the balance sheet restructuring so we have zero borrowings on the balance sheet right now.
Speaker Change: So.
Speaker Change: So I think that there is some.
Speaker Change: So the full effect for one quarter versus.
Speaker Change: We executed those transactions over the course of the fourth quarter. So we didn't get the full impact in the fourth quarter.
Speaker Change: Sure.
Speaker Change: Do you have maybe kind of any expectation for what inclusive the margin would be inclusive of all the balance sheet actions.
Speaker Change: And I think I think and then in the next quarter.
Speaker Change: Five to 10 basis points.
Speaker Change: And for the core margin going Thats, a really tough question.
Speaker Change: That's a hard one to say.
Speaker Change: Just because there's so many moving parts.
Speaker Change: And to your point on the deposit side, maybe maybe switching gears here I appreciate all the commentary about seasonality.
Speaker Change: And the potential benefits in January I know theres, some seasonal tax impacts in the quarter as well could you maybe just dig into maybe quantify some of the seasonal dynamics as you saw in the quarter and whether you started to see those balances recover in January like like you Ed mentioned and just.
Speaker Change: Do you think about your ability to reprice deposits.
Speaker Change: Just given deposit betas were relatively slow on the way up and so just any thoughts on the deposit outlook and kind of what youre seeing.
Speaker Change: Sure so about 80%, 79% to 80% of the deposit outflow overall in the quarter.
Speaker Change: Was related to some combination of seasonal or what I would call unique but normal business transactions business sales trust distributions business or real estate acquisition, so not vendor payments or tax payments like you alluded to the normal business activity that was the vast majority of it and we've had inflows.
And those same kind of accounts upwards of over $100 million throughout the month of January. So we know that Thats a real factor. We did have about $25 million leave to go to outside broker for rate, but thats down dramatically from Q4, when we admittedly you got caught flat footed.
Speaker Change: Trying to be stubborn about deposit pricing before the events of March that was over $70 million in that category at the time, so but those are customers. We've lost if you look at the dollars of deposits decline from lost business is less than 1%. So we've really done a good job of re pricing.
Speaker Change: The amount we brought in through our deposit campaign, we talked about the last couple of quarters almost $130 million that weighted average is about 336 all in so.
Speaker Change: To your point, we're trying to hold the line on our relationship based pricing models still almost everything exception based pricing.
We've already been strategizing about okay. What are what do we do when rates start to come down and how do we respond so a pretty minimal amount and time deposits all of which mature in this year.
Speaker Change: But that was a fairly I think $80 million, so really trying to keep it in a few types of accounts that we can manage as profitably as possible, but that's kind of the math around and deposits. Overall, we had about $25 million also move from noninterest bearing into interest bearing.
Speaker Change: But those are clients that are again still within the bank.
Speaker Change: So we don't.
Speaker Change: And we had about $5 million net of money that one from deposit accounts here into our wealth management and trust group to put into higher yielding securities. So that's the general breakdown there.
Speaker Change: Okay. That's extremely helpful. Thank you and then just last one for me.
Speaker Change: On the growth outlook in the loan.
Speaker Change: The dynamics in the loan decline it seems like maybe there was more asset sales and payoffs in the fourth quarter.
Speaker Change: There is some strategically that you are moving out of the bank, but I'm just curious maybe the pulse of the market from your standpoint now demand is trending how the pipeline is shaping up and just how you're thinking about organic loan growth going forward.
Speaker Change: Sure. So we had.
Speaker Change: A lot of robust activity pipeline and closing in Q4.
Speaker Change: The mix is slightly more skewed towards C&I and owner user that maybe some of the prior quarters, but kind of overall mirrors. The makeup of the overall portfolio on the originations obviously when you close that much you've got to rebuild the pipeline, but we feel better about where it is then we did a couple of quarters ago for sure and so.
Speaker Change: We are aggressively working we've added some hires on the commercial banking side looking to add some more of.
Speaker Change: But part of that behavioral part of that market sentiment, we are seeing a loosening of people willing to consider some of these options.
Speaker Change: Business transactions for which they need to borrow on the asset sales side I know that's been a bit of a recurring theme for us for really is marginal in terms of the things we can control.
Speaker Change: Between asset sales and people just paying off debt with cash that was almost 40% of that total.
Speaker Change: A couple of larger or mid size I would say of construction projects that completed in as expected and paid off.
Speaker Change: Only $3 million of that total refinance and went to another institution and then we had about 12 million of those payoffs that we put in the workout category things, we were doing that cause them to look for financing elsewhere, but that helped us get rid of some of our largest classified loans. So we view that as a positive in the end of that.
<unk> overall net loan growth of course, but in the long run that was a positive for us.
Speaker Change: Terrific. Thanks, everybody.
Speaker Change: Yep.
Woody Lay: Our next question will come from the line of Woody lay with <unk> pay VW. Your line is muted. Please go ahead.
Woody Lay: Hey, good morning, guys.
Woody Lay: Good morning.
Woody Lay: It was good to see the continued balance sheet management I mean, do you think to be.
Woody Lay: That.
Woody Lay: One growth opportunities remain elevated do you think we could see further restructuring.
Woody Lay: The quarters ahead.
Speaker Change: Well I'll start high level, and then Tony can jump in if she wants but.
Speaker Change: Throughout the second half of the year, we look for opportunities to shed lower yielding some mix of lower yielding but also that has a lower impact in terms of the losses on the sale of the securities.
Tony: And we'll continue to look at that.
Tony: Yes, I mean, we're seeing with the deposit trends, we expect those to continue to trend upward overall outside of seasonal fluctuations were outside of the line I'm not super anxious to take losses on sales, but if we start seeing a real pickup in loan activity in that trade off of those lower yielding securities into higher yielding.
Tony: <unk> are these levels, yes, we will continue to look at that.
Tanya Yamana and yeah, I would just say the ones that we sold those had.
Tanya Yamana: Pretty low earn back periods very low earn back periods relative to loan rates and pretty pretty low earn back periods relative to.
Tanya Yamana: Paying off borrowings and putting money into cash so.
Tanya Yamana: We picked the best securities to sell for those based on that criteria now if we as Tim said, if we have significant loan growth, we would we would easily.
Tanya Yamana: Be able to target loan.
Tanya Yamana: Low earn back periods in order to re purpose cash from securities into loan book.
Speaker Change: Got it.
Speaker Change: Super helpful color.
Speaker Change: Wanted to shift to deposit trends.
Speaker Change: Pretty positive so far in January I was just curious how how the noninterest bearing deposit trends are faring so far in January.
Speaker Change: I think we're that's where we saw the bigger fluctuations as where certainly some of the seasonal outflow was in terms of business transactions.
Speaker Change: Their normal vendor tax payments versus those of those more onetime or unique things like a business sale, where proceeds go to investors or purchase of real estate or a business.
Speaker Change: <unk>.
Speaker Change: Again, we've seen the noninterest bearing increase upwards of $100 million throughout the months so.
Speaker Change: And it does fluctuate and so it is hard to tell with the seasonality that we see but.
Speaker Change: Again, we're not losing a lot of money out the back door, losing very few to other institutions and the pace of money moving out of noninterest bearing into both interest bearing and into non bank financial markets like money markets that is dissipating. So I don't know how to prognosticate, but we continue to see positive trends there.
Speaker Change: Yeah, and if I could just add that a significant portion. So we had a little lift in our interest bearing deposits over the course of the fourth quarter, but a pretty large portion of that was new money from existing customers as well as new relationships. So.
Speaker Change: I think that's an important data point.
Speaker Change: Got it.
Speaker Change: And then last for me.
Speaker Change: I know you are pretty aggressive on the grading process with credit, but just any color you can share on what drove the increase two special mentioned loans in the quarter.
Speaker Change: Yes, so I'll start really high level, and then hand, it off to Masako, Stuart, but we are pretty conservative or aggressive depending on how you look at that and looking at things in our watch category very finite time period that we let stuff sit there and so we do have stuff moved from watches a pass credit into criticized but we also are <unk>.
Speaker Change: Instantly looking at those or we can upgrade so I'll, let masako jump in on the specifics right right. So we did continue to see risk grade migration in the quarter kind of moving in both directions, but in the special mentioned category like Tim was talking about we do tend to take a more aggressive approach in our watch category that if we don't see improvements over about two or three quarters, we will move it.
Masako Stuart: And a special mentioned and so the increase primarily came from those situations all kind of with individual kind of different situations, but not necessarily on further deterioration just not any.
Masako Stuart: Meaningful improvement.
Masako Stuart: Over the over the last couple of quarters. However, we are expecting a number of upgrades to pass in the first quarter. After we get results from year end and so again like I mentioned, we are going to continue to see migration in both direction and just.
Masako Stuart: In our substandard category again that actually balance went down by quite a bit just due to some some active and successful workout.
Masako Stuart: <unk>, although we did have two more loans moving into our non accrual.
Masako Stuart: The category as well, but overall.
Masako Stuart: We will continue to see migration I think.
Masako Stuart: And upgrades.
Alright, that's all from me Thanks for taking my question.
Speaker Change: Thank you Ed.
Speaker Change: Next question will come from.
Speaker Change: Jeff Lewis with D. A Davidson your line is now open you may begin.
Jeff Lewis: Thanks, Good morning.
Jeff Lewis: Good morning, Jeff.
Jeff Lewis: Just to stay on the credit side.
Jeff Lewis: The classified.
Speaker Change: The balance $32 million any way to kind of break out the larger segments that are kind of most represented.
Speaker Change: What's in that bucket.
Speaker Change: Excellent.
Yeah, so the largest.
Speaker Change: The largest loan that we haven't had is an office building in San Francisco that I think I think it's been mentioned before which was downgraded I think III decembers ago.
Speaker Change: <unk>.
Speaker Change: And that makes up nearly half and half of that half of that balance we continue to work with the borrower loans continuing to pay as agreed.
Speaker Change: We have not fully structured and theirs.
Speaker Change: Our hours continuing to still make contractual payments there.
Speaker Change: And.
We continue to monitor that very closely.
Speaker Change: <unk>.
That makes up the bulk of that.
Speaker Change: Sub standard.
Speaker Change: Okay.
Speaker Change: Pretty granular from there.
Speaker Change: That's helpful.
Speaker Change: Tony if I could circle back to the margin I just wanted to make sure I've got pretty good detail, but I wanted to make sure I have it correct.
Tony: We are at.
Tony: Call it $2 53.
Tony: I'm looking at the benefits to the margin I think you said residual on average kind of full year impact.
Tony: Of 23 basis points.
Tony: Vacuum.
Tony: Let's take margin to $2 75.
Tony: Then other additions would be.
Tony: A little tail of the balance sheet restructuring could be a benefit.
Tony: Not to mention.
Tony: If we see some rate cuts if you mean at liability sensitive.
Tony: Swing and then and then it would be any carving back would be further repricing or pressure on the on the funding side is that are those the bigger pieces that were talking about in magnitude is that generally in line.
Speaker Change: Yep Yep that sounds right.
Speaker Change: Okay.
Speaker Change: Sure.
Speaker Change: Got it.
Speaker Change: And then.
Speaker Change: I guess, one last one just on the.
Speaker Change: Noninterest expense.
Speaker Change: In terms of management of that that's been out.
Speaker Change: Our campaign number I don't know if you.
Speaker Change: We typically don't like to throw out outlooks, but in terms of expense growth what kind of year is that in terms of.
Speaker Change: Investments are yet really mindful of that line.
Speaker Change: I don't know what the outlook for expenses.
Speaker Change: It is what the messaging is.
Speaker Change: Camp Aaron or is it.
Speaker Change: Ian.
Speaker Change: Tim I think you mentioned, obviously, you're seeing some talent here and there.
Speaker Change: Investment versus kind of mining expenses.
Speaker Change: Is that in the wash.
Sure.
Speaker Change: If you adjust out about the <unk> the roughly 600000 accrual adjustment that expense level is a good indicator in the quarter of our run rate. We are looking to make hires but we horse trade around.
Staffing levels, and where we can free up some money we have made some cost save.
<unk>.
Speaker Change: And a couple of areas to free up some funds for further investment in technology to streamline our lending operations in particular, so there are expenses coming but what we will continue to do our best to offset the offset those elsewhere. So.
Speaker Change: So again, if you back out that 600000 accrual adjustment that Q4 expense level seems a good indicator to us right now.
Speaker Change: 600, and a positive meeting.
Speaker Change: The benefit in the fourth quarter.
Speaker Change: Yes, you would want to take that out because those were accrual adjustments yeah, and then just a reminder that in the fourth in the first quarter, our 401K contribution matching tends to spike up.
Speaker Change: Because everybody's resetting for the year and then merit increases typically will go into effect in the second quarter.
Speaker Change: Got it.
Speaker Change: And Tony just a quick last one the tax rate.
Speaker Change: For 24 months.
Tony: A good number to use.
Tony: I think you can continue to use a 25, 26%.
Tony: Okay.
Speaker Change: That's it for me thank you.
Speaker Change: As a reminder, if you would like to ask a question. Please press star five on your telephone keypad, you may remove yourself at anytime by pressing star five again.
Speaker Change: Yeah.
Speaker Change: Next question will come from <unk>.
Speaker Change: Andrew.
Stephens: From Stephens. Your line is now open. Please go ahead.
Andrew: Hey, good morning.
Andrew: Good morning, Andrew.
Andrew: Just a couple of quick ones for me.
One can we go back to the margin for just some momentum Tani do you have the.
Stephens: Spot securities yield at 12 31.
Tani Girton: Yes. They do this let me grab that hang on one second.
Tani Girton: Okay.
Tani Girton: Yeah.
Okay.
Tani Girton: And then I guess.
Tani Girton: With that I'll come back to that yes, okay perfect.
Tani Girton: If I look at it.
Tani Girton: And shifting gears looking at slide 15 on the.
Tani Girton: The Investor CRE maturities are the repricing in 2024 and 2025.
Tani Girton: Really helpful Slide, but when I look at the 2024 bucket for loans repricing that $26 3 million outstanding.
Tani Girton: You've got the new weighted average debt service assumption.
Tani Girton: 121.2 times I guess when I look back at the December presentation at the 2024 loan re pricings, where.
Tani Girton: Estimated to carry at two one times debt service after re price. So I guess the question is what changed in the disclosed debt service is it just a function of that.
Tani Girton: And that mix of loans that are in that bucket because it does look like the mix changed a little better where there any kind of model changes that you've made within these assumptions.
Tani Girton: I think we had one property in there that.
Tani Girton: And between those quarters, where the tenant chose not to renew their lease so we adjusted that to more market based assumptions so that skewed it.
Tani Girton: Whereas I think the biggest out of that.
Speaker Change: Okay understood.
Speaker Change: But no change to the model or assumptions or anything in there.
Speaker Change: No no no.
Speaker Change: Okay.
Speaker Change: Andrew Thank you for your net interest margin question sorry.
Andrew: The average portfolio yield in December was 232% and then thats broken down in the presentation between <unk> and held to maturity.
Speaker Change: Okay perfect.
Speaker Change: <unk> got it.
Speaker Change: <unk>.
Speaker Change: Okay.
Speaker Change: And then Tony I wanted to go back to some of the commentary you gave earlier around the kind of residual loan re pricing.
Speaker Change: And I guess I'm.
Speaker Change: I'm trying to understand a little bit better when I when I look at.
I think it's page 18, the disclosure around the asset repricing.
Speaker Change: Going forward on both the loan and the security side when I look on the loans and that kind of three to 12 month bucket it looks like call it $100 million or so of loans repricing in 2024.
Speaker Change: So I'm I guess I'm trying to figure out how we get to the point to point disclosure of 46 basis points kind of throughout the year in terms of loan repricing, if theres just $97 million that bucket.
That question makes sense.
Speaker Change:
Speaker Change: Let's see.
Speaker Change: Well, you've got the three to 12 months at 97, but you've also got the $2 40 in the three months or less so obviously some of that to 40. If you have flat rates wont re price, but some of it is coming rolling down the curve and is ready to re price.
Does that makes sense.
Speaker Change: Yes. It does add my assumption is just that the three months or less was predominantly floating and had already repriced just given that the.
Speaker Change: <unk> was 703 fourths here.
Speaker Change: So I was thinking about the impact is more of like the 97 million, maybe you add an extra quarter in there coming from $5 84 up to 774.
Speaker Change: Sure.
Speaker Change: Okay.
Speaker Change: It will start to get to.
Speaker Change: The type of point to point loan yield expansion just based off the slide.
Speaker Change: Yeah, Okay, Andrew I'll I'll look at that offline and see if I can explain it a little better.
Speaker Change: Okay.
Speaker Change: Got it I appreciate it.
Speaker Change: And then.
Speaker Change: Last question just on the margin.
Speaker Change: It looks like if I look at the interest bearing deposit cost progression throughout the quarter.
Speaker Change: Timber months saw kind of the greatest increase.
Speaker Change: I'm not sure if that was more of just a function of mix and I know there was some volatility towards.
Speaker Change: Quarter and it sounds like but just given given maybe an elevated amount of pressure in December versus the prior quarter would you expect that we could see.
Speaker Change: I guess, a relatively stable margin in the first quarter before some of these benefits start to kind of kick in as we roll throughout the year.
Speaker Change: Yes, I think some of the movements in the noninterest bearing to interest bearing and some that moved out they were pretty lumpy.
Speaker Change: And that did happen later in the quarter and so I don't want to say, that's a run rate than that.
Speaker Change: That can.
Speaker Change: Belo jerky and its impact depending on the timing. So I don't think thats indicative of a run rate per se, but again I'm really low.
Speaker Change: Prognosticate that given what's happened.
Speaker Change: Yes totally understood.
Speaker Change: Okay, well I appreciate you all taking my questions. This morning.
Sure. Thank you very much.
Speaker Change: So we did have an online question when you talk about the residual loan repricing opportunity is it safe to assume that will continue in 2025 and beyond assuming you do not we do not return to a zero interest rate policy I'll, let Tony handle that.
And I always say, yes, they're there the residual repricing it continues beyond the one year time horizon.
Speaker Change: Typically.
Tony: The duration on our loan portfolio is somewhere around four years. So you can you can assume that we're going to get residual repricing over that.
Speaker Change: Tired timeframe.
Speaker Change: There are no further questions I will now turn the call over to Tim Myers for closing remarks.
Tim Myers: Thank you again, everyone for both your interest support and questions. We appreciate it and look forward to seeing you next quarter go Niners.
Tim Myers: Yeah.