Bank of Marin Bancorp
NASDAQ:BMRC
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Earnings Call Analysis
Q4-2023 Analysis
Bank of Marin Bancorp
The narrative of this quarter's earnings for Bank of Marin centers around their ability to navigate a challenging environment marked by the fastest increase in interest rates in 40 years and instability within the banking industry. The bank emphasized its strength and resilience, having been well-positioned with robust capital and liquidity levels, disciplined risk management, and conscientious expense control. Despite the pressures, the bank has demonstrated an increase in total risk-based capital and tangible common equity (TCE) ratios, a sign of its financial solidity.
Strategic actions taken during the fourth quarter, such as the sale of securities, had a significant albeit temporary impact on the bank's profitability metrics. While these strategic moves affected the pretax pre-provision income, it is noteworthy that, had these sales not occurred, this income metric would have been 4% higher compared to the previous quarter. This suggests that underlying performance remains solid and that recent financial maneuvers were a proactive response to the shifting rate environment.
Bank of Marin continues its commitment to growth while maintaining a keen focus on risk management and maintaining healthy liquidity and capital levels. Notably, the bank has decided not to engage in share repurchases in the recent quarter, favoring instead the strengthening of capital and reserves. This strategy is in line with their pursuit of prudent growth and enhancement of net interest income. The declaration of a consecutive quarterly dividend underscores their ongoing confidence in the bank's stability and future.
Credit needs to be given to the bank's interest rate risk position, which remains fairly neutral with a slight shift to a more liability-sensitive stance due to increased deposit rates. The bank anticipates some incremental loan repricing and revisits assumptions on deposit betas based on the 2023 experience. Forecasting a potential 7-14 basis points increase on an end-to-end average, the bank prepares a strategic approach to deposit repricing in various interest rate scenarios.
An encouraging sign of the bank's robust client relations is the fact that despite 80% of the deposit outflows in the quarter being linked to seasonal or unique business activities, the bank experienced substantial account inflows amounting to over $100 million in the subsequent month. Notably, deposit declines due to lost business were negligible. The deposit campaign launched in previous quarters brought in almost $130 million, highlighting the effectiveness of Bank of Marin's relationship-based banking model and adaptive pricing strategies. Furthermore, the bank plans to continue this approach and is already contemplating strategies for when interest rates begin to decline.
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Good morning, and thank you for joining Bank of Marin Bancorp's Earnings Call for the Fourth Quarter ended December 31, 2023. I'm Yahaira Garcia Perea, Marketing and Corporate Communications Manager for Bank of Marin. [Operator Instructions] Joining us on the call today are Tim Myers, President and CEO and and Tani Girton, Executive Vice President and Chief Financial Officer. Our earnings press release and supplementary presentation, which we issued this morning, can be found in the Investor Relations portion of our website at bankofmarin.com, where this call is also being webcast. Closed captioning is available during the live webcast as well as on the webcast replay. Before we get started, I want to note that we will be discussing some non-GAAP financial measures. Please refer to the reconciliation table in our earnings press release for both GAAP and non-GAAP measures.
Additionally, the discussion on this call is based on information we know as of Friday, January 26, 2024, and and may contain forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those set forth in such statements. For a discussion of these risks and uncertainties, please review the forward-looking statements disclosure in our earnings press release as well as our SEC filings. Following our prepared remarks, Tim, Tani and our Chief Credit Officer, Misako Stewart, will be available to answer your questions. And now I'd like to turn the call over to Tim Myers.
Thank you, Yahaira. Good morning, everyone, and welcome to our fourth quarter and full year earnings call. I'd like to begin by providing a high-level overview of our financial results. During the fourth quarter, we took several actions to further bolster our balance sheet that contributed to improvement in our pretax pre-provision income, excluding losses on security sales in the quarter as well as laid the foundation for improved earnings growth in 2024.
First, we strategically repositioned our balance sheet by divesting lower-yielding securities and further reducing our short-term borrowings. While the loss generated on the securities sales lowered our earnings, we directed the proceeds toward new loan originations and repayment of borrowings to accelerate margin improvement in the coming quarters. These actions countered the adverse impacts of increased funding costs and supported our net interest margin expansion during the quarter.
We believe that our current interest rate risk position will better support increased profitability in the year ahead as we navigate the potential higher for longer interest rate environment.
Second, in keeping with our long-established conservative approach to credit administration, we continue to proactively identify potentially vulnerable loans and during the fourth quarter created specific reserves for select loans dealing with idiosyncratic issues that have exhibited extended periods of weakness. Specifically, we added to our provision for credit losses in the quarter contributing to the increase in the allowance to 1.2% of total loans compared to 1.16% for the prior quarter. Overall, Credit quality remains strong with nonaccrual loans standing at just 0.39% of our total loans at quarter end.
Additionally, classified loans declined during the quarter and comprise 1.56% of total loans, an improvement from 1.9% at the end of Q3. We believe it is wise to conservatively address possible challenges early and proactively. This includes exiting relationships, evaluating loans with unique characteristics individually or pursuing other credit enhancement opportunities on potentially problematic loans. We remain highly selective and committed to strong asset quality amid economic uncertainty and the likelihood that interest rates will remain elevated this year.
During the quarter, our lending teams continue to build momentum, further developing relationships with our clients and finding compelling new opportunities to grow originations as we cultivate and build a more diversified loan portfolio. Our loan originations improved from $22.7 million in Q3 to $53.8 million in Q4 and were largely offset by payoffs scheduled repayments and strategic exits and certain lending relationships as part of our risk management process. Overall, this left total loans for the quarter essentially flat. Still, rates on loans we originated were 175 basis points higher than those paid off, helping provide margin support. We are positioning the overall portfolio for modest growth in the year ahead. Non-owner occupied commercial real estate loans made up 73% of total classified loans at year-end, up modestly from the prior quarter as we carefully monitor vacancy rates in the office sector.
Our nonowner-occupied office portfolio is diverse and consists of 153 loans with an average loan size of $2.4 million, the largest loan being $16.9 million. The weighted average loan to value was 59%, and the weighted average debt service coverage ratio was 1.6x based on our most recent data. Our office CRE book in San Francisco represents just 3% of the total loan portfolio and 6% of our total nonowner-occupied CRE portfolio. Just to reiterate, we are continually looking for ways to enhance our collateral on potentially problematic credits, including working with our borrowers to secure additional collateral and/or revised credit terms all with the view of minimizing the risk of future credit losses.
Now turning to deposits. We continue to successfully attract new clients and deepen ties with existing customers to support our funding base. While deposits grew over the past 2 quarters, our deposits in Q4 declined moderately, mostly due activity from clients executing typical seasonal and year-end business transactions. Since year-end, deposits have increased by as much as $104 million during January, which illustrates the impact normal large fluctuations can have on the daily balances due to our high level of operating accounts and why we maintain such high levels of liquidity.
Additionally, we saw some customers move cash into alternative investments to capture higher returns, some of which were directed to our own wealth management group. Noninterest-bearing deposits at year-end remained strong at 44% of total deposits, and a majority of the noninterest-bearing outflows aligned with the same customer business activities we saw with overall deposits. Our average cost of deposits increased 21 basis points in the fourth quarter to only 1.15%, continuing the deceleration of the last quarter. We believe we are appropriately competitive on deposit pricing while maintaining a strong core deposit franchise and excellent customer relationships through exceptional service and our local market expertise. As many of you know well, our overall cost of funds has historically trended well below secure averages, reflecting our long-term approach to customer engagement. We prove our value to customers with a robust suite of products and services rather than competing on price alone. Importantly, as we pursue improved profitability, we also remain highly focused on expense management. Our fourth quarter noninterest expenses declined 2% from the prior quarter.
With respect to liquidity and capital, we continue to maintain high levels of both. Security sales during the quarter reduced our capital sensitivity to rising interest rates. Our total risk-based capital ratio improved to 16.89% at year-end compared to 16.56% at September 30. The 31% improvement in AOCI raised tangible common equity to 9.73% of tangible assets. Total available liquidity of approximately $2 billion at year-end consisted of cash, unencumbered securities and borrowing capacity. Importantly, our liquidity covers all of our uninsured deposits by over 210%. Uninsured deposits declined by 1 percentage point from the prior quarter and stood at 28% of our total deposits as of December 31.
In summary, we made important progress on both sides of our balance sheet in the fourth quarter and throughout the second half of 2023, aggressively taking strategic measures to drive profitability in the quarters ahead.
With that, I'll turn the call over to Tani to discuss our financial results in greater detail.
Thanks, Tim. Good morning, everyone. We've been working hard on many fronts to enhance and accelerate our profitability growth. Our tax equivalent net interest margin increase of 5 basis points in the fourth quarter followed a 3 basis point increase in the third quarter. Our balance sheet repositioning contributed 15 basis points reflected in reduced borrowings and securities and a lower average rate on borrowings and higher yields on securities. Loan yield improvements contributed another 10 basis points. Deposit cost increases reduced the margin by 20 basis points. We are optimistic that we will see further margin improvement in the coming quarters with the full effect of the balance sheet restructuring, our ongoing focus on selectively growing the loan portfolio, and the natural repricing of the existing loan book.
We generated net income of $610,000 in the fourth quarter or $0.04 per diluted share as compared to net income of $5.3 million or $0.33 per share in the third quarter. There were 2 primary drivers of the fourth quarter decline in earnings. First, we recorded a $5.9 million pretax net loss on the sale of investment securities as part of our balance sheet restructuring, which reduced net income by $4.2 million or $0.26 per share. Second, we had an $875,000 increase in the pretax provision for credit losses due in part to specific allowances on loans that have exhibited credit risk characteristics, not indicative of cooled loans under the CECL model. We have taken a proactive approach in recognizing these characteristics by removing the loans from the pooled loan categories and analyzing them individually.
Additionally, a $406,000 loss on the sale of an owner-occupied agricultural commercial real estate loan was charged to the allowance concurrent with the sale. Noninterest income, excluding the loss on the security sale was stable for the quarter as modest increases from wealth management and trust services and other income were partially offset by a decrease in debit card, in our change fees. Noninterest expenses were again well controlled in the quarter at $19.3 million, down from $19.7 million in the third quarter. The improvement was due to a combination of factors. Salaries and related benefits decreased $380,000, largely due to a decline in incentive-based compensation and partially offset by increases in regular salaries and accruals for insurance and employee paid time off. Deposit network fees also decreased by $287,000 due to a decline in reciprocal deposit network balances. Decreases were partially offset by a $164,000 increase in professional services expenses.
Putting it all together, our profitability ratios were significantly impacted by the loss on sale of securities in the fourth quarter. Without which, pretax pre-provision income would have been 4% higher than in the third quarter. As everyone on this call is aware, [indiscernible] year for the banking industry with several regional bank failures following the fastest increase in interest rates in 40 years. Bank of Marin was characteristically well positioned to weather the storm. We have always maintained strength in our capital and liquidity positions and exercise disciplined credit and interest rate risk management and conscientious expense control. Since December 31, 2022, total risk-based capital improved 99 basis points to 16.9% for Bancorp and 89 basis points to 16.6% for the bank.
Bancorp's TCE ratio has improved 152 basis points over the year to 9.7% and the bank TCE ratio has improved 143 basis points to 9.5% at year-end. If the net unrealized losses on held to maturity securities were treated the same as available for sale securities, Bancorp's TCE ratio at December 31 would have been 7.8%. On balance sheet and contingent liquidity remains strong and represent 213% of uninsured deposits. Our deposit base is well diversified with businesses representing 59% of total deposit balances and 33% of total accounts, while the remainder are consumer accounts. The average balance per account on our deposit base decreased by $5,000 over the quarter. Our largest depositor represented just 1.7% of total deposits, while our 4 largest depositors comprise 4.6%.
Our interest rate risk position continues to be fairly neutral, although more liability sensitive than in past years due to the upward repricing of deposits. Securities sales and reductions in borrowings added some asset sensitivity to the physician. Cumulative deposit cost increases this interest rate cycle or the deposit beta have reached the levels assumed in our modeling, and we are revisiting those assumptions in the context of our 2023 experience.
Our Board of Directors declared a cash dividend of $0.25 per share on January 25, 2024, which represents the 75th consecutive quarterly dividend paid by Bancorp. While our share repurchase authorization remains in place, we didn't repurchase NB stock during in the quarter as we were focused on continuing to build our strong capital, increasing our allowance for credit losses and repositioning the balance sheet for the new interest rate environment.
We have identified and implemented incremental adjustments across our balance sheet and expense structure to accelerate net interest income expansion and to self-fund efficiency improvements, and we will continue to look for further opportunities. Our vigilant credit administration, consistent expense discipline and commitment to strong capital and liquidity levels give us a strong foundation to continue pursuing prudent growth in the year ahead.
With that, I'll turn it back to Tim to share some final comments.
Thank you, Tani. In closing, the actions taken in the fourth quarter significantly impacted profitability metrics in the fourth quarter, and without them, the pretax pre-provision income would have increased over that of the third quarter. We continue to emphasize our relationship-based banking model to maintain an attractive deposit mix and healthy liquidity levels while proactively managing our balance sheet to expand our net interest margin. We remain committed to recruiting top talent and further building our teams to grow both deposits and loans, positioning the bank for increased profitability into the future. We continue to fortify our balance sheet and maintain robust capital levels to manage risk and are exercising consistent expense discipline as we lay the foundation for prudent growth in 2024.
With that, I want to thank everyone on today's call for your interest and your support. We will now open the call to your questions.
[Operator Instructions] Our first question will come from the line of David Feaster with Raymond James.
Perhaps not surprisingly, I was hoping to start on the margin. Could we talk a bit about how you think about -- I guess, first of all, what do you think would be a good core margin run rate? I mean there's been a lot of balance sheet maneuvers that you guys are doing. You've been very active. So curious kind of how you think about a good core margin and then just the trajectory in a potentially declining rate scenario. You screen is modestly liability sensitive. You alluded in the press release, maybe a bit more rate neutral. So just curious how you think about the margin trajectory if we do get potential cuts?
Yes. Thank you, David. Good question. I'll let Tani jump in here.
Yes. Thanks, David. So we still have some residual loan repricing coming off the book to the current levels of interest rates. So in the go-forward quarter or the first quarter, that's worth about 7 basis points end to end -- or 14 end-to-end 7 on average, and over the year, about 46 basis points end-to-end or about 23 basis points on average. And that is roughly -- that's in the base case with interest rates flat. So if you have rates going up, it's more than that, but you also then have offsets of deposit rates going up possibly. And we are revisiting our deposit beta assumptions there. But if you -- if we go down, we still have some residual repricing on the loan portfolio, plus we would have repricing on the deposits. So it's really difficult to say what the deposits are going to do on the repricing, although we do feel that, that's going to continue to moderate in terms of increases if the Fed stays on pause.
And then the last factor there, as I mentioned, was the residual -- or the full effect of the securities or the balance sheet restructuring. So we have 0 borrowings on the balance sheet right now. And so I think that there's some -- the full effect for 1 quarter versus we executed those transactions over the course of the fourth quarter, so we didn't get the full impact in the fourth quarter.
Sure. Do you have maybe kind of any expectation for what inclusive -- the margin would be inclusive of all the balance sheet actions?
I think in the next quarter, 5 to 10 basis points. And for the core margin, Boy, that's a really tough question. That's that's a hard one to say just because there are so many moving parts.
Yes. And to your point on the deposit side, maybe switching gears here. I appreciate all the commentary about seasonality and the potential benefits in January. I know there's some seasonal tax impacts in the quarter as well. Could you maybe just dig into maybe quantify some of the seasonal dynamics that you saw in the quarter? And whether you started to see those balances recover in January like you had mentioned? And just how do you think about your ability to reprice deposits just given deposit bases are relatively slow on the way up and so just any thoughts on the deposit outlook and kind of what you're seeing?
Sure. So about 80%, 79% -- 80% of the deposit outflow overall in the quarter, was related to some combination of seasonal or what I would call unique but normal business transactions, business sales. trust distributions business or real estate acquisitions. So not vendor payments or tax payments like you alluded to, but normal business activity. That was the vast majority of it. And we've had inflows in those same kind of accounts upwards of over $100 million throughout the month of January. So we know that, that's a real factor. We did have about $25 million leave to go to outside [indiscernible] rate. But that's down dramatically from Q4 when we admittedly got flat footed, trying to be stubborn about deposit pricing before the events of March. That was over $70 million in that category at the time. So -- but those aren't customers we've lost. If you look at the dollars of deposits declined from lost business, it's less than 1%. So we've really done a good job of repricing. The amount we brought in through our deposit campaign we talked about the last couple of quarters, almost $130 million, that weighted average is about 3.36 all in. So to your point, we're trying to hold the line on a relationship-based pricing model, still almost everything exception-based pricing, and we've already been strategizing about, okay, what do we do when rates start to come down and how do we respond. So a pretty minimal amount in time deposits, all of which mature in this year, but that was a fairly, I think, [ $18 ] million. So really trying to keep it in a few types of accounts that we can manage as proactively as possible. But that's kind of the math around. In deposits overall, we had about $25 million also move from noninterest-bearing into interest-bearing, but those are clients that are, again, still within the bank. So we don't -- that's -- and we had about $5 million net of money that went from deposit accounts here into our Wealth Management & Trust Group. to put into higher-yielding securities. So that's the general breakdown, David.
Okay. That's extremely helpful. And then just last one for me. Just touching on the growth outlook in the loan some of the dynamics in the loan decline? It seems like maybe there was more asset sales and payoffs in the fourth quarter? And maybe there's some strategic lead that you're moving out of the bank. But I'm just curious maybe the pulse of the market from your standpoint, now demand is trending, how the pipeline is shaping up? And just how you think about organic loan growth going forward?
Sure. So we had a lot of robust activity pipeline and closing in Q4. The mix is slightly more skewed towards C&I and owner use it than maybe some of the prior quarters, but kind of overall mirrors the makeup of the overall portfolio on the originations. Obviously, when you close that much, you've got to rebuild the pipeline, but we feel better about where it is than we did a couple of quarters ago for sure. And so we are aggressively looking. We've added some hires on the commercial banking side, looking to add some more, but part of that behavioral part of that market sentiment, we are seeing a loosening of people willing to consider some of these options, business transactions, for which they need to borrow.
On the asset sales side, I know -- that's been a bit of a recurring theme for us, but really is marginal in terms of the things we can control between asset sales and people just paying off debt with cash. That was almost 40% of that total. A couple of larger or midsized I would say, construction projects that completed and as expected and paid off. Only $3 million of that total refinancing went to another institution. And then we had about $12 million of those payoffs that -- we put in the workout category, things we were doing that caused them to look for financing elsewhere, but that helped us get rid of some of our largest classified loans. So we view that as a positive. In the end, did that depress the overall net loan growth, of course. But in the long run, that was a positive for us.
Our next question will come from the line of Wood Lay with KBW.
It was good to see the continued balance sheet management. I mean do you think, to the extent that loan growth opportunities remain elevated. Do you think we could see further restructurings in the quarters ahead?
Well, I'll start high level and then Tani can jump in if she wants. But we throughout that second half of the year, we look for properties to shed lower yielding -- some mix of lower yielding, but also that has a lower impact in terms of the losses on the sale of the securities. And we'll continue to look at that. Yes, I mean we're seeing with the deposit trends. We expect those to continue to trend upward overall, outside of seasonal fluctuations. We're outside of the line. I'm not super anxious to take losses on sales. But if we start seeing a real pickup in loan activity and that trade-off of those lower-yielding securities into higher-yielding loans at these levels, yes, we'll continue to look at that. Tani, do you want to add anything to that?
Yes. I would just say the ones that we've sold, those had pretty low earn-back periods, very low earn-back periods relative to loan rates and pretty low earn-back periods relative to paying off borrowings and putting money into cash. So we picked the best securities to sell for those based on that criteria. Now if we -- as Tim said, if we have significant loan growth, we would easily be able to target loan -- or low earn-back periods in order to repurpose cash from securities into the loan book.
Got it. That's super helpful color. Wanted to shift to deposit trends. I mean they sound pretty positive so far in January. I was just curious how the noninterest-bearing deposit trends are faring so far in January?
I think where that's where we saw the bigger fluctuations. That's where certainly some of the seasonal outflow was in terms of business transactions, whether normal vendor tax type payments versus those more onetime or unique things like a business sale where proceeds go to investors or purchase of real estate or a business. Again, we've seen the noninterest-bearing increase upwards of $100 million throughout the month. So it does fluctuate. And so it is hard to tell what the seasonality that we see. But Again, we're not losing a lot of money out the back door, losing very few to other institutions and the pace of money moving out of noninterest-bearing into both interest-bearing and into nonbank financial markets like money markets, that is dissipating. So I don't know how to prognosticate, but we continue to see positive trends there.
Yes. And if I could just add that a significant portion, so we had a little lift in our interest-bearing deposits over the course of the fourth quarter, but a pretty large portion of that was new money from existing customers as well as new relationships. So I think that's an important data point.
Got it. And then last for me. I know you're pretty aggressive on the grading process with credit. But just any color you can share on what drove the increase to special mention loans in the quarter?
Yes. So I'll start really high level and then hand it off to Misako Stewart. But we are pretty conservative or aggressive depending on how you how you look at that and looking at things in a watch category, a very finite time period that we let stuff sit there. And so we do have stuff move from watch as a pass credit into credit size, but we also are constantly looking at those that we can upgrade. So I'll let Misaka jump in on the specifics.
Right, right. So we did continue to see risk weight migration in the quarter kind of moving in both directions. But in a special mention, category, like Tim was talking about, we do tend to take a more aggressive approach in our watch category that if we don't see improvements over about 2 or 3 quarters, we will move it into special mention. And so -- the increase primarily came from those situations, all kind of with individual kind of different situations, but not necessarily further deterioration just not any meaningful improvement over the last couple of quarters. However, we are expecting a number of upgrades to pass in the first quarter after we get results from year-end. And so again, like I mentioned, we are going to continue to see migration in both directions. And just in our substandard category, again, that actually balance went down by quite a bit just due to some active and successful workout situations, although we did have 2 more loans move into our nonaccrual category as well. But overall, that's -- we will continue to see migration, I think, in all grades.
Next. Question will come from Jeff Rulis with D.A. Davidson.
Just to stay on the credit side. That classified balance, $32 million is any way to kind of break out the larger segments that are kind of most represented what's in that bucket?
Yes. So the largest loan that we have in that is an office building in San Francisco that I think has been mentioned before, which was downgraded, I think, 3 Decembers ago, and that makes up nearly half of that balance. We continue to work with the borrower, loan is continuing to pay as agreed. We have not restructured and there's borrowers continuing to still make contractual payments there. And we continue to monitor that very closely. But that makes up the bulk of the substandard.
Okay. Pretty granular from there. That's helpful. Tani, if I could circle back to the margin. I just wanted to make sure I've got pretty good detail, but I wanted to make sure I have it correct. If we're at, call it, $253 million, I'm looking at the benefits to the margin. I think you said residual on average kind of full year impact of 23 basis points. So in a vacuum, does that take margins to 275, then other additions would be a little tail of the balance sheet restructuring could be a benefit, not to mention if we see some rate cuts, if you mean a liability sensitive and upswing. And then it would be any carving back would be further repricing or pressure on the funding side. Is that -- are those the bigger pieces that we're talking about in magnitude, is that generally in line?
Yes. Yes. That sounds right.
Okay. Got it. And then I guess one last one, just on the noninterest expense. In terms of management of that, that's been a contained number. I don't know if you -- you typically don't like to throw out outlooks. But in terms of expense growth, what kind of year is that in terms of investments? Or are you really mindful of that line. I just want to -- I don't know what the outlook for expenses ahead is what the messaging is it camp down? Or is it hey, we're seeing -- Tim, I think you mentioned, obviously, you're seeing some talent here and there. Just want investment versus kind of mining expenses with that in the wash?
If you adjust out about the roughly $600,000 accrual adjustment, that expense level is a good indicator in the quarter of our run rate. We are looking to make hires, but we horse trade around staffing levels and where we can free up some money. We have made some cost save initiatives in a couple of areas to free up some funds for further investment and technology to streamline our lending operations in particular. So there are expenses coming, but we will continue to do our best to offset those elsewhere. So again, if you back out that $600,000 accrual adjustment, that Q4 expense level seems a good indicator to us right now.
$600,000 million is a positive, meaning the benefit in the fourth quarter.
Yes, you would want to take that out because those were accrual adjustments. Yes. And then just a reminder that in the fourth -- in the first quarter, our 401(k) contribution matching tends to spike up because everybody is resetting for the year. And then merit increases typically will go into effect in the second quarter.
Got it. And Tani, just a quick last one. The tax rate is for '24, what's a good number to use?
I think you can continue to use the 25%, 26%.
[Operator Instructions] Next question will come from Andrew Terrell from Stephens. Andrew.
Just a couple of quick ones for me. One, can we go back to the margin for just a moment. And Tani, do you have the spot securities yield at 12/31.
Yes, I do. Just let me grab that, hang on 1 second. And I'll come back to that..
Okay. Perfect. if I look at shifting gears, looking at Slide 15 on the the investor CRE maturities or the repricing in 2024 and 2025. This is a really helpful slide. But when I look at the 2024 bucket for loans repricing, the $26.3 million outstanding, you've got the new weighted average debt service assumption at 120 or 1.2x. I guess when I look back at the December presentation, the 2024 loan repricings were estimated to carry a 2.01x debt service after reprice. So I guess the question is, what change in the disclosed debt service? Is it just a function of the mix of loans that are in that bucket because it does look like the mix changed a little bit? Or were there any kind of model changes that you made within these assumptions?
I think we had 1 property in there that in between those quarters where the tenant chose not to renew their lease, so we adjusted that to more market-based assumptions. So that skewed it was, I think, the biggest impact.
Okay. Understood. But no change like the model assumptions or anything in there?
No
No. Andrew, back to your net interest margin question, sorry. The average portfolio yield in December was 2.32%. And then that's broken down in the presentation between AFS and Health to Maturity.
Okay. Perfect. And then, Tani, I wanted to go back to some of the commentary you gave earlier around the kind of residual loan repricing. And I guess I'm I'm trying to understand a little bit better when I look at -- I think it's Page 18, the disclosure around the asset repricing going forward on both the loan and the security side. When I look on the loans in that kind of 3- to 12-month bucket, it looks like, call it, $100 million or so of loans repricing in 2024. So I'm -- I guess I'm trying to figure out how we get to the point-to-point disclosure of 46 basis points kind of throughout the year in terms of loan repricing, if there's just $97 million in that bucket, if that question makes sense?
Let's see. So you've got -- well, you've got the 3 to 12 months at 97%, but you've also got the $240 million in the 3 months or less. So obviously, some of that $240 million, if you have flat rates won't reprice, but some of it is coming -- rolling down the curve and is ready to reprice. Does that make sense?
Yes, it does. My assumption was just that the 3 months or less was predominantly floating and had already repriced just given it's the rate was [ 7 3/4% ] here. So I was thinking about the impact is more of like the $97 million, maybe you add an extra quarter in there coming from $584 million up to $774 million. It just seemed -- it was tough to get to the type of point-to-point loan yield expansion just based off the slide.
Yes. Okay. Andrew, I'll look at that offline and see if I can explain it a little better.
Okay. Got it. I appreciate it. And then last question, just on the margin. It looks like if I look at the interest-bearing deposit cost progression throughout the quarter, the December month saw kind of the greatest increase I'm not sure if that was more of just a function of mix. I know there's some volatility towards quarter end, it sounds like. But just given given maybe an elevated amount of pressure in December versus the prior quarter. Would you expect that we could see, I guess, a relatively stable margin in the first quarter before some of these benefits start to kind of kick in as we roll throughout the year.
Yes. I think some of the movements in the noninterest-bearing to interest-bearing and some that moved out, they were pretty lumpy and that did happen later in the quarter. And so I don't want to say that's a run rate then that can be a little jerky and its impact depending on the timing. So I don't think that's indicative of a run rate per se. But again, I'm really loath to prognosticate that given what's happened.
Yes, totally understood.
So we did have an online question. When you talk about the residual loan repricing opportunity, is it safe to assume that will continue in 2021 and beyond, assuming you do not -- we do not return to a 0 integrate policy. I'll let Tani handle that.
And I would say, yes, there -- the residual repricing continues beyond the 1-year time horizon. We typically the duration on our loan portfolio is somewhere around 4 years. So you can assume that we're going to get residual repricing over that entire time frame.
There are no further questions. I will now turn the call over to Tim Myers for closing remarks.
Thank you again, everyone, for both your interest, support and questions. We appreciate it and look forward to seeing you next quarter. Go niners.