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Text: Today's presenters are Chris Martin, Chairman, President and CEO and Tom Lyons, Senior Executive Vice President and Chief Financial Officer.
Now I'm pleased to introduce Chris Martin, who will offer his perspective on the fourth quarter.
Providence core earnings of $0.43 per share were impacted by continued margin compression, albeit slight and increased expenses primarily from consulting fees related to CECL modeling and implementation.
Our core return on average assets was 1.13% and core return on average tangible equity was 11.36% for the quarter.
We experienced only 2 basis points of margin compression in Q4 and forecast it being relatively neutral in 2020.
The repricing of deposit relationships that had discretionary rates positively impacted overall deposit flows.
This affords us an opportunity to reduce the rates on our CD book, although not a large portion of our overall deposits.
Key to our success will be our ability to continue to grow our non-interest bearing and core deposits.
We believe we have reached an inflection point in loan pricing and predict lower single-digit growth in the loan portfolio, which continues to be bombarded by payoffs and refinances away from us.
Our loan portfolio is skewed to variable rate products and we continue to swap out longer term fixed-rate loans.
C&I lending has become more competitively of late but we are winning our share of quality loans and relationships.
The middle market space has faced headwinds relating to the origination of loans at levels that meet our ROE hurdles.
We'd take all commercial lending expectations to the level of GDP growth, so low single-digit growth is what we expect to see in 2020.
Residential lending has picked up of late and we continue to be selective in our credit decisioning and leave the aggressive lending to competition, so these had outsized growth targets to bolster their margins.
Further, we are seeing more and more interest-only periods extended and longer fixed rate terms than we have in a long while, emanating from the agencies and life companies.
On the matter of CECL implementation, we expect incremental volatility since reserve levels will be very dependent on the macroeconomic forecasting.
This could affect loan pricing in the future also.
Our credit costs were elevated this quarter versus the same quarter in last year as we continue to conservatively evaluate our classified credits.
We have deemphasized our exposure and concentration in certain industries while also staying away from leverage lending.
We believe the current economic backdrop supports a relatively stable credit outlook and our net charge-offs for the year were slightly higher, but still in line with peers.
Speculation about a potential recession has been on our and other banker's minds over the last couple of years, but it has not happened yet and we try to spot the potholes beforehand.
Fee income continued its improving trend with Wealth Management leading the way along with loan level swap income and loan prepayment fees.
The additional valuation adjustment to the T&L transaction has proved positive as this acquisition is exceeding our initial estimates.
Expenses were higher in the quarter with the majority being in compensation and the non-cash contingent liability for the T&L acquisition.
Consulting and technology expenses continue to increase as we prepare it for CECL.
Regulatory costs were being $10 billion and technology investments to remain relevant in the new digital banking paradigm.
We continue to balance expenses with investments in the customer platform and product set.
Our tech spend is embodied in more consumer-centric, efficient and agile decisioning for our clients to enhance their relationship with us.
Information compiled in our data warehouse and our use of data analytics will be key to understanding our client's needs.
Reliance on AI will likely expand in the years ahead, especially in the payment channels.
We're also investing in the universal banker model, better recruiting processes and on boarding orientation and to constantly evaluating our branch network.
As for M&A, we expended a fair amount of time and energy in 2019 assessing potential acquisitions and continue to have more than enough capital to achieve better returns for our stockholders through whole bank transactions and RIA purchases.
We can fund our organic growth and support a solid and consistently above average cash dividend with only a 54% pay-out ratio and supportive buybacks when they meet our total return criteria.
The consumer segment appears to be in good shape for both the credit and spending perspective and the labor market may be the best that we have seen in a generation.
Fed interest rate policy is expected to be on hold for a while with geopolitical issues, pandemic risk and the presidential election grabbing the headlines, we believe the economy will continue to grow in spite of these distractions.
Our net income was $26 million or $0.40 per diluted share compared with $35.8 million or $0.55 per diluted share for the fourth quarter of 2018 and $31.4 million or $0.49 per diluted share in the trailing quarter.
Current [Phonetic] quarter earnings were adversely impacted by a $2 million or $0.03 per basic and diluted share net of tax expense increase in the estimated fair value of the contingent consideration liability related to the April 1st, 2019 acquisition of New York City-based RAI Tirschwell & Loewy.
As previously disclosed, the earn out of the contingent consideration is based upon T&L achieving certain revenue growth and retention targets over a three-year period from the date of acquisition.
Based upon T&Ls recent positive operating performance and improved projections for the remaining measurement period, an increase to the estimated fair value of contingent consideration was warranted.
At December 31st, 2019, the contingent liability was $9.4 million with maximum potential future payments totaling $11 million.
Excluding this charge, the Company would have reported net income of $27.9 million or $0.43 per basic and diluted share and net income of $114.6 million or $1.77 per basic and diluted share for the quarter and year ended December 31st, 2019 respectively.
Our net interest margin contracted 2 basis points versus the trailing quarter and 23 basis points versus the same period last year.
And that margin compression would continue to reprice downward deposit accounts with negotiated exception rates.
This deposit rate management coupled with an $80 million or 21% annualized increase in average non-interest bearing deposits resulted in a 3 basis point decrease in the total cost of deposits this quarter to 65 basis points.
Noninterest-bearing deposits averaged $1.6 billion or 23% of average total deposits for the quarter.
We will continue to thoughtfully manage liability costs as the rate environment evolves.
Quarter-end loan totals increased $66 million or 3.6% annualized from September 30th as growth in CRE construction and residential mortgage loans was partially offset by net reductions in C&I multifamily and consumer loans.
Loan originations excluding line of credit advances reached their best levels of the year, up $106 million or 30% versus the trailing quarter to $461 million.
But payoffs remained elevated, up $46 million or 18% versus the trailing quarter to $298 million.
The pipeline at December 31st decreased to $905 million from $1.1 billion at the trailing quarter end, reflecting strong year-end closing activity.
The pipeline rate has decreased 14 basis points since last quarter to 3.97% at December 31st.
The lower pipeline rate reflects current market conditions and a decline in interest rates.
Our provision for loan losses was $2.9 million for the current quarter compared with $0.5 million in the trailing quarter.
Our annualized net charge-offs as a percentage of average loans were 26 basis points for the quarter and 18 basis points for the full year.
Overall, credit metrics remained stable this quarter with non-performing assets totalling 55 basis points of total assets at quarter end.
The allowance for loan losses to total loans decreased to 76 basis points from 79 basis points in the trailing quarter largely as a result of improvements in qualitative allowance factors.
Non-interest income decreased slightly versus the trailing quarter to $17.7 million as lower swap fee income offset increased bank-owned life insurance benefits and loan prepayment fees.
Excluding the increase in the fair value of the contingent consideration liability related to the T&L acquisition, non-interest expenses were an annualized 2.05% of average assets for the quarter.
Core expenses increased $1.2 million versus the trailing quarter with consultancy and audit costs related to CECL implementation, additional examination and consulting fees that totaled $1.4 million driving the increase.
We did, once again, benefit this quarter from an FDIC insurance small bank assessment credit of $758,000 and our total remaining FDIC credit potentially realizable in future quarters is $1 million.
Our effective tax rate decreased to 23.6% from 24% for the trailing quarter and we are currently projecting an effective tax rate of approximately 24% for 2020.
We'll be happy to respond to questions.

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q4 earnings per share $0.40.

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