Q4 2019 Earnings Call
Greetings and welcome to the be Okay Financial Corporation fourth quarter 2019 earnings Conference call. At this time all participants are in listen only mode. A question and answer session will follow the formal presentation.
Once you require operator assistance during the conference. Please press star zero on your telephone keypad.
Please note. This conference is being recorded I will now turn the conference over to your hosts Chief Financial Officer, Stephen now Mr. Now you maybe get.
Good morning, and thanks for joining us today, our CEO , Steve Bradshaw will provide opening comments.
Stacy kinds executive Vice President of corporate banking will cover our loan portfolio in credit metrics.
And then I'll provide some details regarding our income statement items for the fourth quarter and provide high level guidance for 2020.
At the end of the call, we'll have Scott Grauer Executive Vice President of wealth management.
As well as Mark Martin Executive Vice President and Chief Credit officer available for questions.
He asked about the slide presentation of fourth quarter press release are available on our website at <unk> Dot com.
We refer you to disclaimers on slide two as it pertains to any forward looking statements we make during the call.
I'll now turn the call over to Steve Bradshaw.
Good morning, Thanks for joining us to discuss our fourth quarter and full year 2019 financial results. The fourth quarter concluded a second consecutive record year for be okay financial both from a net income in an earnings per share perspective for the full year net income was 501 million up over 12% from 28 team delay.
Adjusted earnings per share were $7.03 for 2019 that compares to $6.53 last year 29 team was a broad based or engineer with significant expansion of our fee businesses and continued strength in our specialty linear channels. While we also had accelerated growth in court in our core deposit franchise.
Additionally, 29 team saw us achieve our business integration financial goals for our acquisition of Cobas, which will help drive momentum in two of our most critical high growth markets going forward.
Looking at the fourth quarter, specifically net income was 110.4 million or $1.56 per diluted share down from our record third quarter, but up 2% from the same quarter a year ago and as a reminder, we closed on co bid at the start of the fourth quarter of 28 team for the light quarter comparison is appropriate.
Being commission revenue was up 12% year over year, those seasonal slowdowns in mortgage volumes, along with slightly lower consumer service charges left our fee and commission revenue down 4% from the previous quarter expense management remains prudent though expenses did increase 3% this quarter due to elevated severance expenses as we work.
To rightsize, our business units heading into 2020, coupled with our annual charitable contribution to the be Okay Foundation, which provide support to many nonprofit partners in the communities that we serve our loan loss provision was $19 million this quarter due to some migration or energy portfolio and Stacy will cover that in more detail here in a moment.
Turning to slide five average loans were 22.2 billion, that's up 3% year over year, though down from last quarter due to general Paydowns in energy and commercial real estate and to anticipated large year end pay downs in our seat I portfolio, having said that we feel good about our pipeline opportunity in the early start here in 2000.
20.
Average deposits were up 8% from the previous year and up over 5% linked quarter basis, even with the strong growth. This quarter, we were able to bring overall interest bearing deposit costs down the 1.17% in third quarter to 1.09% in the fourth quarter growing deposits to fund loan growth was a significant area. This.
This is for be okay up in 2019, and you can see that in our results. This focus will continue into 2020, allowing us to fund future loan growth.
Assets under management or in capacity were up over 2% for the quarter and more than 8% year over year strong sales activity, coupled with favorable equity markets are really the key drivers of that expansion.
And we saw an opportunity to further death in our company had a favorable price this quarter as we bought back 280000 be okay F shares at $81 of 59 cents per share in the open market.
I'll provide additional perspective on the result at the conclusion of our remarks, but now Stacy guys, who will review the loan portfolio in credit in more detail I'll turn the call over now to spaces.
Thanks, Steve.
As you can see on slide seven period end loans were 21.8 billion down more than 2% for the quarter well pay downs impacted our quarter in members 2019 wasn't growth year for be okay from alone perspective up 3% on average year over year.
Total see an eye expanded nearly 3% in 2019, no pay downs in our two largest growth engines energy and health care left total cnine down 2.7% linked quarter.
Energy had a fantastic year in 2019 growing nearly 11%.
While the segment was down 141 million for the quarter the trends in the industry. We've discussed remain true and pipelines remain full I expect our energy growth to return to a positive level as we head into 2020.
Our health care Channel also had an exceptional 2019 growing over 8%.
The quarter was flat steady growth and commitment levels and our expertise in the senior housing space bodes well for another great year for health care in 2020.
A slowdown in general seeing eye seems to point to increase cautiousness in the general middle market business community terrorists trade disputes and the questions that arise heading into a new election cycle seems to have caused pause for some of our clients.
Future clarity around the regulatory trade anaemic economic environment should help reenergize the middle market segment.
Continued discipline around concentration limits in commercial real estate, coupled with Lake where pay downs left the segment down 4.2% for the quarter.
Amendment volume is still solving this space and we will continue to high grade through stringent customer selection as we manage the portfolio.
On slide eight you can see that credit quality overall remains good not accruing loans increased eight and a half man this quarter, primarily due to 6.6 million increase in a nonrecurring community development credit.
Net charge offs were 12.5 million or 22 basis points on an annualized basis up from 10.6 man or 19 basis points in the previous quarter, all relatively consistent with what we've seen over the past 18 months.
Potential problem loans, which are defined is performing loans that based on known information cost management concern is the borrower's ability to continue to perform totaled 160 million at December 30, Onest up from 143 million at September Thirtyth.
This increase largely come from the energy portfolio as the capital market environment is requiring certain customers to work through their liquidity needs.
That situation may lead to additional nonaccruals and some impairment. However, as we've discussed previously our senior secured collateral position should protect us from material loss content.
Based on evaluation of all credit factors, including changes in non accruing and potential problem loans as well as specific impairments of two shared national energy credits, which weren't we are not the lead agent. The company determined that a 19 million provision for credit losses was appropriate for the fourth quarter of 2019.
I'll turn the call over to Steven now the cover the income statement in more detail Steven.
Thanks Stacy.
As noted on slide 10, net interest income for the quarter was 270.2 million down 8.8 million from the third quarter as the full realization of the last two federal reserve interest rate cuts were felt in the quarter.
Net interest margin was 2.88% down from 3.01% the previous quarter.
I provided on the slide a roll forward to highlight significant items impacting the NIM calculation first accretion levels were 5.1 million less this quarter due to the lower kobe's loan pay offs, which reduced NIM by six basis points.
Second higher loan fees in the fourth quarter improved NIM by three basis points.
Third there was a nine basis point decline in our non interest bearing funding profile with a decrease in demand deposits and an increase in receivables from our trading activity.
In addition, our earning asset yield decline, excluding accretion and fees of 29 basis points was effectively offset by 28 basis point decline in funding costs.
Our net interest income in margin have moved down over the past few quarters. The projected flat interest rate environment in 2020 should allow some stability going forward.
On slide 11 fees and commissions were 179.4 million, an increase of 12% quarterly year over year.
Fueled largely by strengthen our brokerage and trading business brokerage and trading increased over 56% from the same quarter a year ago.
While overall brokerage and trading was relatively flat in the quarterly comparison growth and trading revenue was up 5.6 million, but was offset by lower customer hedging revenue and loan syndication fees.
Mortgage banking revenue was down 16% from an expected seasonal slowdown.
Every 2019 was a great year for the mortgage channel as the favorable rate environment allowed us to grow the business, 16% compared to 2018.
As we enter 2020, we remain confident in our origination capabilities, even in an expected flat rate environment.
Fiduciary and asset management revenue was up over 3% linked quarter and year over year as strong sales gathering activities and favorable equity markets have fueled steady growth.
Other revenue was down due to the variable nature of repossessed asset revenues from certain oil and gas properties that are contained in that line item.
Turning to slide 12, total operating expenses increased 9.5 million to 288.8 million.
Personnel expense increased $5.8 million for the quarter.
Incentive compensation increased 2.6 million linked quarter due to an increase in cash based incentive compensation, primarily from the sales activity in wealth management and commercial banking.
Regular compensation increased $3 million largely due to the severance costs from a realignment of personnel for the operating environment headed into 2020.
Non personnel expense was up 3.7 million from the third quarter largely due to our typical year end charitable contribution to the Neocon foundation of $2 million.
The mentioned pressure on net interest revenues moved our efficiency ratio back over 60% this quarter, while 60% or lower efficiency ratio is still our long term goal. It will be influenced by the mix of revenue going forward.
Slide 13 has our current outlook for 2020.
Average security balances remain comparable to current levels as we managed to a relatively neutral interest rate risk position.
Average loan growth around 3% to 4% with lower growth in energy compared to 2019.
Average deposits are expected to cover loan growth for the year.
Net interest revenue is expected to remain relatively flat compared to 2019, given overall lower interest rates for the year.
Stable net interest margin from the current level with a bias toward slight improvement if the overall minute interest rate environment remains flat.
Fee revenues grow mid single digits with continued growth in brokerage and trading and assets under management and well.
Efficiency ratio slightly above 60% as fee revenues grow faster than net interest revenue.
Day to Cecil provision levels will provide for loan growth and will be influenced by changing economic outlooks, we're not expecting any meaningful changes in the historic loss rates during 2020 that drive our models.
Tax rate approximately 21% of pre tax income.
We will continue to provide sufficient capital for loan and balance sheet growth, a competitive dividend payment and a modest level of opportunistic sehat share repurchases.
Capital ratios are expected to improve slightly over the course of 2020.
And lastly, I want to share the updated transition impact of Cecil that we expect to book on day one.
After many test runs we expect the pre tax transition adjustment to range between 60 and 65 million.
Which is in the middle of the range, we provided last quarter.
We have elected to phase in the impact of Cecil transition on regulatory capital over three year period.
I'll now turn the call back over to Steve Bradshaw for closing commentary.
Thanks, Steven 2090, Wasnt outstanding year for the organization and one that is really a testament to the diversity of our revenue model 29 team proved more challenging for the industry as a whole compared to 28 team as we faced some pretty significant revenue headwinds when interest rates moved lower started in mid year, while this pressure typically contracts the areas.
Potential of regional financial institutions, we saw strong surgeon revenue from our fee based business units that performed exceedingly well when rates decline. This was no accident. We are purposefully built perform under any economic cycle.
And though we remain optimistic in our ability to continue to grow our business in 2020, the headwinds of lower rates in the economic uncertainty. There is always exaggerated in a national election year may well prove challenging. However, we have always take a long term approach to building shareholder value and that focus will continue to guide or decisions on how and where we invest in the company go.
Going forward with that we're very pleased to take your questions operator.
Thank you at this time, we will be conducting a question and answer session.
I would like to ask a question. Please press star one on your telephone keypad a confirmation total indicate your line is and the question. Keith You May Press Star too if you would like to remove your question from the Q.
Participants using speaker equipment, and maybe necessary to pick up your handset before pressing the star Keith.
On moment, please while we pull for your question.
Our first question comes from the line of Ken Zerbe with Morgan Stanley . Please proceed with your question.
Great. Thanks, Good morning, Good morning Man.
Just wanted to start off with expenses is yeah, hoping to get a little more clarity in terms of maybe a dollar amount of expenses because it looks like this quarter was certainly higher than expected even backing out the severance and the charitable contribution.
And I know your guidance is that it's going to be above 60% on efficiency ratio by keys.
Right a little more guidance in terms of like what dollar amount is the right number to be thinking about here.
Well I think when you look at a 2020 in the kind of revenue that we think will create.
In the fee businesses I think thats one of the reasons I feel like the efficiency ratio is going to be a little higher than 60 is because our fee business revenue growth is going to be more than our net interest income growth and when you have fee revenue growth. It comes with a little bit higher expense base commissions and other active.
Cities, there that just drive a little bit higher efficiency business in terms of the percentage and so I think a level. You know you want me to point to exact dollar level. I think it's you know out into 2020 is going to be closer to the where we are here at this wants to 88.8.
Somewhere and you know plus or minus in that area I think going forward for 2020 is probably a pretty good.
Expense level to use yeah, Ken This is Steve Bradshaw, one one thing that's always a.
A bit of an anomaly in fourth quarter is that we have a number of people now and just can that be businesses, but also in a lot of our lending areas that have annual incentive targets and it becomes while we accrue for those throughout the year as as we track as it becomes more certain when again in the fourth quarter. So we always see a little bit a lumpy.
In this on the incentive comp side.
As were as we're accruing for the yearend bonuses. So I don't I don't disagree with the way Stephen characterize that but I do think Q4 always has a little bit of incremental incentive comp cost and then.
Got it and understood.
And then to really quick questions for you. The first question is when you see your capital ratios are going to improve.
I guess, whose perspective is that to me they go up or they go down over the course the or.
[laughter].
Hi.
Well I you know I think what we're trying to do is just improve those ratios just modestly okay.
They go higher they go higher.
Okay.
The percentages go just a little bit you know, we're not talking about a lot of capital accumulation here.
I think will continue as I mentioned to pay a good strong competitive dividend will take advantage of the market, where we can opportunistically in stock buybacks.
But I would like to see the ratio go up just just slightly.
Okay perfect.
And then in just the last quick question, how many energy credits for me what percentage of your energy portfolio are you not the lead on in the especially good and snacks.
It's about 65% of the portfolio on the snake portfolio that we are not be agent on.
And snakes as a percentage of total.
As a percentage of total energy.
[noise], it's kinda we.
[noise], it's going to be a relatively high percentage.
49%, yeah half.
Perfect. Okay. Thank you very much.
Our next questions come from the line of Brady Gailey of KBW. Please proceed with your question.
Hey, good morning, guys, one and running morning.
But when you look at the.
Guidance for 2020, you say stable NIM from current levels I'm, assuming that means a stable NIM from the fourth quarter level up to 88 is that the way to read that that's correct. That's what we think I know.
[laughter].
And then how I mean, when you look at Accretable yield levels, Yeah. The 5.8 million in the fourth quarter was the lowest level you had an all up 19, I know that is a shrinking bucket, but how how do you think you on accretion will trend in 2020.
You know I think that 5.8 million was a little bit lower than I honestly expected and I really think 2020 will.
Fall somewhere in the kind of 25 million to $30 million range of the Accretable yield.
You know I don't know, how it's going to fall by quarter.
But I think that's the level that you should probably expect.
Okay.
And then finally this on deposit costs I know when we spoke 90 days ago, you guys were [noise].
Yes, and deposit cost could be could be flat to if not off a little bit you saw deposit costs down in the fourth quarter, maybe talk about.
You know the option of continuing to reduce deposit costs from here or do you think you know there kind of bottomed up this for Q level.
This is Stacy I mean, I think if you look at what we did in the fourth quarter, where we increased deposit it's about a billion and a half but yet reduced overall deposit costs. As you mentioned I think that was a huge win for us in terms of continuing to move deposit costs down as we look forward I still think you're going to find opportunity to continue to lower deposit cost.
You've LIBOR moved immediately a as the fed move deposit cost lag may lag going up they're going to lag going down that gives us some opportunity as we move into 2020 to continue improve our deposit cost as part of our funding and hopefully that translate into improvement in the NIM as we move into 2020 as well.
Got it thanks guys.
Our next question is coming from the line of Michael Rose with Raymond James. Please proceed with your questions.
Hey, guys I'm, just wanted to touch on the loan growth outlook looks like 3% to 4%.
Full year average the full year average I guess I'm trying to reconcile that with the difference between.
The period end balances need the average balance for the quarter looks like there might have been some pay downs or some charge offs, obviously at the end of it.
We ended the year and trying to reconcile that with some of the comments around you know some softness around the middle market and energy not growing as much as when we move forward. So if you can sell me square that I'd appreciate it. Thanks.
Absolutely well, we had really I'm pretty good loan growth throughout the quarter was really in the last couple of weeks of the core that we saw a pay downs in both energy and commercial real estate, we've seen a nice rebound in outstanding balances early in January . So we're hopeful that some of those pay downs that you saw our revolving in nature and we'll we'll come back.
Back if you look at where we grew last year you know it energy grew 11% were clearly not forecasting energy to grow at that level as we move forward and we don't think you'll have you will have some lumpiness as we've had in previous periods around quarter over quarter growth, but if you look at long term growth being in that 3% to 4% range or something.
We feel very good about.
We don't think that the fourth quarter was a trend in any respect as we looked at the nature of some of those declines there was seasonality in some of the businesses that we have on the see an eye side. They tend to find up in the middle of a year and then pay down at the end of the year energy had pay downs, we had pay down the commercial real estate we don't.
Don't think Thats really representative of what we're gonna see as we move forward and certainly that has held to be true here very early admittedly a in a in this new year. So I think I feel very good about the guidance that we provided in that are being a 3% to 4% range and that certainly don't see anything today that would make me think that that's not achievable.
Okay. Thanks for that color and then maybe just switching gears to energy.
Maybe for Mark you know, where where can you just give some greater color on you know maybe what cost some of these these issues for these two.
Energy snacks I assume it probably has to do with the companies run out of a run out cash and you can just give some color there and whether they were gas related or oil related and then has anything changed as it relates to your thoughts around energy lending.
As we move forward as an asset class. Thanks.
Well first of all me.
Taking energy as a class.
What's nothing's really changed on how we're approaching is what were seen in the market is really.
There is an impact from the capital markets in the market being a bit closed in certain circumstances and natural gas prices in NGL prices are lower.
Right now.
So that is causing some some issues for certain credits.
But again, we're continuing to be 78% MP first lien secured deals.
From a gas.
Price perspective, 95% of our customers have some form of hedging.
Don't really look at it on a of portfolio basis, but we are pleased that we've seen our customer base pursue hedging as a way of protecting their downside risk.
As it relates to specific credits.
What kind of monitor those on an individual basis and don't really get too detailed about what's going on a particular deals and well I can tell you that you know we feel very strongly that our workout team is in certain circumstances is taking all steps necessary to minimize whatever exposure we have.
And minimizing amount of loss such that we really feel that going forward and in 2020.
We will continue to have.
Our 12 month loss in the 25 based 20 to 25 basis points, which is consistent with what we've had in the past.
Maybe a little lumpy in the first quarter, but.
Going forward, we don't see it getting out of whack with what we've had historically.
Okay. Thanks for taking my questions.
Our next question has come from the line of Peter with Wedbush Securities. Please proceed with your question.
Hi, good morning.
Can you talk about some of the drivers to the a 3% to 4% average loan growth because especially with.
Energy, which was the main driver for 2019 is going to slow and just general middle market, a little bit of cautious caution there.
This is Stacy Peter I, certainly energy will continue to be a driver for us I certainly don't want to indicate that it's going to not grow next year. We think there's gonna be opportunity. There. We grew 11% I don't think will grow 11, but I think we can grow mid to high single digits inside of energy, which is obviously a large portfolio for us we have ample room.
Under our commercial real estate limits to continue to grow there. Our teams there are continuing to see opportunities that we think are positive and reasonable from a credit risk to take at this point in cycle. So we think we'll see growth their health care has been an area that we've continued to grow and invest in and we're seeing you see that good growth for the year in health care.
Where we have high expectations for that team in 2020, and we think we'll continue to grow there.
We are some of the softness is is maybe on the lower end up seeing I were you may have a sole proprietor or single business owner, who.
Is it was kind of a little bit more cautious about the macro environment, but we think that clearly you think about what we've done on the wealth side we grew.
Our lending side and the in the wealth space, you know strong double digits last year, and we think that will be a growth driver for us in 2020 as well. So as you kind of add the pieces together and roll that forward into 2020, we certainly feel very confident that something in the 3% to 4% range is very achievable for us.
Okay.
And on the fee income side, you talked about brokerage and trading and wells I'm. Just wondering can you talk a little bit Steven about the outlook for mortgage banking and 2020.
Yes, so I think we have good origination capability across our footprint, we feel very confident with the purchase market there and our ability to serve that market and so I do think it'll be a little lower in total for the year of 2020, but I think we've got a great approach and.
Good process, and we're pricing pretty well, we've got good discipline, there and so I feel confident that weekend achieve some pretty good results in mortgage it may not be at the same revenue level that we achieved in 2019, given the different you know rate environment, but I do feel pretty good about the continued growth in that.
In that sector.
Okay and then just my last question I know you guys have done a lot of work on reducing.
Expenses at at the Bank.
I'm just wondering you know with a tougher revenue environment, our there's still opportunities to cut expenses.
At the bank Yeah. Peter This is Steve is we actually really worked in earnest on a on that initiative really going back into the fall. When it became apparent that we were going to see further rate cuts would have more pressure on the net interest revenue side and 20, you saw us or take a little lower.
For 2 million in a severance costs in the fourth quarter.
And that was really just identify where we thought we have some opportunities across the board. We're also curtailing some of the the expansion of new positions across the bank as well, so well, there's always opportunities and we're always seeking an opportunity to improve efficiency as well.
Being careful not to do that on the backs of of reducing.
Our investment commitment from a technology perspective, that's important to us competitively Ah and we continue to make strides there, but no questions a wheel hub will have a hyper focused on expenses really throughout 2020.
Okay. Thanks for taking my questions.
Yeah.
Our next questions come from the line of Gary Tenner of D.A. Davidson. Please proceed with your question.
Thanks, Good morning, Gosh learning.
Hey, so two questions one on the deposit side, you gave obviously Steven the sequential quarter change in deposit cost could you give us any inter quarter color in terms of deposit costs, maybe where they.
We're in December .
No I mean, I don't have that you in front of the exactly what they are in December I, just know you know the composite.
Deposit costs for the quarter as Stacy mentioned earlier, we were we were happy to see that go down from 117 to one old one on nine.
As he mentioned I think there's opportunity there to continue to drive that down a bit and but beyond that so probably wouldn't comment further.
Okay, and then broader.
Perspective on the Oklahoma economy, a you know we're hearing a you know that maybe a little bit of a slow down their lower lower tax receipts Oh, there's been some job cuts I think at some of the larger energy companies in the state you talked about kind of the perspective for the.
Broader Oklahoma economy.
Oklahoma is doing well I think the decline in tax receipts is largely driven by declining gross production taxes as there's been less drilling in the scoop and stack here in Oklahoma, but kind of corporate taxes, and and personal income taxes have held in very very well and are actually slightly up a little bit so I think they.
Oklahoma economy is doing well, we don't see any weakness or really the job CAD seem to be being able to be absorbed by the economy in a reasonable period of time. So we're we're not seeing kind of inherent weakness there a understanding that that there is some dislocation from time to time with certain company.
But there is there's job growth year to that able to absorb that and states doing well.
Right. Thank you.
Thank you.
Our next question it's come from the line of Matt Olney Stephens Inc. Please proceed with your question.
Hi, Thanks, Good morning, guys.
Morning, Matt.
I want to go back to a English Peter's first question on loan growth drivers in 2020, and Stacy It sounds like energy will be a decent part of the driver and I think energy's now around 18% of loans outstanding can you just remind us what your internal limits are on on this asset class.
And with the higher charge off that we saw this quarter from energy is there any pause or concern about growing this book in the future. Thanks.
Sure.
We have ample room inside of our concentration limits, we don't see anything that wouldn't be a constraint on our ability to grow it other than the opportunity to find good deals.
If you look at you know actual net charge offs, we've been in this $10 million to $12 million per quarter now for a while I don't see the fourth quarter as an anomaly from my perspective, I think it's very consistent actually if you go back and look at the fourth quarter last year net charge offs fourth quarter over fourth quarter almost identical so.
We're we're as Mark alluded to we're kind of providing some guidance that we think net charge off will be in that you know 20 to 25 basis point range next year for the full calendar year, there could be some of assets front loaded earlier in the year as some of these near term issues worked themselves through the process, but we still feel very good about this space.
Talk about net charge offs in energy this year, they were higher than last year, a there at about 91 basis points or so.
In the M.P. space, but if you think about the sector overall, we're getting 100 125 basis points additional spread.
On those loans, we think we'll continue to see some opportunity to improve back in 2020 as others think about their exposure here.
But we like this business through the cycle, we understand that this has been a longer term a ebb and flow in this industry than we've seen in awhile, but we have a great team. The credit teams in the line are working great. Together, we have a great engineering staff, we think that we're well positioned to be able to manage through this.
And do it in a way that is good for the shareholders.
And good for US I think we've talked about there will be some lumpiness in criticized and classified and non accruals and you see that a little bit, but even even with all that are non accrual loans are less at the end of the fourth quarter than they were at the end of the second quarter. So there's a little bit where we're going to go out there is little bit we're going to go down, but it will ebb and flow and if that a level that we believe is very.
Manageable and you know for the full year, we're going to have 21 basis points in that charge offs.
For the company, we think that's going to compare very favorably to our peer group and so it's an asset class that clearly isn't the media a lot there is issues with around liquidity in the space to a large extent, but we're working through that and I think we're very well positioned to manage that we're still as is energized if you will around.
On energy as we ever have been because we think that it's it's an important part of our DNA as a company.
And and we continue to want to emphasize that as a core product offering for be okay financial.
Okay. Thanks that color Stacy and then sticking on the kind of discussion. The press release mentioned that non accrual loans did pick up I think was point to a 7 million dollar increase from the multifamily community development credit can you tell more about this credit and is that is that part.
The senior housing portfolio.
It is not a part of the senior housing portfolio. This is a very low income housing tax credit deal that we made as part of our investment in the communities that we serve.
It has demonstrated some weakness insensitive has been slower to lease up but leasing is commencing it's just moving at a slower pace. We don't perceive any real significant loss, a I won't say zero last but certainly not any that significant related to that new nonaccrual loan yeah in the fourth quarter.
Okay guys. Thank you. Thank you.
Our next set of questions come from the line of John or from RBC capital markets. Please proceed with your questions.
Thanks, Good morning <unk>.
Morning.
Few follow ups, Steven maybe for you early on when you talked about the NIM.
You said it.
The full realization of the last two costs, we've talked a little bit about deposit pricing, but I'm. Just curious are you, saying that you feel like the earning asset yield pressure that we saw last quarter is essentially run. Its course is that the message that your Sunday.
I think a good portion of it is yeah.
Think about the number of the percentage of LIBOR based loans that we have they repriced.
Actively and so I think the majority of that is in the numbers okay. Good.
And then.
Stacy or Steve maybe for you I'm just general slowdown in seen now that you've talked about and I think use the term pause and maybe it's a confidence issue obviously three months ago. It was maybe a little bit more.
Domestic and things are a little more optimistic today have you seen any of that.
Pause or confidence improve a bit and the last three months or is it just more of the soon.
I think being environment on the middle market than lower middle market CNS side has been relatively consistent over the last few months. I think is we began to get more certainty around some of these things I think you'll see continued opportunities for people to invest in their business by any piece of equipment Adeline grown expand the business, but today.
That's not been an area that we've seen a lot of growth in certainly outpacing GDP growth you know we've talked about for many years about kind of being able to outpace GDP growth you can do in a little bit, but not a much not consistently and if you. Do then you know be careful and so I think that's kind of what we're seeing is just kind of slow steady.
Road, not you know high single digit kind of growth in that space.
Okay.
Good talked about two large year unexpected pay downs can you give us an idea the size of those.
A material that no. We didn't have we had pay downs broadly in both in really three areas and energy in commercial real estate in in our host our retail sector.
Just portfolio Paydowns. They werent large credits. They you know some of that cyclicality, a one of those and those are retail sector tends to fund up in the summer as they go through the kind of Christmas selling season, and they buy inventory and they tend to sell down as cash flow comes and during that period of time energy and.
There's a real estate, we're you know just kind of.
The nature of the business nothing unusual there, particularly but as I look at barely part of 2020, I see a nice rebound there and so I'm certainly op optimistic as we move into 2020 that that was.
Not a trend, but just kind of a late fourth quarter anomalies, sometimes you see those kinds of things John I don't know if its balance sheet dressing. It did you know for some of those companies are not when addressing but.
We will see that and and that tend not to reactive add a real strongly based on what we see late in the fourth quarter, a as we move forward. Okay. All right I mean, it may have missed where do you on that but that helps and then last one it sounds like you still do you have quite a bit of room in commercial real estate, but you mentioned concentration limits a couple of times can you just remind us.
It seems and kind of the guardrails on that.
So you know commercial real estate is 100, it's based on both of our women's and energy in commercial real estate or based on committed not outstanding there a 175% of tier one capital and reserve for commercial real estate phase, 225% of tier one capital reserves for energy.
But we've got ample room to grow a consistent with the guys that we provided in both those spaces. So.
We're not we don't have any overriding concerns that our internal concentration guidelines will be a constraint for growth in those areas in a meaningful way in 2020.
Okay alright, thank you.
Our final questions come from the line of Jared Shaw of Wells Fargo Securities. Please proceed with your question.
Hi, Good morning. This is actually two more Brazil are filling in for Jared.
First question I, just wanted to circle back to some of the commentary on energy I'm wondering if some of the with the weakness in the energy market is manifesting itself in other industries and and if so how much of that is driving the commentary around the sluggishness and middle market Senior <unk>.
You're talking just a broader spill over effect in the broader kind of Colorado, Texas, and Oklahoma economy I correct.
It's it's a natural conclusion to see that and wonder about that it's not obvious to me at this stage that that's what we're saying if you think about.
Really from my perspective. This is the kind of a tale of this original downturn that happened in.
You know 2015, 16, I don't I think it was more pronounced in that period of time, I think where we are today, it's not nearly as pronounced and it's a little bit more steady state from that perspective, I'm not necessarily and it's a good question, but I'm not necessarily seeing indirect tie at this point to the slowdown in general.
And I tried to the you know weakness a there's some weakness is being demonstrated an entity I think that was more obvious and pronounced several years ago, but as weve stabilized in this kind of 55 to 60 dollar price for oil, particularly in our footprint markets I think that that's less of an issue.
Yeah.
Okay, and then maybe switching gears to the deposit growth this quarter, a pretty impressive was that just the culmination of the work that's been going on.
On that kind of all hit in the fourth quarter and I guess are looking at some of the initiatives that have been taking place what still remaining and how should we think about deposit growth heading into 20.
So in deposit growth is something that Steve laid out for US is a important initiative to kind of try to grow deposits to fund the loan growth in 2019.
And as you as you go through that process. It's a hard it's a ship the doesn't turn immediately it takes a lot of time and effort to began to cultivate identify the opportunities you look in the fourth quarter, Scott Grauer and our wealth team really did an exceptional job, bringing in a great deposits are priced it at reasonable levels.
They were a big driver for a the deposit growth in the fourth quarter, but the commercial businesses did a great job with that as well or really just as a result of the long term effort kind of the culmination of an effort that's been going on for a while in terms of moving that deposit needle as we think about 2020 I think our.
Really desire is kind of growth at a reasonable price we want to grow to continue to fund the loan growth, but we're very mindful of a ensuring that we're.
Paying attention to the cost of those deposits and doing everything we can to.
Minimized.
The impact to our net interest margin as we think about growing deposits in 2020.
Okay, and then just last one for me looking at mortgage banking revenue versus expense and the disconnect. There. This quarter is that a timing issue or was that a true up on incentive for the strong year.
And it's yeah, you know does the biggest the biggest driver of the revenue side is a commitment levels and then the expense side is really tied more to loan fundings and so if you look at loan fundings, they're pretty level and so the work that had to take place to get loan fundings completed a in the mortgage banking costs.
Off line item is there, but the revenue side is is more influenced by the commitment levels at the end of year, which did drop off so that's kind of the disconnect is tightening.
Great. Thank you.
We have reached the end of the question and answer session I will now turn the call back over to Steven now for any closing remarks.
Okay, well, thanks, everyone for joining us today, we appreciate all your questions in interest and be Okay financial and if you have any further questions give me a call. It 91859, 530, 30 or you can email us at IR at the Okay Dot com have a great day.
This concludes todays conference you may disconnect. Your lines at this time. Thank you for your participation have a great thing.