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Ladies and gentlemen, thank you for standing by and welcome to the Fulton Financial Fourth Quarter 2021 Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions]. I would now like to turn the call over to your host, Matt Jozwiak. You may begin.
Good morning and thanks for joining us for Fulton Financial conference call and webcast to discuss our earnings for the third quarter of 2021. Your host for today’s conference call is Phil Wenger, Chairman and Chief Executive Officer. Joining Phil are Curt Myers, President and Chief Operating Officer and Mark McCollom, Chief Financial Officer. Our comments today will refer to the financial information, and related slide presentation included with our earnings announcements, which were released yesterday afternoon. These documents can be found on our website at fult.com by clicking on Investor Relations, and then on News. The slides can also be found on the presentations page, under Investor Relations on our website. On this call, representatives of Fulton may make forward-looking statements with respect to Fulton's financial condition, results of operations in business. These statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors, and actual results could differ materially. Please refer to the Safe Harbor statement on forward-looking statements in our earnings release our Slide 2 of today's presentation, for additional information regarding these risks, uncertainties, and other factors. Fulton undertakes no obligation other than as required by law, to update or revise any forward-looking statements. In discussing Fulton's performance, representatives of Fulton may refer to certain non-GAAP financial measures. Please refer to the Supplemental Financial Information included with Fulton's earnings announcement released yesterday, and on Slides 10 and 11 of today's presentation, for a reconciliation of those non-GAAP financial measures, to the most comparable GAAP measures. Now, I would like to turn the call over to your host, Phil Wenger.
Thanks, Matt, and good morning, everyone. And as usual, I'll begin the call with some high-level thoughts on the quarter and the year. Then Curt will discuss our business performance, and Mark will share the details of our financial performance. And then we'll take your questions. As you saw in our press release, Fulton had a solid fourth quarter, and a very good year overall in 2021. Our fourth quarter earnings per share were $0.37, and for the year earnings per share were $1.62, which was a record year for Fulton. Key drivers for 2021 included 1. solid loan growth for the year and increasing loan growth during the second half of the year; 2. strong performance from our commercial and consumer fee income businesses; 3. a record year for our wealth management business; 4. strong returns from our efforts related to the Paycheck Protection Program or PPP; 5. credit costs were down significantly during the year, as, asset quality remains stable. And operating expenses which we managed aggressively.
We achieved all this due to a tremendous effort by our team, during times that continued to be challenging. Of these items, offset continued pressure on our net interest margin. However, we're seeing some encouraging signs as well. Curt Myers will share More details on those. Despite the world's ongoing COVID -related struggles, the economy and the markets we serve show signs of acceleration. Unemployment continues to decline, business activity continues to expand, and the communities we serve continue to move forward. Similar to last quarter M&A activity and discussions remain active. And as I have shared previously, Fulton is interested in select opportunities that will support further growth within our current markets. As always, we will take an active but disciplined approach to opportunities to growth by acquisition. During the quarter, we were able to take advantage of a dip in our stock price and have now utilized approximately 60%, of our $75 million share repurchase authorization. We will continue to repurchase stock, under that authorization. If it makes financial sense to do so. We also declared a special cash dividend of $0.08 per share in 2021, doubled what we declared the previous year. As we begin the new year, we appreciate the continued partnership we have with our shareholders, our customers, and our team members. There helping to grow our company, to achieve operational excellence, and to change lives for the better. Now I will turn things over to Curt to discuss our business performance.
Thank you, Phil. And good morning, everyone. As Phil noted, we continued to produce solid results in the fourth quarter. Want to share some additional detail on several key areas. Unless I note otherwise, the quarterly loan and deposit balances I will discuss are on an ending balance basis. First, we saw Loan growth accelerate during the quarter. We experienced strong loan growth from residential mortgages, commercial and residential construction, and commercial real estate. This was further enhanced by modest growth in C&I and consumer loans. Total loan growth was approximately $345 million, or about 7.8% annualized, up from 4.5% annualized in the third quarter, when excluding PPP loans. In our consumer lending business, loan balances grew a $136 million or 9.9% on an annualized basis. This was driven primarily by strong growth in residential mortgages. Residential mortgage banking activity remains solid as we continue to experience elevated originations as compared to prior to the beginning of the pandemic. We continue to have opportunities to either sell our conforming originations in the secondary market at historically healthy spreads or increase our Balance Sheet at beneficial yields. With the recent change in the interest rate outlook, we will continue to evaluate adding to the portfolio versus originating for gain on sale income. Residential mortgage originations for the quarter were $582 million. This is a decrease of 12% from the prior quarter and a decrease of 28% from the year-ago period. Purchase originations of 390 million accounted for approximately 67% of total residential mortgage originations during the quarter. At December 31st, the mortgage pipeline sits at $372 million after another solid quarter of origination. As I mentioned last quarter, our recent fin-tech partnership for student loan refinance business continues to progress adding growth to the overall commercial loan portfolio as well. Offsetting overall consumer loan growth is a modest decline in home equity portfolio prominently based on line utilization. Turning to commercial lending, the commercial loan portfolio grew $209 million, or 6.9% on an annualized basis, an increase from last quarter's annualized growth rate of 1.4%. Commercial mortgages grew a $134 million or 7.5% on an annualized basis, due to increased originations. I would also note that growth was at higher yields on a linked-quarter basis. C&I loans increased 44 million or 4.5% annualized, driven by a modest increase in line utilization. This is the second quarter in a row where we've seen increases in line balances which grows C&I growth for the quarter. Last, commercial construction loans grew $18 million or 7.7% annualized. We're encouraged by our ability to grow loan originations this quarter, and by our customers increased business activities.
The commercial pipeline ended the year down slightly after strong originations during the fourth quarter. Our pipeline typically built back in the first quarter and we expect that trend to continue. Turning to deposits, we saw an overall decline for the quarter. However, core commercial and consumer deposits increased modestly during the quarter. The overall decline was driven by the expected seasonal outflow of municipal balances. Total deposit balances declined $501 million or 2.3% linked quarter. We were able to continue to reduce our overall cost of deposits from 12 basis points to 11 basis points for the quarter. Moving to our fee income businesses, we were pleased with another strong quarter as fee income increased $1.3 million or 2.1% linked quarter. We generated growth in core commercial fees, capital markets, consumer banking, and in wealth management. This growth was offset by a seasonal decline in mortgage banking income. Turning to the commercial line of business, total commercial fees were up $1.7 million or 10.4% linked quarter. We saw strong linked-quarter increases in capital markets and SBA income, while merchant banking and cash management were consistent contributors. Capital markets activity, which is primarily commercial loan interest rate swaps, increased in the fourth quarter as a result of increased originations. We expect capital markets revenue to track this more historic trend over time. However, this will continue to be dependent on customer preferences, commercial loan demand. and interest rate expectations. SBA gain on sale fees increased linked-quarter after and delivered a record year for us.
This SBA income is separate from the PPP program, and has generated by our dedicated SBA team. Overall, we remain encouraged by the performance of our commercial business, and increased business activity of our customer base, during the quarter. Our wealth management business had an outstanding year, producing record results. This performance was driven by strong sales efforts, client retention, and the cumulative effect of several small acquisitions. Our recurring e-business also benefited from the strength in the equity markets throughout the year. Assets under management and administration grew to $14.6 billion, in the fourth quarter, up from $14 billion in the end of the third quarter, and $12.8 billion at the end of the prior year. Turning to our consumer banking line of business, residential mortgage banking delivered a solid quarter on a modest decline in loan sales. However, gain on sale margins continued to remain elevated as compared to historic levels. With interest rates moving higher during the quarter, a portion of our mortgage banking revenues were driven by a reduction in the mortgage servicing rights valuation allowance, which Mark will discuss in more detail. In addition to mortgage banking fee income, consumer transactional fees were up 2.8% linked quarter, or 11.1% annualized as customer activity continues to expand. Moving to credit, asset quality remains stable, delinquency low, and deferrals and forbearance continued to decline. Non-performing loans remained relatively flat and within a very narrow range since prior to the beginning of the pandemic. During the quarter we booked net charge-offs of $3 million or 7 basis points annualized. This compares to $2.3 million or 5 basis points of annualized net recoveries in the third quarter. For the year, we booked $13.8 million or seven basis points of net charge-offs. Our fourth quarter provision for credit losses was a negative $5 million and a negative $14.6 million for the year. The allowance for credit losses excluding PPP loans stands at 1.38%. We feel this reserve is appropriate given our credit outlook. As always, our allowance for credit loss trends could change in future periods, based on new loan origination volumes, loan mix, net charge-off activity, and longer term economic projections. Overall, our credit outlook remains stable heading in for 2022. Now I will turn the call over to Mark to discuss our financial results and outlook in a little more detail.
Thanks, Curt and good morning to everyone on the call. Unless I note otherwise, the quarterly comparisons, I will discuss are with the third quarter of 2021. Starting on Slide 3, earnings per diluted share this quarter were $0.37 on Net Income available to common shareholders of $59.3 million. Our solid fourth quarter performance included a decline in net interest income, an increase in non-interest income, a negative provision for the quarter and higher operating expenses. Which I'll cover more detail on all of these items later in my comments. Moving to Slide 4, our net interest income was $166 million, a $5 million decline linked quarter. This was primarily due to an $8 million decrease in fees earned on PPP loans for given during the fourth quarter as compared to the third quarter. This decrease was offset by 1. strong loan growth, 2, relatively stable yields on earning assets, and 3. a modest decline in interest expense. With respect to our PPP program, at the end of the third quarter, we had $590 million of outstanding PPP loans and $18 million of unearned fees. During the fourth quarter, PPP loan forgiveness was $289 million and the fees earned on that were $10 million, down from $18 million in the third quarter. Since the start of the program, the SBA has forgiven approximately 88% of our PPP loans. And at year-end, we had $301 million of PPP loans on our books with approximately $8 million of PPP loan fees, yet to be recognized. Turning to the investment portfolio, balances grew modestly during the period increasing a $167 million, to end the quarter at $4.2 billion. We also saw sizable decrease in deposits that we keep with other institutions during the quarter, which helped to slow our decline in earning asset yields during the period. Turning to deposits, total deposits declined approximately $500 million on an ending balance basis. We lowered our cost of deposits for the quarter from 12 basis points to 11 basis points. And we would expect this to go slightly lower in the future. During the quarter, we saw a seasonal outflows of municipal deposit balances, and anticipate that to continue into this year. Non-municipal deposits increased approximately $35 million during the quarter, whereas municipal deposit outflows represented $536 million. Our ending loan to deposit ratio increased from 82.8% in the third quarter to 84.9% at year-end due to a combination of increased loans outstanding and a decline in deposits. Our net interest margin for the fourth quarter was 2.77% versus 2.82% in the third quarter. The five basis points of linked-quarter decline resulted primarily from declining PPP loan fee recognition, offset by an improvement in the mix of interest earning assets and continued decline in deposit costs. Turning to Slide 6 on non-interest income, I will provide some additional detail on the business results Curt discussed. Mortgage banking revenues were driven by solid mortgage loan sales and historically elevated data on sale spreads, which were a 174 basis points this quarter versus a 194 basis points last quarter. During the quarter, we also recorded a reduction to the valuation allowance of our mortgage servicing rights asset of $2.5 million due to higher interest rates and slower prepayment speeds. Our MSR asset was $35.4 million on balance sheet at December 31. This balance is net of a $600,000 mortgage servicing rights valuation allowance, which remains as of year-end. Other fee income increased $1.8 million linked quarter. This was primarily due to gains of $3.8 million from Equity Method Investments. As our investment in a fin-tech fund, again, generated very strong increases in valuation during the quarter. Moving to Slide 7, non-interest expenses were approximately a $154 million in the fourth quarter, up $9.4 million linked quarter. This increase was driven by the following factors, many of which are not expected to repeat in 2022. Total salaries and benefits were up $2.8 million linked quarter driven by a vaccine bonus of $1.3 million for our team members, as well as providing additional bonus pay of $2.3 million for team members who do not participate in other bonus programs. We had higher occupancy costs of $1.4 million due to changes in the useful lives of certain leasehold assets which accelerated depreciation by approximately a million. And we had higher outside services costs due to the timing of certain technology projects, which totaled $1.7 million. And lastly, we had a higher other expenses of $2.5 million that was due in part to an additional $1 million contribution to our Fulton Forward Foundation. Turning to taxes, our effective tax rate was 23% for the quarter, higher-than-normal, and due to supply chain challenges which caused project delays in certain tax credit investments which we expect to come online in 2022. We also saw increases in allocated revenues to higher tax jurisdictions states, and also higher overall revenue for the year contributed to the higher effective tax rate. Slide 8 gives you more detail on our capital ratios. As of December 31st, we maintained solid cushions over the regulatory minimums and our bank and parent company liquidity remain very strong.
During the quarter, we repurchased approximately 1.1 million shares at an average price of $15.98, and have utilized approximately 60% of our $75 million share repurchase authorization. On Slide 9, we provide our updated guidance for 2022. Our guidance assumes 225 basis points rate increases occurring in March and September. We expect our net interest income to be in the range of $660 million to $680 million. We expect our non-interest income, excluding securities gains to be in the range of $230 million to $245 million. We expect operating expenses to be in the range of $580 to $600 million for the year. And lastly, we expect our effective tax rate to be in the range of 16.5% to 17.5% for the year. Many of you look at pre -provision net revenue or PPNR, as a key metric access the profitability of core operations. We also know that many of you calculate this metric differently. We've included our version of this metric in the financial tables of our press release. We will also like to point out a couple of additional items to consider as you assess our PPNR results. First, PPP fees earned have declined $8 million from the third quarter to the fourth quarter. MSR valuation allowance adjustments resulted in an additional $2.5 million decrease in the allowance in the fourth quarter. And also, our fourth quarter contains several expense items, which we do not expect to continue in future periods. When removing the impact of these items, we believe our PPNR has shown continued improvement each quarter in 2021 as a result of 1. our first quarter balance sheet restructuring, 2. earning asset growth, 3. core margin stabilization, 4. fee income business results, and 5. continued cost-containment efforts. With that, I'll now turn the call over to the operator for questions. Devin?
[Operators Instructions]. Our first question comes from Frank Schiraldi with Piper Sandler.
Morning.
Morning Frank.
Just curious on the guide. Obviously higher rates here. We've seen the 10-year move significantly higher over the quarter. Just wondering how that plays into strategy and if that NII guide anticipates meaningful securities purchases or not.
So no Frank, it doesn't. We would anticipate our investment portfolio, which again is now at $4.2 billion. We'd expect that to stay relatively consistent as a percent of the balance sheet. So as you see loan growth in 2022, you could expect to see a commensurate increase in our investment portfolio. But I don't see with -- and I think most expectations are for the curve to probably flatten a little bit in 2022. With the 10-year up, I don't see that materially changing our near-term strategy in terms of securities purchases. Instead, we would expect to see that excess liquidity soaked up by loan growth in 2022.
Got you. Okay, and then on the -- Mark, I know you mentioned some of the one-time costs that are unlikely that are not going to repeat in the first quarter, still seems like the non-interest expense guide. Growth is pretty contained there. So given the inflationary -- the inflation numbers, just wondering your thoughts on how have you baked that in? And does that guide include specific cost cuts in terms of legacy infrastructure.
Frank, it wouldn't include any new cost cuts, as you know back in the fourth quarter of '20, we announced some cost reduction initiatives. Really what you're seeing in the 2022 guide is the first full-year impact of all of those. And when you look at our categories in a year-over-year basis from '20 to '21, we did contain salary and benefits expense where you saw larger increases were in data processing and software and outside services, which is consistent with the guidance we gave a year ago, that we would be reducing headcount back in the fourth quarter of '20, but then reinvesting a portion of those proceeds for technology-related projects. And for 2022, you can expect to see the fruits of some of that come to roost. But in that guide, would acknowledge that there is definitely inflationary pressure.
Okay. And if I could just sneak in one more, sorry. Back to NII, you mentioned the two rate hikes for 2022 baked in. Any color or guidance on if you get an additional rate hike, what that does for NIM?
Yeah. So if you think about our Balance Sheet right now, we have about $10 billion of loans that are either tied to prime SOFR or one month Libor. And that's $10 billion that are unhedged. We've $11 billion total. There was $1 billion dollars of hedges that were put on in 2021 $10 billion on unhedged. And so 25 basis point on that is easing number to calculate $25 million annually. The question then becomes what the deposit data, is going to be on that and when you look back over the last up rate cycle, for most of the mid-sized banks, for the first couple of increases, deposit Betas were under 10%, they were between 5%, 10%, which would just be then a couple of basis points move. So most of that, these early rating increases we would expect to be able to drop to the bottom line. What's also changed, but also an unknown is that on the deposit side, will the surge deposits act similarly to other non-interest bearing DDA's or will they move off the bank's books faster?
Great. Thank you for all the color I appreciate it. Yeah, you got it.
Next question comes from Chris McGratty with KBW.
Hi, Andrew Leischer here for Chris McGratty.
How are you doing?
So the thing about the margin going forward, can you provide your deposit growth assumptions?
We don't typically provide -- we provided NII guide, we don't provide assumptions specifically at one loans or deposit categories. But what I can provide is to give you some color on -- we have a municipal book which obviously has some volatility throughout the year on a high point of that is typically in the third quarter then tends to run off in the fourth quarter and first quarter, and then start to build back up again. And we also have a CD book, which in the first half of '22, you have about 600 million of CDs that come due. And the weighted average rate on those is about 25 basis points. But in the back half of the year, we have 700 million of CDs that mature at a weighted average rate of 1.25 basis points. And we're seeing replacement yields on the new CDs coming in at about 12 or 13 basis points.
Okay, great. Thanks for that color. And as on similar subject, can you provide the securities reinvestment yields versus what's rolling off the books right now? Thanks.
I would say on again, we're just growing the investment portfolio commensurate with our growth in other earning assets versus what's rolling off and what's rolling on. You're probably seeing a pickup right now of about 20 to 25 basis points.
Alright, thank you. And if I can just squeeze one more in on loan growth, can you provide any comments on the C&I demand that you're seeing and utilization? Thanks.
Sure. I think I'll give you some additional color on that. We saw growth in all of our markets, which was a positive sign. And we saw accelerated growth in Baltimore, Washington, Delmarva Region as well. And we continue to see pretty strong demand in those markets. So that's where we saw good growth in the prior quarter. The other thing I would mention is it was a pretty much across the board. Most loan categories grew as well.
Thanks for the color and thanks for questions.
Our next question comes from Erik Zwick with Boenning & Scattergood.
Good morning, guys.
Hey, Eric.
Hey Curt maybe one quick follow-up on the C and I line utilization. Do you have that number today as well as what the historical percentage would be?
We increased in the third quarter overall just 4 basis points or 40 basis points. And then in this quarter, 40 basis points. So really it's just started to increase so we think we have continued momentum for 2022 as that utilization continues to normalize, were essentially about 8% below historical levels.
And what would that historical average level be?
Mid-30s.
Mid-30s. Great, thanks. Turning to capital a little bit, you were active in the fourth quarter with share repurchases, and I think that the current authorization about 40% left that would expire at the end of this first quarter, if I'm correct. Curious about your inclination to continue buying back shares today and would you expect the Board to approve another authorization going forward?
How we use what's remaining really is going to be driven by our stock price. But I do expect us to have a buyback in place going forward.
Thanks. And just last one for me. In the opening comments, you mentioned that you are still interested in select opportunities for M&A. Just curious if you could remind us what you would look for, what type of characteristics you would look for in a partner bank. As well as what size bank you would consider undertaking an acquisition of.
Well we would be looking at institutions that have similar operating models to ours have similar cultures to ours. That are located within our existing footprint and we'd probably be looking at the banks between $1 billion and $8 billion to $10 billion.
Thanks for taking my questions today.
Thanks.
Thanks Myers
Our next question comes from Russell Gunther with D.A. Davidson.
Hi, good morning, guys. I had a question on the NII guide wondering if you could share a range of organic growth expectations for '22 and what that might mean from a mix perspective as well. I know you have talked about the given take within portfolio in residue. But just any thoughts on magnitude and mix of organic growth for this year.
Russell, do you know, we don't give out specific growth targets for loans or segments. I mean, instead, we're electing to give guidance related to the components of PPNR. So we're happy to talk more about NII, but specific categories for loans. I mean, you can start to develop your own trends based off what you're seeing over the last couple of quarters.
Gotcha. And would you expect that then, Mark, to accelerate from fourth quarter pace that was strong? And you guys have demonstrated some positive momentum in the back half of this year. Are the comments that that is sustainable around the current range or is there an outcome that could see that accelerate?
I think that's -- I think that's going to largely be contingent, Russell on the continued reopening of the economy, the smoothing out of supply chain issues which are impacting multiple sectors.
Okay. Great, I appreciate the color and then just to clarify, the NII guides includes, I think you said 18 million of remaining unearned PPP fees. Is that right?
No, It's $8 billion.
$8 billion you [indiscernible].
$8 million of which we would expect most of that to be recognized by mid-second quarter.
Okay. Thank you for the clarification there. And then just lastly on the expense side of things, you talked about some of the moving pieces in the quarter. On the occupancy side of things that accelerated depreciation of a million you would expect to normalize. And then similar question on the 1.7 within outside services, that was just a timing issue that might step back before growing as you continue to invest? We'll just appreciate any additional directional guidance on those 2 items.
Yes. So on the occupancy yes, I would expect that to normalize. With respect to outside services, that's always going to be a little bit more sensitive to the timing of certain technology projects. And so you will see certain quarters where that line item is going to tend to be a little bit more choppy than some others. But overall, we feel pretty good again about our expense containment year-over-year. When you strip out our debt restructuring costs and looking at what our guide is, we think we've had now a couple of years in a row where we've had under 2% expense growth.
That's very helpful. And then just last one, apologize. If I could sneak this one in? But any color you can share in terms of the nature of the tech initiatives spend that any particular objectives to accomplish for '22?
Russell, for the fourth quarter, those costs are predominantly related to doing a full implementation of sales force that we did launch across the entire company in the fourth quarter. We have a project plan this year that we're investing in some core technology upgrades that add client benefit, and efficiency. And we're investing in some upgraded origination systems in certain business lines to again, focus on customer capability, as well as internal efficiency.
I appreciate it, guys. Thanks for taking all of my questions.
Thank you,
You bet. Thanks, Russell.
Our next question comes from Matthew Breese with Stephens Inc.
Good morning.
Good morning.
I wanted to discuss the mix of the loan portfolio just a little bit. The last couple of years, resident -- Reg. G has been a big driver of loan growth up to 21% of total loans. And just having discussed with you guys this topic for a while now, I understand that the framework was we can give up a little bit asset sensitivity just given the Balance Sheet positioning, interest rate positioning. But where do you get to the point where Reg. G is enough quote-unquote or too much is it 25% on total loans or 30%, maybe just some color there?
Yeah. I think it's going to be not weighted on a particular percentage, but obviously our outlook on interest rates and what our overall interest rate risk position looks like. But with where rates and the shape of the curve and forecast looks like right now, I would think that's going to be probably closer to 25% and 35% if we expect the economy to open as Moody's and other economic forecasts are saying. I would expect you to start to see more quarters similar to this past one where commercial growth was more than 50% of our overall earning asset growth. And then I would expect to see if rates do continue to rise and as that translates into the 10-year, you'd expect to see just overall mortgage volumes come down a little bit across the industry, which they're -- the MBA is predicting for '22 as well.
Got it. Okay. I also wanted to discuss for liquidity position on the Balance Sheet. You still have over a billion 5 of cash. At this point, how much of that do you sign a bit more of a more volatile label to, just given COVID -related deposit flows? How much you expect to use this year, maybe a year from now, what do you think the cash position of the Balance Sheet looks like?
I think that is a great question for the entire industry right? How did these -- how did these surge deposits and government stimulus deposits, do they react the same as other non-interest bearing GDA money. But I think if you look back to where we were pre -pandemic, we'd like to run our overnight cash position between $50 million and $100 million. So that gives you a sense of the magnitude and that current excess liquidity on our Balance Sheet right now is actually about 20 basis points to margin. So it's a big number on what we would expect that to start to come down a little bit in the first quarter. And again, if you see more loan growth, that will also obviously drive that number down as well.
Okay. Last one for me is just on M&A and all the reasons why you might participate in M&A. What are the top 3 priorities you're looking to accomplish strategically? It sounded like market share gains in existing markets are one of them. But what else are you looking to accomplish strategically. And then maybe just a reminder, some of the financial metrics, you'd look to check-off in any given transaction.
So yeah. Increase per market share in areas that we are currently, but don't have level market share we want is us
top priority. A bit building some scale to pay for the back-office. Things that we've built over the years would be another priority, and picking up talent and no growth. And I'll let Mark go over the financial metrics.
On the financial metrics accretive to earnings in the first year of combined operations, first full-year combined operations, we typically want to see a tangible book value dilution earn back at three years or less. And then we want to see an internal rate return in excess of our cost of capital. Those are the three primary ones we look at. The trade-offs sometimes some folks tend to look at tangible book value dilution out of the gate, but you can't really look at that without looking at the EPS accretion in concert. You can accept a little bit more out of the gate dilution if you've gotten a little bit more accretion of earnings to keep the earn-back in check.
Got it. Okay. I appreciate all the comments. That's all I had. Thank you.
Thank you.
Thanks Matt.
I'm not showing any further at this questions a like turn the call back over to our host.
Well, thank you again everyone for joining us today. We hope you'll be able to be with us when we discuss our first quarter results in April.
Ladies and gentlemen, this concludes today's presentation. You may now disconnect and have a wonderful day.