Q4 2024 Bank of Marin Bancorp Earnings Call
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Good morning, and thank you for joining Bank of Moran Bancorp's earnings call for the fourth quarter and in December 31st, 2024. I'm Christy Myers, Corporate Secretary for Bank of Moran Bancorp.
Especially on these risks and uncertainties. Please review the forward looking statements disclosure in our earnings news release as well as our SEC filings.
Following our prepared remarks, Kim and our Chief Credit Officer, Masako Stuart will be available to answer your question.
Ken Meyers: And now I'd like to turn the call over to Ken Meyers.
Speaker Change: Christy Good morning, everyone and welcome to our quarterly earnings call. Our fourth quarter results reflect continued improvement in our financial performance.
Speaker Change: The actions we took earlier in 2024, so both reposition our balance sheet and reduce operating expenses.
Speaker Change: This resulted in an increase in our net income and earnings per share largely driven by an expansion in our net interest margin and a lower level of operating expenses on a broad basis, we continue to have strong asset quality within our loan portfolio.
Speaker Change: We made progress on previously reported an average with no issues new issues emerge.
Speaker Change: During the fourth quarter, our non accrual loans and classified loans both declined largely due to paydowns on these loans and we had an immaterial amount of net charge offs.
Speaker Change: We continue to see improvements in leasing activity in San Francisco, a large non accrual loan for a previously vacant San Francisco property is now 100% occupied with cash flows that meet a conforming debt service coverage.
Our banking team reinforced with new members is doing an improved and more consistent job of developing attractive lending opportunities and generating solid loan production, while still maintaining our disciplined underwriting and pricing criteria.
Speaker Change: While overall loan demand remains fairly consistent due to the efforts of our banking team. We are getting a larger volume of opportunities that are within our markets.
Speaker Change: During the quarter, we originated $54 million, a month of amendments with $47 million and outstanding balances.
Speaker Change: Our originations were a well diversified mix of both commercial and commercial real estate loans.
Speaker Change: Additionally, we are seeing more granularity in our loan portfolio.
Speaker Change: Nearly twice as many commercial and construction loans is in the same period last year.
Speaker Change: The outstanding balances from December's bookings will position the bank did benefit from a higher level of interest income during the first quarter. When we had the full quarter constant contribution of these new loans.
Speaker Change: Our total deposits declined in the fourth quarter as we indicated on our last call. This was expected given the typical seasonal deposit outflows, we see during the fourth quarter due to the nature of our client base with many professional service firms so that typical year end fluctuations.
Speaker Change: Despite the outflows our proportion of noninterest bearing deposits remained at a high level at 43% of total deposits as we continue to benefit from our relationship banking model with high touch service.
Speaker Change: Due to our loyal customer base, we have not experienced any material related deposit outflows as we adjusted our related rates in response to the fed's rate reductions.
Speaker Change: Given our improved financial performance and prudent balance sheet management, our capital ratios increased during the fourth quarter and remained very strong with a total risk based capital ratio of 16, 5% and a TCE ratio of 993%.
Speaker Change: With that I'd like to welcome our new CFO, Dave on of course, so and turn the call over to him to discuss our financial results in more detail.
Dave: Thanks, Tim.
Dave: Morning, everyone.
Dave: We generated $6 million and net income for the fourth quarter or <unk> 38 per share both of which are higher than the prior quarter. As we continue to benefit from the balance sheet repositioning expense reduction actions, we took earlier in the year.
Dave: Net interest income increased 4% from the prior quarter to $25 2 million largely driven by a 10 basis point increase in our net interest margin.
Dave: The expansion in our net interest margin was attributable to a 10 basis point decrease in our cost of deposits, while our average yield on interest earning assets was unchanged from the prior quarter. Despite declines in short term interest rates are.
Dave: Our average yield on loans increased by nine basis points during the fourth quarter and we expect to see similar improvements in the coming quarters due to repricing benefits within our existing loan book as well as higher yields from new loan originations.
Dave: Our noninterest expense decreased by $2 1 million from the prior quarter, mostly due to the decline in salaries and benefits expense, resulting from true ups to accrued incentive compensation.
Dave: Moving to noninterest income, we had a slight decline from the prior quarter, primarily due to lower wealth management revenue.
This was related to an increase in fees during the third quarter for activities to resolve a large trust accounts and distribute assets.
Dave: On a year over year basis, our wealth management revenue was higher which reflects an increase in assets under management during 2024.
Dave: Our total deposits were $3 2 billion at December 31.
Dave: As Tim mentioned, we typically see some seasonal outflows in the fourth quarter, which resulted in the decline we saw in deposits from the end of the prior quarter.
Dave: Deposits historically built back up during the course of the year.
Dave: Our average cost of total deposits declined 10 basis points from the fourth quarter as we pass through rate cuts to our deposit customers without seeing any material rate related outflows.
Dave: During the fourth quarter, our interest bearing cost of deposits declined by 19 basis points, which is generally consistent with net interest income modeling assumptions are disclosed in our third quarter 10-Q.
Disciplined credit management remains a hallmark of bank of Marin as well.
Dave: Both nonaccrual loans and classified loans declined in the fourth quarter due to paydowns on two relationships and one upgraded criticized.
Dave: Due to the stability in our loan portfolio, we did not record any provision for credit losses in the fourth quarter.
Dave: The allowance for credit losses remains at 147% of total loans, which is unchanged from the prior quarter.
Dave: Loan balances of $2 8 billion at the end of the fourth quarter were down $7 million from the prior quarter.
Dave: While we had strong new loan production. This was offset by an elevated level of loan payoffs for a variety of reasons, including the sale of assets businesses. The completion of construction projects and our efforts to manage weaker credits out of the bank.
Dave: We also had a higher level of payoffs on residential mortgages when you typically see.
Dave: Given the continued strength of our capital ratios our board of directors declared a cash dividend of <unk> 25 per share on January 23.
Dave: <unk> ninth consecutive quarterly dividend paid by the company.
Dave: With that I'll turn it back over to you Tim to share some final comments. Thank.
Tim: Thank you Dave in closing, we believe we are very well positioned to continue generating improved financial performance in 2025.
Tim: Given the strength of our balance sheet with high levels of capital and liquidity, we are well positioned to capitalize on any improvement we see in economic conditions and loan demand.
Tim: Well the talent, we have added to our banking teams, we are seeing a higher level of loan production that still meets our disciplined underwriting and pricing criteria, which.
Tim: Which we believe will lead to a higher level of loan growth in 2025.
Tim: As we start the year, our pipeline remains strong and well diversified across markets industries and asset classes.
Tim: Combined with the positive trends, we are seeing in our net interest margin and our prudent expense management, while still investing in talent and technology.
Tim: We should see meaningful revenue growth and a greater degree of operating leverage which should translate to earnings growth and a higher level of profitability.
Tim: We have also made strategic and prudent investments in technology over the past several quarters and during 2024, we went through the process of installing this technology.
Tim: This year, we expect to see much more of the benefits of these investments in terms of our overall level of efficiency and client service.
Tim: In summary, we believe that we are very well positioned to increase our market share at attractive new client relationships generate profitable growth and further enhance the value of our franchise in 2025 and the coming years.
Tim: With that I want to thank everyone on today's call for your interest and support.
Tim: But before we open the call to your questions I'd like to them by Tani Girton served as our chief financial officer for more than a decade and it would be.
Tim: Tires later this week to share a few words.
Speaker Change: Thank you Tim.
Speaker Change: Good morning, everyone.
Speaker Change: I wanted to take this opportunity to personally say goodbye to all of you and thank you for your support over the years.
Speaker Change: It's been an honor and a pleasure working with you and I have learned a great deal from our interactions, making my work extremely rewarding.
Speaker Change: As you can see bank of Marine won't Miss a beat when our new CFO okay.
Speaker Change: He joined the bank as Treasurer, and 2023, and we have been working closely together for the past year and a half preparing for the transition.
Speaker Change: I'm excited to embark on travel and new activities in my own and I will rest assured that Ken and the talented and energetic executive team. He has built or taking the bank to new Heights.
Speaker Change: So many of the projects we've been working on what concept relation in 2025 and this is just the beginning.
Speaker Change: I wish you all success health and happiness and I sincerely hope that our paths will cross again.
Speaker Change: Thank you Tony for your commitment and dedication to the bank and all of our shareholders. We wish you all the best in your New Chapter we will now open the call to your questions.
Speaker Change: At this time, if you'd like to ask a question. Please click on the <unk> Com, Boston, which can be found on the black box at the bottom of your screen.
Speaker Change: Thanks for your time, you will receive a message on your screen from the highest allowing each cook and then you'll hear named crude.
Speaker Change: Please accept your auto and ask a question.
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Speaker Change: Okay.
Speaker Change: Our first question will come from Jeffrey Lim you May know on your audio and ask a question.
Jeffrey Lim: Thanks, Good morning.
Speaker Change: Tony Congratulations and thanks for all your efforts over the years all the best in retirement.
Jeffrey Lim: Good morning, Jeff. Thank you.
Jeffrey Lim: Good morning.
Speaker Change: For Dave and welcome.
Speaker Change: Just on the on the margin front.
Speaker Change: I noticed in the deck, a little more liability sensitive quarter over quarter.
Speaker Change: Deposit.
Speaker Change: The average in December which was lower than the quarterly average.
Speaker Change: You talked about the asset repricing opportunities.
Speaker Change: To sound like an upward trend.
Speaker Change: Any kind of.
Speaker Change: Framing up the magnitude you've had a decent couple of quarters, but I just wanted to check in on where you think you settle in.
Speaker Change: 25.
Speaker Change: Sure Jeff.
Speaker Change: So I can give you the draw.
Speaker Change: Drivers of that.
Speaker Change: What do we think it is going to go starting with loans and deposits investments and cash yourself on the loan side based on a flat balance sheet thinking about you're referring to the disclosure at the bottom of page five.
Speaker Change: You can see there that.
Speaker Change: Youre right in year, one we expect to be a bit more liability sensitive with some improvement in rates down part of that is due to the natural repricing in our loan book, which we estimate to be about 27 basis points.
Speaker Change: Improvement.
Speaker Change: On a 12 month basis from point to point, that's based on a static balance sheet you can see that exemplified by our most recent quarter loan yield increased nine basis points quarter over quarter.
Speaker Change: I guess, one other data point, there would be for our commercial and construction loans the yield on new customers of about 42 basis points higher than on payout.
Speaker Change: All of that speaks to.
Speaker Change: Improve on the loan side on the deposit side, you mentioned the decline in deposits and.
Speaker Change: But what we've experienced so far from a beta perspective generally in line with our assumption that we disclosed in our Q3 10-Q, we've adjusted that and that's what you see in the bottom of page five in the deck, which is huge.
Speaker Change: That's why we wanted to keep as much was based on our success in cutting rates. Thus far we shorten the lag to two months for <unk> III.
Speaker Change: And kept the falling rate made assumption of 35% so.
Speaker Change: One thing you should know that is not reflected in the numbers you see today is in response to the December rate cut we made additional rate cuts on deposits in.
Speaker Change: January.
Speaker Change: The net effect is we cut.
Speaker Change: Our non maturity interest bearing deposit rates by about nine basis points, which is a bit more than a 35% beta on the.
Speaker Change: In the KLM assumption. So we did that was more like a two and a half week lag rather than a two month lag. So again all of that speaks to the ability to reprice deposits downward.
Speaker Change: Moving along to the other drivers investments I'd say over time, you want the portfolio to be a smaller amount of the balance sheet remix into to more loan growth.
Speaker Change: Do have a securities yield about $2 64 for Q4, so any payoffs we get there theyre not reinvesting in the securities and remain in cash give US 175 basis point pickup today, given the Kashi over 440 of the fed and obviously, we can do that better than that if we go out the curve and reinvestment and then I'd say the cash we want that's what I'd say.
Speaker Change: Generally cash is probably going to hang around where it finished the year in the $100 million to $150 million range. The wildcard as you know was where that goes and but.
Speaker Change: I think we're not expecting that to go quite as well as we may have a couple of months ago. So those are the drivers as I see them.
Speaker Change: Gotcha and I guess.
Speaker Change: Short of forward looking commentary I guess is your budget do you think about it.
Speaker Change: Sort of a terminal margin right I mean, we've got a lot of moving pieces, but thoughts on.
Speaker Change: We're either.
Speaker Change: Relative to the past couple of quarters of margin expansion.
Speaker Change: Some of that on the restructuring work.
Speaker Change: Trying to get a sense for what the residual of of upside on margin.
Speaker Change: So yeah.
Speaker Change: A chunk of it is going to come down too.
Speaker Change: To the rate environment and.
Speaker Change: We're in it.
Speaker Change: We.
Speaker Change: We are continuing to be able to lower deposit rates, but over the long run I would say the bank really wants the debate really outperforms in higher rate environments.
Speaker Change: We just have so much opportunity to reprice, our our asset yields relative to liability yields that.
Speaker Change: That's the real benefit so I can't I can't give you a number but.
Speaker Change: I think that that's the path we're on.
Speaker Change: Pretty indicative of where we're going.
Speaker Change: Okay I appreciate it.
Speaker Change: I guess.
Speaker Change: Tim or for anyone on the on the loan growth side, you mentioned pipeline growth I don't know if you have got that in actual numbers quarter over quarter.
Speaker Change: I guess the second part of that question is do you have any.
Speaker Change: Greater like payoff clarity in 'twenty, five any feeling of increase or decrease in pay offs.
Speaker Change: So I guess two parts the pipeline figure if you've got it and then any.
Speaker Change: Outlook on payoff activity.
Jeff: Abbott going forward sure and as you know, Jeff we don't we don't give guidance directly on the pipeline, but what I can say.
Jeff: If you just look at Q1, that's about 40% higher pipeline than it was prior to Q1 and the total pipeline is about double what it was this time last year and one of the things I would highlight is pretty proud of the originations.
Jeff: Whether it's our risk that we announced or we've.
Jeff: We've talked about repositioning talent within the organization, bringing new talent that is paying off so if you look at the staffing on the production side throughout the year, we were at least the third down depending on when you look at point in time, our producers, yes, we did a better job and so we've added people the timing of that and obviously effects.
Jeff: Pipeline and subsequent loan closings, but we added someone in December thats, having an impact and we added later in the month, but we had two people in Q1, thus far that are expected to have an impact on production. So we're optimistic.
Jeff: As you know given the type of relationship loans not transactional.
Jeff: Lending, that's it's hard statistically to map that out for you, but I'm very optimistic by the origination bill or pipeline Bill, we're seeing and how that will translate on the power side I mean, as you mentioned, it's really hard to.
Jeff: To put our fingers on and if you look at the big jump in category or by category and our payoffs last quarter was residential loans, we don't tend to get a lot of payoffs of mortgages or ti's fees, but that number was $9 million. So.
Jeff: If you look at within the commercial portfolio.
Jeff: Going through my notes here.
Jeff: The largest component by far by almost double was still just cash deleveraging, that's a really hard number to predict.
Jeff: If we get a movement in longer term rates, maybe there's less pressure to do that but that that's something we really can't control. The next biggest one was just completion of construction projects and that's supposed to happen. We just have to outrun that.
Jeff: I'm hopeful that the amounts that we lose out the back door for workout or exit reasons will continue to go down that was another fairly substantial amount for the quarter not substantial but one of the major contributors.
Jeff: And we continue to work through our problems as you saw in the credit part of that that earnings release, and then asset sales.
Jeff: Last in the quarter than it has been but between that and the cash deleveraging. It's a long winded answer it just makes it really hard to predict we really had a very very small amount go out the back door that we didn't want to leave.
Jeff: For any of those other categories.
Jeff: And we continue with that hiring to be very relationship focused to be in front of that but I can't predict the final outcome.
Jeff: That's a hedge the answer but hopefully you there's enough detail to explain why.
Jeff: No.
Jeff: I appreciate it Tim and I, just wanted to clarify that that 40% pipeline number was that.
At this point, starting Q1 over Q1 of last year.
Jeff: Okay Yeah.
Jeff: And sequentially.
Jeff: As you entered or excuse me the fourth quarter.
Is that similar to predict excuse me close yeah, that's harder because we are less relevant because we closed a lot of loans. So the pipeline that were started in Q4, obviously shrank with the deals closing.
Jeff: The key is to build that back up as quickly as possible. So that's why the.
Jeff: The Q1 over Q1 is a little more relevant to us from a management standpoint.
Speaker Change: Okay. Thank you appreciate it Youre welcome.
Speaker Change: Our next question comes from Andrew Charles Please go ahead and ask your question.
Speaker Change: Hey, good morning, good morning, Andrew.
Speaker Change: Tommy Congratulations it's been a pleasure working with you and I wish you all the best summed up to stay in touch.
Tommy: Thank you Nathan.
Speaker Change: Yes, David if I could move.
Speaker Change: First just on expenses it looks like.
Speaker Change: Some of the improvement this quarter might have been related to just lower incentive accruals I guess I was hoping to maybe.
Speaker Change: <unk>.
Speaker Change: What does that benefited the quarter or not.
Speaker Change: And then just thoughts on you know what kind of claim expense run rate is I know you're still hiring as you guys mentioned a minute ago, but just a clean kind of expense run rate, we should think about moving into 2025.
Speaker Change: Yeah.
So on your first question, yes, it's a key driver of this quarter's.
Speaker Change: Expenses was.
Speaker Change: The true ups that we do typically at the end of the year on personnel.
Speaker Change:
Speaker Change: What what I would say for a cleaner run rate and this will help you get to the Delta maybe.
Speaker Change: Personnel this quarter, but.
Speaker Change: What I would do is I would probably extrapolate Q2 or Q3 expenses could try to model something ahead keep in mind that Q2 has the contributions that occur annually. That's in the let's say the number is about 515000 ourselves and in Q3. This year, we had that non repeatable legal settlement that was I think 615000, so I would adjust.
Speaker Change: Those couple of things and looked at some combination of Q2 and Q3 together.
Speaker Change: As a good run rate looking forward.
Speaker Change: Okay understood. So maybe yes, maybe a little north of that $20 million figure right around there.
Speaker Change: Yeah.
Speaker Change: Okay. If I could ask just Tim I heard your comments in the prepared remarks around the office loan in San Francisco, just wanted to confirm that that was still on.
Speaker Change: Non accrual this quarter and then could you refresh US you mentioned that the debt service coverage ratio and improved and it was 100% occupied now could you remind us what the what the debt service coverages.
Speaker Change: Currently and then.
Speaker Change: What's the.
Speaker Change: What's the path forward for this credit look like in terms of how it's represented on your balance sheet.
Just maybe timeline and expectations there yeah I'll start Big picture I think you might be confusing two of the properties. So the one that's mentioned and that is now fully occupied was a nonaccrual. We moved a couple of quarters ago by $8 million and that was because the tenant a glass that is now fully.
Speaker Change: Hi.
Speaker Change: Cash flows completely adequate we just have some negotiations around extension documentation all of that for that to move off.
Speaker Change: The other large one that we've been talking about for years now.
Speaker Change: It seems to get significant lease activity.
Speaker Change: The newer leases are still coming on at lower lease rates and so that matures in 2026, and I think we still believe were provisioned adequately.
Speaker Change: It will it will depend on that trajectory and how those lease rates go up I mean, if you look at the market overall.
Speaker Change: The first quarter in San Fran Lastly, all year was the most leasing activity square footage wise since 19 and last quarter was the first positive absorption since 19.
Speaker Change: And some of the hardest hit areas I mean, we don't have these high rise class a space is a lot of reports referred to but there was improvement in areas like south of market, where some of our clients out of their smaller two to three storey buildings. So we're not out of the woods vacancy is still 30% of the city, but we are seeing a positive trend overall and we are seeing that impact our customers.
Speaker Change: <unk>.
Got it okay.
Speaker Change: Thank you.
Speaker Change: One more.
Speaker Change: A few questions just on the mix shelf that was filed this morning.
Was this just replacing a prior authorization or any kind of color you can provide on that yeah. That's just housekeeping. We view it has been a long time, we've been in discussions with our counsel Predating. All these bank failures and all of that to do this.
Speaker Change: Obviously, we've talked about a number of things that remain options for uses of capital for frankly, all the banks out there in our segment and it felt it behooves us to put a shelf filing in place obviously, it's for a lot and for a whole buffet of securities. So it really is we view it akin to a share authorization, we get the authorization.
Speaker Change: Got it.
Speaker Change: It doesn't mean, we're going to use it or anywhere near that so I would put us squarely in that be prepared category or for anything.
Speaker Change: Got it okay. Thank you very much for taking the questions. Yes. Thank you Andrew.
Speaker Change: Our next question comes from <unk>. Please ask your question.
Speaker Change: Hey, good morning, guys good morning.
Speaker Change: Wanted to start on the <unk>.
Speaker Change: On the loan yield and you had been non accrual take pay down earlier in the quarter was there any onetime in nature <unk> recognized as a part of that.
Speaker Change: Pay down that flowed through the loan yield.
Speaker Change: Yeah.
Speaker Change: Jets, just some some catch up in yes.
Speaker Change: Yes.
Speaker Change: Related to one loan that paid off that would be it.
Speaker Change: Any way to any way to quantify the dollar amount I think last quarter, you might've had six basis points on.
Speaker Change: On the headwind there.
So I'm just trying to kind of figure out what the core loan yields.
Speaker Change: So just I just wanted to clarify sorry, what I just want to clarify one thing the only long they got upgraded from nonaccrual as a smaller loan I think it was $2 million. The the large amount was the pay down on the C&I.
Speaker Change: Consumer goods company, we'd been talking about so that loan is not paid off so we haven't made all the accrual adjustments there. So it's a little bit noisier than than I think what you what you mentioned.
Speaker Change: Got it got it.
Speaker Change: And then any way that you all could provide some more color sort of on on where the loan yields where that paid off in the quarter first where new production is.
Speaker Change: Coming on the books.
Speaker Change: So.
Speaker Change: The yield on for commercial construction.
Speaker Change: The payoffs were by anyone and new originations were $6 three to.
Speaker Change: So 42 basis point improvement there.
Speaker Change: Got it.
Speaker Change: And then last.
Speaker Change: Special mentioned loans fell a little bit of an increase in the quarter on a larger construction projects any expectations for when that property itself.
Speaker Change: Okay.
Speaker Change: And it hasn't been lifted yet, but that is our discussion with them currently on the on the timing of the lifting and then also like a plan b on a on a re marketing plan, which they do have the ability to do.
Speaker Change: So yeah. There's capacity here. This is just where the market is at completion, but this was not something we worry a great deal about.
Speaker Change: Yep.
Speaker Change: Well, that's all for me congrats on the upcoming retirement Donnie.
Donnie: Thank you Eddie.
David Pizza: Our next question comes from David Pizza, Please limit your line and ask a question.
Hey, good morning, everybody.
Howard: Sure Howard.
David Pizza: Doing great.
David Pizza: <unk> on the retirement side I'm very excited about this next chapter.
David Pizza: Congrats.
David Pizza: Thank you.
Speaker Change: Maybe just staying on on the origination side, but to me that's one of the more exciting parts to think about the quarter and reading between the lines. It sounds like its really more of a function of market share gains.
Speaker Change: And increased productivity from you or your team rather than really improving demand.
Speaker Change: Is that a fair characterization and just kind of thinking about the growth trajectory as we go forward to the extent that we do get it.
Speaker Change: Improving demand.
Speaker Change: New hires and hopefully slowdown in payoffs, maybe we see an accelerating.
Speaker Change: Pace of growth over the course of the year.
Speaker Change: I couldn't have answered your question better than you just got it David.
Speaker Change: Okay. Okay. So so kind of big it.
Speaker Change: Is there an appetite to potentially supplement that organic growth with additional.
Speaker Change: We'll purchases or do you think you are at the point, where we can start seeing originations exceed.
Speaker Change: Payoffs and Paydowns and we start seeing growth inflect.
Speaker Change: Well, it's a great. It's a great question and you know we've talked about this before and by the nature of the payoffs, it's really hard to predict but we do fleet feel like we're getting to that inflection point, where the originations outpaced payoffs, but that timing can get in the way of that that's hard to predict we've made small purchases around CRA well we use.
Speaker Change: The mortgage purchases and prior quarter do help with the yield on the reinvestment for the App as repositioning we have looked at and will continue to look at purchases that will help a CRA, but we're not actively looking to buy loans to drive the growth we did.
Speaker Change: Pare down on the wood side auto loan acquisitions in the quarter that.
Speaker Change: Graham we kept after the acquisition of American River Bank. So we will look to be opportunistic, but I would say, it's fair to say our focus continues to be on organic origination supplemented where April.
Speaker Change: Okay.
And then maybe just touching on the deposit side.
Speaker Change: I was hoping you could first I guess quantify it's hard to do could you help quantify maybe some of the seasonal dynamics that youre seeing it sounds like you haven't really seen much attrition from.
Speaker Change: Yeah.
Speaker Change: Our active efforts to reduce deposit costs and then just where are you seeing opportunities to drive new account growth you guys have done a great job.
Speaker Change: The marginal cost of interest bearing.
Speaker Change:
Speaker Change: Interest bearing deposit cost is extremely good. So just kind of curious you know again, the seasonal dynamics, where you're seeing opportunity for core deposit growth going forward.
Speaker Change: So almost the entirety of the fluctuation you saw in the quarter was that seasonal nature.
Speaker Change: Yeah.
Speaker Change: Customers, who have funds tied to elections or ballot measures or seasonal professional service firms as seasonal outflows, but almost the entirety of that philosophy was very small amount of lot for other reasons.
Speaker Change: Yes, even throughout the month of January up 50 million down 5 million, there's a lot of fluctuations at the end of the year and early in the subsequent year.
Speaker Change: But we are very focused on new client acquisition you saw we had about.
Speaker Change: New accounts come in during the quarter, 43% of them.
Speaker Change: Were new customers to the bank that we can build on certainly the bulk of those by dollar amount is going to be an interest bearing but those are coming on at a lower rate than the overall portfolio. So we're not paying up we're buying this business on the commercial banking origination side is certainly one of the plays.
Speaker Change: Or or core focuses on getting these professional service firms or the noninterest bearing deposits. So while the outstandings don't necessarily tell the whole story for the quarter almost a third or just over a third of the loans, we originate in the quarter by commitments were to new C&I companies and so with that we require the operating business.
Speaker Change: And it takes a while to bring everything over but.
Speaker Change: That's a requirement for us on the C&I side. So those are the kind of things you keep all of that stuff moving and you hope to grow your core client non DB noninterest bearing account base and then that grows over time, but.
Speaker Change: While our deposit base as granular there are names our customers in that had these large fluctuations and that is what we saw in the fourth quarter.
Speaker Change: Okay, great and if I could just squeeze one more in quick just following up kind of on the capital discussion you've got you've.
Speaker Change: <unk> got a really strong balance sheet and you've got a lot of flexibility you've historically you've been you basically used every form of capital deployment out there I mean, obviously, it's not burning a hole in your pocket, but.
Speaker Change: Could you just touch on maybe some of the capital opportunities that may be you are most attractive to you whether it's the securities repositioning buybacks M&A could you just touch on kind of what you guys are looking at and considering.
Speaker Change: Again, you you answered your question better than highest cut it is it's all the above I mean, we are those are all conversations we're having.
As you know, we reposition law securities last year, you need to get to a point depending on the magnitude we have more iff's. We can reposition more became available with the unwinding of the swap which did help our NIM.
Speaker Change: Obviously as we talked about there are discussions around the potential for an HCM position reposition that's not something we need to do we have the ability.
Speaker Change: To sit there and not sit there, but those earnings accrue back to the P&L over time from the balance sheet.
Speaker Change: And then there's M&A in hand for any potential potential one or combination of factors depending on how you model that make sure we keep the regulators comfortable with our capital position shareholders' depositors.
Speaker Change: We just wanted to make sure we have something in place that can help us deal with any contingency, but all of those things as you mentioned are all things, we talk about and consider all the time.
Speaker Change: Terrific. Thanks, everybody. Thank you.
Speaker Change: Okay.
Speaker Change: Our next question comes from Matthew Clark, Please ask a question.
Speaker Change: Our next question comes from Matthew Clark. Please go ahead, Amit your line to ask a question.
Matthew Clark: Hey, Thank you sorry, I was talking to myself.
Speaker Change: [laughter] Congrats Tony.
Speaker Change: It sounds like Youre going to keep busy based on our conversation late late last year.
Speaker Change:
Speaker Change: Just first one for me just on the deposit cost.
Speaker Change: You see the averages I think in your presentation, but do you have the spot rate at the end of the year Indeed.
Speaker Change: Are you willing to offer up the spot rate here in January based on the additional changes you've made.
Speaker Change: Sure. So our December cost of deposits was 132.
Speaker Change: Interest bearing deposits in December was $2 37.
Speaker Change: And.
Speaker Change: We brought down as I mentioned interest bearing deposits by about eight to nine basis points. So far this year.
Speaker Change: And at year end, no im looking for the spot rate at year end not the average for the month.
Speaker Change: Well I would say so.
Speaker Change: There weren't a lot of catch later in the month so.
Speaker Change: Sure.
Speaker Change: So the spot rate at 12, 31 would be very very close to the average.
Speaker Change: Okay got it thank you.
Speaker Change:
Speaker Change: And then with the shelf the shelf out there can you give us a sense for the probability or likelihood of tapping.
Speaker Change: Tapping that shelf to either reposition HTM.
Speaker Change: Maybe do some team lift outs to grow organically.
Faster clip or indoor M&A, just updated thoughts on just the willingness to tap the shelf for.
Speaker Change: Any of those three things and the likelihood of.
Speaker Change: I guess, which is maybe more of a higher probability than the other.
Speaker Change: The short answer is no I can't give you a sense for that because there are no immediate plans for tapping into the shelf I think we have the capital for things like team once we have the capital for Iff's repositioning.
Speaker Change: But there are you know again, if theres any combination of activities that happen or.
Speaker Change: Or we do something larger.
Speaker Change: The kind of the nature of the things being discussed out there among all the banks like us.
Speaker Change: That might require a bigger number nowhere near.
Speaker Change: My anticipation the total filings of $125 million. It's just it is a buffet of things just in case so.
Speaker Change: There's no plan right now too.
Speaker Change: Do that but I can't tell you and as you know things happen opportunities prevent present themselves but.
Speaker Change: But I have no no immediate plan nor is there a timeline for that Matthew.
Speaker Change: Okay, and then just updated thoughts on M&A in general.
Speaker Change: Valuations, obviously continue to be an impediment to deals but.
Speaker Change: It's my job to be out talking at all.
Speaker Change: Talking to folks all the time.
Speaker Change: There is certainly is nothing eminent or.
Speaker Change: So far enough along to talk about but it doesn't.
Speaker Change: Our job is to continue to explore opportunities and be prepared if something were to present itself.
Speaker Change: And can you just remind us the types of things you're interested in on the M&A side.
Speaker Change: Well the bank has been very independent as you know in the past and I think we would prefer to remain independent and be an acquirer, that's where the valuation of the stock currency could be an issue. Obviously, we've seen some no premium or on Maui deals over the last couple of years that present unique opportunities. So.
Speaker Change: The University is shrinking so that's harder to predict but we think there is a number of potential attractive opportunities out there, but all of the starz app to align.
Speaker Change: And we're very comfortable with continuing on organically, we feel like there is continued upside in our balance sheet for our P&L on our margins we.
Speaker Change: We feel like we're getting traction on the origination side and continued to do an outstanding job on the low cost relationship based deposit side. So.
Speaker Change: We're perfectly comfortable with our bright future continuing organically.
Speaker Change: Got it and then just a housekeeping.
Speaker Change: On the tax rate should we assume that kind of resets back to that 25% to 26% range that's correct.
Speaker Change: Okay. Thank you.
Speaker Change: Thank you Matthew.
Speaker Change: As a reminder, if you'd like to ask a question. Please click on the right hand, Boston, which can be found on the back bar as opposed to the screen.
Speaker Change: It would not pose amendment to allow for additional questions.
Speaker Change: We have many part of the questions at this time I will now hand, it back to Tim Myers for closing remarks.
Speaker Change: Once again, thank you everyone for the questions for calling in for the support and I again want to wish Tani all the best in her future endeavors and congratulate Dave as you can see our future is very bright and we will continue to be outstanding oversight of our financial futures. So thank you very much time goodbye.
Speaker Change: [music].