Earnings Call Transcript
Bank of Marin Bancorp (BMRC)
Earnings Call Transcript - BMRC Q4 2024
Krissy Meyer, Corporate Secretary
Good morning and thank you for joining Bank of Marin Bancorp's Earnings Call for the Fourth Quarter Ended December 31st, 2024. I'm Krissy Meyer, Corporate Secretary for Bank of Marin Bancorp. During the presentation, all participants will be in a listen-only mode. After the call, we will conduct a question-and-answer session. Joining us on the call today are Tim Myers, President and CEO; and Dave Bonaccorso, Chief Financial Officer. Our earnings news release and supplementary presentation, which were issued this morning can be found in the Investor Relations section 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 news release for both GAAP and non-GAAP measures. Additionally, the discussion on the call is based on information we know as of Friday, January 24th, 2025, 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 on these risks and uncertainties, please review the forward-looking statements disclosure in our earnings news release as well as our SEC filings. Following our prepared remarks, Tim, Dave; and our Chief Credit Officer, Misako Stuart will be available to answer your questions. And now I'd like to turn the call over to Tim Myers.
Tim Myers, President and CEO
Thank you, Krissy. Good morning, everyone, and welcome to our quarterly earnings call. Our fourth quarter results reflect continued improvement in our financial performance due to actions we took earlier in 2024 to both reposition our balance sheet and reduce operating expenses. This resulted in an increase in our net income and earnings per share, largely driven by an expansion in our net interest margin and a lower level of operating expenses. On a broad basis, we continue to have strong asset quality within our loan portfolio, and we made progress on previously reported matters with new issues emerging. During the fourth quarter, our nonaccrual loans and classified loans both declined largely due to pay downs on these loans, and we had an immaterial amount of net charge-offs. We continue to see improvements in leasing activity in San Francisco. A large nonaccrual loan for a previously vacant San Francisco property is now 100% occupied with cash flows that meet a conforming debt service coverage. Our banking team, reinforced with new members, is doing an improved and more consistent job of developing attractive lending opportunities and generating solid loan production while still maintaining our disciplined underwriting and pricing criteria. While overall loan demand remains fairly consistent, due to the efforts of our banking team, we are getting a larger volume of opportunities that are within our markets. During the quarter, we originated $54 million in loan commitments with $47 million in outstanding balances. Our originations were a well-diversified mix of both commercial and commercial real estate loans. Additionally, we are seeing more granularity in the loan portfolio and made nearly twice as many commercial and construction loans as in the same period last year. The outstanding balances from December's bookings will position the bank to benefit from a higher level of interest income during the first quarter when we have the full quarter contribution of these new loans. Our total deposits declined in the fourth quarter. As we indicated on our last call, this was expected given the typical seasonal deposit outflows we see during the fourth quarter due to the nature of our client base with many professional service firms that have typical year-end fluctuations. Despite the outflows, our proportion of noninterest-bearing deposits remained at a high level at 43% of total deposits as we continue to benefit from our relationship banking model with high touch service. Due to our loyal customer base, we have not experienced any material related deposit outflows as we adjusted our rates in response to the Fed's rate reductions. Given our improved financial performance and prudent balance sheet management, our capital ratios increased during the fourth quarter and remained very strong with a total risk-based capital ratio of 16.5% and a TCE ratio of 9.93%. With that, I'd like to welcome our new CFO, Dave Bonaccorso, and turn the call over to him to discuss our financial results in more detail.
Dave Bonaccorso, Chief Financial Officer
Thanks, Tim. Good morning, everyone. We generated $6 million in net income for the fourth quarter or $0.38 per share, both of which are higher than the prior quarter as we continue to benefit from the balance sheet repositioning and expense reduction actions we took earlier in the year. Our net interest income increased 4% from the prior quarter to $25.2 million, largely driven by a 10 basis point increase in our net interest margin. The expansion in our net interest margin was attributable to a 10 basis point decrease in our cost of deposits, while our average yield on interest-earning assets was unchanged from the prior quarter despite declines in short-term interest rates. Our average yield on loans increased by 9 basis points during the fourth quarter, and we expect to see similar improvements in the coming quarters due to repricing benefits within our existing loan book as well as higher yields from new loan originations. Our noninterest expense decreased by $2.1 million from the prior quarter, mostly due to a decline in salaries and benefits expense resulting from true-ups to accrued incentive compensation. Moving to noninterest income, we had a slight decline from the prior quarter primarily due to lower wealth management revenue. This was related to an increase in fees during the third quarter for activities to resolve a large trust account and distribute assets. On a year-over-year basis, our wealth management revenue was higher, which reflects our increase in assets under management during 2024. Our total deposits were $3.2 billion at December 31st. As Tim mentioned, we typically see some seasonal outflows in the fourth quarter, which resulted in the decline we saw in deposits from the end of the prior quarter. These deposits historically build back up during the course of the year. Our average cost of total deposits declined 10 basis points in the fourth quarter as we have passed through rate cuts to our deposit customers without seeing any material rate-related outflows. During the fourth quarter, our interest-bearing cost of deposits declined by 19 basis points, which is generally consistent with net interest income modeling assumptions disclosed in our third quarter 10-Q. Disciplined credit management remains a hallmark of Bank of Marin as well. Both nonaccrual loans and classified loans declined in the fourth quarter due to pay downs on two relationships and one upgrade to criticized. Due to the stability in our loan portfolio, we did not record any provision for credit losses in the fourth quarter. The allowance for credit losses remains at 1.47% of total loans, which is unchanged from the prior quarter. Loan balances of $2.08 billion at the end of the fourth quarter were down $7 million from the prior quarter. While we had strong new loan production, this was offset by an elevated level of loan payoffs for a variety of reasons, including the sale of assets and businesses, the completion of construction projects, and our efforts to manage weaker credits out of the bank. We also had a higher level of payoffs on residential mortgages than we typically see. Given the continued strength of our capital ratios, our Board of Directors declared a cash dividend of $0.25 per share on January 23rd, the 79th consecutive quarterly dividend made by the company. With that, I'll turn it back over to you, Tim, to share some final comments.
Tim Myers, President and CEO
Thank you, Dave. In closing, we believe we are very well positioned to continue generating improved financial performance in 2025. Given the strength of our balance sheet with high levels of capital and liquidity, we are well-positioned to capitalize on any improvement we see in economic conditions and loan demand. With the talent we have added to our banking teams, we are seeing a higher level of loan production that still meets our disciplined underwriting and pricing criteria, which we believe will lead to a higher level of loan growth in 2025. As we start the year, our pipeline remains strong and well diversified across markets, industries, and asset classes. Combined with the positive trends we are seeing in our net interest margin and our prudent expense management while still investing in talent and technology, we should see meaningful revenue growth and a greater degree of operating leverage, which should translate to earnings growth and a higher level of profitability. We have also made strategic and prudent investments in technology over the past several quarters, and during 2024, we went through the process of installing this technology. This year, we expect to see much more of the benefits of these investments in terms of our overall level of efficiency and client service. In summary, we believe that we are very well positioned to increase our market share, add attractive new client relationships, generate profitable growth, and further enhance the value of our franchise in 2025 and the coming years. With that, I want to thank everyone on today's call for your interest and support. But before we open the call to your questions, I'd like to invite Tani Girton, who served as our Chief Financial Officer for more than a decade and who retires later this week, to share a few words.
Tani Girton, Chief Financial Officer
Thank you, Tim. Good morning, everyone. I want to take this opportunity to personally say goodbye to all of you and thank you for your support over the years. It's been an honor and a pleasure working with you, and I have learned a great deal from our interactions, making my work extremely rewarding. As you can see, Bank of Marin won't miss a beat with our new CFO, Dave. He joined the bank as Treasurer in 2023, and we have been working closely together for the past year and a half preparing for the transition. I'm excited to embark on travels and new activities on my own, and I will rest assured that Tim and the talented and energetic executive team he has built are taking the bank to new heights. So many of the projects we have been working on will come to fruition in 2025 and this is just the beginning. I wish you all success, health, and happiness, and I sincerely hope that our paths will cross again.
Tim Myers, President and CEO
Thank you, Tani, for your commitment and dedication to the bank and all of our shareholders. We wish you all the best in your new chapter. We will now open the call to your questions.
Operator, Operator
Thank you. Our first question will come from Jeff Rulis. You may now unmute your audio and ask a question.
Jeffrey Rulis, Analyst
Thanks. Good morning. And, Tani, congratulations and thanks for all your efforts over the years. All the best in retirement.
Tani Girton, Chief Financial Officer
Thanks, Jeff.
Tim Myers, President and CEO
Good morning, Jeff. Thank you.
Jeffrey Rulis, Analyst
Good morning. Maybe for Dave and welcome. Just on the margin front, I noticed in the deck a little more liability sensitive quarter-over-quarter deposit. The average in December was lower than the quarterly average and you talked about the asset repricing opportunities continues to sound like an upward trend. Any kind of framing up of the magnitude, you've had a decent couple of quarters, but just wanted to check-in on where you think you settle in, in '25.
Dave Bonaccorso, Chief Financial Officer
Sure, Jeff. I can provide insights into the drivers of net interest margin and our projections moving forward, starting with loans and then addressing deposits, investments, and cash. On the lending side, assuming a stable balance sheet, you might have noticed in our disclosure on Page 5 that in the first year, we anticipate being slightly more sensitive to liabilities, with a relative improvement in rates. This is partly due to the natural repricing within our loan portfolio, which we estimate will improve by about 27 basis points over a 12-month period, based on a static balance sheet. This is evidenced by our most recent quarter where loan yield increased by 9 basis points compared to the previous quarter. Specifically, for our commercial and construction loans, the yield on new loans was approximately 42 basis points higher than on payoffs, indicating improvement in the lending area. Regarding deposits, you mentioned the decrease in deposits. Our current experience with beta aligns with our asset liability management assumptions disclosed in our Q3 10-Q. We have made adjustments that you can see on Page 5 of the deck, where a significant adjustment was made based on our effectiveness in reducing rates so far. We shortened the lag from three months to two months while maintaining a follow-up rate assumption of 35%. It's important to note that not all of this is captured in the current figures; following the December rate cut, we further lowered deposit rates in early January. As a result, we reduced our non-maturity interest-bearing deposit rates by approximately 9 basis points, which exceeds the 35% beta assumed in the asset liability management. We implemented this with a lag of around two and a half weeks instead of two months, showcasing our ability to adjust deposit pricing. As for investments, our goal is to reduce our portfolio's proportion of the balance sheet over time and increase loan growth. Currently, we have a security yield of about 2.64% for Q4. Any payouts from securities that are not reinvested and held in cash provide us with a 175 basis point advantage now, considering the cash yield of 4.40% at the Fed. We can achieve even better returns if we extend our investments. Lastly, we expect cash to remain around the $100 million to $150 million range as we wrap up the year. The unpredictable factor, as you know, is the direction of the Fed's actions, but we do not foresee rates dropping as low as we initially expected a couple of months ago. Those are the drivers as I understand them.
Jeffrey Rulis, Analyst
Got you. I guess short of forward-looking commentary I guess as you budget, do you think about sort of a terminal margin rate? I mean, a lot of moving pieces, but thoughts on kind of where either relative to the past couple of quarters of margin expansion, some of that on the restructuring work. Just trying to get a sense for what the residual of upside on margin.
Dave Bonaccorso, Chief Financial Officer
So, yes, a chunk of it's going to come down to the rate environment and we're in, to the extent we are continuing to be able to lower deposit rates. But, over the long run, I'd say the bank really wants, the bank really outperforms in higher rate environments. Yes, we just have so much opportunity to reprice our asset yields relative to liability yields that that's the real benefit. So I can't give you a number, but I think the path we're on is pretty indicative of where we're going.
Jeffrey Rulis, Analyst
Okay. Appreciate it. I guess Tim or anyone on the loan growth side, you mentioned pipeline growth. I don't know if you've got that in actual numbers quarter-over-quarter. I guess the second part of that question is, do you have any greater payoff clarity in '25? Any feeling of increase or decrease in payoffs? So I guess two parts. The pipeline figure, if you've got it, and then any outlook on payoff activity if you have it going forward.
Tim Myers, President and CEO
Sure. We don't provide specific guidance on the pipeline, but in Q1, our pipeline was about 40% higher than before Q1, and the total pipeline has doubled compared to this time last year. I'm proud of our originations, whether it’s our new initiative or the talent we’ve brought in, which is showing results. Despite being down about a third in production staff at some points during the year, we performed better. We've added staff recently, with one hire in December and two in Q1, which should positively impact production. I’m optimistic about the growth we’re seeing in our origination pipeline and how it will translate into results. However, predicting payoffs is challenging. The significant increase in payoffs last quarter was largely due to residential loans, which don't typically provide many payoffs, but we reported $9 million there. In our commercial portfolio, the main contributor to payoffs was cash deleveraging, which is difficult to forecast, especially if long-term rates change. The second largest factor was completing construction projects, and we need to manage those to reduce losses. We are working through our challenges, as shared in our earnings release, and while asset sales were lower than in the past, all these factors make predictions tough. We've been proactive in our relationship-building efforts, but the final outcome remains uncertain. I hope this provides enough insight.
Jeffrey Rulis, Analyst
No, I appreciate it, Tim. I just wanted to clarify the 40% pipeline number. Was that at this point starting Q1 compared to Q1 of last year? What was the
Tim Myers, President and CEO
Yes.
Jeffrey Rulis, Analyst
Okay. And sequentially like as you entered the third, excuse me, the fourth quarter, was that similar?
Tim Myers, President and CEO
That's more challenging. We closed many loans, which makes it less relevant. The pipeline we initiated in Q4 has obviously reduced due to the deals that have closed. The important thing is to rebuild that pipeline as quickly as possible. Therefore, the comparison of Q1 over Q1 is more significant for us from a management perspective.
Jeffrey Rulis, Analyst
Okay. Thank you. Appreciate it.
Tim Myers, President and CEO
You're welcome.
Operator, Operator
Our next question comes from Andrew Terrell. Please go ahead and ask your question.
Andrew Terrell, Analyst
Hey, good morning.
Tim Myers, President and CEO
Good morning, Andrew.
Tani Girton, Chief Financial Officer
Good morning, Andrew.
Andrew Terrell, Analyst
Tani, congratulations. It's been a pleasure working with you and I wish you all the best and hope to stay in touch.
Tani Girton, Chief Financial Officer
Yes. Thank you, Andrew.
Andrew Terrell, Analyst
Dave, if I could move, first just on expenses. It looks like some of the improvement this quarter might have been related to just lower incentive accruals. I guess I was hoping to maybe quantify, whether that benefited the quarter or not. And then just thoughts on what the kind of clean expense run rate is. I know you're still hiring as you guys mentioned a minute ago, but just a clean kind of expense run rate we should think about moving into 2025.
Dave Bonaccorso, Chief Financial Officer
Sure, Andrew. Regarding your first question, a significant factor contributing to this quarter's expenses was the adjustments we typically make at the end of the year for personnel. To better estimate the expense trend, I suggest looking at the expenses from Q2 or Q3 for your projections. Remember that Q2 includes annual contributions, which is approximately 515,000. Additionally, in Q3, we had a one-time legal settlement of about 615,000. Therefore, I would recommend adjusting for these items and considering a combination of Q2 and Q3 as a reliable expense trend moving forward.
Andrew Terrell, Analyst
Okay. Understood. So maybe, yes, just maybe a little north of that $20 million figure or right around there. Okay. If I could ask just Tim, I heard your comments in the prepared remarks around the office loan in San Francisco. Just wanted to confirm that was still on nonaccrual this quarter. And then could you refresh us? You mentioned that the debt service coverage ratio had improved and it was 100% occupied now. Could you remind us what the debt service coverage is currently? And then what's the path forward for this credit look like in terms of how it's represented on your balance sheet? Just maybe timeline and expectations there.
Tim Myers, President and CEO
Yes. I'll start big picture. I think you might be confusing two of the properties. So the one that's mentioned that is now fully occupied was a nonaccrual we moved a couple of quarters ago, about $8 million. And that was because the tenant had left. That is now fully occupied. Cash flow is completely adequate. We just have some negotiations around extension documentation, all that for that to move off. The other large one that we've been talking about for years now is seems to get significant lease activity, but newer leases are still coming on at lower lease rates. And so that matures in 2026. I think we still believe we're provisioned adequately, but it will depend on that trajectory and how those lease rates go up. I mean, if you look at the market overall, it's the first quarter in San Francisco, well, actually, all year was the most leasing activity square footage wise since '19, and last quarter was the first positive absorption since '19 in some of the hardest hit areas. I mean we don't have these high-rise Class A spaces, a lot of reports referred to, but there's improvement in areas like south of market where some of our clients have their smaller two to three story buildings. So we're not out of the woods. Vacancy is still 30% in the city. But we are seeing a positive trend overall, and we are seeing that impact our customers.
Andrew Terrell, Analyst
Got it. Okay. Thank you.
Tim Myers, President and CEO
Welcome.
Andrew Terrell, Analyst
And if I could just ask one more. I had a few questions just on the mix shelf that was filed this morning. Was this just replacing a prior authorization or any kind of color you can provide on that?
Tim Myers, President and CEO
Yes. That's just housekeeping. We view it as been a long time. We've been in discussions with our counsel predating all these bank failures and all that to do this. Obviously we've talked about a number of things that remain options for uses of capital for, frankly, all the banks out there in our segment and it felt it behooved us to put a shell filing in place. Obviously, it's for a lot and for a whole buffet of securities. So it really is we view it akin to a share authorization. We get the authorization, but doesn't mean we're going to use it or anywhere near that. So I've put it squarely in that, be prepared category for anything.
Andrew Terrell, Analyst
Got it. Okay. Thank you very much for taking the questions.
Tim Myers, President and CEO
Yes. Thank you, Andrew.
Operator, Operator
Our next question comes from Woody Lay. Please ask your question.
Woody Lay, Analyst
Hey, good morning, guys.
Tim Myers, President and CEO
Good morning, Lay.
Tani Girton, Chief Financial Officer
Good morning.
Woody Lay, Analyst
Wanted to start on the loan yield and you had the nonaccrual pay down earlier in the quarter. Well, was there any one-time nature interest recognized as a part of that, pay down that flowed through the loan yield?
Dave Bonaccorso, Chief Financial Officer
There was a catch up related to one loan that paid off.
Tani Girton, Chief Financial Officer
We collected all.
Woody Lay, Analyst
Anyway to quantify the dollar amount? I think last quarter you might have had 6 basis points of a headwind there. So just trying to kind of figure out what the core loan yields.
Tim Myers, President and CEO
So I just want to clarify, sorry, Woody, I just want to clarify one thing. The only loan that got upgraded from nonaccrual is a smaller loan, I think it was $2 million. The large amount was paid down on the C&I consumer goods company we've been talking about. So that loan is not paid off. So we haven't made all the accrual adjustments there. So it's a little bit noisier than I think what you mentioned.
Woody Lay, Analyst
Okay. Got it. And then anyway that you all could provide some more color sort of on where the loan yields were that paid off in the quarter versus where new production is coming on the books?
Dave Bonaccorso, Chief Financial Officer
The yield on commercial construction showed a payoff of 581 and new originations of 623, indicating an improvement of 42 basis points.
Woody Lay, Analyst
Got it. And then last, special mention loans saw a little bit of an increase in the quarter on a larger construction projects. Any expectations for when that property could sell?
Tani Girton, Chief Financial Officer
It hasn't been listed yet, but that is our discussion with them currently on the timing of the listing and then also with the Plan B on a remargining plan, which they do have the ability to do so.
Tim Myers, President and CEO
Yes. There's capacity here. This is just where the market is at completion, but this is not something we were a great deal about.
Woody Lay, Analyst
Yes. All right. Well, that's all for me. Congrats on the upcoming retirement, Tani.
Tani Girton, Chief Financial Officer
Thank you.
Tim Myers, President and CEO
Thank you, Woody.
Operator, Operator
Our next question comes from David Feaster. Please unmute your line and ask your question.
David Feaster, Analyst
Hey, good morning, everybody.
Tani Girton, Chief Financial Officer
Good morning.
Tim Myers, President and CEO
Good morning, Mr. Feaster. How are you?
David Feaster, Analyst
Doing great. Congrats on the retirement, Tani. I'm very excited for you about this next chapter. Congrats.
Tani Girton, Chief Financial Officer
Thank you.
David Feaster, Analyst
Maybe just staying on the origination side. Like to me, that's one of the more exciting parts I think about the quarter. And reading between the lines, it sounds like it's really more of a function of market share gains and increased productivity from your team rather than really improving demand. Is that a fair characterization? And just kind of thinking about the growth trajectory as we go forward to the extent that we do get improving demand and some new hires and hopefully, slowdown in payoffs, maybe we see an accelerating pace of growth over the course of the year.
Tim Myers, President and CEO
I couldn't have answered your question better than you just said it, David.
David Feaster, Analyst
Okay. So kind of think I mean is there an appetite to potentially supplement that organic growth with additional pool of purchases or do you think you're at the point where we can start seeing originations exceed payoffs and paydowns and we start seeing growth inflect?
Tim Myers, President and CEO
Well, it's a great question, and we're talking about this before. And by the nature of the payoffs, it's really hard to predict. But we do feel like we're getting to that inflection point where the originations outpaced the payoffs, but that timing can get in the way of that, that's hard to predict. We've made small purchases around CRA. Well, we use the mortgage purchases in prior quarter to help with the yield on the reinvestment for the AFS repositioning. We have looked at and we'll continue to look at purchases that will help with CRA. We're not actively looking to buy loans to drive the growth. We did pare down on the wood side auto loan acquisitions in the quarter that the program we capped after the acquisition of American River Bank. So we'll look to be opportunistic. But I would say it's fair to say our focus continues to be on organic origination, supplemented where able.
David Feaster, Analyst
Okay. And then maybe just touching on the deposit side. I was hoping you could first, I guess, quantify, it's hard to do. Could you help quantify maybe some of the seasonal dynamics that you're seeing, it sounds like you haven't really seen much attrition from your proactive efforts to reduce deposit costs? And then just where are you seeing opportunities to drive new account growth? You guys have done a great job, the marginal cost of interest-bearing deposit costs is extremely good. So just kind of curious, again, the seasonal dynamics where you're seeing opportunity for deposit growth going forward?
Tim Myers, President and CEO
So almost the entirety of the fluctuation you saw in the quarter was that seasonal nature, whether it's customers who have funds tied to elections or ballot measures or seasonal professional service firms that have seasonal outflows. But almost the entirety of that fluctuation was a very small amount that left for other reasons. Even throughout the month of January, up $50 million, down $5 million. There's a lot of fluctuations at the end of the year and early in the subsequent year. But we are very focused on new client acquisition. You saw we had about a thousand new accounts come in during the quarter; 43% of them were new customers to the bank that we can build on. Certainly, the bulk of those by dollar amount is going to be interest bearing, but those are coming on at a lower rate than the overall portfolio. So we're not paying up or buying this business. On the commercial banking origination side, certainly, one of the plays or core focuses on getting these professional service firms are the noninterest-bearing deposits. So while the outstandings don't necessarily tell the whole story for the quarter, almost a third or just over a third of the loans we originated in the quarter by commitments were to new C&I companies. And so with that, we require the operating business, and it takes a while to bring everything over. But that's a requirement for us on the C&I side. So those are the kind of things you keep all that stuff moving and you hope to grow your core client noninterest-bearing account base, and then that goes over time. But while our deposit base is granular, there are names or customers in there that have these large fluctuations and that is what we saw in the fourth quarter.
David Feaster, Analyst
Okay. Great. And if I could just squeeze one more in quick, just following up on the capital discussion. You've got a really strong balance sheet and a lot of flexibility. You've historically used every form of capital deployment available. While it's not pressing on your finances, could you touch on some of the capital opportunities that might be most attractive to you, such as securities repositioning, buybacks, or M&A? Can you share what you’re looking at and considering?
Tim Myers, President and CEO
You addressed your question well. We're engaged in numerous discussions about capital opportunities. Last year, we repositioned a significant amount of securities, and depending on the scale of our needs, we can further reposition more assets made available through the unwinding of the swap, which positively impacted our net interest margin. As we've noted, we're also contemplating the possibility of a held-to-maturity position, although that isn't currently a necessity. Our earnings will gradually flow back into the profit and loss statement from the balance sheet. Additionally, we are considering mergers and acquisitions. We must ensure that we maintain a solid capital position to keep regulators, shareholders, and depositors comfortable. Overall, these are continuous discussions that we engage in regularly.
David Feaster, Analyst
Terrific. Thanks, everybody.
Tim Myers, President and CEO
Thank you.
Tani Girton, Chief Financial Officer
Thank you.
Operator, Operator
Our next question comes from Matthew Clark. Please ask your question. Our next question comes from Matthew Clark. Please go ahead and unmute your line to ask a question.
Matthew Clark, Analyst
Hey, thank you. Sorry, I was just talking to myself. Congrats, Tani. It sounds like you're going to keep busy based on our conversation late last year. Just first one for me, just on the deposit costs. You see the averages, I think, in your presentation, but do you have the spot rate at the end of the year. And Dave, if you willing to offer up the spot rate here in January based on the additional changes you've made?
Dave Bonaccorso, Chief Financial Officer
Sure. So our December cost of deposits was 1.32%. Interest-bearing deposits in December was 2.37%, and we brought down, as I mentioned, interest-bearing deposits by about 8 to 9 basis points so far this year.
Matthew Clark, Analyst
How about at year-end though? I'm looking for the spot rate at year-end, not the average for the month.
Dave Bonaccorso, Chief Financial Officer
There weren't many cuts later in the month, so the spot rate at December 31 would be very close to the average.
Matthew Clark, Analyst
Okay. Got it. Thank you. And then with the shelf out there, can you give us a sense for the probability or likelihood of tapping that shelf to either reposition HTM, maybe do some team lift outs to grow organically at a faster clip or and/or M&A. Just updated thoughts on just the willingness to tap the shelf for any of those three things in the likelihood of, I guess, which is maybe more of a higher probability than the other?
Tim Myers, President and CEO
The short answer is no. I can't provide a sense for that because we have no immediate plans to tap into the shelf. We have sufficient capital for initiatives like team lifts and AFS repositionings. However, if there are any combinations of activities or if we pursue something larger discussed among banks like us, that might necessitate a larger amount, but I do not expect it to approach the total filing of $125 million. It's a range of options just in case. Right now, there are no plans to proceed, and I can't predict future opportunities. As you know, things can change and opportunities may arise, but I have no immediate plans or timeline for that.
Matthew Clark, Analyst
Got it. And then just updated thoughts on M&A in general?
Tim Myers, President and CEO
Valuations continue to pose challenges for deals, but I am always engaging with people. There is nothing imminent or sufficiently advanced to discuss at the moment. However, our responsibility is to keep exploring opportunities and be ready if something arises.
Matthew Clark, Analyst
And can you just remind us the types of things you're interested in on the M&A side?
Tim Myers, President and CEO
Well, the bank has been very independent, as you know, in the past, and I think we'll prefer to remain independent and be an acquirer. That's where the valuation and the stock currency could be an issue. Obviously, we've seen some no premium or MOE deals over the last couple of years that present unique opportunities. So the universe is shrinking, so that's hard to predict. But we think there is a number of potential attractive opportunities out there, but all the stars have to align and we're very comfortable with continuing on organically. We feel like there's continued upside in our balance sheet for our P&L and our margins. We feel like we're getting traction on the origination side and continue to do an outstanding job on the low-cost relationship-based deposit side. So we're perfectly comfortable with our bright future continuing organically.
Matthew Clark, Analyst
Got it. And then just a housekeeping on the tax rate, should we assume that kind of resets back to that 25% to 26% range?
Dave Bonaccorso, Chief Financial Officer
That's correct.
Matthew Clark, Analyst
Okay. Thank you.
Tim Myers, President and CEO
Thank you, Matthew.
Operator, Operator
Once again, thank you everyone for the questions, for calling in, for the support, and I again want to wish Tani all the best in her future endeavors and congratulate Dave, as you can see, our future is very bright and will continue to be outstanding oversight of our financial future. So thank you very much, Tani. Goodbye.
Tani Girton, Chief Financial Officer
Bye, bye.