Boston Private Financial Holdings (BPFH) Q4 2018 Earnings Conference Call Transcript

Boston Private Financial Holdings (BPFH)
Q4 2018 Earnings Conference Call
Jan. 31, 2019 8:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants
  
  See all our earnings call transcripts.

Prepared Remarks:

Operator

Good day and welcome to the Boston Private Financial Holdings fourth-quarter 2013 earnings conference call and webcast. [Operator insctructions] Please note, this event is being recorded. I would now like to turn the conference over to Mr. Adam Bromley, director of Investor Relations.

Please go ahead.

Adam Bromley -- Director of Investor Relations

Thank you, Bill, and good morning. This is Adam Bromley, director of investor relations of Boston Private Financial Holdings. We welcome you to this conference call to discuss our fourth-quarter and full-year 2018 earnings. Our call this morning includes references to an earnings presentation, which can be found in the Investor Relations section of our website bostonprivate.com.

Joining me this morning are Anthony DeChellis, chief executive officer; and Steve Gaven, chief financial officer. This call contains forward-looking statements regarding strategic objectives and expectations for future results of operation and financial prospects. They are based upon the current belief and expectations of Boston Private's management and are subject to certain risks and uncertainties. Actual results may differ from those set forth in the forward-looking statements.

I refer you also to the forward-looking statements qualifier contained in our earnings release, which identified a number of factors that could cause material differences between actual and anticipated results or other expectations expressed. Additional factors that could cause Boston Private results to differ materially from those described in the forward-looking statements can be found in the company's filings submitted to the SEC. All subsequent written and oral forward-looking statements attributable to Boston Private or any person acting on our behalf are expressly qualified by these cautionary statements. Boston Private does not undertake any obligation to update any forward-looking statements to reflect circumstances or events that occur after the forward-looking statements are made.

With that, I will now turn it over to Anthony DeChellis.

Anthony DeChellis -- Chief Executive Officer

Thanks, Adam. Good morning, everyone, and thank you for joining the call this morning. As you know, I joined Boston Private as CEO on November 26, 2018. Before we get into this quarter's results, I'd like to start by thanking Clay Deutsch and the work the previous leadership team did to simplify the business and focus on the core wealth management, trust, and banking businesses.

Clay was very helpful to me during the fourth quarter to ensure a smooth transition, which has allowed us all to look forward with clarity. I'm personally very excited to be leading Boston Private at an opportune moment in the financial services industry. Changes in our industry are accelerating and we believe that the firms that embrace these changes with the right strategy will be greatly rewarded. Boston Private is well-positioned to seize the moment and execute a refined strategy focused on delivering a differentiated client experience.

We have a good brand, solid businesses that are serving clients with excellent core competencies in key markets. Our size will allow us to be nimble and to adjust our strategy quickly to meet the demands of market forces. Our team further believes that we can improve our competitive position by being intelligent users of many existing technologies either through strategic alliances or partnerships, which should allow us to quickly and efficiently improve our overall client experience and build a platform for growth. In a nutshell, our strategy will be to deliver to our clients the firm's core competencies through knowledgeable -- through the knowledgeable guidance of talented professionals supported by teams of experts, who are all empowered with excellent operations and technology.

While I'm new to Boston Private, I've spent over 30 years in wealth management, private banking at Merrill Lynch, UBS, and Credit Suisse. At each of those businesses, my mandate has been to organize the company importing vicious growth agenda. I genuinely believe that Boston Private is the most exciting leadership opportunity I've ever been given. I spent my first two months on the job traveling the company, meeting with clients and employees to better understand Boston Private's competitive position and market opportunities.

With Boston, New York, San Francisco, Los Angeles, and Palm Beach being our current major markets, I believe our immediate and long-term opportunities are very good. We will spend the upcoming weeks refining the details of our strategy and we'll communicate more specifics, including our implementation plan and profitability targets by early in the second quarter. With that, I will turn it over to Steve Gaven, who will walk us through fourth-quarter and full-year 2018 results. Steve?

Steve Gaven -- Chief Financial Officer

Thanks, Anthony, and good morning, everyone. My comments will begin on Slide 3, which includes a discussion of the notable items impacting fourth-quarter results, followed by summary financial results for the fourth-quarter and full-year 2018. The first notable item is related to the closing of our agreement to divest BOS. As a result of this agreement, we realized an $18.1 million gain on sale and a $3.2 million tax expense, generating approximately $15 million of Tier 1 common equity.

BOS results remain in the company's consolidated results during prior periods and through the closing date of December 3, 2018. The second notable item includes $1.6 million of net restructuring charges related to personnel and technology efficiency initiatives we enacted during the quarter. GAAP earnings per share in the fourth quarter of 2018 were $0.42. Slide 3 also shows operating earnings, which is a non-GAAP measure and excludes the impact of notable items.

Management uses operating earnings as a primary performance measurement because we believe it more accurately reflects the core earnings power of the business. Fourth-quarter 2018 operating earnings per share were $0.26 and operating return on average common equity was 10.5%. A reconciliation of notable items impacting full-year results can be found in the appendix. Slide 4 compares full-year 2018 results to 2017 with similar GAAP to operating adjustments made to highlight trends in the core business.

GAAP earnings per share in 2018 were $0.92. This includes notable items related to the divestitures of BOS and also Anchor, a business we divested in the second quarter of 2018. 2018 GAAP results also include $7.8 million of restructuring expense. This charge is related to an efficiency program guided by a focus on improving operating productivity and sustained earnings enhancement.

Earnings per share on an operating basis were $0.97 for the full year of 2018 while operating results include the ongoing earnings contributions from our divested affiliates. We have included a slide in the appendix that removes the contributions to show core earnings of our remaining businesses. During 2018, we returned $62.4 million of capital to common shareholders through a combination of dividends and share repurchases. In the fourth quarter, we repurchased $1.5 million shares at a weighted average price of $12.02 on the way to completing our $20 million share repurchase program.

At the same time, we built capital as tangible book value per share increased 15% year over year to $8.18 and Tier 1 common equity ratio increased to 11.4% from 10.3% as of the fourth quarter of 2017. Concurrent with fourth-quarter earnings, the board declared a common dividend of $0.12 per share, which is consistent with previous quarters. We had decided to maintain a dividend at current levels as we preserve capital for growth opportunities. Slide 5 shows our fourth-quarter results on reported basis under GAAP, fourth-quarter 2018 GAAP earnings were positively impacted by the divestiture of BOS while fourth-quarter 2017 earnings were negatively impacted by the divestiture of Anchor and tax expense related to tax -- the tax cuts and Jobs Act.

Other items materially impacting results, including net restructuring expenses of $1.6 million during the fourth quarter of 2018 and $5.8 million during the third quarter of 2018. These notable items are primarily responsible for the significant fluctuations in link quarter and year-over-year comparisons. To enhance comparability in analyzing financial trends in the core business, the upcoming slides include certain non-GAAP operating metrics that exclude notable items and contributions from Anchor and BOS, otherwise known as divested affiliates. Slide 6 shows a consolidated income statement, excluding notable items and divested affiliates.

Pre-tax, pre provision income decreased 1% year over year, driven by flat revenue and 1% expense growth. Net income on an operating basis increased 3% year over year as result of a lower tax rate, partially offset by loan loss provision and lower income from discontinued operations. Linked quarter pre-tax, pre-provisioned income decline 10% due to a 3% revenue decline. We will go into more detail on the link quarter change on revenue on the next slide.

Slide 7 shows consolidated revenue trends. Total operating revenue was $83.9 million, a 3% decrease linked quarter and flat year over year. The linked quarter decline was primarily driven by a $600,000 loss in the security sale in the fourth quarter of 2018. We executed the sale to optimize go forward net interest income.

Total other income also includes $800,00 of negative revenue associated with the decline in the value of the securities in a rabbi trust related to deferred compensation. The $800,000 of negative revenue has a net zero impact on net income because an equal and offsetting impact in reducing salaries and employee benefits. Excluding divested affiliates, investment management fees declined year over year to the absence of performance fees, which were $900,000 in the fourth quarter of 2017. Wealth advisory fees increased 6% year over year, primarily as a result of price increases.

On Slide 8, we show a detailed breakout of our consolidated expenses on a GAAP basis. Total expenses declined on a year-over-year basis as a result of the Anchor and BOS divestitures while the linked quarter decrease was driven by a higher restructuring expenses in the third quarter. Slide 9 shows a detailed breakout of consolidated expenses excluding restructuring charges in both the third and fourth quarter, and divested affiliates in current and prior periods. Total adjusted operating expenses increased 1% linked quarter and year over year.

The linked quarter increase was driven by information systems expense and professional services fees, partially offset by lower compensation from efficiency initiatives. Slide 10 shows the past five quarters of average loan balances and deposit balances by type. Total average loans during the quarter increased 6% year over year to $6.8 billion, residential lending continued -- showed continued strength increasing 10% year over year. Average total deposits during the quarter increased 7% year over year and 3% linked quarter to $6.9 billion.

The linked quarter increase in deposits was driven by growth in money market accounts and demand deposit accounts. The average loan-to-deposit ratio for the fourth quarter declined from 100% in the third quarter to 98% in the fourth quarter. The five-quarter trend reflects the historical seasonality inherent in our deposit base as balances grew in the back half of the year. Slide 11 shows the five-quarter trend of net interest income and net interest margin for the consolidated company.

Core net interest income, which excludes interest recovered on previous non accrual loans, increased 4% year over year to $59 million. Core net interest margin on a fully taxable equivalent basis increased 4 basis points linked quarter to 2.92%. The increase during the fourth quarter was primarily driven by linked quarter deposit inflows that funded repayment of borrowings, the positive impact of higher asset yields, and lower levels of cash and investments as a percent of interest-earning assets. On a linked-quarter basis,our total cost of deposits increased 9 basis points from 68 to 77 basis points.

The bank's cost of interest-bearing deposits increased 13 basis points from 98 basis points to 111 basis points. And our all-in cost of funds including DDA and wholesale borrowing increased 3 basis points from 86 to 89 basis points. Slide 12 provides detail on our asset quality. This quarter, we booked a $100,000 provision expense, which was primarily driven by loan growth and an increase in criticized loans offset by net loan -- by net recoveries.

The chart below shows asset quality metrics during the quarter with criticized loans finishing the quarter at $147 million. Criticized loans are 5% lower compared to the fourth quarter of 2017. The 9% linked-quarter increase was driven by the downgrade of certain C&I and CRE relationships in New England. ALLL as a percent of total loans remains flat at 109 basis points compared to the previous two quarters.

On Slide 13, we show the private banking segment. Axcluding the wealth management and trust portion of our bank, total revenue at the bank increased 2% year over year, driven by net interest income, partially offset by the loss of security sale and negative revenue associated with the deferred compensation plan. Excluding restructuring, operating net income increased 22% year over year, primarily driven by a lower tax rate. I will now turn it back to Anthony to discuss our wealth management and trust and Affiliate Partners segments.

Anthony DeChellis -- Chief Executive Officer

Thanks, Steve. Slide 14 contains AUM information for the wealth management and trust segment, which operates under the Boston Private Wealth brand. Net flows during the fourth quarter were negative $79 million, primarily driven by concentrated year-end client withdrawals. Slide 15 shows results for the wealth management and trust segment.

Total revenue increased 1% linked quarter, driven primarily by third quarter AUM inflows. Operating expense, which excludes restructuring expense, decreased 11% year-over-year, driven by decreased compensation. Segment EBITDA margin on an operating basis was 20%. Slide 16 shows AUM net flows for all our business segments, given the divestitures of Anchor and BOS, we have reclassified the remaining non-Boston Private entities into a new segment called Affiliate Partners.

During the fourth quarter, Affiliate Partners experienced $64 million of negative flows, resulting in consolidated net flows of negative $143 million. On Slide 17, we show Affiliate Partner performance highlights. Overall, operating EBITDA margins of 34% exceed our corporate targets of 30%. That concludes our prepared comments for the fourth quarter 2018 reported results.

I'll now open up the line for your questions. 

Questions and Answers:

Operator

Thank you. We will now begin the question-and-answer session. [Operator instructions] The first question comes from Alex Twerdahl with Sandler O'Neill. Please go ahead.

Alex Twerdahl -- Sandler O'Neill -- Analyst

Hey. Good morning, guys.

Anthony DeChellis -- Chief Executive Officer

Good morning.

Alex Twerdahl -- Sandler O'Neill -- Analyst

First off, just wanted to go back to the capital into the dividends. Steve, I appreciate your comments on kind of preserving capital for growth, etc., but break in sort of a six-year history of increasing the dividend every year. Is this represented a complete shift in strategy to not raise a dividend in the future? Or is it just kind of on pause right now until we get more details of kind of what the future of Boston Private will look like in a quarter or two?

Steve Gaven -- Chief Financial Officer

Hey, Alex. I'll start and I'll invite Anthony to include some comments. But if you look at our payout ratio kind of it's been in that mid-40% to 50%. The sector is closer to 30%, 35%.

We think the payout ratio is appropriate. But again, undergoing the strategic review of the business, and we're preferring of using that capital to support growth initiatives. So we'll look at it, we'll take it under consideration. But our preference going forward and I would include buybacks in this analysis is we're going to be really focused on growth, and we don't think not increasing a dividend when the payout ratio is 46%, is something that's sending a negative signal at all.

Antony, if you'd like to add anything?

Anthony DeChellis -- Chief Executive Officer

No, I think that's exactly the right answer. We talked a lot about this. We looked at the payout ratio. I think the Boston Private dividend is, as Steve said, sort of very competitive with what's out there.

We'll continue to look at it. At the moment, we are convinced as a team that we can deploy the capital in much more effective ways for our shareholders. And so that's really -- until we complete our strategic review and put a new plan out to you, we put it on pause, but we think that still the payout ratio is pretty compelling.

Alex Twerdahl -- Sandler O'Neill -- Analyst

OK. Thanks. And then just for expenses, Steve, can you just kind of give us a little bit of your thoughts on what the kind of right starting point for 2019 is, given the divestiture in the fourth quarter and the expense initiatives announced last quarter as well and take into account kind of some of the seasonal stuff that generally impacts the first quarter?

Steve Gaven -- Chief Financial Officer

Sure. Alex, I would -- I would look at expenses on a quarterly rate of $59 million to $60 million per quarter. Obviously, with the first quarter you had the reset of the payroll taxes, so it should be in the higher end of that range. But $59 million to $60 million is the right range per quarter for the year.

It may bounce around a little bit from quarter to quarter but certainly in the first quarter, it'll be at the higher end of that range.

Alex Twerdahl -- Sandler O'Neill -- Analyst

OK. And then just the finally, just a quick -- just to get our models all today, can you just give us the end-of-period AUM for the Affiliates broken out?

Steve Gaven -- Chief Financial Officer

We don't break it out by affiliates in the disclosure, Alex, for the Affiliate Partners.

Alex Twerdahl -- Sandler O'Neill -- Analyst

OK. Are you still going to report the Wealth Advisory and the Investment Management fees separately?

Steve Gaven -- Chief Financial Officer

The fees will be reported separately when we've combined the segments from an AUM perspective.

Alex Twerdahl -- Sandler O'Neill -- Analyst

OK. All right. Thanks for taking my questions.

Steve Gaven -- Chief Financial Officer

Sure.

Anthony DeChellis -- Chief Executive Officer

Thanks.

Operator

The next question comes from Chris McGrady with KBW. Please go ahead.

Chris McGrady -- KBW -- Analyst

Hey. Good morning. Anthony or Steve, maybe just going back to capital, I understand the dividend completely. The -- maybe you could elaborate on the buyback.

Your stock, like most, have had been, under some pressure and your capital levels continue to grow, and the risk, I think, on the balance sheet is pretty low. So, is the buyback on hold as well because of the strategic review? Or is that something that you would expect to go back to the board with in the near future?

Steve Gaven -- Chief Financial Officer

Again, I think any kind of capital return right now is kind of on hold for the next couple of weeks as we complete the review. And then we'll have more to say on what we plan to do kind of in that early April -- late April time period, but that's the current thinking.

Anthony DeChellis -- Chief Executive Officer

Chris, I think, market conditions are going to drive our thinking there, right. We'll certainly always be sort of opportunistic and do what's right for our shareholders. At the moment, we are convinced that the buyback we did was appropriate. But we're focused right now on our -- on the strategy we're going to put forward and using that capital to grow the company.

Chris McGrady -- KBW -- Analyst

OK. And so I'm a hearing a kind of reiteration of kind of growing the company and then you putting your stamp on it. In the past, the balance sheet has been growing kind of that 6% or 7% in loans. I guess, is that a still a fair growth rate? And is it all a signal that inorganic growth might be part of the equation as you kind of get comfortable with what you have?

Steve Gaven -- Chief Financial Officer

Why don't I take the balance sheet growth question and Anthony will talk about inorganic initiatives. We're thinking about mid single-digit loan growth really being governed by deposit growth. Now, obviously, if deposit growth is higher than that, we're more than comfortable having loan growth at 6%, 7%, even 8% to 10% if deposit growth can support that. But as you know, we've talked about this the last couple of quarters that deposit growth has really been the regulator on loan growth.

So, we'll see how deposit growth kind of materializes over the year and we'll adjust accordingly. Anthony, if you'd like to add anything on inorganic.

Anthony DeChellis -- Chief Executive Officer

I mean, Chris, we're going to be opportunistic about looking inside the firm for organic growth, where I think there's a lot of opportunity. I think having spent a lot of time in this business and having Paul Simon, who also joined us who has a deep experience. I think will be intelligent buyers of potential companies that could be great complement to what we're trying to do. And there's always the possibility of doing sort of less dramatic, maybe just more of a lift-outs of certain businesses.

So we're going to be looking at all those things. And again, I think we bring a lot of experience to the table to do that the right way.

Chris McGrady -- KBW -- Analyst

Great. And if I could sneak just a technical in for Steve, the tax rate and also the minority interest kind of run rate for the next couple of quarters?

Steve Gaven -- Chief Financial Officer

So, on the tax rate, it should be about 22.5% to 23%. Let me get back to you on the minority interest. I want to make sure that we connect, and I am answering the question correctly. So I'll connect with you offline.

Chris McGrady -- KBW -- Analyst

All right. Good deal. Thank you.

Operator

OK. The next question comes from Michael Young with SunTrust. Please go ahead.

Michael Young -- SunTrust Robinson Humphrey -- Analyst

Hey. Good morning, everyone.

Steve Gaven -- Chief Financial Officer

Good morning.

Michael Young -- SunTrust Robinson Humphrey -- Analyst

Anthony, I wanted to start maybe just a little bit of big picture as you kind of went around and [Inaudible] in the company. I think Boston Private's been through a good bit of change, particularly on the wealth side over the past several years. Any feeling as to kind of what the receptivity is to potentially more change? And is that kind of where you're looking to make changes in the future? And any more color you can provide around that and kind of just receptivity internally to what's your play in that?

Anthony DeChellis -- Chief Executive Officer

Sure. So, I have now completed visiting all of our offices and spoken face to face with most of our employees, a lot of them in small groups, some a little bit larger groups, but I have gotten to speak to most of our employees. I think there's great receptivity. I think one of the things that I personally found is there really are great core competencies within the firm that have [Inaudible] result of some of the acquisitions that have been made.

I think we have an opportunity to maybe link those core competencies better and just create a sort of an overall stronger team, and so that's what we're going to be focused on. And I think to that end, we've got a really energized employees, who, I think, are already doing a good job for clients, but realize that whether it's internally or even, frankly, partnering with some of our affiliates or at least one in particular KOS in New York that there's some real opportunity in the firm to kind of put forward even stronger offering. So, I was very pleasantly surprised by the receptivity of our team to kind of go to the next level on what they've been doing in wealth management.

Michael Young -- SunTrust Robinson Humphrey -- Analyst

And then along those lines, you mentioned, I think technology is a potential driver of the next step forward and just focus on product, it sounded like. So, do feel like the distribution capacity and the sales capacity within the firm is that sort of a good level and growing the focus now is just on improving the product to the end customer?

Anthony DeChellis -- Chief Executive Officer

I think it's certainly one of the things we're currently looking at now, be looking at the balance between our overall employees and how many of those sort of employees are geared toward the front end of the business. So -- and I've done this before in my career. We don't have to increase overall headcount. You just have to sort of shift the allocation of resources, and we're looking at that right now.

And technology can play a huge role in streamlining a lot of activities for clients. And you can focus on the highest value-added portions of our value chain. And that's what we're going to be focused on. The good news is that a lot of these technologies are not very expensive as you know now.

And a lot of the Fintech companies, pardon me, have started out sort of B2C are kind of more B2B2C. And so there's great opportunity, I think, to leverage either through strategic partnership or alliances some of those technologies that can improve our client experience. So, we're definitely going to be focused on how we improve growth through -- looking at our -- the front end of the business, where I think there's a lot of opportunity.

Michael Young -- SunTrust Robinson Humphrey -- Analyst

OK. Then I guess just lastly kind of going back to the first point, I mean, do you feel like there's good receptivity among the staff that kind of make this transition. I'm just trying to understand, given some of the outflows of people and personnel historically with some of the restructuring. It doesn't seem like you're expecting that similar impact this time around?

Anthony DeChellis -- Chief Executive Officer

No, I'm not and I would address the receptivity question in two ways. I think, there's been both -- there's been great receptivity inside the firm, but also outside the firm. Remember, when Paul and I have spent over 30 years on the street and we've gotten, I think, a lot of great interest in receptivity about what we'll be doing. We also have former colleague, [Inaudible], who will be joining to run Austin, Texas.

We announced that yesterday, and she'll be looking at sort of the technology question that you answered. So, we've had good receptivity both inside and outside the firm.

Michael Young -- SunTrust Robinson Humphrey -- Analyst

OK. Thanks.

Operator

[Operator instructions] The next question comes from Lana Chan with BMO Capital Markets. Please go ahead.

Lana Chan -- BMO Capital Markets -- Analyst

Thank you. Good morning.

Anthony DeChellis -- Chief Executive Officer

Good morning, Lana.

Lana Chan -- BMO Capital Markets -- Analyst

If your deposit costs were actually pretty well-controlled in this third quarter, I think that benefited your margin. Could you talk about what you're seeing with the pricing market these days and what the outlook is for the margin given the sort of really flat yield curve we have right now?

Anthony DeChellis -- Chief Executive Officer

Sure, Lana. What you saw in deposit pricing was really -- deposit volumes have rebounded. We've been able to be much stricter on pricing. When the loan deposit ratio was a bit elevated in the second quarter and deposit pricing was really -- we saw kind of the height of the competition, that kind of manifests itself in the deposit betas you saw then.

As we look forward to 2019 from a NIM basis, we've been kind of in that 285 to 290 kind of core NIM, the last four or five quarters. We expect to be in that range. And what's going to dictate where we are within that range really is how deposit growth materializes. So last year, we were closer to 285 in peers where deposit growth wasn't as strong.

And then deposit growth rebounded and you saw the NIM expand a bit, particularly in the fourth quarter. So that's how I would think about NIM.

Lana Chan -- BMO Capital Markets -- Analyst

OK. Great. That's helpful. And also could you talk about the increase you saw on criticized assets on the commercial and commercial real estate in New England? Just curious about what's driving that.

Steve Gaven -- Chief Financial Officer

Yes. The C&I downgrades were really just idiosyncratic events within a handful of clients, business hiccups, which we expect to kind of recover as we get into 2019. On the CRE side, it was just concerns around lease expirations and vacancies. Again, we don't see widespread problems.

I still think C&C, we're at kind of trough type level. So we will see it bounce up and down as stuff moves in and out of special mention. But we're not too concerned with what we're seeing in the credit trends.

Lana Chan -- BMO Capital Markets -- Analyst

OK. Thank you.

Operator

OK. The next question comes from Christopher Merrimack with FIG Partners. Please go ahead.

Christopher Merrimack -- FIG Partners -- Analyst

Thank you. Good morning. I wanted to talk about the core bank operation. And, Anthony, what do you see as your sort of near term and more long-term needs? Do you see that only organically growing or would you see it beneficial for you to consider external additions?

Anthony DeChellis -- Chief Executive Officer

Well, I mean, at the moment I think we are organically focused. But any acquisition that we would do or would consider, I would expect to be sort of with a broad Boston Private view that would impact all businesses positively. So we are looking at sort of how we can expand our business with the current book of business we have across all of our business whether it would be commercial, private banking, wealth, trust. We think there's some untapped opportunities there.

Anything that I look at, I would probably have an eye toward something that would, A, bring us the core competency that maybe we don't already have or expand the core competency and that could impact the entire bank positively. And anything we do, look, you should know we will first and foremost look for a cultural fit; second is strategic fit; and it's got to make sense on a price standpoint. And there are -- at this moment in the market, there are some things for us to look at and we will be opportunistic.

Christopher Merrimack -- FIG Partners -- Analyst

OK. Great. Thank you for that. And, Steve, when we look at the loan to deposit ratio, is that something that will likely stay at the current level or would that moderate as this year plays out?

Steve Gaven -- Chief Financial Officer

Yes. So, Chris, the way I think about loan-to-deposit ratio is we like to manage that to kind of 95% to 100%. We could see that pick up a little bit depending on seasonality in the first half of the year, particularly around the second quarter, around tax season. We saw it tick up last year to about 105%.

We'll let it go little bit above 100, but we have to be confident that the deposit pipeline is strong enough that we're going to work back down below 100% in a quarter or two. So, we're still targeting 95% to 100% right now but you could see it tick up depending on seasonality. But again, we only let it tick up if we're confident that it's going to get below 100% pretty quickly.

Christopher Merrimack -- FIG Partners -- Analyst

Got it. And you're very comfortable with liquidity and on all of those backup lines for normal?

Steve Gaven -- Chief Financial Officer

Absolutely.

Christopher Merrimack -- FIG Partners -- Analyst

Right. Great. Thank you very much, guys. Appreciate the background.

Anthony DeChellis -- Chief Executive Officer

Thank you.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Anthony DeChellis for any closing remarks.

Anthony DeChellis -- Chief Executive Officer

Thank you, everyone, for joining us today. And we look forward to seeing you all out on the road or in person in the near future. Have a great day.

Operator

[Operator signoff]

Duration: 33 minutes

Call Participants:

Adam Bromley -- Director of Investor Relations

Anthony DeChellis -- Chief Executive Officer

Steve Gaven -- Chief Financial Officer

Alex Twerdahl -- Sandler O'Neill -- Analyst

Alex Twerdahl -- Sandler O'Neill -- Analyst

Chris McGrady -- KBW -- Analyst

Michael Young -- SunTrust Robinson Humphrey -- Analyst

Anthony DeChellis -- Chief Executive Officer

Lana Chan -- BMO Capital Markets -- Analyst

Christopher Merrimack -- FIG Partners -- Analyst

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