Premier Financial Corp (OHIO) (PFC) 2012 Q4 法說會逐字稿

Good morning and welcome to the First Defiance Financial Corp. fourth-quarter and full-year earnings call and webcast. (Operator Instructions). Please note this event is being recorded.

I would now like to turn the conference over to Ms. Terra Via. Please go ahead.

Thank you. Good morning, everyone, and thank you for joining us for today's fourth-quarter and full-year earnings conference call. This call is also being webcast, and the audio replay will be available at the First Defiance website at FDEF.com.

Providing commentary this morning will be Bill Small, Chairman, President, and CEO of First Defiance, and Don Hileman, Executive Vice President and Chief Financial Officer. Following their prepared comments on the Company's strategy and performance, they will be available to take your questions.

Before we begin, I'd like to remind you that during the conference call today, including during the question-and-answer period, you may hear forward-looking statements related to the future financial results and business operations for First Defiance Financial Corp. Actual results may differ materially from the current management forecast of projections as a result of the factors over which the Company has no control. Information on these risk factors and additional information on forward-looking statements are included in the news release and in the Company's reports on file with the Securities and Exchange Commission.

Now I'll turn the call over to Mr. Small for his comments.

Thank you, Terra. Good morning and thank you for joining us for the First Defiance Financial Corp. conference call to review the 2012 fourth-quarter and year-end results.

Last night, we issued our 2012 earnings release, and this morning we would like to discuss that release and give you a look forward into 2013. At the conclusion of our presentation, we will answer any questions you might have.

Joining me on the call this morning to give more detail on the financial performance for the fourth quarter and the year is CFO Don Hileman. Also with us this morning to answer questions is Jim Rohrs, President and CEO of First Federal Bank.

Fourth-quarter 2012 net income on a GAAP basis was $5.2 million, or $0.52 per diluted common share, compared to $4.1 million and $0.36 per diluted common share in the 2011 fourth quarter. For the year ended December 31, 2012, First Defiance earned $18.7 million, or $1.81 per diluted common share, compared to $15.5 million, or $1.42 per diluted common share, for 2011.

The $18.7 million is a record high for net income at First Defiance. We are pleased with the improved performance of 2012 over last year, even as the operating environment, though certainly showing improvement, remains tentative.

Employment numbers have improved, but have not returned to prerecession levels, and messages out of Washington continue to play havoc with consumer confidence. Added to these factors is the continuation of the Federal Reserve's monetary policy of keeping interest rates at unprecedented low levels. Even in this operating environment, we made considerable progress throughout the year and sustained this improvement through the fourth quarter.

While the results for 2012 were the product of strong execution of our business plan throughout the Company, a few areas definitely stood out. Credit quality improvement, strong mortgage production, and increased commercial loan demand were significant contributors to the 2012 results.

The improvement in economic conditions seem to have released some of the pent-up demand in consumers, and this was reflected in stronger purchases of consumer goods. With this higher consumer demand, production did rebound in several sectors, requiring many businesses to utilize their operating lines and in some cases created the need for capital investments.

The stronger demand for new automobiles was a big driver and increased manufacturing production throughout our market area, and forecasts say there is still additional need to replace the aging cars on the roads today. Some of the consumer demand was in housing, and while refinance activity still dominated the mortgage scene, purchase activity did pick up as we progressed through the year. All of this added up to a revival in the need for credit and allowed us to continue to grow loans in 2012.

The credit quality metrics on our existing loan portfolio improved as we moved through the year, and the fourth quarter saw a continuation of this. Bad performing assets declined almost $7 million year over year, and we had a 75% decrease in net charge-offs in the fourth quarter of 2012 compared to the same quarter last year.

Classified loans and nonaccrual loans also showed significant improvement in the fourth quarter.

The OCC just recently completed the fieldwork in our second safety and soundness exam with them as our regulator. Changes we made through their guidance during these exams have had some effect on certain reported metrics, but we have been very pleased with the overall improved performance in the credit portfolio.

The deposit side of the balance sheet continued to grow in the fourth quarter, as it had throughout the year. The low interest rate environment has many people and businesses parking funds in noninterest-bearing checking accounts and non-term savings accounts, rather than tying up funds for any period of time. This change in the deposit mix is definitely favorable, but we need to monitor this closely for changes in rate trends that will cause funds to possibly move either within our bank or to other sources.

The combination of the loan growth, improved asset quality, and favorable change in the deposit mix all played a role in helping us maintain our net interest margin throughout the year. However, the biggest positive impact on the margin in the fourth quarter, and something that will have a positive impact going forward, was the balance-sheet restructuring we completed early in the quarter. Don will be giving you the details of this transaction in his comments.

Noninterest income in the 2012 fourth quarter was up over the linked quarter and for full-year 2012, compared to the prior year, even after netting the security gains associated with the balance-sheet restructure. The biggest driver was the mortgage banking income resulting from the record mortgage production in 2012. Increased income from our insurance and wealth management areas were also offsets to the reductions in service fees compared to the linked quarter and the prior year-end. The insurance income includes a full year of operation, compared with just six months in the 2011 results related to the acquisition of the Payak-Dubbs Insurance Agency in July 2011.

Our trust and investment lines within our wealth management department also continued to grow their business relationships, leading to record revenue performance in those areas year over year.

Total noninterest expense was basically flat for the quarter ended December 31, 2012, compared to the fourth quarter of 2011, when adjusted for the prepayment fees associated to the restructure. The full-year noninterest expense total was up about $1 million, net of the prepayment fees, with most of that increase being in the comp and benefits category. Incentive compensation and health insurance costs both showed increases in 2012. These were partially offset with reductions in deposit insurance premiums and expenses related to other real estate owned in full-year 2012.

I will now ask Don Hileman to give you additional financial details for the quarter and the 2012 year-end, before I wrap up with an overview and look at what we see developing for 2013. Don?

Thank you, Bill, and good morning, everyone.

We are very pleased with the continued improvement in our financial results this quarter and the record full-year net income for 2012. Loan growth and mortgage banking remained strong in the fourth quarter. We saw continued loan growth in the fourth quarter with annualized growth of 3%.

The main drivers of the earnings in the quarter were the increase in the net interest margin and strong noninterest income, led by mortgage banking.

As Bill noted, net income available to common shareholders was $5.2 million, which was an increase of 45% over the $3.6 million in the fourth quarter of 2011. EPS for the fourth quarter was $0.52 per diluted share, which was an increase of 44% over the $0.36 per share for the fourth quarter of 2011. Year to date, the diluted earnings per share was $1.81, up from $1.42 in 2011.

We are very pleased with the overall profitability and improving asset quality trends we have seen over the last several quarters. This gives us encouragement that the material negative impacts from the adverse credit issues are waning and we are in a more stable environment.

In October, the Company executed a balance-sheet restructuring strategy to enhance the Company's current and future profitability, while increasing its capital ratios and protecting balance sheet to get -- the balance sheet against rising rates. This strategy required a one-time net loss of approximately $260,000 through selling $60 million in securities for a gain of $1.6 million and paying off $62 million in Federal Home Loan Bank advances with a prepayment penalty of $2 million.

The anticipated positive effects of this strategy include increases the net interest margin and net interest income, improvement in capital ratios, and increases in the return on average assets and return on average equity.

Our total noninterest income grew 11% year over year, excluding securities gains. We also had continuing improvement in the level of nonperforming assets and classified loans on a linked-quarter basis, as well as on a year-over-year basis.

While net charge-offs were higher on a linked-quarter basis, they were down 75% from the fourth quarter of 2011. The average of net charge-off levels as a percentage of average loans over the last several quarters has been at levels management believes are consistent with the current operating environment.

Total credit-related expenses, which includes the net gain loss on the sale of OREO, OREO repairs, and write-downs, collections, and temporary market buyback costs, were $373,000 in the fourth quarter of 2012, compared with $682,000 in the fourth quarter of 2011.

We saw strength in mortgage banking originations, which reached $153 million in the quarter, $51 million more than the fourth quarter of 2011. The percentage of originations for purchase and construction loans averaged 19% in fourth quarter of 2012, consistent with 20% in the fourth quarter of 2011.

Overall, mortgage banking income for the quarter was $2.7 million, compared with $1.9 million in the fourth quarter of 2011 and $2.2 million on a linked-quarter basis. We had gain on sale income of $2.7 million in the fourth quarter of 2012, compared with $1.7 million in the fourth quarter of 2011 and $2.9 million on a linked-quarter basis.

We also recorded a positive valuation adjustment to mortgage servicing rights of $96,000 in the fourth quarter of 2012, compared with a positive valuation adjustment of $181,000 in the fourth quarter of 2011.

At December 31, 2012, First Defiance had $1.3 billion in loan service revenues. Mortgage servicing rights associated with those loans had a fair value of $7.8 million, or 60 basis points of the outstanding loan balance serviced. Total impairment reserves, which are available for recapture in future periods, totaled $2.3 million at quarter-end. In the fourth quarter of 2012, we had $4,500 of OTTI charges, reflecting a stable economic environment as it relates to our investments in CDOs.

Turning to other operating results, our net interest income was $17.4 million for the fourth quarter of 2012, up slightly on a linked-quarter basis and down from $17.5 million in the fourth quarter of 2011. For the first quarter of 2012, our net interest margin was 3.92%, up 12 basis points on a linked-quarter basis and up nine basis points from the fourth quarter of 2011.

The 12 basis points' increase from the fourth quarter -- in the fourth quarter of 2012 from the linked quarter was mainly due to an 18 basis-point increase in the margin as a result of the balance sheet restructure strategy. This increase was partly offset by declining loan yields due to customer demand and naturally occurring repricing at lower rates. Our yield on earning assets declined 4 basis points on a linked-quarter basis, while our cost of funds declined 16 basis points on a linked-quarter basis, with the overall margin increasing to 3.92% from 3.8% on a linked-quarter basis.

Overnight deposits increased to $91 million at the end of the fourth quarter of 2012 from $60 million on a linked-quarter basis and are down $52 million from the end of 2011 fourth quarter. Our available-for-sale securities portfolio was $194 million at December 31, 2012, down from $233 million at the end of 2011 and down from $269 million at September 30, 2012, mainly due to the balance sheet restructuring that was completed in the fourth quarter. We saw competitive loan pricing pressures continue in the fourth quarter, with yield on loans declining 15 basis points to 4.69% on a linked-quarter basis.

The overall portfolio grew in the quarter where we saw strong growth in commercial category, along with commercial real estate. We expect growth to continue at a moderate pace over the course of the next year.

Noninterest income was $10.2 million in the fourth quarter, up from $7.9 million in the fourth quarter of 2011. Fee income was $2.6 million in the fourth quarter of 2012, a slight decline on a linked-quarter basis and down from $3 million in the fourth quarter of 2011. Net NSF fee income was $1 million in the fourth quarter of 2012, compared with $1.4 million in the fourth quarter of 2011 and $1.1 million on a linked-quarter basis.

Insurance revenue was $2 million in the fourth quarter of 2012, basically flat with the fourth quarter of 2011 and on a linked-quarter basis.

Overall, noninterest expense increased to $17.5 million this quarter, compared to $15.6 million in the fourth quarter of 2011.

The quarter includes $2 million in prepayment fees from the early repayment of Federal Home Loan Bank advances associated with the balance-sheet restructure. The fourth-quarter compensation and benefits expense was $7.8 million, a $290,000 decrease from the fourth quarter of 2011 and a decrease from $8.2 million on a linked-quarter basis.

Other noninterest expense increased to $4.8 million in the fourth quarter of 2012 from $3.2 million in the fourth quarter of 2011, an increase from $3.2 million on a linked-quarter basis. The main driver behind the increase between 2012 and 2011 fourth quarters, as well as on a linked-quarter basis, was mainly due to the prepayment fees mentioned above.

The following is a three-quarter trend on certain significant expenses. Real estate-owned expenses were $231,000 in the fourth quarter of 2012, compared to 274 -- $271,000 in the fourth quarter of 2011 and $256,000 in the third quarter of 2012. Credit and collection expenses were $215,000 in the fourth quarter of 2012, compared to 241 -- $242,000 in the fourth quarter of 2011 and $196,000 in the third quarter of 2012.

Secondary market buyback losses were a credit of $115,000 in the fourth quarter of 2012, compared to $23,000 of expense in the fourth quarter of 2011 and $115,000 in the third quarter of 2012. The Company accrued a loss of $115,000 at September 30, 2012, for one credit. The Company successfully appealed the claim and reversed the accrued loss in the fourth quarter of 2012.

Secondary market buyback losses have not been significant in the past, and the Company continues to review and monitor our secondary market servicing procedures to comply with changing servicer guidelines. We believe that the overall credit quality will continue to improve in the coming quarters. Our provision expense for the fourth quarter of 2012 totaled $2.6 million, down from $4.1 million a year ago and up from $705,000 on a linked-quarter basis, which was the lowest quarter in several years.

The provision included approximately $250,000 due to the overall loan growth in the quarter.

Our allowance for loan losses decreased to $26.7 million at December 31, 2012, from $33.3 million at December 31, 2011. The allowance percentage decrease to 1.75% from 2.24% a year ago. The overall reserve percentage increased slightly on a linked-quarter basis from 1.74% to 1.75%. The allowance represents 82.01% of our nonperforming loans, up from 69.60% on a linked-quarter basis.

The allowance to nonperforming assets was 73.3% at December 31, 2012. The 2012 fourth-quarter provision was $400,000 greater than the net charge-offs for the quarter. As mentioned in the past, we believe that we have a good opportunity for recoveries in the future, due to the nature of the conservative approach to charge-offs on some collateral-dependent loans with an exhibited collateral shortfall.

We've had recoveries of $449,000 and $770,000 over the last two quarters, respectively.

Classified loans declined 13.5% this quarter. Total classified loans decreased $12.2 million to $78.1 million at December 31, 2012, from $90.3 million at September 30, 2012. We expect continued improvement in 2013 in the level of classified assets.

Annualized net charge-offs were 59 basis points for the fourth quarter of 2012, down from 249 basis points in the fourth quarter of 2011 and up from 22 basis points in the third quarter of 2012. Of the total charge-offs, 22% related to commercial real estate loans, 20% commercial loans, and 37% residential, and 19% home equity.

Nonperforming assets ended the third quarter at $36.4 million, or 1.78% of total assets, down from 2.08% of total assets at December 31, 2011, and down from $40.6 million, or 1.98% of total assets, on a linked-quarter basis.

Total nonaccrual loans decreased to $32.6 million from $37.8 million on a linked-quarter basis and down from $39.3 million at December 31, 2011.

Accruing and restructuring loans, which were previously included on nonperforming loans, have increased significantly on a linked-quarter basis. We made the change to separate the TDRs based on our review of the portfolio and the overall probability of directional change. This view has changed recently based on further clarification of guidance. The materiel increase is due in part to identify a few large credits were concessions were granted in the past, but the borrowers continued to cash flow, and we believe the prospects for improvement are good and there are no indications that future payments will not be collected.

We believe the right business decisions were made to focus on protecting the value of the credit. It's important to note that several of these credits have been upgraded to special mention status, but will continue to be classified as TDRs per our interpretation of the TDR guidance and based on discussions with our primary regulator.

The total past due and nonaccrual rate was 2.59% at December 31, 2012, down from 3.23% at December 31, 2011. The delinquency rate for the loans 90 days past due and on our nonaccrual decreased to 2.11% this quarter from 2.47% in the third quarter of 2012 and 2.62% on December 31, 2011.

While we are not satisfied with the overall levels of 90-day delinquencies on accruals, of the total nonaccrual loans of $32.6 million, $19.6 million, or 60%, are under 90 days past due.

We are also encouraged the loans delinquent 90 days or more past due declined $5.2 million, or 14%, in the quarter. We had a slight increase in the 30-day/90-day levels of delinquency this quarter, compared with third quarter of 2012, but it declined from the fourth quarter of 2011. As I've mentioned in the past, we expect this indicator to be somewhat uneven in the near term, but directionally we anticipate improving trends.

Our OREO balance increased slightly from the fourth quarter of 2011 and ended the fourth quarter of 2012 at $3.8 million and was up on a linked quarter from $2.8 million. OREO balances made up of $2.6 million of commercial real estate and $1.2 million of residential real estate. We had additions of $1.4 million in the fourth quarter of 2012, offset by sales of $543,000 and negative valuation adjustments of $125,000.

We saw the balance sheet decline slightly from the fourth quarter of 2011 with total assets slightly over $2 billion at December 31, 2012. On the asset side, cash and equivalents declined to $136.8 million from $174.9 million at December 31, 2011. Securities declined $39 million, or 17%, over the year to $194.6 million.

Gross loan balances increased $38.2 million year over year and increased $13 million on a linked-quarter basis. Loan activity in general has seen mixed signs of picking up, and we will continue to be prudent in our new lending activities and underwriting.

Total deposits increased $71.2 million over the same period of a year ago and increased $58.1 million on a linked-quarter basis. We are pleased with the mix of deposits, as we have seen a growth in non-interest-bearing account balances. Non-interest-bearing balances increased to $315.1 million at December 31, 2012, up from the $245.9 million at December 31, 2011.

Deposit mix and pricing opportunities are a continued focus of our overall strategy and efforts to reduce and/or maintain our cost of funds in this interest-rate environment.

Total period-end stockholders' equity ended December 31, 2012, at $258.1 million, down from $278.1 million at December 31, 2011, reflecting a reduction in the capital due to the repurchase of the Company's outstanding preferred stock related to TARP. Our capital position remains strong with average shareholders' equity to average assets of 12.66% at December 31, 2012, compared to 13.34% at December 31, 2011. The Bank's risk-based capital ratio is strong at approximately 14%.

We believe we're taking the right steps to well position the Company for future success. That completes my overview for the quarter and I'll turn the call back over to you, Bill.

Thank you, Don.

As we look back at 2012, we feel we have achieved several key accomplishments, along with establishing positive momentum, and we look to build on that. The significant improvement in asset quality, the strong performance within all operating centers of the Company, and the repurchase of our preferred stock related to TARP all were major contributors to making 2012 a very good year at First Defiance.

We realize there are still challenges out there as the economy tries to establish firmer footing and the regulators continue to roll out additional regulations, but in light of all this, we are optimistic as we move on into 2013.

On the commercial lending side, we are encouraged by the recent strong demand and the corresponding loan growth throughout most of 2012. However, we are very committed to not compromising our underwriting standards to get additional growth. We will continue to review credit concentrations by industry and have placed lower limits on lending within certain types of loan categories.

We have further segmented our commercial real estate portfolio to track the general performance of these segments and better analyze areas of potential weakness. We also coordinate calls between our lenders and our insurance agents to develop total financial relationships with our customers.

Based on this, our forecast shows modest loan growth in 2013.

Housing is one area that has shown improvement over the past year, and we look for that to continue. In our market area, we feel that home prices are stable to slightly increasing, but are still below price levels of five or six years ago.

Mortgage rates remain at historically low levels, and this will hopefully facilitate an increase in purchase money borrowing. Mortgage production should remain solid, but will be hard pressed to match the record performance of 2012. We remain committed to residential lending and expect to continue to be a market leader in mortgage loan production going forward.

Deposit rates also remain low as banks have felt no pressure to increase rates while businesses and consumers continue to build their deposit balances. The Federal Reserve's announcement last year regarding holding interest rates down possibly into 2015 should keep deposit rates depressed throughout the coming year. The deposit mix should shift toward non-term products at least through the first half of the year, unless the Fed decides to move rates sooner than currently anticipated.

We will stay focused on growing non-interest-bearing deposits through innovative products and further developing existing relationships.

We must maintain our monitoring of the potential impact on noninterest income, especially from bank fees, as the Dodd-Frank Act legislation is developed into regulations and the Consumer Financial Protection Bureau releases more of their regulatory agenda. The recent mortgage guidelines that were issued by the CFPB are still under review, but our initial reaction is the new rules will not have a dramatic impact on our residential lending.

The record year of earnings, along with the payoff of TARP and the achievement of several other strategic objectives, made 2012 an outstanding year for First Defiance. We are very encouraged by this performance, but we also know there's still upward potential. Our consistent strategy and business plan has served us well over the years and have shown in recent years its adaptability to meet different challenges.

We also know this strategy is designed for future opportunities and growth. We are confident in the plan and the people we have working hard to execute that plan, and we head into 2013 feeling optimistic with the opportunities ahead.

One final note, last night I officially informed our Board of my intention to retire from my active management role of First Defiance effective at the end of 2013. It is my intention, however, to remain on the Board as Chairman of First Defiance and First Federal bank. Don Hileman has been named to replace me as President and CEO of First Defiance as of January 1, 2014, and Jim Rohrs will remain President and CEO of First Federal, so we will have strong continuity in the leadership of this great Company.

I appreciate the support I've received from my Board, our shareholders, customers, and especially all the fine people I have had the opportunity to work with over my 35 years in banking.

Our team remains committed to all of our constituents and appreciate your trust and commitment in us as we work to grow the Company to benefit everyone.

Thank you for your interest in First Defiance Financial Corp. and we thank you for joining us this morning, and now we will be happy to take your questions.

(Operator Instructions). John Barber, KBW.

I was just curious if the OCC's Chapter 7 bankruptcy guidance impacted the provision or net charge-offs at all this quarter.

It did. It did, John.

Okay, was it significant to any degree?

No, but it did have an impact. It was -- we were probably a quarter late there, but that had some impact as we talked about that primarily the driver for some of the increase in the residential real estate charge-offs.

Okay, and also on the accruing TDRs, based on your comps it sounded like it was more -- the guidance was further clarified from the OCC. Just wondering, have you looked at all of your loan portfolios or is there still loans to look through?

I'd say that I think we've done a pretty good job of looking at the overall portfolio. As Bill mentioned, we're coming off an examination, and obviously the focus is on the whole portfolio.

We felt that we have a better understanding of and are on, if you will, the same page now a little bit more with the regulators of what they're looking for and feel we've got that pretty well vetted through our process, and identified there.

Okay, and obviously you guys are coming off of record earnings, I was just wondering if you had any updates on the MOU. I'm surprised it's still outstanding.

Well, as we mentioned in our comments, we just recently had the fieldwork completed on our safety and soundness exam with the OCC. We've not gotten the written report right now -- as of right now.

You know, I felt that the discussion with OCC when they were on site and our meeting as they wrapped up had positive tones, but it will probably be another month, at least, before we get a written report.

Thanks, Bill. And the last question I had just related to the secession plan. I was wondering if the Board had found someone or had plans to replace Don as CFO, if it was going to be an internal or an external hire. Or if that is still being decided.

I'll tell you, John, at this point, and that was one of the reasons we announced this as early as we did, our succession plan has been very proactive and we've had a committee that's been dedicated to that as I've kind of developed my plans of what I want to do.

And one of the things that we've always done is we've continued to -- all of my executive leadership team prepares depth charts for people for their key positions, so we feel that we've got some very, very strong people here. We're not releasing anything as far as the other plans right now as we want to kind of take our time, make sure that we transition this properly. So those announcements will be forthcoming.

Thank you.

Thank you, John.

Thanks, John.

(Operator Instructions). Daniel Cárdenas, Raymond James.

Just a quick question on the mortgage banking side. Maybe if you could give us a little color as to what the pipelines look like coming into Q1 and maybe just some discussion as to how you think margins are holding up on that?

I think overall the pipelines are still in pretty good shape for Q1, going into Q2.

We fully expect some traction in the latter part of the year. We're hoping that'll be somewhat offset with more purchase business than refi, but our refi, as we talked about, we're still running close to 80% of our pipeline is refi at this point. So we expect, at least for the near term, that to be pretty strong, and actually the margins on the business are holding up quite well. So we don't see an anticipated material dropoff here for Q1.

I think, in addition to that, with the Treasury rates moving the way they are and the possibility that that may put some upward pressure on mortgage rates, that may shake a few people loose and hopefully add to some of the pipeline right now. But as Don said, we look pretty solid here through the first quarter, at least.

Okay, and then in terms of just organic loan growth prospects, is that still kind of market-share grab or are your customers starting to borrow, looking at the future and starting to prepare for that?

This is Jim Rohrs. We're seeing some very positive signs.

There still is a lot of giveaway/takeaway going on out there. We are seeing some businesses that have been roughed up by some of the larger banks, back when the economy was real tough, are now looking to change relationships. But we're also seeing some net new business to the marketplace where it's not taking away from another borrower, but customers who are finally seeing the confidence that they want to pull the trigger on a new project, and so it's net new money to the portfolio.

Okay, and then, maybe just in terms of competitive pressures. I mean, what are you seeing? Is it primarily from the larger institutions, and how rational or irrational is it on the lending side?

We're starting to see the regionals become more aggressive. We're starting to see some real aggressive rates out there.

I just had one this morning that was a 15-year rate from a regional bank, and they're paying all the closing costs, the appraisal and everything. But the majority of the competition we're seeing is from other community banks. I think a lot of those community banks are struggling to maintain their loan portfolios or even grow them, and so they're very aggressive when they find a deal they like, from a pricing perspective.

We're hoping we're going to see a little more rational pricing, and I think we're starting to now in the marketplace as the 10-year has ticked up a little bit. And I think if we see a little bit more of that, I think we're going to see some more rational pricing where banks are going to look out to the future and say, we don't know -- we don't have a crystal ball, we don't know what rates are going to be even five years from now, let alone 10 years. So not be committing those, what we think are, very, very low long-term rates.

And then, but most of the pressure has been on the pricing side. We haven't seen anything on the terms, any give up on the terms. Is that correct?

Not so much, no. That's an encouraging thing. It's mostly on the pricing side. There is some aggressiveness in structure, but not -- I wouldn't say that we've got anybody out there that's giving the store away on a credit side or a structure side.

Okay. And then, just a quick question on the margin, just given the restructure that happened in Q4. Is that fully reflected in the Q4 number or is there a little bit more room for upside in Q1?

Just a slight. We pulled the trigger on that really in the first week of the quarter, so most of it is included in the quarter.

Great. I'll step back for right now. Thank you.

Thanks, Dan.

[Brandon Canitz], [MacDonald Partners].

Hey, Bill.

Good morning, Brandon.

How are you?

Good. Yourself?

I'm doing excellent. Congratulations.

Thank you.

I'd be remiss if I didn't ask the question, with your dividend payout ratio in the single digits now, are you guys are going to evaluate the dividends in the next couple weeks and come out with something, or is there some thought of increasing it?

I'll talk in vague generalities, Brandon. Obviously, we are committed to paying a dividend and we -- our Board takes capital management very seriously and it's always a topic of discussion in our meetings. So we will continue to assess different capital strategies.

And I will say that we realize that our payout ratio is probably -- is certainly low. I would anticipate over a long term you would anticipate -- we would expect to bring that back up into a more normalized level.

Perfect. That's all I've got.

Okay, thanks, Brandon.

(Operator Instructions). This will conclude our question-and-answer session. I would like to turn the conference back over to management for any closing remarks.

Seeing that there are no further questions, this will conclude our call. Thank you.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.