Q4 2020 Allegiance Bancshares Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Q4 of 2020 of allegiance Bancshares, Inc. Earnings Conference call. At this time all participants are in a listen only mode. After the speaker presentation there'll be a question and answer session. The ask a question during the session you'll need the press star one on your telephone please be advised that.
Today's conference is being recorded if you require any further assistance. Please press star zero.
Now I'd like to hand, the conference over to your speaker today. According to the Hill. Please go ahead ma'am.
Thank you operator, and thank you to all who have joined our call. Today. This morning's earnings call will be led by Steve Retzloff CEO of the company Ray Vitulli President of the company and CEO of allegiance Bank Paul.
Executive Vice President and CFO, Oakland, Hagan, Executive Vice President and Chief Risk Officer of the company and President of allegiance Bank and Shannon said, the executive Vice President and General Counsel on.
Before we begin I need to remind everyone that some of the remarks made today may constitute forward looking statements as defined in the private Securities Litigation Reform Act of 1995 at the minute.
We intend all such statements to be covered by the Safe Harbor provisions for forward looking statements contained in the act.
Also on that but if we give guidance about future results.
That guidance is only a reflection of management's beliefs at the time of the statement is made management's beliefs relating to predictions are subject to change and we do not publicly update guidance.
Please see the last page of the text in this morning's earnings release for additional information about the risk factors associated with forward looking statements.
If needed a copy of the earnings release is available on our website on allegiance bank dot com or by calling Heather Robert to wait 15176422, and she will email you a copy.
We also have provided an investor presentation on our website.
No. It is not being used as a guide for today's comments. It is available for review at this time at the conclusion of our remarks, we will open the line and allow time for questions.
Now I'll turn the call over to our CEO, Steve Retzloff.
Thank you Courtney and welcome everyone to our conference call and thank you for your attendance as we report on our results for the fourth quarter and for the 2020 year were buoyed by the heroic effort put forth by our bank team I differentiate the actions of our staff this past year between debt of mere duty and net of <unk>.
Genuine dedication of our purpose of opening doors to success and helping small to medium sized businesses in our region and understanding of the importance of our special role within our community is what drove our team through the late nights and weekends that it took for not only our vastly outside PPP response, but also as we remain in close contact.
With our customers throughout 2020.
In addition to strong operating results during a COVID-19 impact of 2020, we completed and initiated numerous projects, including opening of new branch in the exciting E side of downtown Houston, well, we announced the closure of a branch slated to occur in January of this year. We also further the implementation of a new of loan origination system adopt.
The CSO enhanced our cyber security expanded our electronic banking services, including online account opening improved numerous electronic workflows implemented additional card trolls introduced factoring as an in house product incorporate letters of credit production into our international services group executed share repurchases.
<unk> paid dividends in this quarter, we'll increase that dividend by 20%. Most importantly, we continue to support the community through local organizations, such as the Houston Food Bank and many others.
And we were recently awarded one of the 11th year in a row the distinction of being a best places to work in the region. All of this and more was accomplished with a large number of our staff working from home <unk> dealing with family challenges, resulting from the worldwide pandemic.
Hey, the we are proud of our team and the culture in which we operate is an understatement.
During the fourth quarter of 140 million of the P. P. P loans were processed through the forgiveness phase well of core loans increased approximately 40 million notwithstanding approximately 16 million of loan sales, which ray will describe in his report on core loans only slightly increased during 2020 of our customers and consequently, the community and the bank benefited from.
The 700 million of first round PPP loans that were booked our team is well underway as we readied ourselves for the opening bell of the P. P. P. 'twenty 'twenty, one and we're transmitting loans of the SBA on day, one of the new program.
I am pleased where the asset quality position as we were able to reduce non accrual loans in the fourth quarter, resulting in an improved coverage ratio. We continue to work with customers with payment relief, where possible and consider that a reduction in the volume of of this activity is an encouraging sign of optimism broadly speaking.
Last two quarters reflected high watermarks for allegiance in terms of earnings per share, which was driven by both of the accelerated P. P. P fee recognition and our ability to onboard new lending relationships at an impressive pace.
The Houston and upper Gulf Coast region of Texas continues to be resilient in the cycle and our bankers are prepared to take it from here next ray will describe our loan and deposit production results as well as an outlook on credit followed by Paul who will cover our financial results. We will then open the call for questions right.
Thanks, Dave.
As in the previous quarters of 2020, our bankers continue the outreach effort to our borrowing customers in the fourth quarter to get updates on financial condition perspectives on how the pandemic is affecting their industries and to continue the relationship development of our new customers as the result of our outsized P. P. P effort.
Each quarter I look back on all of the accomplishments and truly appreciate all of our bankers the found ways to get all the work done.
Given all the challenges that came our way during the year. It is very nice to look back of 2020 lets the solid performance by various measures. That's will describe later by Paul and some other key results that are reflective of how we have come to be Houston's largest community bank.
From total loan originations of $1 8 billion inclusive of $1 1 billion in core loans and 700 million of the P. P. P to record levels of Onboarding of New Treasury management customers to a smooth the P. P. P. Forgiveness process, we continue to deliver to meet the expectations of the communities we serve.
In terms of P. P. P. We're very pleased with our loan results and the impact of our efforts on the eastern region.
Our approach to provide P. P P loans to both existing customers and new customers has further strengthened our market presence we.
We continue to execute on the forgiveness process from round one of the P. P. P and welcome the recent announcements of the simple forgiveness application for loans up to 150000.
Of all 6000, plus round, one PPP loans, we originated 83% or 150000 or less in terms of number of loans.
To date, we have received forgiveness of applications for 2000, and 785 loans totaling $368 million.
Of those 1511 have been submitted to the SBA with 1274, having been approved in funds received.
We are positioned again to be a leader in the delivery of the next round of PPP funds to our existing and new customers.
Our application portal has been open since January 11th and to date. We have responded to more than 3700, New P. P. P first or second job of inquiries with more than 1500 completed applications having been received.
In addition to helping our customers through the P. P. P process. We also provided assistance to eligible borrowers with payment deferrals on the outstanding loan balances of 1.15 billion or 30 per cent of core loans.
Of this amount of approximately $161 million of core loans remain on deferral at the end of the fourth quarter and.
And $126 million as of January 25th.
I will now go over our quarterly results.
Total core loans, which excludes the P. P P loans and mortgage warehouse loans ended the fourth quarter at $3 92 billion, an increase of $39 $7 million during the quarter.
During the fourth quarter, our staff and lending team, but 310 million of new core loans debt funded to a level of $220 million by December 31.
Compared to the third quarter, when $280 million of new loans were generated which funded to a level of $182 million by September 30.
Paid off core loans were 195 million on the fourth quarter compared to 181 million in the third quarter and $171 million on the second quarter of 2020.
The average size of the new organic core loans generated during the fourth quarter was 382000.
With an average funded balance of 270000, which once again reflects our continued focus on building of diverse and granular loan portfolio.
The average size of all core funded loans ended the quarter at 343000.
Regarding interest rates on loans.
Just on total loan amount the weighted average interest rate charged on our new fourth quarter core loans was 464%.
Which is comparable to the third quarter 'twenty 'twenty weighted average rate of 4.63% and below the second quarter 2000, Twenty's weighted average rate of $4 84 per cent.
The $195 million of paid off core loans during the quarter had a weighted average rate of 525 per cent.
Carried core loans experienced advances of 65 million at a weighted average rate of $4 88 per cent.
And pay downs of 63 million, which of which were at a weighted average rate of five point O two per cent.
All in the overall period end weighted average rate charge on our funded core loans decreased eight basis points ending the quarter at 5.08 per cent compared to 5.16% as of September 32020.
In terms of our overall loan portfolio the loan type of mix was little changed on a linked quarter basis.
The slide deck posted on our website provides added color regarding our overall mix of loans.
I would now like to provide some additional information on three loan categories that could have heightened risk due to energy prices and all of the Covid pandemic.
Those being our oil and gas portfolio, our hotel portfolio, and our restaurant and bar portfolio.
Despite being the Houston region Bank, our overall exposure to oil and gas is largely indirect as we did not have any reserve base loans.
But we have defined the defined this category to be any borrower that operates in are directly supports the upstream midstream or downstream segments of the industry.
At December 31. This category is approximately 1.7% of our funded loans are $75 million of which $28 4 million was commercial real estate and $46 2 million was C&I.
Of the $28 4 million in CRE, the weighted average LTV for the portfolio was 52.3 per cent of.
The 20% stress testing of the most recent appraised value plus 6% marketing expenses resulted in an overall collateral deficiency of approximately 142000, Inc.
Increasing to 440000 net of 30% of stress test.
Regarding our hotel portfolio at December 31, we had $127 million of hotel loans of which $117 7 million was commercial real estate.
$6 8 million with Sandy and $2 5 million wasn't C&I of.
The $117 7 million of CRE.
The weighted average LTV for the portfolio was 59%.
A 20 per cent stress testing of the most recent appraised value plus 6% and marketing resulted in an overall collateral deficiency of approximately 994000, increasing to $3 1 million out of 30% of stress test.
And regarding our restaurant and bar portfolio at December 31, we had $117 million of restaurant and bar loans of which $83 4 million was commercial real estate $2 9 million was C and D and $34 million with C&I.
The 83 million of CRE, the weighted average LTV for the portfolio was $58 one per cent of.
The 20% of stress testing of the most recent appraised value plus 6% marketing resulted in an overall collateral deficiency of approximately 613000, increasing to $1 9 million in the 30% of stress test.
Asset quality of quarter end remained in a manageable position.
Non performing assets, including both non accrual loans and already ended the fourth quarter down from 78 to 63 basis points of total assets, primarily due to the sale of $8 2 million of non accrual loans during the quarter, which was part of $16 million in total loan sales during the quarter.
Non accrual loans decreased a net of 9 million during the quarter from $37 9 million to $28 9 million, primarily due to the $8 2 million in non accrual loans sold during the quarter.
$3 8 million of charge offs of which $2 one millions of associated with the loan sales.
One 4 million of payments and payoffs and 321000 that was moved of Laurie.
We added $4 1 million in new non accrual loans during the quarter.
The largest being a $1 7 million dollar of real estate loans that paid off in full earlier this month.
The additional $2 $4 million increase in non accruals was from five relationships two of which totaled $2 2 million and the remaining 194000 was from three smaller relationships.
Oh, sorry increased to $9 2 million during the quarter compared to $8 9 million for the third quarter, primarily due to a single family residence that was moved to O R E and the amount of 321000.
And subsequently sold in January of 2021.
The $9 $2 million of worry consists of five properties with the largest of $4 4 million dollar commercial real estate property. The second largest is the $3.7 million of industrial real estate property and the third largest of $576000 per residential property.
The remaining property isn't Beaumont. These properties are being actively marketed with the two largest properties and contract negotiations for potential sale.
The level of net charge offs was elevated during the quarter at $4 3 million or an annualized rate of 37 basis points include.
Inclusive of $2 4 million related to the above to the aforementioned loan sale.
In terms of our broader watch list our classified loans as a percentage of total loans increased to 3.61% of total loans as of December 31, compared to 2.4 O per cent as of September 30.
Criticized loans increased to $5 95 per cent at December 31 from 5.16 at September 30.
Specific reserves for individually evaluated loans ended the quarter at 12% compared to 15, 7% at September 30.
On the deposit front, we saw an increase in total deposits in the fourth quarter by $71 1 million from the third quarter and up $923 million over the year ago quarter. The.
The increase during the fourth quarter was primarily in Cds and other time deposits the increase over the prior year was primarily in the noninterest bearing deposit category as a result of new accounts associated with PPP customers as well as higher balances in our carried accounts.
Non interest bearing deposits decreased 68 million during the fourth quarter and were up 452 million over the year ago quarter.
With that our noninterest bearing deposits. The total deposit ratio was 34, 2% for December 31, 2020, compared to 36% per September 32020.
And 38% per the year ago quarter.
With regards to of the pandemic and Covid statistics for the eastern area.
While not at all time peak levels Harris County is experiencing elevated levels of both per cent of positive tests and ICU beds occupied by Covid patients.
We continue to monitor these trends and remain highly focused on health and safety.
We are cautiously optimistic of the progress towards the economic recovery on the eastern region aided by our ability to again deliver relief to our customers with the next round of the PPP, while providing banking solutions to meet the needs of our customers in 'twenty 'twenty, one and beyond.
I'll now turn it over to our CFO Paul.
Thanks Ray.
We are very pleased to report fourth quarter net income of $15 $9 million or <unk> 77 per diluted share as compared to $16 $2 million or <unk> 79 per diluted share in the third quarter and $14 million or <unk> 67 per diluted share posted in the fourth quarter of 2019.
Pre tax pre provision income for the fourth quarter reached the high watermark of $24 $2 million as compared to $21 $2 million in the third quarter and $18 $5 million for the year ago quarter.
I'll note that we had $1 $9 million and Oreo write downs in the third quarter. So after adjusting for the pre tax pre provision income would have been about $23 million for the third quarter.
Net interest income with the key driver to our pretax pre provision earnings power in the fourth quarter, where we saw an increase of $3 million or five 8% to $554 9 million from $51 $9 million in the third quarter.
Primarily due to revenue recognized on PPP loans, and lower interest expense in the quarter more than offsetting slightly lower core loan income.
Total net fee revenue related to PPP loans recognized into interest income during the fourth quarter was $6 million on increased from $3 million in the third quarter.
Additionally, interest expense decreased by $757000 during the fourth quarter compared to the third quarter.
The impact of acquisition accounting accretion continued to decrease in the fourth quarter accretion increased loan income by $281000 and reduced reduced CD expense by $61000 for a total positive effect on net interest income of $342000 versus the total positive impact of 500.
$98000 in the third quarter, and $1 9 million in the year ago quarter.
Only $855000 remain in the loan Mark and $220000 in the CD Mark.
Yield on loans in the fourth quarter was 5.19% as compared to $4 eight 9% per the third quarter and $5 six 5% for the year ago quarter.
Adjusting for acquisition of accretion yield on loans would have been five out of seven.
Per cent and the fourth quarter.
4.84% in the third quarter.
And 5.47% in the year ago quarter on.
The loan yield story reflects the combination of factors, including decreased purchase accounting accretion as previously discussed.
Decreasing core or non PPP loan yields, which went from 5.25% in the third quarter to 5.11% in the fourth quarter.
And perhaps most impactful what's the overall impact of PPP loans.
In the third quarter, we saw PPP loans effectively dilute overall loan yields which went from 5.13% in the second quarter to $4 eight 9% as average PPP balances amounted to about 15% of our loan mix.
This is a pretty significant mix shifts towards lower yielding PPP loans and without the benefit of any accelerated fee income recognition from forgiveness.
This dynamic flipped in the fourth quarter, thanks to accelerate PPP net fee income recognition in the yield totaling approximately $3 million and thereby boosting loan yields to five 9%.
So the total yield on interest, earning assets was 471% for the fourth quarter up from the 4.58% we posted in the third quarter and five and down from 535 per cent for the year ago quarter, reflecting the aforementioned effects of PPP balances net fee income recognition lower accretion income and of.
<unk> asset mix.
Excluding PPP loans and related revenue total yield on earning assets would have been $4 six 7% for the fourth quarter versus $4 eight 5% in the third quarter.
Before I move on I should note that as of yearend, we had approximately $14 million of net deferred fee income remaining relating to 2000, Twenty's PPP loans, which we will recognize in the yield over the life of the remaining PPP loans and on on accelerated basis, when we experienced SBA forgiveness.
With respect to interest expense our cost of interest bearing liabilities continued to decrease in the fourth quarter to 93 basis points from 105 basis points in the third quarter and 185 basis points for the year ago quarter.
The overall cost of funds for the fourth quarter with 62 basis points versus 69 basis points in the third quarter.
We expect to see continued improvement in our funding costs going forward.
So with the help of PPP net fee income recognition and lower interest expense in Q4.
Offsetting a significant shift in the composition of our earning assets, we're really proud to post of taxable equivalent net interest margin of 4.14 per cent for the quarter as compared to 3.95% in the third quarter and $4 one 1% in the year ago quarter now.
Now if you were to exclude PPP loans and the related revenue net interest margin would have been four point of 2% for the fourth quarter.
Going forward, we continue to feel well positioned to maintain a relatively strong net interest margin as we seek to further optimize our funding mix and maintain discipline on loan pricing.
Noninterest income ticked up slightly quarter over quarter, increasing the $2 million for the fourth quarter from $1 $9 million in the third quarter.
On the expense side total non interest expense also remained relatively stable quarter over quarter as fourth quarter expense was $32 $7 million compared to $32 $6 million in the third quarter.
The difference is primarily due to increases in the salary and benefits line and the other expenses line.
Mostly offset by decreased other real estate expenses.
The efficiency ratio for the fourth quarter decreased to 57.53% compared to the 65, 8% posted in the third quarter and the 62, 2% per the prior year quarter.
As mentioned in prior quarters, we had elected to take the relief that came with the cares act of deferred the implementation of Cecil until this quarter.
At which point, we adopted Cecil retrospectively to January 1st 2020.
Consequently, the reported allowance for the fourth quarter with calculated under the <unk> standard.
The provision for loan losses was $4 $4 million for the fourth quarter compared to the loss to the provision we took on the third quarter of $1 $3 million, bringing our total provisioning for the year to $27 4 million.
Our allowance for loan losses ended the year at $53 $2 million.
Representing 118 basis points of total loans.
And of 139 basis points on core or non PPP loans.
So bottom line, our fourth quarter, RIAA, and our ATC metrics for the quarter.
Came to one point of 5% and 13 and $12 three 2% respectively.
Year on tangible book value per share was $25 59.
Which makes for an increase of approximately 13, 1% since year end of 2019.
Which is something we feel great about notwithstanding such turbulent 2020, which included seasonal implementation and of year over year reserve build of over 80%.
<unk> 40, <unk> of dividends and the repurchase of over 500000 shares of stock during the year.
On the topic of share repurchases I should note that in the fourth quarter, we did restart share repurchases under our existing 1 million share repurchase authorization buying back nearly 275000 shares.
While COVID-19 still brings about significant economic uncertainties allegiance closes out 2020 bigger and better than ever at over 6 billion of assets with capital reserves and liquidity levels stronger than ever we.
We feel very well positioned as we navigate the current economic environment, and we feel confident about our ability to maintain a strong capital position to that end. The company declared a dividend of <unk> 12 per share of common stock up 20% from the 10 cent per share dividend prior.
I'll now turn the call back over to Steve.
Thank you Paul with that I will now turn the call over to the operator to open the line for questions.
Yes.
Thank you.
As a reminder, task of your question you'll need the press star one on your telephone to withdraw your question press the pound key please stand by all of the compile the Q&A roster.
Our first question comes from Brad Millsaps with Piper Sandler You May proceed with your question.
Hey, good morning, guys.
Hey, good morning, Brad How're, you doing Brad.
Good good Hey, Ray I was writing quickly during some of your commentary.
I think I may have missed the number but I think I heard production of $310 million during the quarter, what did that fund up to in terms of Outstandings.
Kind of it sounds like that was higher linked quarter.
And kind of based on that how do you kind of feel about loan growth in 2021 kind of based on your finished to the year.
Sure.
Thanks, Brett yes. The so the 310 was the originations for the quarter net funded up to $2 20.
And the which which was nice compared to the third quarter. The what was really nice is that 310 is.
Okay.
Our first quarter in excess of 300 since the third.
Third quarter of 19, so so that kind of momentum going into 'twenty one.
Really excited about that and.
Still of the fourth quarter was a quarter, where we continued customer outreach all of the other things that we need to do with bankers, but to get that kind of a core.
Core origination was really nice to see the return to those levels that we've kind of expected in the past, which we've talked about before that 300 that benchmark kind of of 300.
Do you think do you think.
Obviously, one quarter may not make a trend, but does that does that push you may be higher than sort of are you a mid single type run rate and loan growth rate in loans in 'twenty, one or is it or is it higher than that yeah.
No I think that's the I still think that's good it definitely puts us on a position for that on Brad and that that mid to high single.
Absolutely puts us on where we are we will get our fair share and in the stage of set for that as you know Paul some of them.
Mentioned, we're on a three point stance I'm ready for that.
Yes. This is Steve Brad the.
The effort that we put forward last year on the PPP really took our eye off the ball on loan growth I mean to the extent that we spent so much time on our team was just spending a tremendous amount of energy on on taking care of our customers outreach and PPP, we're going to repurpose that energy in 'twenty, one and while we have.
PPP activity.
We do believe that the.
This team is ready to go in 'twenty, one for a pretty robust loan production year.
Yeah.
That's great color Steve.
Neville Ray what about hiring.
Can you talk about that activity opinion, the fourth quarter, and maybe kind of what your plans are.
For 2021.
Yeah sure so for the whole year.
We brought on nine new producers for the year and then plus.
Plus two internal promotions from our from our analyst pool So Phil.
Feel real good about that.
That's coming off 19.
2019, which was a we had 15 so.
A little bit down from 2019, but a really strong class of of nine for the year and I would expect that to continue in the 'twenty 'twenty one something similar to what we did in 2020.
We're talking to folks.
The handful that we're talking to at this moment so.
We feel good about of breath.
That's great and then maybe just one more here on Paul.
Obviously, it looks like you've had some incentive kind of catch up in the fourth quarter on the expense side as.
The fourth quarter, you think of pretty representation of a pretty good representation of the run rate expenses in 'twenty one or.
Kind of based on some things you guys are doing do you think you can kind of back off that rate of little bit.
Yes on the fourth quarter did feature some items debt that goofed up the overall level of expenses, but it does kind of.
Presenting a little bit of a glide path as to what to expect in the.
In 2000, and the quarters within 2021.
It's actually a little on the high side.
But.
That that range of 32, or so million dollars is it really.
Consistent with expectations and I think our story is largely going to be.
A function of a little bit of how our core loan growth story.
The manifest itself in 2021, so we're very well positioned to actualize on whatever growth thats out there and as we assess dynamics.
The community that can have.
The resulting effect it to hao.
Forward, we are on plan.
Got it thanks, and just a housekeeping question quality up and have the average balance of PPP loans in the quarter.
It was around.
Speaking of approximation.
On.
I believe it was.
Around 400.
$50 to 500.
Average balance.
Actually that the love yeah like one of them.
On the 2500.
The 35 range.
Yeah, and you ended the quarter you ended the quarter of $5 70, So it's got to be north of there right on top.
In the third party.
I'd split the difference between.
Where we were at the end of the third quarter.
It was pretty steady state steady flow of.
Given us during the quarter the majority of all of our.
Forgiveness was in November.
The largest kind of.
Push of forgiveness, followed by December.
Okay. Okay, great. Thank you guys I'll hop back in queue.
Yeah.
Thank you. Our next question comes from Brady Gailey with <unk> you May proceed with your question.
Hey, Thanks, good morning, guys.
We're ready.
One of them.
<unk> got a decent amount of success with PPP round one.
On a round two is just now kind of starting but any idea what the opportunity could be on on round two for you guys.
Hello, John.
Take this oak on is managing that very very well so of anything.
Thank you. So yes, we started the EPS, but early on.
Open a quarterly on January 11th.
We have the.
What we're seeing is that the vast majority of of the.
Patients were receiving from the SEC.
The <unk> drug draw of customers currently running at a rate.
I would think somewhere between 30.
Maybe 40% of what we've done last time is is what we're geared up to do easily.
It could be more.
We have.
Twice the applications.
That had been requested by our customers.
That are actually in so.
The of every two applications received from customers. We have received one complete back so far.
And based on what we're seeing is that all continues to progress at the same way of somewhere around 35% to 45% is what I would expect so we did 700. The last time that would mean that we'd be in the 350 to 300 the end of that.
The ballpark.
And that I think.
Yeah. If you look at your core NIM ex accretion on PPP.
I think you guys mentioned, there was a little above 4% of yet.
On the past you pointed to some NIM compression, but do.
Do you think that the 4% level.
You've reached stability or are we going to see that core NIM dip into the.
The freeze.
I think structurally there is there is a chance you're going to see that core NIM a deepening.
Deep into the threes.
On the number of sites is one where if you assume away both the balances and the revenue from PPP.
I think what's more likely is.
That when PPP runs the court.
On the.
The earning asset.
The likely going to be their cash redeployed into something other than PPP in that.
Has the potential to.
Dilute our overall, earning earning asset yield, but the mix will be a function of what we're able to produce on.
Our loan growth and then separately, where we ultimately redeploy any excess liquidity so.
It will.
The of different than.
The NIM might be.
If this comes at the past the NIM would be lower but it would be a function of more structural.
The implication.
And then a lower level of run rate core loans to assets that makes sense.
Yep.
Makes sense.
And then finally for me just on buybacks and M&A.
If you look at your currency.
You're trading at about 135 per cent of tangible book value.
So it doesn't seem quite high enough to.
Do bank M&A as the buyer, but you know it may be two expense of on the buyback front too. So just thoughts on you know it looks like you repurchased about one per cent of the company. This quarter will that continue in the thoughts on the bank everybody's expecting 'twenty 'twenty one to be of fairly active year for you guys.
You will be active as well on M&A.
Sure I'll first start on the repurchase discussion and then we'll hit on M&A and Steve will have some thoughts there too but.
From the standpoint of of our stance on repurchasing we don't.
Inc. Current share prices are.
Necessarily too.
On expenses to be an active share repurchase there and ultimately how that manifests itself will be a function of our.
The <unk> five plans, we put in place and whatnot, but we do see share repurchases as a very viable tactic to manage our capital structure.
In our capital ratio and we value the flexibility that comes with that.
As it relates to.
Managing and shaping our return on tangible common equity profile.
We think that would have the potential to pay dividends down the road.
And from a valuation standpoint as well from.
From an M&A standpoint, I wouldn't say that our current valuation necessarily boxes out but.
Right.
It.
It could always be better.
We have.
We're in a better place now than we were.
Three to six months ago as it relates to our currency and ultimately we plan if the right opportunity presents itself to the asset.
Yes, there's no doubt about that you know, there's two things really the kind of drive the M&A.
Mood I guess is one is the is the currency and it's always better to be higher and we're moving that direction. So that's good but the other one of the cloud of uncertainty with regard to Covid you know a year ago, we were all kind of perplexed with that and so as that cloud starts to lift I think this is going to be a year, where those conversations.
It will heat up and.
And then.
Some deals take price so we're active and people know that and so we are.
We maintain conversations in our region.
Okay, great. Thanks, guys.
Yeah.
Thank you of our next question comes from Matt Olney with Stephens, Inc. You May proceed with your question.
Thanks, Good morning, I wanted to circle back to the discussion on the core margin.
And Paul you mentioned the liquidity aspect is going to be challenging in some of these PPP loans are paid down and that's definitely something we're hearing from others.
The other banks, but if we try to put liquidity aside and the PPP impact aside.
I'm curious if you think that the improvements of lower interest bearing deposit cost will be comparable to the pressure on the core loan yields.
Yeah.
Still have room to go to improve our cost of funds and.
And we look forward to really seeing that manifest itself, albeit a little bit more gradually quarter over quarter in 2021 than it was in 2000.
<unk> 'twenty, but.
But we still see that as of as a real.
The driver and ultimate.
<unk> of our overall NIM profile as we go forward, we're very pleased.
To note that.
Lot of that loan growth, we had in the fourth quarter of really that production, we had in the fourth quarter, which was.
Quite strong at over $300 million.
With actually at pricing that was the basis point higher on core loan yields than it was in the prior quarter. So we're seeing stabilization as it relates to the yields on our core loan.
But we are very mindful of the competitive environment that we're in and the fact that.
Core loan yield could be subject to additional risk.
Ed.
I am pretty buoyed by the the.
Last quarters.
Pricing as it relates to our core loans and I think that helps us to be able to protect our overall revenue prospects in 2021 of your bad debt in the sense right. Now is we have a growing pipeline as well.
The good momentum we had good we obviously had good new loan production in the fourth quarter and we are we feel good about our pipeline as it sits well that will that hold you know we don't.
Ever know that but we certainly feel really good about our entry into 'twenty, one with regard to that and so bad debt.
The growth in the in the loan portfolio is going to mitigate an awful lot of that the NIM compression pressure.
Okay. Thank you for that and then going back to the share repurchase discussion.
You May have mentioned this I just missed it what was the average price of the.
The 270000 shares I think you'd mentioned that you repurchased in the fourth quarter.
I believe it was around 30.
<unk> 33 and change.
We'll have that kind of in our 10-K.
Yes.
I'm kind of as bad.
The over 30.
And then you mentioned the M&A.
I was wondering if you could be more specific and just talk about the M&A priorities for the bank at this point.
What are you looking for is it simply additional scale within the greater Houston market or is it something besides of that thanks.
Well all of it.
First and foremost on the scale and the power of scale, we see the kind of loud and clear as it relates to the.
The current interest rate environment and potential pressures on our on the revenue profile by the way in the banks the scale and being able to.
Cost savings is obviously.
Operating leverage is all ultimately high on our mind.
But separately.
We're able to broaden our inc.
Our our diversity of income profile to get more on noninterest income, we see that as a theme.
Potentially powerful as it relates to really building a more diversified and strong revenue profile.
One of the.
Candidates for that are unique and we will evaluate each one of them on their own.
But primarily I guess, the one thing that would probably guide us.
And this year is there is kind of stay in the region and I would call that the Houston Beaumont Gulf Coast.
The southeast, Texas region is where we'll be.
Expanding our energy.
Okay.
Okay. That's helpful and then just lastly.
On the prepared remarks, there was the dimensions of.
Of the loans out of the loan sale it goes to non accrual loans.
I missed some of the details behind that can you just kind of go over the highlights of that and is that something you would consider again in 2021.
Where do you want to cover that.
Yeah sure so Matt Yeah, Matt So the total of the totals of about $16 million.
Of which are <unk>.
Portion of that was non accrual. So it was a handful of loans I'm really all previously identified us as loans that were watching.
Watch list type credits or even more deteriorated than that so.
It's.
A tool that we had the we felt to be proactive was appropriate and.
We've.
It was it was the right thing to do for that.
Those loans.
Whether we do it in the future of not it's just.
Really on a case by case basis is depending on where we stand with those with these problem credits.
And Ray just any color on the the pricing of those loans versus where you had them on the books more recently.
Yeah.
It was actually pretty clear.
Value yeah.
Right.
Weird identified of the reserve on the on.
Number of those loans the would basically just recognize that loss.
Through the reserve, we'd already had on the books, so we basically pushed up.
The price that was.
It was equivalent to what the net.
Book value of.
But think about 10% or so.
Okay perfect.
Perfect. Thank you guys, taking my questions.
You bet. Thank you.
And as a reminder, it's asking the question you will need to press star one on your telephone. Our next question comes from David <unk> with Raymond James You May proceed with your question.
Hey, good morning, everybody.
Neither of them on.
I just wanted to start just curious on the kind of the pulse of your clients.
How much of this growth is great to see accelerating originations how much of the existing clients, maybe expanding versus new client acquisition from the new lenders or the PPP program.
And just kind of I guess they are there thoughts on additional investment in growth as we're heading into 2021, obviously, Texas is the economy strong there, but just curious the the pulse of the client.
Hey, David Yeah, So we do keep track of.
Keep track of that exact what youre asking new and.
On new customers on existing customers. So when you look at the 310. The 310 was actually 60 40.
Of the.
Of the existing 60 to 40 of new debt.
The the qualifier I would qualify or I would say, though there is that we have a bunch of new customers.
That are going on that are going to fall into the existing category right now because of.
Because they might've been here from PPP so.
So while I say of 60 40 existing we really need to do another look at it.
To really see.
What are new maybe new new which is another category, probably but I guess the answer is that we're definitely getting traction and building relationships with customers acquired through PPP and of our 6000 PPP loans that we made more than halfway to new customers. So those new customers, returning and the new business on the treasury.
Side, we're on boarding.
We basically every quarter of 2020 was twice of the Onboarding of the Treasury that we did in 2019 and then we're seeing new loan requests from those customers as well so.
<unk>.
We feel really good about it end of <unk>.
Converting those to permanent customers.
And.
The mood is I mean, when you originate 310, I think that's a pretty pretty.
Indicative of of the mood that there are there is some some.
Some growth and expansion happening I mean, the definitely market share theres definitely market share gains in there too, but there is some growth and expansion.
Okay.
Helpful and encouraging too and then it was it was great to see the C&I.
I grew up on the core I mean, we've been talking about that for a while I'm just curious the composition of your pipeline and maybe whether you think C&I can potentially be of larger contributor going forward.
It certainly there's definite upside on the C&I of David the.
The challenge there is utilization.
Where we will we definitely book quality lines of credit to customers.
The question is the utilization and when they when we when we most customers get back the seeing revenue growth and we'll see we'll see more utilization where we.
Yourself.
Larger funding, but there is an opportunity for us and we have experienced C&I lenders in our in our production and our.
Producer team.
Okay.
And then just last one for me just any thoughts on the competitive landscape. It seems like almost as fast as originations of growing payoffs and paydowns are accelerating to just just curious how much of it isn't just strategically you are passing on because of unattractive terms or right on.
Or are clients of using cash to pay down debt on.
Or even assets sales just any comments on the competitive landscape in cash.
The pay down activity.
Thanks.
Yeah, so the the.
You mentioned the cash to pay down debt that has a component that we hadn't seen before where customers are just liquid and just it's not the function of rate or sale of property just a.
Reducing.
Delevering on the on their own balance sheet. So we're still seeing some of that.
We are passing on some.
On some pricing terms, but.
As Paul mentioned this 310 million debt, we originated in the fourth quarter came on at $4 64.
The $2 80 that we did in the third quarter came on at 463 so.
Really like that trend there of of picking up a basis point on the on the 300 that happened on the third quarter. So.
Kind of positive signs in kind of a reflection of the competitiveness.
That's great. Thanks, everybody.
Thank you David.
Thank you on our next question comes from John Rogers with Janney You May proceed with your question.
Good morning, guys.
John.
Just one question for me on fee income the the rebate line item ticked up a little bit in the quarter, but still well below 2019 levels. How should we think about that going forward in the current environment.
Yeah.
I'd see that tick up as the relative outlier.
The function of.
Larger than normal cash balances.
Being health of our correspondent bank debt.
Sure.
Hopefully, we will not necessarily be the case as much going forward.
On predominantly.
From the standpoint of.
The falling that liquidity into core loans.
Two of lesser extent.
Security of cash.
And our corresponding.
I guess, Paul along those lines as far as the Securities portfolio goes like you said you grew that what about $100 million during the quarter. So you should we expect that to continue to move somewhat higher I guess, it's a tradeoff with loans and deposits to I realize but part.
Should we think about debt.
Ideally no.
Really what you saw there.
Okay.
Investment in.
Short variable rate.
The 1% risk weighted cash alternative type of securities.
So, it's really a function of excess liquidity and ultimately the.
Deciding to deploy it somewhere where we're not taking significant amounts of.
Credit or interest rate risk, but doing better.
From a risk weighted capital standpoint risk weighted assets standpoint in the otherwise on.
Thanks, Josh.
Okay. Thanks, guys.
Thank you.
Thank you and I'm not showing any further questions. At this time I would now like to turn the call back over to Steve Russell for any further remarks.
Thank you operator once again guys. We appreciate your time and interest of allegiance Bank and we look forward to speaking to you again in the future. So thank you all very much.
Okay.
Thank you ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
Yes.
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