Q4 2020 Bank Ozk Earnings Call

[music].

Ladies and gentlemen, thank you for standing by and welcome to the bank of VK fourth quarter 2020 earnings Conference call. At this time all participants lines are in a listen only mode. After the speaker's presentation. There will be a question and answer session. The ask a question. During the session you will need to press Star and then one on your telephone.

Please be advised for today's conference is being recorded if you require any further assistance. Please press star and then zero I would now like to hand, the conference over to your speaker today, Mr. Tim Hicks, Sir you may begin.

Good morning, Tim.

Tim Hicks, Chief credit and administrative officer for Bank is U K.

For joining our call this morning and participating in our question and answer session.

In today's Q&A session. We may make forward looking statements about our expectations estimates and outlook for the future.

Please refer to our earnings release management comments on other public filings for.

For more information on the various factors and risks that may cause actual results or outcomes. The vary from those projected in or implied by such forward looking statements.

Joining me on the call to take your questions are George Gleason, Chairman and CEO.

Greg Mckinney, Chief Financial Officer, and Brannon, Hamblen, President and COO of our real estate specialties group.

Can make the most efficient use of the time, we have for this call. We'd ask that you. Please limit your questions to one or two at a time and then reenter the queue for any follow up questions if needed.

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And our first question comes from Ken Zerbe from Morgan Stanley. Your line is open.

Great. Thanks, good morning.

Again first question first question, you, obviously had fantastic NIM this quarter so congratulations on that.

Did from your prepared remarks, it does seem that both the purchase of non purchase yields may have had some unusual positive items. This quarter can you just talk about how much of that NIM.

Is sustainable on a go forward basis.

Ken you are correct and we wanted to be clear on our remarks of there was a bit of lift on both pieces of that.

Particularly on the purchase loans I think Tim.

Tim mentioned that was about.

$1.7 million more than what we would consider of normal run rate those numbers tend to bounce around.

Quarter to quarter. So whats normal is it's hard to determine but.

Our special assets kind of did a great job on collecting some.

Loans that were previously charged off.

And special assets and collecting loans on our interest on some loans that were previously on non accrual status.

Really reflected their good work that helped the lift that number up to an unusually good number and you can see on the.

Chart the figure in the management comments of that was one of our highest net.

Net interest margin numbers from the purchase portfolio on quite a while so there was.

A million seven 2 million whatever the number is a little bit of lift player.

And then.

We did.

Half of <unk>.

Probably on.

Bit higher level, the normal and again normal it's hard to define what is normal.

But we did have a bit higher level.

A couple of million dollars.

$2 million to $3 million might be more end.

Short term extension fees and the minimum interest paid on.

Earned on loans in the <unk>.

Non purchased portfolio so.

That was a contributor but there was a healthy trend in the NIM on the core spread even with those factors out. So we were pleased with the results.

I know of perfect that was very good.

And then the other question I had in terms of loan growth.

At what point do we get past the headwinds of the elevated payoffs I know the Covid, obviously delays on projects and I read your comments in the release, but it just feels like these payoffs have been a headwind for probably far longer than they should have done.

Thanks.

Well of course.

<unk> 16 in 2017 were really large origination years, which.

<unk> created a lot of.

Payoff headwinds in 2019 sort of.

The two to three years after a lot of those big time on originations and then we had.

Got it last year that we expected a lot of pay offs in 2020 the.

Slowing of the completion of construction projects because of shelter in place orders and the slowing of the.

The transition sort of financing the bridge financing permanent financing debt.

Ex us out.

Clearly.

Reduced payoffs in the second and third quarters of last year.

Push those out we began to see quite of bit of that come back to the table in Q4 and will.

Very likely you have a record level of payoffs in 'twenty.

The 21.

In part because a bunch of payoffs pushed from 2020 to 2021.

We are.

Still have normal volume that would normally pay off and in 2021 as well. So we know that's a that's the challenge for the year, we've got to work hard too.

Find good quality, good yielding loans that meet our high standards.

And without sacrificing.

The quality of pricing.

So if we can continue to keep our our pipelines for.

Full in.

Originate enough to offset the payoffs and hopefully originate enough to achieve some some some growth in the portfolio as well so.

It will this will be on unusually challenging year from a payout perspective in 2021, because we'll not only get what.

What we would normally get in 2021, but we will get some some overflow from 2020.

The pandemic related delight.

Overflow of play out so we know it's challenged but.

The.

Encouraging thing was.

Our our ESG originations ended.

The year at a really good level in.

Even with all of the noise from the pandemic in 2020 on.

For our ESG originations were a little bit better in 2020 than they were in 2019, and we have good pipelines going into the.

And of the new year so.

We Gotta go produced over <unk>.

Every week every month every quarter.

That hasnt changed.

Alright, perfect. Thank you very much.

Thank you and again, ladies and gentlemen for asked the question. Please press Star and then one now.

And our next question comes from Tomorrow Zeller from Wells Fargo. Your line is open.

Hi, good morning, Thanks for the question.

Good morning, maybe maybe looking at the other side of equation and looking at the good growth you've seen.

On the commitments over the past couple of quarters is that indicative of sponsor of getting more comfortable and re engaging and I guess what segments within our EPS growth come through.

Brandon you want to take take that that's our EPS.

A.

Question for sure sure Timur. Thank you for the question.

Yes in part there is.

As we've come through Covid.

Initial initial shock was strong.

Strong in the affected a lot of people thinking but.

As we have numerous <unk>.

Historically, the sponsors that we deal with in the markets that we that we deal in the level of <unk>.

That's the case and there is.

As such the.

They're not going to the.

For the plans of the side.

Wherever.

Covid notwithstanding in and we're starting to see gradually.

Want to overstate the out there are still there are still projects out there that are on the sideline, but we've continued to see.

Really in the southeast I think is in what we'll call it south southwest of where we've seen a lot of activity.

We talk a lot about some of the major demographic trends and migrations.

From the northeast in particular too.

The south Southern Florida.

Those trends continue continue to see some migration.

Out of California into the Phoenix, and Texas markets and other markets as well so.

There is demand on.

Underlying demand there that is that is still justify a lot of new development.

I'm not going to I'm not going to say that everybody is full bore theyre not there are still a number of that or what.

Waiting to see how things play out, but I think.

Some of the success that we've had some of the growth that we've that we've been able to achieve in the year that you wouldn't necessarily expect it is.

It is again tied to the fact that we're.

We're playing the long game here.

Sure.

We have put together we operate.

For the long haul and are structuring our loans and doing deals with sponsors.

Support the asset quality that we feel like.

Is coming through in our in our comments here and so we were always lending we never stop lending will tell the.

That's for US and we continue to do that and I think that reliability. The relationships involve there really undergirds our ability to continue to.

So you have.

The strong pipeline so.

I talked about geographically the southeast South southwest has been strong.

I don't want to leave out even in the northeast and we haven't been doing a lot in our in our New York market as we as we've discussed with the guys that theyre going to great job in working into other markets in the northeast like the Boston, Cambridge market, the DC market the Baltimore market.

And for and trying to present this in the secondary markets in that world as well.

So they've had good success there.

We've done some.

Honestly some of it industrial lending up there.

I know.

You probably noted we broke out for the first time on our life Sciences.

The lending a lot of that has been.

As you can imagine in the northeast and the Boston, Cambridge Submarket.

Very proud of what the guys have done up there.

Some really nice deals.

The product type.

Obviously in high demand given the pandemic, we're in a day and others.

May come in the future. So we're pushing hard into a great product type of there and we've got other opportunities in other markets.

For that product type as well so.

That gives you some idea of the sectors geographically in.

And for the property type perspective multifamily continues to be strong.

Trying to be very careful as we as we originate in that space.

It has probably the most.

The.

The the highest number of developments in addition.

The competition pursuing the development so.

Probably continue to see strong origination there but.

We're being careful to make sure it's in the right place at the right time with the right people.

Okay, and then you can see that in a lot of for Brandon was talking about and figure 30 for which is the kind of the <unk>.

Summary, recap of the distribution of loans, you know New York has been coming down for a number of quarters, just because it's hard to find.

The new things that make sense, there and certainly that is of very significantly impacted COVID-19 market. So we're probably down on.

The $1 billion three or so from.

But we were at one point in New York, but if you look over the.

The six seven and eight.

Most active geographies all at 800 day $900 million range of Boston, Philly and D C, which the.

New York Office services, those markets and instead of growing.

Presence in those markets for the last several years and particularly the last year Youre on a half.

And then Miami Tampa are of three and non on the list in Phoenix is 10. So you can sort of see the emergence of these.

New geographies in our in our largest markets.

As migration trends and business opportunity transfer shifting so I think our guys are doing a great job of.

Seeing where the opportunities are and where deals are that make sense in getting there.

Okay. Thank you and then as a follow up question looking at the liquidity build cash provision was about $1 billion higher year over year.

Loan growth and what it's going to be pressured with some of the headwinds from continued pay down I guess.

You guys do with that liquidity.

How quickly on that day.

Floyd.

And tying that back with margin on the margin be sustainable of the level of liquidity, especially given some of the tailwind of the dotcom.

On other more or less one part of items in the fourth quarter.

Well I would I would kind of turn that question around and say we were very pleased.

With the margin results that we've achieved for the last couple of quarters on particularly in the quarter just standard where we had.

Very nice margin expansion, even holding more cash and more securities.

Then we've probably ever held.

Or at least among the highest.

Volumes of cash and securities we've ever House. So you mentioned the cash position.

<unk>.

Much higher than it was a year ago. The securities portfolio is also much higher than it was in the amount of securities pledged.

Is much lower than it was so.

In all respects our liquidity position is.

Very.

Very good very strong.

And.

That's that's a positive obviously.

When you've got money in fed funds at 10 basis points more of less than you are buying.

Sure.

Short term high quality of securities that are a year 18 months or six months in duration Youre getting joining 25 30 basis points might be on those if you are if you work really hard and we're lucky.

That doesn't help the margin very much. So the liquidity position has weighed in will continue to weigh on our margin we want to keep a strong liquidity position, that's a source of strength for our bank.

I don't know that we need quite as much liquidity as we have but we're not.

We're not complaining about that so it's just the.

The money that you need to keep on with.

Strength, you need to have to manage the balance sheet. So.

It's a good question I wish.

The curve, which steepen and there were things that you could be excited about investing them, but at this.

Absolutely low level of interest rates and the.

<unk> curve is.

Relatively flat is it is there is just.

Not much.

<unk> in our view to.

Do anything other than the state Super short.

Ride out this time and keep the liquidity of you'd need the Cape and.

On the mediocre little yields you can earn on it and <unk>.

They are with it.

Understood. Thank you very much.

Thank you.

Thank you and again, ladies and gentlemen for ask a question. Please press star and then one now and if anyone is having difficulty pressing the star one key if you do need assistance. Please press star and then the URL.

And our next question comes from Matt Olney from Stephens. Your line is open.

Great. Thanks for taking my question I wanted to circle back on the organic loan growth discussion and the management commentary walked through some of the the major segments, whether it's RV Marine community Bank and our ESG in each segment seems to have its own drivers that have some level of headwinds.

When we take a step back it seems like the moving parts point to total non purchased loan growth ex PPP that could be relatively flattish in 'twenty, one versus 'twenty I just want to make sure I'm thinking about this right.

Well.

I don't know that we are giving specific guidance on whether that's flattish or up a little of what but.

I'll give you a little more color Matt.

Might be helpful to the.

The community Bank segment is.

Very challenging right now because you've got a bunch of.

Small banks out there.

Debt.

Desperate.

For loans and they are getting and have been really for quarters now.

Very aggressive on credit and very aggressive on.

On right.

And.

We're going to hold our credit standards and our.

The equity downpayment.

Standards and not give on Boes, and we're going to hold our minimum pricing standards not give on that so.

We always have and certainly have in the last year.

Year last bill.

Business in the community bank sector.

<unk>.

Other competitive for banks that were just doing things a lot cheaper on a lot more aggressive on credit and we would we would ever be and that's why that category of lending.

Shrunk a little bit last year.

Likewise.

The re tooled our.

Business model for our indirect Janet last year, and really were on the sidelines for the most part for about six months or so more or less buyer.

And I think that was of great decision I feel really good about that because.

We use the data and the analytical capability, we've gotten the strong capabilities of that Exxon team to build a better business model.

Which we started kind of rolling back out in Q4.

When you shut the engine valve.

It takes a little while the rate of <unk>. The engines and then once you get the engines related takes a little while the get forward momentum.

Built up so we are in the process of building momentum in the.

Marine and RV group, and I think what Youll see there over time it might take.

A while for us to get the kind of momentum we want but what I think you will see is that growing at a less rapid pace than it did in sort of the 18 non.

<unk> <unk> timeframe.

But I think youll see it resume positive growth and hopefully that'll be in the.

Back half of 2021.

<unk>.

What we will be booking there of what we are booking there now has lower premiums and higher spread and I think is every bit as good quality wise.

And the Pandemics pretty much rebuild.

High quality of what we've been doing there, but I think what we will be originating is kind of be every bit as good quality wines. So that's what we were originating and yet we're going to be getting.

Better spreads in time lower premiums for that so it's kind of being much more prop.

For business going forward.

That unit will.

Robert Blake continue to have net paydowns.

For the next.

Well, let's just say the first half of 2021 more or less.

And then I think somewhere around the middle of the year of plus or minus a month or two.

Net to a point, where originations probably equal pay offs and then hopefully we will have some net growth from that unit in the back half of the year.

And then.

We've talked a lot about our ESG it was the.

Big source of our growth in 2020. It was it was essentially all of our growth in 2020.

And.

Will be.

Maybe the biggest growth engine for us, possibly in 2021, it's our best shot to have a lot of growth.

And that's just simply of game of Ken our guys go find the deals and get the deals closed in.

Large enough volume.

Two.

No.

Cover the payoffs and achieve.

Good positive growth.

And our team there has had a history of coming through for US certainly we've got a.

A big wave of payoffs to deal with.

But at the same time.

I'm not.

I am not willing to accept the idea that those guys can.

<unk> the volume that we need to get some some decent positive growth numbers now.

They've got to work hard.

Market conditions and sponsors of got to cooperate with us in achieving that.

But those guys of.

<unk> had a history of doing really good work so.

Not going to sell them short on site I can't do that so.

Sure.

We could have a year, where we because of just.

An exceptionally high level of payoffs, we have zero loan growth but.

I'm certainly not willing at this point too.

You can see that that is the case and we're going to work really hard to achieve the best margins, we can while maintaining our quality and achieve the best growth for cancer.

We're in a business, where you got to produce every day and if you don't produce then youre going to Youre.

Youre going to go backwards.

We don't want to go backwards. So we're working real hard to go forward.

Okay. That's great. Thank you for the commentary and then I guess as a follow up also want to ask about.

Excess capital and overall capital levels still remain excellent the bank.

If asset growth is call it just less material in 2021 versus previous years.

I'm curious what the updated thoughts on around a potential share buyback program that could allow the bank to deploy a portion of the excess capital.

That's a great question and certainly on item, but.

Is getting more and more.

The discussion internally here and the.

One of the one of the reasons that we've articulated.

<unk>.

Hold on.

Significant amounts of excess capital as we have the last couple of years.

Is to be ready for a situation where economic turbulence created opportunities.

We've certainly had the economic.

Turbulence.

That has resulted in some.

Some opportunities we had a very short window of time too.

Make some very capitalize on some very opportunistic purchases of securities, but the pads very aggressive action clubs that wind of shortly.

And we've had the opportunity to improve pricing, which.

It was reflected in our improving the margin in core spread margin and the most recent quarter core spread in the last couple of quarters.

And gain market share in our ESG, but.

The big Tam opportunities.

That would allow us to utilize a lot of our surplus capital have not yet materialized in may not materialize because of the.

Extremely rapid and aggressive monetary and fiscal policy responses to the economic downturn, resulting from the pandemic.

I'm not sure yet that we won't find some good opportunities to.

The capitalize on but the.

Prospects for those.

Same to be less than one would have expected.

It had been very outset of the pandemic.

<unk>.

Okay.

Failure of those capital uses to materialize certainly.

Will.

Suggest that we.

We need to look at better ways to use some of that capital.

Okay very good thank you.

Thank you.

Thank you and again, ladies and gentlemen to ask the question. Please press Star and then one now and our next question comes from Catherine Mealor from <unk>. Your line is now open.

Thanks, Good morning.

Thanks, Brian.

I really love your bubble chart I think it really helps tell the picture of the.

Diversity in your own portfolio and wondering if we could turn to figure of 40.

The RFC office portfolio.

It gives us a little bit of detail on a couple of credit. There are few really large New York office properties of course really of low leverage of only 30% of your kind of larger with earlier vintages.

Not really large it looks like a Los Angeles.

Office property in.

In the Blue So I guess, one just wanted to just give us any kind of anecdotal color on the.

Larger exposures and then also on it looks like there was a new office property in Dallas that was the beginning of this year, which has the higher LTV.

The average portfolio just curious.

If you think this is going to be of trend into the of the new origination.

The good kind of move up on your leverage or if thats just credit specific.

But let me let me talk about the.

Dallas bubble, and then Brandon I'm going to throw the.

New York and L.

La <unk> thesis to you and you might want to add some color on the Dallas based the.

The newly originated loan in Dallas is a loan that we made two of party that was a mezz lender.

On a office building loan debt.

We had in Dallas and the.

Sponsorship.

<unk>.

Surrender that billing to the mass lender, so the mezz lenders take on that over.

So our.

Loan to the Mezz lender on that is about a 70% or a little higher of <unk>.

New appraised value on that property it is cash flowing but the.

The sponsor decided to not defend their position in that building on surrender it.

To the mass so that really speaks to the.

The quality of the structure of our transactions I know of some of you that are not in commercial real estate of 100 of Wow.

Does having mezz lenders and the transaction enhance the bank's risk or increase the bank <unk> can it actually lowers our risk <unk>.

<unk> example, here of the sponsor.

I don't think this like the asset and some non sponsors have to choose what assets. They are going to defend the nice surrender of that to the mezz lender it was coming up.

Okay.

For renewal on our world than we were expecting substantial curtailments and paydowns of because of the.

Changes in the tenancy buyer.

How we expected that would impact the price values of debt so in the Mezz lender.

Took over the property we originated in the new loan to the Mezz lender of first to acquire the node and then.

They very quickly moved into the ownership position.

On the property.

<unk>.

So our loan is now secured by.

A mortgage on the property on all of the all of the same collateral as our original loan to the sponsor.

We did get about a $16 million.

Curtailment I think on that about $5 million of actual cash pay down and about.

10, or 11, 910 or $11 million something like that of future funding went away as part of that and.

I think we've got to improve.

All of our pricing or at least hold it the same.

Get fees associated with that new loans.

<unk>.

For a market rate loan on for standard credit terms that we would do of new loan. It is the only difference is higher leverage than what we would.

Would normally do.

A loan at.

But even with that our exposure was reduced size of the blade in connection with the transfer of ownership on that so Brandon you might want to add a little more color to that that's probably enough on that but you might want to address the.

Office in New York.

And the law and elsewhere.

Sure sure.

You did a good day of a cover of that George and on our New York Office.

<unk> that you mentioned.

Got for office loans in the Cvs, a and we've actually.

On one of those.

It was already very well leased at 95% that we had of tenant.

Was it about a 25000 square foot tenant actually expanded their lease on the other 2006 or 7000 feet during the quarter so that particular.

All of the building and very good share.

<unk> from an occupancy point of view.

We've got another debt.

Is working on a lease that.

It's not signed yet, but very far advanced.

That would occupy about 40% of of that one so and those are those are our two.

Largest of.

Office buildings, there we've got another one that's.

<unk> in the 80% range I believe.

So.

The.

Those are our largest new York.

Older.

<unk>, New York levels that Youre seeing there on that level of chart.

And then in la.

The big on that sticks out there is.

Was originated for early.

In 2020.

It's a transitional.

On.

The execution.

Right now they're there.

Deepen in the middle of that it'll be a while before us.

On a fully.

On.

Please.

Obviously with the Covid being what it is where we are.

Happy for that time for them to work through that and then begin the lease up process.

That's the <unk>.

As of $433 million bubble that youre that youre seeing there on your chart.

Yes.

That's really helpful color on them.

On a question on much of a word.

Thanks for the discussion earlier.

Yes.

There is elevated but typically we see elevated loan fees in periods of time, where you have elevated paydowns for would it be fair to say that we should still see a fairly high level of of loan fees. This year, given that we expect paydowns to be so high in 2021.

That's a great question Catherine.

Kind of a complicated scenario a lot of what generates the loan fees on payoffs as if the loan was done for 36 months.

And.

Yeah.

It paid off at 24 months.

And Youll recall, a year or two ago, we were <unk>.

Complaining a lot about the fact that our loans, we're getting paid off faster and faster and faster than you have on unamortized loan fees, if theyre paid off well in advance of the.

Charity.

Debt that kick in.

<unk>.

Give you give you a little boost in yield at the pay off of those loans.

As the.

Pandemic has delayed construction on projects three six months whatever the number is and as permanent financing has been delayed a few months on projects as well.

You end up in a situation where those loan fees that you originated in deferred and amortized over the life of the loan.

You get close to the original maturity or even do a 90 day or of 190 day extension because it takes a little more time to get the gas to the permanent execution.

And you don't have the fees.

That are on unamortized, because they've been amortized into income over the last of the loan loans come full term.

So to the extent that the payoffs get extended you lose some of that extra boost at the yes.

And now.

On a lot of these loans, where we're doing.

90, or 190 day extensions, we do get extra fees for that and that has contributed some extra.

Income as well.

We are in a lot of cases.

On to collect some minimum interest on loans that varies quite a bit from quarter to quarter and month to month.

So for us so.

I don't know that it would be fair to assume that in 2021, because we expect a lot of pay offs that thats going to result in a lot of extra juice.

Two our net interest margin from accelerated recognition of previously deferred fees because.

Most of those loans are going closer to full term than in the past. So there's less of that bump at the end.

To the extent that we.

We do get to do some.

Extra term on some of those loans, where we are.

They are in the process of finishing up for in the process go into the permanent market and we get to do of 90 or 190 day extension on the back to generate some extra fees that can help us.

With the income situation. So the answer to your question is it's complicated and we're going to have to see how it plays out I don't think it's.

A negative for us.

I don't know that its kind of be a significant positive either.

Great really helpful color, thanks, great quarter.

<unk>.

Yes.

Thank you. Our next question comes from Brian Martin from Janney Montgomery Scott Your line is open hey.

Good morning.

Hi, Brian.

Hey, I just wanted to find out just a little bit more on the margin George I think you've called out some of the I guess modest lift that you got from some of these onetime items. This quarter. The Mark like you said the margin still saw a nice improvement with the cost of deposits going lower in all of the work you guys have done on the deposit side, just kind of wondering once we set that a touch lower.

For some of these items you've called out kind of if you can just talk a little bit about the puts and the takes of the margin going forward.

<unk> you.

We continue to expect some funding cost to go lower just kind of where the where the loan yields and what youre seeing there and how that may play out.

Tim you want to take that one of you want me to take that one yes, George I'll start and you can follow up if you have any follow up to it Brian Thanks for the question.

We gave you a certainly a couple of figures there to look through on our core spread on figure 16, and then our time deposit maturity schedule on a figure of 2017, obviously, we're very pleased with the level of.

The decrease in cost of interest bearing deposits. We've had the last couple of quarters 18 basis points of decrease this quarter was it was there.

Good we still have room to go there I mean, I think we've got room certainly on the next few quarters. If you look at that figure of 17, both of those quarters have over 100 basis points of weighted average rate of weighted average rate of new and renewed on deposits in the fourth quarter was 56 basis points.

So a lot of room to move move down certainly of the next couple of quarters and still in the quarters Q3, maybe not as much as in Q1 of Q2, So I think thats a positive trend.

Certainly as we look at margin and core spread.

As of.

George mentioned earlier in the in the call our reinvestment rate on our our securities obviously is putting some.

Some headwind to our yield on our investment Securities book, So that debt goes the other way of little bit and then as you mentioned our purchase volume yield was the highest it's been in a number of years.

Yes, the <unk>.

The difference there is there is what we had previously in previous years prior to seasonal.

Some recovery income on purchase loans that the vary from quarter to quarter that.

With the adoption of <unk> will go into the yield.

So that that can bounce up and down from quarter to quarter and we had a good good.

The good amount of that certainly in this past quarter. So.

A lot of moving parts, there, but I do think that cost of interest bearing deposit decrease that opportunity that we've got in the next few next few quarters does.

It does provide us the opportunity to continue to improve the core spread which will certainly help help from the overall net interest margin standpoint for <unk>.

Level of cash and securities, we have and the reinvestment of those is probably the main contributor to.

The offsetting that to some degree and then of course, our purchase loans are.

Paying down.

The 12% to 13% each quarter.

They are yielding.

Favorable levels as well so.

Anyway, I hope all of those comments he'll open George don't know if you have anything else.

I think you covered it unless Brian as a follow up question, yes, yes.

Maybe just the only follow up is just the new loan originations on the non purchase side, where are those coming in today, just I guess on the.

Asps side, maybe more so than the other components because you talked about George.

I would tell you that our spread on new originations.

That we're booking and working on now is not quite as good as it was in <unk> of.

2020, right after the pandemic started we obviously.

For the only guys out there in the space. So we were getting better.

Better spread than we had on a long time.

But the spreads are better than what we were getting in queue of of <unk>.

That team so.

It's not as good as it was last year and we will start seeing the benefits of that spread from last year and in.

In 2021, and 2022 and the.

The new stuff, we're originating today is better than it was a couple of years ago, but not as good as what we were getting 10 months ago on nine months ago.

Brandon you agree with that yes.

The spot on George.

Sure.

Okay, perfect and just one on one for me in on.

<unk> was the.

And the level of criticized and classified the I guess my assumption is it was not much movement in the quarter or can you just.

Any color on Directionally on how the trends youre seeing there.

Yes.

Sure.

Go ahead, yes, thanks, Brian obviously.

Very strong quarter from a credit quality standpoint.

Did have.

Sure.

Charge offs of 14 basis points, which is still very very good in the quarter, our nonperforming assets non performing loans are still very good of kicked the non performing assets ticked up really.

Just slightly.

In the quarter, but very low levels.

Due to a couple of loans that came off of their deferral in <unk>.

We moved to non performing one of which were the.

The purchase loan that we got from a previous acquisition debt.

Rolled into our non purchase category.

It was just under $10 million of senior senior living facility.

Debt.

Debt.

Struggled obviously during the pandemic to keep occupancy and keep levels up.

But very strong levels of our sub standard is really didn't move as you saw on our chart that we've got there.

Very stable.

Slip standard level.

And you saw our deferrals come down to under 1%.

And then if you look at our special mentioned, which we didn't give you that we don't have the chart on the special mentioned that.

Special mentioned, it's still very favorable levels I think I think it was up just a little bit from Q3, but not much at all on still still still very low low levels.

Got you okay. Thanks for taking the questions guys nice quarter.

Thank you. Thank you.

Thank you and again, ladies and gentlemen for asking the question. Please press Star and then one now on our next question comes from Stephen Scouten from Piper Sandler Your line of our firm.

Alright, thanks, everyone.

I guess, if I could start maybe thinking about expenses a little bit.

You previously talked about.

Additional professional fees or other.

Hires and their consultants and other things that might be able to come out over time. It really good expense results here in this quarter I'm wondering what youre thinking.

On the direction could be in 2021 of if theres any large scale investments that need to come or we could expect just kind of normal.

The 5% growth something like that.

Hey, Greg do you want to take that one.

Yes, George I'll take that one yeah. Thanks for the question Stephen and we have been talking about you of number of quarters about the use of of of Consol.

Consultants, then getting some projects completed in.

Some of that continue through the earlier part of middle part of this year, but you did see that debt reduction on those expenses.

In Q4, as we've got some of that stuff wrapped up we've been talking about the the desire to.

To really use internal resources to do a lot of those projects and that work for us. So.

Sure.

We're constantly looking to move.

That work internally get those consultants out of the bank is certainly a lot cheaper to do it with our people so.

And we certainly saw the benefits of debt this quarter.

There is a little bit of seasonality in our occupancy expense.

In the summer months, but thats not really overly significant.

And then certainly from a salary and benefit standpoint, we've we've talked about continuing to focus on making sure that we've got the right people on the right places doing the right jobs and we're continuing to do that we've made a number of changes from a staffing standpoint over the course of 2020.

As we know.

Look too.

To the identified excess resources that we can do the used elsewhere or or a replace those no with with our consolidate those functions.

And the other groups or with other resources and then we're always going to be adding new head count as.

As we continue to grow expand.

Bring on new talent specific talent that we need to as we continue to grow and expand our bank can become.

The bigger bank more efficient bank more have more capabilities and also all of that said I would say that are on.

Sure.

Our our expense rate in Q4, we were certainly pleased with that.

I don't know that there is.

Significant the ability to move that downwards.

Although I don't expect to see that really ramp up significantly as.

As we look into 2021 as well, although I will say that typically.

Q1 is where we typically see.

A little bit more of the bump in expenses just from the normal normal thing from the standpoint of.

Salary pay raises have insurance, although we worked really hard this year to try to minimize the impact of that so I would say that it's a pretty good.

A pretty good starting point for purposes of you guys thinking about 2021.

Super Thanks, Greg I appreciate that and then I guess just my other questions maybe more of a high level of around our USG structure and George.

You touched on the Dallas credit, whether you were able to work with the the Mezz lender and kind of get protection. There and then I know there were some some chatter in the quarter around <unk>.

<unk> and Union square property in New York, and I don't know if you can speak directly to that project and some of the protections you have there, but it seems like it's an underappreciated positive for the bank just the.

The intensity of your loan structure of the minimum interest level of the interest reserves and so I don't know if you can give any more color the.

Out of loans that have the sort of protections the.

The length of interest reserves things like that that might give more comfort around additional.

Temporary issues along the way.

Brandon you want to do you want to comment on that.

Sure sure.

On.

I appreciate the you appreciate the structure and the strength of the structure of what it does for us and I do think it's.

It's an element that will lead the continued.

Emphasize but.

I would say that.

We focus a lot on these calls on growth and I appreciate George as confidence in our ESG and our ability to continue strong originations but.

Asset quality is always job number one we're not going to originate.

In a way that the sacrifices asset quality and we've got it.

A great team internally that that is highly focused on that and we're.

Expanding that team.

<unk>.

Give us the best shot we have about achieving the growth of achieving it in a way that maintains the quality that we've become known for but yeah.

Yes.

The groups that we do business with and the way we structure our loans are absolutely key to to maintain that asset quality in.

We do a good bit of business with.

With the group that was part of the Dallas.

Execution of that George talked about earlier.

We've done a good bit of business with.

A number of groups that have have.

Become accustomed to or the requirements of our deals are structures.

Okay with that because they appreciate the execution that we provide.

Alongside that.

And.

The.

In terms of our.

The Union square project debt.

That one is George.

Am I safe to.

Yes.

There yes.

We yesterday.

Pat.

That loan was actually sold we actually had someone that which had a lot of business with has been after it for quite some time actually to purchase debt notes and we.

We were successful in selling that debt note yesterday actually so.

On.

The structures.

The leverage obviously, we're at a great leverage point on that transaction.

It provided the opportunity for another party that was interested in the project to come along and.

Pay us pay us.

At par.

In the process, we've made some really good interest on that project, while we had it so.

Again, the low leverage.

The business with great parties, and very strong structures.

As time and time again allowed us as I said before to continue to.

Land in good times and bad.

Yes, and I'm going to step out here and provide a little more.

Color on that for those that debt.

Don't know and I don't want to get into too much detail, but that loan.

We got a little attention because we.

The.

The bar where sponsor on that.

As a public entity so they issued.

Communication piece as part of their public company filings that noted that we had extended the loan at 17, 5% interest rate.

<unk>.

Our.

The strategy. There was was very simple we'd communicated that we were.

Not pleased with progress on the project and would like to be paid off but they needed time to accomplish that so in lieu of a fee.

On the renewal, we raise the interest rate.

With their agreement and concurrence and understanding that at the higher rate debt note would be readily scalable and pants, we turned around settlement and got a full par payoff so they'll probably.

Per se with their business plan and Mike.

Pay that loan off or might work out of deal with the lender of the purchase of that loan from so it was it was on an agreeable execution for all parties, but it was the transaction we were just not.

Pleased with the progress on and that was a full par payoff of all.

Principal all of the interest all fees everything so we didnt labor Penny on the table and we're never at risk and even at the loan defaulted, we would of had no loss on it because there was a sizable equity in and so forth, but it was.

Well executed exit of the transaction that that let the sponsor have the additional time they needed but also put the note in the form that we could.

Bradley.

Readily sell at NIH.

<unk> takeout interest mainly there was a lot of.

Loan of year or so ago.

In New York.

The condo project that we had debt.

Had the.

The lower level retail on it and the parties.

Ran into some initial delays and problems getting getting progress on the project started as quickly as they should they made some adjustments.

We got a large pay down in ri.

Set the timeline on our loan to let them kind of restart after they got their bearings and act together on the execution.

Required the day prior.

Our loan then I can't remember Brandon was at 30 million or.

I think it's 22020.

<unk> pay down and reset.

For everything on that to the new timeline to let them kind of restart kind of play it.

Wasted some of their time.

Not getting traction initially and that loan paid off after the first of the year and the <unk>.

Last two weeks as well.

Full par payoff and they ended up executing well on that and got the ground floor.

Leased in the tenet in.

The tenants, finishing out of their space on all of the ground floor space. There. So that lease worked locker were supposed to in the.

They were taken out by another lender on that at a much higher loan amount.

And then our loan amount on the project so.

Our.

Knowledge and understanding of these transactions on our expertise in the area combined with our structures on our low leverage.

Gives us a lot of room to.

<unk>.

Exit these projects and very constructive ways.

On the vast majority of cases.

And we're getting a lot of pay downs and New York, because we're not seeing a lot of new business in that.

In addition to those two deals we had I think $40 million or so land loan.

And New York pay off in several smaller New York credits that were community bank credits of required as part of our interest acquisition is by Dol. So we've had a bit of a run of New York City payoffs.

A couple of hundred million in total since the first of the.

First of the year.

Got it. Thank you so much for the color. That's all very helpful. I appreciate you.

Given that color and congrats on the quarter.

Thank you.

Thank you and again, ladies and gentlemen to ask the question. Please press Star and then one now.

And our next question comes from Aaron thinking of it from Citi. Your line is open.

Thanks in the.

The prepared commentary that you put out last night.

Or was the comment about bridge in permanent lenders starting to return to the market.

Later in the year in 2020 are you seeing.

Any.

Kind of risk, taking there that might be an impediment to originations clearly you had a pretty strong origination quarter in the fourth quarter I'm, just curious what youre seeing from the non bank lenders.

Can you take that George Yes. Please.

No.

Look I think generally you can say that.

Commercial real estate the trends of them that is more capital invades of the market the more risk there is the.

The additional risk is taken and yields are pressured and things of that nature.

There continues to be.

Additional.

<unk> city there.

Though.

I will say that.

Yeah.

We're not.

In the world.

Play in not seeing as much pressure.

At the moment it.

It will come and there are certain.

The project types.

We are getting.

More attention.

But.

A lot of a lot of that bridge.

Bridge capital is going to focus on higher risk existing projects.

That we wouldn't normally.

Normally the a large part of our business.

But.

We're also seeing some more standard life company and bank participants.

More active currently so.

Look there is there is a lot of capital out there.

We've spoken to that.

Consistently over the last several quarters that is that is waiting to.

Try to take advantage of distress.

The World has held up from an asset.

The quality point of view.

So I'll use that term loosely depending on.

Where and who but.

Better I think than a lot had expected and so that the distressed trades of not have not materialized. The quite the level one might have thought I think there's still room for that to happen as a set of lot of that bridge debt will be.

Focused on some of those aspects of the of the real estate world that we might not be extremely active in but.

Yes of the capital at some level will be part of the challenge George as alluded to in terms of our growth this year.

But.

We've got a great team.

It's had a pretty good track record of pushing through those those obstacles and originating good volume of well structured loans with great sponsors and good markets. So we'll we'll keep after this year and see if we can overcome those obstacles the gaming.

Helpful. Thank you.

Thank you and I am showing no further questions from us online on I'd like to turn the conference back over to George Gleason for any closing remarks.

You guys all for joining the call today and for the good questions. We appreciate your interest in our company and the great questions look forward to being with you again about 90 days. Thank you that concludes our call.

Ladies and gentlemen. This concludes today's conference call. Thank you for your participation and you may now disconnect everyone have a wonderful day.

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Ladies and gentlemen, thank you for standing by and welcome to the Bank of V. K fourth quarter 2020 earnings Conference call. At this time, all participants lines are in a listen only mode.

After the speaker's presentation, there will be a question and answer session to ask a question. During the session you will need the press Star and then one on your telephone.

Please be advised the today's conference is being recorded if you require any further assistance. Please press star and then zero.

I would now like to hand, the conference over to your Speaker today, Mr. Tim Hicks, Sir you may begin.

Good morning, Tim.

Tim Hicks, Chief credit and administrative officer for bankers U K.

Thank you for joining our call this morning and participating in our question and answer session.

In today's Q&A session. We may make forward looking statements about our expectations estimates and outlook for the future.

Please refer to our earnings release management comments on other public filings for.

For more information on the various factors and risks that may cause actual results or outcomes of the vary from those projected in or implied by such forward looking statements.

Joining me on the call to take your questions are George Gleason, Chairman and CEO.

Greg Mckinney, Chief Financial Officer, and Brannon, Hamblen, President and COO of our real estate specialties for.

Could make the most efficient use of the time, we have for this call. We'd ask that you. Please limit your questions for one or two at a time and then reenter the queue for any follow up questions if needed.

We will now open up the lines for your questions. Let me ask our operator crystal to remind our listeners how to queue in for questions.

Thank you ladies and gentlemen, if you have of questions. At this time. Please press the star followed by the number one key on your Touchtone telephone.

The question has been answered or you wish to remove yourself from the queue. Please press the pound key once again to ask the question. Please press Star and then one now.

And our first question comes from Ken Zerbe from Morgan Stanley. Your line is open.

Great. Thanks, good morning.

Good morning, Dan first question first question, you, obviously had fantastic NIM this quarter so congratulations on that.

Did from your prepared remarks, it does seem that both the purchase of non purchase yields may of has some unusual positive items. This quarter can you just talk about how much of that NIM is.

Is sustainable on a go forward basis.

Ken you are correct and we wanted to be clear on our remarks of there was a bit of lift on both pieces of that.

Particularly on the purchased loans I think Tim.

Tim mentioned that was about.

1.7 million more than what we would consider of normal run rate.

Numbers tend to bounce around.

Quarter to quarter. So whats normal is it's hard to determine but.

Our special assets kind of instead of growth.

The job in collecting some.

Loans that were previously charged off.

And special assets and collecting.

Loans on.

Our interest on some loans that were previously on non accrual status.

Sure.

Really reflected their good work that helped to lift that number up to an unusually good number and you can see on the.

Chart the figure in the management comments of that was.

One of our highest.

Net interest margin numbers from the purchased portfolio on quite a while so there was.

Seven 2 million of whatever the number is a little bit of lift player.

And then we.

We did.

Half of <unk>.

Probably on.

That higher level than normal and again normal it's hard to define what is normal.

But we did have a bit higher level.

A couple of million dollars.

$2 million to $3 million might be more end.

Short term extension fees and the minimum interest paid on.

<unk>.

Earned on loans in the <unk>.

Non purchased portfolio so.

That was a contributor but there was a healthy trend in the NIM on the core spread even with those factors out. So we were pleased with the results.

Perfect Yeah that was very good.

And then the other question I had in terms of loan growth.

What can we do we get past the headwinds of the elevated payoffs I know the COVID-19, obviously delays on projects.

When I read your comments in the release, but it just feels like these payoffs have been a headwind for probably far longer than they should have done.

Thanks.

Well of course.

<unk> 16 in 2017 were really large origination years, which.

<unk> created a lot of.

Payoff headwinds in 2019 sort of.

The two to three years after a lot of those big time on originations and then we had.

Got it last year that we expect that a lot of pay offs in 2020 the.

Slowing of completion of construction projects because of shelter in place orders and the slowing of the.

The transition sort of financing the bridge financing permanent financing that takes us out.

Clearly.

Reduced payoffs in the second and third quarters of last year.

Pushed those out we began to see quite of bit of that come back to the table in Q4, and we will.

Very likely you have a record level of payoffs in 'twenty.

The 21.

And part of calls a bunch of payoffs pushed from 2020 to 2021.

We are.

Still have normal volume that would normally pay off in 2021 as well. So we know that's a that's the challenge.

<unk> for the year, we've got to work hard too.

Find good quality, good yielding loans that meet our high standards.

And without sacrificing.

The quality of pricing say.

So if we can continue to keep our our pipelines.

Full in.

Originate enough to offset the payoffs and hopefully originate enough to achieve some some some growth in the portfolio as well so.

This will be on unusually challenging year from of payout perspective in 2021, because we'll not only get.

What we would normally get in 2021, but we will get some some overflow from 2020.

The pandemic related delight.

Overflow of play out so we know it's a challenge but.

The.

The encouraging thing was.

Our our ESG originations ended.

The year at a really good level in.

Even with all of the noise from the pandemic in 2020, our ESG originations were a little bit better in 2020 than they were in 2019, and we have good pipelines going into the.

And of the new year so.

We gotta go produce over U S.

Every week every month every quarter.

That hasnt changed.

Alright, perfect. Thank you very much.

Thank you and again, ladies and gentlemen for asked the question. Please press Star and then one now.

And our next question comes from Tomorrow Zeller from Wells Fargo. Your line is open.

Hi, good morning, Thanks for the question.

Good morning, maybe maybe looking at the other side of the equation and looking at the good growth on <unk>.

On the commitments over the past couple of quarters or that was indicative of sponsored getting more comfortable and we are engaging and I guess what segments within our ESG are you seeing growth come through.

Brandon you want to take that.

Yes.

Question for sure sure Timur. Thank you for the question.

Hi.

Yes.

Part there is.

As we've come through Covid.

On the initial initial shock was was strong in the affected a lot of people thinking but.

As we've enumerated.

Historically, the sponsors that we deal with in the markets that we that we deal in the <unk>.

All of the sophistication there is.

As such debt.

We're not going to the.

Third of the plans the side.

Forever.

The COVID-19 notwithstanding in and we're starting to see gradually.

Don't want to overstate that there are still there are still projects out there that are on the sideline, but we've continued to see.

Really in the southeast I think is in what we'll call it the south southwest of where we've seen a lot of activity.

We talk.

What about some of the major demographic trends and migrations.

From the northeast in particular too.

The south Southern Florida.

Those trends continue continue to see some migration.

Out of California into the Phoenix, and Texas markets and out of the <unk>.

Markets as well so.

There is the demand underlying demand there that is that is.

Still justify a lot of new development.

I'm not going on I'm, not going to say that everybody is full bore theyre not there are still a number that are.

Waiting to see how things play out, but I think some of the.

The success that we've had some of the growth that we've that we've been able to achieve in the year that you wouldn't necessarily expect it is.

Again tied to the fact that we're we're <unk>.

On the long game here we are.

We have put together we operate for.

For the long haul and are structuring our lines and doing deals with sponsors that.

Support the asset quality that we feel like.

Is coming through in our in our comments here and so we were always lending we never stop lending when COVID-19 struck and we continue to do that and I think that reliability. The relationships involved there really undergird our ability to continue to.

So you have that.

The strong pipeline so.

Sure.

I've talked about geographically the southeast South southwest has been strong but.

I don't want to leave out even in the northeast we haven't been doing a lot in our in our New York market as we've as we've discussed with the guys that they are going to great job in working into other markets in the northeast like the Boston, Cambridge market, the DC market the Baltimore market.

And for and trying to present this in the secondary markets in that world as well.

<unk> had good success there.

We've done some.

Honestly some of it industrial lending up there.

I know.

You probably noticed we broke out for the first time on our life Sciences.

Lending a lot of that has been.

As you can imagine in the northeast and the Boston, Cambridge Submarket.

Proud of what the guys have done up there.

Some really nice deals.

The product type of it.

Obviously in high demand given the the pandemic, we're in a day and others.

May come in the future. So we're pushing hard into a great product type of there and we've got other opportunities in other markets.

For that product type as well so on.

That gives you some idea of the sectors geographically in.

And for the property type perspective multifamily continues to be strong.

Trying to be very careful as we as we originate in that space.

It has probably the most.

On the highest number of developments in addition.

Competition pursuing this development so.

Probably continuing to see strong origination there but.

We're being careful to make sure it's of the right place at the right time with the right people.

Okay, and then you can see that in a lot of for Brian was talking about and figure 30 for which is the kind of the <unk>.

Summary, recap of the distribution of loans, you know New York has been coming down for a number of quarters, just because it's hard to find.

New things that makes sense, there and certainly that is of very significantly impacted COVID-19 market. So we're probably down on.

<unk> three or so from.

What we were at one point in New York.

But if you look over the six seven and eight.

Most active geographies all at 800 day $900 million range of Boston, Philly and D C, which the.

New York Office services, those markets and instead of growing.

Presence in those markets for the last several years and particularly the last year youre in the half.

And then Miami Tampa are three in non on the list in Phoenix is 10. So you can sort of see the emergence of these.

New geographies in our in our largest markets.

As <unk>.

<unk> trends and business opportunity transfer shifting so I think our guys are doing a great job of.

Seeing where the opportunities are and where deals are that make sense in getting there.

Okay. Thank you and then as a follow up question.

Looking at the liquidity build of cash position of about 1 billion higher year over year.

Loan growth net it's going to be pressured with some of the headwinds from continued pay down.

What do you guys do with that liquidity.

How quickly can that be deployed.

The pairing that back with the margin can the margin be sustainable with the level of liquidity, especially given some of the tailwind for the GAAP earnings.

The other more or less of one time items in the fourth quarter.

Well I would I would kind of turn that question around and say we were very pleased.

With the margin results that we've achieved for the last couple of quarters on particularly in the quarter, Joe standard where we had.

Very nice margin expansion, even holding more cash and more securities.

Then.

We've probably ever held.

Or at least among the highest.

<unk> of cash and securities we've ever held so you mentioned the cash position.

Vein.

Much higher than it was a year ago the <unk>.

Securities portfolio is also much higher than it was in the.

The amount of securities pledged.

Is much lower than it was so.

In all respects our liquidity position is.

Very.

Very good very strong.

And that's that's a positive obviously.

When you've got money in fed funds.

The 10 basis points more of less than you are buying.

Short term high quality securities that are a year 18 months or six months in duration and Youre getting joining 25 30 basis points might be on those if you're if you work really hard and we're lucky.

That doesn't help the margin very much so the liquidity position has weighted and will continue to weigh on our margin.

We want to keep up.

Strong liquidity position, that's a source of strength for our bank.

I don't know that we need quite as much liquidity as we have but we're not.

We're not complaining about that so it's just it's money that you need to keep on with strength.

The strength you need to have to manage the balance sheet. So.

It's a good question I wish for.

The curve would steepen and there were things that you could be excited about investing them, but at this.

Absolutely low level of interest rates and the.

Curve is.

The relatively flat as it is there's just.

Not much.

<unk> in our view.

Do anything other than the space Super short.

Ride out this time and keep the liquidity you need to keep in.

Our on the mediocre little yields you can earn on it.

There with it.

Understood. Thank you very much.

Thank you.

Thank you and again, ladies and gentlemen asked the question. Please press Star and then one now and if anyone is having difficulty of pressing the star one key if you do need of session.

The press Star and then the URL.

And our next question comes from Matt Olney from Stephens. Your line is open.

Great. Thanks for taking my question I wanted to circle back on the organic loan growth discussion and the management commentary walked through some of the the major segments, whether it's RV Marine community Bank and our ESG in each segment seems to have its own drivers that have some level of heads.

Winds on them when we can.

A step back it seems like the moving parts the point to total non purchased loan growth ex PPP that could be relatively flattish in 'twenty, one versus 'twenty I just want to make sure I'm thinking about the shrink.

Well.

I don't know the we are giving specific guidance on on whether that's flattish or up a little of what but.

I'll give you a little more color, Matt that that might be helpful to the.

Community Bank segment is.

Very challenging right now because you've got a bunch of.

Small banks out there.

That on.

The desperate.

For loans and they are getting and have been really for quarters now.

Very aggressive on credit and very aggressive on.

Right.

And we're going to hold our credit standards and our.

Equity downpayment.

Standards.

Not gave on those and we're going to hold our minimum pricing standards not give on that so.

We always have and certainly have in the last.

Year lost the.

Business in the community bank sector too.

Two.

Other competitor banks that were just doing things a lot cheaper on a lot more aggressive on credit and we would we would ever be.

And that's why that category of lending.

Shrunk a little bit last year.

Likewise, you know we retooled our.

Business model for our indirect unit last year and really were on the sidelines for the most part for about <unk>.

Six months or so more of last buyer.

I think that was of great decision I feel really good about that because.

We use the data and the analytical capability, we've got and the strong capabilities of that Exxon team to build a better business model.

Which we started kind of rolling back out in Q4.

When you shut the engines off.

<unk>.

It takes a little while the rate of <unk>. The engines and then once you get the engines related types of little while the get forward momentum.

Built up so we are in the process of.

Building momentum in the.

Marine and RV group.

I think what Youll see there over time it might take.

A while for us to get the kind of momentum we want but what I think you will see is that growing at a less rapid pace than it did in sort of the 18 non.

<unk> timeframe.

But I think youll see it resumed positive growth and hopefully that will be in the.

Back half of 2021.

<unk>.

What we will be booking there of what we are booking there now has lower premiums and higher spread and I think is every bit as good quality wise.

And the Pandemics pretty much reveal volume.

High quality of what we've been doing there, but I think what we will be originated in the kind of be every bit as good quality wines. So it's what we were originating and yet we're going to be getting.

Better spreads and lower premiums for that so it's kind of being much more.

<unk> business going forward.

That unit will probably continue to have net paydowns.

For the next.

Wellness side of the first half of 2021 more or less.

And then I think somewhere around the middle of the year of plus or minus a month or two.

Net to a point, where originations probably equal pay offs and then hopefully we will have some net growth from that unit in the <unk>.

Back half of the year.

And then.

We've talked a lot about our ESG. It was the big source of our growth in 2020. It was it was essentially all of our growth in 2020.

And.

Will be.

Maybe the biggest growth engine for us, possibly in 2021, it's our best shot to have a lot of growth.

And that's just simply of game of Ken Argos Cal fire on the deals and get the deals closed in.

Large enough volume.

Two.

No.

Cover the payoffs and achieve good positive growth.

And our team there has had a history of coming through for US certainly we've got a.

A big wave of payoffs to deal with.

But at the same time.

Im not.

I am not willing to accept the idea of that those guys can.

<unk> the volume that we need to get some some decent positive growth numbers now.

They've got to work hard and market conditions and sponsors of got to cooperate with us in achieving that.

But those guys of.

<unk> had a history of doing really good work so.

What kind of sell them shorten side I can't do that so.

Yeah.

We could have a year, where we because of just.

An exceptionally high level of payoffs, we have zero loan growth but.

I'm certainly not willing at this point too.

Can say that that is the case and we're going to work really hard to achieve the best margins, we can while maintaining our quality and achieve the best growth for cancer.

We're in the business, where you got to produce every day and if you don't produce then youre going to Youre going to go backwards and we don't want to go backwards. So we're working real hard to go forward.

Okay. That's great. Thank you for the commentary and then I guess as a follow up also want to ask about excess capital and overall capital levels still remain excellent the bank.

If asset growth is call. It just less material in 2021 versus previous years I'm curious what the updated thoughts on around a potential share buyback program that could allow the bank to deploy a portion of the excess capital.

That's a great question and certainly on item, but.

Is getting more and more.

Yeah.

The discussion internally here and the.

Sure.

One of the one of the reasons that we've articulated.

Two.

Hold.

Significant amounts of excess capital as we have the last couple of years.

Is to be ready for a situation where economic turbulence created opportunities.

We've certainly had the economic.

The turbulence.

That has resulted in.

Some opportunities so we had a very short window of time too.

Make some very capitalize on the very opportunistic purchases of securities, but the fed's very aggressive action close that when the shortly.

And we've had the opportunity to improve pricing, which.

Was reflected in our improving margin and core spread margin and the most recent quarter core spread in the last couple of quarters.

And gain market share in Rds G, but the.

The big Tam opportunities.

Yeah.

That would allow us to utilize a lot of our share.

Surplus capital have not yet materialized in may not materialize because of the.

Extremely rapid and aggressive monetary and fiscal policy responses to the economic downturn, resulting from the pandemic.

I'm not sure yet that we won't find some good opportunities to cash.

Capitalize on but the.

Prospects for those.

Same to be less than one would have expected.

<unk> been very outset of the pandemic.

And.

Failure of those capital users to materialize certainly.

Will.

Suggest that we.

We need to look at better ways to use some of that capital.

Okay very good thank you.

Thank you.

Thank you and again, ladies and gentlemen to ask the question. Please press Star and then one now and our next question comes from Catherine Mealor from <unk>. Your line is open.

Thanks, Good morning.

Okay.

I really love your bubble chart I think it really helps tell the picture of the.

The diversity in your own portfolio.

We could turn to figure of 40.

At the.

The RFC office portfolio.

This gives us a little bit of detail on a couple of credit there.

The large EUR for office properties of course, it really leverages, the only 30% that you're kind of larger with earlier vintages.

Laurence looked like a Los Angeles office property in.

In the <unk>. So I guess, one just wanted to could you just give us any kind of anecdotal color on that.

Larger exposures and then also on it looks like there was a new office.

Office property.

That was the beginning of this year, which has the higher LTV.

The average portfolio just curious.

If you think this is going to be of trend and some of the new origination.

The good kind of move up on your leverage or if that's just credit specific.

But let me let me talk about the.

Dallas bubble, and then Brandon I'm going to throw the.

New York and L.

La <unk> pieces to you and you might want to add some color on the Dallas based on.

On the newly originated loan in Dallas is a loan that we made two of party that was a mezz lender.

On a office building loan debt.

We had in Dallas and the.

Sponsorship.

Surrendered that billing to the Mezz lender, so the mezz lenders take on that over.

Our.

Loan to the Mezz lender on that is about a 70% or a little higher of new appraised value on that property. It is cash flowing but the.

The sponsor decided to not defend their position and that bill and surrender it.

The two the mass so that really speaks to the.

Of the quality of the structure of our transactions I know some of you that are not in commercial real estate of 100 of Wow.

Having mezz lenders and the transaction enhanced the bank's risk or increase the bank <unk> can it actually lowers our risk on that.

A great example of layer of the sponsor.

I don't think this lack the asset in the sunbelt of sponsors have to choose what assets. They are going to defend the nice surrender of that to the mezz lender it was coming up.

Okay.

For renewal on our world than we were expecting substantial curtailments on paydowns of because of the.

Changes in the tenancy buyer and.

How we expected that would impact the price values of debt so when the mezz lender.

It took over the property we originated on the new loans of the Mezz lender of first to acquire the node and then.

They very quickly moved into the ownership position.

On the property and.

So our loan is now secured by.

A mortgage on the property in all of the all of the same collateral as our original loan to the sponsor.

We did get about a $16 million.

Curtailment I think on that about $5 million of actual cash pay down and about.

10, or 11 910 of $11 million something like that of future funding went away as part of that.

<unk>.

I think we've got to improve our pricing or at least hold it the same and get fees associated with that new law.

Loans.

<unk>.

For a market rate loan on for standard credit terms that we would do of new loan. It is the only difference of its higher leverage than what we would.

Would normally do on.

On a loan at.

But even with that our exposure was reduced size of the blade in connection with the transfer of ownership on that so Brandon you might want to add a little more color to that that's probably enough on that but you might want to address the <unk>.

<unk> in New York.

MLA and elsewhere.

Sure sure.

Good day of a cover that George.

On our New York Office.

Yes.

The exposures that you mentioned, we've got for office loans in the Cvs, a and we've actually.

On one of those.

Ed.

It was already very well leased at 95% that we had a tenant that.

It was about a 25000 square foot tenant actually expanded their lease by another 2006 or 7000 of fee during the quarter So that particular.

All of this building is in.

Very good shape from an occupancy point of view.

We've got another debt.

Is working on a lease that price.

Not signed yet very for advance.

That would.

Occupy about 40% of.

Of that one so and those are those are our two.

Largest.

Office buildings, there we've got another one that's.

Leaks in the 80% range I believe.

So.

The.

Those are our largest new York.

On an older.

<unk>, New York levels that Youre seeing there on that bubble chart.

And then in la.

The big on that sticks out there is.

Was originated for early.

In 2020.

It's a transitional.

On.

The execution.

Right now they're there.

Deepen in the middle of that it'll be a while before us.

The fully.

On completing.

Obviously with the Covid being what it is where we are.

Happy for that time for them to work through that and then begin the lease up process.

That's the.

That's the big as of $433 million bubble that youre that youre seeing there on your chart.

Okay.

That's really helpful color.

A question on much of a word.

For the discussion earlier.

I know this quarter is elevated but typically we see elevated loan fees in periods of time, where you have elevated paydowns and so would it be fair to say that we should still see a fairly high level of of loan fees. This year given that we expect paydowns to the same high in 2021.

That's a great question Catherine.

Kind of a complicated scenario a lot of what generates the loan fees on payoffs as if alone was done for 36 months.

<unk>.

Yeah.

It paid off the 24 months.

And Youll recall, a year or two ago, we were <unk>.

Complaining a lot about the fact that our loans, we're getting paid off faster and faster and faster than you have on unamortized loan fees, if theyre paid off well in advance of the.

Charity.

Debt.

The kick in.

And.

Give you give you a little boost in yield at the pay off of those loans.

As the.

Pandemic has delayed construction on projects three six months whatever the number ends and as permanent financing has been delayed a few months on projects as well.

You end up in a situation where those loan fees that you originated in deferred and amortized over the life of the loan.

Net close to the original maturity or even.

Two of 90 day or 190 day extension because it takes a little more time to get the cash to their permanent of execution.

You don't have the fees.

Better on amortized because they've been amortized into income over the last of the loan loans come full term sorry.

To the extent that the payoffs get extended you lose some of that extra boost at the end now.

On a lot of these loans, where we're doing now.

<unk>.

190 day extensions, we do get extra fees for that and that has contributed some extra.

Income as well.

We are in a lot of cases able to collect some minimum interest on loans that.

Varies quite a bit from quarter to quarter and month to month.

So for us so.

I don't know that.

It would be fair to assume that in 2021, because we expect a lot of pay offs that thats going to result in a lot of extra juice.

Our net interest margin from accelerated recognition of previously deferred fees because.

Most of those loans are going closer to full term than in the past. So there's less of that bump at the end.

To the extent that we.

You do get to do some.

Extra term on some of those loans were.

We're in the process of finishing up for in the process go into the permanent market and we get to do of 90 or 190 day extension on them that that could generate some extra fees that can help us.

With the income situation. So the answer to your question is it's complicated and we're going to have to see how it plays out I don't think it's.

A negative for us.

I don't know that it is kind of be of significant positive either.

Great really helpful color, thanks, great quarter. Thank.

Thank you.

Thank you. Our next question comes from Brian Martin from Janney Montgomery Scott Your line is open.

Hey, good morning.

Hi, Brian.

Hey, I just wanted to find out just a little bit more on the margin George I think you called out some of the I guess modest lift that you got on some of these onetime items this quarter. The like you said.

The margin still saw a nice improvement with the cost of deposits going lower in all of the work you guys have done on the deposit side, just kind of wondering once we set that a touch lower for some of these items you've called out kind of if you can just talk a little bit about the puts and takes of the margin going forward.

Especially as you.

Continue to expect some funding cost of a lower just kind of where the where the loan yields and what you're seeing there on how that may play out.

Tim you want to take that one of you want me to take that one yes, George I'll start and you can follow up if you have any follow up to it Brian Thanks for the question.

We gave you certainly a couple of figures there to.

Look through on.

On our core spread on figure 16, and then our time deposit maturity schedule on a figure of 2017, obviously, we're very pleased with the level of the.

The increase in cost of interest bearing deposits. We've had the last couple of quarters 18 basis points of decrease this quarter was very good we still have room to go there I mean, I think we've got room certainly on the next few quarters. If you look at that for 2017, both of those quarters have over 100 basis points of weighted average rate.

Weighted average rate of new and renewed time deposits in the fourth quarter was 56 basis points.

So a lot of room to move move down certainly in the next couple of quarters and still in quarters, two and three maybe not as much as in Q1 and Q2. So I think thats a positive trend certainly as we look at margin and core spread.

We do.

George mentioned earlier in the in the call our reinvestment rate on our our securities obviously is putting some.

Some headwind to our yield on.

On our investment Securities book, So that debt goes the other way a little debt and then as you mentioned our purchased loan yield was the highest it's been in a number of years.

The difference there is there is what we had previously in previous years prior to seasonal.

Some recovery income on purchase loans that the vary from quarter to quarter that.

With the adoption of <unk> will go into the yield.

So that that can bounce up and down from quarter to quarter and we had a good.

Good amount of that certainly in this past quarter. So.

A lot of moving parts, there, but I do think that cost of interest bearing deposits decrease that opportunity that we've got in the next few next few quarters does.

It does provide us the opportunity to continue to improve the core spread which will certainly help help from the overall net interest margin standpoint for <unk>.

Level of cash and securities, we have and the reinvestment of those is probably the main contributor to the.

The offsetting that to some degree and then of course, our purchase loans are.

Paying down.

The 12% to 13% each quarter.

They are yielding.

Favorable levels as well so.

Anyway, I hope all of those comments he'll help on George I don't know if you have anything else.

I think you covered it unless Brian as a follow up question, yes, yes.

Maybe just the only follow up is just the new loan originations on the non purchase side, where are those coming in today, just I guess on the resi side, maybe more so than the other components because you talked about George.

I would tell you that our spread on new originations.

That we're booking and working on now is not quite as good as it was in <unk> of.

2020, right after the pandemic started we obviously.

One of the only guys out there in the space. So we were getting better.

Better spread than we had on a long time.

But the spreads are better than what we were getting in to Q of of <unk>.

That team so.

It's not as good as it was last year and we'll start seeing the benefits of that spread from last year and in.

In 2021, and 2022 and the.

The new stuff, we're originating today is better than it was a couple of years ago, but not as good as what we were getting 10 months ago on nine months ago.

Brandon you agree with that yes.

The spot on George.

Okay, perfect and just one on one for me.

Back with the <unk>.

And the level of criticized and classified the I guess my assumption is it was not much movement in the quarter or can you just give any color on directionally on how you are the trends you're seeing there.

Yes.

Go ahead, yes, thanks, Brian obviously.

Very strong quarter from a credit quality standpoint, we.

We did have.

Ill.

The charge offs of 14 basis points, which is still a very very good in the quarter, our nonperforming assets non performing loans are still very good they kicked the non performing assets ticked up really.

Just slightly.

On the quarter, but very low levels.

Due to a couple of loans that came off of of deferral in and.

We moved to nonperforming one of which were the a.

The purchase loan that we got from a previous acquisition debt.

Rolled into our non purchase category.

It was just under $10 million of senior senior living facility.

Debt.

Net struggled obviously during the pandemic to keep occupancy and keep levels up.

But very strong levels of our sub standards really didn't move as you saw on our chart that we've got there.

Very stable.

Sub standard level.

And you saw our deferrals.

Come down to under 1%.

And then if you look at our special mentioned, which we didn't give you that we don't have the chart on the special mentioned the spur.

The special mentioned, it's still very favorable levels.

I think it was up just a little bit from Q3, but not much at all on still still still very low low levels.

Got you okay. Thanks for taking the questions guys nice quarter.

Thank you.

Thank you and again, ladies and gentlemen for asking the question. Please press Star and then one now on our next question comes on the Stephen Scouten from Piper Sandler Your line is open.

Okay. Thanks, everyone.

I guess, if I could start maybe thinking about expenses a little bit.

You previously talked about.

The additional professional fees or other.

Higher than their consultants and other things that might be able to come out over time. It really good expense results here in this quarter I'm wondering what youre thinking.

The direction could be in 2021 of if there's any large scale investments that need to come or we could expect just kind of normal.

Three 5% growth something like that.

Hey, Greg do you want to take that one.

Yeah, George I'll take that one yes. Thanks for the question Stephen and we have been talking about you of number of quarters about the use of of.

Of consultants and getting some projects completed.

Some of that continue through the earlier part of the middle part of this year, but you did see that debt reduction on those expenses in Q4 as we've got some of that stuff wrapped up we've been talking about the the desire to.

To really use internal resources to do a lot of those projects on that work for us so.

Sure.

We're constantly looking to move.

That work internally get those consultants to ABA bank. It is certainly a lot cheaper to do it with our people so.

And we certainly saw the benefits of that this quarter.

There is a little bit of seasonality in our occupancy expense.

In the summer months, but thats not really overly significant.

And then certainly from a salary and benefit standpoint.

We've talked about continuing to focus on making sure that we've got the right people on the right places doing the right jobs and we're continuing to do that we have made a number of changes from a staffing standpoint over the course of 2020.

As Leif.

Look too.

To the identified excess resources that we can do the use elsewhere or or a replace those you know with with our our consolidate those functions.

And the other groups or with other resources and then we're always going to be adding new head count as.

As we continue to grow expand.

Bring on new talent specific talent that we need as we continue to grow and expand our bank can become.

The bigger bank more efficient bank more have more capabilities and all so all of that said I would say that are on.

Our our expense rate in Q4, we were certainly pleased with that.

I don't know that there is.

Significant ability to move that downwards.

Although I don't expect to see that really ramp up significantly as.

As we look into 2021 as well, although I will say that typically.

Q1 is where we typically see.

A little bit more of a bump in expenses just from the normal normal thing from the standpoint of.

Salary pay raises have insurance, although we worked really hard this year to try to minimize the impact of that so I would say that it's a pretty good.

A pretty good starting point for purposes of you guys thinking about 2021.

Super Thanks, Greg I appreciate that and then I guess just my other questions maybe more of a high level of around our USG structure and George.

You touched on the Dallas credit, whether youre able to work with the the Mezz lender and kind of get protection. There and then I know there were some some chatter in the quarter around.

<unk> and Union square property in New York, and I don't know if you can speak directly to that project and some of the protections you have there, but it seems like it's an underappreciated positive for the bank just the.

The intensity of your loan structure of the minimum interest level of the interest reserves and so I don't know if you can give any more color of the amount of loans that have the sort of protections.

The length of interest reserves things like that that might give more comfort around additional.

Temporary issues along the way.

Brian you want to you want to comment on that share.

Sure sure.

I appreciate the you.

The structure and the strength of the structure of what it does for us and I do think it's.

It's an element that will lead the continued to emphasize but I would say that.

We focus a lot on these calls on growth and I appreciate George as confidence in our ESG and our ability to to continue strong originations but.

Asset quality is always job number one we're not going to originate.

In a way that the sacrifices asset quality and we've got it.

A great team internally that the.

It is highly focused on that and were.

Expanding that team.

Two.

Give us the best shot we have about achieving the growth of achieving into the way that that maintains the quality that we've become known for but.

Yes.

The groups that we do business with and the way we structure our loans are absolutely key to to maintain that asset quality in.

We.

Do.

Bit of business with.

With the group that was part of the Dallas.

Execution of that George talked about earlier on.

We've done a good bit of business with.

On a number of groups that have have.

Become accustomed to or the requirements of our deals are structures.

But are okay with that because they appreciate the execution that we provide.

Long side of that.

And.

In terms of our.

Union Square project debt.

That one is George.

Am I safe to.

Yes, it would be of will happen.

Yes.

We yesterday.

Ed.

That loan was actually.

So we actually had someone that we kind of a lot of business with its been after it for quite some time actually to the purchase of that note and.

We were successful in selling that debt note yesterday actually so.

On the.

The structures.

The leverage obviously, we were at a great leverage point on that transaction.

And it provided the opportunity for another party that was interested in the project to come along and.

Pay us pay us.

<unk>.

In the process, we made some really good interest on that project, while we had it so.

Again, the low leverage doing business with great parties, and very strong structures at the time and time again allowed us as I said before to continue to win.

Land in good times and bad.

And I'm going to step out here and provide a little more.

Color on that for that.

The.

Don't know and I don't want to get into too much detail, but that loan we got a little attention because we.

The the.

Borrower of sponsor on that.

As a public entity so they issued.

Communication piece as part of their public company filings that noted that we had extended the loan at 17, 5% interest rate.

And.

<unk>.

Our.

The strategy. There was was very simple we'd communicated that we were.

Okay.

Not pleased with progress on the project and would like to be paid off but they needed time to accomplish that.

So in lieu of a fee.

On the renewal, we raise the interest rate.

With their agreement and concurrence and understanding that at the higher rate debt note would be readily saleable.

<unk>.

Hence, we turnaround settlement and got a full payoff so they will probably.

Per se with their business plan and.

Might pay that loan off or might work out of deal with the lender of the purchase of that loan from us. So it was on an agreeable execution for all parties, but it was the transaction we were just not.

Pleased with the progress on and that was a full par payoff of all.

Principal all the interest all of phase everything so we didn't leave a penny on the table and we're never at risk.

Even if the loan defaulted, we would of had no loss on it because there was a sizable equity in.

And so forth, but it was.

Well executed exit of the transaction that that let the sponsor have the additional time they needed but also put the note in the form that we could the.

Bradley.

Readily sell at NIH.

Part of takeout interest Ainley there was the.

Loan of year or so ago.

In New York.

The condo project that we had debt.

Had the.

Lower level retail on it and the.

The parties.

Ran into some initial delays and problems getting getting progress on the project started as quickly as they should they made some adjustments.

We got a large paydown in ri.

Set the timeline on our loan to let them kind of restart after they got their bearings and act together on the execution.

Required that the prior alone then I can't remember Brandon was at 30 million or.

It's 22020.

Sizable pay down and reset.

However, everything on that to the new timeline to let them kind of restart kind of played by it.

Wasted some of their time.

Not getting traction initially and that loan paid off after the first of the year and the last two weeks as well at full par pay off in the.

They ended up executing well on that and got the ground floor lease.

At least in the tenet and I think.

On the tenant's, finishing out of their space on all of the ground floor space. There. So that lease worked like it was supposed to in the.

They were taken out by another lender on that at a much higher loan amount.

Then our loan amount on the project so on.

Our.

Knowledge and understanding of of these transactions on our expertise in the area combined with our structures on our low leverage.

Gives us a lot of room to.

<unk>.

Exit these projects and very constructive ways.

The vast majority of cases.

And we're.

We're getting a lot of pay downs and New York.

Charles we're not seeing a lot of new business on that.

In addition to those two deals we had I think $40 million or so land loan.

And New York pay off in several smaller New York credits that were community bank credits of required as part of our universe. The acquisition is by Dol. So we've had a bit of a run of New York City payoffs.

A couple of hundred million in total since the first of the.

First of the year.

Got it. Thank you so much for the color. That's all very helpful. I appreciate you.

Given that color and congrats on the quarter.

Thank you.

Thank you and again, ladies and gentlemen to ask the question. Please press Star and then one now.

And our next question comes from and thinking of it.

The Citi. Your line is open.

Thanks in the.

The prepared commentary that you put out last night.

There was the comment about bridge in permanent lenders starting to return to the market.

Later in the year in 2020 are you seeing.

Any.

Kind of risk, taking there that might be an impediment to originations clearly you had a pretty strong origination quarter in the fourth quarter I'm, just curious what youre seeing from the non bank lenders.

Can you take that George Yes. Please.

No.

Look I think generally you can say that.

Commercial real estate the trends of them that is more capital invades of the market the more risk there is the.

The additional risk is taken and yields are pressured and things of that nature.

Hi.

<unk>.

There continues to be.

Additional.

Velocity there.

Although I.

I will say that.

On.

We're not.

In the world that we play in not seeing as much pressure.

At the moment.

It will come and there are certain.

The project types.

We are getting.

More attention.

But.

A lot of a lot of that bridge.

Bridge capital is going to focus on higher risk existing projects.

That we wouldn't normally.

Normally the a large part of our business.

But.

We're also seeing some more standard life company and bank participants.

More active currently so.

Look there is there is a lot of capital out there.

We've spoken to that.

On a consistently over the last several quarters that is that is waiting for it.

Try to take advantage of distress.

The World has held up from an asset.

The quality point of view.

So I'll use that term loosely depending on.

Where and who but.

Better I think than a lot had expected and so that the distressed trades of not have not materialized. The quite the level one might have thought I think there's still room for that to happen as a set of lot of that bridge debt will be.

<unk> focused on some of those aspects of the of the real estate world that we might not have the extremely active in but.

Yes of the capital at some level will be part of the challenge George as alluded to in terms of our growth this year.

But.

We've got a great team that's.

The set a pretty good track record of pushing through those those obstacles and originating good volume of well structured loans with great sponsors and good markets. So we'll we'll keep that for this year and see if we can overcome those obstacles again.

Helpful. Thank you.

Thank you and I am showing no further questions from us online on I'd like to turn the conference back over to George Gleason for any closing remarks.

You guys all for joining the call today and for the good questions. We appreciate your interest in our company and the great questions I look forward to being with you again about 90 days. Thank you that concludes our call.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation and you may now disconnect.