First Interstate Bancsystem Inc (FIBK) 2019 Q4 法說會逐字稿

Good morning, everyone, and welcome to the First Interstate BancSystem Fourth Quarter 2019 Earnings Conference Call.

(Operator Instructions) Please also note today's event is being recorded.

At this time, I'd like to turn the conference call over to Ms. Lisa Slyter-Bray.

Ma'am, please go ahead.

Thanks, Jamie.

Good morning.

Thank you for joining us for our fourth quarter earnings conference call.

As we begin, please note that the information provided during this call will contain forward-looking statements.

Actual results or outcomes may differ materially from those expressed by those statements.

I'd like to direct all listeners to read the cautionary note regarding forward-looking statements and factors that could affect future results contained in our most recent annual report and on Form 10-K filed with the SEC and in our earnings release as well as the risk factors identified in the annual report and our more recent periodic reports filed with the SEC.

Relevant factors that could cause actual results to differ materially from any forward-looking statements are included in the earnings release and in our SEC filings.

The company does not undertake to update any forward-looking statements made today.

A copy of our earnings release, which contains non-GAAP financial measures, is available on our website at fibk.com.

Information regarding our use of the non-GAAP financial measures may be found in the body of the earnings release, and a reconciliation to their most directly comparable GAAP financial measures is included at the end of the earnings release for your reference.

Joining us from management this morning are Kevin Riley, our Chief Executive Officer; and Marcy Mutch, our Chief Financial Officer, along with other members of our management team.

At this time, I'll turn the call over to Kevin Riley.

Kevin?

Thanks, Lisa.

Good morning, and thanks, again, to all of you for joining us on our call today.

I'm going to start today by providing an overview of the major highlights for the quarter, and then I'll turn the call over to Marcy to provide more details on our financials.

We ended 2019 with another strong quarter.

We were facing a number of significant headwinds in the quarter, most notably, challenging environment for generating quality loan growth, the seasonally low mortgage period and the impact of recent reductions in short-term interest rates.

Despite all these challenges, we were still able to deliver sequential quarter improvement in our core earnings as well as key performance metrics, including our efficiency ratio, our return on average assets and our return on average common equity.

We believe this reflects the strength of the diverse business model we have built, the effectiveness of our balance sheet management strategies and our continued focus on enhancing efficiencies throughout the organization.

On a GAAP basis, we generated $52.4 million in net income in the fourth quarter or $0.80 per share.

Merger-related expenses decreased earnings per share by $0.01.

On an operating basis, the merger-related expenses are excluded in all the periods.

Our fourth quarter earnings per share was up $0.01 from the prior quarter and up $0.05 or 6.6% from the fourth quarter of 2018.

For a full year, we believe we delivered a strong year of value creation.

Despite the impact of 2 acquisitions, we increased our tangible book value per share approximately 14%, while returning $79.2 million in capital to our shareholders through our normal quarterly dividend.

Looking at our key trends in the fourth quarter.

We are particularly pleased with the success in protecting our net interest margin against the impact of 50 basis point reduction in the Fed funds rate that occurred in September and October.

Excluding the impact of interest recovery and loan accretion income on our operating net interest margin, we saw a decrease of about 3 basis points this quarter.

A relative stability was attributed to the discipline we have maintained in new loan pricing as well as our ability to offset pressures on earning asset yields by continuing to pass through the reductions on our deposit rates.

During the fourth quarter, we reduced our overall cost of funds by 14 basis points.

As we've indicated a number of times, while interest rates were rising, we passed along rate increases to our depositors even though we were not under any competitive pressure to do so.

We felt it was the right thing to do for our customers even though our deposit base is not particularly price sensitive.

As a result of this approach, we're in a good position to pass through rate cuts to our depositors when rates decline, which has helped defend our net interest margin.

We've actually seen a higher beta by passing through the rate cuts than we saw when rates were rising.

On a cumulative basis, our deposit beta over the last 3 rate cuts has been about 47% compared to the beta of about 19% during the period of rising rates.

Looking at the particular deposit categories, our average rate on savings deposits declined 31 basis points for the fourth quarter, while our average rate on demand deposits declined 12 basis points.

And in other -- in both categories, we were able to lower rates while seeing increases in average balances, which speaks to the quality of our client service and the stickiness of our deposit base.

We were able to keep our margin relatively stable despite continuing to hold excess liquidity as we saw lower levels of loan production during the fourth quarter.

We continue to believe that we are best served by maintaining our credit discipline and not chasing loans that don't meet the requirements for risk-adjusted returns.

As a result, we saw a slight decline in loan balances during the quarter, most notably, in our commercial portfolio, which in large part was due to payoffs and pay-downs of criticized assets.

We also saw seasonal declines in indirect, ag and held-for-sale portfolios.

While we did have growth in commercial real estate and in our construction portfolios, our organic loan growth wasn't enough to offset the seasonal declines in our other portfolios.

We saw a $45 million increase in commercial construction portfolio during the quarter.

Some of our clients have become more confident in the economic outlook and have started moving forward with their projects.

We're optimistic that the increased confidence will lead to increase in line utilization and stronger loan production.

Another key to our strong results this quarter was our success in controlling our expenses.

Excluding merger-related expenses, our total noninterest expense declined by $3 million from the prior quarter.

Entering the year, we put greater emphasis on maintaining expense discipline across the company.

As we have added scale and controlled expenses, we've been very pleased with the improved operating leverage we have been able to realize in the business.

As a result, our efficiency ratio improved to 54.3% in the fourth quarter, down from 57.9% in the prior quarter.

And if you take out the gains recorded on the disposition of other real estate, our quarterly efficiency ratio would have been 55.32%.

For 2020, we believe we can bring our annual efficiency ratio in and around 57%.

So with those comments, I'd like to turn the call over to Marcy for a little more detail behind the numbers.

Go ahead, Marcy.

Thanks, Kevin, and good morning, everyone.

As I walk through our financial results, unless otherwise noted, all of the prior period comparisons will be with the third quarter of 2019, and I'll begin with our income statement.

Our net interest income increased $2.7 million from the prior quarter partially due to a $1.2 million increase in accretion income.

On a reported basis, our net interest margin increased 1 basis point to 3.94% in the fourth quarter.

Excluding the impact of interest recoveries and loan accretion, our operating net interest margin decreased 3 basis points this quarter to 3.77%.

The decline in operating net interest margin was primarily due to a reduction in operating loan yields, which exclude the impact of interest recoveries and accretion of 9 basis points.

This negatively impacted our margin by 2 basis points.

The remaining 1 basis point margin decline was due to continued high levels of excess liquidity which we held in overnight funding and was a lingering result of our strong deposit growth late in the third quarter.

These factors were partially offset by a 14 basis point reduction in our cost of funds to 37 basis points.

As we pass through the Fed rate cuts to our depositors, we saw steady decline in our cost of interest-bearing liabilities throughout the fourth quarter.

At this point, we do not plan to make any meaningful additional changes to our deposit rates.

With the lower starting point for our cost of deposits as we enter the year, we're focused on the opportunities we have to reinvest our excess liquidity and higher-yielding assets.

We believe we can offset the continued pressure on our earning asset yields and keep our net interest margin relatively stable for the foreseeable future.

Moving to noninterest income.

We saw a decrease of $3.1 million quarter-over-quarter to $37.2 million.

The decrease was almost entirely due to lower mortgage banking revenue, reflecting the seasonal decline we see in the fourth quarter.

All of our other major fee-generating areas were relatively consistent with the prior quarter.

Mortgage banking revenue decreased $1.9 million from the prior quarter but was up 45% from the fourth quarter of last year.

This reflects the increased reduction we're getting from our newer markets in the West as well as increased refinanced activity as a result of lower interest rate.

In the fourth quarter of 2019, loans originated for home purchases accounted for 55% of total production, while refinancing activity accounted for 45%.

Our new digital mortgage application portal continues to gain traction, and we closed $16 million of loans originating through this channel in 2019.

Moving to total noninterest expense.

We incurred approximately $700,000 in acquisition-related expenses this quarter.

Excluding acquisition-related expense, our noninterest expense came in at $92 million or was $3 million lower than the prior quarter.

The primary driver of the decline was lower professional fees as we completed a number of the technology initiatives we executed on earlier in 2019.

We also recognized a $1.3 million credit from the FDIC that reduced our assessment expenses once again this quarter, and that wraps up the benefit we expect to see there.

We were able to keep our other major expense areas relatively consistent with the prior quarter as we continue to focus on closely monitoring our expense levels.

In total, looking at our Q4 operating expenses of $92.7 million, if you back out the acquisition expenses and adjust for the OREO gains, the FDIC credit and a little noise we had related to deferred costs on mortgages, our normalized run rate would have been about $95.7 million, achieving the guidance we previously provided of $96 million post-integration of our recent acquisitions.

Going forward, we expect our run rate for operating expenses in 2020 to be in the range of $97 million to $98 million on average.

This is about a 1.6% increase.

And as we've guided you in the past, we are able to keep our total operating expense growth in 2020 between the 1.5% to 2% level.

At this point, I'd like to give my annual reminder of the seasonal impact we expect to see on various income statement items.

In the fourth quarter, our noninterest -- excuse me, in the first quarter, our noninterest income typically trends lower due to lower transaction volumes, which impacts our payment services and mortgage revenues.

And at the same time, our noninterest expense trends higher due to the restart of payroll taxes.

Okay, I'll move on to the balance sheet.

Our total loans decreased $70 million from the end of the prior quarter.

This was driven by payoffs and pay-downs in the commercial and consumer portfolios, along with seasonal declines in the indirect and ag portfolio.

Within the commercial portfolio, $6.8 million of shared national credits also paid off in the quarter.

The SNC portfolio is now down to less than $15 million.

The declines in these portfolios were partially offset by a $45 million increase in commercial construction loans.

Our total deposits decreased $136 million from the end of the prior quarter.

Most of the decline came in our noninterest-bearing deposits, which was largely due to seasonal outflow from commercial depositors for year-end items like bonuses and tax payments.

Overall, we are pleased with our organic growth for the year of 2.6%.

Looking at asset quality, we saw positive trends in most of our key metrics.

We had an $18 million decline in nonperforming assets.

This was due to the disposition of 4 other real estate properties, which represented about half of our OREO.

For the quarter, we recognized $1.7 million in OREO-related income resulting from the sale of these 4 properties.

The other contributor to the decrease in nonperforming assets was a decline in nonaccrual loans of $7.2 million.

As a percentage of total assets, our nonperforming assets declined to 39 basis points from 51 basis points at the end of the prior quarter.

Outside of the nonperforming asset category, we saw nice improvement in the rest of the portfolio.

Our criticized loans decreased $29 million as we had higher levels of pay-downs and payoffs this quarter as we worked hard to resolve a number of issues before year-end.

We had $5.8 million of net charge-offs during the quarter or 25 basis points of average loans on an annualized basis.

Our net charge-offs this quarter were impacted by a $2.3 million charge-off related to commercial loans, which had a specific reserve of $1.4 million established against it.

We also saw higher levels of consumer loan charge-offs, which is typical in the fourth quarter.

Consumer loan charge-offs this quarter were 12 basis points, which is in line with our historical fourth quarter trends.

We recorded $3.8 million in provision expense.

A portion of our provision expense continues to be related to the acquired portfolios that refinance and migrate over to our originated portfolio.

These reserves required against these loans accounted for approximately $1.5 million of the provision expense this quarter.

Our allowance for loan losses declined by 1 basis point from the end of the prior quarter to 81 basis points of total loans, while our coverage of nonperforming loans increased to 150%.

As you know, the allowance does not take acquired loans into consideration, but the combination of the allowance with the remaining loan discount on the acquired portfolios represents 1.2% of total loans.

That said, the new accounting standard related to current expected credit losses, or CECL, was effective January 1. We expect the implementation of CECL to result in a 35% to 45% increase to our allowance for loan losses.

In terms of the impact to our quarterly provision expense, there are obviously many variables that will ultimately determine our 2020 provision requirements.

At this point, for 2020, we believe that the implementation of CECL, along with lower levels of expected recoveries, will likely result in an increase to our normalized provision of approximately $4.25 million per quarter.

And with that, I'll turn it back over to Kevin.

Kevin?

Thanks, Marcy.

We're going to wrap up with a few comments about our outlook.

During 2019, we executed well on our strategy for strengthening our franchise.

We completed 2 acquisitions that increased our presence in faster-growing markets.

And in 2019, we had muted organic loan growth of approximately 1.3% for the year, with a faster-growing West division, market comprising a larger percentage of overall footprint and higher levels of business and consumer confidence, we believe we can generate quality loan growth in the low to mid-single digits this year as well as continue to generate increases in our fee revenue.

We also completed major technology initiatives that expanded our products and services, improved our digital banking capabilities and streamlined our work process flows.

As a result of these investments, we entered 2020 with improved digital mortgage application portal, a new digital consumer and business credit card application portal, all of which should enhance our business development capabilities this year.

One of our key initiatives this year was to focus on -- is to focus on training of our employees on these new products so that we can effectively leverage the investment we have made to improve our client engagement.

In 2020, we're also investing in a new teller system that will enhance efficiency in our branch network and improve experience for our customers.

Over the past few years, we have talked a lot about First Interstate, how First Interstate's evolved from a community bank to a regional bank capable of serving a broader array of clients with a diverse range of products and services.

We continue to evolve, and we have made adjustments to our executive ranks to strengthen our commitment to remaining at the forefront of innovation in the banking industry.

We recently created a new position called Chief Strategy Officer and appointed Renee Newman, our former Chief Banking Officer, to the position.

As Chief Strategy Officer, Renee is focused on ensuring that we are well positioned to meet the rapidly changing needs of our clients and deliver a satisfying experience across the growing number of banking channels that we offer.

Russ Lee, who is the President and CEO of Inland North Bank -- Northwest Bank, which we acquired back in 2018, is now our Chief Banking Officer, with the responsibility for overseeing our retail, commercial and wealth management teams.

While Renee focuses on the future of banking, Russ ensures that we maintain the rigor across our traditional branch network that led to our decades of success.

By separating these 2 functions, we believe we'll be better positioned to continue innovating without losing focus on the basic blocking and tackling needed to maintain our strong and consistent performance.

As we grow the First Interstate franchise, we will continue to be a leader in our communities and fulfill our mission to be a responsible corporate citizen.

With this in mind, we are raising our minimum wage for our employees to $15 an hour.

This will impact us at an after-tax basis of about $250,000 per quarter and is included in the run rate of expenses that Marcy has already articulated.

We believe this move will well position us -- will positively impact us -- sorry, positively impact our employee engagement and retention, leading to higher client satisfaction, which ultimately results in higher returns for our shareholder.

As we have philosophy on raising deposit rates when we didn't have to, we believe this is the right thing to do for our employees, our clients and our shareholders.

To wrap up, we feel good about how we're positioned to start 2020.

We believe we have good opportunities to generate revenue growth, and we'll continue to focus on expense management.

We should realize more operating leverage and deliver a solid year of earnings growth for our shareholders.

And from a long-term perspective, we will continue to lever the foundation we have built to add scale, enhance efficiency, capitalize on our growing footprint in faster-growing markets and to continue to increase the value of our franchise in the coming years.

So with that, I'd like to open the call up for questions.

(Operator Instructions) Our first question today comes from Jared Shaw from Wells Fargo.

Kevin, maybe just starting with your comment at the beginning of the call just talking about the challenging environment for loan growth and the net loan growth you saw for the whole year and then tying that to your expectation for low- to mid-single-digit loan growth in 2020.

I guess, what was most challenging as you look at 2019?

And then how do you see that changing?

Or was it more pressure on pay-downs?

Or was it more sort of self-imposed as you were trying to change the credit dynamics and move some of those weaker loans out?

I guess, what's sort of the dynamic there?

And what's changed?

Well you kind of hit a lot of the points, Jared.

Nice job.

The thing is, is that as -- this year was a strange year.

I think that with interest rate cuts, inverted yield curve, the whole trade war, I think, confidence in the -- with the business community is all kind of weighed on the actual growth in our markets.

Also in Wyoming, coal has not -- continues to fall out of favor.

So that put some pressure on Wyoming.

So I think the thing is that, that's kind of behind us.

The trade war is kind of behind us.

The inverted yield curve is behind us.

Our asset quality, we have -- I think we've cleaned up effectively, and that's kind of behind us.

Our [state] portfolio runoff, that's behind us.

We're down under $15 million so that won't have any more headwind with us.

So I think that a lot of the headwinds that we had back in '19 have gone away.

I think that we're seeing a little bit more confidence with our business partners out there because some of these things are behind them, and they're starting to move forward on projects.

If you go back to our earnings call last quarter, I talked about how some of that -- we had funded a lot of projects, but the people weren't moving forward because they lack confidence in where the economy is going.

I think some of that has improved, and I think we're moving forward nicely.

So I just feel that the environment is better.

If we can continue to move forward, and we don't have any kind of -- this pandemic virus doesn't continue to explode, I think 2020 will be a good year for our market.

So I think all the headwinds are kind of behind us, and the future looks a lot brighter.

Okay.

And I guess on the expense side, Marcy, I hear your guidance for sort of the efficiency ratio.

Is most of that going to -- when you talked about the professional fees down this quarter, should we expect to see that go back up as some of those tech initiatives that you'd mentioned on the teller system and some of the others roll in?

Or where will that growth sort of come from beyond just the raising of the minimum wage?

I think we have increases in technology costs, just kind of general contractual increases, which is driving some of the increase.

But we've really managed our salary expenses to bring that over -- that increases there back down.

We expect professional fees to stay kind of flat to this year.

So again, I don't think we're going to see any real increases there.

So just kind of normal salary increases but managing the FTEs and then a little bit of increase on the technology cost.

Yes.

The thing is, is that overall technology costs come up a little bit like they normally do but not -- but I -- on dealing with professional fees, we spent a lot in 2019.

So we believe the spend in 2020 will be less than 2019.

They're about flat.

It's not going to -- we don't see it increasing over the 2019 level since we did invest a lot this year.

So again, I think overall, being able to hold our total expenses to 1.6% increase in light of having to give your employees raises and just normal merit raises is pretty good.

Okay.

And then just finally for me, I guess, looking at mortgage banking, and with the seasonality going into the holidays and everything at the end of the year, how is the pipeline looking going into first quarter?

It's a little slow.

The first quarter's always a little slow.

It's there.

I would say that it's not going to be as robust as we've seen in summertime, but it's -- with rates the way they are, we're still seeing some activity with refinancing and some people move forward.

But it's not going to be above the fourth quarter, the production in the first quarter.

Yes.

And we are seeing some nice weather.

If this keeps up, it could help a little bit.

So again, we think, overall, the mortgage banking revenue should be fairly flat next year compared to where it is this year.

Yes, 60 degrees in Montana in January is pretty nice.

Our next question comes from Jeff Rulis from D.A. Davidson.

Kevin, you mentioned -- appreciate the color on kind of the dynamics with loan growth challenges.

But digging in a little deeper, if you could kind of characterize the demand and pricing dynamics in -- given your large footprint, kind of the Western versus the Montana market, just interested in -- I'm assuming you're seeing more growth out West.

But in terms of demand, competition, pricing, if you could just sort of touch on what you're seeing in that footprint, that would be helpful.

Yes.

Loan pricing is kind of interesting.

As you go to larger credits and better credits, the pricing gets extremely tight.

I think people are looking for big hits and with nice credits and are willing to take lower pricing.

We will find where we get the best spreads, and we'd keep on doing what we normally do if that's small business, the small and middle market and stay against that.

But I would say the West, on bigger deals, it's really tight.

But if we continue to look at just our core business, which is more or less small business, small and middle market, we can maintain those spreads.

But we're looking at larger deals, but we just don't want to go in and do deals with spreads that just don't make any sense.

But people are trying to put on loan volume.

I think some of these people wonder why their margins are eroding.

When you're putting out spreads at 130 to cost of funds, there's no -- I don't think you need a lot of brainpower to figure out why your margin's eroding.

And Marcy, on the -- I can't remember, maybe I missed the dynamic of -- on the margin.

If you look at kind of the 3.94% reported and 3.77% core, I guess that's 17 basis point number.

If possible, could you break out the makeup of that 17 basis points in what was accretion and what was the interest recovery?

You bet.

So we had 1 basis point due to charge-off interest.

We had 8 basis points related to early payoffs and 8 basis points due to regular accretion.

Got it.

And then any, I guess, commentary on that 3.77% core as we get into 2020?

Is it more of a let's try to maintain kind of the outlook on margin from your perspective?

That's what we're working hard to maintain.

We believe that, that core margin should be stable.

It might bounce down a basis point or 2, but we think it's going to be relatively stable going into 2020.

Yes.

I mean we have some pressure on the asset side a little bit maybe, but we also have some relief on our CD book, which is repricing at a great pace in the first quarter.

So we believe that the margin might be impacted by 1 basis point maybe, but it should be pretty stable.

Our next question comes from Matthew Clark from Piper Sandler.

You mentioned deposit costs, the decline may start to slow here.

Can you just give us the spot rate at the end of the year on interest-bearing deposits?

Yes.

On interest-bearing deposits, it's 48 basis points.

Okay.

And then excess liquidity has continued to be more of a drag, and I haven't run the math yet.

I think it cost you 3 basis points last quarter.

I assume it was a little more here this quarter?

So I -- we're focused, Matt, on pushing that number down lower because we're not seeing the loan growth, and so we are very focused on pushing that down.

The hard part is going to be, today, we're adding securities on it, 2%.

30 days ago, it was 2.30%.

So we'll see what pickup we can get there, but we will get some lift there.

As Kevin just talked about with the CDs, about 31% of our time deposits are running off in the first quarter.

So the average rate on those is 1.37% if we maintain those deposits.

Our current offering rate's 55 basis points.

So again, we should be able to see some pickup there as well.

Okay.

And then, I guess, what's your estimate for accretion this year?

So accretion should be about $2.4 million per quarter.

Okay.

And then the efficiency guide of 57%, that's all in?

That's not excluding CDI amortization?

It is excluding CDI amortization.

Our next question comes from Gordon McGuire from Stephens.

So just following up a little bit on the efficiency.

Marcy, last quarter, you talked about this year's efficiency maybe being on the lower end of 56% to 57%.

But after Kevin's prepared remarks, it sounds like it's closer to 57% this year.

I'm just wondering, given a pretty similar expense guidance to what you've been talking about, what's changed on the revenue side?

And I know it's a small change, but any color you can give there?

Yes.

I think we're going to have another quarter of revenues from our 2 acquisitions.

We are expecting some loan growth this year.

We're expecting to do around mid-single-digit growth in our noninterest income.

So I think we just get that operating leverage, and that should help us on the efficiency ratio side.

Just a little higher from that.

But at the point, we gave guidance, 56%, 57%.

We hadn't completed our budgeting work.

We have now dug in deeply in everything, and we feel that we have better, I guess, line of sight exactly what that number is going to be.

So it's going to be right around there.

I think the thing is, is that we continue to try to reduce our expense-to-asset ratio, and we're looking to bring that down closer to our goal of 2.65%.

We're starting to head towards that goal.

So we're feeling good about our expense levels, and revenue headwinds are going to be there.

We're going to do everything we possibly can to get to the revenue [in sight] but -- and produce operating leverage.

But it's not really the expenses are increasing higher, it's just really the headwinds might be ahead of us.

Yes.

And if you look at just the fourth quarter, and back out the acquisition expenses, we got to our 57% efficiency ratio.

We're below 56%.

Yes.

Okay.

Great.

Marcy, the CECL discussion and the provisioning, could you go back over that a little bit again?

I think I may have misheard.

So we expect the increase in our allowance to be some place between 35% and 45%, to land in there.

And then in terms of our provision expense for this year, we expect lower levels of recoveries, credit recoveries, and so we expect it to come in around $4.25 million each quarter.

Okay.

Sorry, I thought you had said an increase of $4.25 million.

So it's absolutely $4.25 million.

No.

In total, $4.25 million per quarter.

Okay.

And then, Kevin, just lastly, given the stock's performance the last couple of months or so, any thoughts on how the current valuation impacts your prospects for M&A this year and whether it changes your thinking around repurchases since last quarter?

No, we -- well, as you know, we have all the levels of -- levers to pull in regards to capital utilization.

We -- there's a lot of talk going on with regards to merger and acquisitions and stuff.

And I think the interesting thing is, is that, first of all, we're turning down a lot of them because they just don't fit what we want to be as -- when we grow up.

But there's a lot of conversations going on.

And I think the conversations are actually, I think, healthy.

The conversations are less about premiums.

They're more about let's announce a deal that makes sense for both shareholders' group going forward with their combined institution.

So it's -- I think they're healthy discussions that are being had, and they're not focused about trying to have a big premium and a long tangible book value payback.

So I think they're very productive.

And we'll see what happens.

It's an interesting world, but I would tell you that there's a lot more conversations happening than had -- was happening 4 months ago.

Got it.

And then updated thoughts on repurchases?

Repurchases, I don't -- the price of our stock right now is it gives us -- what we see is more than a 5-year tangible book value return.

So repurchases, we don't believe this is the most effective use of our capital at this point for our shareholders.

We try to limit repurchases until we have a payback less than 5 year at TAM book value dilution.

So we -- at this juncture, we really hope our stock doesn't drop down to the levels that we need to buy it back.

But there's other alternatives that we can use to return capital to our shareholders, and we're looking at all of our options.

Our next question comes from Jackie Bohlen from KBW.

I wanted to drill down into noninterest income just a little bit.

I know we talked about mortgage banking and that we're going to see the expected seasonal slowdown just from volume in 1Q.

But just looking at some of those other line items, I wondered if you could go into your expectations for the year?

And then also, that other income line item was just a little bit on the lower side.

I know that can be bumpy, but just what the impact was there in the quarter?

You bet.

And so let's start with the other income line.

So that other income line does feel a little bit bumpy because it includes, if we have gains on the sale of a building, our swap fee income varies from quarter-to-quarter.

Fully life insurance benefits, things like that, that's all kind of embedded in that line and it can be a little bit bumpy quarter-to-quarter.

So that's what kind of drives that going up and down.

In terms of the rest of our fee-based revenues, we really do believe that overall, next year, they'll be up about 5%.

Okay.

And that's inclusive of the roughly flat mortgage banking that you're expecting?

Yes.

And our next question comes from Garrett Holland from Baird.

Just had a follow-up on spread income.

Would you expect earning asset growth to trend in line with loan growth or do you think the securities portfolio stabilizes here?

Just trying to gauge your appetite for deploying liquidity and securities at this current rate.

I think -- go ahead.

It'll all depend on loan growth.

I mean...

Yes, it will all depend on loan growth.

We're hoping that we had to put less on the securities and more in loans.

But we're being diligent to make sure that we're putting this excess liquidity to work.

So where first order of business is loan growth.

Second, quality loan growth.

And then their second order, we'll put it in investment portfolio.

I'm just hoping this virus disappears soon because that will help us all.

Yes.

Me and you both.

I was hoping you could maybe elaborate to -- a bit more on the growth opportunity you see in the Idaho market.

It's clearly been a bright spot in the Northwest and a bigger driver of your growth recently.

I guess, what are your expectations for growth in that market in 2020?

That -- the growth in those markets have been very strong.

They're strong in '19 and look to be strong going into 2020.

I would say that it's the high single digits or could get to double digits, but it's going to be the high single digits, close to double digits.

Idaho is doing great, Oregon's doing great, and the Washington market's doing great.

And being in Spokane, which is a growth city, which Coral Lane is right on the outskirts of that, everything is -- we feel really good with our West expansion.

Don't forget some of our legacy portfolios, too, I mean, legacy markets.

We have Rapid City in South Dakota that continues to grow probably in mid-single digits.

That's a nice growth area also.

Bozeman is doing well.

Missoula is doing well.

Billings, we're hoping is a comeback.

We have a little bit of a drag when we look at Wyoming, but Wyoming is kind of going to be flat.

Montana would be probably low single digits.

Montana -- I mean South Dakota, mid.

And then we're looking for higher growth in the West.

So it's really -- if we continue to really grow in the West and not have a drag with regards to Wyoming and Montana, our growth rate should be good because the West, I mean, they grew in the upper single digits all of last year.

It was just kind of the drag of Wyoming and not the real growth in Montana that pulled that down.

So we can -- we feel strongly that the West will continue to grow.

And if we can just get our legacy footprints to come up a little bit, that we'll have good loan growth.

Then a quick one on the tax rate.

It was a bit higher than expected here in Q4.

I guess, what are your expectations for 2020?

We think that the tax rate for 2020 will be right around that 23% level.

It's always kind of a little bit lower at the beginning in the year as people exercise options and with some benefits from investing there.

But overall, for the year, about 23%.

And our next question is a follow-up from Matthew Clark from Piper Sandler.

Just 2 quick ones.

One, just the weighted average rate on new business relative to what paid off this quarter?

4.83% was the weighted average rate on the new business.

Okay.

And then nice improvement in credit quality this quarter.

I guess, when you look at the decline in criticized, I guess, how much of that was driven by upgrades?

How much of that was just you guys working out of stuff for potentially selling or resolving situations?

I'm just trying to get a sense for the rate of change here picked up.

Yes.

Most of those, they saw the door.

They were worked out, and they weren't upgrades, say, are no longer with us, which is the way we like it.

Did you sell any nonperformers this quarter?

I'm looking at my Chief Risk -- I don't know.

Would you be selling any nonperformers?

No, we did not sell any nonperformers.

It was all workout strategies that were successful.

Is that trend?

Or is that kind of the pace expected to continue?

Or is that just more kind of year-end talk?

So if you get lucky now -- I mean I don't know if we can continue that pace because we don't have that much left.

But we're going to continue working that down.

The good news is that the inflows are not there, so we'll continue to have outflows.

So they should continue to be at where they're at or less because the inflows are not there.

Ladies and gentlemen, with that, we'll end today's question-and-answer session.

At this point, I'd like to turn the conference call back over for any closing remarks.

Thank you for your questions, guys and gals.

As always, we welcome calls from our investors and analysts during -- or between investor calls.

Please reach out to us if you have any follow-up questions, and thanks for tuning in today.

Goodbye.

Ladies and gentlemen, that does conclude today's conference call.

We do thank you for joining today's presentation.

You may now disconnect your lines.