Damon DelMonte: Hey, good morning, guys. I hope everybody’s doing well today.
Robert Kaminski: Good morning, Damon.
Damon DelMonte: Good morning. Just wanted to start off on the credit front. Things obviously are pretty sound with you guys right now. Just wanted to maybe get a little perspective, Chuck, from you on the outlook for the provision over the coming quarters. If you kind of take into account what you’re seeing maybe on the horizon for some — any troubled credits and then also like, kind of how that balances with where the loan loss reserve is?
Charles Christmas: Yes, thanks, Damon. Clearly the economic conditions will have — always has a big impact on the reserve, as you know. And as Ray mentioned, and as you’ve seen in the numbers, we continue to have very pristine quality within our loan portfolio. We haven’t identified anything overly systemic within the industries in which we lend to. So don’t really see anything coming over the horizon, but clearly these are volatile times and forecast change on a pretty regular basis in a pretty big way. My expectation is that, our loan portfolio will continue to stay strong and that any large percentage of our provision number will be reflective of the loan growth that we have. But clearly, we’re looking at the — on a formal basis at the end of each quarter, we’re looking at our qualitative measurements.
In my preparatory remarks we specifically talked about clearly having to reserve from specific reserves from time to time. Two relatively large ones here in the last five quarters, but both of those thankfully have paid off in full. We’re able to reverse those. We have done some work here with our [CSO] (ph) model as far as making sure that we’re comfortable with the segmentation that we’ve been using, as well as the overall environmental area. So we did make some tweaks on that during the fourth quarter. I don’t see anything like that coming any time soon. I think we’ve done a good job of sitting back after a few years of using this model and seeing where we needed to shine some things up a little bit. So, yes, on an overall basis, I would think that with the provision expense primarily reflecting loan growth, that would drive the provision expense and that our coverage ratio would stay relatively consistent.
All things known at this point in time.
Damon DelMonte: That’s great. Great color there. Thank you. And then if we could just circle back on the commentary you made earlier in the Q&A on the margin. I just kind of missed what you were saying. What were some of the levers in the second half of the year that you think would help kind of keep the margin in that 370 to 380 band in the face of rate cuts?
Charles Christmas: Yes, there’s a couple of things there. When I mentioned the investment portfolio, really starting in 2023 but ramping up a little bit in 2024 and then for the next few years, we have quite a few of our investments, especially the government agency bonds that will be maturing. And those, I would say, on average, over that time period, they are earning maybe around 1%, maybe a little bit higher than that when you get into the out years. So even if rates come down, say 100, 200 basis points, there’s still some positive repricing that will be taking place, especially starting in the back half of this year on a pretty regular basis for the next several years. That whether we reinvest those monies into the investment portfolio, are we able to use some of those funds to fund loan growth?
There’ll definitely be some positive repricing going on there. The other thing is, as you know, and as I mentioned, we have been using broker deposits more often. We do use them more often in 2023 than what we had in the previous year or two. And in large degree we went relatively short, by short of six months to maybe 18 months. So that portfolio will reprice relatively quickly. And again, those — especially those two items together with — we’ll definitely be looking at local deposit rates with the opportunity to reprice downward, especially money markets and time deposits. Most of our local time deposits are short as well. So the reductions of interest expense on that side will, we believe, will largely mitigate the negative impact of declining interest rates in our commercial loan portfolio.
Damon DelMonte: Got it. That’s helpful. Thank you. And then I guess lastly, any — I think in your prepared remarks, you noted that you still had $6.8 million of capacity on the buyback. Any thoughts on becoming a little bit more active here in 2024?
Charles Christmas: Yes, that’s something that we look at. Clearly the stock was down as all bank stocks were earlier in 2023 with the chaos that was going on, but certainly wanted to not be participating in buying back our stocks, wanting to maximize our capital as best as we could. The kind of way that I like to put it is, the buyback is definitely on the stove top, but it’s on the back burner and the burner is not on. I think it’s something that we do look at on a, I would say a regular or ongoing — probably on ongoing basis is a better way of saying that. Clearly where our stock price is, we’ll have a big determinant on whether we want to start engaging on that But we also look back and say, there’s a lot of unknowns that are out there and it probably makes sense to kind of be hoarding our capital if you will at this point in time instead of using that for buybacks.
