Q4 2020 Crossfirst Bankshares Inc Earnings Call
Ladies and gentlemen, this is the operator today's call will begin shortly until that time your lines will again be placed on hold.
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Ladies and gentlemen, this is the operator today's call will begin shortly until that time could answer with pace on music hold until the conference begins.
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Thank you for standing by and welcome to the cross Stitch Bancshares fourth quarter earnings call.
Based on all participants are in a listen only mode.
After the Speakers' presentation, there will be a question and answer session to ask a question. During the session you will need to pass star one on your telephone keypad, if free for any further assistance. Please press star zero.
I would like to hand, the conference over to your speaker today, Mr. Huang Needham.
Please go ahead.
Welcome and thank you for joining us today on the call.
On the call, we have Mike Maddox, President and CEO, Dave O'toole, Chief Financial Officer, and Randy <unk>, Our Chief Credit Officer as a reminder, a telephonic replay of this call along with our earnings release and presentation will be available on our Investor Relations website for an extended period of time before we get underway, let me remind you that our really.
These quarterly Investor update and presentation slides that accompany this call are all available on the cross first Investor Relations website.
Two of the presentation is our cautionary statement I want to point out that in our remarks. This afternoon, we will be discussing forward looking information, which involves a number of risks and uncertainties that may actually cause results to differ materially from our forward looking statements. We provide a comprehensive list of risk factors in our SEC filings, which I encourage you to review.
Reconciliations of non-GAAP financial measures to the nearest comparable GAAP measures are included in our release or presentation copies of which are also available on our Investor Relations website. All earnings per share metrics discussed today are provided on a diluted per share basis I'd now like to turn the call over to Mike Maddox.
Thank you Matt.
You know I'd love to start the call off by this afternoon.
Being here from Kansas City, and we want to wish the Hunt family, Steve Cable our director on the Kansas City Chiefs. The best of luck in the Super Bowl.
We're really excited we're getting used to the Super Bowl thing so.
We're looking forward to next Sunday.
I'd like to begin today by wishing our clients shareholders employees and their families health and wellness as we close the book on 2020 and look forward to 2021.
Although it was an extremely difficult year for many we've been fortunate with so much to be proud of and thankful for when looking back at 2020.
Our cross first team persevered and adapted to the unprecedented environment and drove the organization to new Heights.
While taking care of each other our clients and our communities.
It's hall of Fame coach Larry Brown used to tell us in order to succeed you have to be attached at the hip.
With no separation between you and your team mate.
So you're all working together as a team with a common goal of winning.
Coaches words have never won rung truer than in 2020.
Our long term success is dependent on staying true to our foundation on core values.
Our founding pillars of character competence.
Commitment in connection combined with a strong team focused culture lead to an extraordinary company.
We are one team working together moving on one bank towards our shared vision for success.
I believe that our employees on board of directors of Cross first exemplify this statement.
And I cannot be more excited for our future and to execute on our 'twenty 'twenty one plan.
We remain committed to our core strategic advantages that have allowed us to be successful since our inception.
And we look to further enhance our overall performance and profitability.
We are committed to our branch light business model and we expect our technology forward approach to lead us to greater efficiencies in the future.
As we operate and grow the company.
During 2020.
I was focused on our corporate structure and getting the right team in place.
In the third quarter, we promoted Steve Peterson, Chief banking officer to oversee our sales marketing and local market activity.
We were also excited to announce the hiring of Jana Murphy, our new Chief Technology Officer, who started yesterday and will lead our strategic technology initiatives.
We are thrilled to have Jana bring her knowledge and experience to cross first as we continue our focus on being a technology forward company.
I've only been CEO of cross first bancshares for seven months and I'm very pleased with the resilience of our customers and employees have exhibited throughout 2020.
The past year challenged all of us personally and professionally.
But our individual success stories, where a testament to the power of resilience Trust and collaboration.
Despite the significant challenges of remote work virtual school and a deadly pandemic.
We never lost sight of our purpose of serving people in extraordinary ways.
It is an honor to lead a team of dedicated and passionate employees.
Who work long hours to help our customers navigate a pandemic induced economic recession, while also taking care of their own families.
With that in mind I want to celebrate their efforts and highlight some of the other positives that cross first experienced in 2020.
We surpassed 5 billion in assets and 4 billion in total loans.
Our Wichita location surpassed 1 billion in assets, making it our third market to pass this milestone.
We believe in our experienced banking team and the relationships they have developed.
We developed and executed on our pandemic plan and are successfully navigating through a difficult credit cycle.
The company continues to build reserves for the future and after adding another $10.9 million our loan loss reserves are the highest level on the bank's history.
We expect provisioning to moderate in the first half of 'twenty.
We expect provisioning to moderate in the first half of 'twenty 'twenty one.
But provisioning will still remain elevated from historical levels.
For the year, we added $56 7 million to the reserves, which impacted our bottom line and relative to full year performance metrics.
But also positioned us well for the future.
For the quarter, we reported net income of $8 $1 million and earnings per share of <unk> 15 cents.
Caps off the full year with net income of $12 $6 million and earnings per share of <unk> 24 cents.
While our bottom line performance metrics were impacted by our significant provisioning our team produced record performance with the strongest pretax pre provision profits in the company's history, despite the challenging backdrop.
During the fourth quarter, we successfully commenced our share repurchase plan and are pleased to announce the company bought over 600000 shares or $6 $1 million of common stock.
All of which were purchased below our tangible book value.
In addition to building reserves, we lowered our overall energy concentration, which is a part of our long term strategy.
We have tightened our credit process and focused on reducing risk.
We look to deliver better than peer earnings and returns for shareholders by continuing to build strong relationships with our clients and the communities we serve.
Our commitment to our clients and businesses is exemplified through our efforts on providing our customers with modifications in P. P. P funding during the pandemic.
In the second quarter, we provided approximately $700 million of loan modifications.
I'm pleased to report that 87 per cent of the modifications are back to making full payments.
Additionally, we successfully implemented the paycheck protection program and produced $369 million of P. P. P loans for almost 1200 clients.
We are now focused on helping our existing and new clients secure additional funding through the second round of PPP.
Our deposits have grown significantly enhanced by our DDA account growth, which improved to approximately 15% of total deposits. While also growing total deposits by 20%.
Compared to the prior year.
Excluding P. P P loans, our bankers delivered year over year loan growth of 8%.
As we enter 2021, we feel good about our current loan pipeline and expect solid contributions from our.
New locations in the rapidly growing Frisco, Texas market and are more prominent location on the country Club Plaza in Kansas City.
Our team continues to operate under our pandemic plan with roughly 90% of our employees working on rotations.
While most of our team has been working from home I'm proud that our employee engagement scores for the company remained high and our investments in technology continue to pay off.
We also remain very focused on growing our earnings per share by enhancing our efficiency and optimizing our capital.
Our efficiency ratio improved again this quarter following to 53, 4%.
A two 2% improvement as compared to the fourth quarter of 2019.
And a 32% improvement as compared to the fourth quarter of 2017.
Though we have been focused on efficiency, we remain highly committed to our organic growth model.
Having the best talent in our markets is one of our core strengths as a company.
And as we look forward to 2021, we remain focused on recruiting attaining the very best talent.
Our strong capital position provides us and a credit and it provides us incredible flexibility as we evaluate organic growth targets potential acquisitions technology investments and talent development.
Our optimism for the future is further enhanced by the fact that the markets. We serve have performed better during this recession on the national average.
I would now like to turn the call over to our CFO, Dave O'toole for a more detailed discussion of the financial results.
Thank you, Mike and good afternoon everybody.
As Mike mentioned, we had another strong quarter of pretax pre provision income and once again increased quarterly operating revenue.
Despite the current interest rate environment net interest income for the fourth quarter improved 6%.
On a linked quarter basis to 41, and a half a million dollars and 12% higher than the fourth quarter of last year.
Net interest margin increased 14 basis points on a linked quarter basis from $2 98 in Q3 to.
The $3 one 2% in Q4.
For the full year NIM declined from 331% to $3, one 3% as we adjusted to a much lower rate environment.
Downward pressure on rates was the primary driver of margin compression during the year. However, PPP loan income and earned fees were helpful and ultimately contributed to the NIM improvement on a linked quarter basis.
The company recognized $2 6 million of P. P. P fees for the fourth quarter and five $8 million on fee income for the full year, which both led to a positive contribution on our margin.
Additionally, NIM was positively impacted from a 10 basis point decline in our cost of funds and fewer loans on non accrual.
PPP income should have a slight positive impact on NIM in the first half of 2021 as loans are forgiven and we were able to record the remaining $4 2 million of unearned P. P. P fees as income.
As you will notice on the slide 2020 loan yields have declined 126 basis points from the same period in 2019.
While interest bearing deposit costs have declined 119 basis points when compared to full year 2019.
We expect margin compression will persist for a low interest rates linger in 2021, however, like most bankers. We are encouraged to see long term rates up recently, creating an improved yield curve.
The shoot the securities portfolio totaling more than 600 million performed well and had accumulated approximately $39 million in unrealized gains at year end 2020.
The taxable portfolio continues to experience accelerated prepayment speeds and consequently generated $36 million of cash flows during the quarter.
In an effort to reinvest those cash flows $38 million of tax exempt securities were purchased during Q4 with an average tax equivalent yield of 294% and.
And no securities were sold in the quarter, bringing the portfolios fully taxable equivalent yield for the year to three 5%.
Borrowings decreased $54 million from the previous quarter and the cost of those remaining increased 28 basis points to 1.78% ex.
As most of the matured borrowings involved lower rates and shorter maturities.
Turning to operating revenue, we saw a year over year increase of 15% to $172 million and a 3% increase compared to the previous quarter.
We reported 28 million of pretax pre provision income for the fourth quarter and $72 million for the full year compared to $62 5 million for full year or full year 2019.
Pre tax pre provision income, excluding the Q2 goodwill impairment charge.
Would have been nearly $80 million for the full year.
The outlook for pre provision profitability remains favorable and we believe we have sufficient capital on capacity to absorb the loan loss provisioning that may yet be required to manage through this unprecedented time.
We continue to focus on growing non interest income to take pressure off NIM.
And I'm happy to report 11 $7 million in noninterest income for the year compared to $8 7 million in the prior year.
A 35% increase.
Noninterest income was down on a linked quarter basis due to the security gains recognized in the previous quarter.
Throughout the year the securities portfolio increased in value and we periodically sold at a profit.
Securities that could be adversely impact impacted by the pandemic or at risk of possible downgrades.
Swap revenue was down substantially for the year due to the low interest rate environment. However, credit card fees service charges and other noninterest income contributed to the overall positive improvement.
Noninterest expenses on a linked quarter basis were up 3% and increased just 6% on a year over year basis, when excluding the impairment charge taken in Q2.
In Q4, we did not fully realize the impact from optimizing our work force in Q3, but we expect it will begin to materialize in 2021.
We had elevated salary and benefit costs for the quarter from additional restructuring building out the management team and other compensation related items.
For the year noninterest expense increased 14% compared to 2019, but as we have mentioned.
Expenses this year were elevated by several nonrecurring items, including the goodwill adjustment.
Restructuring costs in the third and fourth quarters and increased expense from working through problem credits.
Our assets per employee ratio reached $17 $3 million for the year, which is the highest level in the company's history.
We have benefited from lower discretionary spending during the pandemic and expect to continue operating efficiency once it subsides.
The focus on efficiency complements our proven history of growing operating revenues and continues to yield positive results.
We reported efficiency ratios of 58 per cent for the year and 53% for the fourth quarter.
Despite the nonrecurring or non core charges discussed previously.
Looking forward, we expect NIM compression to impact our ability to improve efficiency ratios.
At the same pace as the past three years.
Likewise, we plan to invest in our markets and people during 2021 two.
To prepare the company for opportunities that will arise once we see an end to the pandemic.
Managing expenses growing noninterest income and margin management, we will continue to be top priorities.
We had elevated provisioning during the quarter and year that negatively impacted return on average assets and EPS calculations.
We reported 58 basis points return on average assets for the quarter and 24% for the year and improved our pre tax pre provision return to on average assets to 149%.
With that overview I look forward to answering your questions at the end and now I would like to turn the call over to Chief Credit Officer, Randy Rapp for a more in depth discussion of credit.
Thank you, Dave and good afternoon, everyone I'm happy to report that our loan modification program continues to wind down as most of our customers have a better understanding of the impact of the pandemic on their businesses and are back making full principal and interest payments at the beginning of the pandemic in Q2 of 2000.
'twenty roughly 16% of our loan portfolio received some kind of payment deferral and as of year end 2020, only 2% of our loan portfolio continues to need this assistance as anticipated many of those customers still needing assistance or in the heavily impacted hotel and seen.
You're housing industries, our bankers are working closely with our clients that modified loans and we expect continued improvements in their industries in the first and the last half of 2021 as the vaccines are made available to the general public we.
We still expect most of these loans to return to traditional payment schedules.
I'm pleased with how our clients have worked with us during this unique period.
The combination of continued commitment to their businesses and the recent vaccine rollouts lead us to be cautiously optimistic about their future. However, we did review and downgrade a portion of the hotel portfolio to criticize during Q4.
Much of the downgrade activity in the loan portfolio was offset by upgrades paydowns or refinances that also occurred during the quarter.
Our nonperforming assets to total assets ratio for the quarter declined 10 basis points from the prior quarter to $1 three 9%.
It remains higher than we would like and we are proactively working to reduce it back to historical levels are.
On a high percentage of nonperforming loans stem from the energy portfolio and also include a hotel property a senior housing facility and a few commercial and industrial credits. The company continues to have a low level of owari.
For the quarter, we recorded $11 6 million in net charge offs, consisting of approximately 10 credit across the portfolio, primarily in our C&I and energy portfolios bring our annual 2020 charge off total to $38 million or 0.89% of average total loans many of.
Charge offs were driven in part by the pandemic and energy volatility and one C&I credit charged off in Q1, and previously discussed accounted for almost 50% of the charge off activity for the year.
In our energy portfolio, we had $39 million of Paydowns that reduced our concentration in energy two 8% of total loans down from a high point of 12% in 2018, we continue to decrease our energy exposure towards a long term target of closer to 5% of the total loan portfolio.
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Commodity prices have recently have increased recently, especially oil which will have a positive impact on the portfolio. We are actively working with borrowers to enhance hedging positions. During this more favorable price environment.
The market for hedges remains challenging due to the generally more conservative position of the Counterparties, but we are but we continue to expand the universe of counterparties that our borrowers have access to <unk>.
Despite the charge off activity during the year. We are pleased to note that our energy portfolio carries more than a 5% reserve at the end of the year, which we believe to be sufficient.
Of our total classified and special mention loans energy makes up 39%.
We remain cautiously optimistic about this portfolio and the higher price environment and could see some positive grade migration after the spring borrowing base Redetermination period.
Our proactive approach in evaluating the credit quality across the loan portfolio and related loan grade changes has impacted our provisioning provisioning and the elevation of our allowance for loan losses for the fourth quarter and full year 2020.
We remain on the incurred loss model for reserving and grade migration directly impacts required reserve levels are grading and reserve accuracy have been validated through our numerous external loan reviews throughout 2020.
Our allowance for loan and lease losses to total loans ended 2020 at a very strong 1.81%, excluding PPP loan balances and we anticipate seeing improvement in our loan grades as busy as the business landscape improves during.
During the fourth quarter, we maintained our reserves to offset much of the charge off activity that occurred during the quarter.
The number of classified loans decreased slightly compared to Q3 2020 again.
As a result of payoff activity, mainly from customers, who were able to take advantage of the main street lending program.
We continue to be well capitalized and had a third party stress the portfolio from multiple loss scenarios back in the second quarter of 2020.
Our stock buyback program announced at the last earnings release has not changed this analysis and we will continue to sensibly grow our loan portfolio. We are confident in our relationship based credit culture and proactive management approach. We believe our portfolio is well diversified and supported by strong cash flow focused Lin.
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We are pleased to see positive loan growth, replacing our portfolio churn.
And PPP forgiveness, but we do believe we are not growing at the cost of reduced credit quality.
We do not have plans to adopt Cecil in 2021, but we continue to run parallel analysis on the potential impact of adoption on our reserves and capital.
Look forward to answering any questions you might have shortly this wraps up our prepared remarks, and now I'll turn it back over to the operator to begin the Q&A portion of the call.
Thank you.
And as a reminder, if you would like to ask a question you May press star one on your telephone keypad.
And your first question comes from Jamie for example.
Your line is now open.
Thank you good evening.
Hey, Jennifer.
Alright.
Can you give us an idea of what level you think your net charge offs might be in 2021, do you think there'll be lower.
Or do you think you'll continue to kind of derisk the portfolio a little debt.
Just for <unk>.
Got it thanks, Mike agenda for this Randy we feel like we were very proactive in not only grade migration, but.
Looking at charged down and charge off activity in 'twenty.
So we would expect in 'twenty, one to see that level come down.
Significantly.
Probably remaining above historical levels, but well below the 21 level.
Up to 20 levels excuse me.
Yes.
Okay, great. Thank you.
Your next question comes from the line of Brady guidance of Keith you talked about your line is now open.
Hey, Thanks, Good afternoon, guys, Hey, Brian how are you.
So I wanted to ask.
<unk>.
I think if I remember right when we spoke 90 days ago.
$24 million C&I credit was going to be restructured and moved out of the NPA bucket by the MTA is a pretty steady.
Stable here.
Linked quarter, So maybe just talk about what.
K now.
Okay.
NPA bucket this quarter.
Sure Brady this Randy.
You are correct.
We at the last call. We did talk about that that credit that credit did resolve as we said.
In Q4 and is out of that number there was some movement into the bucket to make it relatively flat for the quarter.
Really across.
Across the portfolios, we had a slight movement in CRE.
On a little bit in energy and a little bit in C&I.
Alright.
And then when we look at growth of the franchise.
I know a lot has changed versus the IPO roadshow, but.
There's just a ton of growth.
Perfect guys.
You hired all this talent and we're going to see like well into double digit growth and those can be all of this operating leverage.
I know the World has changed since then but.
How do you think about <unk>.
Growth.
Here I mean, I heard your comments about you're investing this year in markets and people, but when do you kind of take your return to this kind of higher growth.
Dori on banking.
Well great question.
The outlook is so hard to see forward right for at least from the first half of this year.
The way I'm looking at it is as the government stimulus has never been higher and our country's since World War two.
Participation on our Labor force is probably the lowest level, it's been since the early seventies. So theres still some economic stuff out there that we're trying to figure out and we want to be prudent and from a.
Credit quality standpoint, we want to be smart, but we are very committed to our organic growth model. We still think we have a company that will outstrip peers substantially from a growth standpoint, we want to continue to invest in talent, we're going to continue to be entrepreneurial I'm excited about the technology.
<unk> that we're going to we're working on to just allow us to better serve our clients I think our branch light business strategy.
<unk> is well positioned to allow us to continue to grow so we're going to continue to be aggressive as it look as we look at growth I can't tell you when we'll get back to double digit growth, that's going to be dependent on the economy, but but but we have the talent in place we're in great markets that we.
Continue to look at other attractive markets and depending on our ability to attract the right people on the right opportunities.
That will drive that but we're very focused on it and yes. The other thing we're focused on Brady.
I would say a difference from the road show is we've really improved our efficiency.
Which will which will enhance our profitability in <unk>.
And we're also very focused on fee income we want to continue to try to find ways, where we can diversify our revenue streams.
Okay, Great and then finally from me.
Just on that.
Growth in.
And the expense base back.
Goodwill impairment that happened earlier in 2020, I mean your expense base grew.
At 5% to 6%.
Is that roughly what.
We should expect in 2021.
The expense growth side or could it be less than that.
Brady this is Dave.
I think I think I would look at it at about 6% to 8% growth in 2021.
Difficult to bring it down much further than that we've got noninterest expense is right now at $1 70 in <unk>.
Net noninterest expense down on the 150 range, which is pretty.
Efficient for us at this point in time, so probably closer to the 6% to 8% is a better number.
Brian You also got to remember we opened two new locations last year that we haven't scaled yet so we.
We expect.
Frisco to start to grow and continue to grow in Kansas City.
To expand and to grow into a couple of our expansion last year.
All right great. That's it from me guys go Chiefs.
Okay.
Okay. Your next question comes from the line of Mr. Matt from.
Stephens.
Your line is now open.
Great.
Thanks.
Wanted to follow up on the last point on on operating expenses I think David you mentioned.
6% to 8% growth.
I want to make sure I understand.
You said that growth I guess would be full year 'twenty expenses of call. It $100 million does that does that.
Right.
A little less on that 92, probably.
If you take out that the PPP item im not the PPP, but the goodwill adjustment.
Operating expenses run at about $92 million.
Got it okay. Thanks.
Thanks for clarification.
And then back on the loan growth discussion I was looking at slide.
<unk> 22, looking at loans growth over.
Last year.
Year and it looks like.
Ni balances ex energy those are relative.
Totally flat over last year.
Any commentary you can give us as far as utilization rates over last year, I mean, I'm sure you've been adding new clients, adding commitments, but.
Flow utilization anything you can comment there and then the other side of that is.
The growth over the last 12 months looks like it's been mostly.
Residential real estate any color you can provide on on the strategy of growing that book I think it was around 16% of loans at this point how much how did that go.
I'll address the utilization rates upfront in some of the loan growth and then I'll turn it over to Randy but.
We're seeing it fairly stable utilization rates, we're not seeing big increases in one of the challenges in the net loan growth numbers as the PPP program right. I mean, we funded $400 million of PPP loans early on and then those start to run off and so we were able to replace a lot of that with.
On lending so we're pretty pleased that that kind of stayed relatively consistent.
But and I think the PPP loans.
Obviously, probably impacted the utilization of our traditional C&I credit so some of that that balances out but.
I'll turn it over to Randy for the rest of the question, Yes, Hey, Matt Randy You're correct. We did see good growth in our CRE book in 'twenty.
So feel really good about the opportunities we're seeing in that space, we do manage those concentrations not only at the CRA level, but at the property type level well within regulatory guidance in terms of overall CRE concentration and construction and development from one category you talked about single family, we actually put our multifamily.
<unk> portfolio into that slide and so one of the areas that we've seen significant growth in our CRE portfolio last year was in multifamily and then in our industrial portfolios and those continues today to be where we see good opportunities.
Okay, great. Thanks for that color and then.
As far as the buyback activity.
So you add from the fourth quarter.
Love to hear how active you want to be on this program.
On one hand, the stock is still.
Cheap debt tangible book value on the other hand, we are still well above today, where you exercise it in the fourth quarter. So just love to hear kind of how you see that playing out near term.
Well now we've got a plan in place and we're going to continue to execute that plan through 2021 and.
We'll obviously continue to evaluate it throughout the year, depending on what our price does but.
Right now, we're not making modifications to the plan and we're going to continue to execute it.
Okay. Thank you.
And your next question comes from the line of Michael Rose of Raymond James.
Hey, good afternoon, Hey, Michael.
Hey, just wanted to dig into the margin a little bit.
Dave It looks like you had some expansion ex PPP this quarter. It looks like you are talking it down.
Down a little bit looking at the secure at the deposit portfolio can you remind us what some of the.
Maturing deposits look like you still got 20 plus percent.
In time deposits that seems like a lever your costs are fixed.
The eight bps.
Kind of walk us through the puts and takes and maybe if you can offer up.
For the first quarter, what you might expect ex PPP.
Good afternoon Michael.
You are the Guy would call for tickets to the Raymond James stage.
Right.
Yes, I was going to mention that [laughter] listen.
Margin margin pressure is hitting us all that creates a hole on a run rate of earnings. There is no doubt about it what we have done to try to control that is rapidly lower our deposit costs and our cost of funding.
As you can see in the charts year over year, we lowered our cost of funds from 190 to 92.
Quarter over quarter looking back a year, it's 171% to 65 on a marginal cost of funds today is about 45 basis points.
And we think we've got two to five basis points additional reduction in that that we can probably identify on the first quarter.
So our first challenge here is to go ahead and continue to lower deposit costs.
On the asset side.
Our investment portfolio doesn't move too much we have stayed active in the municipal market. It's about the best that you can do out there at the moment. So we have limited reduction in ore.
Yield on our investment portfolio comes down to the competitive pressure in the lending area.
What we can do overall with margin if we can hold it where it's at today.
All likelihood, we'll see margin compress a little bit further.
Now the PPP impact on that the bulk of that we think will happen in the first half of two.
2021.
We are actively processing requests for forgiveness on PPP loans and as you know that accelerates the recognition of that on earned income.
So we think that will come in a lot of that will come in in the first half of the year and that will help us a little bit hold our margins where we're at today.
We're not sure what the new program is going to do from that standpoint, but.
From a fee standpoint, but I would look to quarterly margin compression in the first two quarters, but very modest.
Probably my best estimate.
Okay. That's helpful and then maybe just one for Dave.
Talked about some of.
Some potential for some expansionary efforts I know you've talked about other markets before but.
I guess can you flesh that out a little bit and as it relates to your expense outlook does that incorporate.
Any additional hires I would expect some of your efforts just given the Texas expansion would be focused on there, but any thoughts.
On on that would be great. Thanks.
Do budget new hires there is a.
A good portion of those hires on our budget that are related to taxes on our growth in Texas.
But we don't have anything on our budget right now for expansion to new markets.
Okay. Thanks for taking my questions.
Yes.
Thanks, Michael.
And your last question comes from the line of Mr. Andrew Index.
Piper Sandler your line is now open.
Hey, good afternoon, it's Michael <unk> on for Andrew.
Hi, Michael.
Just starting off here with the loan growth it looks like core loan growth ex GPU is a little bit better than expected.
Taking a look at what customers are.
From customers here in kind of the overall loan growth demand in that market do you think it can possibly offset PPP paydowns and the per cap this year.
We do believe we can grow our core loan portfolio enough to offset the pay downs.
Got it.
And then.
Looks like snacks increased a bit.
In the quarter can you remind us kind of geographically, where these are and some color around maybe bringing them on its core customers.
Yes, Michael this is Randy.
When I look at our our entire participation bought and sold buckets. As we've said there was a very balanced so were not really out actively trying to get into new just participations bought so again.
The dollars that we have that are in the box side versus the sole side are almost counter balance. Each other are SNCC increased slightly during the quarter, but still a relatively low at less than $140 million.
And we're just using that opportunistically to enter some new credits.
But really with an eye on being able to do something else with that company. They are in our footprint. We know the management team. So that there's other deposit treasury management or private banking opportunities.
Understood.
She gears over to credit can you guys provide any color on some of the hotel borrowers maybe on operating activity of occupancy levels.
Sure Michael as Randy again, obviously tracking our hotel portfolio closely working with our borrowers on.
That's obviously an industry that's been negatively impacted in and so it's not bad locations that operators are truly the entire industry and so you know.
Most of the.
The clients and what you hear in the industry is it's probably going to be into 2022 before you get any type of semblance of returned to pre COVID-19 levels and so we're just trying to really work with the borrowers to bridge that gap and for the next 12 to 18 months and when you look at the portfolio I break it sort of into thirds Theres a third.
That has is struggling more than others are the third that's about at breakeven there's actually a third that's doing.
Fairly well.
And so we do track occupancy, but I'll caution that really revpar is a better number because.
If the occupancies highs, but the ADR is low you're really not and sometimes able to meet operating expenses. So we really track revpar across our portfolio.
And again about a third a third and a third but last comment on the portfolio is all of our sponsors and guarantors in that space have really stepped up to help support their there are there properties and so as anticipated we've got a fair percentage of that on deferral.
But we but we've also seen those sponsors and guarantors.
Inject additional equity to help as I said bridge that 12 to 18 months GAAP.
Mhm, Okay, and then I'll stick with you Randy here regarding managing that energy exposure down to 5%.
Any idea on the cadence of that.
Well at $52 oil probably faster than at $40 oil.
But yes.
The current price environment.
Positive obviously for the portfolio not just sort of at the spot, but when you look at the curve I mean, it starts with a five.
Our debt into into 'twenty, two and then.
Our percentage of our portfolio's gas, we obviously watch that as well, but at this price environment and if our customers can layer in some additional hedges.
We think that will increase activity in that space not only in the in the refinance.
Area, but also it will start attracting capital into the space and so we expect acquisition activity.
Activity to increase as higher price level. So I think that will just continually watch that and we've got two things. There is one is the that portfolio is shrinking a bit and then we're growing the rest of the portfolio around it.
Yes.
I would just add this is a.
Medium to long term strategy and we're not trying to do anything radical we just over time as we grow.
Want to try to drive that percentage of our portfolio down in that five 5% range.
Uh-huh understood then.
One last housekeeping items here, what's the right tax rate to be looking at going forward and then the basis point impact on the margin from PPP last quarter.
I would use an effective tax rate of about 21 on a half going forward from <unk>.
For your modeling.
The PPP impact last quarter was.
Slip on I'm going to say 12 basis points, but I'm going to have to double check that.
I think it was in my presentation.
It was pretty significant it was pretty significant we had a lot of forgiveness in the fourth quarter. So we were able to accelerate one 6 million.
Fee income.
On top of the regular amortization of the fees during the quarter. So we had $2 6 million leaves about 12 basis point impact.
Awesome. Thanks, so much for taking my questions guys.
Net.
Yes.
There are no other questions at this time.
Ms Janet My day.
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Ladies and gentlemen. This concludes today's conference. Thank you everyone for participating you may now disconnect.
Okay.
Yes.
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