Morgan Gasior: No, this is the investor conference call. We’re here to discuss earnings.
Unidentified Analyst: I’m quoting you directly from May 2, 2022. Take a look at the conference call.
Morgan Gasior: Well, I’ll just say that if you want to discuss this offline we’re happy to.
Unidentified Analyst: No. No. I’d rather this be in a public forum.
Morgan Gasior: Well, we’re going to leave it there. I don’t think that this is — that’s the right forum for this. If you want to…
Unidentified Analyst: Well, your underperformance for 19 years is a matter of public record. And so do you want to address it publicly or do you want to pretend that it doesn’t exist?
Morgan Gasior: Well, I think we’re going to leave it where I said. This is the investor conference call. If you’d like to talk about it off-line we’re happy to do so. But I mean…
Unidentified Analyst: And I find that your cowardice in addressing issues that affect all public shareholders is severely — is staggering. I’ll leave it at that. I think you could be doing a much better job. I think you should be looking at strategic alternatives. I’ll leave it at that.
Operator: Thank you. We will now go out to our next question. One moment for our next question. Our next question comes from the line of Charles Winnick from Fulcrum. Your line is open.
Charles Winnick: Hi. Hi, Morgan. This is Charles Winnick. On February 5, 2013 you were asked questions on your last call you received questions about selling the bank and you implied that it was not the right decision because better days are ahead of you. Well, I definitely can’t disagree with your assessment especially considering the performance over the last few years. I don’t really see any other avenue that would be more beneficial to shareholders than a sale. And while the earnings outlook has definitely improved your full earnings capacity still generates returns much less than your cost of capital, which in effect destroys shareholder value. Your efficiency ratio is just too high. And while loan growth is always right around the corner you admit on every call that competition is intense, which I agree, which really just justifies the fragmented nature of the markets and need consolidation.
And so, yes, we have improved outlook and hefty capital, but all negatives really speak for themselves. So my question really is – you’ve got most of your credit issues behind you now. Obviously, can you offer shareholders a credible plan that generates value superior to what you could potentially receive in an M&A transaction?
Morgan Gasior: No. One I’ll say that you’re talking about something from 10 years ago. Certainly, every quarter we give you our best assessment of where we stand and what we think the future holds. I think again, this is a conversation that could be had off-line, because we’re talking about what we’re trying to do with earnings and moving the franchise forward. Certainly appreciate your views but I’ll leave it there.
Charles Winnick: Okay. I think we can earn a return on – I think you mentioned that you that you could return – earn a return on equity and average assets that’s competitive to the market that we operate in. So that benchmark is – can we do as well as our peers are doing and provide a good dividend return? You know it’s just been a long time that we have…
Morgan Gasior: As far as the dividend return, we’ve had a good dividend return. If you look at our dividend yield obviously that’s a function of stock price too which we’d all hope to improve and as noted earlier has improved. But we’ve had a good steady dividend going forward. It’s actually better than some of our peers. In terms of return on average assets, we work with the challenges we have but there have been trends both in the – in several instances 2019 and again in 2022, where we were improving things and some of the speakers today complimented us on that in the past. But our goals remain the same. The challenges we face in terms of what happens to us some of which is out of our control, we face squarely and we do the best we can with it.
But going forward for 2024, as we continue to deploy the cash, given the asset liability management that we had, we make our way back towards our $0.20 a share $0.25 a share $1 a share. As that takes place we get into the 90’s or so in return on average assets. We would have very good asset quality as you – as noted credit quality is improving. And at that point, even though we have surplus capital, a return on equity using an 8.5% or 9% consolidated capital as a base produces a double-digit return on equity. Those are all achievable numbers over – as time goes forward. Certainly, we can’t do anything about the past. We can continue to focus on the future. But thank you for your comments.
Charles Winnick: So if you’ve been a long-term shareholder for the past 19 years when you went public, the remaining public – I don’t know I just haven’t made any money in the company for the past 19 years except for the dividends. It just seems like there’s – should be looking at other alternatives.
Morgan Gasior: Thank you.
Operator: Thank you. One moment for our next question. Our next question will come from the line of Zain Shah [ph] from D.A. Davidson. Your line is open.
Unidentified Analyst: Good morning, guys. I guess a quick question on – what is your outlook for deposit growth in 2022 or 2024? And what is the outlook I guess for loan-to-deposit ratio? Is there a number or a certain level that you won’t go above? You were at 83% this year versus 89% last year. And do you plan to use broker deposits as a source of deposit growth?
Morgan Gasior: Okay. One, deposits have stabilized a bit. Fourth quarter was the first quarter we saw reasonable stabilization. We had a bit of a decline principally in public funds, which is kind of expected and seasonal. So our outlook for 2024, hard to say for sure but probably a good case scenario as deposits remain flat. And that would mean interest earning assets can stay stable and we can enjoy the benefit of keeping money working. As far as loan-to-deposit ratio, we’d like to work that back up to about 90%. So now, what are the deposits? If they’re down by 3%, that would be a somewhat lower loan portfolio. But that would indicate for — if we go off of the 12/31 deposits that would indicate roughly a $1.1 billion loan portfolio.
So, roughly somewhere between 5% and 8% growth in loan growth for the year to achieve a 90%, given the cash flows that we’re seeing come off of the loan portfolio. Again, no dispute about it, there is competition for assets. But those would be the goals we would have. 90% is a good number for us, especially given the scheduled cash flows we get from the portfolio. Again, last year we had $200 million of cash flows coming back at us, which served our purposes to reinvest at higher yields. I think we had a number of peers who wish they had that kind of cash flow to invest in higher yields. And I think we have a number of peers who wish they had invested in low-yielding securities that left them significantly underwater as opposed to our situation where we improve tangible book value.
And we do not anticipate any increase or use of broker deposits given our liquidity, again, the benefit of liquidity. If we needed deposits, that would be a different situation. Right now we want to stabilize with the customers we have grow, especially the commercial deposit base and work on share of wallet for the retail deposit base. So right now, we wouldn’t anticipate any material use of broker deposits. If we were going to try and do manage interest rate risk, we would probably think about using Federal Loan Bank advances, so we could precisely target what we needed. But even now, we’re expecting the Home Loan Bank advances to roll off and save us some interest expense.
Unidentified Analyst: Great. I guess my second question is, what is your outlook for fee income, as you mentioned kind of in line with that? What efficiency ratio do you guys see for 2024?
Morgan Gasior: Yes. There’s two separate questions there. The fee income side, we have some opportunities to improve fee income even on the retail side. We’re very conservative in terms of how we process transactions. But we have increasing customer requests to for example enable overdrafts or negative balances using debit cards and ATM cards. That is an opt-in process that customers have to request in, because there’s just now fewer checks and more electronic transactions and more ATM and debit card than checks and even over-the-counter. We’re seeing a greater interest in that. So we are going to enable that. It’s a risk function but we’re going to enable that and that obviously will potentially help on some retail fee income.
But we don’t want to get over-reliant on it, and we certainly need to be mindful of the credit exposures. That’s one of the reasons why we’ve been conservative with it. On the other remainders of interest — of non-interest income, we’ve enjoyed some growth in the Trust Department and we’re continuing to focus on the Trust side, including the basic Trust services and even adding some business Trust and complex Trust. Those are longer sales cycles, but we’ve enjoyed some growth in the top line in the Trust Department. And we’re hoping to build on that with some greater sales efforts and focus on people in the 2024 time frame. We’ll get some help from the Bank-Owned Life Insurance portfolio. That was a negative contributor in 2023 due to market rates.
As market rates adjust that will be a positive contributor, potentially as much as $0.5 million. So we could see some improvement in non-interest income from all those sources, including, I might add, the Treasury Services side, where we’re adding fee income due to paying agency services on the commercial side. The efficiency ratio is really a function of top line growth and then to a certain extent again back to loan originations and loan deferral of loan expenses, originations make the place more efficient on the top line and they make it more efficient in non-interest expense. So, for our size institution, especially if it stabilizes, given some of the expenses that we just see flowing through us, somewhere in the low 60s% to mid-60s% seems a reasonable range to us.
